##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549




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FORM 10-K

(Mark One)




|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31,
2004


or



|  |                                                             
|- | ------------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE

SECURITIES EXCHANGE ACT OF 1934


For the transition period
from                               to                               .


Commission file number 0-19817

STELLENT, INC.


(Exact name of registrant as specified in its
charter)


|                                                                                                    |  |                                                        
|--------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------
|Minnesota
    (State or other jurisdiction of
    incorporation or organization)                    |  | 41-1652566
    (I.R.S. Employer
    Identification No.)
|                                                                                                   
|7777 Golden Triangle Drive
    Eden Prairie, Minnesota
    (Address of principal executive offices) |  | 55344-3736
    (Zip Code)                              

(952) 903-2000


(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: Preferred Share

Purchase Rights; Common Stock, par value
$.01 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 x     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 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.     o

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

The aggregate market value of the
registrants common stock held by non-affiliates of the
registrant as of September 30, 2003 was $153,547,703 based
on the closing sale price for the registrants common stock
on that date as reported by The Nasdaq Stock Market. For
purposes of determining such aggregate market value, all
officers and directors of the registrant are considered to be
affiliates of the registrant, as well as shareholders holding
10% or more of the outstanding common stock as reflected on
Schedules 13D or 13G filed with the registrant. This number is
provided only for the purpose of this report on Form 10-K
and does not represent an admission by either the registrant or
any such person as to the status of such person.

As of June 7, 2004, the registrant had
26,557,999 shares of common stock issued and outstanding.



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STELLENT, INC.

FORM 10-K

For the fiscal year ended March 31,
2004


TABLE OF CONTENTS

|                                 |          |             |                                                                                           |      |  |    | 
|-------------------------------- | -------- | ----------- | ----------------------------------------------------------------------------------------- | ---- |  | -- | 
|                                 |          | Description |                                                                                           | Page
|                                 |          |             |                                                                                           |     
|PART I                           |          |             |                                                                                           |      |  |   
|                                 | Item 1.  |             | Business                                                                                  |      |  | 1  | 
|                                 | Item 2.  |             | Properties                                                                                |      |  | 7  | 
|                                 | Item 3.  |             | Legal Proceedings                                                                         |      |  | 8  | 
|                                 | Item 4.  |             | Submission of Matters to a
    Vote of Security Holders                                   |      |  | 8  | 
|                                 | Item 4A. |             | Executive Officers of the
    Registrant                                                  |      |  | 8  | 
|PART II                          |          |             |                                                                                           |      |  |   
|                                 | Item 5.  |             | Market for Registrants
    Common Equity and Related Stockholder Matters                 |      |  | 10 | 
|                                 | Item 6.  |             | Selected Financial Data                                                                   |      |  | 11 | 
|                                 | Item 7.  |             | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |      |  | 12 | 
|                                 | Item 7A. |             | Quantitative and Qualitative
    Disclosures About Market Risk                            |      |  | 38 | 
|                                 | Item 8.  |             | Financial Statements and
    Supplementary Data                                           |      |  | 39 | 
|                                 | Item 9.  |             | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure  |      |  | 40 | 
|                                 | Item 9A. |             | Controls and Procedures                                                                   |      |  | 40 | 
|PART III                         |          |             |                                                                                           |      |  |   
|                                 | Item 10. |             | Directors and Executive
    Officers of the Registrant                                    |      |  | 40 | 
|                                 | Item 11. |             | Executive Compensation                                                                    |      |  | 40 | 
|                                 | Item 12. |             | Security Ownership of
    Certain Beneficial Owners and Management                        |      |  | 40 | 
|                                 | Item 13. |             | Certain Relationships and
    Related Transactions                                        |      |  | 40 | 
|                                 | Item 14. |             | Principal Accountant Fees
    and Services                                                |      |  | 40 | 
|PART IV                          |          |             |                                                                                           |      |  |   
|                                 | Item 15. |             | Exhibits, Financial
    Statement Schedules and Reports on Form 8K                        |      |  | 41 | 
|Signatures                       |          |             | 45                                                                                        |     
|Certifications                   |          |             |                                                                                           |     
|Subsidiaries of Registrant      
|Consent of Grant Thornton LLP   
|Certification by Robert F. Olson
|Certification by Gregg A. Waldon
|Certification by Robert F. Olson
|Certification by Gregg A. Waldon





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##### Table of Contents



DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants definitive
Proxy Statement dated for the annual meeting of Shareholders to
be held on August 11, 2004 are incorporated by reference in
Part III of this Annual Report on Form 10-K. (The
Compensation Committee Report and the stock performance graph
contained in the registrants Proxy Statement are expressly
not incorporated by reference in this Annual Report on
Form 10-K). The Proxy Statement will be filed within
120 days after the end of the fiscal year ended
March 31, 2004.




PART I






|        |         
|------- | --------
|Item 1. | Business

Forward-Looking Statements

The information presented in this Annual Report
on Form 10-K under the headings Item 1.
Business and Item 2. Properties contain
forward-looking statements within the meaning of the safe harbor
provisions of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Such forward-looking statements are based on
the beliefs of our companys management as well as on
assumptions made by, and information currently available to, us
at the time such statements were made. When used in the Annual
Report on Form 10-K, the words anticipate,
believe, estimate, expect,
intend, and similar expressions, as they relate to
us, are intended to identify such forward-looking statements.
Although we believe these statements are reasonable, such
statements are subject to risks and uncertainties, including
those discussed under Risk Factors in Item 7 of
this Annual Report on Form 10-K, that could cause actual
results to differ materially from those projected. Because
actual results may differ, readers are cautioned not to place
undue reliance on these forward-looking statements.

OVERVIEW

In 1997, we launched one of the first software
product suites on the market that was fully developed and
created expressly for Web-based content and document management.
At the time, content management  today considered a
critical component of an organizations communication and
information technology (IT) infrastructure  was an
emerging technology used to help companies easily and quickly
share information with employees, partners, customers and
prospects using the World Wide Web.

Currently, our solutions  which are
comprised of Universal Content Management software and Content
Components software  help customers worldwide solve
business problems related to efficiently creating, managing and
sharing critical information.

In May 2004, we acquired all outstanding shares
of Optika Inc. for $10 million in cash, approximately
4.2 million shares of Stellent common stock and the
assumption by Stellent of Optikas outstanding common stock
options. We acquired Optika in order to add to or strengthen and
expand our Universal Content Management software in the areas of
document imaging, business process management and compliance
capabilities.

MARKETS AND CUSTOMERS

As of March 31, 2004, we had approximately
1,200 corporate customers for our Universal Content Management
products, approximately 450 OEM customers and approximately
550 corporate customers for our desktop viewing and conversion
technology. No one customer accounted for ten percent or more of
our revenues in fiscal year 2004.

Customers use our products as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Universal Content
    Management:Organizations deploy the
    Universal Content Management software to build enterprise-wide
    content management deployments and line-of-business solutions,
    such as public Web sites; intranets for internal-only company
    information; and extranets, which are web sites available only
    to select audiences, such as partners and customers.

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| |   |                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Content Components:Other technology companies embed this technology in their own
    products to enable their users to view and convert business
    information to formats viewable on handheld devices or in a Web
    browser. These technologies are also integrated into our
    Universal Content Management software.

PRODUCTS

Our product set is comprised of two main
categories: Universal Content Management Software and Content
Components Software.

Universal Content Management
Software

Universal Content Management is Stellents
primary software product, consisting of one server that houses
multiple applications. These applications help organizations
manage their business information  such as records,
legal documents, Web content and graphics  from the
time its created to the time its archived or
disposed of, so that employees, customers, partners and
investors can more easily find, access and re-use that
information. With Stellent software, customers can increase
employee productivity, reduce expenses and improve company-wide
collaboration and communication.

Our Universal Content Management software
addresses the key elements of content management  web
content management, document management, collaboration, digital
asset management, and records management  from one
platform, enabling customers to fully utilize their content
management investment across the organization. We believe our
tightly integrated products allow companies to implement content
management applications using fewer products and consulting
services than other content management offerings, which can lead
to a lower total cost of ownership. For example, while some
content management providers have acquired products and
companies to fulfill the functionality provided by Universal
Content Management, integrating those disparate systems is often
difficult and requires customers to spend more time and money on
expensive consulting services to get the systems implemented.

The Stellent system is also easy to use. Users
can submit, or contribute, business content  such as
a word processing document, spreadsheet or CAD file  
to the Stellent system, and Stellent automatically converts the
file to a format that can be viewed on a web site. This
automatic conversion capability enables even non-technical users
to publish information easily to a site, such as an employee
portal or partner extranet, so that the information can be
shared with other users.

Our Universal Content Management software is
comprised primarily of the Stellent Content Server and five key
application modules, described below.

The Stellent Content Server is a fully functional
system providing management with a secure, personalized delivery
of business information. It provides a set of
services  such as check-in/check-out, revision
control and subscription services  that help ensure
users can access only the most current information. Content
Server also provides security, workflow, searching, archiving
and distribution of information to multiple Content Servers.

On top of the Stellent Content Server, users can
add the following five key content management application
modules:



| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Web Content
    Management:Enables organizations to
    create web content, and manage and publish web sites.                                                                                 
|
| |  | Document Management:Provides web-based management, collaboration and access to
    business documents created in common office software
    applications.                                     
|
| |  | Collaboration
    Management:Enables creation of a
    project or team space for sharing documents, schedules and
    discussions among a team via the web.                                   
|
| |  | Records Management:Provides a web-based method for managing business records and
    creating rules regarding the disposition of that content, such
    as expiration, archiving and deletion.

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| |   |                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Digital Asset
    Management:Enables digital
    assets  such as photos, graphics, audio clips and
    video clips  to be searched, accessed, viewed,
    managed and distributed via the web.

We expect the acquisition of Optika to enhance
our Universal Content Management softwares capabilities in
the areas of document imaging, business process management, and
compliance.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Document Imaging:Many organizations are faced with a significant amount of paper,
    faxes, email, electronic documents and reports, which are
    generated in enormous volume from everyday processes such as
    accounts payable, accounts receivable, travel and expense
    processing, and human resources. The need to automatically
    capture or collect this data and pass it to other business
    applications that need it continues to increase in importance.
    But if this process is completed manually, it requires a
    considerable number of staff and countless hours to examine
    documents, perform data entry into business applications and
    enter indexing information for document imaging systems. Such
    manual processes can be unproductive, costly and error-prone.
    This technology allows organizations to cost-effectively turn
    paper documents and reports into electronic images, which can
    then easily be stored and retrieved and analyzed.
|
| |  | Business Process
    Management:For some time, private and
    public sector organizations have felt pressure to deliver
    process efficiency and service improvements. This technology
    helps organizations achieve operational efficiencies by
    providing a sophisticated workflow technology for automating
    processes and delivering business transaction information within
    an organization and over the Internet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Compliance:Over the
    past few years, the need to comply with government mandates for
    records retention and compliance monitoring has emerged as a
    driving factor in both business and technology decisions. This
    technology assists organizations by automating the capture,
    retention, management and disposition of documents required to
    be maintained for compliance purposes, whether they are
    electronic  such as an email  or physical
    documents, such as a signed contract.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

Content Components Software

Stellents Content Components software makes
information created in more than 225 common office software
applications more accessible to the business users that need it.
Other technology companies embed this technology in their own
products to enable their users to view and convert business
information to formats viewable on handheld devices or in a web
browser. Such information is often difficult to find and view
without access to the software application that created it; with
Stellents Content Components software, users can locate
and view this information, even if they dont have the
software application that created the file installed on their
desktop or handheld device. These technologies are also
integrated into Stellents Universal Content Management
software.

These technologies support multiple operating
systems and international environments, and enable access to
documents in applications for diverse markets such as content
management, search and retrieval, security and policy
management, mobile and wireless, messaging, collaboration and
publishing.

SUPPLIERS

We have no sole source or limited source
suppliers that we depend upon materially for our products
described above.

CONTRACTS

The types of license contracts we enter into with
our customers are typically perpetual arrangements for our
direct customers or are term-based arrangements for our OEM
customers. Virtually all of our customers initially purchase
maintenance contracts, which entitle them to unspecified
upgrades and product support. The primary reward or benefits to
us of a perpetual licensing arrangement is the annual renewal of
maintenance. The primary benefit of a term-based license is the
ability to predict future license revenue streams from that
customer. The primary risk associated with the perpetual
licensing arrangement is the non-renewal of

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maintenance. The primary risk of a term-based
license arrangement is the potential non-renewal of that
arrangement. Many of our direct customers enter into services
arrangements, which may include needs assessment, software
integration, security analysis, application development and
training. Application development generally is not critical to
the functionality of the delivered software.


CONSULTING SERVICES

Our consulting services group is focused on
delivering value-based content management solutions to our
customers. Our consulting services professionals employ a
combination of business analysis, enterprise architecture,
application analysis, installation, configuration, development
and integration skills with experience-based project methodology
and management knowledge to facilitate the rollout of content
management solutions at all levels of a customers
organization. Available on a worldwide basis, we act as a
business partner to our customers by providing a broad spectrum
of services including:



| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | Technical architecture analysis and needs
    assessment, such as software, security and metadata analysis
|
| |  | Solutions development and deployment strategies                                                           
|
| |  | Software installation and configuration                                                                   
|
| |  | Custom application development                                                                            
|
| |  | Third party product integration                                                                           
|
| |  | Project management                                                                                        
|
| |  | Knowledge transfer                                                                                        

These services can be offered in conjunction with
our software products to new customers, or on a stand alone
basis to our existing customers to assist them in driving
additional content management solutions across their
enterprises. These services are sold in conjunction with our
software products and are offered for fees, the amount of which
depends on the nature and scope of the project.

PRODUCT SUPPORT

We offer several product support programs that
allow customers to select the offering(s) that best satisfies
their maintenance and support requirements. From the initial
installation and configuration of Stellent to the point of
application deployment, our product support resources strive to
provide exceptional customer service through quick response
time, effective trouble-shooting and the delivery of complete
and comprehensive technical solutions. Customers may access
product support resources on a worldwide basis for assistance
during the customers normal business hours. Additional
support offerings are available which supplement the
customers product support requirements.

Product support offerings are renewable on an
annual basis and are typically priced as a percentage of the
product license fees.

PRODUCT TRAINING

We provide a full range of educational courses on
our Universal Content Management software. The comprehensive
web-based modules and instructor-led classes enable business
end-users, administrators, site designers, and developers to use
our software more productively. Standard classes are routinely
scheduled at designated worldwide training facilities, and both
standard and customized classes are frequently taught at
customer sites.

SALES AND MARKETING

We market and sell our products using a
combination of direct and indirect distribution channels
primarily in North America and Europe. Our primary distribution
channel is our direct sales force, which targets mid- and
large-size organizations. Our sales approach is a solution
selling sales model which is a

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consultative approach to selling where sales
personnel work in a consultative manner with target accounts to
address unsolved business needs which can be remedied by the
application of a business process solution built around our
Stellent Universal Content Management software. The solution
analysis process will typically include a business process and
technical systems evaluation performed by our pre-sales
personnel, followed by demonstrations of our products
capabilities and direct negotiations with our sales staff. As
part of our solution selling model, Stellent has chosen to focus
on specific vertical markets where we have developed subject
matter expertise in these markets to solve common business
problems. Our initial vertical industries of focus are
manufacturing, insurance, commercial real estate and
e-government. We expect this to expand to other vertical
industries in the future. In addition, we have used internal and
external telemarketing operations that are responsible for
customer prospecting, lead generation and follow-up. These
activities identify and develop leads for further sales efforts
by our direct sales force. As of March 31, 2004, we had a
worldwide total of 111 direct and indirect sales and sales
support personnel and 20 marketing personnel, which
includes business development and alliances.


We also use indirect sales channels to increase
the distribution and visibility of our products through
strategic alliances with resellers, OEMs, key systems
integrators and other channel partners in both domestic and
international markets.

We currently have operations or collaborations in
Australia, Brazil, France, Germany, Japan, Korea, the
Netherlands, the United Kingdom and the United States. Our
ability to achieve significant revenue growth in the future will
depend in large part on how successfully we recruit, train and
retain sufficient direct and indirect sales and support
personnel, and how well we continue to establish and maintain
relationships with our strategic partners resellers, OEMs,
key systems integrators and other channel partners.

We use a variety of marketing programs to build
market awareness of our brand name and of our products, as well
as to attract potential customers to our products. A broad mix
of programs is used to accomplish these goals, including market
research, product and strategy updates with industry analysts,
public relations activities, direct mail and relationship
marketing programs, seminars, trade shows, speaking engagements,
Web site marketing and joint marketing programs. Our marketing
organization produces marketing materials in support of sales to
prospective customers that include brochures, data sheets, white
papers, presentations and demonstrations.

RESEARCH AND DEVELOPMENT

We have made substantial investments in research
and development through both internal development and technology
acquisitions. Our research and development expenditures for
fiscal 2002, 2003 and 2004, were approximately
$17.6 million, $15.8 million and $13.3 million,
respectively. Research and development expenses represented 20%,
24%, and 18%, respectively, of total revenue in those years. We
expect that we will continue to commit significant resources to
research and development in the future. As of March 31,
2004, we had 104 employees engaged in research and development
activities.

In order to continue to provide product
leadership in the content management and content components
market, we intend to make major product releases approximately
once per year. The success of new introductions is dependent on
several factors, including timely completion and market
introduction, differentiation of new products and enhancements
from those of our competitors and market acceptance of new
products and enhancements.

The market for our products is characterized by
rapid technological change, frequent new product introductions
and enhancements, evolving industry standards and rapidly
changing customer requirements. The introduction of products
incorporating new technologies and the emergence of new industry
standards could render existing products obsolete and
unmarketable. Our future success will depend in part on our
ability to anticipate changes, enhance our current products,
develop and introduce new products that keep pace with
technological advancements and address the increasingly
sophisticated needs of our customers. We may not be successful
in developing and marketing new products and enhancements that
respond to competitive and technological developments and
changing customer needs.

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ACQUISITIONS

In August 2003, we acquired certain assets and
assumed certain liabilities of Ancept, Inc. for approximately
$2 million in cash and 100,000 shares of stock valued
at approximately $0.8 million. We acquired the Ancept
assets primarily to extend Stellents existing digital
asset management capabilities, which are designed to acquire,
index and keep track of digital material owned by an enterprise.
This digital material may include text, graphics, audio, video
and animations. The Company is also required to make contingent
payments based upon certain license revenue amounts for two
years from the date of acquisition.

In May 2004, we acquired all outstanding shares
of Optika Inc. for $10 million in cash, approximately
4.2 million shares of Stellent common stock and the
assumption by Stellent of Optikas outstanding common stock
options. We acquired Optika in order to add to or strengthen and
expand our Universal Content Management software in the areas of
document imaging, business process management and compliance
capabilities.

COMPETITION

The market for content management and content
component software is intensely competitive, subject to rapid
technological change and significantly affected by new product
introductions and other market activities of industry
participants. We believe that our competitive advantages include
superior technology and lower overall cost of ownership than our
competitors. However, we expect competition to persist and
intensify in the future. Our primary source of competition,
across the range of our product and service offerings, is from
Web content management or components products offered by
companies such as EMC Corporation, FileNET Corporation, IBM
Corporation, Interwoven, Inc., Microsoft Corporation, Verity,
Inc., and Vignette Corporation. We also compete with current or
potential customers who may develop solutions internally.

Many of our competitors have longer operating
histories and significantly greater financial, technical,
marketing and other resources than we do and thus may be able to
respond more quickly to new or changing opportunities,
technologies and customer requirements. In particular, we
believe that EMC Corporation, FileNet Corporation, IBM
Corporation and Microsoft Corporation all have larger market
positions than we do. Also, many current and potential
competitors have greater name recognition and access to larger
customer bases than we have. Such competitors may be able to
undertake more extensive promotional activities and offer more
attractive terms to purchasers than we can. In addition, current
and potential competitors have established or may establish
cooperative relationships among themselves or with third parties
to enhance their products. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and
rapidly acquire significant market share.

Competition in our market could materially and
adversely affect our ability to obtain revenues from software
license fees from new or existing customers on terms favorable
to us. Further, competitive pressures may require us to reduce
the price of our software. In either case, we cannot be sure
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, operating results and financial
condition.

PROPRIETARY RIGHTS AND LICENSING

We rely on a combination of copyright, trade
secret, trademark, confidentiality procedures and contractual
provisions to protect our proprietary rights. United States and
international copyright laws provide limited protections for our
software, documentation and other written materials. We license
our products in object code format for limited use by customers.
We treat the source code for our products as a trade secret and
we require all employees and third-parties who need access to
the source code to sign non-disclosure agreements.

Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as
proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to
which piracy of our software exists, software piracy can be
expected to be a persistent problem. Litigation may be necessary
in the future to

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enforce our intellectual property rights, to
protect our trade secrets, to determine the validity and scope
of the proprietary rights of others or to defend against claims
of infringement or invalidity. However, the laws of many
countries do not protect our proprietary rights to as great an
extent as do the laws of the United States. Any litigation could
result in substantial costs and diversion of resources and could
have a material adverse effect on our business, operating
results and financial condition. Our efforts to protect our
proprietary rights may not be adequate or our competitors may
independently develop similar technology. Our failure to
meaningfully protect our property could have a material adverse
effect on our business, operating results and financial
condition.


We cannot be sure that third parties will not
make claims of infringement with respect to our current or
future products. We expect that developers of content management
and content component products will increasingly be subject to
infringement claims as the number of products and competitors in
our market grows and as the functionality of products in
different segments of the software industry increasingly
overlaps. Any claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert
managements attention and resources, cause product
shipment delays or require us to enter into royalty or licensing
agreements. Royalty or licensing agreements, if required, may
not be available on terms acceptable to us or at all. A
successful claim of product infringement against us and our
failure or inability to license the infringed technology or
develop or license technology with comparable functionality
could have a material adverse effect on our business, operating
results and financial condition.

EMPLOYEES

As of March 31, 2004, we had 392 employees.
Our future success will depend in part on our ability to
attract, retain, integrate and motivate highly qualified sales,
technical and management personnel, for whom competition is
intense. From time to time we also employ independent
contractors to support our services, product development, sales
and marketing departments. Our employees are not represented by
any collective bargaining unit, and we have never experienced a
work stoppage. We believe our relations with our employees are
good.

GEOGRAPHIC INFORMATION

Financial information about geographic areas is
incorporated by reference from footnote 10 to our
Consolidated Financial Statements included elsewhere in this
Annual Report on Form 10-K.

AVAILABLE INFORMATION

Our Web site is: http://www.stellent.com. We make
available, free of charge, through our Web site, our annual
reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those
reports, as soon as reasonably practicable after we
electronically file such materials with, or furnish them to, the
Securities and Exchange Commission.






|        |           
|------- | ----------
|Item 2. | Properties

In July 2000, we began a five-year lease of
approximately 32,000 square feet in Eden Prairie,
Minnesota, which is our corporate headquarters facility. We are
currently sub-letting approximately 18,000 square feet of
our former headquarters pursuant to a lease expiring in July
2005. In connection with the acquisition of Optika, we obtained
a lease on approximately 39,000 square feet of office space
in Colorado Springs, Colorado, and leases in support of
Optikas field sales and support staff of several
facilities in the United states, an office in the United
Kingdom, and an office in Brazil.

Additionally, we lease approximately
8,000 square feet of office space in Boston, Massachusetts
with lease terms expiring June 2004 and September 2006;
approximately 28,000 square feet of space in downtown
Chicago, Illinois with a lease term expiring September 2006;
approximately 5,000 square feet of space in New York, New
York with a lease term expiring in January 2007; approximately
12,000 square feet in Redmond, Washington with a lease term
expiring in December 2007; approximately 1600 square feet
in Grand Forks, North Dakota with a lease term on a
month-to-month basis; approximately 9,000 square feet in
London,

7



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##### Table of Contents



United Kingdom with a lease term expiring in
April 2016; and approximately 6,000 square feet in the
Netherlands with a lease term expiring in June 2006. Management
believes that our facilities are suitable and adequate for
current office requirements.







|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

In the normal course of business, we are subject
to various claims and litigation, including employment matters
and intellectual property claims. Management does not believe
the outcome of any current legal matters will have a material
adverse effect on our consolidated financial position, results
of operations or cash flows.

The Company is a defendant, along with certain
current and former officers and directors of the Company, in a
putative class action lawsuit entitled In re Stellent
Securities Litigation. The lawsuit is a consolidation of
several related lawsuits (the first of which was commenced on
July 31, 2003) and is pending before the United States
District Court for the District of Minnesota. The plaintiff
alleges that the defendants made false and misleading statements
relating to the Company and its future financial prospects in
violation of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934. The plaintiff seeks monetary damages
against the defendants in unspecified amounts. We believe the
lawsuit is without merit and will vigorously defend the lawsuit.






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

No matter was submitted to a vote of our security
holders during the fourth quarter of fiscal year 2003.






|         |                                         
|-------- | ----------------------------------------
|Item 4A. | Executive Officers of the
    Registrant



| |     |                                     
| | --- | ------------------------------------
| | (a) | Executive Officers of the Registrant

The Executive Officers of our company are:

|                  |  |     |    |          |  |                                                                                
|----------------- |  | --- | -- | -------- |  | -------------------------------------------------------------------------------
|Name              |  | Age |    | Position
|                  |  |     |    |         
|Robert F. Olson   |  |     | 48 |          |  | President and Chief Executive Officer and
    Chairman of the Board            
|Gregg A. Waldon   |  |     | 43 |          |  | Executive Vice President, Chief Financial
    Officer, Secretary, and Treasurer
|Frank A. Radichel |  |     | 55 |          |  | Executive Vice President of Research &
    Development                         
|Daniel P. Ryan    |  |     | 45 |          |  | Executive Vice President of Marketing/ Business
    Development                
|Mark K. Ruport    |  |     | 51 |          |  | Executive Vice President of Operations                                         

Robert F. Olson founded our business and has
served as Chairman of the Board of Stellent, Inc. and our
predecessor company since 1990. He also served as our Chief
Executive Officer and Chairman of the Board from October 2000 to
July 2001, and as our President, Chief Executive Officer and
Chairman of the Board from 1990 to October 2000 and from April
2003 to present. From 1987 to 1990, he served as the General
Manager of the Greatway Communications Division of
Anderberg-Lund Printing Company, an electronic publishing sales
and service organization. Prior to that time, Mr. Olson
held management and marketing positions in several electronic
publishing service organizations.

Gregg A. Waldon has served as our Executive Vice
President, Chief Financial Officer, Secretary and Treasurer
since April 2003 and Chief Financial Officer, Secretary and
Treasurer from April 1999 to March 2003. He has also served as a
director from April 1999 to August 2001. From 1992 to April
1999, he held various financial management positions with
GalaGen Inc., a publicly traded biopharmaceutical and
nutritional ingredients company, where he served as Chief
Financial Officer since November 1994. Prior to that time,
Mr. Waldon was employed by PricewaterhouseCoopers LLP.

8



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##### Table of Contents



Frank A. Radichel has served as our Executive
Vice President of Research and Development since April 2003 and
our Vice President of Research and Development from March 1995
through March 2003. Prior to that, Mr. Radichel served as
CALS Project Leader and Technical Architect for Alliant
TechSystems, Inc.

Daniel P. Ryan has served as our Executive Vice
President of Marketing and Business Development since April 2003
and as our Senior Vice President of Marketing and Business
Development from April 2002 through March 2003. He has also
served as our Senior Vice President of Corporate and Business
Development from November 2001 to April 2002. From April 1999 to
November of 2001, he served as Vice President of Marketing and
Business Development. From September 1997 to April 1999, he
served as Vice President of Marketing for Foglight Software,
Inc., a developer of enterprise performance management
solutions. Prior to that time, Mr. Ryan served as Director
of Marketing for Compact Devices, Inc.

Mark K. Ruport has served as our Executive Vice
President of Operations since the acquisition of Optika Inc. in
May 2004. From February 1995 through May 2004, he served as
President and Chief Executive Officer and a director of Optika
Inc. From June 1990 to July 1994, he served as President and
Chief Operating Officer, and later Chief Executive Officer, of
Interleaf, Inc., a publicly held software and services company
that develops and markets document management, distribution and
related software. From 1989 to 1990, he was Senior Vice
President of Worldwide Sales of Informix Software, where he was
responsible for direct and indirect sales and original equipment
manufacturers. From 1985 to 1989, he served as Vice President
North American Operations for Cullinet Software. Mr. Ruport
was appointed as Executive Vice President of Operations pursuant
to an employment agreement entered into in connection with the
terms of the agreement related to the merger with Optika.

Officers of our company are chosen by and serve
at the discretion of the Board of Directors. There are no family
relationships among any of the directors or officers of our
company.

9



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##### Table of Contents






PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

Our common stock, par value $0.01 per share,
is traded on the Nasdaq National Market tier of The Nasdaq Stock
Market under the symbol STEL. At June 8, 2004, our common
stock was held by approximately 510 record holders. This does
not include shareholders whose stock was held in the name of a
bank, broker or other nominee. On June 8, 2004, the closing
sale price of a share of our common stock was $8.53.

The high and low sale prices per share of our
common stock for the four quarters during the fiscal years ended
March 31, 2003 and 2004 were as follows:

|                                      |  |      |       |     |  |   |      | 
|------------------------------------- |  | ---- | ----- | --- |  | - | ---- | 
|                                      |  | High |       | Low
|                                      |  |      |       |    
|Fiscal year ended March 31,
    2003: |  |      |       |     |  |   |      | 
|First Quarter                         |  | $    | 8.85  |     |  | $ | 3.94 | 
|Second Quarter                        |  |      | 5.50  |     |  |   | 3.32 | 
|Third Quarter                         |  |      | 5.85  |     |  |   | 3.14 | 
|Fourth Quarter                        |  |      | 5.82  |     |  |   | 3.75 | 
|Fiscal year ended March 31,
    2004: |  |      |       |     |  |   |      | 
|First Quarter                         |  | $    | 6.54  |     |  | $ | 3.60 | 
|Second Quarter                        |  |      | 9.24  |     |  |   | 5.17 | 
|Third Quarter                         |  |      | 10.96 |     |  |   | 7.71 | 
|Fourth Quarter                        |  |      | 10.50 |     |  |   | 6.74 | 

Dividend Policy

We have never paid cash dividends on the common
stock. The Board of Directors does not anticipate paying cash
dividends in the foreseeable future.

Equity Compensation Plan Information

The information required by Item 201(d) of
Regulation S-K is incorporated by reference from item 12 of
this Annual Report on From 10-K.

10



---



##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The Selected Consolidated Financial Data (in
thousands except per share data) presented below as of and for
each of the fiscal years in the five year period ended
March 31, 2004 have been derived from our Consolidated
Financial Statements. The Selected Consolidated Financial Data
should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and
the related Notes.

|                                                   |                                                            |                                       |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |        |  
|-------------------------------------------------- | ---------------------------------------------------------- | ------------------------------------- | ------ | ------ |  | ---- | ------- | ------ | - | ---- | ------- | ------ | - | - | ------- | ------ | - | - | ------- | ------ | -
|                                                   |                                                            |                                      
|                                                   |                                                            | Year Ended March 31,                 
|                                                   |                                                            |                                      
|                                                   |                                                            | 2000                                  |        | 2001   |  | 2002 |         | 2003   |   | 2004
|                                                   |                                                            |                                       |        |        |  |      |         |        |   |     
|                                                   |                                                            |                                      
|                                                   |                                                            | (In thousands, except per share data)
|Consolidated Statement of Operations
    Data:     |                                                            |                                       |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Revenues:                                          |                                                            |                                       |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                                   | Product licenses                                           |                                       | $      | 17,480 |  |      | $       | 53,853 |   |      | $       | 66,908 |   |   | $       | 40,364 |   |   | $       | 41,571 |  
|                                                   | Services                                                   |                                       |        | 4,880  |  |      |         | 12,868 |   |      |         | 21,432 |   |   |         | 25,070 |   |   |         | 34,203 |  
|                                                   |                                                            |                                       |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Total revenues                                     |                                                            |                                       | 22,360 |        |  |      | 66,721  |        |   |      | 88,340  |        |   |   | 65,434  |        |   |   | 75,774  |       
|                                                   |                                                            |                                       |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Cost of revenues:                                  |                                                            |                                       |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                                   | Product licenses                                           |                                       |        | 1,708  |  |      |         | 3,899  |   |      |         | 5,005  |   |   |         | 6,480  |   |   |         | 4,936  |  
|                                                   | Amortization of capitalized software from
    acquisitions |                                       |        |       |  |      |         | 700    |   |      |         | 966    |   |   |         | 1,892  |   |   |         | 1,574  |  
|                                                   | Services                                                   |                                       |        | 2,400  |  |      |         | 7,190  |   |      |         | 13,392 |   |   |         | 12,146 |   |   |         | 17,157 |  
|                                                   |                                                            |                                       |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Total cost of revenues                             |                                                            |                                       | 4,108  |        |  |      | 11,789  |        |   |      | 19,363  |        |   |   | 20,518  |        |   |   | 23,667  |       
|                                                   |                                                            |                                       |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Gross profit                                       |                                                            |                                       | 18,252 |        |  |      | 54,932  |        |   |      | 68,977  |        |   |   | 44,916  |        |   |   | 52,107  |       
|                                                   |                                                            |                                       |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Operating expenses:                                |                                                            |                                       |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                                   | Sales and marketing                                        |                                       |        | 10,076 |  |      |         | 29,448 |   |      |         | 46,672 |   |   |         | 38,343 |   |   |         | 39,122 |  
|                                                   | General and administrative                                 |                                       |        | 3,853  |  |      |         | 9,016  |   |      |         | 11,884 |   |   |         | 11,301 |   |   |         | 8,856  |  
|                                                   | Research and development                                   |                                       |        | 2,878  |  |      |         | 9,756  |   |      |         | 17,601 |   |   |         | 15,766 |   |   |         | 13,263 |  
|                                                   | Acquisition and related costs                              |                                       |        | 1,972  |  |      |         | 775    |   |      |         | 237    |   |   |         | 1,127  |   |   |         |       |  
|                                                   | Amortization of acquired intangible assets and
    other   |                                       |        | 460    |  |      |         | 9,808  |   |      |         | 12,914 |   |   |         | 6,635  |   |   |         | 2,006  |  
|                                                   | Restructuring charges                                      |                                       |        |       |  |      |         |       |   |      |         |       |   |   |         | 4,368  |   |   |         | 743    |  
|                                                   | Acquired in-process research and development               |                                       |        |       |  |      |         | 10,400 |   |      |         |       |   |   |         |       |   |   |         |       |  
|                                                   |                                                            |                                       |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Total operating expenses                           |                                                            |                                       | 19,239 |        |  |      | 69,203  |        |   |      | 89,308  |        |   |   | 77,540  |        |   |   | 63,990  |       
|                                                   |                                                            |                                       |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Loss from operations                               |                                                            |                                       | (987   | )      |  |      | (14,271 | )      |   |      | (20,331 | )      |   |   | (32,624 | )      |   |   | (11,883 | )     
|Other income (expense):                            |                                                            |                                       |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                                   | Interest income (expense) net                              |                                       |        | 1,466  |  |      |         | 7,000  |   |      |         | 3,755  |   |   |         | 1,957  |   |   |         | 982    |  
|                                                   | Investment (impairment) gain on sale                       |                                       |        |       |  |      |         | (400   | ) |      |         | (5,722 | ) |   |         | (1,733 | ) |   |         | 388    |  
|                                                   |                                                            |                                       |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Net income (loss)                                  |                                                            | $                                     | 479    |        |  | $    | (7,671  | )      |   | $    | (22,298 | )      |   | $ | (32,400 | )      |   | $ | (10,513 | )     
|                                                   |                                                            |                                       |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Earnings (loss) per share  basic and
    diluted: |                                                            |                                       |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|                                                   | Net income (loss)                                          |                                       | $      | 0.03   |  |      | $       | (0.36  | ) |      | $       | (1.00  | ) |   | $       | (1.45  | ) |   | $       | (0.48  | )
|                                                   |                                                            |                                       |        |        |  |      |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Weighted average common shares  basic             |                                                            |                                       | 16,462 |        |  |      | 21,472  |        |   |      | 22,286  |        |   |   | 22,345  |        |   |   | 22,028  |       
|Weighted average common shares  diluted           |                                                            |                                       | 18,057 |        |  |      | 21,472  |        |   |      | 22,286  |        |   |   | 22,345  |        |   |   | 22,028  |       

11



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|                                                 |  |                 |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|------------------------------------------------ |  | --------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                 |  |                
|                                                 |  | As of March 31,
|                                                 |  |                
|                                                 |  | 2000            |         | 2001 |  | 2002 |         | 2003 |  | 2004
|                                                 |  |                 |         |      |  |      |         |      |  |     
|Consolidated Balance Sheet Data:                 |  |                 |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Cash, cash equivalents and marketable securities |  | $               | 133,742 |      |  | $    | 106,510 |      |  | $    | 96,158  |  |  | $ | 81,169  |  |  | $ | 73,512  | 
|Working capital                                  |  |                 | 137,112 |      |  |      | 109,279 |      |  |      | 102,850 |  |  |   | 69,823  |  |  |   | 72,520  | 
|Total assets                                     |  |                 | 147,315 |      |  |      | 181,586 |      |  |      | 165,926 |  |  |   | 129,709 |  |  |   | 124,688 | 





|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Overview



| |        
| | -------
| | General

In 1997, we launched one of the first software
product suites on the market specifically developed and created
for managing business information using the Web. From the
beginning, Stellent focused on developing software that could be
quickly implemented, easily used and easily scaled from
line-of-business to enterprise-wide applications. This focus
remains true today. While early on we developed document
management and Web content management applications, in recent
years we also expanded our product set to address market needs
for Web-based management of digital assets, which are digital
materials such as photos and graphics, and business records.

The business information we manage for our
customers is in an electronic form and is generally considered
unstructured data, or data that is not easily
managed by relational databases. In fact, the vast majority of
information in any business is considered to be unstructured
information, and typically resides in areas such as personal
computers, conventional file servers and paper documents.

In fiscal year 2004, our Universal Content
Management software addressed primarily five areas of the
enterprise content management market: Web content management,
document management, collaboration, records management and
digital asset management. Currently, customers use our Universal
Content Management software to organize and maintain the
electronic business information created by internal and external
sources using a broad range of common software applications,
such as Microsoft Office, AutoDesk AutoCAD and Sun StarOffice.
This electronic business information includes items such as Web
pages, digital assets, scanned images, Microsoft Word documents,
spreadsheets and forms. Our software also assists in the
conversion of paper documents to electronic format. Using
Stellent technology, customers can then publish that information
to public Web sites and/or secure Web sites available only to
select audiences. Additionally, software vendors and
manufacturers of electronic devices, such as cell phones and
PDAs, embed our Content Component software within their own
technology to enable users to access and view electronic
information from those applications or devices. We market our
products primarily to customers in the financial services,
healthcare (including insurance), government, and manufacturing
industries located in the United States, Canada, Europe, Latin
America and Asia.

Our approach has been to develop our products
internally and acquire select third-party technologies that
enhance our products capabilities. This approach has
resulted in an integrated solution that can be used for
line-of-business applications or deployed on an enterprise-wide
basis by companies. In May 2004, we completed an acquisition in
which we acquired all outstanding shares of Optika Inc. for
$10 million in cash, approximately 4.2 million shares
of Stellent common stock and the assumption by Stellent of
Optikas outstanding common stock options. We completed the
acquisition of Optika in order to strengthen and expand our
Universal Content Management software offerings in the areas of
document imaging, business process management and compliance.
Accordingly, our financial results in fiscal year 2005 will be
difficult to compare to our fiscal year 2004 results.

Additionally, in August 2003, we acquired certain
assets and assumed certain liabilities of Ancept, Inc. for
approximately $2 million in cash and 100,000 shares of
stock valued at approximately $0.8 million. We acquired the
Ancept assets primarily to extend Stellents existing
digital asset management capabilities, which are designed to
acquire, index and keep track of digital material owned by an
enterprise. This digital material may include text, graphics,
audio, video and animations. The Company is also required to
make contingent

12



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##### Table of Contents



payments based upon certain license revenue
amounts for two years from the date of acquisition. The Company
has recognized approximately $1.0 million in revenue in
fiscal year 2004 related to this acquisition.




| |              
| | -------------
| | Market Trends

We have experienced a very difficult business
environment beginning in the middle of our fiscal year 2002.
During this period and through our fiscal year 2004, there have
been dramatic reductions in spending on information technology,
both in the United States and internationally. In our fiscal
year 2004, we derived approximately 72 percent of our
revenue from the United States market and approximately
28 percent from various international markets, primarily
Europe. While we believe the spending in information technology
in the United States has been better than the international
markets, we have also been expanding into the Asian markets,
particularly Japan. The percentage of revenue derived from Asia
remains small compared to the United States and Europe.

This difficult business climate has shifted our
revenue mix substantially over the past three years and our
license revenue, as a percent of total revenue, has decreased
from 76% to 62% to 55% in fiscal years 2002, 2003 and 2004,
respectively. We have seen customers downsize their information
technology employees and they have consequently placed greater
emphasis on using our consulting services group, or other third
parties, to implement the software they have licensed from us.
This is reflected in our consulting services and training
revenue, as a percent of total revenue, which has increased from
11% to 15% to 19% in fiscal years 2002, 2003 and 2004,
respectively. We expect our customer base to continue to grow,
and with it an increase in post-contract support revenue. This
is reflected in our post-contract support revenue, as a percent
of total revenue, which has increased from 13% to 23% to 26% in
fiscal years 2002, 2003 and 2004, respectively. With more of our
revenues coming from services, our overall gross margins may
decrease. We believe that our license revenue in fiscal year
2005, as a percent of total revenue, will decrease modestly from
fiscal year 2004 as a result of these continued trends.

We believe Stellent today can compete effectively
in a rapidly evolving marketplace. Based on industry
analysts opinions, our opinions, and current and
prospective customers opinions regarding IT investment
priorities in the next several years, we believe the content
management market is healthier than many other segments of the
information technology sector and that it will perform better
than the average information technology sector in customer
spending during fiscal year 2005. We believe that:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The trend toward companies increasingly using the
    Web for communicating and publishing business information will
    continue. Moreover, we believe that the trend toward more
    individuals creating more information that those companies will
    seek to organize, maintain and publish on public or private Web
    sites will continue,                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Portable electronic devices will be used
    increasingly to view electronic information and that software
    sales in the general information technology sector will improve
    modestly, which is important to us as our Content Component
    software is imbedded in both of these products,                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Content within the enterprise will grow at an
    exponential rate. According to the University of California
    Berkeley School of Information Management and Systems, the
    amount of new information stored on paper, film, optical and
    magnetic media has doubled in the last three years. New
    information produced in those forms during 2002, according to
    the research, was equal in size to half a million new libraries,
    each containing a digitized version of the print collections of
    the entire Library of Congress. With the acquisition of Ancept,
    we believe that we will be able to compete effectively in this
    area, which we believe will increase our license revenue,
|
| |  | Vendor consolidation will continue to be a
    driving force in technology buying decisions. Companies want to
    manage all of their business information using the fewest number
    of vendors possible and from ones that are financially viable.
    And all sizes of organizations are looking for technology that
    delivers a broad set of robust content management solutions,
    without requiring them to invest millions of dollars building
    infrastructures that are difficult and expensive to maintain
    over time. With the acquisition of                                                                                                                                                     

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Optika, we believe that this will give us
    additional financial strength and increase profitability, and we
    now have a broader set of content management solutions that
    organizations are requesting,                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Compliance mandates and records management
    initiatives are increasingly driving technology purchasing
    decisions, and influencing which vendors are selected to power
    information-related initiatives. In fact, forty percent of
    respondents to an InformationWeeksurvey said compliance
    has been a catalyst for change within their organization. And
    according to Gartner, ninety percent of public companies are
    still trying to put compliance efforts in place. With our
    acquisition of Optika, we believe that we are well positioned in
    this area to take advantage of this trend.

While we believe the general and long-term market
trends identified above will create continued demand for our
products, the market for content management software and our
products at any particular time is highly dependent on
information technology spending. Weak United States and
international economic conditions resulted in reduced
information technology spending since the middle of fiscal year
2002. We cannot be certain whether, and if so, when, spending on
information technology will rebound. We believe continuing
difficult economic and market conditions are putting pressure on
the ability of certain content management software companies to
survive as independent entities, if at all. A consolidated
content management software market may be inviting to larger
software vendors that traditionally have marketed
infrastructure, or business transaction processing, software. If
infrastructure software vendors, some of which have access to
significantly greater financial and technical resources that we
do, enter the content management software market, our business
and operation results may be significantly adversely affected.
We cannot be certain whether infrastructure software vendors
will enter the content management software market.



| |               
| | --------------
| | Restructurings

Beginning in April 2002 and continuing through
April 2003, we implemented several cost cutting measures,
including a reduction in work force of approximately 24% since
March 31, 2002 of 446 employees to 340 employees at
March 31, 2003. These restructuring measures were in
response to the economic slowdown both in the United States and
internationally and were in all functional areas and
geographies. Although we implemented the restructurings to
reduce overall costs, we have recently been investing in certain
areas in order to expand our customer base and grow our
revenues. Because of this, we anticipate that the percentage of
expenses as compared to total revenues represented by sales and
marketing expenses, research and development expenses and
general and administrative expenses will fluctuate from period
to period depending primarily on when we hire new personnel, the
timing of certain sales and marketing programs, the research
programs that we put in place and the potential expansion of
operations. In addition, our limited operating history makes it
difficult for us to predict future operating results. We cannot
be certain that we will sustain revenue growth. Additional
information on our restructuring plans is contained in
footnote 9 to the financial statements.

In connection with the integration of Optika and
in connection with our plans to reduce costs and improve
operating efficiencies, we adopted a restructuring plan on
June 2, 2004. This restructuring plan includes the
termination of 31 employees and the closure of our New York
facility. Restructuring charges during the first quarter of
fiscal year 2005 related to this plan are expected to be
approximately $2.5 million to $3.0 million. We expect
the restructuring to reduce our operating expenses and increase
our cash flow by approximately $1.7 million in the second
half of our fiscal year 2005.

RESULTS OF OPERATIONS

In fiscal year 2003, our consolidated results of
operations were impacted by weak economic conditions in the
United States and internationally, which resulted in
substantially reduced spending on information technology
initiatives. During fiscal year 2004, we continued to market and
license our products and services primarily through a direct
sales force and augmented our sales efforts through other
relationships, such as with other software vendors, systems
integrators, resellers and others. Our total revenues generated
from operations outside of the United States increased slightly
in fiscal year 2004 to 28% from approximately 23% in fiscal year
2003. No customer accounted for more than 10% of revenues in
fiscal year 2004.

14



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##### Table of Contents



Revenues

|                                  |  |                           |        |                   |  |      |        |              |  |              |        |   |  |  |    |   |  |  |     |   
|--------------------------------- |  | ------------------------- | ------ | ----------------- |  | ---- | ------ | ------------ |  | ------------ | ------ | - |  |  | -- | - |  |  | --- | --
|                                  |  |                           |        |                  
|                                  |  | Years Ended March 31,     |        | Percentage Change
|                                  |  |                           |        |                  
|                                  |  | 2004                      |        | 2003              |  | 2002 |        | 2003 to 2004 |  | 2002 to 2003
|                                  |  |                           |        |                   |  |      |        |              |  |             
|                                  |  |                           |        |                   |  |     
|                                  |  | (In thousands, except for |        |                   |  |     
|                                  |  | percentages)              |        |                   |  |     
|Product licenses                  |  | $                         | 41,571 |                   |  | $    | 40,364 |              |  | $            | 66,908 |   |  |  | 3  | % |  |  | (40 | )%
|Services                          |  |                           | 34,203 |                   |  |      | 25,070 |              |  |              | 21,432 |   |  |  | 36 | % |  |  | 17  | % 
|                                  |  |                           |        |                   |  |      |        |              |  |              |        |   |  |  |    |   |  |  |     |   
|Total                             |  | $                         | 75,774 |                   |  | $    | 65,434 |              |  | $            | 88,340 |   |  |  | 16 | % |  |  | (26 | )%
|                                  |  |                           |        |                   |  |      |        |              |  |              |        |   |  |  |    |   |  |  |     |   
|As a percentage of total revenue: |  |                           |        |                   |  |      |        |              |  |              |        |   |  |  |    |   |  |  |     |   
|Product licenses                  |  |                           | 55     | %                 |  |      | 62     | %            |  |              | 76     | % |  |  |    |   |  |  |     |   
|Services                          |  |                           | 45     | %                 |  |      | 38     | %            |  |              | 24     | % |  |  |    |   |  |  |     |   

Total revenues increased by $10.3 million,
or 16%, to $75.7 million for fiscal year 2004 from
$65.4 million for fiscal year 2003. The increase in
revenues was due to an increase in revenues for services due to
a larger base of installed products and an increased reliance by
our customers to use our Consulting Services personnel to
implement our software. As we license our products, whether on a
perpetual basis for our Universal Content Management software or
on a term basis for our Content Components software, our
installed base of products increases. Since the rate of annual
renewals of post contract customer support services on our
Universal Content Management and Content Component software has
remained high, our post contract customer support revenues have
grown as our installed base of products has grown. Also,
Universal Content Management revenues related to consulting
services work can increase as a result of a larger installed
base of products. We expect our installed base of products to
continue to increase and our services revenue to grow.

Total revenues decreased by $22.9 million,
or 26%, to $65.4 million for fiscal year 2003 from
$88.3 million for fiscal year. The decrease in revenues was
due to a $26.5 million decrease in our product license
revenues as a result of the worldwide economic slowdown during
that period, which resulted in a reduction in overall customer
spending in information technology initiatives. The decrease in
product license revenues was partially offset by a
$3.7 million increase in revenues for services due to a
larger base of installed products.

Sales outside the United States represented 28%,
23%, and 23% of our total revenues in fiscal years 2004, 2003,
and 2002, respectively.



| |                 
| | ----------------
| | Product Licenses

Revenues for product licenses increased by
$1.2 million, or 3%, to $41.6 million for year 2004
from $40.4 million for fiscal year 2003. The increase in
revenues was attributable to an increase in Content Components
software revenues in the United States and Europe and sales of
Universal Content Management software in Japan. The increase in
our Universal Content Management and Content Components software
licenses was due to a moderate increase in demand mitigated by
continued long sales cycles for those products. The market for
Universal Content Management software and our products at any
particular time is highly dependent on information technology
spending and we cannot be uncertain whether, and if so, when,
spending on information technology will rebound. As a result of
the Optika merger, we anticipate that the percentage of license
revenue to total revenue will remain consistent in fiscal year
2005 compared to fiscal year 2004, but that license revenue in
absolute dollars will increase as a result of the merger.

Revenues for product licenses decreased by
$26.5 million, or 40%, to $40.4 million for fiscal
year 2003 from $66.9 million for fiscal year 2002. The
decrease in revenues was attributable to a decrease of
approximately $20.5 million in Universal Content Management
and $6.5 million in Content Components software revenues in
the United States partially offset by a $0.5 million
increase in software revenues internationally. The decrease in
our Universal Content Management and Content Components software
licenses was due to low demand and long sales cycles for those
products, both resulting from reduced information technology
spending.

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##### Table of Contents





| |         
| | --------
| | Services

|                                  |  |                           |        |                   |  |      |        |              |  |              |        |   |  |  |    |   |  |  |    |  
|--------------------------------- |  | ------------------------- | ------ | ----------------- |  | ---- | ------ | ------------ |  | ------------ | ------ | - |  |  | -- | - |  |  | -- | -
|                                  |  |                           |        |                  
|                                  |  | Years Ended March 31,     |        | Percentage Change
|                                  |  |                           |        |                  
|                                  |  | 2004                      |        | 2003              |  | 2002 |        | 2003 to 2004 |  | 2002 to 2003
|                                  |  |                           |        |                   |  |      |        |              |  |             
|                                  |  |                           |        |                   |  |     
|                                  |  | (In thousands, except for |        |                   |  |     
|                                  |  | percentages)              |        |                   |  |     
|Consulting services and training  |  | $                         | 14,349 |                   |  | $    | 9,726  |              |  | $            | 9,648  |   |  |  | 48 | % |  |  | 1  | %
|Post-contract customer support    |  |                           | 19,854 |                   |  |      | 15,344 |              |  |              | 11,784 |   |  |  | 29 | % |  |  | 30 | %
|                                  |  |                           |        |                   |  |      |        |              |  |              |        |   |  |  |    |   |  |  |    |  
|Total                             |  | $                         | 34,203 |                   |  | $    | 25,070 |              |  | $            | 21,432 |   |  |  | 36 | % |  |  | 17 | %
|                                  |  |                           |        |                   |  |      |        |              |  |              |        |   |  |  |    |   |  |  |    |  
|As a percentage of total revenue: |  |                           |        |                   |  |      |        |              |  |              |        |   |  |  |    |   |  |  |    |  
|Services and training             |  |                           | 19     | %                 |  |      | 15     | %            |  |              | 11     | % |  |  |    |   |  |  |    |  
|Post-contract customer support    |  |                           | 26     | %                 |  |      | 23     | %            |  |              | 13     | % |  |  |    |   |  |  |    |  

Revenues for services, consisting of consulting
services, training and post-contract customer support, increased
by $9.1 million, or 36%, to $34.2 million for fiscal
year 2004 from $25.1 million for fiscal year 2003. The
increase in revenues for services was due to a $4.6 million
increase in consulting services revenue as our customers
software implementations have become larger and more numerous
and an increase in post-contract customer support of
approximately $4.5 million due to a larger installed base
of Universal Content Management and Content Component products.
As a result of the Optika merger, we anticipate that the
percentage of service revenue to total revenue will remain
consistent in fiscal year 2005 compared to fiscal year 2004, but
that service revenue in absolute dollars will increase as a
result of the merger.

Generally, customers prefer to have us perform
the consulting services rather than using internal information
technology staff, a trend we believe will continue. As we
license our products, whether on a perpetual basis for our
Universal Content Management software or on a term basis for our
Content Components software, our installed base of products
increases. Since the rate of annual renewals of post-contract
customer support services on our Universal Content Management
and Content Component software has remained high, our post
contract customer support revenues grow because we have a larger
installed base of products. Also, Universal Content Management
revenues related to consulting services work can increase as a
result of a larger installed base of products. Because we expect
the trend toward companies increasingly using the Web for
communicating and publishing business information and the trend
toward electronic devices being used increasingly to view
electronic information to continue, we expect our installed base
of products to continue to grow and our services revenues
attributable to post-contract customer support to continue to
increase

Revenues for services, consisting of consulting
services, training and post-contract customer support, increased
by $3.7 million, or 17%, to $25.1 million for fiscal
year 2003 from $21.4 million for fiscal year 2002. The
increase in revenues for services was attributable to an
increase in post-contract customer support due to a larger
installed base of Universal Content Management and Content
Component products.

To the extent that our license revenues decline
in the future, our support and services revenues may also
decline. Specifically, a decline in license revenues may result
in fewer consulting services engagements. Additionally, since
post-contract customer support contracts are generally sold with
each license transaction, a decline in license revenues may also
result in a decline in customer support revenues. However, since
post-contract customer support revenues are recognized over the
duration of the support contract, the impact will lag behind a
decline in license revenues.

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##### Table of Contents



Cost of Revenues and Gross Profit

|                                                                   |  |                           |        |                   |  |      |        |              |  |              |        |   |  |  |     |    |  |  |    |   
|------------------------------------------------------------------ |  | ------------------------- | ------ | ----------------- |  | ---- | ------ | ------------ |  | ------------ | ------ | - |  |  | --- | -- |  |  | -- | --
|                                                                   |  |                           |        |                  
|                                                                   |  | Years Ended March 31,     |        | Percentage Change
|                                                                   |  |                           |        |                  
|                                                                   |  | 2004                      |        | 2003              |  | 2002 |        | 2003 to 2004 |  | 2002 to 2003
|                                                                   |  |                           |        |                   |  |      |        |              |  |             
|                                                                   |  |                           |        |                   |  |     
|                                                                   |  | (In thousands, except for |        |                   |  |     
|                                                                   |  | percentages)              |        |                   |  |     
|Cost of product licenses                                           |  | $                         | 4,936  |                   |  | $    | 6,480  |              |  | $            | 5,005  |   |  |  | (24 | )% |  |  | 29 | % 
|Cost of amortization of capitalized software from
    acquisitions |  |                           | 1,574  |                   |  |      | 1,892  |              |  |              | 966    |   |  |  | (17 | )% |  |  | 96 | % 
|Cost of services                                                   |  |                           | 17,157 |                   |  |      | 12,146 |              |  |              | 13,392 |   |  |  | 41  | %  |  |  | (9 | )%
|                                                                   |  |                           |        |                   |  |      |        |              |  |              |        |   |  |  |     |    |  |  |    |   
|Total                                                              |  | $                         | 23,667 |                   |  | $    | 20,518 |              |  | $            | 19,363 |   |  |  | 15  | %  |  |  | 6  | % 
|                                                                   |  |                           |        |                   |  |      |        |              |  |              |        |   |  |  |     |    |  |  |    |   
|Gross profit                                                       |  | $                         | 52,107 |                   |  | $    | 44,916 |              |  | $            | 68,977 |   |  |  |     |    |  |  |    |   
|As a percentage of total revenue:                                  |  |                           |        |                   |  |      |        |              |  |              |        |   |  |  |     |    |  |  |    |   
|Cost of product licenses                                           |  |                           | 7      | %                 |  |      | 10     | %            |  |              | 6      | % |  |  |     |    |  |  |    |   
|Cost of amortization of capitalized software from
    acquisitions |  |                           | 2      | %                 |  |      | 3      | %            |  |              | 1      | % |  |  |     |    |  |  |    |   
|Cost of services                                                   |  |                           | 22     | %                 |  |      | 18     | %            |  |              | 15     | % |  |  |     |    |  |  |    |   
|Total cost of revenues                                             |  |                           | 31     | %                 |  |      | 31     | %            |  |              | 22     | % |  |  |     |    |  |  |    |   
|Gross margin                                                       |  |                           | 69     | %                 |  |      | 69     | %            |  |              | 78     | % |  |  |     |    |  |  |    |   

Cost
of Revenues  General

Total cost of revenues increased by
$3.1 million, or 15%, to $23.6 million for fiscal year
2004 from $20.5 million for fiscal year 2003. Total cost of
revenues as a percentage of total revenues was 31% for fiscal
years 2004 and 2003. Gross profit increased by
$7.2 million, or 16%, to $52.1 million for fiscal year
2004 from $44.9 million for fiscal year 2003. Total gross
profit as a percentage of total revenues was 69% for the fiscal
years 2004 and 2003. The increase in gross profit dollars and
percentage was attributable to the increase in product license
revenues and services described above.

Total cost of revenues increased by
$1.1 million, or 6%, to $20.5 million for fiscal year
2003 from $19.4 million for fiscal year 2002. Total cost of
revenues as a percentage of total revenues was 31% for fiscal
year 2003 compared to 22% for fiscal year 2002. Gross profit
decreased by $24.1 million, or 35%, to $44.9 million
for fiscal year 2003 from $69.0 million for fiscal year
2002. Total gross profit as a percentage of total revenues was
69% for fiscal year 2003 compared to 78% for fiscal year 2002.
The decrease in gross profit dollars and percentage was
attributable to the decrease in product license revenues from
$66.9 million in fiscal year 2002 to $40.4 million in
fiscal year 2003. The increase in cost of revenues was due to
increased amortization of prepaid royalties and capitalized
software.

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##### Table of Contents



Cost
of Revenues  Product Licenses

|                                                                   |  |                         |        |                   |  |      |        |              |  |              |        |   |  |  |     |    |  |  |    |  
|------------------------------------------------------------------ |  | ----------------------- | ------ | ----------------- |  | ---- | ------ | ------------ |  | ------------ | ------ | - |  |  | --- | -- |  |  | -- | -
|                                                                   |  |                         |        |                  
|                                                                   |  | Years Ended March 31,   |        | Percentage Change
|                                                                   |  |                         |        |                  
|                                                                   |  | 2004                    |        | 2003              |  | 2002 |        | 2003 to 2004 |  | 2002 to 2003
|                                                                   |  |                         |        |                   |  |      |        |              |  |             
|                                                                   |  |                         |        |                   |  |     
|                                                                   |  | (In thousands,          |        |                   |  |     
|                                                                   |  | except for percentages) |        |                   |  |     
|Cost of product licenses                                           |  | $                       | 4,936  |                   |  | $    | 6,480  |              |  | $            | 5,005  |   |  |  | (24 | )% |  |  | 29 | %
|Cost of amortization of capitalized software from
    acquisitions |  |                         | 1,574  |                   |  |      | 1,892  |              |  |              | 966    |   |  |  | (17 | )% |  |  | 96 | %
|                                                                   |  |                         |        |                   |  |      |        |              |  |              |        |   |  |  |     |    |  |  |    |  
|Total                                                              |  | $                       | 6,510  |                   |  | $    | 8,372  |              |  | $            | 5,971  |   |  |  | (22 | )% |  |  | 40 | %
|                                                                   |  |                         |        |                   |  |      |        |              |  |              |        |   |  |  |     |    |  |  |    |  
|Gross profit  licenses                                            |  | $                       | 35,061 |                   |  | $    | 31,992 |              |  | $            | 60,937 |   |  |  |     |    |  |  |    |  
|As a percentage of license revenue:                                |  |                         |        |                   |  |      |        |              |  |              |        |   |  |  |     |    |  |  |    |  
|Cost of product licenses                                           |  |                         | 12     | %                 |  |      | 16     | %            |  |              | 8      | % |  |  |     |    |  |  |    |  
|Cost of amortization of capitalized software from
    acquisitions |  |                         | 4      | %                 |  |      | 5      | %            |  |              | 1      | % |  |  |     |    |  |  |    |  
|Total cost of license revenues                                     |  |                         | 16     | %                 |  |      | 21     | %            |  |              | 9      | % |  |  |     |    |  |  |    |  
|Gross margin                                                       |  |                         | 84     | %                 |  |      | 79     | %            |  |              | 91     | % |  |  |     |    |  |  |    |  

Cost of product
licenses.Cost of product licenses
includes expenses incurred to manufacture, package and
distribute our software products and related documentation, as
well as costs of licensing third-party software embedded in or
sold in conjunction with our software products. Cost of product
licenses represented 7%, 10%, and 6% of total revenues in fiscal
years 2004, 2003 and 2002, respectively.

Cost of revenues for product licenses decreased
by $1.5 million or 24%, to $5.0 million for fiscal
year 2004 from $6.5 million for fiscal year 2003. Gross
profit as a percentage of revenues for product licenses was 88%
for fiscal year 2004 and 84% for fiscal year 2003. The decrease
in cost of revenues for product licenses was attributable to
increased sales of our CCD products, which generally have a
lower cost of sales than our Universal Content Management
products, a change in product mix in our Universal Content
Management products and a reduction in certain costs related to
royalties for third-party technology incorporated into our
products, which became fully amortized in the previous fiscal
year. As new versions of our Universal Content Management
software continue to be released, we have elected to license or
purchase more third party software to be included in our
Universal Content Management products in order for us to provide
certain functionality that we believe is necessary to be
competitive. We expect to continue to license or purchase third
party software to be included in our Universal Content
Management products, which may cause our costs of revenues to
increase.

Cost of revenues for product licenses increased
by $1.5 million or 29%, to $6.5 million for fiscal
year 2003 from $5.0 million for fiscal year 2002. Gross
profit as a percentage of revenues for product licenses was 84%
for fiscal year 2003 and 93% for fiscal year 2002. The increase
in cost of revenues was attributable to increased amortization
of prepaid royalties of approximately $1.1 million and the
increased amortization of capitalized software developed for us
by a third party or purchased from a third party of
approximately $0.4 million. As new versions of our
Universal Content Management software continue to be released,
we have elected to license or purchase more third party software
to be included in our Universal Content Management products in
order for us to provide certain functionality that we believe is
necessary to be competitive. We expect to continue to license or
purchase third party software to be included in our Universal
Content Management products, which may cause our costs of
revenues to increase.

Amortization of Capitalized Software from
Acquisitions.Cost of revenues related
to amortization of capitalized software from acquisitions was
$1.6 million for fiscal year 2004 compared to
$1.9 million for fiscal year 2003. The cost of revenues for
amortization of capitalized software from acquisitions was
attributable to the amortization of capitalized software
obtained in the acquisition of certain assets of RESoft,
Kinecta, Active IQ, and Ancept in July 2001, April 2002,
March 2003, and August 2003, respectively. The decrease in

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cost of revenues related to amortization of
capitalized software from acquisitions was attributable to the
completion in June 2003 of amortization of capitalized software
related to our acquisition of CCD. We acquired technology from
the companies listed above to incorporate the technology into
our Universal Content Management products in order to maintain
competitive functionality. We expect to continue to evaluate
selective potential acquisitions. To the extent we consummate
additional acquisitions, and depending on the structure of such
acquisitions, the assets acquired and the consideration paid,
our costs of revenues related to amortization of capitalized
software from acquisitions may increase.


Cost of revenues related to amortization of
capitalized software from acquisitions increased
$0.9 million for fiscal year 2003 to $1.9 million from
$1.0 million for fiscal year 2002. The increase in cost of
revenues for amortization of capitalized software from
acquisitions was attributable to the amortization over a three
year period of $2.7 million of capitalized software
obtained in the acquisition of the assets of Kinecta Corporation
in April 2002. We acquired Kinecta for its proprietary content
distribution technology and have incorporated the technology
into our Universal Content Management products in order to
maintain competitive functionality.

Cost
of Revenues  Services

|                                                  |  |                         |        |                   |  |      |        |              |  |              |        |   |  |  |    |   |  |  |     |   
|------------------------------------------------- |  | ----------------------- | ------ | ----------------- |  | ---- | ------ | ------------ |  | ------------ | ------ | - |  |  | -- | - |  |  | --- | --
|                                                  |  |                         |        |                  
|                                                  |  | Years Ended March 31,   |        | Percentage Change
|                                                  |  |                         |        |                  
|                                                  |  | 2004                    |        | 2003              |  | 2002 |        | 2003 to 2004 |  | 2002 to 2003
|                                                  |  |                         |        |                   |  |      |        |              |  |             
|                                                  |  |                         |        |                   |  |     
|                                                  |  | (In thousands,          |        |                   |  |     
|                                                  |  | except for percentages) |        |                   |  |     
|Consulting services and training                  |  | $                       | 13,272 |                   |  | $    | 8,416  |              |  | $            | 10,021 |   |  |  | 58 | % |  |  | (16 | )%
|Post-contract customer support                    |  |                         | 3,885  |                   |  |      | 3,730  |              |  |              | 3,371  |   |  |  | 4  | % |  |  | 11  | % 
|                                                  |  |                         |        |                   |  |      |        |              |  |              |        |   |  |  |    |   |  |  |     |   
|Total                                             |  | $                       | 17,157 |                   |  | $    | 12,146 |              |  | $            | 13,392 |   |  |  | 41 | % |  |  | (9  | )%
|                                                  |  |                         |        |                   |  |      |        |              |  |              |        |   |  |  |    |   |  |  |     |   
|Gross profit                                      |  | $                       | 17,046 |                   |  | $    | 12,924 |              |  | $            | 8,040  |   |  |  |    |   |  |  |     |   
|As a percentage of respective revenue:            |  |                         |        |                   |  |      |        |              |  |              |        |   |  |  |    |   |  |  |     |   
|Consulting services and training cost of revenues |  |                         | 92     | %                 |  |      | 86     | %            |  |              | 104    | % |  |  |    |   |  |  |     |   
|Post-contract customer support cost of revenues   |  |                         | 20     | %                 |  |      | 24     | %            |  |              | 29     | % |  |  |    |   |  |  |     |   
|Gross margin  services total                     |  |                         | 50     | %                 |  |      | 52     | %            |  |              | 38     | % |  |  |    |   |  |  |     |   

Cost of services revenues, consisting of
personnel for consulting services, training and post-contract
customer support, increased by $5.0 million, or 41%, to
$17.1 million for fiscal year 2004 from $12.1 million
for fiscal year 2003. Gross profit as a percentage of revenues
for services was 50% for fiscal year 2004, compared to 52% for
fiscal year 2003. The decrease in the gross profit as a
percentage of services revenues was due to an increase in costs
associated with the hiring and training of additional personnel
and the use of outside contractors related to the significant
growth in consulting services revenue. The increase in the gross
profit dollars was due to the increase in revenues from
post-contract customer support from a larger installed base of
Universal Content Management products, with little additional
support staff needed, and a higher installed base of Content
Component software, which requires very little support staff
needed as support is generally provided by the company that
embeds our software. In general, we have had a fairly consistent
rate of annual post-contract support renewals in both our
Universal Content Management and Content Component software and
better utilization of consulting services personnel related to
our Universal Content Management software. As a result of the
Optika merger, we anticipate that our cost of consulting and
training services as a percentage of total consulting and
training revenue will decrease in fiscal year 2005 from fiscal
year 2004 as we believe that we can optimize the combined
departments and increase the services utilization. During the
recent economic slowdown, we saw less competition for skilled
software post-contract customer support personnel than we
experienced during stronger economic periods. If economic
conditions improve, competition for skilled software
post-contract customer support personnel may increase and our
services costs of revenues may increase and may offset certain
of the anticipated cost savings related to the Optika merger.

Cost of services revenues, consisting of
personnel for consulting services, training and post-contract
customer support, decreased by $1.3 million, or 9%, to
$12.1 million for fiscal year 2003 from $13.4 million
for

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fiscal year 2002. The increase in the gross
profit dollars and as a percentage of services revenues was due
to the increase in revenues from post-contract customer support
from a larger installed base of Universal Content Management
products, with little additional support staff needed, and a
higher installed base of Content Component software, which
required very little support staff, as support generally was
provided by the company that embeds our software. Additionally,
we had better utilization of our consulting services personnel
in fiscal year 2003 who were providing the services.


Since our support and service revenues have lower
gross margins than our license revenues, our overall gross
margins will typically decline if our support and service
revenues increase as a percent of total revenues. Our cost of
support and service revenues as a percentage of support and
service revenues may vary from period to period, depending in
part on whether the services are performed by our in-house
staff, subcontractors or third-party system integrators. If our
customers perform more services activities in-house or increase
the use of third-party systems integrators, our support and
service revenues and cost of support and service revenues
realized on a per-customer basis may decline.

Operating Expenses



| |                    
| | -------------------
| | Sales and Marketing

|                             |  |                         |        |                   |  |      |        |              |  |              |        |   |  |  |   |   |  |  |     |   
|---------------------------- |  | ----------------------- | ------ | ----------------- |  | ---- | ------ | ------------ |  | ------------ | ------ | - |  |  | - | - |  |  | --- | --
|                             |  |                         |        |                  
|                             |  | Years Ended March 31,   |        | Percentage Change
|                             |  |                         |        |                  
|                             |  | 2004                    |        | 2003              |  | 2002 |        | 2003 to 2004 |  | 2002 to 2003
|                             |  |                         |        |                   |  |      |        |              |  |             
|                             |  |                         |        |                   |  |     
|                             |  | (In thousands,          |        |                   |  |     
|                             |  | except for percentages) |        |                   |  |     
|Sales and marketing          |  | $                       | 39,122 |                   |  | $    | 38,343 |              |  | $            | 46,672 |   |  |  | 2 | % |  |  | (18 | )%
|Percentage of total revenues |  |                         | 52     | %                 |  |      | 59     | %            |  |              | 53     | % |  |  |   |   |  |  |     |   

Sales and marketing expenses consist of salaries,
commissions, benefits and related costs for sales and marketing
personnel, travel and marketing programs, including customer
conferences, promotional materials, trade shows and advertising.
Sales and marketing expenses increased by $0.8 million, or
2%, for fiscal year 2004 to fiscal year 2003. As a percentage of
total revenues, sales and marketing expenses were 52% for fiscal
year 2004 compared to 59% for fiscal year 2003. The increase in
dollars was attributable to costs related to our global users
conference held in October 2003 and other sales events, and was
partially offset by reduced commission expenses related to the
mix of products sold. As a result of the Optika acquisition, we
believe that our sales and marketing expenses as a percentage of
total revenue will decrease in fiscal year 2005 from fiscal year
2004 as we optimize and combine the two sales and marketing
departments and increase the productivity of our sales
personnel. During fiscal 2004, we saw less competition for
general software sales and marketing personnel than we
experienced during stronger economic periods. However,
competition has intensified for sales personnel who have been
successful in the current market conditions. If economic
conditions improve, competition for general software sales and
marketing personnel may increase and our sales and marketing
expenses may increase and may offset certain of the anticipated
cost savings related to the Optika acquisition.

Sales and marketing expenses decreased by
$8.4 million, or 18%, for fiscal year 2003 from fiscal year
2002. Sales and marketing expenses as a percentage of total
revenues were 59% for fiscal year 2003 compared to 53% for
fiscal year 2002. Approximately $6.4 million of the
decrease in sales and marketing expense was due to decreased
staffing and related costs attributable to the restructurings of
our company during fiscal year 2003, reduced commission expense
of approximately $1.5 million as a result of decreased
sales and decreased travel expense of approximately
$0.5 million. We reduced sales and marketing expenses in
connection with managements plan to reduce costs and
improve operating efficiencies to better align our operations
with our revenue base.

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| |                           
| | --------------------------
| | General and Administrative

|                             |  |                         |       |                   |  |      |        |              |  |              |        |   |  |  |     |    |  |  |    |   
|---------------------------- |  | ----------------------- | ----- | ----------------- |  | ---- | ------ | ------------ |  | ------------ | ------ | - |  |  | --- | -- |  |  | -- | --
|                             |  |                         |       |                  
|                             |  | Years Ended March 31,   |       | Percentage Change
|                             |  |                         |       |                  
|                             |  | 2004                    |       | 2003              |  | 2002 |        | 2003 to 2004 |  | 2002 to 2003
|                             |  |                         |       |                   |  |      |        |              |  |             
|                             |  |                         |       |                   |  |     
|                             |  | (In thousands,          |       |                   |  |     
|                             |  | except for percentages) |       |                   |  |     
|General and administrative   |  | $                       | 8,856 |                   |  | $    | 11,301 |              |  | $            | 11,884 |   |  |  | (22 | )% |  |  | (5 | )%
|Percentage of total revenues |  |                         | 12    | %                 |  |      | 17     | %            |  |              | 13     | % |  |  |     |    |  |  |    |   

General and administrative expenses consist of
salaries and related costs for, general corporate functions,
including finance accounting, human resources, legal and
information technology, as well as insurance, professional fees,
facilities costs and bad debt expense. For fiscal year 2004,
general and administrative expenses decreased by
$2.4 million, or 22%, from fiscal year 2003, due to a
decrease in expenses associated with fewer personnel as a result
of the restructurings undertaken by the company and a decrease
in bad debt expense of $2.5 million partially offset by
increased legal, accounting and other professional fees
associated with additional regulations enacted by the Federal
government and by the class action lawsuit. As a result of the
Optika acquisition, we believe that our general and
administrative expenses will decrease as a percentage of total
revenue in fiscal year 2005 from fiscal year 2004 as we will
consolidate the accounting, finance and human resource
departments and operate these departments from our corporate
headquarters. Additionally, we anticipate further expense
reductions as a percentage of total revenue as we eliminate
duplicate expenses such as certain insurance expenses and
professional services expenses. However, these expense
reductions may be partially offset as we expect to be subject to
increasing corporate governance regulations and may be required
to increase general and administrative spending to comply with
such regulations Congress, the Securities and Exchange
Commission and the national stock exchanges have enacted or have
proposed to enact for publicly traded companies.

For fiscal year 2003, general and administrative
expense dollars decreased by $0.6 million, or 5%, from
fiscal year 2002, due to decreased personnel expenses associated
with fewer personnel as a result of the restructurings of
approximately $1.6 million, partially offset by an increase
in the bad debt expense of approximately $1.0 million. The
increase in bad debt was caused by certain of our customers
becoming unable to pay their debts due to a downturn in their
business, or discontinuation of their business caused by the
downturn in the economy and the reduction in spending for high
technology products.



| |                         
| | ------------------------
| | Research and Development

|                             |  |                         |        |                   |  |      |        |              |  |              |        |   |  |  |     |    |  |  |     |   
|---------------------------- |  | ----------------------- | ------ | ----------------- |  | ---- | ------ | ------------ |  | ------------ | ------ | - |  |  | --- | -- |  |  | --- | --
|                             |  |                         |        |                  
|                             |  | Years Ended March 31,   |        | Percentage Change
|                             |  |                         |        |                  
|                             |  | 2004                    |        | 2003              |  | 2002 |        | 2003 to 2004 |  | 2002 to 2003
|                             |  |                         |        |                   |  |      |        |              |  |             
|                             |  |                         |        |                   |  |     
|                             |  | (In thousands,          |        |                   |  |     
|                             |  | except for percentages) |        |                   |  |     
|Research and development     |  | $                       | 13,263 |                   |  | $    | 15,766 |              |  | $            | 17,601 |   |  |  | (16 | )% |  |  | (10 | )%
|Percentage of total revenues |  |                         | 18     | %                 |  |      | 24     | %            |  |              | 20     | % |  |  |     |    |  |  |     |   

Research and development expenses consist of
salaries and benefits, third-party contractors, facilities and
related overhead costs associated with our product development
and quality assurance activities. For fiscal year 2004, research
and development expenses decreased by $2.5 million, or 16%,
from fiscal year 2003, due to reduced average headcount, the
consolidation of research and development facilities and the
completion of certain research and development projects in
fiscal year 2003. As a result of the Optika acquisition, we
believe that our fiscal year 2005 research and development
expenses will remain consistent as a percentage of total revenue
as compared to fiscal year 2004 as no significant changes are
anticipated with respect to headcount or currently scheduled
programs.

For fiscal year 2003, research and development
expenses decreased by $1.8 million, or 10%, from fiscal
year 2002, due to decreased staffing and related costs as a
result of the restructurings. We reduced research and
development expenses in connection with managements plan
to reduce costs and improve operating efficiencies to better
align our operations with our revenue base. The reduced average
headcount is not anticipated to affect any of our new products
currently in development or new version releases of our current

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products, but may delay or prevent progress on
potential products not yet in development, particularly with our
Content Component products.




| |                              
| | -----------------------------
| | Acquisition and Related Costs

|                              |  |                         |   |                   |  |      |       |              |  |              |     |   |  |  |      |    |  |  |     |  
|----------------------------- |  | ----------------------- | - | ----------------- |  | ---- | ----- | ------------ |  | ------------ | --- | - |  |  | ---- | -- |  |  | --- | -
|                              |  |                         |   |                  
|                              |  | Years Ended March 31,   |   | Percentage Change
|                              |  |                         |   |                  
|                              |  | 2004                    |   | 2003              |  | 2002 |       | 2003 to 2004 |  | 2002 to 2003
|                              |  |                         |   |                   |  |      |       |              |  |             
|                              |  |                         |   |                   |  |     
|                              |  | (In thousands,          |   |                   |  |     
|                              |  | except for percentages) |   |                   |  |     
|Acquisition and related costs |  | $                       |  |                   |  | $    | 1,127 |              |  | $            | 237 |   |  |  | (100 | )% |  |  | 376 | %
|Percentage of total revenues  |  |                         |  | %                 |  |      | 2     | %            |  |              |    | % |  |  |      |    |  |  |     |  

Acquisition and related costs were
$1.1 million in fiscal year 2003, of which
$0.7 million were related to a potential transaction with a
Japanese company that would have given us new wireless
technologies and an avenue in Japan to generate revenues for our
Universal Content Management software. After proceeding with the
due-diligence, it was determined that the target company was not
situated well enough for us to accomplish previously established
goals. The expenses associated with this project represent funds
that we advanced to the company for a trade show, product
integration testing and test marketing costs of the products.
The remaining $0.4 million of acquisition costs represent
final development milestone and bonus payments related to the
acquisition of Kinecta Corporation in April 2002 and the
acquisition of selected assets of Active IQ Corporation.
Because we believe market trends may result in consolidation of
the content management software market, from time to time we may
seek to acquire businesses, products or technologies that are
complementary to our business. Depending on the size, nature and
structure of any future business acquisitions, our acquisition
and related costs expense may increase substantially.

Acquisition costs of approximately
$0.2 million in fiscal year 2002 consisted of uncapitalized
costs related to our acquisition of RESoft in July 2001 and the
costs associated with developing the Japanese market through a
potential acquisition.

Amortization
of Acquired Intangible Assets and Other

|                                                         |  |                         |       |                   |  |      |       |              |  |              |        |   |  |  |     |    |  |  |     |   
|-------------------------------------------------------- |  | ----------------------- | ----- | ----------------- |  | ---- | ----- | ------------ |  | ------------ | ------ | - |  |  | --- | -- |  |  | --- | --
|                                                         |  |                         |       |                  
|                                                         |  | Years Ended March 31,   |       | Percentage Change
|                                                         |  |                         |       |                  
|                                                         |  | 2004                    |       | 2003              |  | 2002 |       | 2003 to 2004 |  | 2002 to 2003
|                                                         |  |                         |       |                   |  |      |       |              |  |             
|                                                         |  |                         |       |                   |  |     
|                                                         |  | (In thousands,          |       |                   |  |     
|                                                         |  | except for percentages) |       |                   |  |     
|Amortization of acquired intangible assets and
    other |  | $                       | 2,006 |                   |  | $    | 6,635 |              |  | $            | 12,914 |   |  |  | (70 | )% |  |  | (49 | )%
|Percentage of total revenues                             |  |                         | 3     | %                 |  |      | 10    | %            |  |              | 15     | % |  |  |     |    |  |  |     |   

Amortization of intangible assets acquired
related to our acquisition of CCD in July 2000, our acquisition
of RESoft in July 2001, and our acquisition of Kinecta in April
2002. A portion of the purchase price of certain assets of CCD
was allocated to core technology, customer base, software,
trademarks and other intangibles, and is being amortized over
the assets estimated useful lives of three to four years.
A portion of the purchase price of certain assets of each of
RESoft and Kinecta was allocated to certain intangible assets,
such as customer base and trademarks, and is also being
amortized over their useful lives of three years. Amortization
of acquired intangible assets and other expense was
$2.0 million for the fiscal year 2004 and $6.6 million
for the fiscal year 2003. The decrease was attributable to the
completion in June 2003 of amortization of intangibles related
to our acquisition of CCD.

Amortization of goodwill and acquired workforce
ceased as of April 1, 2002 in connection with the adoption
of SFAS 142. As a result, amortization expense decreased
$6.3 million for fiscal year 2003 as compared to fiscal
year 2002. We believe the technology that was acquired in these
acquisitions is necessary functionality to be competitive. For
fiscal 2002, amortization of intangible assets acquired related
to our acquisition of CCD in July 2000, and our acquisition of
RESoft in July 2001, accounted for as purchases.

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| |                      
| | ---------------------
| | Restructuring Charges

|                             |  |                         |     |                   |  |      |       |              |  |              |   |  |  |  |     |    |  |  |       |  
|---------------------------- |  | ----------------------- | --- | ----------------- |  | ---- | ----- | ------------ |  | ------------ | - |  |  |  | --- | -- |  |  | ----- | -
|                             |  |                         |     |                  
|                             |  | Years Ended March 31,   |     | Percentage Change
|                             |  |                         |     |                  
|                             |  | 2004                    |     | 2003              |  | 2002 |       | 2004 to 2003 |  | 2003 to 2002
|                             |  |                         |     |                   |  |      |       |              |  |             
|                             |  |                         |     |                   |  |     
|                             |  | (In thousands,          |     |                   |  |     
|                             |  | except for percentages) |     |                   |  |     
|Restructuring charges        |  | $                       | 743 |                   |  | $    | 4,368 |              |  | $            |  |  |  |  | (83 | )% |  |  | 4,368 | %
|Percentage of total revenues |  |                         | 1   | %                 |  |      | 7     | %            |  |              |  |  |  |  |     |    |  |  |       |  

We assessed many factors in determining whether
and when to restructure our operations, with a significant
consideration being the performance of the economy and the for
the information technology markets in the United States and in
Europe. During fiscal year 2004, in connection with
managements plan to reduce costs and improve operating
efficiencies, we recorded a restructuring charge of
approximately $0.7 million. The restructuring charge was
comprised of severance pay and benefits related to the
involuntary termination of employees of approximately
$0.4 million with the remaining $0.3 million related
to a change in estimate related to the closing of facilities and
other exit costs. These cost reduction measures were taken to
better align our business with our current revenue base and what
we believe will be continued slow spending by companies in the
high tech sector over the next year. However, we may be required
to re-invest in certain areas to expand our customer base, grow
our revenues and invest in product development, which may
eliminate or exceed these cost savings.

For the fiscal year 2003, we recorded
restructuring charges of approximately $4.4 million,
compared to no restructuring charges in the fiscal year 2002.
These restructuring expenses were taken in the June 30,
2002 quarter of $2.5 million, the September 30, 2002
quarter of $0.8 million, the December 31, 2002 quarter
of $0.7 million and the March 31, 2003 quarter of
$0.4 million.

In connection with the integration of Optika and
in connection with managements plans to reduce costs and
improve operating efficiencies, the Company approved a
restructuring plan on June 2, 2004. The restructuring plan
includes the termination of 31 employees of Stellent, Inc. and
the shutdown of the Companys New York facility.
Restructuring charges during the first quarter of fiscal year
2005 related to this plan are estimated to be approximately
$2,500 to $3,000. The effect on expenses and cash flows over the
next year associated with the termination of these employees is
expected to be a decrease in expenses and increase in cash flow
of approximately $1.7 million. The effect on expenses over
the next year associated with the closing of the facilities and
other exit costs is expected to have an immaterial effect on
expenses and cash flows. The expense decrease of approximately
$1.7 million is anticipated to be in the areas of cost of
revenues for services of $0.3 million and selling and
marketing of $1.4 million.

Other Income (Expense)

|                                     |  |                         |     |                   |  |      |        |              |  |              |        |    |  |  |     |    |  |  |     |   
|------------------------------------ |  | ----------------------- | --- | ----------------- |  | ---- | ------ | ------------ |  | ------------ | ------ | -- |  |  | --- | -- |  |  | --- | --
|                                     |  |                         |     |                  
|                                     |  | Years Ended March 31,   |     | Percentage Change
|                                     |  |                         |     |                  
|                                     |  | 2004                    |     | 2003              |  | 2002 |        | 2003 to 2004 |  | 2002 to 2003
|                                     |  |                         |     |                   |  |      |        |              |  |             
|                                     |  |                         |     |                   |  |     
|                                     |  | (In thousands,          |     |                   |  |     
|                                     |  | except for percentages) |     |                   |  |     
|Interest income                      |  | $                       | 982 |                   |  | $    | 1,957  |              |  | $            | 3,755  |    |  |  | (50 | )% |  |  | (48 | )%
|Investment gain on sale (impairment) |  |                         | 388 |                   |  |      | (1,733 | )            |  |              | (5,722 | )  |  |  | 122 | %  |  |  | 70  | % 
|As a percentage of total revenues:   |  |                         |     |                   |  |      |        |              |  |              |        |    |  |  |     |    |  |  |     |   
|Interest income                      |  |                         | 1   | %                 |  |      | 3      | %            |  |              | 4      | %  |  |  |     |    |  |  |     |   
|Investment impairment                |  |                         | 1   | %                 |  |      | (3     | )%           |  |              | (6     | )% |  |  |     |    |  |  |     |   

Interest income.Interest income for all years was related to short-term
investments purchased with the proceeds of our public stock
offerings completed in June 1999 and March 2000.

The decreases in net interest income for the
fiscal years ended March 31, 2004 and 2003 were due to
decreases in the interest rates earned by invested funds which
declined over 50% each period, and reduced amounts of invested
funds.

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Investment
impairment.During fiscal year 2004,
we sold our shares in a publicly traded company, an investment
for which the value was previously written down to zero as the
result of an other than temporary impairment. We realized
approximately $0.4 million in proceeds and gain from the
sale.

During fiscal year 2003, our investment
impairment was approximately $1.7 million. In the last
quarter of fiscal year 2003, after purchasing certain assets of
Active IQ and reviewing its public disclosures, which
stated it was selling the remaining operating assets of the
company to another party, we determined that a permanent decline
in value had occurred and recorded a write-down of approximately
$1.1 million. During the first three quarters of fiscal
year 2003, we determined that a permanent decline in the value
of certain of our investments in other companies had occurred.
We made this determination after reviewing financial statements
of these companies or discussing their future business plans and
prospects with their management. As a result, we recorded a
write-down on the investments in these companies of
approximately $0.6 million.

During the fiscal year 2002, we determined that a
permanent decline in the value of certain of our investments in
other companies had occurred. We made this determination after
reviewing financial statements of these companies or discussing
their future business plans and prospects with their management.
As a result, we recorded a write-down on the investments in
these companies of approximately $5.7 million.

Net Operating Loss Carryforwards

As of March 31, 2004, we had net operating
loss carryforwards of approximately $96.9 million. The net
operating loss carryforwards will expire at various dates
beginning in 2011, if not utilized. The Tax Reform Act of 1986
imposes substantial restrictions on the utilization of net
operating losses and tax credits in the event of an
ownership change of a corporation. Our ability to
utilize net operating loss carryforwards on an annual basis will
be limited as a result of ownership changes in
connection with the sale of equity securities. We have provided
a valuation allowance against the entire amount of the deferred
tax asset as of March 31, 2004 because of uncertainty
regarding its full realization. Our accounting for deferred
taxes involves the evaluation of a number of factors concerning
the realizability of our deferred tax assets. In concluding that
a valuation allowance was required, management considered such
factors as our history of operating losses, potential future
losses and the nature of our deferred tax assets. See Note 7 to
the Consolidated Financial Statements included in
Item 15(a)1.

Liquidity and Capital Resources

We have funded our operations and satisfied our
capital expenditure requirements through revolving working
capital and term loans from banking institutions, private
placements and public offerings of securities.

To date, we have invested our capital
expenditures in property and equipment, consisting largely of
computer hardware and software. Capital expenditures for fiscal
year 2004 and 2003 were $2.3 million and $1.0 million,
respectively. We have also entered into capital and operating
leases for facilities and equipment. We expect that our capital
expenditures will increase as our employee base grows. At
March 31, 2004, we did not have any material commitments
for capital expenditures.

As of March 31, 2004, we had
$73.5 million in cash and marketable securities and
$72.5 million in working capital. We currently believe that
our cash and cash equivalents on hand will be sufficient to meet
our working capital requirements for the foreseeable future,
particularly through March 31, 2005. On a longer term
basis, we may require additional funds to support our working
capital requirements or for other purposes and may seek to raise
such additional funds through public or private equity
financings or from other sources. We cannot be certain that
additional financing will be available on terms favorable to us,
or on any terms, or that any additional financing will not be
dilutive.

We continue to evaluate potential strategic
acquisitions that could utilize equity and/or cash resources.
Such opportunities could develop quickly due to market and
competitive factors.

Cash, cash equivalents and marketable securities
decreased $7.7 million, or 9%, to $73.5 million as of
March 31, 2004 from $81.2 million at March 31,
2003. Our cash, cash equivalents and marketable securities

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decreased $15.0 million, or 16% from fiscal
2002 to fiscal 2003. The decreases were due to the operating
losses experienced in those years.


Cash provided (used) in 2004, 2003 and 2002
was as follows (in thousands):

|                                                |  |                       |        |      |  |      |        |   |  |   |        |  
|----------------------------------------------- |  | --------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                |  |                      
|                                                |  | Years Ended March 31,
|                                                |  |                      
|                                                |  | 2004                  |        | 2003 |  | 2002
|                                                |  |                       |        |      |  |     
|Cash provided by (used in) operating activities |  | $                     | (5,809 | )    |  | $    | (8,020 | ) |  | $ | (2,890 | )
|Cash provided by investing activities           |  |                       | 10,307 |      |  |      | 21,133 |   |  |   | 13,883 |  
|Cash provided by (used in) financing activities |  |                       | 1,867  |      |  |      | (2,704 | ) |  |   | 1,071  |  

Operating
Activities.Net cash used in operating
activities of $5.8 million in fiscal year 2004 resulted
from a loss from operations of $10.5 million. After
excluding the effects of non-cash expenses including
depreciation and amortization of $3.4 million and
amortization of intangible assets of $3.6 million, the
adjusted cash usage before the effect of changes in working
capital components was $3.5 million. Additional cash usage
was the result of an increase of $3.6 million in accounts
receivable, $0.7 million in prepaid expenses and other
current assets and $0.4 million related to the sale of an
investment in another company, partially offset by an increase
of $1.9 million in deferred revenues and other accrued
liabilities and an increase of approximately $0.5 million
in accounts payable.

Net cash used in operating activities of
$8.0 million in fiscal year 2003 resulted from a loss from
operations of $32.4 million. After excluding the effects of
non-cash expenses including depreciation and amortization of
$3.2 million, amortization of intangible assets of
$8.5 million, $1.7 million of investment impairment
and including the tax benefit reduction of employee stock option
exercises of $4.9 million, the adjusted cash usage before
the effect of changes in working capital components was
$23.9 million. Additional cash provided was the result of a
decrease of $3.0 million in accounts receivable, a decrease
of $4.4 million in prepaid expenses and other current
assets, an increase of $8.5 million in deferred revenue and
other accrued liabilities.

Net cash provided by operating activities of
$2.9 million in fiscal year 2002 resulted from a loss from
operations of $22.3 million offset by non-cash items
including depreciation and amortization of $2.3 million,
amortization of intangible assets of $13.9 million, and
$6.1 million related to investment impairment. Additional
cash usage was the result of an increase of $5.6 million in
prepaid expenses and other current assets, a decrease of
$1.0 million in accrued expenses and other liabilities,
partially offset by a decrease of $2.8 million in accounts
receivable and an increase of $0.9 million in accounts
payable and other.

A number of non-cash items were charged to
expense and increased our net loss in 2004, 2003 and 2002,
respectively. These items include depreciation and amortization
of property and equipment and intangible assets. The extent to
which these non-cash items increase or decrease in amount and
increase or decrease our future operating results will have no
corresponding impact on our operating cash flows.

Our primary source of operating cash flow is the
collection of accounts receivable from our customers offset by
payments to our employees, vendors and service providers. We
measure the effectiveness of our collection efforts by an
analysis of average accounts receivable days outstanding
(days outstanding). Days outstanding were
84 days, 84 days and 119 days on March 31,
2004, 2003 and 2002, respectively. Collections of accounts
receivable and related days outstanding will fluctuate in future
periods due to the timing and amount of our future revenues,
payment terms on customer contracts and the effectiveness of our
collection efforts.

Our operating cash flows will also be impacted in
the future based on the timing of payments to our vendors. We
endeavor to pay our vendors and service providers in accordance
with invoice terms and conditions. The timing of cash payments
in future periods will be impacted by the nature of vendor
arrangements and managements assessment of our cash
inflows.

Investing
Activities.Net cash provided by
investing activities was $10.3 million for fiscal year
2004. This resulted from net proceeds from investment activity
of $14.4 million and a $0.4 million investment gain on

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sale, partially offset by approximately
$2.3 million to purchase property and equipment and
$2.2 million used to acquire Ancept, Inc.


Net cash provided by investing activities was
$21.1 million in fiscal year 2003. This resulted from net
proceeds from investment activity of $25.6 million,
partially offset by $1.0 million to purchase property and
equipment and $3.5 million to purchase Kinecta and
Active IQ.

Net cash used in investing activities was
$13.9 million in fiscal year 2002. This resulted from net
cash used in investment activity of $22.4 million;
partially offset by $3.4 million of purchases property and
equipment; $1.6 million to purchase technology and
approximately $3.5 million of investments and notes in
other companies.

We have classified our investment portfolio as
available for sale, and our investments objectives
are to preserve principal and provide liquidity while at the
same time maximizing yields without significantly increasing
risk. We generally hold investments in commercial paper,
corporate bonds and United States government agency securities
to maturity; however, we may sell an investment at any time if
the quality rating of the investment declines, the yield on the
investment is no longer attractive or we are in need of cash.
Because we invest only in investment securities that are highly
liquid with a ready market, we believe that the purchase,
maturity or sale of our investments has no material impact on
our overall liquidity.

We anticipate that we will continue to purchase
property and equipment necessary in the normal course of our
business. The amount and timing of these purchases and the
related cash outflows in future periods is difficult to predict
and is dependent on a number of factors including the hiring of
employees, the rate of change of computer hardware and software
used in our business and our business outlook.

Financing
Activities.Net cash provided by
financing activities of $1.9 million in fiscal 2004
included approximately $2.2 million from the net proceeds
from the issuance of common stock, partially offset by
$0.3 million of repurchased stock.

Net cash used in financing activities of
$2.7 million in fiscal 2003 included $3.5 million of
repurchased stock, partially offset by $0.8 million from
the net proceeds from issuance of common stock.

Net cash provided by financing activities of
$1.1 million in fiscal 2002 included approximately
$4.7 million from the net proceeds from issuance of common
stock , partially offset by $3.6 million in repurchased
stock.

Our cash flows from financing activities are the
result of cash receipts from the issuance of common stock, our
repurchases of common stock and treasury stock, and borrowings
and payments under our lines of credit. We have used our lines
of credit to finance purchases of property and equipment. We
receive cash from the exercise of common stock options and the
sale of common stock under our Employee Stock Purchase Plan.
While we expect to continue to receive these proceeds in future
periods, the timing and amount of such proceeds is difficult to
predict and is contingent on a number of factors including the
price of our common stock, the number of employees participating
in our stock option plans and our Employee Stock Purchase Plan
and general market conditions. We may continue to use lines of
credit to finance our equipment purchases to the extent that
such financing is available to us on acceptable terms. From time
to time, our Board of Directors has approved common stock
repurchase programs allowing management to repurchase shares of
our common stock in the open market.

Financial Risk Management

As a global concern, we face exposure to adverse
movements in foreign currency exchange rates. These exposures
may change over time as business practices evolve and could have
a material adverse impact on our consolidated financial results.
Our primary exposures relate to non-United States
dollar-denominated revenues and operating expenses in Europe,
Asia Pacific, Australia and Canada. At the present time, the
exposure is not significant. We do not anticipate significant
currency gains or losses in the near term.

We maintain investment portfolio holdings of
various issuers, types and maturities. These securities are
classified as available-for-sale and, consequently, are recorded
on the consolidated balance sheet at fair value

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with unrealized gains and losses reported as a
separate component of accumulated other comprehensive income.
These securities are not leveraged and are held for purposes
other than trading.


Contractual Obligations

The table below discloses a summary of the
Companys specified contractual obligations at
March 31, 2004 (in thousands):

|                     |  |       |        |        |  |       |       |       |  |         |       |  |  |   |     |  |  |   |       | 
|-------------------- |  | ----- | ------ | ------ |  | ----- | ----- | ----- |  | ------- | ----- |  |  | - | --- |  |  | - | ----- | 
|                     |  |       |        | Under  |  | 1-3   |       | 3-5   |  | After  
|                     |  | Total |        | 1 Year |  | Years |       | Years |  | 5 Years
|                     |  |       |        |        |  |       |       |       |  |        
|Earn out payments(1) |  | $     | 1,550  |        |  | $     | 690   |       |  | $       | 860   |  |  | $ |    |  |  | $ |      | 
|Operating leases     |  |       | 10,001 |        |  |       | 3,143 |       |  |         | 2,950 |  |  |   | 868 |  |  |   | 3,040 | 
|                     |  |       |        |        |  |       |       |       |  |         |       |  |  |   |     |  |  |   |       | 
|Total                |  | $     | 11,551 |        |  | $     | 3,833 |       |  | $       | 3,810 |  |  | $ | 868 |  |  | $ | 3,040 | 
|                     |  |       |        |        |  |       |       |       |  |         |       |  |  |   |     |  |  |   |       | 



---



|    |                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Company has agreed to make earn out payments
    dependent upon the future revenue performance of certain
    companies acquired. The expected payments noted above were based
    on the anticipated future levels of revenues of the acquired
    companies.

Critical Accounting Policies and
Estimates

In preparing our consolidated financial
statements, we make estimates, assumptions and judgments that
can have a significant impact on our revenues, loss from
operations and net loss, as well as on the value of certain
assets and liabilities on our consolidated balance sheet. We
believe that there are several accounting policies that are
critical to an understanding of our historical and future
performance, as these policies affect the reported amounts of
revenues, expenses and significant estimates and judgments
applied by management. While there are a number of accounting
policies, methods and estimates affecting our consolidated
financial statements, areas that are particularly significant
include:



| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | revenue recognition;                                                                         
|
| |  | estimating the allowance for doubtful accounts;                                              
|
| |  | estimating the accrual for restructuring and
    excess facilities costs;                    
|
| |  | Accounting for income taxes; and                                                             
|
| |  | valuation and evaluating impairment of long-lived
    assets, intangible assets and goodwill.



| |                    
| | -------------------
| | Revenue Recognition

We currently derive all of our revenues from
licenses of software products and related services. We recognize
revenue in accordance with Statement of Position
(SOP) 97-2, Software Revenue Recognition, as amended by
SOP 98-9, Modification of SOP 97-2, Software Revenue
Recognition with Respect to Certain Transactions, and Securities
and Exchange Commission Staff Accounting Bulletin 101,
Revenue Recognition in Financial Statements.

Product license revenue is recognized under
SOP 97-2 when (i) persuasive evidence of an
arrangement exists, (ii) delivery has occurred,
(iii) the fee is fixed or determinable, and
(iv) collectibility is probable and supported and the
arrangement does not require services that are essential to the
functionality of the software.

Persuasive Evidence of an Arrangement
Exists We determine that
persuasive evidence of an arrangement exists with respect to a
customer under, i) a signature license agreement, which is
signed by both the customer and us, or, ii) a purchase order,
quote or binding letter-of-intent received from and signed by
the customer, in which case the customer has either previously
executed a signature license agreement with us or will receive a
shrink-wrap license agreement with the software. We do not offer
product return rights to end users or resellers.

Delivery has
Occurred Our software may
be either physically or electronically delivered to the
customer. We determine that delivery has occurred upon shipment
of the software pursuant to the billing

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terms of the arrangement or when the software is
made available to the customer through electronic delivery.
Customer acceptance generally occurs at delivery.


The Fee is Fixed or
Determinable If at the
outset of the customer arrangement, we determine that the
arrangement fee is not fixed or determinable, revenue is
typically recognized when the arrangement fee becomes due and
payable. Fees due under an arrangement are generally deemed
fixed and determinable if they are payable within twelve months.

Collectibility is Probable and
Supported We determine
whether collectibility is probable and supported on a
case-by-case basis. We may generate a high percentage of our
license revenue from our current customer base, for whom there
is a history of successful collection. We assess the probability
of collection from new customers based upon the number of years
the customer has been in business and a credit review process,
which evaluates the customers financial position and
ultimately their ability to pay. If we are unable to determine
from the outset of an arrangement that collectibility is
probable based upon our review process, revenue is recognized as
payments are received.

With regard to software arrangements involving
multiple elements, we allocate revenue to each element based on
the relative fair value of each element. Our determination of
fair value of each element in multiple-element arrangements is
based on vendor-specific objective evidence (VSOE).
We limit our assessment of VSOE for each element to the price
charged when the same element is sold separately. We have
analyzed all of the elements included in our multiple-element
arrangements and have determined that we have sufficient VSOE to
allocate revenue to consulting services and post-contract
customer support (PCS) components of our license
arrangements. We sell our consulting services separately, and
have established VSOE on this basis. VSOE for PCS is determined
based upon the customers annual renewal rates for these
elements. Accordingly, assuming all other revenue recognition
criteria are met, revenue from perpetual licenses is recognized
upon delivery using the residual method in accordance with
SOP 98-9, and revenue from PCS is recognized ratably over
their respective terms, typically one year.

Our direct customers typically enter into
perpetual license arrangements. Our Content Components Division
generally enters into term-based license arrangements with its
customers, the term of which generally exceeds one year in
length. We recognize revenue from time-based licenses at the
time the license arrangement is signed, assuming all other
revenue recognition criteria are met, if the term of the
time-based license arrangement is greater than twelve months. If
the term of the time-based license arrangement is twelve months
or less, we recognize revenue ratably over the term of the
license arrangement.

Services revenue consists of fees from consulting
services and PCS. Consulting services include needs assessment,
software integration, security analysis, application development
and training. We bill consulting services fees either on a time
and materials basis or on a fixed-price schedule. In general,
our consulting services are not essential to the functionality
of the software. Our software products are fully functional upon
delivery and implementation and generally do not require any
significant modification or alteration for customer use.
Customers purchase our consulting services to facilitate the
adoption of our technology and may dedicate personnel to
participate in the services being performed, but they may also
decide to use their own resources or appoint other professional
service organizations to provide these services. Software
products are billed separately from professional services. We
recognize revenue from consulting services as services are
performed. Our customers typically purchase PCS annually, and we
price PCS based on a percentage of the product license fee.
Customers purchasing PCS receive product upgrades, Web-based
technical support and telephone hot-line support.

Customer advances and billed amounts due from
customers in excess of revenue recognized are recorded as
deferred revenue.

We follow very specific and detailed guidelines,
discussed above, in determining revenues; however, certain
judgments and estimates are made and used to determine revenue
recognized in any accounting period. Material differences may
result in the amount and timing of revenue recognized for any
period if different conditions were to prevail. For example, in
determining whether collection is probable, we assess our
customers ability and intent to pay. Our actual experience
with respect to collections could differ from our

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initial assessment if, for instance, unforeseen
declines in the overall economy occur and negatively impact our
customers financial condition.




| |                                                            
| | -----------------------------------------------------------
| | Accounts Receivable and Allowance for Doubtful
    Accounts

The preparation of our consolidated financial
statements requires management to make estimates and assumptions
that affect the reported amount of assets and disclosure of
contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of
revenues and expenses during the reported period. Specifically,
we make estimates as to the overall collectibility of accounts
receivable and provide an allowance for amounts deemed to be
uncollectible. Management specifically analyzes its accounts
receivable and historical bad debt experience, customer
concentrations, customer credit-worthiness, current economic
trends and changes in its customer payment terms when evaluating
the adequacy of the allowance for doubtful accounts. At
March 31, 2004 and 2003, our allowance for doubtful
accounts balance, which related to specific accounts where we
believe collection is not probable and to a lesser extent our
historical experience applied to accounts receivable not
specifically reserved, was $1.1 million and
$1.4 million, respectively. These amounts represent 6% and
8% of total accounts receivable at March 31, 2004 and 2003,
respectively.



| |                                                
| | -----------------------------------------------
| | Restructuring and Excess Facilities
    Accrual

Due to the recent economic slowdown and
associated reduction in information technology spending, we
implemented a series of restructuring and facility consolidation
plans to improve our operating performance. Restructuring and
facilities consolidation costs consist of expenses associated
with workforce reductions and consolidation of excess facilities.



| |                     
| | --------------------
| | Workforce Reductions

In connection with our restructuring plans, we
accrue for severance payments and other related termination
benefits provided to employees in connection with involuntary
staff reductions. We accrue for these benefits in the period
when benefits are communicated to the terminated employees.
Typically, terminated employees are not required to provide
continued service to receive termination benefits. If continued
service is required, then the severance liability is accrued
over the required service period. In general, we use a formula
based on a combination of the number of years of service and the
employees position within the Company to calculate the
termination benefits to be provided to affected employees. At
March 31, 2004, no significant amounts were accrued for
future severance and termination benefits payments.



| |                  
| | -----------------
| | Excess Facilities

In connection with our restructuring and facility
consolidation plans, we perform evaluations of our then-current
facilities requirements and identify facilities that are in
excess of our current and estimated future needs. When a
facility is identified as excess and we have ceased use of the
facility, we accrue the fair value of the lease obligations. In
determining fair value, we consider expected sublease income
over the remainder of the lease term and related exit costs if
any. To determine the estimated sublease income, we receive
appraisals from real estate brokers to aid in our estimate. In
addition, during our evaluation of our facilities requirements,
we also identify operating equipment and leasehold improvements
that may have suffered a reduction in their economic useful
lives. Most of our excess facilities are being marketed for
sublease and are currently unoccupied. Accordingly, our estimate
of excess facilities could differ from actual results and such
differences could result in additional charges that could
materially affect our consolidated financial position and
results of operations. At March 31, 2004, we had
$0.5 million accrued for excess facilities, which is
payable through January 2007. We reassess our excess facilities
liability each period based on current real estate market
conditions.

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| |                            
| | ---------------------------
| | Accounting for Income Taxes

As part of the process of preparing our
consolidated financial statements, we are required to estimate
our income tax liability in each of the jurisdictions in which
we do business. This process involves estimating our actual
current tax expense together with assessing temporary
differences resulting from differing treatment of items, such as
deferred revenues, for tax and accounting purposes. These
differences result in deferred tax assets and liabilities. We
must then assess the likelihood that these deferred tax assets
will be recovered from future taxable income and, to the extent
we believe that recovery is not more likely than not or unknown,
we must establish a valuation allowance.

Significant management judgment is required in
determining our provision for income taxes, our deferred tax
assets and liabilities and any valuation allowance recorded
against our deferred tax assets. At March 31, 2004, we have
recorded a full valuation allowance of $56.1 million
against our deferred tax assets, due to uncertainties related to
our ability to utilize our deferred tax assets, consisting
principally of certain net operating losses carried forward. The
valuation allowance is based on our estimates of taxable income
by jurisdiction and the period over which our deferred tax
assets will be recoverable. The Company had U.S. net
operating loss (NOL) carryforwards of approximately
$81.1 million and foreign net operating losses of
approximately $15.8 million at March 31, 2004, which
begin to expire in 2011. These NOLs are subject to annual
utilization limitations due to prior ownership changes.

Realization of the NOL carryforwards and other
deferred tax temporary differences are contingent on future
taxable earnings. The deferred tax asset was reviewed for
expected utilization using a more likely than not
approach as required by SFAS No. 109, Accounting
for Income Taxes, by assessing the available positive and
negative evidence surrounding its recoverability.

We will continue to assess and evaluate
strategies that will enable the deferred tax asset, or portion
thereof, to be utilized, and will reduce the valuation allowance
appropriately at such time when it is determined that the
more likely than not approach is satisfied.



| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Valuation and Evaluation of Impairment of
    Long-lived Assets, Goodwill and Other Acquired Intangible
    Assets

Goodwill represents the excess of the purchase
price over the fair value of net assets acquired. Prior to
April 1, 2002, goodwill was amortized on a straight-line
basis over three years. Effective April 1, 2002, we adopted
Statement of Financial Accounting Standards (SFAS) 142,
Goodwill and Other Intangible Assets, which provides that
goodwill, as well as identifiable intangible assets with
indefinite lives, should not be amortized but reviewed for
impairment annually, when factors indicating impairment are
present. We completed our transitional goodwill impairment test
on April 1, 2002 and determined that no impairment existed
at that time. We have elected to complete the annual impairment
test of goodwill on January 1 of each year. We engaged an
independent outside professional services firm to assist us in
our impairment testing of goodwill as of January 1, 2003.
Based on this assistance, we completed our annual goodwill
impairment test on January 1, 2003 and reviewed this
valuation and our financial position as of January 1, 2004
and determined that there was no impairment of goodwill at those
times. Additionally, no circumstances occurred during the fourth
quarter of fiscal year 2004 which would have created an
impairment loss at March 31, 2004.

We evaluate the recoverability of its long-lived
assets in accordance with SFAS 144, Accounting for
the Impairment or Disposal of Long-Lived Assets.
SFAS 144 requires recognition of impairment of long-lived
assets in the event that events or circumstances indicate an
impairment may have occurred and when the net book value of such
assets exceeds the future undiscounted cash flows attributed to
such assets. We assess the impairment of long-lived assets
whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. No impairment of
long-lived assets has occurred through fiscal year 2004.

Recent Accounting Pronouncements

In November 2002, the FASB reached a consensus on
EITF Issue No. 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables. This EITF sets
out criteria for whether revenue can be recognized

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separately from other deliverables in a multiple
deliverable arrangement. The criteria considers whether the
delivered item has stand-alone value to the customer, whether
the fair value of the delivered item can be reliably determined
and the rights of returns for the delivered item. We are
required to adopt this EITF beginning April 1, 2004. The
adoption of this EITF is not anticipated to have a material
effect on our consolidated financial statements.


Related Party Transactions

In December 2001, we entered into a note
receivable of $3.5 million with a distributor. Through
March 2002, the distributor paid the minimum payments required
under the note receivable with its own cash, and at the end of
March 2002, it paid off the remaining note receivable with
short-term bridge financing. The distributor completely repaid
this short-term bridge financing in April 2002 through a
traditional banking relationship. The short-term bridge
financing was provided at normal market rates by Beartooth
Capital, a venture financing organization controlled and funded
by Robert Olson, a shareholder and chairman of Stellent. There
was no relationship prior to the bridge financing, and there is
no existing relationship between Beartooth Capital and the
distributor. Furthermore, we provided no compensation or
guarantees to Beartooth Capital or Robert Olson for the
short-term bridge financing, nor were we otherwise involved in
this transaction.

At March 31, 2002, we held investments in
and notes with five non-public start-up technology companies,
owning approximately 3% to 12% of these companies, and in
publicly traded technology companies listed on Nasdaq, primarily
Active IQ, in which the Company owned 5.4%, exclusive of
warrants. At March 31, 2003, we had investments in two
non-public companies owning approximately 9% to 13% of these
companies. At March 31, 2004, our investments in these
non-public companies was approximately 8% and 11% of the
companies, respectively. A permanent decline in value had not
been recorded in fiscal 2003 or 2004 for these investments.
Investments in these companies were made with the intention of
giving us opportunities to have new technologies developed for
us or to give us leverage into certain vertical markets that we
may not otherwise be able to obtain on our own. The value of
these investments at March 31, 2003 and 2004 was
approximately $1.1 million. At March 31, 2002, the
market value of our equity in Active IQ was approximately
$0.1 million more than the investment value of
$1.2 million. This difference was reported as
accumulated other comprehensive income (loss) in the
shareholders equity section on the consolidated balance
sheet for the year ended March 31, 2002. Upon our
acquisition of certain assets of Active IQ (see note 2) in
March 2003, we recorded an impairment of approximately
$1.1 million related to its investment in Active IQ. For
substantially all of the year ended March 31, 2003, the
Companys investment in Active IQ was less than 5%. In
fiscal 2004, the Company sold this investment and recorded a
gain of approximately $0.4 million.

During the year ended March 31, 2002, we
recognized license revenue of approximately $2.0 million
from companies in which we had an equity investment, with
approximately $1.4 million coming from Active IQ in
December 2001. At March 31, 2002, we had an account
receivable balance of $0.1 million associated from these
transactions.

Certain of our officers and directors also held
investment interests in Active IQ during the year ended
March 31, 2002, approximating 2%. These investments were
sold at no gain during the year ended March 31, 2002.

In December 2001 and March 2003, we entered into
sales transactions with a company affiliated with a member of
our Board of Directors. Revenue of $0.3 million and
$0.4 million from these sales transactions were recorded.
At March 31, 2003, we had an account receivable balance of
$0.3 million related to these transactions. At
March 31, 2004, we had no account receivable balance
associated with these transactions.

During the year ended March 31, 2004, we
entered into several transactions with companies affiliated with
members of our Board of Directors. Revenue of $0.2 million
from these sales transactions was recorded during the year ended
March 31, 2004. At March 31, 2004, we had an account
receivable balance of approximately $0.1 million associated
with these transactions.

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The terms and conditions, including fees, with
respect to the transactions were substantially similar to those
with unaffiliated third parties negotiated at arms length.

In March 2004, we entered into a non-exclusive
reseller agreement with Optika, Inc., a company with which we
had announced a definitive merger agreement in January 2004 (see
Note 11). The agreement provided for the sale of Optika
products by us. In the year ended March 31, 2004, we
recognized approximately $0.2 million of revenue under the
agreement.

RISK FACTORS

DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS

The risks and uncertainties described below are
not the only risks we face. These risks include those that we
consider to be significant to your decision whether to invest in
our common stock at this time. There may be risks that you, in
particular, view differently than we do, and there are other
risks and uncertainties that we do not presently know of or that
we currently deem immaterial, but that may, in fact, harm our
business in the future. If any of these events occur, our
business, results of operations and financial condition could be
seriously harmed, the trading price of our common stock could
decline and you may lose part or all of your investment.

You should consider carefully the following
factors, in addition to other information in this Annual Report
on Form 10-K, in evaluating our company and business.

BECAUSE OUR INFRASTRUCTURE COSTS ARE GENERALLY
FIXED AND THE TIMING OF OUR REVENUES FROM QUARTER TO QUARTER IS
HIGHLY VARIABLE, OUR FUTURE PERFORMANCE IS DIFFICULT TO PREDICT,
MAKING AN INVESTMENT IN OUR COMMON STOCK SUBJECT TO HIGH
VOLATILITY.

While our products and services are not seasonal,
our revenues and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter. If our
quarterly revenues or operating results fall below the
expectations of investors or securities analysts, the price of
our common stock could fall substantially. A large part of our
sales typically occurs in the last month of a quarter,
frequently in the last week or even the last days of the
quarter. If these sales were delayed from one quarter to the
next for any reason, our operating results could fluctuate
dramatically. In addition, our sales cycles may vary, making the
timing of sales difficult to predict. Furthermore, our
infrastructure costs are generally fixed. As a result, modest
fluctuations in revenues between quarters may cause large
fluctuations in operating results. These factors all tend to
make the timing of revenues unpredictable and may lead to high
period-to-period fluctuations in operating results.

Our quarterly revenues and operating results may
fluctuate for several additional reasons, many of which are
outside of our control, including the following:



| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | demand for our products and services;                                                                      
|
| |  | the timing of new product introductions and sales
    of our products and services;                        
|
| |  | unexpected delays in introducing new products and
    services;                                            
|
| |  | increased expenses, whether related to sales and
    marketing, research and development or administration;
|
| |  | changes in the rapidly evolving market for Web
    content management solutions;                           
|
| |  | the mix of revenues from product licenses and
    services, as well as the mix of products licensed;       
|
| |  | the mix of services provided and whether services
    are provided by our staff or third-party contractors;
|
| |  | the mix of domestic and international sales;                                                               
|
| |  | costs related to possible acquisitions of
    technology or businesses;                                    

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| |   |                                         
| | - | ----------------------------------------
| |  | general economic conditions; and        
|
| |  | public announcements by our competitors.

WE HAVE A HISTORY OF MAKING ACQUISITIONS,
INCLUDING LARGE STRATEGIC ACQUISITIONS, AND FUTURE POTENTIAL
ACQUISITIONS MAY BE DIFFICULT TO COMPLETE OR TO INTEGRATE AND
MAY DIVERT MANAGEMENTS ATTENTION AND CAUSE OUR OPERATING
RESULTS TO SUFFER.

We may seek to acquire or invest in businesses,
products or technologies that are complementary to our business.
If we identify an appropriate acquisition opportunity, we may be
unable to negotiate favorable terms for that acquisition,
successfully finance the acquisition or integrate the new
business or products into our existing business and operations.
In addition, the negotiation of potential acquisitions and the
integration of acquired businesses or products may divert
management time and resources from our existing business and
operations. To finance acquisitions, we may use a substantial
portion of our available cash or we may issue additional
securities, which would cause dilution to our shareholders.

WE MAY NOT BE PROFITABLE IN THE FUTURE, WHICH
WOULD CAUSE OUR FINANCIAL POSITION TO SUFFER AND MAY CAUSE THE
MARKET PRICE OF OUR STOCK TO FALL.

Our revenues may not grow in future periods and
we may not achieve profitability. If we do not achieve
profitability, our financial position will suffer and the market
price of our stock may fall. Our ability to achieve profitable
operations depends upon many factors beyond our direct control.
These factors include, but are not limited to:



| |   |                                               
| | - | ----------------------------------------------
| |  | the demand for our products;                  
|
| |  | our ability to quickly introduce new products;
|
| |  | the level of product and price competition;   
|
| |  | our ability to control costs; and             
|
| |  | general economic conditions.                  

THE INTENSE COMPETITION IN OUR INDUSTRY FROM
RECENT AND EXPECTED INDUSTRY CONSOLIDATION MAY REDUCE OUR FUTURE
SALES AND PROFITS.

The market for our products is highly competitive
and is likely to become more competitive from recent and
expected industry consolidation. We may not be able to compete
successfully in our chosen marketplace, which may have a
material adverse effect on our business, operating results and
financial condition. Additional competition may cause pricing
pressure, reduced sales and margins, or prevent our products
from gaining and sustaining market acceptance. Many of our
current and potential competitors have greater name recognition,
access to larger customer bases, and substantially more
resources than we have. Competitors with greater resources than
ours may be able to respond more quickly than we can to new
opportunities, changing technology, product standards or
customer requirements.

WE DEPEND ON THE CONTINUED SERVICE OF OUR KEY
PERSONNEL; IF WE LOSE THE SERVICES OF OUR KEY PERSONNEL OUR
ABILITY TO EXECUTE OUR OPERATING PLAN, AND OUR OPERATING
RESULTS, MAY SUFFER.

We are a small company and depend greatly on the
knowledge and experience of our senior management team and other
key personnel. If we lose any of these key personnel, our
business, operating results and financial condition could be
materially adversely affected. Our success will depend in part
on our ability to attract and retain additional personnel with
the highly specialized expertise necessary to generate revenue
and to engineer, design and support our products and services.
Like other software companies, we face intense competition for
qualified personnel. We may not be able to attract or retain
such personnel.

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WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY
ON SALES OF OUR UNIVERSAL CONTENT MANAGEMENT SOFTWARE AND
CONTENT COMPONENT SOFTWARE PRODUCTS FOR OUR REVENUES; IF OUR
UNIVERSAL CONTENT MANAGEMENT SOFTWARE DOES NOT GAIN AND MAINTAIN
CUSTOMER ACCEPTANCE, OUR REVENUES AND OPERATING RESULTS MAY
SUFFER.

We currently derive all of our revenues from
product licenses and services associated with our system of
content management and viewing software products. The market for
content management and viewing software products is new and
rapidly evolving. We cannot be certain that a viable market for
our products will continue or that it will be sustainable. If we
do not increase employee productivity and revenues related to
our existing products or generate revenues from new products and
services, our business, operating results and financial
condition may be materially adversely affected. We will continue
to depend on revenues related to new and enhanced versions of
our software products, and, if the merger is completed, on
Optikas products, for the foreseeable future. Our success
will largely depend on our ability to increase sales from
existing products, and, if the merger is completed, on
Optikas products, and generate sales from product
enhancements and new products. We cannot be certain that we will
be successful in upgrading and marketing our existing products
or that we will be successful in developing and marketing new
products and services. The market for our products is highly
competitive and is subject to rapid technological change.
Technological advances could make our products less attractive
to customers and adversely affect our business. In addition,
complex software product development involves certain inherent
risks, including risks that errors may be found in a product
enhancement or new product after its release, even after
extensive testing, and the risk that discovered errors may not
be corrected in a timely manner.

IF WE CANNOT PROTECT OUR INTELLECTUAL
PROPERTY, WHICH CONSISTS PRIMARILY OF OUR PROPRIETARY SOFTWARE
PRODUCTS, AND DO SO COST-EFFECTIVELY, OUR BUSINESS, OPERATING
RESULTS AND FINANCIAL CONDITION MAY SUFFER.

If we are unable to protect our intellectual
property, or incur significant expense in doing so, our
business, operating results and financial condition may be
materially adversely affected. Any steps we take to protect our
intellectual property may be inadequate, time consuming and
expensive. We currently have one pending patent application;
but, no patent has yet been issued. Without significant patent
or copyright protection, we may be vulnerable to competitors who
develop functionally equivalent products. We may also be subject
to claims that our current products infringe on the intellectual
property rights of others. Any such claim may have a material
adverse effect on our business, operating results and financial
condition.

We anticipate that software product developers
will be increasingly subject to infringement claims due to
growth in the number of products and competitors in our
industry, and the overlap in functionality of products in
different industries. Any infringement claim, regardless of its
merit, could be time-consuming, expensive to defend, or require
us to enter into royalty or licensing agreements. Such royalty
or licensing agreements may not be available on commercially
favorable terms, or at all.

We rely on trade secret protection,
confidentiality procedures and contractual provisions to protect
our proprietary information. Despite our attempts to protect our
confidential and proprietary information, others may gain access
to this information. Alternatively, other companies may
independently develop substantially equivalent information.

OUR PRODUCTS MAY NOT BE COMPATIBLE WITH
COMMERCIAL WEB BROWSERS AND OPERATING SYSTEMS, WHICH MAY LIMIT
OUR ABILITY TO GENERATE REVENUES FROM OUR PRODUCTS.

Our products utilize interfaces that are
compatible with commercial Web browsers. In addition, our
Stellent Content Management System is a server-based system
written in Java that functions in both Windows NT and UNIX
environments. We must continually modify our products to conform
to commercial Web browsers and operating systems. If our
products were to become incompatible with commercial Web
browsers and operating systems, our business would be harmed. In
addition, uncertainty related to the timing

34



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and nature of product introductions or
modifications by vendors of Web browsers and operating systems
may have a material adverse effect on our business, operating
results and financial condition.


WE COULD BE SUBJECT TO PRODUCT LIABILITY
CLAIMS IF OUR SOFTWARE PRODUCTS DAMAGE CUSTOMERS DATA,
FAIL TO MAINTAIN ACCESS SECURITY OR OTHERWISE FAIL TO PERFORM TO
SPECIFICATIONS, WHICH COULD HARM OUR OPERATING RESULTS AND
FINANCIAL POSITION AND REDUCE THE VALUE OF AN INVESTMENT IN OUR
COMMON STOCK.

If software errors or design defects in our
products cause damage to customers data and our agreements
do not protect us from related product liability claims, our
business, operating results and financial condition may be
materially adversely affected. In addition, we could be subject
to product liability claims if our security features fail to
prevent unauthorized third parties from entering our
customers intranet, extranet or Internet Websites. Our
software products are complex and sophisticated and may contain
design defects or software errors that are difficult to detect
and correct. Errors, bugs or viruses spread by third parties may
result in the loss of market acceptance or the loss of customer
data. Our agreements with customers that attempt to limit our
exposure to product liability claims may not be enforceable in
certain jurisdictions where we operate.

FUTURE REGULATION OF THE INTERNET OR AFFECTING
WEB-BASE COMMUNICATIONS COULD BE ADOPTED THAT RESTRICT OUR
BUSINESS, WHICH MAY LIMIT OUR ABILITY TO GENERATE REVENUES FROM
OUR PRODUCTS.

Federal, state or foreign agencies may adopt new
legislation or regulations governing the use and quality of Web
content. We cannot predict if or how any future laws or
regulations would impact our business and operations. Even
though these laws and regulations may not apply to our business
directly, they could indirectly harm us to the extent that they
impact our customers and potential customers.

WE HAVE BEEN NAMED A DEFENDANT IN SECURITIES
CLASS-ACTION LAWSUITS AND WE MAY IN THE FUTURE BE NAMED IN
ADDITIONAL LITIGATION, WHICH MAY RESULT IN SUBSTANTIAL COSTS AND
DIVERT MANAGEMENTS ATTENTION AND RESOURCES.

Shareholder class-action suits have been filed
naming Stellent and certain of our current and former officers
and directors as co-defendants. We intend to vigorously defend
ourselves against the suits and seek the suits dismissal
at the appropriate time. However, because litigation by its
nature is uncertain and the lawsuit is still in its early
stages, the likelihood of a favorable outcome cannot be
predicted at this time. If the plaintiff prevailed in the
lawsuit and the damages awarded against us significantly
exceeded the limits of our insurance policies, this outcome
could have a material adverse impact on our Companys
financial condition and results of operations.

More generally, securities class-action
litigation has often been brought against companies following
periods of volatility in the price of their securities. This
risk is greater for technology companies, which have experienced
greater-than-average stock price volatility in recent years and,
as a result, have been subject to, on average, a greater number
of securities class-action claims than companies in other
industries. We may in the future be the target of this kind of
litigation, and such litigation could also result in substantial
costs and divert managements attention and resources.

THE MARKET PRICE OF OUR COMMON STOCK COULD
FLUCTUATE SIGNIFICANTLY DUE TO VARIATIONS IN OUR OPERATING
RESULTS, CHANGES IN THE SOFTWARE INDUSTRY AND OTHER FACTORS,
RESULTING IN SUDDEN CHANGES IN THE MARKET VALUE OF AN INVESTMENT
IN OUR COMMON STOCK.

The market price of our common stock has
fluctuated significantly in the past and may do so in the
future. The market price of our common stock may be affected by
each of the following factors, many of which are outside of our
control:

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| |   |                                                               
| | - | --------------------------------------------------------------
| |  | variations in quarterly operating results;                    
|
| |  | changes in estimates by securities analysts;                  
|
| |  | changes in market valuations of companies in our
    industry;
|
| |  | announcements of significant events, such as
    major sales; 
|
| |  | acquisitions of businesses or losses of major
    customers;  
|
| |  | additions or departures of key personnel; and                 
|
| |  | sales of our equity securities.                               

IF THE WEB DOES NOT CONTINUE TO GROW AND GAIN
ACCEPTANCE, THE SIZE OF THE POTENTIAL MARKET FOR OUR PRODUCTS
WILL BE LIMITED AND OUR REVENUES AND OPERATING RESULTS COULD
SUFFER.

Our products are designed to be used with
intranets, extranets and the Internet. If the use of these
methods of electronic communication does not grow, our business,
operating results and financial condition may be materially
adversely affected. Continued growth in the use of the Web will
require ongoing and widespread interest in its capabilities for
communication and commerce. Its growth will also require
maintenance and expansion of the infrastructure supporting its
use and the development of performance improvements, such as
high speed modems. The Web infrastructure may not be able to
support the demands placed on it by continued growth. The
ongoing development of corporate intranets depends on
continuation of the trend toward network-based computing and on
the willingness of businesses to reengineer the processes used
to create, store, manage and distribute their data. All of these
factors are outside of our control.

OUR EXISTING BOARD OF DIRECTORS AND EXECUTIVE
OFFICERS HAVE SIGNIFICANT INFLUENCE OVER US, WHICH THEY COULD
USE TO DELAY, DEFER OR PREVENT A CHANGE IN CONTROL OF OUR
COMPANY, DEPRIVING OUR SHAREHOLDERS OF THE OPPORTUNITY TO SELL
SHARES AT ABOVE-MARKET PRICES.

As of March 31, 2004, Robert F. Olson, our
President, Chief Executive Officer and the Chairman of our Board
of Directors, holds approximately 10.1% of our outstanding
common stock. Accordingly, Mr. Olson is able to exercise
significant control over our affairs. As a group, our directors
and executive officers beneficially own approximately 15.9% of
our common stock. These persons have significant influence over
our affairs, including approval of the acquisition or
disposition of assets, future issuances of common stock or other
securities and the authorization of dividends on our common
stock. Our directors and executive officers could use their
stock ownership to delay, defer or prevent a change in control
of our company, depriving shareholders of the opportunity to
sell their stock at a price in excess of the prevailing market
price.

WE CAN ISSUE SHARES OF PREFERRED STOCK WITHOUT
SHAREHOLDER APPROVAL, WHICH COULD ADVERSELY AFFECT THE RIGHTS OF
COMMON SHAREHOLDERS.

Our articles of incorporation permit us to
establish the rights, privileges, preferences and restrictions,
including voting rights, of unissued shares of our capital stock
and to issue such shares without approval from our shareholders.
The rights of holders of our common stock may suffer as a result
of the rights granted to holders of preferred stock that may be
issued in the future. In addition, we could issue preferred
stock to prevent a change in control of our company, depriving
shareholders of an opportunity to sell their stock at a price in
excess of the prevailing market price.

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OUR SHAREHOLDER RIGHTS PLAN AND CERTAIN
PROVISIONS OF MINNESOTA LAW MAY MAKE A TAKEOVER OF STELLENT
DIFFICULT, DEPRIVING SHAREHOLDERS OF OPPORTUNITIES TO SELL
SHARES AT ABOVE-MARKET PRICES.

Our shareholder rights plan and certain
provisions of Minnesota law may have the effect of discouraging
attempts to acquire Stellent without the approval of our board
of directors. Consequently, our shareholders may lose
opportunities to sell their stock for a price in excess of the
prevailing market price.

RISKS RELATED TO OUR ACQUISITION OF
OPTIKA

REALIZING THE BENEFITS FROM OUR ACQUISITION OF
OPTIKA REQUIRES US TO OVERCOME INTEGRATION AND OTHER CHALLENGES
WHICH MAY BE DIFFICULT BECAUSE OPTIKA IS ACCUSTOMED TO OPERATING
AS AN AUTONOMOUS BUSINESS.

Any failure to meet the challenges involved in
successfully integrating our preexisting operations with those
of Optika or to realize any of the anticipated benefits or
synergies of the acquisition could seriously harm our operating
results. Realizing the benefits of the merger will depend in
part on our ability to overcome significant challenges,
including:



| |   |                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | combining Optikas Colorado-based operations
    with our Minnesota headquartered preexisting operations;                                                                                                                                                                                                                               
|
| |  | integrating and managing the combined company
    with a small management team;                                                                                                                                                                                                                                                         
|
| |  | retaining and assimilating the key personnel of
    Optika accustomed to working without the oversight of a parent
    company;                                                                                                                                                                                                         
|
| |  | integrating the sales organization of Optika,
    which relies extensively on indirect sales channels and
    generates a high proportion of maintenance and other revenues,
    with our preexisting sales organization , which relies
    extensively on direct sales and generates a high proportion of
    product license revenues;
|
| |  | retaining preexisting customers of each company
    in light of changes that may occur as a result of the
    acquisition and attracting new customers while overcoming
    integration challenges;                                                                                                                                     
|
| |  | retaining strategic partners in light of changes
    that may occur in each companys operations as a result of
    the acquisition and attracting new strategic partners while
    overcoming integration challenges; and                                                                                                              
|
| |  | creating and maintaining uniform standards,
    controls, procedures, policies and information for two companies
    accustomed to operating under autonomous management.                                                                                                                                                               

The risks of failure to overcome these
integration challenges include:



| |   |                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the potential disruption of our on-going business
    and distraction of our management;                                                                                                               
|
| |  | lost sales or decreased revenues as a result of
    difficulties inherent in combining product offerings,
    coordinating sales and marketing efforts to communicate
    effectively our capabilities;
|
| |  | the potential need to demonstrate to customers
    that the acquisition will not result in adverse changes in
    customer service standards or business; and                                          
|
| |  | impairment of relationships with employees,
    suppliers and customers as a result of any integration of new
    management personnel.                                                                

CHARGES TO EARNINGS RESULTING FROM THE
APPLICATION OF THE PURCHASE METHOD OF ACCOUNTING MAY ADVERSELY
AFFEC TOUR MARKET VALUE.

In accordance with accounting principles
generally accepted in the United States of America, we will
account for the merger using the purchase method of accounting,
which will result in charges to earnings that could have a
material adverse effect on the market value of our common stock.
Under the purchase method of accounting, we will allocate the
total estimated purchase price in the acquisition to
Optikas net tangible assets, amortizable intangible assets
and intangible assets with indefinite lives based on their fair
values as of

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the date of the closing of the acquisition, and
record the excess of the purchase price over those fair values
as goodwill. We will incur additional depreciation and
amortization expense over the useful lives of certain of the net
tangible and intangible assets acquired in connection with the
acquisition. In addition, to the extent the value of goodwill or
intangible assets with indefinite lives becomes impaired, we may
be required to incur material charges relating to the impairment
of those assets. These depreciation, amortization and potential
impairment charges could have a material impact on our results
of operations.


IN ORDER TO BE SUCCESSFUL, WE MUST RETAIN AND
MOTIVATE KEY EMPLOYEES, WHICH MAY BE DIFFICULT IN LIGHT OF THE
GEOGRAPHIC SEPARATION OF OUR HEADQUARTERS AND OPTIKAS
OPERATIONS, OPTIKAS HISTORY OF OPERATING AS AN INDEPENDENT
BUSINESS AND UNCERTAINTY REGARDING OPERATIONAL ROLES FOLLOWING
THE ACQUISITION; AND FAILURE TO DO SO COULD SERIOUSLY HARM OUR
ABILITY TO EXECUTE OUR OPERATING STRATEGY.

In order to be successful, we must retain and
motivate executives and other key employees, including those in
managerial, sales and technical positions. Failure to do so
could leave us without the management capacity to execute our
operating strategy, which could adversely affect our operating
results. Retaining and motivating Optika employees may be
difficult if we cannot overcome the geographic separation of
Optikas Colorado operations and our Minnesota headquarters
to make employees feel like they are a part of a cohesive
business operation. We may experience difficulty retaining and
motivating Optika employees if those employees feel as though
they had greater operating freedom when Optika was an
independent business. Our employees may experience uncertainty
about their future role with us until or after our strategies
are announced or executed. These circumstances may adversely
affect our ability to attract and retain key management, sales
and technical personnel. We also must continue to motivate
employees and keep them focused on our strategies and goals,
which may be particularly difficult due to the potential
distractions of the merger.




Item 7A.     Quantitative
and Qualitative Disclosures About Market Risk

Interest Rate Risk

The primary objectives of our investment
activities are to preserve principal and provide liquidity while
at the same time maximizing yields without significantly
increasing risk. To achieve these objectives, we maintain our
portfolio of cash equivalents and short-term investments in a
variety of securities, including government and corporate
obligations, certificates of deposit and money market funds. See
Note 1 of Notes to Consolidated Financial Statements.

The following table presents the fair value of
cash, cash equivalents and marketable securities that are
subject to interest rate risk and the average interest rate as
of March 31, 2004 (dollars in thousands):

|                                                 |  |      |        |  
|------------------------------------------------ |  | ---- | ------ | -
|                                                 |  | 2004
|                                                 |  |     
|Cash, cash equivalents and marketable securities |  | $    | 73,512 |  
|Approximate average interest rate                |  |      | 1.4    | %

The following table presents the fair value of
cash, cash equivalents and marketable securities that are
subject to interest rate risk and the average interest rate as
of March 31, 2003 (dollars in thousands):

|                                                 |  |      |        |  
|------------------------------------------------ |  | ---- | ------ | -
|                                                 |  | 2003
|                                                 |  |     
|Cash, cash equivalents and marketable securities |  | $    | 81,169 |  
|Approximate average interest rate                |  |      | 1.8    | %

Our cash equivalents and short-term investments
are subject to interest rate risk and will decline in value if
market interest rates increase or decrease. Assuming an average
investment balance of $60.0 million, if interest rates were
to increase (decrease) by 10%, this would result in an
approximate $84,000 increase (decrease) in annual interest
income. Additionally, we have the ability to hold our
investments until maturity and, therefore, we would not expect
to recognize an adverse impact on income or cash flows.

38



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As of March 31, 2004, we did not hold
derivative financial instruments and have never held such
instruments in the past.

Foreign Currency Risk

The majority of our revenues and expenses are
denominated in United States Dollars. As a result, we have not
experienced significant foreign exchange gains and losses to
date. While we do expect transactions in foreign currencies in
2004, we do not anticipate that foreign exchange gains or losses
will be significant. We have engaged in limited and immaterial
amount of foreign currency forward contract activities to date.

Commodity Price Risk

We did not hold commodity instruments as of
March 31, 2004, and have never had such instruments in the
past.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

Quarterly Financial Information
(Unaudited)

|                                                                         |  |                                          |        |              |  |               |        |          |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------ |  | ---------------------------------------- | ------ | ------------ |  | ------------- | ------ | -------- |  | - | ------ | - |  | - | ------ | -
|                                                                         |  |                                         
|                                                                         |  | Three Months Ended                      
|                                                                         |  |                                         
|                                                                         |  | March 31,                                |        | December 31, |  | September 30, |        | June 30,
|                                                                         |  | 2004                                     |        | 2003         |  | 2003          |        | 2003    
|                                                                         |  |                                          |        |              |  |               |        |         
|                                                                         |  |                                         
|                                                                         |  | (In thousands, except per share amounts)
|Total revenues                                                           |  | $                                        | 20,644 |              |  | $             | 19,222 |          |  | $ | 18,521 |   |  | $ | 17,387 |  
|Gross profit                                                             |  | $                                        | 13,979 |              |  | $             | 13,253 |          |  | $ | 12,907 |   |  | $ | 11,968 |  
|Total operating expenses                                                 |  | $                                        | 14,613 |              |  | $             | 15,809 |          |  | $ | 15,643 |   |  | $ | 17,925 |  
|Loss from operations                                                     |  | $                                        | (634   | )            |  | $             | (2,556 | )        |  | $ | (2,736 | ) |  | $ | (5,957 | )
|Net loss                                                                 |  | $                                        | (430   | )            |  | $             | (1,931 | )        |  | $ | (2,487 | ) |  | $ | (5,665 | )
|Basic and diluted net loss per common share                              |  | $                                        | (0.02  | )            |  | $             | (0.09  | )        |  | $ | (0.11  | ) |  | $ | (0.26  | )
|Shares used in computing basic and diluted net
    loss per common share |  |                                          | 22,265 |              |  |               | 22,101 |          |  |   | 21,916 |   |  |   | 21,830 |  

|                                                                         |  |                                          |        |              |  |               |        |          |  |   |        |   |  |   |         |  
|------------------------------------------------------------------------ |  | ---------------------------------------- | ------ | ------------ |  | ------------- | ------ | -------- |  | - | ------ | - |  | - | ------- | -
|                                                                         |  |                                         
|                                                                         |  | Three Months Ended                      
|                                                                         |  |                                         
|                                                                         |  | March 31,                                |        | December 31, |  | September 30, |        | June 30,
|                                                                         |  | 2003                                     |        | 2002         |  | 2002          |        | 2002    
|                                                                         |  |                                          |        |              |  |               |        |         
|                                                                         |  |                                         
|                                                                         |  | (In thousands, except per share amounts)
|Total revenues                                                           |  | $                                        | 16,813 |              |  | $             | 16,008 |          |  | $ | 15,558 |   |  | $ | 17,055  |  
|Gross profit                                                             |  | $                                        | 11,617 |              |  | $             | 10,981 |          |  | $ | 10,612 |   |  | $ | 11,706  |  
|Total operating expenses                                                 |  | $                                        | 17,480 |              |  | $             | 18,089 |          |  | $ | 20,053 |   |  | $ | 21,918  |  
|Loss from operations                                                     |  | $                                        | (5,863 | )            |  | $             | (7,108 | )        |  | $ | (9,441 | ) |  | $ | (10,212 | )
|Net loss                                                                 |  | $                                        | (6,610 | )            |  | $             | (7,305 | )        |  | $ | (8,874 | ) |  | $ | (9,611  | )
|Basic and diluted net loss per common share                              |  | $                                        | (0.30  | )            |  | $             | (0.33  | )        |  | $ | (0.40  | ) |  | $ | (0.43   | )
|Shares used in computing basic and diluted net
    loss per common share |  |                                          | 22,281 |              |  |               | 22,312 |          |  |   | 22,425 |   |  |   | 22,363  |  

We believe that period-to-period comparisons of
our consolidated financial results should not be relied upon as
an indication of future performance. The operating results of
many software companies reflect seasonal trends, and our
business, financial condition and results of operations may be
affected by such trends in the future. These trends may include
higher revenues in the fourth quarter as many customers complete
annual budgetary cycles and lower revenues in the first quarter
and summer months when many businesses experience lower sales,
particularly in the European market.

The consolidated financial statements required by
this item are submitted as a separate section of this Annual
Report on Form 10-K. See Item 15.

39



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

None.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

(a) Under the supervision and with the
participation of our principal executive officer and principal
financial officer, our management conducted an evaluation of our
disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities
Exchange Act of 1934, as amended (the Exchange Act),
as of March 31, 2004. Based on their evaluation, our
principal executive officer and principal financial officer
concluded that our disclosure controls and procedures are
effective.

(b) There have been no changes in our
internal controls over financial reporting that occurred during
our most recently complete fiscal quarter that has materially
affected or is reasonably likely to materially affect our
internal control over financial reporting.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The information concerning our officers required
by this Item is incorporated by reference to the information
included herein under Item 4A. The information concerning
our directors and other matters required by this Item is
incorporated by reference to our definitive proxy statement to
our 2004 Annual Meeting of Stockholders under the caption
Election of Directors.

The information concerning compliance with
Section 16(a) of the Exchange Act required by this Item is
incorporated by reference to our definitive proxy statement to
our 2004 Annual Meeting of Stockholders under the caption
Section 16(a) Beneficial Ownership Reporting
Compliance.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information that is required by this Item is
incorporated by reference to our definitive proxy statement to
our 2004 Annual Meeting of Stockholders under the caption
Executive Compensation.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

The information about security ownership of
certain beneficial owners and management required by this Item
is incorporated by reference to our definitive proxy statement
to our 2004 Annual Meeting of Stockholders under the captions
Security Ownership of Certain Beneficial Owners and
Management. The information regarding securities
authorized for issuance under equity compensation plans required
by this Item is incorporated by reference to our proxy statement
under the caption Equity Compensation Plan
Information and the information appearing under the
heading Stock Options in Note 5 of Notes
to Consolidated Financial Statements in the financial
statements.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information that is required by this Item is
incorporated by reference to our definitive proxy statement for
our 2004 Annual Meeting of Stockholders under the caption
Certain Relationships and Related Transactions.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

The information that is required by this Item is
incorporated by reference to our definitive proxy statement for
our 2004 Annual Meeting of Stockholders under the caption
Ratification of Independent Auditors.

40



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

(a) Documents filed as part of this
report:



| |                                      
| | -------------------------------------
| | 1. Consolidated Financial Statements:

|                                                    |  |                     |    | 
|--------------------------------------------------- |  | ------------------- | -- | 
|                                                    |  | Page Number in this
|Description                                         |  | Annual Report      
|                                                    |  |                    
|Audited Financial Statements:                       |  |                     |    | 
|Report of Independent Auditors                      |  |                     | 47 | 
|Consolidated Balance Sheets                         |  |                     | 48 | 
|Consolidated Statements of Operations               |  |                     | 49 | 
|Consolidated Statements of Stockholders
    Equity |  |                     | 50 | 
|Statements of Cash Flows                            |  |                     | 51 | 
|Notes to Financial Statements                       |  |                     | 52 | 



| |    |                              
| | -- | -----------------------------
| | 2. | Financial Statement Schedule:

Schedule II Valuation of Qualifying
Accounts

|                      |                                  |                           |  |           |       |            |  |            |       |  |  |   |       |  |  |   |       | 
|--------------------- | -------------------------------- | ------------------------- |  | --------- | ----- | ---------- |  | ---------- | ----- |  |  | - | ----- |  |  | - | ----- | 
|Column A              |                                  | Column B                  |  | Column C  |       | Column D   |  | Column E  
|                      |                                  |                           |  |           |       |            |  |           
|                      |                                  | Balance at                |  |           |       |            |  | Balance at
|                      |                                  | Beginning                 |  |           |       |            |  | End of    
|Description           |                                  | of Period                 |  | Additions |       | Deductions |  | Period    
|                      |                                  |                           |  |           |       |            |  |           
|                      |                                  |                          
|                      |                                  | (In thousands)           
|Deducted From Assets: |                                  |                           |  |           |       |            |  |            |       |  |  |   |       |  |  |  
|                      | Allowance for doubtful accounts: |                           |  |           |       |            |  |            |       |  |  |   |       |  |  |   |      
|                      |                                  | Year ended March 31, 2002 |  | $         | 2,143 |            |  | $          | 2,105 |  |  | $ | 2,911 |  |  | $ | 1,337 | 
|                      |                                  |                           |  |           |       |            |  |            |       |  |  |   |       |  |  |  
|                      |                                  | Year ended March 31, 2003 |  | $         | 1,337 |            |  | $          | 3,679 |  |  | $ | 3,616 |  |  | $ | 1,400 | 
|                      |                                  |                           |  |           |       |            |  |            |       |  |  |   |       |  |  |  
|                      |                                  | Year ended March 31, 2004 |  | $         | 1,400 |            |  | $          | 1,175 |  |  | $ | 1,436 |  |  | $ | 1,139 | 
|                      |                                  |                           |  |           |       |            |  |            |       |  |  |   |       |  |  |  

41



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REPORT OF INDEPENDENT CERTIFIED
PUBLIC

ACCOUNTANTS ON SCHEDULE


To the Board of Directors and Shareholders

Stellent, Inc.


In connection with our audits of the consolidated
financial statements of Stellent, Inc. and subsidiaries referred
to in our report dated April 27, 2004 (except for paragraph
number 1 in Note 11 to the financial statements, as to
which the date is May 13, 2004 and paragraph number 3
in Note 11, as to which the date is June 2, 2004)
which is included in the Annual Report to Shareholders and
incorporated by reference in part II of this form, we have
also audited Schedule II for each of the three years in the
period ended March 31, 2004. In our opinion, this schedule,
when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information required to be set forth therein.



| |                       
| | ----------------------
| | /s/ GRANT THORNTON LLP

Minneapolis, Minnesota

April 27, 2004


42



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##### Table of Contents





| |    |         
| | -- | --------
| | 3. | Exhibits

EXHIBITS

|     |    |             |  |                                                                                                                                       |  |                                                                                                                                                                                      
|---- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|File |    | Description |  | Reference                                                                                                                            
|     |    |             |  |                                                                                                                                      
|     | 2  | .1          |  | Agreement and Plan of Merger, dated
    January 11, 2004, among, Stellent, Inc., STEL Sub, Inc.,
    and Optika, Inc.                 |  | Incorporated by reference to Exhibit 2.1 of
    the Registrants Form 10-Q dated December 31, 2003                                                                                   
|     | 3  | .1          |  | Amended and Restated Articles of Incorporation                                                                                        |  | Incorporated by reference to Exhibit 3.1 of
    the Registrants Form 8-K dated August 29, 2001.                                                                                     
|     | 3  | .2          |  | Bylaws                                                                                                                                |  | Incorporated by reference to Exhibit 4.2 of
    the Registrants Registration Statement on Form S-8,
    File No. 333-75828.                                                         
|     | 4  | .1          |  | Share Rights Agreement between the Registrant and
    Wells Fargo Bank Minnesota, N.A., as Rights Agent, dated as of
    May 29, 2002 |  | Incorporated by reference to Exhibit 99.1 of
    the Registrants Registration Statement on
    Form 8-A12G, File No. 000-19817, filed June 3,
    2002.                             
|     | 4  | .7          |  | Warrant to purchase 225,000 shares of
    common stock to Merrill, Lynch, Pierce, Fenner & Smith
    dated February 22, 2000          |  | Incorporated by reference to Exhibit 4.7 of
    the Registrants form 10-K for the fiscal year ended
    March 31, 2001.                                                             
|     | 10 | .1          |  | Stellent, Inc. 1994-1997 Stock Option and
    Compensation Plan*                                                                      |  | Incorporated by reference to Exhibit A of
    the Registrants Definitive Proxy Statement
    Schedule 14A, filed with the Securities and Exchange
    Commission July 28, 1998      
|     | 10 | .2          |  | InfoAccess, Inc. 1990 Stock Option Plan as
    amended September 29, 1999                                                             |  | Incorporated by reference to Exhibit 99.1 of
    the Registrants Registration Statement on Form S-8,
    File No. 333-90843                                                         
|     | 10 | .3          |  | InfoAccess, Inc. 1995 Stock Option Plan as
    amended September 29, 1999                                                             |  | Incorporated by reference to Exhibit 99.2 of
    the Registrants Registration Statement on Form S-8,
    File No. 333-90843                                                         
|     | 10 | .5          |  | Stellent, Inc. 1999 Employee Stock Option and
    Compensation Plan                                                                   |  | Incorporated by reference to Exhibit 10.31
    of the Registrants Form 10-Q for the three months
    ended September 30, 1999                                                       
|     | 10 | .6          |  | Stellent, Inc. 2000 Stock Incentive Plan*                                                                                             |  | Incorporated by reference to Exhibit B to
    the Registrants Definitive Proxy statement on
    Schedule 14A, filed with the Securities and Exchange
    Commission on July 25, 2000
|     | 10 | .7          |  | Stellent, Inc. amended and restated 2000 Employee
    Stock Incentive Plan*                                                           |  | Incorporated by reference to Exhibit 10.34
    of the Registrants Form 10-Q for the three months
    ended September 30, 2001                                                       
|     | 10 | .8          |  | Stellent, Inc. Amended and Restated
    1997 Directors Stock Option Plan*                                                             |  | Incorporated by reference to Exhibit B of
    the Registrants Definitive Proxy Statement
    Schedule 14A, filed with the Securities and Exchange
    Commission July 26, 2002      
|     | 10 | .9          |  | Stellent, Inc. Employee Stock Purchase Plan                                                                                           |  | Incorporated by reference to Exhibit A of
    the Registrants Definitive Proxy Statement filed with the
    Securities and Exchange Commission July 29, 1999                        
|     | 10 | .46         |  | French Annex to the Stellent, Inc. 2000 Stock
    Incentive Plan                                                                      |  | Incorporated by reference to Exhibit 10.46
    of the Registrants Form 10-K for the fiscal year
    ended March 31, 2002.                                                           

43



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##### Table of Contents



|     |    |             |  |                                                                                                                                                                                                                   |  |                                                                                                                          
|---- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------
|File |    | Description |  | Reference                                                                                                                                                                                                        
|     |    |             |  |                                                                                                                                                                                                                  
|     | 10 | .48         |  | Employment Agreement dated January 11, 2004
    by and among the Registrant Mark K. Ruport and Optika Inc.*                                                                                                       |  | Incorporated by reference to Annex J of the
    Registrant Registration Statement on Form S-4, File
    No. 333-112543.  
|     | 10 | .49         |  | Employment Agreement Dated April 1, 2003, by
    and between the Registrant and Robert F. Olson*                                                                                                                  |  | Incorporated by reference to Exhibit 10.49
    of the Registrants Form 10-Q for the quarter ended
    June 30, 2003.    
|     | 10 | .50         |  | Employment Agreement Dated April 1, 2003 by
    and between the Registrant and Daniel Ryan*                                                                                                                       |  | Incorporated by reference to Exhibit 10.50
    of the Registrants Form 10-Q for the quarter ended
    June 30, 2003     
|     | 10 | .51         |  | Employment Agreement Dated April 1, 2003, by
    and between the Registrant and Gregg A. Waldon*                                                                                                                  |  | Incorporated by reference to Exhibit 10.51
    of the Registrants Form 10-Q for the quarter ended
    June 30, 2003     
|     | 10 | .52         |  | Employment Agreement Dated April 1, 2003 by
    and between the Registrant and Frank Radichel*                                                                                                                    |  | Incorporated by reference to Exhibit 10.51
    of the Registrants Form 10-Q for the quarter ended
    September 30, 2003
|     | 21 |             |  | Subsidiaries of Registrant                                                                                                                                                                                        |  | Electronic transmission                                                                                                  
|     | 23 |             |  | Consent of Grant Thornton LLP                                                                                                                                                                                     |  | Electronic transmission                                                                                                  
|     | 24 |             |  | Power of Attorney                                                                                                                                                                                                 |  | Included on the signature page hereof                                                                                    
|     | 31 | .1          |  | Certification by Robert F. Olson, Chairman of the
    Board, President and Chief Executive Officer, pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                                 |  | Electronic Transmission                                                                                                  
|     | 31 | .2          |  | Certification by Gregg A. Waldon, Executive Vice
    President, CFO, Treasurer and Secretary, pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002                                                       |  | Electronic Transmission                                                                                                  
|     | 32 | .1          |  | Certification by Robert F. Olson, Chairman of the
    Board, President and Chief Executive Officer, pursuant to
    18 USC Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002 |  | Electronic Transmission                                                                                                  
|     | 32 | .2          |  | Certification by Gregg A. Waldon, Executive Vice
    President, CFO, Treasurer and Secretary, pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002    |  | Electronic Transmission                                                                                                  




|  |                                                           
|- | ----------------------------------------------------------
|* | Management contract, compensation plan or
    arrangement.

(b) Reports on Form 8-K

On January 16, 2004, Stellent, Inc.
(Stellent) filed a Current Report on Form 8-K
regarding Stellent, Inc. (Stellent) and its wholly
owned subsidiary, STEL Sub, Inc. (STEL Sub),
entering into an Agreement and Plan of Merger with Optika Inc.
(Optika), providing for the merger of Optika with
and into STEL Sub. The disclosure in the Current Report on
Form 8-K was furnished under Items 5 and 7 of
Form 8-K.

44



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##### Table of Contents






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.



| |               
| | --------------
| | STELLENT, INC.
| | (Registrant)  



| |     |                    
| | --- | -------------------
| | By: | /s/ ROBERT F. OLSON

| |                                     
| | ------------------------------------
| | Robert F. Olson,                    
| | Chairman of the Board, President and
| | Chief Executive Officer             
| | (Principal Executive Officer)       

Date: June 14, 2004



| |     |                    
| | --- | -------------------
| | By: | /s/ GREGG A. WALDON

| |                                             
| | --------------------------------------------
| | Gregg A. Waldon                             
| | Executive Vice President,                   
| | Chief Financial Officer,                    
| | Secretary and Treasurer                     
| | (Principal Financial and Accounting Officer)

Date: June 14, 2004

45



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##### Table of Contents



STELLENT, INC.

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                      |  |      |    | 
|----------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                      |  | Page
|                                                                                                      |  |     
|Report of Independent Certified Public Accountants                                                    |  |      | 47 | 
|Consolidated Balance Sheets as of March 31,
    2003 and 2004                                         |  |      | 48 | 
|Consolidated Statements of Operations for the
    years ended March 31, 2002, 2003 and 2004           |  |      | 49 | 
|Consolidated Statements of Shareholders
    Equity for the years ended March 31, 2002, 2003 and 2004 |  |      | 50 | 
|Consolidated Statements of Cash Flows for the
    years ended March 31, 2002, 2003 and 2004           |  |      | 51 | 
|Notes to Consolidated Financial Statements                                                            |  |      | 52 | 

46



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##### Table of Contents



REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS

To the Board of Directors and Shareholders

Stellent, Inc.


We have audited the accompanying consolidated
balance sheets of Stellent, Inc. (a Minnesota corporation) and
subsidiaries as of March 31, 2003 and 2004, and the related
consolidated statements of operations, shareholders
equity, and cash flows for each of the three years in the period
ended March 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 consolidated financial position of Stellent, Inc.
and subsidiaries as of March 31, 2003 and 2004 and the
consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended
March 31, 2004 in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 1 to the consolidated
financial statements, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets, on April 1, 2002.



| |                       
| | ----------------------
| | /s/ GRANT THORNTON LLP

Minneapolis, Minnesota

April 27, 2004 (except for paragraph
number 1 in Note 11,


as to which the date is May 13, 2004 and
paragraph number 3 in Note 11,


as to which the date is June 2, 2004)


47



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##### Table of Contents



STELLENT, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share
data)


|                                              |                                                               |                                                                                                                                                     |                            |         |     |         |         |         |     |         | 
|--------------------------------------------- | ------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | --- | ------- | ------- | ------- | --- | ------- | 
|                                              |                                                               |                                                                                                                                                    
|                                              |                                                               | March 31,                                                                                                                                          
|                                              |                                                               |                                                                                                                                                    
|                                              |                                                               | 2003                                                                                                                                                |                            | 2004   
|                                              |                                                               |                                                                                                                                                     |                            |        
|ASSETS                                       
|Current assets                                |                                                               |                                                                                                                                                     |                            |         |     |         |         |        
|                                              | Cash and equivalents                                          |                                                                                                                                                     | $                          | 37,439  |     |         | $       | 44,165  |    
|                                              | Short-term marketable securities                              |                                                                                                                                                     |                            | 28,497  |     |         |         | 22,366  |    
|                                              | Trade accounts receivable, net                                |                                                                                                                                                     |                            | 15,602  |     |         |         | 19,165  |    
|                                              | Prepaid royalties, current portion                            |                                                                                                                                                     |                            | 2,335   |     |         |         | 1,851   |    
|                                              | Prepaid expenses and other current assets                     |                                                                                                                                                     |                            | 3,423   |     |         |         | 4,905   |    
|                                              |                                                               |                                                                                                                                                     |                            |         |     |         |         |        
|                                              |                                                               |                                                                                                                                                     | Total current assets       |         |     | 87,296  |         |         |     | 92,452  | 
|Long-term marketable securities               |                                                               |                                                                                                                                                     | 15,233                     |         |     |         | 6,981   |        
|Property and equipment, net                   |                                                               |                                                                                                                                                     | 4,830                      |         |     |         | 4,471   |        
|Prepaid royalties, net of current portion     |                                                               |                                                                                                                                                     | 1,934                      |         |     |         | 1,482   |        
|Goodwill, net                                 |                                                               |                                                                                                                                                     | 12,703                     |         |     |         | 14,780  |        
|Other acquired intangible assets, net         |                                                               |                                                                                                                                                     | 4,837                      |         |     |         | 2,230   |        
|Investments in and notes with other companies |                                                               |                                                                                                                                                     | 1,136                      |         |     |         | 1,136   |        
|Other                                         |                                                               |                                                                                                                                                     | 1,740                      |         |     |         | 1,156   |        
|                                              |                                                               |                                                                                                                                                     |                            |         |     |         |         |        
|                                              |                                                               | $                                                                                                                                                   | 129,709                    |         |     | $       | 124,688 |        
|                                              |                                                               |                                                                                                                                                     |                            |         |     |         |         |        
|                                             
|LIABILITIES AND SHAREHOLDERS
    EQUITY     
|Current liabilities                           |                                                               |                                                                                                                                                     |                            |         |     |         |         |        
|                                              | Accounts payable                                              |                                                                                                                                                     | $                          | 2,287   |     |         | $       | 2,748   |    
|                                              | Deferred revenues, current portion                            |                                                                                                                                                     |                            | 9,187   |     |         |         | 10,097  |    
|                                              | Commissions payable                                           |                                                                                                                                                     |                            | 1,353   |     |         |         | 1,301   |    
|                                              | Accrued expenses and other                                    |                                                                                                                                                     |                            | 4,646   |     |         |         | 5,786   |    
|                                              |                                                               |                                                                                                                                                     |                            |         |     |         |         |        
|                                              |                                                               |                                                                                                                                                     | Total current liabilities  |         |     | 17,473  |         |         |     | 19,932  | 
|Deferred revenue, net of current portion      |                                                               |                                                                                                                                                     |                           |         |     |         | 51      |        
|                                              |                                                               |                                                                                                                                                     |                            |         |     |         |         |        
|                                              |                                                               |                                                                                                                                                     | Total liabilities          |         |     | 17,473  |         |         |     | 19,983  | 
|Commitments and contingencies                 |                                                               |                                                                                                                                                     |                           |         |     |         |        |        
|Shareholders equity                          |                                                               |                                                                                                                                                     |                            |         |     |         |         |        
|                                              | Capital stock, $0.01 par value,
    100,000 shares authorized |                                                                                                                                                     |                            |         |     |         |         |         |    
|                                              |                                                               | Preferred stock, 10,000 shares authorized,
    no shares issued and outstanding at March 31, 2003 and 2004                                          |                            |         |    |         |         |         |    |        
|                                              |                                                               | Common stock, 90,000 shares authorized,
    22,874 and 23,420 shares issued and 21,856 and
    22,339 shares outstanding at March 31, 2003 and 2004 |                            |         | 219 |         |         |         | 223 |        
|                                              | Additional paid-in capital                                    |                                                                                                                                                     |                            | 186,604 |     |         |         | 189,221 |    
|                                              | Accumulated deficit                                           |                                                                                                                                                     |                            | (74,902 | )   |         |         | (85,415 | )  
|                                              | Accumulated other comprehensive income                        |                                                                                                                                                     |                            | 315     |     |         |         | 676     |    
|                                              |                                                               |                                                                                                                                                     |                            |         |     |         |         |        
|                                              |                                                               |                                                                                                                                                     | Total shareholders equity |         |     | 112,236 |         |         |     | 104,705 | 
|                                              |                                                               |                                                                                                                                                     |                            |         |     |         |         |        
|                                              |                                                               | $                                                                                                                                                   | 129,709                    |         |     | $       | 124,688 |        
|                                              |                                                               |                                                                                                                                                     |                            |         |     |         |         |        

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

48



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##### Table of Contents



STELLENT, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands, except per share
data)


|                                                  |                                                            |                          |         |        |         |      |         |        |         |   |         |        |         |  
|------------------------------------------------- | ---------------------------------------------------------- | ------------------------ | ------- | ------ | ------- | ---- | ------- | ------ | ------- | - | ------- | ------ | ------- | -
|                                                  |                                                            |                         
|                                                  |                                                            | Year Ended March 31,    
|                                                  |                                                            |                         
|                                                  |                                                            | 2002                     |         | 2003   |         | 2004
|                                                  |                                                            |                          |         |        |         |     
|Revenues                                          |                                                            |                          |         |        |         |      |         |        |         |   |         |       
|                                                  | Product licenses                                           |                          | $       | 66,908 |         |      | $       | 40,364 |         |   | $       | 41,571 |        
|                                                  | Services                                                   |                          |         | 21,432 |         |      |         | 25,070 |         |   |         | 34,203 |        
|                                                  |                                                            |                          |         |        |         |      |         |        |         |   |         |       
|                                                  |                                                            | Total revenues           |         |        | 88,340  |      |         |        | 65,434  |   |         |        | 75,774  |  
|Cost of revenues                                  |                                                            |                          |         |        |         |      |         |        |         |   |         |       
|                                                  | Product licenses                                           |                          |         | 5,005  |         |      |         | 6,480  |         |   |         | 4,936  |        
|                                                  | Amortization of capitalized software from
    acquisitions |                          |         | 966    |         |      |         | 1,892  |         |   |         | 1,574  |        
|                                                  | Services                                                   |                          |         | 13,392 |         |      |         | 12,146 |         |   |         | 17,157 |        
|                                                  |                                                            |                          |         |        |         |      |         |        |         |   |         |       
|                                                  |                                                            | Total cost of revenues   |         |        | 19,363  |      |         |        | 20,518  |   |         |        | 23,667  |  
|                                                  |                                                            |                          |         |        |         |      |         |        |         |   |         |       
|                                                  |                                                            | Gross profit             |         |        | 68,977  |      |         |        | 44,916  |   |         |        | 52,107  |  
|Operating expenses                                |                                                            |                          |         |        |         |      |         |        |         |   |         |       
|                                                  | Sales and marketing                                        |                          |         | 46,672 |         |      |         | 38,343 |         |   |         | 39,122 |        
|                                                  | General and administrative                                 |                          |         | 11,884 |         |      |         | 11,301 |         |   |         | 8,856  |        
|                                                  | Research and development                                   |                          |         | 17,601 |         |      |         | 15,766 |         |   |         | 13,263 |        
|                                                  | Acquisition and related costs                              |                          |         | 237    |         |      |         | 1,127  |         |   |         |       |        
|                                                  | Amortization of acquired intangible assets                 |                          |         | 12,914 |         |      |         | 6,635  |         |   |         | 2,006  |        
|                                                  | Restructuring charges                                      |                          |         |       |         |      |         | 4,368  |         |   |         | 743    |        
|                                                  |                                                            |                          |         |        |         |      |         |        |         |   |         |       
|                                                  |                                                            | Total operating expenses |         |        | 89,308  |      |         |        | 77,540  |   |         |        | 63,990  |  
|                                                  |                                                            |                          |         |        |         |      |         |        |         |   |         |       
|Loss from operations                              |                                                            |                          | (20,331 | )      |         |      | (32,624 | )      |         |   | (11,883 | )     
|Other income (expense)                            |                                                            |                          |         |        |         |      |         |        |         |   |         |       
|                                                  | Interest income, net                                       |                          |         | 3,755  |         |      |         | 1,957  |         |   |         | 982    |        
|                                                  | Investment (impairment) gain on sale                       |                          |         | (5,722 | )       |      |         | (1,733 | )       |   |         | 388    |        
|                                                  |                                                            |                          |         |        |         |      |         |        |         |   |         |       
|                                                  |                                                            | Net loss                 |         | $      | (22,298 | )    |         | $      | (32,400 | ) |         | $      | (10,513 | )
|                                                  |                                                            |                          |         |        |         |      |         |        |         |   |         |       
|Net loss per common share  basic and
    diluted |                                                            | $                        | (1.00   | )      |         | $    | (1.45   | )      |         | $ | (0.48   | )     
|                                                  |                                                            |                          |         |        |         |      |         |        |         |   |         |       
|Weighted average shares outstanding               |                                                            |                          |         |        |         |      |         |        |         |   |         |       
|                                                  | Basic and diluted                                          |                          |         | 22,286 |         |      |         | 22,345 |         |   |         | 22,028 |        
|                                                  |                                                            |                          |         |        |         |      |         |        |         |   |         |       

49



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STELLENT, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

(In thousands)


|                                                                  |  |              |        |            |  |             |     |               |  |               |         |               |  |               |         |   |  |   |      |   |  |   |         |   |  |   |         |  
|----------------------------------------------------------------- |  | ------------ | ------ | ---------- |  | ----------- | --- | ------------- |  | ------------- | ------- | ------------- |  | ------------- | ------- | - |  | - | ---- | - |  | - | ------- | - |  | - | ------- | -
|                                                                  |  |              |        |            |  |             |     | Accumulated   |  |               |         |              
|                                                                  |  | Common Stock |        | Additional |  |             |     | Other         |  | Total         |         |              
|                                                                  |  |              |        | Paid-in    |  | Accumulated |     | Comprehensive |  | Shareholders |         | Comprehensive
|                                                                  |  | Shares       |        | Amount     |  | Capital     |     | Deficit       |  | Income (Loss) |         | Equity        |  | Income (Loss)
|                                                                  |  |              |        |            |  |             |     |               |  |               |         |               |  |              
|Balance at April 1, 2001                                          |  |              | 21,984 |            |  | $           | 220 |               |  | $             | 187,512 |               |  | $             | (20,204 | ) |  | $ | (84  | ) |  | $ | 167,444 |   |  |   |         |  
|Exercise of stock options and warrants                            |  |              | 430    |            |  |             | 4   |               |  |               | 3,763   |               |  |               |        |   |  |   |     |   |  |   | 3,767   |   |  |   |         |  
|Issuance of common stock in acquisition                           |  |              | 200    |            |  |             | 2   |               |  |               | 5,494   |               |  |               |        |   |  |   |     |   |  |   | 5,496   |   |  |   |         |  
|Issuance of common stock in employee stock
    purchase plan      |  |              | 46     |            |  |             | 1   |               |  |               | 1,017   |               |  |               |        |   |  |   |     |   |  |   | 1,018   |   |  |   |         |  
|Repurchase of common stock                                        |  |              | (261   | )          |  |             | (3  | )             |  |               | (3,589  | )             |  |               |        |   |  |   |     |   |  |   | (3,592  | ) |  |   |         |  
|Foreign currency translation adjustment loss                      |  |              |       |            |  |             |    |               |  |               |        |               |  |               |        |   |  |   | (59  | ) |  |   | (59     | ) |  | $ | (59     | )
|Net unrealized gain on investments                                |  |              |       |            |  |             |    |               |  |               |        |               |  |               |        |   |  |   | 211  |   |  |   | 211     |   |  |   | 211     |  
|Net loss                                                          |  |              |       |            |  |             |    |               |  |               |        |               |  |               | (22,298 | ) |  |   |     |   |  |   | (22,298 | ) |  | $ | (22,298 | )
|                                                                  |  |              |        |            |  |             |     |               |  |               |         |               |  |               |         |   |  |   |      |   |  |   |         |   |  |   |         |  
|Balance at March 31, 2002                                         |  |              | 22,399 |            |  |             | 224 |               |  |               | 194,197 |               |  |               | (42,502 | ) |  |   | 68   |   |  |   | 151,987 |   |  |   | (22,146 | )
|                                                                  |  |              |        |            |  |             |     |               |  |               |         |               |  |               |         |   |  |   |      |   |  |   |         |   |  |   |         |  
|Exercise of stock options and warrants                            |  |              | 27     |            |  |             | 1   |               |  |               | 101     |               |  |               |        |   |  |   |     |   |  |   | 102     |   |  |   |         |  
|Issuance of common stock in employee stock
    purchase plan      |  |              | 187    |            |  |             | 2   |               |  |               | 657     |               |  |               |        |   |  |   |     |   |  |   | 659     |   |  |   |         |  
|Repurchase of common stock                                        |  |              | (757   | )          |  |             | (8  | )             |  |               | (3,457  | )             |  |               |        |   |  |   |     |   |  |   | (3,465  | ) |  |   |         |  
|Reduction of tax benefit from employee stock
    option exercises |  |              |       |            |  |             |    |               |  |               | (4,894  | )             |  |               |        |   |  |   |     |   |  |   | (4,894  | ) |  |   |         |  
|Foreign currency translation adjustment gain                      |  |              |       |            |  |             |    |               |  |               |        |               |  |               |        |   |  |   | 374  |   |  |   | 374     |   |  | $ | 374     |  
|Net unrealized loss on investments                                |  |              |       |            |  |             |    |               |  |               |        |               |  |               |        |   |  |   | (127 | ) |  |   | (127    | ) |  |   | (127    | )
|Net loss                                                          |  |              |       |            |  |             |    |               |  |               |        |               |  |               | (32,400 | ) |  |   |     |   |  |   | (32,400 | ) |  |   | (32,400 | )
|                                                                  |  |              |        |            |  |             |     |               |  |               |         |               |  |               |         |   |  |   |      |   |  |   |         |   |  |   |         |  
|Balance at March 31, 2003                                         |  |              | 21,856 |            |  |             | 219 |               |  |               | 186,604 |               |  |               | (74,902 | ) |  |   | 315  |   |  |   | 112,236 |   |  | $ | (32,153 | )
|                                                                  |  |              |        |            |  |             |     |               |  |               |         |               |  |               |         |   |  |   |      |   |  |   |         |   |  |   |         |  
|Exercise of stock options                                         |  |              | 274    |            |  |             | 3   |               |  |               | 1,341   |               |  |               |        |   |  |   |     |   |  |   | 1,344   |   |  |   |         |  
|Issuance of common stock                                          |  |              | 100    |            |  |             | 1   |               |  |               | 753     |               |  |               |        |   |  |   |     |   |  |   | 754     |   |  |   |         |  
|Issuance of common stock in employee stock
    purchase plan      |  |              | 172    |            |  |             | 1   |               |  |               | 831     |               |  |               |        |   |  |   |     |   |  |   | 832     |   |  |   |         |  
|Repurchase of common stock                                        |  |              | (63    | )          |  |             | (1  | )             |  |               | (308    | )             |  |               |        |   |  |   |     |   |  |   | (309    | ) |  |   |         |  
|Foreign currency translation adjustment gain                      |  |              |       |            |  |             |    |               |  |               |        |               |  |               |        |   |  |   | 361  |   |  |   | 361     |   |  | $ | 361     |  
|Net loss                                                          |  |              |       |            |  |             |    |               |  |               |        |               |  |               | (10,513 | ) |  |   |     |   |  |   | (10,513 | ) |  |   | (10,513 | )
|                                                                  |  |              |        |            |  |             |     |               |  |               |         |               |  |               |         |   |  |   |      |   |  |   |         |   |  |   |         |  
|Balance at March 31, 2004                                         |  |              | 22,339 |            |  | $           | 223 |               |  | $             | 189,221 |               |  | $             | (85,415 | ) |  | $ | 676  |   |  | $ | 104,705 |   |  | $ | (10,152 | )
|                                                                  |  |              |        |            |  |             |     |               |  |               |         |               |  |               |         |   |  |   |      |   |  |   |         |   |  |   |         |  

50



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##### Table of Contents



STELLENT, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)


|                                                                                    |                                                                                   |                                                          |                                                               |         |        |        |        |         |       |        |        |         |       |        |  
|----------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------------------------------------------- | ------- | ------ | ------ | ------ | ------- | ----- | ------ | ------ | ------- | ----- | ------ | -
|                                                                                    |                                                                                   |                                                         
|                                                                                    |                                                                                   | Year Ended March 31,                                    
|                                                                                    |                                                                                   |                                                         
|                                                                                    |                                                                                   | 2002                                                     |                                                               | 2003    |        | 2004  
|                                                                                    |                                                                                   |                                                          |                                                               |         |        |       
|Operating activities:                                                               |                                                                                   |                                                          |                                                               |         |        |        |        |         |       |        |        |        
|                                                                                    | Net loss                                                                          |                                                          | $                                                             | (22,298 | )      |        | $      | (32,400 | )     |        | $      | (10,513 | )    
|                                                                                    | Adjustments to reconcile net loss to cash flows
    used in operating activities: |                                                          |                                                               |         |        |        |        |         |       |        |        |         |      
|                                                                                    |                                                                                   | Depreciation and amortization                            |                                                               |         | 2,309  |        |        |         | 3,179 |        |        |         | 3,369 |       
|                                                                                    |                                                                                   | Amortization of acquired intangible assets and
    other |                                                               |         | 13,880 |        |        |         | 8,527 |        |        |         | 3,580 |       
|                                                                                    | Tax benefit reduction from employee stock option
    exercises                    |                                                          |                                                               |        |        |        |        | (4,894  | )     |        |        |        |      
|                                                                                    | Changes in operating assets and liabilities, net
    of amounts acquired          |                                                          |                                                               | (2,903  | )      |        |        | 15,626  |       |        |        | (1,857  | )    
|                                                                                    | Investment impairment (gain on sale)                                              |                                                          |                                                               | 5,722   |        |        |        | 1,733   |       |        |        | (388    | )    
|                                                                                    | Other                                                                             |                                                          |                                                               | 400     |        |        |        | 209     |       |        |        |         |      
|                                                                                    |                                                                                   |                                                          |                                                               |         |        |        |        |         |       |        |        |        
|                                                                                    |                                                                                   |                                                          | Net cash flows used in operating activities                   |         |        | (2,890 | )      |         |       | (8,020 | )      |         |       | (5,809 | )
|Investing activities:                                                               |                                                                                   |                                                          |                                                               |         |        |        |        |         |       |        |        |        
|                                                                                    | Maturities (purchases) of marketable
    securities, net                          |                                                          |                                                               | 22,357  |        |        |        | 25,772  |       |        |        | 14,383  |      
|                                                                                    | Business acquisitions, net of cash acquired                                       |                                                          |                                                               |        |        |        |        | (3,486  | )     |        |        | (2,184  | )    
|                                                                                    | Purchases of property and equipment                                               |                                                          |                                                               | (3,408  | )      |        |        | (1,002  | )     |        |        | (2,263  | )    
|                                                                                    | Purchase of intangibles                                                           |                                                          |                                                               | (1,633  | )      |        |        | (201    | )     |        |        |        |      
|                                                                                    | Investments in and advances on notes with other
    companies                     |                                                          |                                                               | (3,084  | )      |        |        |        |       |        |        |        |      
|                                                                                    | Proceeds from sale of investment in other
    companies                           |                                                          |                                                               |        |        |        |        |        |       |        |        | 388     |      
|                                                                                    | Issuance of other note receivable                                                 |                                                          |                                                               | (3,500  | )      |        |        |        |       |        |        |        |      
|                                                                                    | Payments received on other note receivable                                        |                                                          |                                                               | 3,250   |        |        |        | 50      |       |        |        |        |      
|                                                                                    | Other                                                                             |                                                          |                                                               | (99     | )      |        |        |        |       |        |        | (17     | )    
|                                                                                    |                                                                                   |                                                          |                                                               |         |        |        |        |         |       |        |        |        
|                                                                                    |                                                                                   |                                                          | Net cash flows provided by investing activities               |         |        | 13,883 |        |         |       | 21,133 |        |         |       | 10,307 |  
|Financing activities:                                                               |                                                                                   |                                                          |                                                               |         |        |        |        |         |       |        |        |        
|                                                                                    | Repurchase of common stock                                                        |                                                          |                                                               | (3,592  | )      |        |        | (3,465  | )     |        |        | (309    | )    
|                                                                                    | Issuance of common stock                                                          |                                                          |                                                               | 1,018   |        |        |        | 659     |       |        |        | 832     |      
|                                                                                    | Proceeds from stock options and warrants                                          |                                                          |                                                               | 3,767   |        |        |        | 102     |       |        |        | 1,344   |      
|                                                                                    | Other                                                                             |                                                          |                                                               | (122    | )      |        |        |        |       |        |        |        |      
|                                                                                    |                                                                                   |                                                          |                                                               |         |        |        |        |         |       |        |        |        
|                                                                                    |                                                                                   |                                                          | Net cash flows provided by (used in) financing
    activities |         |        | 1,071  |        |         |       | (2,704 | )      |         |       | 1,867  |  
|Effect of exchange rate changes on cash and
    equivalents                         |                                                                                   |                                                          | (59                                                           | )       |        |        | 374    |         |       |        | 361    |        
|                                                                                    |                                                                                   |                                                          |                                                               |         |        |        |        |         |       |        |        |        
|                                                                                    |                                                                                   |                                                          | Net increase in cash                                          |         |        | 12,005 |        |         |       | 10,783 |        |         |       | 6,726  |  
|Cash and equivalents at beginning of year                                           |                                                                                   |                                                          | 14,651                                                        |         |        |        | 26,656 |         |       |        | 37,439 |        
|                                                                                    |                                                                                   |                                                          |                                                               |         |        |        |        |         |       |        |        |        
|Cash and equivalents at end of year                                                 |                                                                                   | $                                                        | 26,656                                                        |         |        | $      | 37,439 |         |       | $      | 44,165 |        
|                                                                                    |                                                                                   |                                                          |                                                               |         |        |        |        |         |       |        |        |        
|Supplemental disclosure of cash flows information:                                  |                                                                                   |                                                          |                                                               |         |        |        |        |         |       |        |        |        
|                                                                                    | Cash paid for interest                                                            |                                                          | $                                                             | 10      |        |        | $      |        |       |        | $      |        |      
|Non-cash investing activities:                                                      |                                                                                   |                                                          |                                                               |         |        |        |        |         |       |        |        |        
|                                                                                    | Common stock issued in business acquisitions                                      |                                                          | $                                                             | 5,496   |        |        | $      |        |       |        | $      | 754     |      
|                                                                                    | Exchange of prepaid royalty for purchase of
    software technology               |                                                          |                                                               | 252     |        |        |        |        |       |        |        |        |      
|Detail of changes in operating assets and
    liabilities, net of amounts acquired: |                                                                                   |                                                          |                                                               |         |        |        |        |         |       |        |        |        
|                                                                                    | Trade accounts receivable, net                                                    |                                                          | $                                                             | 2,769   |        |        | $      | 2,974   |       |        | $      | (3,563  | )    
|                                                                                    | Prepaid expenses and other current assets                                         |                                                          |                                                               | (5,591  | )      |        |        | 4,408   |       |        |        | (692    | )    
|                                                                                    | Accounts payable                                                                  |                                                          |                                                               | 884     |        |        |        | 23      |       |        |        | 461     |      
|                                                                                    | Accrued expenses and other liabilities                                            |                                                          |                                                               | (965    | )      |        |        | 8,221   |       |        |        | 1,937   |      
|                                                                                    |                                                                                   |                                                          |                                                               |         |        |        |        |         |       |        |        |        
|                                                                                    |                                                                                   |                                                          | Net changes in operating assets and liabilities               |         | $      | (2,903 | )      |         | $     | 15,626 |        |         | $     | (1,857 | )
|                                                                                    |                                                                                   |                                                          |                                                               |         |        |        |        |         |       |        |        |        

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

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STELLENT, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(In thousands, except per share
data)




|   |                                               
|-- | ----------------------------------------------
|1. | Summary of Significant Accounting
    Policies

Stellent, Inc. (the Company)
develops, markets, and services content management software with
the primary focus of helping organizations derive maximum value
from their content that exists in the normal course of business
such as Microsoft Office documents, web pages, images, graphics,
multimedia, CAD, and other files. With headquarters in Eden
Prairie, Minnesota, the Company maintains offices throughout the
United States and Europe. The Companys customers are
located throughout the United States and Europe.

Principles of
Consolidation:The consolidated
financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.

Revenue Recognition:The Company currently derives all of its revenues from licenses
of software products and related services. The Company
recognizes revenue in accordance with Statement of Position
(SOP) 97-2, Software Revenue Recognition,as amended
by SOP 98-9, Modification of SOP 97-2, Software
Revenue Recognition with Respect to Certain Transactions,and Securities and Exchange Commission Staff Accounting
Bulletin 101, Revenue Recognition in Financial
Statements.

Product license revenue is recognized under
SOP 97-2 when (i) persuasive evidence of an
arrangement exists, (ii) delivery has occurred,
(iii) the fee is fixed or determinable, and
(iv) collectibility is probable and supported and the
arrangement does not require additional services or
modifications that are essential to the functionality of the
software.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Persuasive Evidence of an Arrangement
    Exists The Company
    determines that persuasive evidence of an arrangement exists
    with respect to a customer under i) a signature license
    agreement, which is signed by both the customer and the Company,
    or ii) a purchase order, quote or binding letter-of-intent
    received from and signed by the customer, in which case the
    customer has either previously executed a signature license
    agreement with the Company or will receive a shrink-wrap license
    agreement with the software. The Company does not offer product
    return rights to end users or resellers.                                                                                                                                                
|
| | Delivery has Occurred The Companys software may be
    either physically or electronically delivered to the customer.
    The Company determines that delivery has occurred upon shipment
    of the software pursuant to the billing terms of the arrangement
    or when the software is made available to the customer through
    electronic delivery. Customer acceptance generally occurs at
    delivery.                                                                                                                                                                                                                                                                                                                                                                                  
|
| | The Fee is Fixed or Determinable If at the outset of the customer
    arrangement, the Company determines that the arrangement fee is
    not fixed or determinable, revenue is typically recognized when
    the arrangement fee becomes due and payable. Fees due under an
    arrangement are generally deemed fixed and determinable if they
    are payable within twelve months.                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | Collectibility is Probable and
    Supported The Company
    determines whether collectibility is probable and supported on a
    case-by-case basis. The Company may generate a high percentage
    of its license revenue from its current customer base, for whom
    there is a history of successful collection. The Company
    assesses the probability of collection from new customers based
    upon the number of years the customer has been in business and a
    credit review process, which evaluates the customers
    financial position and ultimately their ability to pay. If the
    Company is unable to determine from the outset of an arrangement
    that collectibility is probable based upon its review process,
    revenue is recognized as payments are received.

With regard to software arrangements involving
multiple elements, the Company allocates revenue to each element
based on the relative fair value of each element. The
Companys determination of fair value of each element in
multiple-element arrangements is based on vendor-specific
objective evidence (VSOE). The Company limits its
assessment of VSOE for each element to the price charged when
the same element is

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STELLENT, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(In thousands, except per share
data)


sold separately. The Company has analyzed all of
the elements included in its multiple-element arrangements and
has determined that it has sufficient VSOE to allocate revenue
to consulting services and post-contract customer support
(PCS) components of its license arrangements. The
Company sells its consulting services separately, and has
established VSOE on this basis. VSOE for PCS is determined based
upon the customers annual renewal rates for these
elements. Accordingly, assuming all other revenue recognition
criteria are met, revenue from perpetual licenses is recognized
upon delivery using the residual method in accordance with
SOP 98-9, and revenue from PCS is recognized ratably over
their respective terms, typically one year.

The Companys direct customers typically
enter into perpetual license arrangements. The Companys
OEM group generally enters into term-based license arrangements
with its customers, the term of which generally exceeds one year
in length. The Company recognizes revenue from time-based
licenses at the time the license arrangement is signed, assuming
all other revenue recognition criteria are met, if the term of
the time-based license arrangement is greater than twelve
months. If the term of the time-based license arrangement is
twelve months or less, the Company recognizes revenue ratably
over the term of the license arrangement.

Services revenue consists of fees from consulting
services and PCS. Consulting services include needs assessment,
software integration, security analysis, application development
and training. The Company bills consulting services fees either
on a time and materials basis or on a fixed-price schedule. In
general, the Companys consulting services are not
essential to the functionality of the software. The
Companys software products are fully functional upon
delivery and implementation and generally do not require any
significant modification or alteration for customer use.
Customers purchase the Companys consulting services to
facilitate the adoption of the Companys technology and may
dedicate personnel to participate in the services being
performed, but they may also decide to use their own resources
or appoint other professional service organizations to provide
these services. Software products are billed separately from
professional services. The Company recognizes revenue from
consulting services as services are performed. The
Companys customers typically purchase PCS annually, and
the Company prices PCS based on a percentage of the product
license fee. Customers purchasing PCS receive unspecified
product upgrades, Web-based technical support and telephone
hot-line support. Unspecified product upgrades are typically not
provided without the purchase of PCS. The Company typically has
not granted specific upgrade rights in its license agreements.
Specified undelivered elements are allocated a relative fair
value amount within a license agreement and the revenue
allocated for these elements are deferred until delivery occurs.

Customer advances and billed amounts due from
customers in excess of revenue recognized are recorded as
deferred revenue.

Cost of Revenues:The Company expenses all manufacturing, packaging and
distribution costs associated with product license revenue as
cost of revenues. The Company expenses all technical support
service costs associated with service revenue as cost of
revenues. The Company also expenses amortization of capitalized
software from acquisitions as cost of revenues. The Company
reports out-of-pocket expenses reimbursed by customers as
revenue and the corresponding expenses incurred as costs of
revenues.

Cash and
Equivalents:The Company considers all
short-term, highly liquid investments that are readily
convertible into known amounts of cash and have original
maturities of three months or less to be cash equivalents. At
March 31, 2003 and 2004, $2,965 and $3,110 was held at
various financial institutions located in Europe and other
foreign countries.

Marketable
Securities:Investments in debt
securities with a remaining maturity of one year or less at the
date of purchase are classified as short-term marketable
securities. Investments in debt securities with a remaining
maturity of greater than one year are classified as long-term
marketable securities. All investments are classified as held to
maturity and recorded at amortized cost as the Company has the
ability and positive

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STELLENT, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(In thousands, except per share
data)


intent to hold to maturity. At March 31,
2003 and 2004, cost approximated market value of these
investments. Purchases of investments were $1,015,661, $255,089
and $184,108 for the years ended March 31, 2002, 2003 and
2004, respectively. Maturities of investments were $1,038,018,
$280,861 and $198,491 for the years ended March 31, 2002,
2003 and 2004, respectively. The contractual maturities of the
marketable securities held at March 31, 2004 are $22,366 in
fiscal 2005 and $6,981 in fiscal 2006.

At March 31, 2004, short and long term
marketable securities consisted of the following:

|                                 |  |                 |        |                 |  |       |       |  |  |   |        | 
|-------------------------------- |  | --------------- | ------ | --------------- |  | ----- | ----- |  |  | - | ------ | 
|                                 |  | U.S. Govt.     |        | Corporate       |  |      
|                                 |  | Debt Securities |        | Debt Securities |  | Total
|                                 |  |                 |        |                 |  |      
|Short term marketable securities |  | $               | 13,742 |                 |  | $     | 8,624 |  |  | $ | 22,366 | 
|Long term marketable securities  |  | $               | 4,150  |                 |  | $     | 2,831 |  |  | $ | 6,981  | 

Investments in and Notes with Other
Companies:Investments in other equity
securities and related notes with other companies in the
software industry are classified as long-term as the Company
anticipates holding them for more than one year. The Company
holds less than 20% interest in, and does not directly or
indirectly exert significant influence over any of the
respective investees.

A portion of these investments were publicly
traded and were deemed by management to be available for sale.
The Company used the specific identification method to determine
cost and fair value for computing gains and losses. Accordingly,
these investments were reported at fair value with net
unrealized gains or losses reported within shareholders
equity as accumulated other comprehensive income or loss. In
November 2003, the Company sold its only remaining public
company investment for $388. During fiscal 2003, the Company had
recorded an other than temporary impairment for the full value
of this investment. During fiscal 2002 and 2003, the Company
determined that permanent declines in the value of these
publicly traded investments had occurred. As a result, the
Company recorded write-downs of $96 and 1,084 during the years
ended March 31, 2002 and 2003.

Investments in other companies also include
investments in several non-public, start-up technology companies
for which the Company uses the cost method of accounting. During
fiscal 2002 and 2003, the Company determined, based on its
review of the financial statements of such other companies,
discussions of business plans and forecasts with other
companies executives and judgments and assumptions about
the respective other companies industry, as well as the
U.S. and world economies in general, that a permanent decline in
value of certain investments had occurred and recorded a $5,626
and $650 write-down on the investments in and advances to the
companies. No permanent decline in value of investments occurred
during fiscal 2004.

Accounts Receivable:Accounts receivable are presented net of allowances of $1,400
and $1,139 as of March 31, 2003 and 2004. The
Companys accounts receivable balances are due from
companies across a broad range of industries 
Government, Finance, Manufacturing, Consumer, Aerospace and
Transportation, Health Care/ Insurance, and High Tech/ Telecom.
Credit is extended based on evaluation of a customers
financial condition and, generally, collateral is not required.
Accounts receivable from sales of services are typically due
from customers within 30 days and accounts receivable from
sales of licenses are due over terms ranging from 30 days
to nine months. Accounts receivable balances are stated at
amounts due from customer net of an allowance for doubtful
accounts. Accounts outstanding longer than the contractual
payments terms are considered past due. The Company determines
its allowance by considering a number of factors, including the
length of time trade receivables are past due, the
Companys previous loss history, the customers
current ability to pay its obligation to the Company, and the
condition of the general economy and the industry as a whole.
The Company writes-off accounts receivable when they become
uncollectible, and payments subsequently received on such
receivables are credited to the allowance for doubtful accounts.

54



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STELLENT, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(In thousands, except per share
data)


No customer accounted for 10% or more of the
Companys revenues in the years ended March 31, 2002,
2003, and 2004.

Property and
Equipment:Property and equipment,
including leasehold improvements, are recorded at cost.
Depreciation is provided using the straight-line method over the
estimated useful lives of the assets, ranging from two to eight
years, or the life of the lease for leasehold improvements,
whichever is shorter. Maintenance, repairs and minor renewals
are expensed when incurred.

Goodwill and Other Acquired Intangible
Assets:Goodwill represents the excess
of the purchase price over the fair value of net assets
acquired. Prior to April 1, 2002, goodwill was amortized on
a straight-line basis over three years. Effective April 1,
2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) 142, Goodwill and Other Intangible Assets,which provides that goodwill, as well as identifiable
intangible assets with indefinite lives, should not be amortized
but reviewed for impairment annually. Accordingly, the Company
ceased amortization of goodwill as of April 1, 2002.

At March 31, 2002, other acquired intangible
assets represented core technology, customer base, workforce,
capitalized software, trademarks, and other intangible assets
acquired through business acquisitions, and were amortized on a
straight-line basis over three to four years. Effective
April 1, 2002, the Company adopted SFAS 141,
Business Combinations,which requires that all business
combinations be accounted for utilizing the purchase method of
accounting and specifies the criteria to use in determining
whether intangible assets identified in purchase accounting must
be recorded separately from goodwill. The Company determined
that its acquired workforce did not meet the separability
criteria of SFAS 141, and therefore the net unamortized
balance at March 31, 2002 was reclassified to goodwill
effective April 1, 2002, and amortization of the balance
ceased. The remaining other acquired intangible assets continue
to be amortized on a straight-line basis over their remaining,
definite useful lives.

Goodwill and intangible assets consist of the
following at:

|                                                                  |  |           |         |      |  |   |         |  
|----------------------------------------------------------------- |  | --------- | ------- | ---- |  | - | ------- | -
|                                                                  |  |          
|                                                                  |  | March 31,
|                                                                  |  |          
|                                                                  |  | 2003      |         | 2004
|                                                                  |  |           |         |     
|Goodwill, gross                                                   |  | $         | 20,676  |      |  | $ | 22,753  |  
|Re-characterization of acquired workforce                         |  |           | 3,000   |      |  |   | 3,000   |  
|                                                                  |  |           |         |      |  |   |         |  
|Adjusted goodwill                                                 |  |           | 23,676  |      |  |   | 25,753  |  
|Accumulated amortization                                          |  |           | (10,973 | )    |  |   | (10,973 | )
|                                                                  |  |           |         |      |  |   |         |  
|Goodwill, net                                                     |  | $         | 12,703  |      |  | $ | 14,780  |  
|                                                                  |  |           |         |      |  |   |         |  
|Other acquired intangible assets consist of the
    following at: |  |           |         |      |  |   |         |  

|                                                          |  |           |         |      |  |   |         |  
|--------------------------------------------------------- |  | --------- | ------- | ---- |  | - | ------- | -
|                                                          |  |          
|                                                          |  | March 31,
|                                                          |  |          
|                                                          |  | 2003      |         | 2004
|                                                          |  |           |         |     
|Other acquired intangible assets, gross                   |  | $         | 29,465  |      |  | $ | 30,437  |  
|Re-characterization of acquired workforce to
    goodwill |  |           | (3,000  | )    |  |   | (3,000  | )
|                                                          |  |           |         |      |  |   |         |  
|Adjusted goodwill                                         |  |           | 26,465  |      |  |   | 27,437  |  
|Accumulated amortization                                  |  |           | (21,628 | )    |  |   | (25,207 | )
|                                                          |  |           |         |      |  |   |         |  
|Other acquired intangible assets, net                     |  | $         | 4,837   |      |  | $ | 2,230   |  
|                                                          |  |           |         |      |  |   |         |  

55



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STELLENT, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(In thousands, except per share
data)


Other acquired intangible assets by major
intangible asset class at March 31, 2004 were as follows:

|                        |  |          |        |              |  |                             |   | 
|----------------------- |  | -------- | ------ | ------------ |  | --------------------------- | - | 
|                        |  | Acquired |        | Amortization
|                        |  | Value    |        | Period      
|                        |  |          |        |             
|Core technology         |  | $        | 13,200 |              |  |                             | 3 | 
|Customer base           |  |          | 3,840  |              |  |                             | 3 | 
|Capitalized software    |  |          | 7,282  |              |  |                             | 3 | 
|Trademarks              |  |          | 1,715  |              |  |                             | 3 | 
|Other intangible assets |  |          | 1,400  |              |  |                             | 4 | 
|                        |  |          |        |              |  |                             |   | 
|                        |  | $        | 27,437 |              |  | 3.05 weighted average years

The acquired other intangibles have no
significant residual values. There are no other intangible
assets which are not subject to amortization.

Gross carrying amounts and accumulated
amortization of the acquired other intangibles were as follows
for each major intangible asset class:

|                        |  |                      |        |              |  |   |        | 
|----------------------- |  | -------------------- | ------ | ------------ |  | - | ------ | 
|                        |  |                     
|                        |  | As of March 31, 2004
|                        |  |                     
|                        |  | Gross Carrying       |        | Accumulated 
|                        |  | Amount               |        | Amortization
|                        |  |                      |        |             
|Core technology         |  | $                    | 13,200 |              |  | $ | 13,200 | 
|Customer base           |  |                      | 3,840  |              |  |   | 3,812  | 
|Capitalized software    |  |                      | 7,282  |              |  |   | 5,081  | 
|Trademarks              |  |                      | 1,715  |              |  |   | 1,714  | 
|Other intangible assets |  |                      | 1,400  |              |  |   | 1,400  | 
|                        |  |                      |        |              |  |   |        | 
|                        |  | $                    | 27,437 |              |  | $ | 25,207 | 
|                        |  |                      |        |              |  |   |        | 

|                        |  |                      |        |              |  |   |        | 
|----------------------- |  | -------------------- | ------ | ------------ |  | - | ------ | 
|                        |  |                     
|                        |  | As of March 31, 2003
|                        |  |                     
|                        |  | Gross Carrying       |        | Accumulated 
|                        |  | Amount               |        | Amortization
|                        |  |                      |        |             
|Core technology         |  | $                    | 13,200 |              |  | $ | 12,100 | 
|Customer base           |  |                      | 3,840  |              |  |   | 3,406  | 
|Capitalized software    |  |                      | 6,310  |              |  |   | 3,590  | 
|Trademarks              |  |                      | 1,715  |              |  |   | 1,568  | 
|Other intangible assets |  |                      | 1,400  |              |  |   | 964    | 
|                        |  |                      |        |              |  |   |        | 
|                        |  | $                    | 26,465 |              |  | $ | 21,628 | 
|                        |  |                      |        |              |  |   |        | 

Amortization expense for the years ended
March 31, 2002, 2003 and 2004 related to the acquired other
intangible assets was $7,538, $8,527 and $3,580, respectively.

56



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##### Table of Contents



STELLENT, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(In thousands, except per share
data)


Estimated amortization expense for other acquired
intangible assets is as follows for the years ended
March 31:

|     |  |   |       | 
|---- |  | - | ----- | 
|2005 |  | $ | 1,536 | 
|2006 |  |   | 532   | 
|2007 |  |   | 162   | 
|     |  |   |       | 
|     |  | $ | 2,230 | 
|     |  |   |       | 

The following is a summary of what reported net
loss would have been in all periods presented, exclusive of the
amortization expense recognized in those periods related to
goodwill and intangible assets no longer being amortized:

|                                                  |                                    |                                                   |         |       |         |      |         |   |         |   |         |   |         |  
|------------------------------------------------- | ---------------------------------- | ------------------------------------------------- | ------- | ----- | ------- | ---- | ------- | - | ------- | - | ------- | - | ------- | -
|                                                  |                                    |                                                  
|                                                  |                                    | March 31,                                        
|                                                  |                                    |                                                  
|                                                  |                                    | 2002                                              |         | 2003  |         | 2004
|                                                  |                                    |                                                   |         |       |         |     
|Net loss, as reported                             |                                    | $                                                 | (22,298 | )     |         | $    | (32,400 | ) |         | $ | (10,513 | )
|Adjustments:                                      |                                    |                                                   |         |       |         |      |         |   |         |   |         |  
|                                                  | Amortization of goodwill           |                                                   |         | 5,342 |         |      |         |  |         |   |         |  |        
|                                                  | Amortization of acquired workforce |                                                   |         | 1,000 |         |      |         |  |         |   |         |  |        
|                                                  |                                    |                                                   |         |       |         |      |         |   |         |   |         |  
|                                                  |                                    | Net loss, as adjusted                             |         | $     | (15,956 | )    |         | $ | (32,400 | ) |         | $ | (10,513 | )
|                                                  |                                    |                                                   |         |       |         |      |         |   |         |   |         |  
|Basic and diluted net loss per share, as reported |                                    | $                                                 | (1.00   | )     |         | $    | (1.45   | ) |         | $ | (0.48   | )
|Adjustments:                                      |                                    |                                                   |         |       |         |      |         |   |         |   |         |  
|                                                  | Amortization of goodwill           |                                                   |         | 0.24  |         |      |         |  |         |   |         |  |        
|                                                  | Amortization of acquired workforce |                                                   |         | 0.04  |         |      |         |  |         |   |         |  |        
|                                                  |                                    |                                                   |         |       |         |      |         |   |         |   |         |  
|                                                  |                                    | Basic and diluted net loss per share, as adjusted |         | $     | (0.72   | )    |         | $ | (1.45   | ) |         | $ | (0.48   | )
|                                                  |                                    |                                                   |         |       |         |      |         |   |         |   |         |  

Impairment of Long-Lived
Assets:The Company evaluates the
recoverability of its long-lived assets and requires recognition
of impairment of long-lived assets in the event that events or
circumstances indicate an impairment may have occurred and when
the net book value of such assets exceeds the future
undiscounted cash flows attributed to such assets. The Company
assesses the impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying value may
not be recoverable. No impairment of long-lived assets has
occurred through the year ended March 31, 2004.

Software Development
Costs:Software development costs may
be capitalized once the technological feasibility of the project
is established. The amount of software development costs that
may be capitalized is subject to limitations based on the net
realizable value of the potential product. Typically the period
between achieving technological feasibility of the
Companys products and the general availability of the
products has been short. Consequently, prior to fiscal 2002,
software development costs qualifying for capitalization were
immaterial and were generally expensed to research and
development costs.

During fiscal 2002 and 2003, the Company
capitalized $2,000 and $354 in software development costs.
During fiscal 2002, $706 of the $2,000 capitalized was acquired
intellectual property from Active IQ, a company in which the
Company held a less than 20% investment.

In addition, the fair value of certain acquired
capitalized software costs have been recorded (see note 2).
Amortization of developed capitalized software is determined
annually as the greater of the amount computed using the ratio
of current gross revenues for the products to their total of
current and anticipated future gross revenues or the
straight-line method over the estimated economic life of the
products. Accumulated

57



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STELLENT, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(In thousands, except per share
data)


amortization was $1,088 and $1,834 at
March 31, 2003 and 2004. Amortization expense of developed
capitalized software is included in Cost of Revenues 
Product Licenses.

Warranties:The
Company generally warrants its software products for a period of
30 to 90 days from the date of delivery and estimates
probable product warranty costs at the time revenue is
recognized. The Company exercises judgment in determining its
accrued warranty liability. Factors that may affect the warranty
liability include historical and anticipated rates of warranty
claims, material usage, and service delivery costs. Warranty
costs incurred to date have not been material.

Indemnification
Obligations:The Company generally
provides to its customers intellectual property indemnification
obligations in its software products or services. Typically
these obligations provide that the Company will indemnify,
defend and hold the customers harmless against claims by third
parties that its software products or services infringe upon the
copyrights, trademarks, patents or trade secret rights of such
third parties. No such claim has been made by any third party
with regard to the Companys software products or services.

Translation of Foreign
Currencies:Foreign currency assets
and liabilities of the Companys international subsidiaries
are translated using the exchange rates in effect at the balance
sheet date. Results of operations are translated using the
average exchange rates prevailing throughout the year. The
effects of exchange rate fluctuations on translating foreign
currency assets and liabilities into U.S. dollars are
accumulated as part of the foreign currency translation
adjustment in shareholders equity.

Comprehensive Income
(Loss):Comprehensive income (loss)
includes foreign currency translation adjustments and unrealized
gains or losses on the Companys available for sale
securities.

Advertising:The
Company expenses the cost of advertising as it is incurred.
Advertising expense for the years ended March 31, 2002,
2003 and 2004 was $4,451, $3,557 and $4,362.

The Company enters into cooperative advertising
programs with some of its resellers, and when the Company
receives an identifiable benefit in return for consideration,
and the Company can reasonably estimate the fair value of the
benefit received, the cooperative advertising is accounted for
as advertising expense. If the fair value cannot be estimated or
an identifiable benefit is not received, the cooperative
advertising is accounted for as a reduction of revenue.

Net Loss per Common
Share:The Companys basic net
loss per share amounts have been computed by dividing net loss
by the weighted average number of outstanding common shares. The
Companys diluted net loss per share is computed by
dividing net loss by the weighted average number of outstanding
common shares and common share equivalents relating to stock
options and warrants, when dilutive. For the years ended
March 31, 2002, 2003 and 2004, the Company incurred net
losses and therefore, basic and diluted per share amounts are
the same.

Common stock equivalent shares consist of stock
options and warrants (using the treasury stock method), of
1,191, 129 and 1,104 shares for the years ended
March 31, 2002, 2003 and 2004.

Options and warrants to purchase 3,607,
5,327 and 5,868 shares of common stock were outstanding at
March 31, 2002, 2003 and 2004, but were excluded from the
computation of common share equivalents because they were
antidilutive.

Stock-based
Compensation:The Company has stock
option plans for employees and a separate stock option plan for
directors, as described more fully in Note 5. The intrinsic
value method is used to value the stock options issued to
employees and directors. In the years presented, no stock-based
employee compensation cost is reflected in net loss, as all
options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of
grant. Had the fair value method been applied,

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STELLENT, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(In thousands, except per share
data)


the compensation expense would have been
different. The following table illustrates the effect on net
loss and net loss per share if the Company had applied the fair
value method for the following fiscal years:

|                                                                                                                  |  |                       |         |      |  |      |         |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------------- |  | --------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                                  |  |                      
|                                                                                                                  |  | Years Ended March 31,
|                                                                                                                  |  |                      
|                                                                                                                  |  | 2002                  |         | 2003 |  | 2003
|                                                                                                                  |  |                       |         |      |  |     
|Net loss  as reported                                                                                            |  | $                     | (22,298 | )    |  | $    | (32,400 | ) |  | $ | (10,513 | )
|Less: Total stock-based employee compensation
    expense determined under fair value based method for all awards |  |                       | (33,868 | )    |  |      | (9,866  | ) |  |   | (8,316  | )
|                                                                                                                  |  |                       |         |      |  |      |         |   |  |   |         |  
|Net loss  pro forma                                                                                              |  | $                     | (56,166 | )    |  | $    | (42,266 | ) |  | $ | (18,829 | )
|                                                                                                                  |  |                       |         |      |  |      |         |   |  |   |         |  

|                                                              |  |                       |       |      |  |      |       |   |  |   |       |  
|------------------------------------------------------------- |  | --------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                              |  |                      
|                                                              |  | Years Ended March 31,
|                                                              |  |                      
|                                                              |  | 2001                  |       | 2003 |  | 2004
|                                                              |  |                       |       |      |  |     
|Basic and diluted net loss per common
    share  as reported |  | $                     | (1.00 | )    |  | $    | (1.45 | ) |  | $ | (0.48 | )
|                                                              |  |                       |       |      |  |      |       |   |  |   |       |  
|Basic and diluted net loss per common
    share  pro forma   |  | $                     | (2.52 | )    |  | $    | (1.89 | ) |  | $ | (0.85 | )
|                                                              |  |                       |       |      |  |      |       |   |  |   |       |  

Fair Value of Financial
Instruments:The Companys
financial instruments including cash and cash equivalents,
short-term marketable securities, long-term marketable
securities, accounts receivable and accounts payable, and are
carried at cost, which approximates fair value due to the
short-term maturity of these instruments.

Use of Estimates: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.

New Accounting
Pronouncements:In November 2002, the
FASB reached a consensus on EITF Issue No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables. This EITF sets out criteria for
whether revenue can be recognized separately from other
deliverables in a multiple deliverable arrangement. The criteria
considers whether the delivered item has stand-alone value to
the customer, whether the fair value of the delivered item can
be reliably determined and the rights of return for the
delivered item. This EITF is required to be adopted by the
Company beginning April 1, 2004. The adoption of this EITF
is not anticipated to have a material effect on the
Companys consolidated financial statements.



|   |                      
|-- | ---------------------
|2. | Business Combinations

On July 10, 2001, the Company acquired
certain assets of RESoft, a leading provider of end-to-end
content management solutions for the real estate and legal
industries, for 200 shares of Stellent common stock. The
acquisition was valued at approximately $5,600, including
transaction costs, with approximately $4,600 of the purchase
price allocated to goodwill, $500 to other intangible assets and
$500 to property and equipment. Goodwill related to this
acquisition has not been amortized.

On April 3, 2002, the Company acquired
certain assets and assumed certain liabilities of Kinecta Corp.,
a provider of software infrastructure for digital networks. The
acquisition was valued at $2,800 including transaction costs,
with $2,760 of the purchase price allocated to capitalized
software, $224 to property and equipment and $184 to deferred
revenue.

On March 14, 2003, the Company acquired
certain assets of Active IQ, a provider of hosted solution
technology. The acquisition was valued at $686, including
transactions costs, with $619 of the purchase price allocated to
capitalized software and $67 to property and equipment.

59



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STELLENT, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(In thousands, except per share
data)


On August 20, 2003, the Company acquired
certain assets of Ancept, Inc., a provider of software for
digital asset management, for approximately $2,000 in cash and
100 shares of the Companys stock, which were valued
at approximately $800. Approximately $1,914 of the purchase
price was allocated to goodwill, $972 was allocated to
capitalized software and $86 was allocated to liabilities
assumed in the acquisition. The Company is also required to make
contingent consideration payments based upon certain license
revenue sales for two years from the date of acquisition. Future
contingent payments are estimated to be $390 and $410 for the
years ended March 31, 2005 and 2006, respectively.
Additional pro forma disclosures required under SFAS 141,
Business Combinations, related to this acquisition
were not considered material.



|   |                           
|-- | --------------------------
|3. | Related Party Transactions

In December 2001, Stellent entered into a note
receivable of $3,500 with a distributor. Through March 2002, the
distributor paid the minimum payments required under the note
receivable with its own cash, and at the end of March 2002, it
paid off the remaining note receivable with short-term bridge
financing. The distributor completely repaid this short-term
bridge financing in April 2002 through a traditional banking
relationship. The short-term bridge financing was provided at
normal market rates by Beartooth Capital, a venture financing
organization controlled and funded by Robert Olson, a
shareholder and chairman of Stellent. There was no relationship
prior to the bridge financing, and there is no existing
relationship between Beartooth Capital and the distributor.
Furthermore, Stellent provided no compensation or guarantees to
Beartooth Capital or Robert Olson for the short-term bridge
financing, nor was Stellent otherwise involved in this
transaction.

At March 31, 2002, the Company held
investments in and notes with five non-public start-up
technology companies, owning approximately 3% to 12% of these
companies, and in publicly traded technology companies listed on
Nasdaq, primarily Active IQ, in which the Company owned 5.4%,
exclusive of warrants. At March 31, 2003, the Company had
investments in two non-public companies owning approximately 9%
to 13% of these companies. At March 31, 2004, the
Companys investments in these non-public companies was
approximately 8% and 11% of the companies, respectively. A
permanent decline in value had not been recorded in fiscal 2003
or 2004 for these investments. Investments in these companies
were made with the intention of giving the Company opportunities
to have new technologies developed for the Company or to give
the Company leverage into certain vertical markets that the
Company may not otherwise be able to obtain on its own. The
value of these investments at March 31, 2003 and 2004 was
approximately $1,100. At March 31, 2002, the market value
of the Companys equity in Active IQ was approximately $127
more than the investment value of $1,158. This difference was
reported as accumulated other comprehensive income
(loss) in the shareholders equity section on the
consolidated balance sheet for the year ended March 31,
2002. Upon the Companys acquisition of certain assets of
Active IQ (see note 2) in March 2003, the Company
recorded an impairment of approximately $1,100 related to its
investment in Active IQ. For substantially all of the year ended
March 31, 2003, the Companys investment in Active IQ
was less than 5%. In fiscal 2004, the Company sold this
investment and recorded a gain of approximately $388.

During the year ended March 31, 2002, the
Company recognized license revenue of approximately $2,000 from
companies in which the Company had an equity investment, with
approximately $1,400 coming from Active IQ in December 2001. At
March 31, 2002, the Company had an account receivable
balance of $125 associated from these transactions.

Certain officers and directors of the Company
also held investment interests in Active IQ during the year
ended March 31, 2002, approximating 2%. These investments
were sold at no gain during the year ended March 31, 2002.

In December 2001 and March 2003, the Company
entered into sales transactions with a company affiliated with a
member of the Companys Board of Directors. Revenue of $273
and $393 from these sales

60



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##### Table of Contents



STELLENT, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(In thousands, except per share
data)


transactions were recorded. At March 31,
2003, the Company had an account receivable balance of $340
related to these transactions. At March 31, 2004, the
Company had no account receivable balance associated with these
transactions.

During the year ended March 31, 2004, the
Company entered into several transactions with companies
affiliated with members of the Companys Board of
Directors. Revenue of $223 from these sales transactions was
recorded during the year ended March 31, 2004. At
March 31, 2004, the Company had an account receivable
balance of approximately $54 associated with these transactions.

The terms and conditions, including fees, with
respect to the transactions were substantially similar to those
with unaffiliated third parties negotiated at arms length.

In March 2004, the Company entered into a
non-exclusive reseller agreement with Optika, Inc., a company
with which it had announced a definitive merger agreement in
January 2004 (see Note 11). The agreement provided for the
sale of Optika products by the Company. In the year ended
March 31, 2004, the Company recognized approximately $172
of revenue under the agreement.



|   |                       
|-- | ----------------------
|4. | Property and Equipment

Property and equipment consists of the following:

|                              |  |           |        |      |  |   |        | 
|----------------------------- |  | --------- | ------ | ---- |  | - | ------ | 
|                              |  |          
|                              |  | March 31,
|                              |  |          
|                              |  | 2003      |        | 2004
|                              |  |           |        |     
|Equipment and furniture       |  | $         | 10,008 |      |  | $ | 12,143 | 
|Leasehold improvements        |  |           | 1,562  |      |  |   | 1,690  | 
|                              |  |           |        |      |  |   |        | 
|                              |  |           | 11,570 |      |  |   | 13,833 | 
|Less accumulated depreciation |  |           | 6,740  |      |  |   | 9,362  | 
|                              |  |           |        |      |  |   |        | 
|                              |  | $         | 4,830  |      |  | $ | 4,471  | 
|                              |  |           |        |      |  |   |        | 



|   |                     
|-- | --------------------
|5. | Shareholders Equity

Warrants:The
Company has 225 stock purchase warrants with exercise prices of
$35.89 to $45.93 outstanding at March 31, 2004. The
warrants expire on various dates through September 2005.

Stock Repurchase:In
April 2000, the board of directors authorized the repurchase of
up to $10,000 of the Companys common stock at a price not
exceeding $20 per share. In September 2001, the board of
directors authorized the repurchase of up to $20,000 of the
Companys common stock at a price not exceeding
$15 per share. During fiscal 2002, 2003 and 2004, the
Company reacquired 261, 757 and 63 shares of common stock
at a cost of $3,592, $3,465 and $309, respectively, which was
equal to the fair value of the shares on the date acquired.

Shareholder Rights
Plan:On May 29, 2002, the Board
of Directors of the Company approved a shareholder rights plan
which provides for fair and equal treatment of all shareholders
in the event an unsolicited attempt is made to acquire the
Company. Under the plan, the Company declared a dividend of one
preferred share purchase right for each outstanding share of
common stock of the Company, payable to shareholders of record
on June 13, 2002. Each right entitles the holder to
purchase from the Company one-hundredth of a Series A
junior participating preferred share of the Company at an
exercise price of $75. The rights will separate from the common
shares and a distribution for the rights will occur, subject to
certain criteria, in the event an investor group acquires 15% or
more of the Companys common stock. The rights are not
exercisable until the distribution date and expire on
June 13, 2012.

61



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##### Table of Contents



STELLENT, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(In thousands, except per share
data)


Stock Options:The
Company maintains the 1994-1997 Stock Option Plan, the
1997 Director Stock Option Plan, the 1999 Employee Stock
Option and Compensation Plan, the 2000 Employee Stock Incentive
Plan and the 2000 Stock Incentive Plan (collectively, the
Plan), pursuant to which options and other awards to
acquire an aggregate of 3,100, 500, 1,000, 2,300 and
3,100 shares, respectively, of the Companys common
stock may be granted. The Company integrated all previously
granted options into the Plan. The Plan is administered by the
Board of Directors, which has the discretion to determine the
number and purchase price of shares subject to stock options
(which may be below the fair market value of the common stock on
the date thereof), the term of each option, and the terms of
exercisability. The options generally vest over periods of one
to five years.

A summary of the Companys stock option
activity, and related information through March 31, 2004 is
as follows:

|                                 |           |        |       |                |    |   |       |       | 
|-------------------------------- | --------- | ------ | ----- | -------------- | -- | - | ----- | ----- | 
|                                 |           |        |       | Weighted-     
|                                 |           |        |       | Average       
|                                 |           | Shares |       | Exercise Price
|                                 |           |        |       |               
|Outstanding as of April 1, 2001  |           |        | 5,022 |                |    | $ | 27.25 |      
|                                 | Granted   |        |       | 2,215          |    |   |       | 18.26 | 
|                                 | Exercised |        |       | (326           | )  |   |       | 10.43 | 
|                                 | Forfeited |        |       | (500           | )  |   |       | 25.24 | 
|                                 |           |        |       |                |    |   |       |      
|Outstanding as of March 31, 2002 |           |        | 6,411 |                |    |   | 25.12 |      
|                                 | Granted   |        |       | 2,469          |    |   |       | 5.52  | 
|                                 | Exercised |        |       | (27            | )  |   |       | 3.71  | 
|                                 | Forfeited |        |       | (4,168         | )* |   |       | 28.25 | 
|                                 |           |        |       |                |    |   |       |      
|Outstanding as of March 31, 2003 |           |        | 4,685 |                |    |   | 12.13 |      
|                                 | Granted   |        |       | 1,838          |    |   |       | 6.47  | 
|                                 | Exercised |        |       | (274           | )  |   |       | 4.90  | 
|                                 | Forfeited |        |       | (605           | )  |   |       | 17.49 | 
|                                 |           |        |       |                |    |   |       |      
|Outstanding as of March 31, 2004 |           |        | 5,644 |                |    | $ | 10.06 |      
|                                 |           |        |       |                |    |   |       |      



---



|  |                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------
|* | Includes 2,196 stock options forfeited in
    connection with a stock option exchange program (see below).

|                                                                   |  |           |       |      |  |      |       |  |  |   |       | 
|------------------------------------------------------------------ |  | --------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                                                   |  |          
|                                                                   |  | March 31,
|                                                                   |  |          
|                                                                   |  | 2002      |       | 2003 |  | 2004
|                                                                   |  |           |       |      |  |     
|Options exercisable at end of year                                 |  |           | 1,898 |      |  |      | 1,579 |  |  |   | 2,703 | 
|                                                                   |  |           |       |      |  |      |       |  |  |   |       | 
|Weighted-average fair value of options granted
    during the year |  | $         | 13.43 |      |  | $    | 5.52  |  |  | $ | 4.41  | 
|                                                                   |  |           |       |      |  |      |       |  |  |   |       | 

62



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##### Table of Contents



STELLENT, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(In thousands, except per share
data)


The following table summarizes information about
the stock options outstanding at March 31, 2004:

|               |                 |             |  |                     |       |                     |  |             |     |                  |  |   |       |  |  |  |       |  |  |   |       | 
|-------------- | --------------- | ----------- |  | ------------------- | ----- | ------------------- |  | ----------- | --- | ---------------- |  | - | ----- |  |  |  | ----- |  |  | - | ----- | 
|               |                 |             |  |                     |       |                     |  |            
|               |                 |             |  | Options Outstanding |       |                    
|               |                 |             |  |                     |       | Options Exercisable
|               |                 |             |  | Weighted-Average    |       |                     |  |            
|Range of       |                 | Number      |  | Remaining           |       | Weighted-Average    |  | Number      |     | Weighted-Average
|Exercise Price |                 | Outstanding |  | Contractual Life    |       | Exercise Price      |  | Exercisable |     | Exercise Price  
|               |                 |             |  |                     |       |                     |  |             |     |                 
|               | $0.20 -  $0.99  |             |  |                     | 6     |                     |  |             | 0.9 |                  |  | $ | 0.36  |  |  |  | 6     |  |  | $ | 0.36  | 
|               | $1.00 -  $2.99  |             |  |                     | 1     |                     |  |             | 5.5 |                  |  |   | 1.61  |  |  |  | 1     |  |  |   | 1.61  | 
|               | $3.00 -  $3.99  |             |  |                     | 347   |                     |  |             | 5.2 |                  |  |   | 3.44  |  |  |  | 278   |  |  |   | 3.37  | 
|               | $4.00 -  $5.99  |             |  |                     | 1,520 |                     |  |             | 8.6 |                  |  |   | 4.84  |  |  |  | 653   |  |  |   | 5.07  | 
|               | $6.00 -  $7.99  |             |  |                     | 1,990 |                     |  |             | 8.1 |                  |  |   | 6.63  |  |  |  | 630   |  |  |   | 6.69  | 
|               | $8.00 -  $9.99  |             |  |                     | 429   |                     |  |             | 8.2 |                  |  |   | 8.69  |  |  |  | 112   |  |  |   | 8.67  | 
|               | $10.00 - $14.99 |             |  |                     | 410   |                     |  |             | 7.5 |                  |  |   | 13.48 |  |  |  | 359   |  |  |   | 13.56 | 
|               | $15.00 - $19.99 |             |  |                     | 344   |                     |  |             | 6.7 |                  |  |   | 17.34 |  |  |  | 218   |  |  |   | 17.32 | 
|               | $20.00 - $29.99 |             |  |                     | 149   |                     |  |             | 7.0 |                  |  |   | 22.93 |  |  |  | 87    |  |  |   | 23.53 | 
|               | $30.00 - $39.99 |             |  |                     | 404   |                     |  |             | 6.6 |                  |  |   | 36.01 |  |  |  | 327   |  |  |   | 36.06 | 
|               | $40.00 - $49.99 |             |  |                     | 44    |                     |  |             | 6.6 |                  |  |   | 41.93 |  |  |  | 32    |  |  |   | 41.93 | 
|               |                 |             |  |                     |       |                     |  |             |     |                  |  |   |       |  |  |  |       |  |  |   |       | 
|               |                 |             |  |                     | 5,644 |                     |  |             | 7.8 |                  |  | $ | 10.06 |  |  |  | 2,703 |  |  | $ | 12.30 | 
|               |                 |             |  |                     |       |                     |  |             |     |                  |  |   |       |  |  |  |       |  |  |   |       | 

Pro forma information regarding the fair value of
stock options is determined at the date of grant using the
Black-Scholes option-pricing model with the following
weighted-average assumptions:

|                                                                  |  |                       |      |      |  |      |      |   |  |  |           | 
|----------------------------------------------------------------- |  | --------------------- | ---- | ---- |  | ---- | ---- | - |  |  | --------- | 
|                                                                  |  |                      
|                                                                  |  | Years Ended March 31,
|                                                                  |  |                      
|                                                                  |  | 2002                  |      | 2003 |  | 2004
|                                                                  |  |                       |      |      |  |     
|Risk free interest yields                                         |  |                       | 5.2  | %    |  |      | 4.8  | % |  |  | 2% - 5.5% | 
|Dividend yield                                                    |  |                       |     |      |  |      |     |   |  |  |          | 
|Volatility factor of expected market price of
    companys stock |  |                       | 105  | %    |  |      | 95   | % |  |  | 95%       | 
|Weighted average expected life of options (years)                 |  |                       | 4.00 |      |  |      | 3.25 |   |  |  | 3.25      | 

Stock Option Exchange
Program:In December 2002, the Company
conducted a voluntary stock option exchange program for its
employees. Under the program, options to
purchase 2,196 shares of common stock were exchanged
by employees for promises to grant options to
purchase 700 shares of common stock at a future date
at the future market value of the stock on that date. In July
2003, the Company granted the exchange options to its employees
who elected to participate in the plan. There was no variable
compensation charge to the Company as a result of this stock
option exchange program.

The Company maintains pre-tax salary
reduction/profit sharing plans under the provisions of
Section 401(k) of the Internal Revenue Code. The plans
cover substantially all full-time employees who have reached the
age of 21. Total Company contributions to the plans for the
years ended March 31, 2002, 2003 and 2004 were $1,086, $631
and $405.



|   |                       
|-- | ----------------------
|6. | Employee Benefit Plans

The Company has an employee stock purchase plan
(the Plan), which allows eligible employees to purchase stock of
the Company at 85% of its fair market value through elected
payroll deductions equal up to 10% of their compensation. During
fiscal 2002, 2003 and 2004, 46, 187 and 172 shares of
common stock had been purchased under the Plan.

63



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##### Table of Contents



STELLENT, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(In thousands, except per share
data)




|   |             
|-- | ------------
|7. | Income Taxes

Due to net operating loss carryforwards through
March 2004, the Company has recorded no current income tax
provision. The tax effects of temporary differences giving rise
to deferred income taxes consisted of the following:

|                          |                                              |                        |         |        |   |  |         |        |   | 
|------------------------- | -------------------------------------------- | ---------------------- | ------- | ------ | - |  | ------- | ------ | - | 
|                          |                                              |                       
|                          |                                              | March 31,             
|                          |                                              |                       
|                          |                                              | 2003                   |         | 2004  
|                          |                                              |                        |         |       
|Deferred tax liabilities: |                                              |                        |         |        |   |  |         |       
|                          | Depreciation                                 |                        | $       | (87    | ) |  | $       | (192   | )
|                          | Other                                        |                        |         | (307   | ) |  |         | (135   | )
|Deferred tax assets:      |                                              |                        |         |        |   |  |         |       
|                          | Deferred revenue                             |                        |         | 3,104  |   |  |         | 3,534  |  
|                          | Accounts receivable and other reserves       |                        |         | 731    |   |  |         | 569    |  
|                          | Net operating loss carryforwards             |                        |         | 31,797 |   |  |         | 36,209 |  
|                          | Amortization of intangibles                  |                        |         | 11,082 |   |  |         | 10,886 |  
|                          | Foreign tax credits                          |                        |         | 309    |   |  |         | 379    |  
|                          | Prepaid license agreement                    |                        |         | 171    |   |  |         |       |  
|                          | Permanent investment write-down              |                        |         | 2,139  |   |  |         | 1,667  |  
|                          | Research and development credit carryforward |                        |         | 3,159  |   |  |         | 3,167  |  
|                          |                                              |                        |         |        |   |  |         |       
|                          |                                              |                        | 52,098  |        |   |  | 56,084  |       
|Valuation allowance       |                                              |                        | (52,098 | )      |   |  | (56,084 | )     
|                          |                                              |                        |         |        |   |  |         |       
|                          |                                              | Net deferred tax asset |         | $      |  |  |         | $      |  | 
|                          |                                              |                        |         |        |   |  |         |       

Deferred tax liabilities and deferred tax assets
reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
The valuation allowance has been established due to the
uncertainty of future taxable income, which is necessary to
realize the benefits of the deferred tax assets. The Company had
net operating loss (NOL) carryforwards of approximately $81,100
in the United States and foreign NOLs of approximately 15,800 at
March 31, 2004, which begin to expire in 2011. These NOLs
are subject to annual utilization limitations due to prior
ownership changes.

Realization of the NOL carryforwards and other
deferred tax temporary differences are contingent on future
taxable earnings. The deferred tax asset was reviewed for
expected utilization using a more likely than not
approach by assessing the available positive and negative
evidence surrounding its recoverability. Accordingly, a full
valuation allowance has been recorded against the Companys
deferred tax asset. At March 31, 2004, approximately
$58,700 of the NOL carryforwards relates to benefits from stock
option exercises, the tax benefit of which, will be recorded as
additional paid-in capital when reversed.

64



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##### Table of Contents



STELLENT, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(In thousands, except per share
data)


The components of income tax expense (benefit)
consist of the following:

|                      |          |                                    |  |      |   |      |  |   |   |  |  |   |   | 
|--------------------- | -------- | ---------------------------------- |  | ---- | - | ---- |  | - | - |  |  | - | - | 
|                      |          |                                   
|                      |          | Year Ended                        
|                      |          | March 31,                         
|                      |          |                                   
|                      |          | 2002                               |  | 2003 |   | 2004
|                      |          |                                    |  |      |   |     
|Income tax provision: |          |                                    |  |      |   |      |  |   |   |  |  |  
|                      | Current: |                                    |  |      |   |      |  |   |   |  |  |   |  
|                      |          | U.S. and state                     |  | $    |  |      |  | $ |  |  |  | $ |  | 
|                      |          | Foreign                            |  |      |  |      |  |   |  |  |  |   |  | 
|                      |          |                                    |  |      |   |      |  |   |   |  |  |  
|                      |          | Total income tax expense (benefit) |  | $    |  |      |  | $ |  |  |  | $ |  | 
|                      |          |                                    |  |      |   |      |  |   |   |  |  |  

The Company will continue to assess and evaluate
strategies that will enable the deferred tax asset, or portion
there of, to be utilized, and will reduce the valuation
allowance appropriately at such time when it is determined that
the more likely than not criteria is satisfied.

The Companys provision for income taxes
differs from the expected tax benefit amount computed by
applying the statutory federal income tax rate of 34.0% to loss
before taxes as a result of the following:

|                                 |  |                      |       |      |  |      |       |    |  |  |       |   
|-------------------------------- |  | -------------------- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                 |  |                     
|                                 |  | Year Ended March 31,
|                                 |  |                     
|                                 |  | 2002                 |       | 2003 |  | 2004
|                                 |  |                      |       |      |  |     
|Federal statutory rate           |  |                      | (34.0 | )%   |  |      | (34.0 | )% |  |  | (34.0 | )%
|Research and development credits |  |                      | (8.7  | )    |  |      | (3.8  | )  |  |  | (0.1  | ) 
|Change in valuation allowance    |  |                      | 43.8  |      |  |      | 38.8  |    |  |  | 37.6  |   
|Other                            |  |                      | (1.1  | )    |  |      | (1.0  | )  |  |  | (3.5  | ) 
|                                 |  |                      |       |      |  |      |       |    |  |  |       |   
|                                 |  |                      |      | %    |  |      |      | %  |  |  |      | % 
|                                 |  |                      |       |      |  |      |       |    |  |  |       |   



|   |                              
|-- | -----------------------------
|8. | Commitments and Contingencies

Operating Leases:The Company has entered into certain non-cancelable operating
lease agreements related to office/warehouse space, equipment
and vehicles. Total rent expense under operating leases net of
sublease income, was $5,104, $5,814 and 5,265 for the years
ended March 31, 2002, 2003 and 2004.

Minimum remaining rental commitments under
operating leases net of sublease arrangements are as follows as
of March 31, 2004:

|                             |            |   |        |       | 
|---------------------------- | ---------- | - | ------ | ----- | 
|For the year ended March 31, |            |   |        |      
|                             | 2005       |   | $      | 3,143 | 
|                             | 2006       |   |        | 1,934 | 
|                             | 2007       |   |        | 1,016 | 
|                             | 2008       |   |        | 434   | 
|                             | 2009       |   |        | 434   | 
|                             | Thereafter |   |        | 3,040 | 
|                             |            |   |        |      
|                             |            | $ | 10,001 |      
|                             |            |   |        |      

Software Royalties:The Company has entered into several software royalty agreements
whereby it is required to pay a royalty amount based upon
predetermined payment schedules. At March 31, 2003 and
2004, the Company recorded advanced royalties as prepaid expense
of $4,269 and $3,333 respectively. Royalties are

65



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##### Table of Contents



STELLENT, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(In thousands, except per share
data)


recognized as expense based on sales. During the
years ended March 31, 2002, 2003 and 2004 royalty expense
totaled $3,490, $4,365 and $3,103.

Legal Proceedings:On July 31, 2003 putative class action lawsuits were
commenced by shareholders of the Company alleging that certain
current and former Stellent officers and directors violated
Section 10(b) and Section 20(a) of federal securities
laws. A formal complaint was filed against the Company in
January 2004. Management believes they will be successful in any
action brought against them and these proceedings will not have
a material adverse effect on the consolidated financial
statements.

Additionally, the Company is subject to other
legal proceedings in the normal course of business. Management
believes these proceedings will not have a material adverse
effect on the consolidated financial statements.



|   |                      
|-- | ---------------------
|9. | Restructuring Charges

During the year ended March 31, 2003, in
connection with managements plans to reduce costs and
improve operating efficiencies, the Company recorded
restructuring charges of $4,368. The Company initiated four
plans during fiscal 2003 in an effort to better align its
expenses and revenues in light of the continued economic
slowdown. The Company adopted SFAS 146, Accounting
for Costs Associated with Exit or Disposal Activities,
effective January 1, 2003 and has accounted for
restructuring charges initiated after December 31, 2002
under its provisions.

These cost saving efforts resulted in the
termination of 112 employees throughout all functional areas and
geographies. The Company recorded charges of $3,221 associated
with involuntary terminations, which included severance payments
and benefits. The workforce reductions associated with these
plan were substantially completed as of March 31, 2003.

The cost saving efforts included an evaluation of
the Companys current facilities requirements and
identified facilities that were in excess of current and
estimated future needs. As a result of this analysis, the
Company recorded $1,147 in exit costs in relation to four
vacated facilities in Germany, Arizona, California, and
Massachusetts. The closing of these facilities were
substantially completed as of March 31, 2003.

As part of the Companys fourth
restructuring plan, which occurred during March 2003, the
Company recorded approximately $400 during the first quarter of
fiscal 2004 related to employee termination costs for five
employees who were identified to be terminated as part of the
plan, but had not been communicated their termination until
after March 31, 2003. This plan also included the closing
of an office facility as part of its acquisition of
Active IQ (see note 2). The Company closed the
facility during the first quarter of fiscal 2004 and
approximately $50 was recorded for facility closing costs and
future lease payments. During the first quarter of fiscal 2004,
the Company recorded an additional $350 of facility closing
costs related to a change in the estimated costs of closing a
research and development facility in Massachusetts , which was
closed in the quarter ended September 30, 2002.

66



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##### Table of Contents



STELLENT, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(In thousands, except per share
data)


Selected information regarding the restructuring
charges and related accrued liabilities by restructuring plan is
as follows:

|                              |                    |                       |     |                    |   |                   |    |                    |   |                   |     |       |   |             |     |       |   |             |    |       |   |       |    |      |   |   |     |     |   |   |    |     |   |   |     |      |   |   |    |     |   |   |       |        |  
|----------------------------- | ------------------ | --------------------- | --- | ------------------ | - | ----------------- | -- | ------------------ | - | ----------------- | --- | ----- | - | ----------- | --- | ----- | - | ----------- | -- | ----- | - | ----- | -- | ---- | - | - | --- | --- | - | - | -- | --- | - | - | --- | ---- | - | - | -- | --- | - | - | ----- | ------ | -
|                              |                    |                       |     |                   
|                              |                    | Restructuring Charges |     |                   
|                              |                    |                       |     |                   
|                              |                    |                       |     |                    |   |                   |    |                    |   |                   |     |      
|                              |                    | First Quarter 03     |     | Second Quarter 03 |   | Third Quarter 03 |    | Fourth Quarter 03 |   | First Quarter 04 |     |      
|                              |                    |                       |     |                    |   |                   |    |                    |   |                   |     |      
|                              |                    | Employee              |     | Other              |   | Employee          |    | Other              |   | Employee          |     | Other |   | Employee    |     | Other |   | Employee    |    | Other |   |      
|                              |                    | Termination           |     | Exit               |   | Termination       |    | Exit               |   | Termination       |     | Exit  |   | Termination |     | Exit  |   | Termination |    | Exit  |   |      
|                              |                    | Benefits              |     | Costs              |   | Benefits          |    | Costs              |   | Benefits          |     | Costs |   | Benefits    |     | Costs |   | Benefits    |    | Costs |   | Total
|                              |                    |                       |     |                    |   |                   |    |                    |   |                   |     |       |   |             |     |       |   |             |    |       |   |      
|Balance at April 1, 2002      |                    | $                     |    |                    |   | $                 |   |                    |   | $                 |    |       |   | $           |    |       |   | $           |   |       |   | $     |   |      |   | $ |    |     |   | $ |   |     |   | $ |    |      |   | $ |   |     |   | $ |      |       
|                              | Expense            |                       |     | 2,100              |   |                   |    | 404                |   |                   |     |      |   |             |     |      |   |             |    |      |   |       |    |     |   |   |     |    |   |   |    |    |   |   |     |     |   |   |    |    |   |   |       | 2,504  |  
|                              | Payments           |                       |     | (1,488             | ) |                   |    | (316               | ) |                   |     |      |   |             |     |      |   |             |    |      |   |       |    |     |   |   |     |    |   |   |    |    |   |   |     |     |   |   |    |    |   |   |       | (1,804 | )
|                              |                    |                       |     |                    |   |                   |    |                    |   |                   |     |       |   |             |     |       |   |             |    |       |   |       |    |      |   |   |     |     |   |   |    |     |   |   |     |      |   |   |    |     |   |   |       |       
|Balance at June 30, 2002      |                    |                       | 612 |                    |   |                   | 88 |                    |   |                   |    |       |   |             |    |       |   |             |   |       |   |       |   |      |   |   |    |     |   |   |   |     |   |   |    |      |   |   |   |     |   |   | 700   |       
|                              | Expense            |                       |     |                   |   |                   |    |                   |   |                   |     | 434   |   |             |     | 405   |   |             |    |      |   |       |    |     |   |   |     |    |   |   |    |    |   |   |     |     |   |   |    |    |   |   |       | 839    |  
|                              | Payments           |                       |     | (612               | ) |                   |    | (88                | ) |                   |     | (230  | ) |             |     | (40   | ) |             |    |      |   |       |    |     |   |   |     |    |   |   |    |    |   |   |     |     |   |   |    |    |   |   |       | (970   | )
|                              |                    |                       |     |                    |   |                   |    |                    |   |                   |     |       |   |             |     |       |   |             |    |       |   |       |    |      |   |   |     |     |   |   |    |     |   |   |     |      |   |   |    |     |   |   |       |       
|Balance at September 30, 2002 |                    |                       |    |                    |   |                   |   |                    |   |                   | 204 |       |   |             | 365 |       |   |             |   |       |   |       |   |      |   |   |    |     |   |   |   |     |   |   |    |      |   |   |   |     |   |   | 569   |       
|                              | Expense            |                       |     |                   |   |                   |    |                   |   |                   |     |      |   |             |     |      |   |             |    | 382   |   |       |    | 292  |   |   |     |    |   |   |    |    |   |   |     |     |   |   |    |    |   |   |       | 674    |  
|                              | Payments           |                       |     |                   |   |                   |    |                   |   |                   |     | (36   | ) |             |     | (24   | ) |             |    | (312  | ) |       |    | (256 | ) |   |     |    |   |   |    |    |   |   |     |     |   |   |    |    |   |   |       | (628   | )
|                              |                    |                       |     |                    |   |                   |    |                    |   |                   |     |       |   |             |     |       |   |             |    |       |   |       |    |      |   |   |     |     |   |   |    |     |   |   |     |      |   |   |    |     |   |   |       |       
|Balance at December 31, 2002  |                    |                       |    |                    |   |                   |   |                    |   |                   | 168 |       |   |             | 341 |       |   |             | 70 |       |   |       | 36 |      |   |   |    |     |   |   |   |     |   |   |    |      |   |   |   |     |   |   | 615   |       
|                              | Expense            |                       |     |                   |   |                   |    |                   |   |                   |     |      |   |             |     |      |   |             |    |      |   |       |    |     |   |   |     | 305 |   |   |    | 46  |   |   |     |     |   |   |    |    |   |   |       | 351    |  
|                              | Payments           |                       |     |                   |   |                   |    |                   |   |                   |     | (114  | ) |             |     | (37   | ) |             |    | (37   | ) |       |    | (36  | ) |   |     | (65 | ) |   |    | (3  | ) |   |     |     |   |   |    |    |   |   |       | (292   | )
|                              |                    |                       |     |                    |   |                   |    |                    |   |                   |     |       |   |             |     |       |   |             |    |       |   |       |    |      |   |   |     |     |   |   |    |     |   |   |     |      |   |   |    |     |   |   |       |       
|Balance at March 31, 2003     |                    |                       |    |                    |   |                   |   |                    |   |                   | 54  |       |   |             | 304 |       |   |             | 33 |       |   |       |   |      |   |   | 240 |     |   |   | 43 |     |   |   |    |      |   |   |   |     |   |   | 674   |       
|                              | Expense            |                       |     |                   |   |                   |    |                   |   |                   |     |      |   |             |     |      |   |             |    |      |   |       |    |     |   |   |     |    |   |   |    |    |   |   |     | 396  |   |   |    | 56  |   |   |       | 452    |  
|                              | Payments           |                       |     |                   |   |                   |    |                   |   |                   |     | (36   | ) |             |     | (65   | ) |             |    | (33   | ) |       |    |     |   |   |     | (60 | ) |   |    | (11 | ) |   |     | (245 | ) |   |    |    |   |   |       | (450   | )
|                              | Change in estimate |                       |     |                   |   |                   |    |                   |   |                   |     |      |   |             |     | 360   |   |             |    |      |   |       |    |     |   |   |     |    |   |   |    |    |   |   |     |     |   |   |    |    |   |   |       | 360    |  
|                              |                    |                       |     |                    |   |                   |    |                    |   |                   |     |       |   |             |     |       |   |             |    |       |   |       |    |      |   |   |     |     |   |   |    |     |   |   |     |      |   |   |    |     |   |   |       |       
|Balance at June 30, 2003      |                    |                       |    |                    |   |                   |   |                    |   |                   | 18  |       |   |             | 599 |       |   |             |   |       |   |       |   |      |   |   | 180 |     |   |   | 32 |     |   |   | 151 |      |   |   | 56 |     |   |   | 1,036 |       
|                              | Expense            |                       |     |                   |   |                   |    |                   |   |                   |     |      |   |             |     |      |   |             |    |      |   |       |    |     |   |   |     |    |   |   |    |    |   |   |     |     |   |   |    |    |   |   |       | 0      |  
|                              | Payments           |                       |     |                   |   |                   |    |                   |   |                   |     | (18   | ) |             |     | (43   | ) |             |    |      |   |       |    |     |   |   |     | (60 | ) |   |    |    |   |   |     | (38  | ) |   |    | (56 | ) |   |       | (215   | )
|                              |                    |                       |     |                    |   |                   |    |                    |   |                   |     |       |   |             |     |       |   |             |    |       |   |       |    |      |   |   |     |     |   |   |    |     |   |   |     |      |   |   |    |     |   |   |       |       
|Balance at September 30, 2003 |                    |                       |    |                    |   |                   |   |                    |   |                   |    |       |   |             | 556 |       |   |             |   |       |   |       |   |      |   |   | 120 |     |   |   | 32 |     |   |   | 113 |      |   |   |   |     |   |   | 821   |       
|                              | Expense            |                       |     |                   |   |                   |    |                   |   |                   |     |      |   |             |     |      |   |             |    |      |   |       |    |     |   |   |     |    |   |   |    |    |   |   |     |     |   |   |    |    |   |   |       |       |  
|                              | Payments           |                       |     |                   |   |                   |    |                   |   |                   |     |      |   |             |     | (43   | ) |             |    |      |   |       |    |     |   |   |     | (60 | ) |   |    |    |   |   |     | (38  | ) |   |    |    |   |   |       | (141   | )
|                              |                    |                       |     |                    |   |                   |    |                    |   |                   |     |       |   |             |     |       |   |             |    |       |   |       |    |      |   |   |     |     |   |   |    |     |   |   |     |      |   |   |    |     |   |   |       |       
|Balance at December 31, 2003  |                    |                       |    |                    |   |                   |   |                    |   |                   |    |       |   |             | 513 |       |   |             |   |       |   |       |   |      |   |   | 60  |     |   |   | 32 |     |   |   | 75  |      |   |   |   |     |   |   | 680   |       
|                              | Expense            |                       |     |                   |   |                   |    |                   |   |                   |     |      |   |             |     |      |   |             |    |      |   |       |    |     |   |   |     |    |   |   |    |    |   |   |     |     |   |   |    |    |   |   |       |       |  
|                              | Payments           |                       |     |                   |   |                   |    |                   |   |                   |     |      |   |             |     | (49   | ) |             |    |      |   |       |    |     |   |   |     | (60 | ) |   |    | (32 | ) |   |     |     |   |   |    |    |   |   |       | (141   | )
|                              | Change in estimate |                       |     |                   |   |                   |    |                   |   |                   |     |      |   |             |     |      |   |             |    |      |   |       |    |     |   |   |     |    |   |   |    |    |   |   |     | (69  | ) |   |    |    |   |   |       | (69    | )
|                              |                    |                       |     |                    |   |                   |    |                    |   |                   |     |       |   |             |     |       |   |             |    |       |   |       |    |      |   |   |     |     |   |   |    |     |   |   |     |      |   |   |    |     |   |   |       |       
|Balance at March 31, 2004     |                    | $                     |    |                    |   | $                 |   |                    |   | $                 |    |       |   | $           | 464 |       |   | $           |   |       |   | $     |   |      |   | $ |    |     |   | $ |   |     |   | $ | 6   |      |   | $ |   |     |   | $ | 470   |       
|                              |                    |                       |     |                    |   |                   |    |                    |   |                   |     |       |   |             |     |       |   |             |    |       |   |       |    |      |   |   |     |     |   |   |    |     |   |   |     |      |   |   |    |     |   |   |       |       

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##### Table of Contents



STELLENT, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(In thousands, except per share
data)




|    |                                                         
|--- | --------------------------------------------------------
|10. | Segments of Business and Geographic Area
    Information

The Company operates in two operating segments
which meet the aggregation criteria for a single reporting
segment. A summary of the Companys operations by
geographic area follows:

|                     |               |                      |   |        |        |      |  |      |       |      |   |        |        |  |  |      |       |  |   |        |        |  |  |      |       | 
|-------------------- | ------------- | -------------------- | - | ------ | ------ | ---- |  | ---- | ----- | ---- | - | ------ | ------ |  |  | ---- | ----- |  | - | ------ | ------ |  |  | ---- | ----- | 
|                     |               |                     
|                     |               | Year Ended March 31,
|                     |               |                     
|                     |               | 2002                 |   | %      |        | 2003 |  | %    |       | 2004 |   | %     
|                     |               |                      |   |        |        |      |  |      |       |      |   |       
|Revenues:            |               |                      |   |        |        |      |  |      |       |      |   |        |        |  |  |      |       |  |   |        |        |  |  |     
|                     | United States |                      | $ | 68,407 |        |      |  | 77.4 |       |      | $ | 50,676 |        |  |  | 77.4 |       |  | $ | 54,538 |        |  |  | 72.0 |      
|                     | Europe        |                      |   | 9,872  |        |      |  | 11.2 |       |      |   | 10,964 |        |  |  | 16.8 |       |  |   | 14,649 |        |  |  | 19.3 |      
|                     | Canada        |                      |   | 5,614  |        |      |  | 6.4  |       |      |   | 1,965  |        |  |  | 3.0  |       |  |   | 4,329  |        |  |  | 5.7  |      
|                     | Other         |                      |   | 4,447  |        |      |  | 5.0  |       |      |   | 1,829  |        |  |  | 2.8  |       |  |   | 2,258  |        |  |  | 3.0  |      
|                     |               |                      |   |        |        |      |  |      |       |      |   |        |        |  |  |      |       |  |   |        |        |  |  |     
|                     |               | Total revenues       |   | $      | 88,340 |      |  |      | 100.0 |      |   | $      | 65,434 |  |  |      | 100.0 |  |   | $      | 75,774 |  |  |      | 100.0 | 
|                     |               |                      |   |        |        |      |  |      |       |      |   |        |        |  |  |      |       |  |   |        |        |  |  |     
|Identifiable assets: |               |                      |   |        |        |      |  |      |       |      |   |        |        |  |  |      |       |  |   |        |        |  |  |     
|                     | United States |                      | $ | 5,105  |        |      |  |      |       |      | $ | 3,864  |        |  |  |      |       |  | $ | 3,541  |        |  |  |      |      
|                     | Europe        |                      |   | 933    |        |      |  |      |       |      |   | 952    |        |  |  |      |       |  |   | 894    |        |  |  |      |      
|                     | Other         |                      |   | 16     |        |      |  |      |       |      |   | 14     |        |  |  |      |       |  |   | 36     |        |  |  |      |      
|                     |               |                      |   |        |        |      |  |      |       |      |   |        |        |  |  |      |       |  |   |        |        |  |  |     
|                     |               | Total                |   | $      | 6,054  |      |  |      |       |      |   | $      | 4,830  |  |  |      |       |  |   | $      | 4,471  |  |  |      |       | 
|                     |               |                      |   |        |        |      |  |      |       |      |   |        |        |  |  |      |       |  |   |        |        |  |  |     

Sales are attributed to countries or region based
on the location of the customer.



|    |                  
|--- | -----------------
|11. | Subsequent Events



|   |                   
|-- | ------------------
|1. | Mexico Acquisition

On May 13, 2004, the Company acquired the
outstanding shares of P&A Consultores for approximately
$750, creating a business presence in Mexico. The Company is
required to make contingent consideration payments (earn
out) based upon revenue of the acquired company for two
years from the date of acquisition. Earn out amounts cannot
exceed $300 in the first year and $450 in the second year after
the acquisition.



|   |                          
|-- | -------------------------
|2. | Optika Merger (unaudited)

On May 28, 2004, the Company effected a
merger transaction to acquire all the outstanding shares of
Optika Inc. for $10,000 in cash, approximately 4,200 shares
of Stellent common stock and the assumption by Stellent of
Optikas outstanding options. The valuation of our common
stock was set at an average price at the time the merger
agreement was signed, which was January 11, 2004. Based on
Stellents stock price as of May 28, 2004, including
the value of the options to be assumed and transaction costs,
the current unaudited

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##### Table of Contents



STELLENT, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(In thousands, except per share
data)


transaction value is approximately $62,000. A
preliminary unaudited allocation of the purchase price is as
follows:

|                                |       |             |        |        | 
|------------------------------- | ----- | ----------- | ------ | ------ | 
|                                |       | (Unaudited)
|Net tangible assets             |       | $           | 4,000  |       
|Developed software              |       |             | 3,400  |       
|Customer base                   |       |             | 2,700  |       
|Unearned compensation (options) |       |             | 900    |       
|Goodwill                        |       |             | 51,000 |       
|                                |       |             |        |       
|                                | Total |             | $      | 62,000 | 
|                                |       |             |        |       



|   |              
|-- | -------------
|3. | Restructuring

In connection with the integration of Optika and
in connection with managements plans to reduce costs and
improve operating efficiencies, the Company approved a
restructuring plan on June 2, 2004. The restructuring plan
includes the termination of 31 employees of Stellent, Inc. and
the shutdown of the Companys New York facility.
Restructuring charges during the first quarter of fiscal year
2005 related to this plan are estimated to be approximately
$2,500 to $3,000.

69