10-Q 1 d10q.htm FORM 10-Q FORM 10-Q
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of
The Securities Exchange Act of 1934
 
For the Quarter Ended March 31, 2001
 
Commission File Number 0-30881
 
 
CLICK COMMERCE, INC.
(Exact name of registrant as specified in its charter)
 
Delaware    36-4088644
(State or other jurisdiction of
incorporation or organization)		    (I.R.S. Employer
Identification Number)
 
200 East Randolph Drive, Suite 4900
Chicago, Illinois 60601
(Address of principal executive offices)
 
(312) 482-9006
(Registrant’s telephone number, including area code)
 
 
          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes   X          No    
 
          On May 14, 2001, 38,504,023 shares of the registrant’s common stock were issued and outstanding.
 
 
CLICK COMMERCE, INC.
 
INDEX
      
     Page No.
PART I.      FINANCIAL INFORMATION     
 
Item 1.      Financial Statements     
 
       Condensed Consolidated Balance Sheets at March 31, 2001 and December 31, 2000      1
 
       Condensed Consolidated Statements of Operations and Comprehensive Loss for the three
months ended March 31, 2001 and March 31, 2000 		     2
 
       Condensed Consolidated Statements of Cash Flows for the three months ended March 31,
2001 and March 31, 2000 		     3
 
       Notes to the Condensed Consolidated Financial Statements      4
 
Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations      6
 
Item 3.      Quantitative and Qualitative Disclosures About Market Risk      10
 
PART II.      OTHER INFORMATION     
 
Item 1.      Legal Proceedings      11
 
Item 2.      Changes in Securities and Use of Proceeds      11
 
Item 3.      Defaults Upon Senior Securities      11
 
Item 4.      Submission of Matters to a Vote of Security Holders      11
 
Item 5.      Other Information      11
 
Item 6.      Exhibits and Reports on Form 8-K      11
 
SIGNATURES      12
 
PART 1. FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
CLICK COMMERCE, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(dollars in thousands)
 
       March 31,
2001
      December 31,
2000
       (unaudited)
ASSETS          
Current assets:          
          Cash and cash equivalents      $  47,773        $  51,318  
          Trade accounts receivable, net      6,783        9,276  
          Revenue earned on contracts in progress in excess of billings      1,093        1,534  
          Other current assets      2,289        1,908  
          Deferred income taxes      205        110  
     
     
  
                    Total current assets      58,143        64,146  
          Property and equipment, net      2,647        1,931  
          Deferred income taxes      6,563        3,611  
          Other assets      165        68  
     
     
  
                               Total assets      $  67,518        $  69,756  
     
     
  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current liabilities:          
          Accounts payable      $    1,325        $    2,096  
          Billings in excess of revenue earned on contracts in progress      718        1,027  
          Deferred revenue      2,184        1,531  
          Accrued compensation      3,067        3,949  
          Accrued expenses and other current liabilities      3,012        3,805  
          Current portion of capital lease obligations      406        298  
     
     
  
                    Total current liabilities      10,712        12,706  
Capital lease obligations, less current portion      893        397  
Other liabilities      —          37  
     
     
  
                    Total liabilities      11,605        13,140  
Shareholders’ equity:
          Preferred stock      —          —    
          Common stock      38        38  
          Additional paid-in capital      85,613        83,960  
          Accumulated other comprehensive income      39        119  
          Deferred compensation      (5,913 )      (6,827 )
          Accumulated deficit       (23,864 )       (20,674 )
     
     
  
                    Total shareholders’ equity      55,913        56,616  
     
     
  
                    Total liabilities and shareholders’ equity      $  67,518        $  69,756  
     
     
  
 
See accompanying notes to consolidated financial statements.
 
CLICK COMMERCE, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
 
(dollars in thousands, except per share data)
 
(unaudited)
 
       Three Months ended
March 31,
       2001
      2000
Revenues          
          Product license      $          6,406        $            —    
          Service      5,163        5,124  
     
     
  
                    Total revenues      11,569        5,124  
     
     
  
Cost of revenues          
          Product license      171        —    
          Service (exclusive of $13 and $4 for the three months ended March 31, 2001
               and 2000, respectively, reported below as amortization of stock-based
               compensation)		      2,952        1,555  
     
     
  
                    Total cost of revenues      3,123        1,555  
     
     
  
Gross profit      8,446        3,569  
Operating expenses:          
          Sales and marketing (exclusive of $557 and $101 for the three months ended
               March 31, 2001 and 2000, respectively, reported below as amortization of
               stock-based compensation)		      8,108        1,649  
          Research and development (exclusive of $6 and $23 for the three months
               ended March 31, 2001 and 2000, respectively, reported below as
               amortization of stock-based compensation)		      2,603        896  
          General and administrative (exclusive of $39 and $142 for the three months
               ended March 31, 2001 and 2000, respectively, reported below as
               amortization of stock-based compensation)		      2,810        1,246  
          Amortization of stock-based compensation      615        270  
     
     
  
                    Total operating expenses      14,136        4,061  
     
     
  
                    Operating loss      (5,690 )      (492 )
     
     
  
Interest income      778        20  
Interest expense      (18 )      (3 )
Other expense      (100 )      —    
     
     
  
Other income, net      660        17  
     
     
  
Loss before income taxes      (5,030 )      (475 )
Income tax benefit      (1,840 )      (141 )
     
     
  
Net loss      (3,190 )      (334 )
Accretion related to redeemable preferred stock      —          (4,114 )
     
     
  
Net loss available to common shareholders      $        (3,190 )      $        (4,448 )
     
     
  
                    Basic and diluted loss per share      $          (0.08 )      $          (0.20 )
     
     
  
Weighted average shares outstanding—basic and diluted       38,357,079         22,431,995  
 
Comprehensive loss:          
          Net loss      $        (3,190 )      $            (334 )
          Foreign currency translation adjustment      (80 )      —    
     
     
  
          Comprehensive loss      $        (3,270 )      $          (334)  
     
     
  
 
See accompanying notes to consolidated financial statements.
 
CLICK COMMERCE, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(dollars in thousands)
 
(unaudited)
 
       Three Months ended
March 31,
       2001
      2000
Cash flows from operating activities:          
          Net loss      $(3,190 )      $  (334 )
          Adjustments to reconcile net loss to net cash used in operating activities:          
                    Amortization of stock-based compensation      615        270  
                    Depreciation and amortization      238        78  
                    Provision for doubtful accounts      22        56  
                    Deferred income taxes      (1,798 )      (131 )
                    Deferred compensation      55        —    
                    Changes in operating assets and liabilities:
                               Trade accounts receivable      2,471        409  
                               Revenue earned on contracts in progress in excess of billings      441        (1,486 )
                               Other current assets      (381 )      (696 )
                               Accounts payable      (747 )      582  
                               Billings in excess of revenues earned on contracts in progress      (309 )      (930 )
                               Deferred revenue      653        (359 )
                               Accrued compensation      (882 )      387  
                               Accrued expense and other current liabilities      (570 )      230  
                               Income taxes payable      —          (62 )
                               Other assets and liabilities      (132 )      (79 )
     
     
  
                                         Net cash used in operating activities      (3,514 )      (2,065 )
     
     
  
Cash flows from investing activities:          
          Purchases of property and equipment      (273 )      (455 )
          Net maturities of short-term investments      —          2,912  
     
     
  
                                         Net cash provided by (used in) investing activities      (273 )      2,457  
     
     
  
Cash flows from financing activities:          
          Proceeds from exercise of stock options      426        4  
          Principal payments under capital lease obligations      (104 )      (13 )
     
     
  
                                         Net cash provided by (used in) financing activities      322        (9 )
     
     
  
Effect of foreign exchange rates on cash equivalents      (80 )      —    
Net change in cash and cash equivalents      (3,545 )      383  
Cash and cash equivalents at beginning of period      51,318        3,336  
     
     
  
Cash and cash equivalents at end of period      $47,773        $3,719  
     
     
  
Supplemental disclosures:          
          Property and equipment acquired under capital leases      $    708        $  —    
          Interest paid      $      18        $      3  
          Income taxes paid      $      20        $    53  
 
See accompanying notes to consolidated financial statements.
 
CLICK COMMERCE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
(Dollars in thousands, except per share data)
 
(unaudited)
 
1.    BASIS OF PRESENTATION
 
          The unaudited condensed consolidated financial statements include the accounts of Click Commerce, Inc. and its wholly owned subsidiaries (the “Company”) and reflect all adjustments (which are normal and recurring in nature) that, in the opinion of management, are necessary for a fair presentation of the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending December 31, 2001. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with the Securities and Exchange Commission’s rules and regulations. The unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the Company’s audited consolidated financial statements and notes included in the Company’s annual report on Form 10-K and other documents that have been filed with the Securities and Exchange Commission.
 
          Certain prior year amounts have been reclassified to conform to 2001 presentation.
 
2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Revenue Recognition
 
          During 2000, the Company began to license its software products independent of its integration services. For those contracts that either do not contain a services component or that have services not essential to the functionality of any other element of the contract, software license revenue is recognized upon shipment of the Company’s software provided that the fee is fixed and determinable, persuasive evidence of an arrangement exists and collection of the resulting receivable is considered probable. Revenue from service contracts is typically recognized as the services are performed.
 
          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 as services are performed or output milestones are reached, as the Company delivers, customizes and installs the software. The percentage completed is measured either by the percentage of labor hours incurred to date in relation to estimated total labor hours or in consideration of achievement of certain output milestones, depending on the specific nature of each contract.
 
          The Company recognizes product license revenue from licensing the rights to use its software. The Company generates service revenues from integrating its software, performing needs analyses for customers and through the sale of maintenance and training services. Revenue from contracts recognized under the percentage-of-completion method are presented as product revenue to the extent that the underlying milestones are related to software deliveries. To the extent that hours of input are used as the basis for percentage completed or that contract milestones relate to software customization or other professional services, revenues are presented as service revenues. Because all software license revenue was recognized using hours of input as the basis for the percentage completed, all revenue for the quarter ended March 31, 2000 is classified as service revenue.
 
Derivative Instruments and Hedging Activities
 
          Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended by SFAS No. 138 “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” These statements establish a comprehensive standard for the recognition and measurement of derivative instruments and hedging activities. These pronouncements require the Company to recognize derivatives on the balance sheet at fair value. In addition, changes in a derivative’s fair value are required to be recognized in earnings unless specific hedge criteria are met. Currently, the pronouncements have no impact on the Company, as the Company has not utilized derivative instruments or entered into any hedging transactions that are covered by these pronouncements.
 
3.    STOCK-BASED COMPENSATION
 
          The Company granted stock options at exercise prices less than their deemed fair value; accordingly, the Company recorded deferred compensation of $4,636 million. Such deferred compensation is amortized on a straight-line basis over the vesting period of each individual award, resulting in $306 and $270 of stock-based compensation expense for the three months ended March 31, 2001 and 2000, respectively.
 
          In April 2000, the Company issued a warrant to Accenture, LLP to purchase up to 818,226 shares of common stock at $12.22 per share. The warrant vests contingently upon the achievement of certain milestones, primarily the generation of license revenue for the Company, and expires on April 20, 2004. The warrant contains a significant cash penalty for Accenture’s failure to meet the agreed revenue target by the expiration date, and, accordingly, the fair value of the warrant was measured at the date of grant in accordance with Emerging Issues Task Force Issue No. 96-18 and Statement of Financial Accounting Standards No. 123, resulting in a fair value of approximately $5,000, which was determined using the Black-Scholes option-pricing model. This amount is being amortized to expense on a straight-line basis over the vesting period of the warrant. The Company recognized amortization expense of $309 for the three months ended March 31, 2001.
 
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Overview
 
          The Company is a provider of channel management software products and integration services for large, global companies with complex or specialized dealer, distributor and supplier networks. The Company’s software products and integration services enable large, global companies to effectively manage and engage in collaborative business-to-business electronic commerce throughout all levels of their product and services distribution channels.
 
          The Company’s revenue is derived from sales of licenses of its software, comprised of the Relationship Manager and a portfolio of e-commerce applications, needs analyses, professional services, maintenance and support. The Company’s software is generally licensed on a perpetual basis.
 
          During 2000, the Company began to license its software products independent of its integration services. For those contracts that either do not contain a services component or in which the services element is not essential to the functionality of any other element of the contract, software license revenue is recognized upon shipment of the Company’s software, provided that the fee is fixed and determinable, persuasive evidence of an arrangement exists and collection of the resulting receivable is considered probable. For contracts in which the services component meets the requirements of a separate element of the contract, revenue is recognized as the services are performed. The revenue to be recognized from multiple-element software contracts is based on the fair value of each element as determined from objective evidence that is specific to the Company. The Company records deferred revenue on software contracts for which cash has been received, but for which the requirements for revenue recognition have not been met. The Company records accounts receivable on software contracts for which the requirements for revenue recognition have been met, but for which cash has not been received.
 
          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 as services are performed or output milestones are reached, as the Company delivers, customizes and installs the software. The percentage completed is measured either by the percentage of labor hours incurred to date in relation to estimated total labor hours or in consideration of achievement of certain output milestones, depending on the specific nature of each contract. For arrangements in which percentage-of-completion accounting is used, the Company records cash receipts from customers and billed amounts due from customers in excess of recognized revenue as billings in excess of revenues earned on contracts in progress. The timing and amount of cash receipts from customers can vary significantly depending on specific contract terms and can therefore have a significant impact on the amount of billings in excess of revenues earned on contracts in progress at the end of any given period.
 
          Maintenance service is sold separately under contacts that are renewable annually. The Company anticipates that it will sell maintenance service to most, but not all of its customers. The Company recognizes maintenance service revenue ratably over the contract period, typically one year. Maintenance fees are generally billed annually in advance and are recorded as deferred revenue. As part of the sales process, the Company often performs a needs analysis for the potential customer on a fixed fee basis. Revenue from needs analyses is recognized as the work is performed.
 
          The Company recognizes product license revenue from licensing the rights to use its software. The Company generates service revenues from integrating its software, performing needs analyses for customers and through the sale of maintenance and training services. Revenue from contracts recognized under the percentage-of-completion method are presented as product revenue to the extent that the underlying milestones are related to software deliveries. To the extent that hours of input are used as the basis for percentage completed or that contract milestones relate to software customization or other professional services, revenues are presented as service revenues.
 
           Costs of product license revenues include production and shipping expenses, as well as costs of licensing third party software incorporated into the Company’s products. Costs of service revenues includes salaries and related expenses for professional services and technical support personnel who provide customization and installation and support services to customers, as well as an allocation of data processing and overhead costs.
 
          Operating expenses are classified into four general categories: sales and marketing, research and development, general and administrative and amortization of stock-based compensation. Sales and marketing expenses consist primarily of salaries and other related costs for sales and marketing personnel, sales commissions, travel, public relations and marketing materials. Research and development expenses consist primarily of personnel costs to support product development. General and administrative expenses consist primarily of salaries and other related costs for executive management, finance and administrative employees, legal and accounting services. 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, LLP.
 
          In April 2000, the Company issued a warrant to Accenture to purchase up to 818,226 shares of common stock at an exercise price of $12.22 per share. The warrant vests contingently upon the achievement of certain milestones, primarily the generation of license revenue for the Company, and expires on April 20, 2004. The warrant contains 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, resulting in a fair value of approximately $5.0 million, which was determined using the Black-Scholes option pricing model. For the three months ended March 31, 2001, the Company has recognized $0.3 million in amortization expense. The Company expects to recognize amortization expense of $0.9 for the remainder of 2001, $1.2 million in 2002 and 2003, respectively, and $0.4 million in 2004.
 
          The Company’s full-time headcount at March 31, 2001 was 324. The Company’s expansion has placed significant demands on management and operational resources. To manage this rapid growth, the Company must invest in and implement scalable operational systems, procedures and controls. The Company must also be able to recruit qualified candidates. The Company expects any future expansion to continue to challenge its ability to hire, train, manage and retain employees.
 
          On June 30, 2000, the Company completed an initial public offering (“IPO”) of common stock that resulted in the issuance of 5,000,000 shares of common stock with an IPO price of $10.00 per share. In connection with the IPO, the Company offered the underwriters the option to purchase an additional 750,000 shares of common stock (“underwriter’s over-allotment”) at the offering price of $10.00 per share. This option was exercised on July 7, 2000. Proceeds to the Company from the IPO and exercise of the underwriter’s over-allotment amounted to approximately $52.0 million, net of discounts, commissions and other costs of the offering. The net proceeds are being used for working capital and general corporate purposes, including expansion in sales and marketing both domestically and in Europe, broadening of business development efforts, and continued investment in product technology.
 
          The Company believes that period-to-period comparisons of operating results should not be relied upon as predictive of future performance because the substantial increase in revenues in recent periods may not be sustainable. The Company’s prospects must be considered in light of the risks, expenses and difficulties encountered by companies at an early stage of development, particularly companies in new, rapidly evolving markets. The Company may not be successful in addressing such risks and difficulties. Although the Company has experienced significant percentage growth in revenues in recent periods, the Company believes that prior growth rates may not be sustainable or indicative of future operating results.
Results of Operations
 
          The following table sets forth selected financial data for the periods indicated in dollars and as a percentage of total revenue.
      Three Months Ended March 31,
       2001
      2000
       in
(000’s)
      % of
Revenue
      in
(000’s)
      % of
Revenue
Revenues                    
       Product license      $ 6,406        55.4 %      $  —          —   %
       Service      5,163        44.6         5,124        100.0  
     
     
       
     
  
                    Total revenues      11,569        100.0        5,124        100.0  
Cost of revenues                    
          Product license      171        1.5        —          —    
          Service (a)      2,952        25.5        1,555        30.3  
     
     
       
     
  
                    Total cost of revenues      3,123        27.0        1,555        30.3  
Gross profit      8,446        73.0        3,569        69.7  
Operating expenses:
          Sales and marketing (a)      8,108        70.1        1,649        32.2  
          Research and development (a)      2,603        22.5        896        17.5  
          General and administrative (a)      2,810        24.3        1,246        24.3  
          Amortization of stock-based compensation      615        5.3        270        5.3  
     
     
       
     
  
Total operating expenses       14,136        122.2        4,061        79.3  
     
     
       
     
  
Operating loss      $(5,690 )      (49.2 )%      $  (492 )      (9.6 )%
     
     
       
     
  
(a)
Exclusive of amortization of stock-based compensation presented as a separate caption.
 
Comparison of the three months ended March 31, 2001, to the three months ended March 31, 2000
 
Revenue
 
          Total revenue increased by approximately $6.4 million, or 126%, to $11.6 million for the three months ended March 31, 2001 from $5.1 million for the three months ended March 31, 2000. The Company has begun to classify its product and service revenue separately. Product license revenue consists of revenue generated from licensing the rights to use the Company’s software. Service revenue consists of revenue generated from integrating the Company’s software, performing needs analyses for customers and through the sale of maintenance and training services. Because all software license revenue was recognized using hours of input as the basis for the percentage completed, all revenue for the quarter ended March 31, 2000 is classified as service revenue.
 
Cost of Revenue
 
          Total cost of revenue increased by approximately $1.6 million, or 101%, to $3.1 million for the three months ended March 31, 2001 from $1.6 million for the three months ended March 31, 2000. Cost of product revenue consisted of royalty fees for licensed third party software that is embedded in our products or incorporated in our product offerings. The increase in cost of services revenue was primarily attributable to an increase in compensation and related expenses due to an increased number of professional services personnel and an increase in third party contractor costs during the quarter ended March 31, 2001 compared to the quarter ended March 31, 2000.
 
Operating Expenses
 
          Sales and Marketing.    Sales and marketing expenses increased by approximately $6.5 million, or 392%, to $8.1 million for the three months ended March 31, 2001 from $1.6 million for the three months ended March 31, 2000. The increase in sales and marketing expenses was primarily attributable to an increase in compensation and related expenses over the prior year quarter due to an increase in the number of sales and marketing personnel. The Company also incurred increased expenses for marketing material and events during the three months ended March 31, 2001.
 
          Research and Development.    Research and development expenses increased by approximately $1.7 million, or 191%, to $2.6 million for the three month period ended March 31, 2001, compared to $0.9 million for the prior year three month period. This increase was primarily attributable to an increase in third party contractor costs and an increase in compensation and related expenses due to an increase in the number of product development personnel during the three months ended March 31, 2001. To date, all software development costs have been expensed as incurred.
 
          General and Administrative.    General and administrative expenses increased by approximately $1.6 million, or 126%, to $2.8 million for the three months ended March 31, 2001 from $1.2 million for the three months ended March 31, 2000. This increase was primarily attributable to an increase in compensation and related expenses due to an increased number of operations, management and administrative personnel during the quarter ended March 31, 2001. The Company also incurred increased expenses related to consulting fees.
 
          Amortization of stock-based compensation.    The Company has recorded deferred compensation for stock options with exercise prices less than the deemed fair value of our common stock at the time of those grants. Deferred compensation is being amortized over the vesting periods of the applicable options, resulting in expense of $0.3 million during each of the three months ended March 31, 2001 and 2000, respectively. Additionally, the $5.0 million fair value of the warrant issued to Accenture, LLP in April 2000 is being amortized over the vesting period of the related warrant. Accordingly, $0.3 million of amortization expense was recognized during the three months ended March 31, 2001.
 
Liquidity and Capital Resources
 
          At March 31, 2001, the Company had $47.8 million of cash and cash equivalents, consisting primarily of proceeds from our initial public offering. Net cash used in operating activities was $3.5 million and $2.1 million for the three months ended March 31, 2001 and 2000, respectively. The $3.5 million of cash used in operating activities in the current three month period consisted primarily of a $3.2 million net loss adjusted for non-cash amortization and depreciation of $0.8 million, an increase in deferred tax assets of $1.8 million and a decrease in accrued expenses, accounts payable and accrued compensation of $2.2 million. These items were primarily offset by $2.5 million net decrease in accounts receivable during the quarter.
 
          Net cash used by investing activities was $0.3 million for the three months ended March 31, 2001, consisting of purchases of property and equipment. The Company’s capital expenditures consist of purchases of operating resources to manage operations, including computer software, office furniture and equipment and leasehold improvements. The Company expects that its capital expenditures will continue to increase in the future.
 
          Net cash provided by financing activities was approximately $0.3 million for period ended March 31, 2001. The cash provided during the current year period reflects $0.4 million of proceeds from the exercise of stock options offset by $0.1 million in capital lease principal payments.
 
          On March 31, 2001, the Company renewed its $3.0 million revolving credit facility. In January 2000, the Company obtained a letter of credit under this facility totaling $0.5 million to secure a new office lease. This letter of credit is renewable annually and declines by $0.1 million on the first, second, third and fourth anniversaries of the lease and then declines to $38,130 on the fifth anniversary until the lease expires in August 2005. Accordingly, the letter of credit has declined to $0.4 million.
 
           The Company expects some growth in our operating expenses, particularly research and development and sales and marketing expenses. We may use cash resources to fund investments in complementary businesses or technologies. The Company believes that the net proceeds from the sale of our common stock in our initial public offering, together with our existing working capital will be sufficient to meet our working capital and operating expenditure requirements for at least the next twelve months. We have no current plans to raise additional equity during the next twelve months, although such plans are subject to business and market conditions. Thereafter, we may find it necessary to obtain additional equity or debt financing, although we do not currently foresee a need for additional cash resources for long-term needs. In the event additional financing is required, we may not be able to raise it on acceptable terms or at all.
 
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended:
 
          Statements in this Form 10-Q that are not historical facts and refer to the Company’s future prospects are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identified by words such as “expect,” “anticipate,” “intend,” “believe,” “hope,” “assume,” “estimate” and other similar words and expressions. The statements are subject to risks and uncertainties and actual results may differ materially from those indicated by these forward-looking statements as a result of various factors, including but not limited to, the ability of the Company to execute on its plan to enter into strategic alliances with system integrators and business consultants, the extent of customer acceptance and utilization of the Company’s channel management solutions, the impact of competitive products and services, the Company’s ability to manage growth and to develop new and enhanced versions of its products and services, the effect of economic and business conditions, the volume and timing of customer contracts, the Company’s ability to expand overseas, changes in technology, deployment delays or errors associated with the Company’s products and the Company’s ability to protect its intellectual property rights.
 
Item 3.    Qualitative and Quantitative Disclosures About Market Risk
 
          The following discusses the Company’s exposure to market risk related to changes in foreign currency exchange rates and interest rates. This discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results could vary materially as a result of a number of factors including those set forth in Part I of the Company’s annual report on Form 10-K under “Risk Factors”.
 
Foreign Currency Exchange Rate Risk
 
          To date, all of the Company’s recognized revenues have been denominated in U.S. dollars and primarily from customers in the United States and the exposure to foreign currency exchange rate changes has been immaterial. The Company expects, however, that future product license and professional services revenues may also be derived from international markets and may be denominated in the currency of the applicable market. As a result, operating results may become subject to significant fluctuations based upon changes in the exchange rates of certain currencies in relation to the U.S. dollar. Furthermore, to the extent the Company engages in international sales denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make the Company’s products less competitive in international markets. Although the Company 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.
 
Interest Rate Risk
 
          As of March 31, 2001, the Company had cash and cash equivalents of $47.8 million, which consist of cash and highly liquid short-term investments. Declines in interest rates over time will reduce interest income from short-term investments. Based upon the balance of cash and cash equivalents at March 31, 2001, a change in interest rates of 0.5% would cause a corresponding change in annual interest income of approximately $0.2 million.
 
PART II.    OTHER INFORMATION
 
Item 1.    Legal Proceedings
 
          There are no material legal proceedings to which the Company is a party or of which any of its property is subject.
 
Item 2.    Changes in Securities and Use of Proceeds
 
          On June 26, 2000, the Securities and Exchange Commission declared effective the Company’s Registration Statement on Form S-1, File No. 333-30564, relating to the initial public offering of the Company’s common stock, par value $.001 per share. As of March 31, 2001, the Company had spent approximately $4.3 million of the net proceeds for working capital and general corporate purposes. The remaining proceeds are invested in investment grade, interest bearing securities.
 
Item 3.    Defaults Upon Senior Securities
 
          Not applicable.
 
Item 4.    Submission of Matters to a Vote of Security Holders
 
          Not applicable.
 
Item 5.    Other Information
 
          Not applicable.
 
Item 6.    Exhibits and Reports on Form 8-K
 
          (a) Exhibits:
 
          None
 
          (b) Reports on Form 8-K
 
          None
 
SIGNATURES
 
          Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
CLICK COMMERCE , INC .
 
/s/    REBECCA S. MASKEY
By: 
Rebecca S. Maskey
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Date: May 15, 2001