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, 2004                
|o                                                           | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period from
to                        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, 2004, 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 $28,930,500. 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 17, 2005, there were 11,370,924 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 2005 Annual Meeting of Shareholders to be held on May 5, 2005 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                                                                                     |  | 23         
|         | 3        | .  | Legal Proceedings                                                                              |  | 23         
|         | 4        | .  | Submission of Matters to a Vote of Security Holders                                            |  | 23         
|PART II 
|         | 5        | .  | Market for Registrant's Common Stock and Related Shareholder Matters                           |  | 24         
|         | 6        | .  | Selected Financial Data                                                                        |  | 24         
|         | 7        | .  | Management's Discussion and Analysis of Financial Condition and Results of Operations          |  | 26         
|         | 7        | A. | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 40         
|         | 8        | .  | Consolidated Financial Statements and Supplementary Data                                       |  | 40         
|         | 9        | .  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure           |  | 40         
|         | 9        | A. | Controls and Procedures                                                                        |  | 40         
|PART III
|         | 10       | .  | Directors and Executive Officers of the Registrant                                             |  | 42         
|         | 11       | .  | Executive Compensation                                                                         |  | 42         
|         | 12       | .  | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters |  | 42         
|         | 13       | .  | Certain Relationships and Related Transactions                                                 |  | 42         
|         | 14       | .  | Principal Accountant Fees and Services                                                         |  | 42         
|PART IV 
|         | 15       | .  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                |  | 43         

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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

Overview

Click Commerce, Inc ("the Company") is a leading supplier of collaborative commerce and compliance automation software and related services. Our other
product lines implement similar software and service solutions to streamline and automate trading partner interactions, and research and grant compliance in major medical and other research
facilities. Through our recent acquisition of Optum, Inc., the Company has expanded its product offerings to include supply chain and warehouse management software and related services. Each of
our product lines applies technology to effect secure Internet communications as a replacement for handwritten forms, telephone and fax communications and less-efficient, more costly
electronic data systems.

Our
customers use our software as they seek to optimize their business processes and strengthen their ties to their customers and partners. Our software applications help our customers:



Through
its recent acquisitions, the Company has assembled products and services that suppliers can use to implement radio frequency identification (RFID)-enabled supply chain solutions.
In mid-2004, the Company acquired bTrade, Inc. ("bTrade"), which provides data synchronization and secure communications solutions that are enabling technologies for RFID. In
February 2005, the Company acquired Optum, Inc. ("Optum"), which provides supply chain execution and warehouse management solutions for multi-tiered supply chains and includes an
RFID-ready demand fulfillment solution. With these two products, Click Commerce's clients can receive orders and other information from their customers that have implemented RFID
initiatives and can run their warehouse and fulfillment operations using the same RFID information that their customers need to run their retail operations.

The
Company views the RFID market as important because major, industry-leading retail chains, including The Home Depot and Wal-Mart, have announced initiatives that will
require all of their suppliers to become RFID-enabled in order to continue to do business with them. While the Company does not supply any of the RFID transmitting or receiving devices,
the Company has RFID-enabling software that can process the data generated from such devices and integrate and communicate that data among the trading partners. The Company views companies
needing to implement an overall RFID solution as important potential customers for its RFID-enabling software.

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Most
of our historic sales have been for licenses of our software and related implementation and maintenance services, and in situations in which the Click Commerce application was
hosted at a customer-owned facility and operated and maintained by the customer's own personnel. This software license model generally resulted in relatively lengthy sales cycles, significant
integration and implementation challenges and expenses, and relatively large, but one-time, revenue recognition events for the Company.

Today,
while Click Commerce continues to sell product under the license model, it also provides all of its products on a hosted (or ASPApplication Service Provider) basis.
Under this model, our software operates and is maintained on servers owned and monitored by Click Commerce and its personnel. While our software is still customized and integrated to our customers'
needs, the implementation and integration requirements are substantially reduced. Under this approach, customers pay regular monthly subscription and hosting fees that are substantially less than the
prior one-time license fees, but, overall, generally provide equivalent or greater revenue to the Company over the expected useful life of the application as compared to what the Company
would have historically received under a one-time license arrangement. The Company also benefits from this model because lower up-front costs lessen customer approval and sales
cycle delays, and the model generally results in greater predictability and consistency of the Company's revenues from period to period. The Company anticipates that its revenue model will continue to
migrate towards the ASP model and away from one-time product licensing.

More
than 1,500 customers in the manufacturing, government, high technology, retail, financial services, healthcare and higher education industries utilize the Company's solutions. For
example, the world's largest software company, Microsoft, manages its 12,000 member Certified Partner community, one of the largest partner portals in the world, with the Click Commerce channel
management solution. Click Commerce is a preferred solutions provider for one of the world's largest retailers. Six of the top 10 medical research institutions in North America use the Company's
compliance automation software including Johns Hopkins University, the University of Washington, and the University of Michigan.

The
Company was incorporated in Delaware in August of 1996 as Click Interactive, Inc., and we changed our name to Click Commerce, Inc. in December 1999. 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 reports 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.

Channel Management Solutions

The Click Commerce channel management solution offers an integrated channel management and collaborative e-commerce solution. It has over 35 software
components that automate
communication and business processes across distribution channels. The Company's software can be personalized to each individual user, accommodating, for example, each user's language, time zone and
currency preferences. Supported channel business processes include:



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With
the Click Commerce channel management solution, companies can gain a better understanding of who their partners are, what they sell, where they sell and to whom they sell. Armed
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 these gaps and build their businesses.
Key customers include Microsoft, Delphi, Samsung and Tellabs.

Compliance Automation

Click Commerce helps healthcare and higher education institutions improve response time and accuracy of approval processes by connecting research departments
through administrative Extranets. The software transforms labor-intensive review and approval processes into more easily navigated, flexible sequences of workflow steps.

The
Company's GCE (Grants and Contracts Extranet) can streamline grant and research proposal activities across the entire research enterprise by replacing existing paper based processes
with state-of-the-art Internet software. Through the Click Commerce IACUC (Institutional Animal Care and Use Committees) Extranet, animal researchers and compliance
committees can speed application preparation, eliminate routine errors and alert research teams to approaching deadlines.

The
Click Commerce IRB (Institutional Review Board) Extranet can simplify biomedical and behavioral research studies by eliminating routing time, assembling applications with fewer
errors, and providing project visibility to team members on campus or in other organizations on a when needed basis.

Key
customers include six of the top 10 research institutions in North America, including Johns Hopkins University, the University of Washington, and the University of Michigan.

Supply Chain Execution

Click Commerce's supply chain execution solutions enable supply network communications, coordinate business processes and services, and optimize supply chain
functions. The Company's flexible solutions are designed to function independently of one another, or in tandem for customized enterprise network environments. These solutions include:



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Each
solution includes Click Commerce's rapid integration platform, best business practice methods, and a supply chain intelligence dashboard. Key customers include Avnet Electronics,
Bausch & Lomb, Eagle Global Logistics, Home Shopping Network, NCR, and Pier 1 Imports.



The Click Commerce WES (Warehouse Execution Solution) addresses the complexities of warehouse environments. As the supply chain continues to increase in
complexityboth within the warehouse and across the extended distribution networkcompanies seek distribution processes and infrastructure that cost-effectively
support evolving business needs. This solution supports a wide range of requirements and logistics network configurations to bring advantages such as:



Key
customers include Invacare, Dillen, Robertson Marketing, Lucent and Reflect.com.



The Company's data synchronization and secure communications solutions allow companies to easily communicate vital business information with their trading partner
community via the Internet.

Data
synchronization is an industry-wide retail initiative that requires manufacturers and suppliers to "sync" product information with their retailer customers. The Click
Commerce Data Sync application is an enabling technology for RFID.

The
Company's secure communications solutions can enable businesses of all sizes to manage their business-to-business communications on a secure, reliable and
highly scalable platform.

The
Click Commerce TDNgine application provides an enterprise managed file transfer solution for large trading communities and supports value added network (VAN) connections
simultaneously in real-time. All communications that originate from the Global Registry, the global manufacturing code characterization registry, are carried by the TDNgine software. The
Click Commerce TDAccess solution was designed for smaller companies with fewer trading partners. Both solutions support AS1, AS2, AS3 and secure FTP.

Key
customers include FedEx, American Honda Finance, Deutsche Bank, UCCnet, Interstate Batteries, Citgo Petroleum and Ann Taylor.

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Industry Background



Traditional phone, fax and paper-based communications systems are labor intensive, inefficient and prone to error. Many sales organizations rely on spreadsheets
and email to manage their partner relationships. Companies historically dedicated 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 resulted in hidden costs such as errors and delays in information delivery. Timely change can be difficult to implement in these manually intensive processes and the cost related to such
changes can be significant. 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 often have limited capability to track orders, inventory, warranties and other information or to compile useful databases using
paper-based or semi-automated processes. Using these standard forms of communication, manufacturers and their business partners are often unable to exchange information on a
real-time basis, and as a result, potential customers frequently 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 contraints imposed by differences in language and time zone, barriers that traditional methods cannot easily
overcome.

Increasing
market and supply chain complexity motivates companies to improve operations and communications with their supplier community. The continued growth of outsourced
manufacturing, increased focus on low-cost international materials procurement, and heavy market reliance on vendor or supplier managed inventory programs to control costs and liabilities
require a solid infrastructure for coordinating the extended supply network. Traditional enterprise systems tend not to provide the visibility and control required to efficiently manage and
synchronize extended business processes, resulting in excess operating costs and poor customer service. The ability to view complete and accurate orders, integrate data, and manage inventory and
activities for effective fulfillment execution is necessary to effectively respond to challenging customer requirements and achieve competitive advantage.

We
believe that the system that manufacturers, and businesses in general, want 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, we believe that 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.



RFID is not a new technologyit was first driven by the military for use in distinguishing friendly military aircraft from enemy aircraft. In the
1960s, commercial applications evolved with the development of theft deterrent systems, which involve attaching simple RFID tags to products. Over the following three decades, RFID applications grew
to include the use of tags to track assets such as railroad cars, livestock, components in manufacturing processer, and reusable pallets, trays, and containers. The U.S. Department of Defense,
Wal-Mart, and other retailers are requiring preferred suppliers to become RFID compliant; it appears accelerated adoption of the technology is at hand. However, we believe that receiving
true value from RFID requires an understanding of how to implement it across an extended supply network. Until recently, the infrastructure and knowledge was

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not
available to fully maximize the benefits of RFID. Working with a partner expert in the evolution of supply network execution, companies can develop a strategy that will allow them to build a
connected real-time network to manage both their enterprise and their extended partner network via configurable, scalable solution sets. This approach addresses prioritized business
challenges and deployment steps that provide potential profitable returns on investment, and provide the framework for expansion to a complete extended supply network solution.

Companies
can achieve the greatest benefits from RFID technology by building a synchronized supply chain foundation prior to RFID implementation. Click Commerce solutions can form that
foundation with channel management, collaborative commerce, and supply chain coordination, visibility and execution solutions. Our customers want supply chain initiatives that deliver clear strategic
business value. Our series of solution sets help to create a solid infrastructure to support the deployment of RFID technology. Through system optimization, data synchronization, collaborative
commerce, full visibility into the extended supply chain network, closed loop execution, business logic realization and the installation of data controls for security and restricted access, companies
will be better prepared to reap the benefits of RFID. Our solutions provide the integrated information and processes needed to effectively implement new technologies into extended supply chain
networks.

Growth Strategy

Our objective is to offer the most comprehensive business-to-business compliance automation solutions that optimize the business processes
between large, global companies, their channel partners, and their supplier community. Key elements of our strategy to achieve this objective include:



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The Click Commerce Solution

We deliver Internet-based business-to-business compliance automation solutions and integration services that are designed to enable global corporations to create
a competitive advantage by collaborating with their trading partners and complying with regulatory requirements and retailer mandates. 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 their respective employees and their customers and partners, can engage in collaborative business. Our software applications and integration
services provide our customers with the following benefits:



Applications

Our software can be readily integrated with back-office systems such as enterprise resource planning ("ERP") systems, supplier chain management
("SCM") systems and customer relationship management ("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

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modular
design that allows rapid configuration of applications that meet the needs of a wide variety of customers.



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, or customers minimizing business bottlenecks.

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Reporting

Utilities also include advanced on-line analytical processing (OLAP) reporting and analysis tools that can provide valuable insight into the performance of a
channel. Companies can analyze critical metrics such as relative sales of different partners or the success of various marketing initiatives. 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 useful analysis and compelling reports
and presentations.

Opportunity Management

The Opportunity Management capabilities of the Click Commerce Extranet Solution allow companies to create preferences among partners for selling their products
and to closely manage the lifecycle of all business opportunities. Companies use our Opportunity Management applications to:



Specific
business processes addressed by our Opportunity Management offering include:



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Product Information Management



Sales and Order Management



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After Sales Service Management

The After-Sales Service Management capabilities of the Click Commerce Extranet Solution helps our customers and their partners excel in providing customers
warranty information, product service, repair, and training information. Specific applications include:



Supply Chain Management Solutions



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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:



Professional Services and Customer Support

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

Hosting and Site Administration Services.We seek to provide a lower overall cost of ownership through our managed service
offering. Our hosting services can reduce our customers investment in network hardware. We also offer several levels of site administration and maintenance services which can reduce the burden on
customer's personnel and capital expense budgets while providing an enhanced level of performance and user satisfaction. Regular environmental reviews tune customer systems for actual usage patterns
and allow customers with on-site deployments to improve the performance and stability of their web-based solutions. Remote Solution Management goes a step beyond environmental
reviews and includes remote monitoring of tools and software for availability, early issue detection and response, and proactive tuning of hardware, software and configurations. With almost 50% of our
customer's sites under our care, we focus on implementing best practices in solution optimization for external facing, high traffic, secured web applications.

Project Consulting and Implementation Services.Our professional services are delivered under a methodology developed from
our experience with previous customer implementations. We utilize several tools and templates to effectively leverage our knowledge base, including resource and project planning, scheduling, timing
and piloting the engagement. Our professional services teams are staffed with project management professionals and developers who are experienced in both the underlying

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programming
language of our software as well as the customer system and Internet technologies surrounding our product implementations.

Training.We believe that customer education is essential to fully leverage the system functions and technology. We have
developed a curriculum of courses specifically designed for our customers' key
users and technical staff. Our course offerings can be performed either at our facilities or at the customer's site and are usually between two and four days long, depending on the specific class.

Maintenance and Customer Support.We take a personalized approach to support and work proactively with our customer base. We
offer prompt issue resolution through our support team and through our customer portal, collaborative planning of portal updates and software upgrades. Our dedicated support teams understand our
customers' implementations. We provide managed services to our customers, permitting them to outsource routine partner portal operations and maintenance. We provide access to our team of knowledgeable
specialists twenty-four hours a day, seven days a week.

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.

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.

|High-Tech and Electronics                                                               |  | Manufacturing and Distribution                                                 |  | Consumer Product and Retail                                                                                                                                                   |  | Automotive and Automotive
Aftermarket                                                               
|--------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------
|Microsoft
Samsung
Logitech
Lexmark
StorageTek
Tyco
Hitachi
ViewSonic
NCR
Gateway
Lucent |  | Honeywell
Black and Decker
York
Tellabs
Lincoln Electric
Carrier
Emerson
FedEx |  | Ann Taylor
Bell Sports
Callaway
Acushnet
Pier 1
Carters
Bausch and Lomb
Proctor and Gamble
Pepsico
Foster Grant
Sara Lee
Tootsie Roll
Land O' Lakes
The Home Shopping Network |  | Delphi
Nissan Forklift
Hyundai
Honda Finance
Interstate Batteries
Kawasaki
Caterpillar
Paccar
Suzuki

During
the year ended December 31, 2004, Microsoft accounted for approximately 11% of the Company's total revenue. During the year ended December 31, 2003,
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 10%, respectively, of the Company's total revenue.

Research and Development

We have made and will continue to make investments in research and development through internal development, technology, acquisitions and business development
relationships. In fiscal 2004, 2003 and 2002, we spent approximately $2,913,000, $2,411,000, and $4,230,000, 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.

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Sales and Marketing

We market our applications and services through our direct sales force. Our sales force is assisted throughout the sales process by a team consisting of a Click
Commerce business consultants and project managers. This team oversees the project from start to finish and is responsible for installing the collaborative commerce or compliance solutions. 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. Substantially all of our
clients have historically provided strong references to our prospects and the industry analyst community.

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 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 potential 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

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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 products 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 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; 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 those
identified in the table below.

|Solution Focus                              |  | Competitors                                                                           
|------------------------------------------- |  | --------------------------------------------------------------------------------------
|Channel Management                          |  | Comergent, IBM, SAP, Siebel Systems                                                   
|Traditional Warehouse Management Solutions  |  | Manhattan Associates, Red Prairie, High Jump                                          
|Supply Chain Execution                      |  | Valdero, Viewlocity, GTRNexus, OneNetwork, RiverOne                                   
|Supply Chain Planning                       |  | I2, Manugistics, Servigistics                                                         
|ERP                                         |  | SAP, Oracle (JDE & PSFT)                                                              
|B2B Integration Providers (Hubs, VANs, etc) |  | e2open, Viacore, Inovis, Global eXchange Services (GXS), Sterling Commerce            
|Data Synchronization                        |  | GXS, Transora, WWRE, Sterling Commerce/TR2 Consulting, Lansa, Trailblazer, ISS, Ontuet
|Secure Communications                       |  | Cyclone Commerce, Inovis, Sterling Commerce, Trailblazer, Lansa                       

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

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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, 2004, our full-time headcount was 117. 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. ("Administaff") 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 the Company 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

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 have and may continue to 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.

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 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 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 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

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significant
part, on the successful development, introduction and customer acceptance of new and enhanced versions of our suite of applications and of new products and services we develop or acquire.
We can provide no assurance that we will be successful in upgrading and continuing to market our suite of applications or that we will successfully develop or acquire 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, we still stay significant 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 variations in 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 any particular quarter. This is, in part, due to the fact that our products tend to have long sales cycles, 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 reliable 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 regularly incur expenses to develop products and service offerings ancillary to our existing line of products and services. These expenses are variable and may affect our
earnings and may result in losses in particular quarterly or annual periods.

If
we are unable to complete a substantial number of sales contracts when anticipated or experience delays in the process or problems with satisfying contract terms, we may have to defer
or withhold recognition of revenue, causing our quarterly results to fluctuate and fall below anticipated levels. For contracts in which revenue is recognized using the
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 recognition in a particular
quarter, we may not be able to recognize revenue when anticipated. We may, nonetheless, recognize marketing and other expenses, causing our quarterly results to fluctuate and fall below anticipated
levels.

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.

We have incurred net losses for four of the past five 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 second half of 2003 and fiscal year 2004, we can provide no assurance that we will maintain profitability for each
quarter in 2005 or for fiscal year 2005. If we are profitable in fiscal year 2005, 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.

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

Our business has been adversely impacted by past economic slowdowns that resulted in a decline in information technology spending by our customers and potential
customers. The adverse impacts from an economic slowdown include longer sales cycles, lower average selling prices and reduced bookings and revenue. Any future economic slowdowns 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.

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. The failure to achieve expected sales could adversely effect the market price of our common stock.

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 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 difficult to replace.

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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.

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 acquisitions of Allegis, Webridge and bTrade to present certain results as if these acquisitions 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.

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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.

Integration of recent acquisitions may result in a significant use of capital.

Our recent acquisitions have required various expenditures and the assumption of indebtedness. Integration of these acquisitions may result in further cash
outlays.

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 e-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.

We depend on the speed and reliability of the Internet.

The growth in Internet traffic has occasionally caused 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 more frequently 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 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 improve security and 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

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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.

Item 2.    Properties

Our corporate headquarters are located in leased office space in Chicago, Illinois. This lease expires in 2010. We also have leased offices in San Francisco,
California, Portland, Oregon and Dallas, Texas. As a result of the Channelwave and Optum acquisitions (February 2, 2005 and February 7, 2005, respectively), the Company acquired leased
office space in Boston, Massachusetts, White Plains, New York, Charlotte, North Carolina, Houston, Texas, Costa Mesa, California and Freemont, California.

Item 3.    Legal Proceedings

The Company is not party to any pending legal proceedings the we believe would, if adversely determined, individually or in the aggregate, have a material adverse
effect on the Company's financial condition or results of operations.

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.

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PART II

Item 5.    Market for Registrant's Common Stock, Related Shareholder Matters and Issuer Purchaser of Equity Securities



Our common stock trades on the NASDAQ National Market under the symbol "CKCM." On March 17, 2005, the last reported closing price per common share was
$12.47.

The
following table sets forth the high and low bid prices per share of the common stock for the years ended December 31, 2004 and 2003, as reported on the NASDAQ National Market:

|               |  | High |       | Low
|-------------- |  | ---- | ----- | ---
|2004           |  |      |       |    
|First Quarter  |  | $    | 8.89  |    
|Second Quarter |  | $    | 8.30  |    
|Third Quarter  |  | $    | 6.20  |    
|Fourth Quarter |  | $    | 18.00 |    
|2003           |  |      |       |    
|First Quarter  |  | $    | 3.01  |    
|Second Quarter |  | $    | 4.37  |    
|Third Quarter  |  | $    | 2.60  |    
|Fourth Quarter |  | $    | 8.90  |    



As of March 17, 2005, there were 261 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. Prior 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.



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.

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 statement of operations data for the years
ended December 31, 2004, 2003 and 2002, and the consolidated balance sheet data as of December 31, 2004 and 2003, are derived from our

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consolidated
financial statements that have been audited by KPMG LLP, an independent registered public accounting firm. 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:           |                                              |                          |          
|Revenues                                             |                                              | $                        | 25,729   
|Cost of revenue(b)                                   |                                              |                          | 9,538    
|                                                     |                                              |                          |          
|Gross profit                                         |                                              |                          | 16,191   
|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 (recoveries) |                          |          
|                                                     |                                              |                          |          
|                                                     |                                              | Total operating expenses |          
|                                                     |                                              |                          |          
|Operating income (loss)                              |                                              |                          | 4,913    
|                                                     |                                              |                          |          
|Other income, net                                    |                                              |                          | 264      
|Income tax expense (benefit)                         |                                              |                          |         
|                                                     |                                              |                          |          
|Net income (loss)                                    |                                              |                          | 5,177    
|Accretion related to redeemable preferred stock      |                                              |                          |         
|                                                     |                                              |                          |          
|Net income (loss) available to common shareholders   |                                              | $                        | 5,177    
|                                                     |                                              |                          |          
|Basic net income (loss) per common share             |                                              | $                        | 0.56     
|                                                     |                                              |                          |          
|Diluted net income (loss) per common share           |                                              | $                        | 0.54     
|                                                     |                                              |                          |          
|Weighted average common shares outstanding  basic   |                                              |                          | 9,163,702
|Weighted average common shares outstanding  diluted |                                              |                          | 9,621,123

|                                                     |  | As of December 31,
|---------------------------------------------------- |  | ------------------
|
|
|Consolidated Balance Sheet Data:                     |  |                   
|Cash and cash equivalents and short-term investments |  | $                 
|Working capital                                      |  |                   
|Total assets                                         |  |                   
|Capital lease obligations, less current portion      |  |                   
|Total shareholders' equity                           |  |                   

---

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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 ability of the Company to integrate acquisitions
or investments in other companies, 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

Click Commerce provides software designed to help companies streamline their trading partner interactions and automate compliance-related activities. Using our
software, companies can optimize business processes, improve financial performance, lower costs for partners and customers, increase brand loyalty, improve customer service, and reduce risk. The Click
Commerce collaborative commerce and supply chain solutions enable companies to streamline their trading partner interactions to drive business value and competitive advantage. The Company's compliance
automation solutions enable institutions to automate their regulatory compliance processes and manage research project approvals

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 channel
management solution. The Company implemented the first Channel Management Solution in the second quarter of 1997.

Effective
March 24, 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. Results of Allegis'
operations have been included in the Company's consolidated financial statements since March 24, 2003. Under the terms and conditions of the Agreement and Plan of Merger, Allegis became a
wholly-owned subsidiary of the Company, and the holders of Allegis' preferred stock received cash consideration in an aggregate amount of approximately $10,200. The Company funded the acquisition
using available cash on hand.

Effective
April 21, 2004, the Company completed its acquisition of substantially all the operating assets of Webridge, Inc. ("Webridge"), a privately-held
Delaware corporation based in Beaverton, Oregon. Pursuant to the Asset Purchase Agreement, dated as of March 17, 2004 and amended March 30, 2004, the Company acquired the operating
assets of Webridge, Inc., based on a valuation of Webridge as a going-concern, for consideration consisting of 615,303 shares of the Company's common stock, valued at $5.766 per share,
including shares issued for working capital adjustments. The Company incurred $0.2 million of transaction costs.

On
July 1, 2004, the Company acquired all of the capital stock of bTrade, Inc. ("bTrade"), a privately-held Texas corporation based in Irving, Texas. Pursuant
to an Agreement and Plan of Merger, dated as of June 17, 2004, bTrade became a wholly-owned subsidiary of the Company. The Company acquired bTrade, based on a valuation of bTrade as a
going-concern, for consideration consisting of

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669,367
shares (adjusted for working capital settlements) of the Company's common stock, valued at $4.795 per share, $0.2 million of cash, and the assumption of and repayment of approximately
$1.3 million of existing bTrade indebtedness. The Company incurred $0.2 million of transaction costs.

The
Company focused its efforts in 2003 on achieving profitability, and reported profits of approximately $2.4 million in the second half of fiscal year 2003. In 2004, the Company
reported increasing profits in each quarter of the year, as the primary focus of management maintaining profitable operations. Management 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. Management futher believes that each investment must be prudently made
and justified by the expected return on such investment.

The
Company 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 perpetual 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, assuming all other revenue recognition criteria are met 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. The Company encourages all of its customers to use its 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 compensation 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 framework
and workflow, reporting, opportunity management, product information management, sales order management, after sales service management and supply chain management 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, amortization of developed technology (acquired in the Webridge and bTrade
acquisitions), and the 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 under
perpetual licenses or subscriptions or over the maintenance period 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 consulting and implementation services, maintenance and hosting services, as well as an allocation of data
processing and direct 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

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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 Ltd.
("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 and comprehensive income (loss) since that period or any subsequent period. Amortization of intangible assets represents amortization expense for certain intangible assets
with finite useful lives, which were recorded in connection with the acquisition of Allegis Corporation during the first quarter of 2003, the acquisition of Webridge on April 21, 2004 and the
acquisition of bTrade on July 1, 2004. The intangible assets are identified, valued and classified into separate categories. The categories are customer relationships, developed technologies,
order backlog, trade names, and in-process research and development. The amortization of developed technologies is recorded in the cost of product license line item on the consolidated
statement of operations and comprehensive income (loss).

In
April 2000, the Company issued a warrant to 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 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 similarly sized software and technology companies, 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

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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:



Substantially all of the Company's revenues are derived from four primary sources: (i) licensing software, (ii) providing technical support and
product updates, otherwise known as maintenance (iii) application hosting, and (iv) providing professional services, including implementation and training services. The Company's
software is generally sold through a perpetual license or a limited term license (a subscription). The Company licenses its software in multiple-element arrangements in which the customer typically
purchases a combination of: (i) our software products, (ii) a maintenance arrangement, which is generally priced as a percentage of the software license fees and provides for technical
support and bug fixes over a period of one year, (iii) hosting services, and/or (iv) a professional services arrangement on a time and materials basis.

The
Company recognizes revenue using the residual method pursuant to the requirements of Statement of Position No. 97-2 "Software Revenue Recognition"
("SOP 97-2"), as amended by Statement of Position No. 98-9, "Software Revenue Recognition with Respect to Certain Arrangements." Under the residual method,
revenue is recognized in a multiple-element arrangement when company-specific objective evidence of fair value exists for all of the undelivered elements in the arrangement, but does not exist for one
of the delivered elements in the arrangement. The Company allocates revenue to each element in a multiple element arrangement based on its respective fair value, with the fair value determined by the
price charged when that element is sold separately. The Company defers revenue for the fair value of its undelivered elements (e.g., professional services and maintenance) and recognizes revenue for
the remainder of the arrangement fee attributable to the delivered elements (i.e., software product) when the criteria in SOP 97-2 have been met. If evidence of fair value of the
undelivered elements of the arrangement does not exist, all revenue from the arrangement is deferred until such time evidence of fair value does exist, or until all elements of the arrangement are
delivered.

License
revenue from contracts in which the Company's services are not considered essential to the functionality of the software are recognized upon delivery, assuming the above criteria
for revenue recognition are met under SOP 97-2. Services are not considered essential if the software is ready to use by the customer upon receipt and, therefore, implementation services do not
involve significant customization to or modification or development of the underlying software code.

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 of the agreement 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.

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 license revenue to the extent that the underlying contracts are for software licenses based on equal application of discounts across all elements of the larger arrangement.
For arrangements in which percentage-of-completion accounting is

29

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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.

The
Company provides hosting services to customers that have licensed the Company's software under a limited-term software license. Software subscriptions have been accounted for under
revenue recognition principles in accordance with the guidance provided by Staff Accounting Bulletin ("SAB") No. 104,"Revenue Recognition."The
fees related to multiple-element arrangements is allocated to the individual elements in accordance with Emerging Issues Task Force ("EITF") 00-21"Revenue
Arrangements with Multiple Deliverables,"based 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) a limited-term software license (a subscription), (2) strategic consulting services, (3) set-up and
software subscription services, and (4) hosting services. The Company requires customers in these arrangements to use its hosting facilities, which in accordance with
EITF 00-3,"Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another
Entity's Hardware,"results in all arrangement revenue being deferred and recognized ratably over the term of the agreement analogous to a service arrangement. If the
arrangement includes consulting services, these services are presented as consulting and implementation service revenue and are deferred and recognized ratably over the term of the arrangement, which
is normally 12-24 months. Under SAB No. 104 "Revenue Recognition," costs associated with set-up and implementation of the subscriptions may be expensed as
incurred or deferred and recognized over the term of the related arrangement. The Company has elected to defer such costs. The software subscription service typically begins upon customer acceptance.
Limited term licenses are required to be hosted through the Company's hosting services.

The
Company also provides hosting services to customers that have licensed the Company's software on a perpetual basis. In such cases and in accordance with EITF 00-3,
the hosting revenue is considered a separate contractual element of the arrangement and is recognized according to SOP 97-2. Fair value of the hosting services is typically based on
the stated renewal rate of the hosting services, which is deemed substantive by management.

The
Company determines the fair value of the maintenance portion of the arrangement based on the stated renewal rate for additional maintenance terms based on renewal rates charged
separately to other companies. The Company's customers typically prepay maintenance for the first year in connection with new software licenses and the related revenue is deferred and recognized
ratably over the term of the initial maintenance contract. Maintenance is renewable by the customer on an annual basis thereafter. Rates for maintenance, including subsequent renewal rates, are
typically established based upon a specified percentage of net license fees as set forth in the arrangement and are deemed to be substantive by management.

Professional
services revenue primarily consists of implementation services related to the installation of the Company's software products and training revenues. The fair value of the
professional services portion of the arrangement is based on the daily rates the Company charges for these services when sold independently from a software license. Substantially all of the Company's
professional services arrangements are on a time and materials basis and, accordingly, are recognized as the services are performed.

In
accordance with EITF No. 01-14, the Company classifies the reimbursement of out-of-pocket expenses from their customers as revenue, in the
statement of operations.

30

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The Company continuously monitors collections and payments from its customers and maintains an allowance 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 allowances 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 from the Company's net operating loss carryforwards and to realize its deferred tax assets, a valuation allowance has been recorded 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 a reduction in the valuation allowance of $3.7 million in 2004 and an addition to the valuation allowance of
$1.4 million and $2.5 million in 2003 and 2002, respectively, equal to the amount of the future tax asset used or generated. Management currently continues to believe that the "more
likely than not" criteria of SFAS No. 109 has not been met and as such continues to carry a full valuation allowance against its deferred tax assets.

31

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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.

|                    |                                    | 2004                                         |                          | 2003  |        | 2002   |     
|------------------- | ---------------------------------- | -------------------------------------------- | ------------------------ | ----- | ------ | ------ | ----
|
|Revenue             |                                    |                                              |                          |       |        |        |     
|                    | Product license                    |                                              | $                        | 4,199 |        | 16.3   | %   
|                    | Services                           |                                              |                          |       |        |        |     
|                    |                                    | Maintenance and hosting                      |                          |       | 9,143  |        | 35.5
|                    |                                    | Consulting and implementation service        |                          |       | 10,162 |        | 39.5
|                    |                                    | Subscription                                 |                          |       | 2,225  |        | 8.7 
|                    |                                    |                                              |                          |       |        |        |     
|                    |                                    |                                              | Total service            |       |        | 21,530 |     
|                    |                                    |                                              |                          |       |        |        |     
|                    |                                    |                                              | Total revenues           |       |        | 25,729 |     
|Cost of revenues    |                                    |                                              |                          |       |        |        |     
|                    | Product license                    |                                              |                          | 307   |        | 1.2    |     
|                    | Services(a)                        |                                              |                          | 9,231 |        | 35.9   |     
|                    | Impairment of third party licenses |                                              |                          |      |        |       |     
|                    |                                    |                                              |                          |       |        |        |     
|                    |                                    | Total cost of revenues                       |                          |       | 9,538  |        | 37.1
|                    |                                    |                                              |                          |       |        |        |     
|Gross profit        |                                    |                                              | 16,191                   |       | 62.9   |        |     
|Operating expenses: |                                    |                                              |                          |       |        |        |     
|                    |                                    | Sales and marketing(a)                       |                          |       | 3,464  |        | 13.4
|                    |                                    | Research and development(a)                  |                          |       | 2,913  |        | 11.3
|                    |                                    | General and administrative(a)                |                          |       | 4,524  |        | 17.6
|                    |                                    | Amortization of stock-based compensation     |                          |       | 21     |        | 0.1 
|                    |                                    | Amortization of intangible assets            |                          |       | 477    |        | 1.9 
|                    |                                    | Restructuring and other charges (recoveries) |                          |       | (121   | )      | (0.5
|                    |                                    |                                              |                          |       |        |        |     
|                    |                                    |                                              | Total operating expenses |       |        | 11,278 |     
|                    |                                    |                                              |                          |       |        |        |     
|                    |                                    |                                              | Operating income (loss)  |       | $      | 4,913  |     
|                    |                                    |                                              |                          |       |        |        |     

---

Comparison of the year ended December 31, 2004 to the year ended December 31, 2003



For the year ended December 31, 2004, total revenues increased $7.5 million or 41.5% to $25.7 million from $18.2 million for the year
ended December 31, 2003. Product license revenue consists of revenue from the sales of perpetual software licenses and from product elements of agreements accounted for under the
percentage-of-completion basis. Product license revenue increased $2.1 million or 101.5%. The acquisitions of Webridge, Inc. ("Webridge") and bTrade, Inc.
("bTrade") accounted for approximately $1.7 million of the increase in product license revenue. Webridge was acquired by the Company on April 21, 2004 and bTrade was acquired by the
Company on July 1,2004. The results of operations from Webridge and bTrade are included in the results of operations for the Company from their respective dates of acquisition. On
March 27, 2003 the Company acquired

32

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Allegis, Inc.
("Allegis"). Allegis's results were included in the Company's results of operations beginning March 27, 2003.

Maintenance
and hosting revenues increased by $2.4 million or 35.9% to $9.1 million for the year ended December 31, 2004 from $6.7 million for the year ended
December 31, 2003. Webridge and bTrade accounted for $1.9 million of the total $2.4 million increase. Webridge and bTrade contributed equally to this $1.9 million increase.
The remaining $0.5 million increase in the Company's maintenance and hosting revenues resulted from having a full 12 months of Allegis operations included in the results of operations
for the year ended December 31, 2004 as compared to nine months of Allegis operations for the year ended December 31, 2003.

Consulting
and implementation service revenue increased $2.9 million or 39.3% to $10.2 million for the year ended December 31, 2004 from $7.3 million for the
year ended December 31, 2003. Revenues generated from the Webridge acquisition accounted for 72.3% of this increase. The remaining increase primarily resulted from consulting and implementation
services generated by bTrade.

Subscription
revenue increased by $0.1 million or 7.0% to $2.2 million for the year ended December 31, 2004 from $2.1 million for the year ended
December 31, 2003. The bTrade acquisition accounted for a $0.6 million increase, which was partially offset by a $0.5 million decrease in the subscription revenues primarily
attributable to the conversion of two subscriptions into perpetual licenses in the first quarter of 2004.



Total cost of revenue increased by approximately $0.2 million, or 2.6%, to $9.5 million for the year ended December 31, 2004 from
$9.3 million for the year ended December 31, 2003. Cost of product license revenue decreased by $34,000, or 10.0%, to $307,000 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. This decrease was offset by an increase in the amortization of intangibles related to developed
technologies. The developed technologies arose from the acquisitions of Webridge and bTrade. The associated amortization of these intangible assets was $0.2 million for the year ended
December 31, 2004.

The
cost of service revenues was $9.2 million for the year ended December 31, 2004, a $0.9 million or 10.2% increase. The increase in cost of service is directly
related to a 12.2% increase in headcount. There was no impairment of third party licenses in 2004. For the year ended December 31, 2003, a $0.6 million charge for the impairment of third
party software licenses was recorded in cost of revenues. The Company's gross profit margin increased to 62.9% for the year ended December 31, 2004, compared to 48.9% for the year ended
December 31, 2003. The gross margin increase is due to the increase of product license revenue as a percentage of total revenue. Product license revenue made up 16.3% of total revenue for the
year ended December 31, 2004, as compared to 11.5% of total revenue for the year ended December 31, 2003. In addition, service margins improved from 48% in 2003 to 57% in 2004 based on
better utilization of service personnel.



Sales and Marketing.Sales and marketing expenses increased by approximately $0.1 million, or 1.6%, to
$3.5 million for the year ended December 31, 2004 from $3.4 million for the year ended December 31, 2003. The increase in sales and marketing was primarily attributable to
an increase in employee compensation expense partially offset by a reduction in discretionary marketing spending.

Research and Development.Research and development expenses increased by approximately $0.5 million, or 20.8%, to
$2.9 million for the year ended December 31, 2004, compared to $2.4 million

33

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for
the prior year. This increase was primarily attributable to higher employee compensation costs. The acquisitions of Webridge and bTrade resulted in a significant increase in the number of research
and development staff at year end. The increase in the number of research and development staff declined for the first two quarters of 2004 but increased after the acquisitions of Webridge and bTrade.
The increase in employee compensation costs was partially offset by lower third party contractor costs. To date, all software development costs have been expensed as incurred.

General and Administrative.General and administrative expenses remained constant at $4.5 million for the years ended
December 31, 2004 and 2003. The consistency can be attributable to lower lease related expenses in 2004 of approximately $0.4 million, and a reversal of an accrual for a liability that
the Company was no longer responsible for of $0.5 million. These decreases were offset by an accrual established to estimate a potential foreign tax liability of $0.7 million and an
increase in audit and audit related expenses of approximately $0.1 million. In 2003, the Company legal expenses related to the Company's consideration of and response to an unsolicited
acquisition proposal. These expenses were offset in 2004 by non-recurring legal expenses related to potential acquisitions by the Company.

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 $21,000, and $58,000 during the years ended December 31, 2004, and 2003, respectively.

Amortization of intangible assets.In the year ended December 31, 2004, the Company recorded $477,000 of amortization
expense related to customer relationships, trade names and order backlog intangible assets in conjunction with the acquisitions of Allegis, Webridge and bTrade. 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 Allegis acquisition.

Restructuring and other charges.In the fourth quarter of 2004, the Company determined that $121,000 of restructuring
accruals were no longer needed as all employee severance had been paid out and no further obligations existed. Accordingly, the Company has reversed this accrual.

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 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 $1.0 million asset impairment charge during the second quarter of 2003. This charge related to leasehold improvements associated with the excess office
leases and a redundant computer system and excess equipment totaling $1.0 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.

34

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



Total revenue decreased $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 the sale of perpetual software licenses and from software elements of agreements accounted for under the
percentage-of-completion basis. 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 on March 24, 2003. 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. Consulting and implementation service revenue, comprised of fees related to time and materials service contracts, training and needs analyses, as well as service elements
of agreements accounted for under the percentage-of-completion basis, 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 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. 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.



Total cost of revenue decreased by approximately $809,000, or 8.0%, to $9.3 million for the year ended December 31, 2003 from $10.1 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 expenses related to product packaging and
other product costs. In addition, there was a decrease in charges for impairment of third party licenses in 2003 of $461,000 or 44.2%. Total cost of service revenue remained relatively flat in 2003 at
$8.4 million. Gross profit margins increased slightly to 48.9% for the year ended December 31, 2003, compared to 44.7% for the year ended December 31, 2002. The gross margin
increase is due to higher margins on both product and services revenue, as well as a decrease in the charge for impaired third party licenses. Product margins were higher due to expenses related to
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 58% 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

35

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reduction
in salaries due to lower headcount. 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 per share 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 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 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 $1.0 million asset impairment charge during the second quarter of 2003. This charge related to leasehold improvements associated with the excess office
leases and a redundant computer system and excess equipment totaling $1.0 million. The Company also recorded a

36

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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.

Liquidity and Capital Resources

At December 31, 2004, the Company had $13.4 million of cash and cash equivalents, consisting primarily of proceeds from its initial public offering
and cash provided by operating activities in 2004 of $3.6 million. The cash used in operating activities for the years ended December 31, 2003, and 2002 was
$1.6 million and $5.5 million, respectively. The $3.6 million of cash provided by operating activities during 2004 consists primarily of cash generated from net income of
$5.2 million and non-cash expenses related to depreciation and amortization, amortization of stock-based compensation and provision for doubtful accounts of $1.4 million.
These sources were partially offset by cash uses resulting from an increase in receivables of $2.1 million (net of receivables acquired of $0.8 million) and a decrease in deferred
revenue of $1.0 million (net of deferred revenue acquired of $1.4 million). Net changes in all other working capital balances resulted in a cash source of $0.1 million.

Net
cash used in investing activities was $2.1 million for the year ended December 31, 2004, consisting primarily of cash used in the acquisition of Webridge and bTrade,
net of cash acquired, of $1.8 million, and purchases of equipment of $0.3 million. For the year ended December 31, 2003, net cash provided by investing activities was
$10.4 million, which consisted primarily of the redemption of $10.3 million of short-term investments to fund the Special Dividend. 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. The Company's capital expenditures consisted
of purchases of resources to manage operations, including computer hardware and software.

Net
cash provided by financing activities for the year ended December 31, 2004 was $64,000, reflecting proceeds from the exercise of stock options, offset partially by payments
under capital lease obligations. Net cash used in financing activities for the year ended December 31, 2003 was $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.

As
of December 31, 2004, the Company had the following contractual obligations outstanding:

|                            |  | Payments due by period
|--------------------------- |  | ----------------------
|
|Operating lease obligations |  |                       
|Investment obligations      |  |                       
|Other long-term liabilities |  |                       
|                            |  |                       
|Total                       |  | $                     
|                            |  |                       

As
part of the Allegis acquisition, the Company assumed a letter of credit securing an office lease in San Francisco. The letter of credit expires on September 30, 2005 and had a
balance of $170,000 as of December 31, 2004. 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 2004, until it expires on September 24, 2005. As of December 31, 2004, the obligations
related to the letter of credit were $607,899. These letters of credit are secured by the Company's assets.

Subsequent
to December 31, 2004, the Company completed the acquisition of certain assets of ChannelWave, Inc. on February 2, 2005, in exchange for
$1.0 million cash and the issuance of 225,809 shares of common stock. In addition, on February 7, 2005, the Company completed the acquisition of

37

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Optum Inc.,
a Delaware corporation with offices in New York, North Carolina, Texas and California. As part of this acquisition, the Company issued approximately 1.4 million shares of the
Company's common stock. The Company also assumed approximately $4.4 million of debt. See "Recent Developments" for more information. The Company expects that these acquisitions may require the
funding of $2.0 million in working capital during the transition and integration of their operations. The Company believes that its current cash balances and cash generated through future
operations, should sufficiently fund these working capital requirements.

On
July 1, 2004, the Company acquired bTrade, a privately-held Texas corporation based in Irving, Texas. Pursuant to an Agreement and Plan of Merger, dated as of
June 17, 2004, bTrade became a wholly-owned subsidiary of the Company. The Company acquired bTrade, based on a
valuation of bTrade as a going-concern, for consideration consisting of 669,367 shares valued at $4.795 per share, of Company common stock, $0.2 million in cash, and the assumption and
repayment of approximately $1.3 million of existing bTrade indebtedness. The 669,367 shares of the Company's stock includes shares being held in escrow with respect to potential undisclosed
bTrade liabilities and which may result in fewer shares being issued. The Company incurred $0.2 million of transaction costs related to this transaction.

On
April 21, 2004, the Company completed its acquisition of substantially all of the operating assets of Webridge. The acquisition was completed in exchange for 615,303 shares of
the Company's stock valued at $5.766 per share. The Company incurred $0.2 million of transaction costs related to this transaction.

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
of 2003 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.

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 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.

38

---



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
could 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 was at the discretion of the Company's management. Through December 31, 2002, 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 or 2004, and the shares remain classified as treasury stock in the consolidated balance sheet of the Company as
December 31, 2004.

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 its existing cash
balances and cash generated from future operating activities will be sufficient to fund the Company's operations, including cash needs of the acquired businesses, for at least the next twelve months.
Thereafter, the Company may find it necessary to obtain additional equity or debt financing. 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 December 2004, the FASB issued SFAS 123(R),"Share-Based Payment,"which will be effective for
public entities as of the first interim or annual reporting period that begins after June 15, 2005. SFAS123(R) replaces SFAS 123,"Accounting for Stock-Based
Compensation,"and supersedes APB Opinion No. 25,"Accounting for Stock Issued to Employees."The new standard requires
that the compensation cost relating to share-based payment be recognized in financial statements at fair value. As such, reporting employee stock options under the intrinsic value-based method
prescribed by APB 25 will no longer be allowed. The Company has historically elected to use the intrinsic value method and has not recognized expense for employee stock options granted unless
the options were issued with intrinsic value. The Company has not completed the process of evaluating the impact that will result from adopting SFAS No. 123(R), "Share-Base Payment." SFAS
No. 123(R) must be adopted, and the associated expenses must be reflected in all financial statements filings after June 30, 2005. The Company is therefore unable to disclose the impact
that adopting SFAS No. 123(R) will have on its financial position and results of operations.

Recent Developments

On February 2, 2005, the Company entered into an Asset Purchase Agreement (the "Purchase Agreement") with ChannelWave, Inc. ("ChannelWave"),
pursuant to which the Company acquired certain assets from ChannelWave, including substantially all assets relating to ChannelWave's Partner Relationship Management System and Service Information
System businesses, for consideration comprising $1.0 million of cash and 225,807 shares of the Company's common stock (of which 29,033
shares are being held by the Company in escrow for certain potential additional liabilities of ChannelWave pursuant to the Purchase Agreement). The shares of the Company's common stock are expected to
be registered for resale on a Registration Statement on Form S-3.

On
February 7, 2005, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Optum and its stockholders, pursuant to which the Company acquired
Optum. In consideration for the merger, the Company paid $325,467 in cash and issued 1,405,780 shares of common stock to the stockholders of Optum (of which $65,093 in cash and 281,156 shares are
being held by an escrow agent for certain potential additional liabilities of Optum pursuant to the Merger Agreement), assumed approximately $4.4 million of Optum indebtedness, and incurred
various transaction-related expenses. The shares of the Company's common stock are expected to be registered for resale on a Registration Statement on Form S-3.

39

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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, virtually 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, 2004, the Company had cash and cash equivalents of $13.4 million. Based upon the balance of cash and cash equivalents at
December 31, 2004, a change in interest rates of 0.5% would cause a corresponding change in annual interest income of approximately $67,000.

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.

Item 9A.    Controls and Procedures



Based on their evaluation as of the end of the period covered by this report, the Company's Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of such period, 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.



The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in
Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we
assessed the effectiveness of our internal control over financial reporting as of December 31, 2004, using the criteria set forth in the Internal ControlIntegrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission

40

---



(COSO).
Based on this assessment, management has concluded that our internal control over financial reporting is effective as of December 31, 2004.

In
connection with performing a review of the Company's interim financial information to be included in the Company's Quarterly Report on Form 10-Q for the period
ended September 30, 2004, KPMG, LLP, our independent registered public accounting firm, issued a letter to the Company to communicate control deficiencies that were considered to be a material
weakness. KPMG indicated, and the Company agreed that, the Company's quarter-end reporting schedule was too compressed, allowing insufficient time for the Company to perform adequate reviews of its
accounting records and prepare appropriate support for the accounting positions taken by the Company, and for its independent registered public accountants to complete their review of the Company's
financial statements, prior to the Company's release of its financial results. Consequently, the Company has determined that, for future periods, it will release its quarterly financial results to the
public on a date closer to the due date for the filing of its Quarterly Report on Form 10-Q and its Annual Report attached with its Form 10-K, thereby increasing the time
available for its internal review of accounting issues and for its independent public accountants' review of the Company's financial statements. For the quarter and year ended December 31, 2004
the Company waited an additional two weeks, as compared to the quarter and nine months ended September 30, 2004, before releasing earnings. The Company believes that this modification to its
operating procedures has rectified the material weakness in its internal controls identified by KPMG, and therefore management has concluded that this material weakness does not exist as of
December 31, 2004.



Subsequent to December 31, 2004, 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.

Item 9B.    Other Information

None.

41

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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 2005 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, 52nd Floor, 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.

42

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PART IV

Item 15.    Exhibits and Financial Statement Schedules





Exhibit
Numbers 10.1 through 10.3, 10.7 through 10.11 and 10.13 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.
|2.2*>>         |  | Asset Purchase Agreement, dated as of March 17, 2004, between Click Commerce, Inc., Click West Coast Corp., Click-Webridge Inc., and Webridge, Inc.                                     
|2.3*>>         |  | Amendment No. 1 to Purchase Agreement, dated as of March 30, 2004.                                                                                                                      
|2.4*>>>        |  | Plan of Merger Agreement, dated as of July 1, 2004, between Click Commerce Inc., Click Texas Corp., bTrade Acquisition Corp., and bTrade, Inc.                                          
|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 William Conroy and Click Commerce, Inc. dated as of April 15, 2002                                                                              
|               |  |                                                                                                                                                                                         

43

---



|10.8*^^^  |  | Employment Agreement between Michael W. Nelson and Click Commerce, Inc. dated as of August 7, 2002                  
|--------- |  | --------------------------------------------------------------------------------------------------------------------
|10.9*#    |  | Employment Agreement between Michael W. Ferro, Jr., and Click Commerce, Inc. dated as of January 1, 2003.           
|10.10*#   |  | Employment Agreement between Justin C. Dearborn and Click Commerce, Inc. dated as of November 18, 2002.             
|10.11*##  |  | Stock Option Agreement of Michael W. Ferro, Jr.                                                                     
|10.12*### |  | Subleases Termination Agreement between Radian Guaranty Inc., and Click Commerce, Inc., dated as of August 29, 2003.
|10.13*>   |  | 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.             

---

44

---





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 21 day of March, 2005

| |  | 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.   |  | Director, Chief Executive Officer and Chairman of the Board of Directors |  | March 21, 2005
|/s/WILLIAM J. DEVERS, JR.William J. Devers, Jr. |  | Director                                                                 |  | March 21, 2005
|/s/JUNE E. DREWRYJune E. Drewry                 |  | Director                                                                 |  | March 21, 2005
|/s/EMMANUEL A. KAMPOURISEmmanuel A. Kampouris   |  | Director                                                                 |  | March 21, 2005
|/s/ANDREW J. MCKENNAAndrew J. McKenna           |  | Director                                                                 |  | March 21, 2005
|/s/JOHN F. SANDNERJohn F. Sandner               |  | Director                                                                 |  | March 21, 2005
|/s/SAMUEL K. SKINNERSamuel K. Skinner           |  | Director                                                                 |  | March 21, 2005
|                                                |  |                                                                          |  |               

45

---



|/s/NEELE E. STEARNS, JR.Neele E. Stearns, Jr. |  | Director                                                                                           |  | March 21, 2005
|--------------------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | --------------
|/s/MICHAEL W. NELSONMichael W. Nelson         |  | Vice President, Chief Financial Officer And Treasurer (Principal Financial and Accounting Officer) |  | March 21, 2005

46

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CLICK COMMERCE, INC.

INDEX TO FINANCIAL STATEMENTS

|                                                                      |  | Page
|--------------------------------------------------------------------- |  | ----
|Report of Independent Registered Public Accounting Firm               |  | F-2 
|Consolidated Balance Sheets                                           |  | F-3 
|Consolidated Statements of Operations and Comprehensive Income (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

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We
have audited the accompanying consolidated balance sheets of Click Commerce, Inc. (the Company) as of December 31, 2004 and 2003 and the related consolidated statements of operations
and comprehensive income (loss), shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). 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 the Company as of December 31, 2004 and 2003 and the
results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting
principles.

|                                 | /s/KPMG LLP
|-------------------------------- | -----------
|Chicago, Illinois
March 21, 2005 |            

F-2

---





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

|                                                                                                                                                                                                                                        |                                                                                                                              | December 31,                               |        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------
|
|ASSETS                                                                                                                                                                                                                                  |                                                                                                                              |                                            |        
|Current assets:                                                                                                                                                                                                                         |                                                                                                                              |                                            |        
|                                                                                                                                                                                                                                        | Cash and cash equivalents                                                                                                    |                                            | $      
|                                                                                                                                                                                                                                        | Trade accounts receivable, less allowance for doubtful accounts of $514 and $323 at December 31, 2004 and 2003, respectively |                                            |        
|                                                                                                                                                                                                                                        | Revenue earned on contracts in progress in excess of billings                                                                |                                            |        
|                                                                                                                                                                                                                                        | Prepaids and other current assets                                                                                            |                                            |        
|                                                                                                                                                                                                                                        |                                                                                                                              |                                            |        
|                                                                                                                                                                                                                                        |                                                                                                                              | Total current assets                       |        
|Property and equipment, net                                                                                                                                                                                                             |                                                                                                                              |                                            | 870    
|Restricted cash                                                                                                                                                                                                                         |                                                                                                                              |                                            |       
|Intangible assets, net                                                                                                                                                                                                                  |                                                                                                                              |                                            | 2,944  
|Goodwill                                                                                                                                                                                                                                |                                                                                                                              |                                            | 6,874  
|Other assets                                                                                                                                                                                                                            |                                                                                                                              |                                            | 738    
|                                                                                                                                                                                                                                        |                                                                                                                              |                                            |        
|                                                                                                                                                                                                                                        |                                                                                                                              | 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                                                                               |                                            |        
|                                                                                                                                                                                                                                        | Current portion of capital lease obligations                                                                                 |                                            |        
|                                                                                                                                                                                                                                        |                                                                                                                              |                                            |        
|                                                                                                                                                                                                                                        |                                                                                                                              | Total current liabilities                  |        
|Other long term liabilities                                                                                                                                                                                                             |                                                                                                                              |                                            | 6      
|                                                                                                                                                                                                                                        |                                                                                                                              |                                            |        
|                                                                                                                                                                                                                                        |                                                                                                                              | 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; 9,742,401 and 8,390,432 shares issued at December 31, 2004 and 2003, respectively; 9,713,337 and 8,361,368 shares outstanding at December 31, 2004 and 2003,
respectively |                                                                                                                              |                                            | 10     
|Additional paid-in capital                                                                                                                                                                                                              |                                                                                                                              |                                            | 69,386 
|Accumulated other comprehensive income                                                                                                                                                                                                  |                                                                                                                              |                                            | 153    
|Deferred compensation                                                                                                                                                                                                                   |                                                                                                                              |                                            |       
|Treasury stock, at cost 29,064 shares                                                                                                                                                                                                   |                                                                                                                              |                                            | (117   
|Accumulated deficit                                                                                                                                                                                                                     |                                                                                                                              |                                            | (46,278
|                                                                                                                                                                                                                                        |                                                                                                                              |                                            |        
|                                                                                                                                                                                                                                        |                                                                                                                              | 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 INCOME (LOSS)        (Dollars in thousands, except per share data)

|                                                   |                                              | Year ended December 31,                |               
|-------------------------------------------------- | -------------------------------------------- | -------------------------------------- | --------------
|
|Revenues:                                          |                                              |                                        |               
|                                                   | Product license                              |                                        | $             
|                                                   | Service                                      |                                        |               
|                                                   |                                              | Maintenance and hosting                |               
|                                                   |                                              | Consulting and implementation services |               
|                                                   |                                              | Subscription                           |               
|                                                   |                                              |                                        |               
|                                                   |                                              |                                        | Total service 
|                                                   |                                              |                                        |               
|                                                   |                                              |                                        | Total revenues
|Cost of revenues:                                  |                                              |                                        |               
|                                                   | Product license                              |                                        |               
|                                                   | Services                                     |                                        |               
|                                                   | Impairment of third party licenses           |                                        |               
|                                                   |                                              |                                        |               
|                                                   |                                              | Total cost of revenues                 |               
|                                                   |                                              |                                        |               
|Gross profit                                       |                                              |                                        | 16,191        
|Operating expenses:                                |                                              |                                        |               
|                                                   | Sales and marketing                          |                                        |               
|                                                   | Research and development                     |                                        |               
|                                                   | General and administrative                   |                                        |               
|                                                   | Amortization of stock-based compensation     |                                        |               
|                                                   | Amortization of intangible assets            |                                        |               
|                                                   | Restructuring and other charges (recoveries) |                                        |               
|                                                   |                                              |                                        |               
|                                                   |                                              | Total operating expenses               |               
|                                                   |                                              |                                        |               
|Operating income (loss)                            |                                              |                                        | 4,913         
|                                                   |                                              |                                        |               
|Interest income                                    |                                              |                                        | 137           
|Interest expense                                   |                                              |                                        |              
|Other income, net                                  |                                              |                                        | 127           
|                                                   |                                              |                                        |               
|Other income, net                                  |                                              |                                        | 264           
|                                                   |                                              |                                        |               
|Income (loss) before income taxes                  |                                              |                                        | 5,177         
|Income tax expense                                 |                                              |                                        |              
|                                                   |                                              |                                        |               
|Net income (loss)                                  |                                              |                                        | 5,177         
|Basic income (loss) per common share               |                                              | $                                      | 0.56          
|                                                   |                                              |                                        |               
|Diluted income (loss) per common share             |                                              | $                                      | 0.54          
|                                                   |                                              |                                        |               
|Weighted average common shares outstandingbasic   |                                              |                                        | 9,163,702     
|Weighted average common shares outstandingdiluted |                                              |                                        | 9,621,123     
|Comprehensive income (loss):                       |                                              |                                        |               
|                                                   | Net income (loss)                            |                                        | $             
|                                                   | Foreign currency translation adjustment      |                                        |               
|                                                   |                                              |                                        |               
|                                                   | Comprehensive income (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, 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 acquired                                   |  | (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    | )
|                                                          |  |              |   |   |    |  |   |         |   |   |     |   |   |        |  
|Amortization of deferred stock compensation               |  |             |   |   |   |  |   |        |   |   |    |   |   | 21     |  
|Issuance of common stock upon exercise of stock options   |  | 67,299       |   |   |   |  |   | 133     |   |   |    |   |   |       |  
|Issuance of common stock in conjunction with acquisitions |  | 1,284,670    |   |   | 2  |  |   | 6,755   |   |   |    |   |   |       |  
|Foreign currency translation adjustment                   |  |             |   |   |   |  |   |        |   |   | 17  |   |   |       |  
|Net income                                                |  |             |   |   |   |  |   |        |   |   |    |   |   |       |  
|                                                          |  |              |   |   |    |  |   |         |   |   |     |   |   |        |  
|Balance at December 31, 2004                              |  | 9,713,337    |   | $ | 10 |  | $ | 69,386  |   | $ | 153 |   | $ |       |  
|                                                          |  |              |   |   |    |  |   |         |   |   |     |   |   |        |  

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

F-5

---





CLICK COMMERCE, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        6(Dollars in thousands)

|                                                              |                                                                                                    | Year ended December 31,                                                                 |                                                               
|------------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | --------------------------------------------------------------
|
|Cash flows from operating activities:                         |                                                                                                    |                                                                                         |                                                               
|                                                              | Net income (loss)                                                                                  |                                                                                         | $                                                             
|                                                              | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                                                                         |                                                               
|                                                              |                                                                                                    | Amortization of stock-based compensation                                                |                                                               
|                                                              |                                                                                                    | Depreciation and amortization                                                           |                                                               
|                                                              |                                                                                                    | Provision for doubtful accounts                                                         |                                                               
|                                                              |                                                                                                    | Amortization of deferred compensation                                                   |                                                               
|                                                              |                                                                                                    | Impairment of third party licenses and restructuring and other charges, net of payments |                                                               
|                                                              |                                                                                                    | Changes in operating assets and liabilities, net of effect of acquisitions:             |                                                               
|                                                              |                                                                                                    |                                                                                         | 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                                                                |                                                                                         |                                                               
|                                                              | Payments for acquisitions, net of transaction costs and cash acquired                              |                                                                                         |                                                               
|                                                              | Proceeds from the sale of assets                                                                   |                                                                                         |                                                               
|                                                              | Redemptions (purchases) of 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 |                                                                                                    |                                                                                         |                                                              
|                                                              |                                                                                                    |                                                                                         |                                                               
|Net increase (decrease) in cash and cash equivalents          |                                                                                                    |                                                                                         | 1,519                                                         
|Cash and cash equivalents at beginning of year                |                                                                                                    |                                                                                         | 11,863                                                        
|                                                              |                                                                                                    |                                                                                         |                                                               
|Cash and cash equivalents at end of year                      |                                                                                                    | $                                                                                       | 13,382                                                        
|                                                              |                                                                                                    |                                                                                         |                                                               
|Supplemental disclosures:                                     |                                                                                                    |                                                                                         |                                                               
|                                                              | Interest paid                                                                                      |                                                                                         |                                                               
|                                                              | Income taxes paid                                                                                  |                                                                                         |                                                               
|                                                              | Common stock issued for acquisitions                                                               |                                                                                         | $                                                             

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 a leading supplier of software and related services focused on the partner relationship management market. The Company's
other product lines implement similar software and service solutions to streamline and automate trading partner interactions, research and grant compliance in major medical and other research
facilities. Through the Company's recent acquisition of Optum, Inc., the Company has expanded its product offerings to include supply chain and warehouse management software and related
services. Each of the Company's lines applies similar underlying technology to effect secure Internet communications as a replacement for handwritten forms, telephone and fax communications and
less-efficient, more costly electronic data systems.

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 period 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.



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, or in the case of leasehold improvements, the shorter of the assets useful life or the
remaining lease term. Leased equipment meeting certain criteria are 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

F-7

---



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 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 in a long-term investment fund. Under terms of the investment, the Company has a total commitment of $2.0 million of
which $920,000 has been contributed to date for a pro rata ownership interest of less than 2%. During the second quarter of 2004, the Company learned that part of the amount of cash invested in the
fund since the second quarter of 2003 related to management fees. As a result, the Company recorded an expense in the second quarter of 2004 to reduce the value of the investment by $101,000, which is
the amount of the management fee that had been incurred since inception through June 30, 2004. The Company was assessed and expensed an additional $22,514 in management fees for the year ended
December 31, 2004. The Company uses the cost method to account for this investment. The cost method is used as the Company does not have significant influence over the investor's operating and
financial policies, and because the investment is not in marketable securities. The balance of this investment was $0.7 million at December 31, 2004 and is reflected in other assets on
the consolidated balance sheet.



Goodwill is not amortized, but instead is tested for impairment at least annually in November. Intangibles assets continue to be amortized over their respective
estimated useful lives ranging from one to five years. The Company has no intangible assets with indefinite lives.



Substantially all of the Company's revenues are derived from four primary sources: (i) licensing software, (ii) providing technical support and
product updates, otherwise known as maintenance (iii) application hosting, and (iv) providing professional services, including implementation and training services. The Company's
software is generally sold through a perpetual license or a limited term license (a subscription). The Company licenses its software in multiple-element arrangements in which the customer typically
purchases a combination of: (i) our software products, (ii) a maintenance arrangement, which is generally priced as a percentage of the software license fees and provides for technical
support and bug fixes over a period of one year, (iii) hosting services, and/or (iv) a professional services arrangement on a time and materials basis.

The
Company recognizes revenue using the residual method pursuant to the requirements of Statement of Position No. 97-2 "Software Revenue Recognition"
("SOP 97-2"), as amended by Statement of Position No. 98-9, "Software Revenue Recognition with Respect to Certain Arrangements." Under the residual method,
revenue is recognized in a multiple-element arrangement when company-specific objective evidence of fair value exists for all of the undelivered elements in the arrangement, but does not exist for one
of the delivered elements in the arrangement. The Company allocates revenue to each element in a multiple element arrangement based on its respective fair value, with the fair value determined by the
price charged when that element is sold separately. The Company

F-8

---



defers
revenue for the fair value of its undelivered elements (e.g., professional services and maintenance) and recognizes revenue for the remainder of the arrangement fee attributable to the
delivered elements (i.e., software product) when the criteria in SOP 97-2 have been met. If evidence of fair value of the undelivered elements of the arrangement does not exist, all
revenue from the arrangement is deferred until such time evidence of fair value does exist, or until all elements of the arrangement are delivered.

License
revenue from contracts in which the Company's services are not considered essential to the functionality of the software are recognized upon delivery, assuming the above criteria
for revenue recognition are met under SOP 97-2. Services are not considered essential if the software is ready to use by the customer upon receipt and, therefore, implementation services do not
involve significant customization to or modification or development of the underlying software code.

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 of the agreement 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.

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 license revenue to the extent that the underlying contracts are for software licenses based on equal application of discounts across all elements of the larger arrangement.
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.

The
Company provides hosting services to customers that have licensed the Company's software under a limited-term software license. Software subscriptions have been accounted for under
revenue recognition principles in accordance with the guidance provided by Staff Accounting Bulletin ("SAB") No. 104,"Revenue Recognition."The
fees related to multiple-element arrangements is allocated to the individual elements in accordance with Emerging Issues Task Force ("EITF") 00-21"Revenue
Arrangements with Multiple Deliverables,"based 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) a limited-term software license (a subscription), (2) strategic consulting services, (3) set-up and
software subscription services, and (4) hosting services. The Company requires customers in these arrangements to use its hosting facilities, which in accordance with
EITF 00-3,"Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another
Entity's Hardware,"results in all arrangement revenue being deferred and recognized

F-9

---



ratably
over the term of the agreement analogous to a service arrangement. If the arrangement includes consulting services, these services are presented as consulting and implementation service
revenue and are deferred and recognized ratably over the term of the arrangement, which is normally 12-24 months. Under SAB No. 104 "Revenue Recognition," costs associated
with set-up and implementation of the subscriptions may be expensed as incurred or deferred and recognized over the term of the related arrangement. The Company has elected to defer such
costs. The software subscription service typically begins upon customer acceptance. Limited term licenses are required to be hosted through the Company's hosting services.

The
Company also provides hosting services to customers that have licensed the Company's software on a perpetual basis. In such cases and in accordance with EITF 00-3, the
hosting revenue
is considered a separate contractual element of the arrangement and is recognized according to SOP 97-2. Fair value of the hosting services is typically based on the stated renewal rate of
the hosting services, which is deemed substantive by management.

The
Company determines the fair value of the maintenance portion of the arrangement based on the stated renewal rate for additional maintenance terms based on renewal rates charged
separately to other companies. The Company's customers typically prepay maintenance for the first year in connection with new software licenses and the related revenue is deferred and recognized
ratably over the term of the initial maintenance contract. Maintenance is renewable by the customer on an annual basis thereafter. Rates for maintenance, including subsequent renewal rates, are
typically established based upon a specified percentage of net license fees as set forth in the arrangement and are deemed to be substantive by management.

Professional
services revenue primarily consists of implementation services related to the installation of the Company's software products and training revenues. The fair value of the
professional services portion of the arrangement is based on the daily rates the Company charges for these services when sold independently from a software license. Substantially all of the Company's
professional services arrangements are on a time and materials basis and, accordingly, are recognized as the services are performed.

In
accordance with EITF No. 01-14, the Company classifies the reimbursement of out-of-pocket expenses from their customers as revenue, in the
statement of operations.



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 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.

F-10

---





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 that were excluded from the net income (loss) per share calculations for the years ended December 31, 2004, 2003 and 2002 totaled 87,389,
149,576 and 431,371 shares of common stock, respectively. For the year ended December 31, 2002, 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.



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 from Company's net operating loss carryforwards and to realize its deferred tax assets, a valuation allowance has been recorded 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 a
reduction in the valuation allowance of $3.7 million in 2004 and an addition to the valuation allowance of $1.4 million and $2.5 million in 2003 and 2002, respectively, equal to
the amount of the future tax asset used or generated. Management currently continues to believe that the "more likely than not" criteria of SFAS No. 109 has not been met and as such continues
to carry a full valuation allowance against its deferred tax assets.



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

F-11

---





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." As such, compensation expense would be recorded only if the fair value of the underlying stock exceeded the exercise
price of the option on the grant date.

The
Company has applied APB No. 25 and related interpretations in accounting for the Employee Plan and the Directors' Plan. Accordingly, no compensation cost has been recognized
on stock options for which the exercise price equaled the fair value at the date of grant. Had the Company determined compensation cost based on the method required by SFAS No. 123, the
Company's net income (loss) and net income (loss) per common share for the years ended December 31, 2004, 2003 and 2002 would approximate the pro forma amounts below.

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 No. 123, the Company's net income (loss) and net income (loss) per common share for 2004, 2003
and 2002 would approximate the pro forma amounts below:

2004

2003

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

$
5,177

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


21


58


319Total fair value method employee stock-based compensation expense, net of related tax effects


(1,186
)

(1,213
)

(3,940
)Pro forma net income (loss)

$
4,012

$
(4,806
)
$
(13,951
)Basic income (loss) per share:As reported

$
0.56

$
(0.45
)
$
(1.28
)Pro forma

$
0.44

$
(0.59
)
$
(1.73
)Diluted income (loss) per share:As reported

$
0.54

$
(0.45
)
$
(1.28
)Pro forma

$
0.42

$
(0.59
)
$
(1.73
)


F-12

---



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:

2004

2003

2002Expected life, in years

4.0

4.0

4.25Expected volatility

78
%
171
%
99
%Risk-free interest rate

3.0
%
3.0
%
2.7
%Dividend yield

0.0
%
0.0
%
0.0
%


For
its fixed awards with pro-rata vesting provisions, the Company calculates any compensation expenses recorded in the consolidated financial statements or included in the pro-forma net
income (loss) required by the disclosure only provisions of SFAS No. 123 on a straight line basis.

Prior
to its IPO, the Company granted certain stock options at exercise prices less than their deemed fair value; accordingly, the Company recorded deferred compensation of $4,636,000.
Such deferred compensation was amortized on a straight-line basis over the vesting period of each individual award, resulting in $21,000, $58,000 and $236,000 of stock-based compensation
expense for the years ended December 31, 2004, 2003 and 2002, respectively. The following table contains the amortization expense attributable to each noted expense caption, as applicable on
the consolidated statements of operations and other comprehensive income (loss).

Years ended December 31,2004

2003

2002(in thousands)Stock-based employee compensation expense attributable to:Cost of revenues

$
13

$
7

$
70Sales and marketing


8


49


104Research and development





2


8General and administrative








54Total

$
21

$
58

$
236




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 U.S. 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 created by 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.

F-13

---





The Company expenses all advertising costs as they are incurred. The Company incurred no advertising expense for the years ended December 31, 2004, 2003
and 2002.

3.    Acquisitions

Effective March 24, 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. Results of Allegis' operations have been included in the Company's consolidated financial statements since March 24, 2003. Under the terms and conditions
of the Agreement and Plan of Merger, Allegis became a wholly-owned subsidiary of the Company, and the holders of Allegis' preferred stock received cash consideration in an aggregate amount of
approximately $10,200. The Company funded the acquisition using available cash on hand.

The
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 March 24, 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


Effective
April 21, 2004, the Company completed its acquisition of substantially all the operating assets of Webridge, Inc. ("Webridge"), a privately-held
Delaware corporation based in Beaverton, Oregon. Pursuant to the Asset Purchase Agreement, dated as of March 17, 2004 and amended March 30, 2004, the Company purchased substantially all
of the operating assets of Webridge. The Company acquired the operating assets of Webridge, Inc., based on a valuation of Webridge as a going-concern, for consideration consisting of 615,303
shares of Click Commerce, Inc. common stock,
valued at $5.766 per share, including shares issued for working capital adjustments. The Company incurred $0.2 million in direct expenses related to this acquisition.

On
July 1, 2004, the Company acquired bTrade, Inc. ("bTrade"), a privately-held Texas corporation based in Irving, Texas. Pursuant to an Agreement and Plan of
Merger, dated as of June 17, 2004, bTrade became a wholly-owned subsidiary of the Company. The Company acquired bTrade, based on a valuation of bTrade as a going-concern, for consideration
consisting of 669,367 shares, valued at $4.795

F-14

---



per
share, of Company common stock, $0.2 million of cash, and the assumption and repayment of approximately $1.3 million of existing bTrade indebtedness. The 669,367 shares of the
Company's common stock includes 40,802 shares being held in escrow subject to final undisclosed liability adjustments, which may result in fewer shares ultimately being issued. The Company incurred
$0.2 million in direct expenses related to this acquisition.

The
following table summarizes the estimated fair values of the assets acquired and the liabilities assumed on the effective date of the Webridge and bTrade acquisitions. The Company
incurred approximately $186,000 and $200,000 of direct expenses related to the closing of the Webridge and bTrade acquisitions, respectively. The final allocations of the purchase prices are subject
to change as the Company completes the valuation of the acquired assets and assumed liabilities.

|                                            |  | Webridge
April 21, 2004 |       | bTrade
July 1, 2004
|------------------------------------------- |  | ----------------------- | ----- | -------------------
|
|Assets:                                     |  |                         |       |                    
|Cash and cash equivalents                   |  | $                       |      |                    
|Trade accounts receivable                   |  |                         | 446   |                    
|Other current assets                        |  |                         |      |                    
|                                            |  |                         |       |                    
|Total current assets                        |  |                         | 446   |                    
|                                            |  |                         |       |                    
|Property and equipment                      |  |                         | 121   |                    
|Intangible assets, including in-process R&D |  |                         | 1,620 |                    
|Goodwill                                    |  |                         | 1,817 |                    
|Other assets                                |  |                         | 300   |                    
|                                            |  |                         |       |                    
|Total assets                                |  |                         | 4,304 |                    
|                                            |  |                         |       |                    
|Liabilities:                                |  |                         |       |                    
|Accounts payable                            |  |                         |      |                    
|Accrued liabilities                         |  |                         | 422   |                    
|Short term debt obligations(1)              |  |                         |      |                    
|Deferred revenue                            |  |                         | 146   |                    
|                                            |  |                         |       |                    
|Total liabilities                           |  |                         | 568   |                    
|                                            |  |                         |       |                    
|Net assets acquired                         |  | $                       | 3,736 |                    
|                                            |  |                         |       |                    

---

F-15

---



The
following table sets forth the allocation of intangible assets to customer relationships, developed technology, trade names, order backlog as well as the in-process R&D
charge recorded from the acquisition of bTrade. These intangible assets, as well as the goodwill recorded by the Company, will be evaluated, as required, to determine that the fair value of such
assets do not exceed their recorded values. If an impairment exists, the carrying values of such assets will be reduced to their fair value. No goodwill or intangible asset impairments were recorded
for the year ended December 31, 2004. No intangible asset impairments were recorded for the year ended December 31, 2003.

|                                                        |  | Customer
Relationships(1) |       | Developed
Technology(2) |   | Trade
Names(3) |   | Order
Backlog(4) |     | In
process
R&D(5) |   | Total |  
|------------------------------------------------------- |  | ------------------------- | ----- | ----------------------- | - | -------------- | - | ---------------- | --- | ----------------- | - | ----- | -
|bTrade                                                  |  | $                         | 1,195 |                         | $ | 274            |   | $                |    |                   | $ | 143   |  
|Webridge                                                |  |                           | 560   |                         |   | 910            |   |                  | 150 |                   |   |      |  
|Allegis                                                 |  |                           | 466   |                         |   |               |   |                  |    |                   |   |      |  
|Gross intangible assets and in-process R&D              |  |                           | 2,221 |                         |   | 1,184          |   |                  | 150 |                   |   | 143   |  
|Accumulated amortization to date                        |  |                           | (471  | )                       |   | (176           | ) |                  | (35 | )                 |   | (72   | )
|Balance at December 31, 2004                            |  | $                         | 1,750 |                         | $ | 1,008          |   | $                | 115 |                   | $ | 71    |  
|                                                        |  |                           |       |                         |   |                |   |                  |     |                   |   |       |  
|Amortization expense:                                   |  |                           |       |                         |   |                |   |                  |     |                   |   |       |  
|Year ended December 31, 2004                            |  | $                         | 364   |                         | $ | 176            |   | $                | 35  |                   | $ | 72    |  
|Year ended December 31, 2003                            |  |                           | 107   |                         |   |               |   |                  |    |                   |   |      |  
|Estimated amortization expense for the 12 months ended: |  |                           |       |                         |   |                |   |                  |     |                   |   |       |  
|December 31, 2005                                       |  |                           | 510   |                         |   | 282            |   |                  | 50  |                   |   | 71    |  
|December 31, 2006                                       |  |                           | 391   |                         |   | 282            |   |                  | 50  |                   |   |      |  
|December 31, 2007                                       |  |                           | 351   |                         |   | 282            |   |                  | 15  |                   |   |      |  
|December 31, 2008                                       |  |                           | 351   |                         |   | 125            |   |                  |    |                   |   |      |  
|December 31, 2009                                       |  |                           | 147   |                         |   | 37             |   |                  |    |                   |   |      |  

---

The
following unaudited pro forma financial information for the years ended December 31, 2004 and 2003 presents the consolidated operations of the Company as if all of the
acquisitions had been consummated on January 1, 2003, after giving effect to certain adjustments for the pro forma acquisitions as of the assumed January 1, 2003 acquisition date. Under
the provisions of SFAS No. 142, goodwill acquired in transactions completed after June 30, 2001 is not amortized. As the acquisition of

F-16

---



Allegis,
Webridge and bTrade 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, Webridge and bTrade been consummated on these
earlier dates, and do not project the Company's results of operations for any future period:

Year Ended December 31,2004

2003(in thousands, except
per share data)Revenues

$
29,736

$
32,428Net income (loss)


4,564


(14,212
)Basic net income (loss) per share


0.47


(1.50
)Diluted net income (loss) per share


0.45


(1.50
)


4.    Net income (loss) Per Share

Year EndedDecember 31,
2004

December 31,
2003

December 31,
2002(in thousands)Numerator for basic and diluted earnings (loss)
per sharenet income (loss)

$
5,177

$
(3,651
)
$
(10,330
)Denominator for basic earnings (loss)
per shareweighted average shares


9,164


8,163


8,064Effect of diluted securities:Stock option plans


457





Denominator for diluted earnings per shareadjusted weightedaverage shares


9,621


8,163


8,064


For
the year ended December 31, 2004, 83,000 shares were antidilutive and, therefore, not included in the calculation of diluted earnings per share. For additional disclosures
regarding stock plans, see the "Stock-Based Compensation" section in the Note 2 to the consolidated financial statements.

5.    Concentrations of Credit Risk

During the year ended December 31, 2004, one customer accounted for 11% of the Company's total revenue. 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.

As
of December 31, 2004, one customer accounted for 16% of the Company's gross trade accounts receivable. As of December 31, 2003, two customers accounted for 18% and 10%,
respectively, of the Company's gross trade accounts receivable.

F-17

---





6.    Property and Equipment

Property and equipment is comprised of the following:

December 31,2004

2003(in thousands)Equipment, furniture and fixtures

$
1,334

$
919Leased equipment


1,779


1,757Computer software


732


719Leasehold improvements


138


1093,983


3,504Less accumulated depreciation and amortization


(3,113
)

(2,639
)Net property and equipment

$
870

$
865


Accumulated amortization related to capitalized leased equipment was $1,778,000 and $1,732,000 as of December 31, 2004 and 2003, respectively.

7.    Restructuring

In the fourth quarter of 2004, the Company determined that $121,000 of restructuring accruals were no longer needed as all employee severance had been paid out
and no further obligations existed. Accordingly, the Company has reversed this accrual.

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. These actions resulted in the termination of 15 employees primarily across the professional services, support and research and development departments. All of these employees were
terminated within the second quarter of 2003. 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 $2,378,000 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 of 2003. 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.

As
of December 31, 2004, 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 March 31, 2006.

F-18

---



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,
2003

Adjustment to
previous
accrual

2004 cash
payments

Balance at
December 31,
2004(in thousands)Employee severance, benefits and related costs

$
121

(121
)
$


$
Facilities related costs


152




(73
)

79Legal costs and other


30




(30
)

Total

$
303

(121
)
$
(103
)
$
79


|                                               |       | 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                        
|                                               |       |                              |     |                                          |   |                                |       |                    |      |                             

|                                               |       | 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                         
|                                               |       |                              |     |                                          |   |                                |     |                    |     |                             

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 $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.

F-19

---



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.

8.    Impairment of Assets

In conjunction with its reviews of redundant cost structures, the Company wrote-off certain third party licenses related to products that had no
projected sales and no plans for further development. In the quarter ended June 30, 2003, a charge of $582,000 was recorded as "Impairment of third party licenses" in cost of revenues in the
accompanying statements of operations and comprehensive income (loss). During the same quarter, the Company recorded an additional impairment charge of $1,005,000 included in Restructuring and other
charges. This charge related to leasehold improvements associated with the excess office space, a redundant computer system and excess equipment and was recorded in restructuring and other charges in
the statement of operations. 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, which is included in as restructuring and
other charges in the accompanying statements of operations and comprehensive income (loss). 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 "Impairment of third party licenses" in cost of revenues in the accompanying statement of operations and comprehensive income (loss).

9.    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

F-20

---



associated
with the leases. Rent expense, net of sublease rental income, was $666,000, $651,000 and $1,315,000 for the years ended December 31, 2004, 2003 and 2002, respectively. Future minimum
payments under noncancelable lease obligations with initial or remaining terms in excess of one year, net of estimated sublease rental income, are as follows as of December 31, 2004:

Operating
leases(in thousands)2005

$
4262006


2192007


2042008


1882009


192Thereafter


82Total future minimum lease payments

$
1,311


10.    Income Taxes

Income tax expense consists of:

Current

Deferred

Total(in thousands)Year ended December 31, 2004:U.S. Federal

$


$


$
State








Year ended December 31, 2003:U.S. Federal

$


$


$
State








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

$


$


$
State











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

2004

2003

2002U.S. Federal statutory rate (benefit)

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

5.1

(4.2
)
(2.5
)Non-deductible expenses

0.9

2.0

1.5Stock option compensation

0.1

(0.8
)
5.6Cancellation of warrants





6.5(Utilization) generation of NOL carryforwards

(40.1
)
37.1

23.7Other

(0.0
)
(0.1
)
(0.8
)0
%
0
%
0
%


F-21

---



The tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at December 31, 2004 and 2003 are
presented below:

2004

2003(in thousands)Deferred tax assets:Accounts receivable

$
201

$
126Accrued compensation expense


174


269Net operating loss


7,988


10,568Depreciation


(13
)

33Restructuring


31


565Other


336


833Gross deferred tax assets


8,717


12,394Valuation allowance


(8,717
)

(12,394
)Net deferred tax assets

$


$



At December 31, 2004, the Company had total net operating loss carryforwards of $109,008,000, of which $20,658,000 may be utilized by the Company to reduce
future consolidated taxable income, if any. Of the total net operating loss carryforwards, $88,535,000 relate to pre-acquisition net operating losses attributable to acquired companies.
The Company's ability to utilize such pre-acquisition losses is substantially limited by current tax laws. In addition, the utilization of the net operating loss carryforwards may be
limited pursuant to Internal Revenue Code Section 382 as a result of ownership changes. The net operating loss carryforwards will begin to expire in 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 has been recorded to
completely offset the carrying value of the deferred tax assets as management had concluded that the realization of the deferred tax assets did not meet the "more likely than not" criteria under SFAS
No. 109. The Company recorded a reduction in the valuation allowance of $3,677,000 in 2004 and an additional valuation allowance of $1,407,000 in 2003 and $2,449,000 in 2002. The Company's tax
valuation allowance was $8,717,000 and $12,394,000 at December 31, 2004 and 2003, respectively.

11.    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

F-22

---



one
share of common stock. 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 EITF No. 96-18, resulting in a fair value of $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 was 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 in the
amount of $300,000. 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 $1,010,000 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 $20,342,000.

12.    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

F-23

---



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, 2004, there were 417,441 shares reserved for future grants under the Employee Plan. Stock options outstanding as of December 31,
2004 include options to purchase up to 851,949 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 2003 and for each subsequent year, non-employee
directors are automatically granted an option to purchase 12,000 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 vest at
the date of grant. At December 31, 2004, there were 359,825 shares reserved for future issuance of common stock. Stock options outstanding and deferred shares of common stock at
December 31, 2004 total to 215,258. Prior to 2004, non-employee directors of the Company also received 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. Prior to 2003, a non-employee director who serves as the chairperson of the Audit Committee
received 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. Prior
to 2003, non-employee directors who served as the chairperson of the Compensation Committee and the Governance Committee each received 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 and 2004, these amounts were paid in cash instead of stock.
Directors had 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. No stock was
issued to directors in 2003 or 2004.

Stock
option transactions are summarized as follows:

|                                                                         |  | 2004      |   | December 31,
2003 |       | 2002
|------------------------------------------------------------------------ |  | --------- | - | ----------------- | ----- | ----
|
|Outstanding at beginning of year                                         |  | 810,566   |   | $                 | 8.58  |     
|Granted                                                                  |  | 534,000   |   |                   | 6.14  |     
|Exercised                                                                |  | (67,299   | ) | $                 | 2.05  |     
|Cancelled                                                                |  | (210,060  | ) |                   | 7.78  |     
|                                                                         |  |           |   |                   |       |     
|Outstanding at end of year                                               |  | 1,067,207 |   | $                 | 7.93  |     
|                                                                         |  |           |   |                   |       |     
|Options exercisable at end of year                                       |  | 354,028   |   | $                 | 14.64 |     
|                                                                         |  |           |   |                   |       |     
|Weighted average per share fair value of options granted during the year |  |           |   | $                 | 3.63  |     
|                                                                         |  |           |   |                   |       |     

F-24

---



|                        |  | Options Outstanding |  | Options Exercisable
|----------------------- |  | ------------------- |  | -------------------
|
|$    0.000 - $    2.000 |  | 419,106             |  | 8.4 Years          
|$    2.001 - $    5.000 |  | 167,001             |  | 8.6 Years          
|$    5.001 - $    7.000 |  | 372,400             |  | 9.3 Years          
|$    7.001 - $  10.000  |  | 25,000              |  | 9.9 Years          
|$  10.001 - $  25.000   |  | 4,450               |  | 7.0 Years          
|$  25.001 - $  50.000   |  | 45,059              |  | 4.6 Years          
|$  50.001 - $  75.000   |  | 26,566              |  | 5.7 Years          
|$  75.001 - $100.000    |  | 500                 |  | 6.0 Years          
|$100.001 - $175.000     |  | 7,125               |  | 5.1 Years          
|                        |  |                     |  |                    
|                        |  | 1,067,207           |  |                    
|                        |  |                     |  |                    

13.    Credit Facility

The Company has a letter of credit securing an office 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 $821,000 in connection with an insurance premium finance agreement. The letter of credit declines on
a monthly basis, beginning November 2004, until it expires on September 24, 2005. As of December 31, 2004, the obligations related to the letter of credit were $607,899. This
letter of credit is secured by the Company's assets.

14.    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 2004, 2003 and 2002 were $0, $0 and $208,000, respectively.

15.    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 2004, 2003 and 2002, the Company incurred third party contractor costs to Warranty Check of $0, $100,000, and $415,000, respectively.

During
2002, the Company entered into a software license purchase agreement with a customer whose Chairman also serves as a director of the Company. In 2004, 2003 and 2002, revenues
earned by the Company for software and implementation services totaled $324,000, 0 and $474,000, respectively. During 2003, the Company entered into a sublease with the customer for a fractional share
of a sporting venue skybox. Amounts paid in 2004 and 2003 under this agreement totaled $41,000 and $39,000, respectively.

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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, and 2002, the Company incurred legal expenses with those firms of $192,000 and $237,000, respectively, during the period the individual served as
a corporate secretary.

16.    Quarterly Results of Operations (Unaudited)

The following table sets forth the Company's unaudited quarterly operating results for the eight quarters ended December 31, 2004, 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                     |                                              | $                  | 7,213
|Cost of revenues(a)         |                                              |                    | 2,076
|                            |                                              |                    |      
|Gross profit                |                                              |                    | 5,137
|Operating expenses:         |                                              |                    |      
|                            | Sales and marketing(a)                       |                    |      
|                            | Research and development(a)                  |                    |      
|                            | General and administrative                   |                    |      
|                            | Amortization of stock-based compensation     |                    |      
|                            | Amortization of intangible assets            |                    |      
|                            | Restructuring and other charges (recoveries) |                    |      
|                            |                                              |                    |      
|Total operating expenses    |                                              |                    | 3,555
|                            |                                              |                    |      
|Operating income (loss)     |                                              |                    | 1,582
|                            |                                              |                    |      
|Other income (expense), net |                                              |                    | 195  
|                            |                                              |                    |      
|Net income (loss)           |                                              | $                  | 1,777
|                            |                                              |                    |      

---

F-26

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|                                                           |                          | Three months ended
|---------------------------------------------------------- | ------------------------ | ------------------
|
|
|Stock-based employee compensation expense attributable to: |                          |                   
|                                                           | Cost of revenues         |                   
|                                                           | Sales and marketing      |                   
|                                                           | Research and development |                   
|                                                           |                          |                   
|Total                                                      |                          | $                 
|                                                           |                          |                   

|                            |                                              | Three months ended as a percentage of total revenue |     
|--------------------------- | -------------------------------------------- | --------------------------------------------------- | ----
|
|
|Revenue                     |                                              | 100%                                                |     
|Cost of revenue(a)          |                                              | 28.8                                                |     
|                            |                                              |                                                     |     
|Gross profit                |                                              | 71.2                                                |     
|Operating expenses:         |                                              |                                                     |     
|                            | Sales and marketing(a)                       |                                                     | 15.3
|                            | Research and development(a)                  |                                                     | 11.7
|                            | General and administrative                   |                                                     | 21.5
|                            | Amortization of stock-based compensation     |                                                     |    
|                            | Amortization of intangible assets            |                                                     | 2.5 
|                            | Restructuring and other charges (recoveries) |                                                     | (1.7
|                            |                                              |                                                     |     
|Total operating expenses    |                                              | 49.3                                                |     
|                            |                                              |                                                     |     
|Operating income (loss)     |                                              | 21.9                                                |     
|                            |                                              |                                                     |     
|Other income (expense), net |                                              | 2.7                                                 |     
|Net income (loss)           |                                              | 24.6                                                | %   
|                            |                                              |                                                     |     

---

17.    Commitments and Contingencies

In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others." Under the Company's standard software license agreements, the Company agrees to indemnify, defend and hold harmless its licensees' use of Company software from and against certain losses,
damages and costs arising from claims alleging the licensees' use of Company software infringes on the intellectual property rights of a third party. The indemnification is contingent upon
(a) the customer providing the Company with prompt written notice of such claims; (b) the customer providing reasonable cooperation to the Company in the defense and settlement of such
claim, at the Company's expense; and (c) the Company having sole authority to defend or settle the claim. Historically, the Company has not been

F-27

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required
to pay material amounts in connection with claims asserted under these provisions, and accordingly, the Company has not recorded a liability relating to such provisions.

In
the fourth quarter of 2004, the Company received a letter from the tax authorities in the Netherlands that proposed tax deficiencies and penalties and interest based on audits of the
years 2000, 2001 and 2002 in the amount of EURO 2.3 million, or approximately $3.2 million. The asserted tax deficiencies relate to certain wage tax amounts, including amounts related to
vested employee stock options, that the tax inspector believes should have been withheld by the Company on behalf of several employees. The Company believes that it has meritorious legal defenses to a
significant portion of these deficiencies. The Company recorded an accrual of $650,000 in the fourth quarter of the year ended December 31, 2004 for its assessment of the most probable outcome
of this matter. This reserve is recorded in accrued expenses and other current liabilities on the December 31, 2004 consolidated balance sheet and is recorded in general and administrative
expenses in the consolidated statement of operations and comprehensive income (loss).

In
the fourth quarter of 2004, the Company determined that an accrual in the amount of $481,000 related to potential exposures for support fees for third party embedded software was no
longer needed as the Company had ceased using the third party software products in its software products. Accordingly, as of December 31, 2004, the Company reversed this accrual and recorded
the reversal as income in general and administrative expenses in the consolidated statement of operations and comprehensive income (loss).

18.    Subsequent Event

On February 2, 2005, the Company entered into an Asset Purchase Agreement (the "Purchase Agreement") with ChannelWave, Inc. ("ChannelWave"),
pursuant to which the Company acquired certain assets from ChannelWave, including substantially all assets relating to ChannelWave's Partner Relationship Management System and Service Information
System businesses, for consideration comprising $1.0 million of cash and 225,807 shares valued at $18.954 per share of the Company's common stock (of which 29,033 shares are being held by the
Company in escrow for certain potential additional liabilities of ChannelWave pursuant to the Purchase Agreement). The shares of the Company's common stock are expected to be registered for resale on
a Registration Statement on Form S-3.

On
February 7, 2005, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Optum, Inc. ("Optum") and its stockholders, pursuant to which the
Company acquired Optum. In consideration for the merger, the Company issued paid $325,467 in cash 1,405,780 shares valued at 18.583 per share of the Company's common stock to the stockholders
of Optum (of which $65,093 in cash and 281,156 shares of the Company's common stock are being held by an escrow agent for certain potential additional liabilities of Optum pursuant to the
Merger Agreement), assumed approximately $4.4 million of Optum indebtedness, and incurred various transaction-related expenses. The shares of the Company's common stock are expected to be
registered for resale on a Registration Statement on Form S-3.

F-28

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Under
date of March 21, 2005, we reported on the consolidated balance sheets of Click Commerce, Inc. (the Company) as of December 31, 2004 and 2003, and the related
consolidated statements of operations and comprehensive income (loss), shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2004.
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 the Company'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
March 21, 2005 |             

F-29

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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, 2004    |  | $                 | 323 |                  | 240 |            | (49  | )             
|Year ended December 31, 2003    |  | $                 | 175 |                  | 149 |            | (1   | )             
|Year ended December 31, 2002    |  | $                 | 136 |                  | 342 |            | (303 | )             

|Valuation Allowance for Deferred Tax Assets |  | Beginning
Balance |        | Additions |       | Reductions |        | Ending
Balance
|------------------------------------------- |  | ----------------- | ------ | --------- | ----- | ---------- | ------ | --------------
|
|Year ended December 31, 2004                |  | $                 | 12,394 |           |      |            | (3,610 | )             
|Year ended December 31, 2003                |  | $                 | 10,987 |           | 1,407 |            |       |               
|Year ended December 31, 2002                |  | $                 | 8,538  |           | 2,449 |            |       |               

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