Back to GetFilings.com





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003.

OR

[ ] 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 41-1652566
--------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

7777 GOLDEN TRIANGLE DRIVE, EDEN PRAIRIE, MINNESOTA 55344-3736
--------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(952) 903-2000
--------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

----------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)

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 [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934) Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock, $.01 par value -
22,068,075 shares as of November 6, 2003.

1


STELLENT, INC.

FORM 10-Q
INDEX



PAGE
----

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets -September 30, 2003 and March 31, 2003.... 3

Condensed Consolidated Statements of Operations - Three and six months ended
September 30, 2003 and 2002..................................................... 4

Condensed Consolidated Statements of Cash Flows - Six months ended
September 30, 2003 and 2002..................................................... 5

Notes to Condensed Consolidated Financial Statements............................ 6

Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations................................ 12

Item 3. Quantitative and Qualitative Disclosures about Market Risk...................... 25

Item 4. Disclosure Procedures and Controls.............................................. 25

PART II. OTHER INFORMATION

Item 1. Legal Proceedings............................................................... 25

Item 2. Changes in Securities and Use of Proceeds ...................................... 26

Item 3. Defaults upon Senior Securities................................................. 26

Item 4. Submission of Matters to a Vote of Security Holders............................. 26

Item 5. Other Information............................................................... 26

Item 6. Exhibits and Reports on Form 8-K................................................ 26

SIGNATURES............................................................................... 28


2


PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

STELLENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)



SEPTEMBER 30, MARCH 31,
2003 2003
------------ ------------

ASSETS
Current assets:
Cash and cash equivalents...................................... $ 34,426 $ 37,439
Short-term marketable securities............................... 20,511 28,497
Trade accounts receivable, net ................................ 17,971 15,602
Prepaid royalties ............................................. 2,070 2,335
Prepaid expenses and other current assets ..................... 4,858 3,423
------------ ------------
Total current assets ............................................ 79,836 87,296

Long-term marketable securities ................................. 18,284 15,233
Property and equipment, net ..................................... 4,502 4,830
Prepaid royalties, net of current ............................... 955 1,934
Goodwill, net ................................................... 14,617 12,703
Other acquired intangible assets, net ........................... 3,203 4,837
Investments in other companies .................................. 1,136 1,136
Other ........................................................... 1,407 1,740
------------ ------------

Total assets .................................................... $ 123,940 $ 129,709
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................. $ 2,575 $ 2,287
Deferred revenues ............................................. 8,491 9,187
Commissions payable ........................................... 1,404 1,353
Accrued expenses and other .................................... 6,025 4,646
------------ ------------
Total current liabilities ....................................... 18,495 17,473
------------ ------------

Shareholders' equity
Common stock .................................................. 221 219
Additional paid-in capital .................................... 187,795 186,604
Accumulated other comprehensive income ........................ 483 315
Accumulated deficit ........................................... (83,054) (74,902)
------------ ------------
Total shareholders' equity ...................................... 105,445 112,236
------------ ------------

Total liabilities and shareholders' equity ...................... $ 123,940 $ 129,709
============ ============


Note: The balance sheet at March 31, 2003 has been derived from audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements.

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

3


STELLENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)



THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003 2002
---------- ---------- ---------- ----------

Revenues:
Product licenses ......................................... $ 10,215 $ 9,600 $ 20,060 $ 20,717
Services ................................................. 8,306 5,958 15,848 11,896
---------- ---------- ---------- ----------
Total revenues ............................................. 18,521 15,558 35,908 32,613
---------- ---------- ---------- ----------

Cost of revenues:
Product licenses ......................................... 1,116 1,545 2,216 3,344
Amortization of capitalized software from acquisitions ... 315 474 836 948
Services ................................................. 4,183 2,927 7,981 6,003
---------- ---------- ---------- ----------
Total cost of revenues ..................................... 5,614 4,946 11,033 10,295
---------- ---------- ---------- ----------

Gross profit ............................................... 12,907 10,612 24,875 22,318
---------- ---------- ---------- ----------

Operating expenses:
Sales and marketing ...................................... 9,560 9,663 19,522 19,969
General and administrative ............................... 2,617 2,360 4,941 5,083
Research and development ................................. 3,348 4,790 6,523 9,514
Acquisition and related costs ............................ -- 739 -- 739
Amortization of acquired intangible assets and other ..... 118 1,662 1,770 3,323
Restructuring charges .................................... -- 839 812 3,343
---------- ---------- ---------- ----------
Total operating expenses ................................... 15,643 20,053 33,568 41,971
---------- ---------- ---------- ----------

Loss from operations ....................................... (2,736) (9,441) (8,693) (19,653)

Other income:
Interest income........................................... 249 567 541 1,168
---------- ---------- ---------- ----------

Net loss ................................................... $ (2,487) $ (8,874) $ (8,152) $ (18,485)
========== ========== ========== ==========

Net loss per common share - Basic and diluted .............. $ (0.11) $ (0.40) $ (0.37) $ (0.83)

Weighted average common shares outstanding - Basic and
diluted .................................................... 21,916 22,425 21,873 22,394


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

4


STELLENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)



SIX MONTHS ENDED
SEPTEMBER 30,
2003 2002
------------ ------------

OPERATING ACTIVITIES
Net loss ...................................................................... $ (8,152) $ (18,485)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization ............................................ 1,728 1,727
Amortization of intangible assets, acquisition expense and other ......... 2,606 4,271
Other .................................................................... -- 158

Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable ....................................................... (2,369) 456
Prepaid expenses and other current assets ................................. (235) 1,579
Accounts payable and other liabilities .................................... 288 (73)
Accrued liabilities ....................................................... 1,358 487
Deferred revenue .......................................................... (765) 80
Accrued commissions ....................................................... 52 (42)
------------ ------------

Net cash flows used in operating activities .................................... (5,489) (9,842)
------------ ------------

INVESTING ACTIVITIES:
Maturities of marketable securities, net ................................... 4,933 2,435
Purchases of property and equipment ........................................ (1,017) (816)
Acquisition costs .......................................................... (2,047) (2,790)
Proceeds from notes with other companies ................................... -- 50
Other ...................................................................... -- (293)
------------ ------------

Net cash flows provided by (used in) investing activities ...................... 1,869 (1,414)
------------ ------------

FINANCING ACTIVITIES:
Repurchase of common stock ................................................. (308) --
Proceeds from exercise of stock options and warrants ....................... 372 51
Proceeds from issuance of stock under Employee Stock Purchase
Plan and other .......................................................... 375 332
Other ...................................................................... -- (112)
------------ ------------

Net cash flows provided by financing activities ................................ 439 271
------------ ------------

Cumulative effect of foreign currency translation adjustment ................... 168 290
------------ ------------

Net decrease in cash ........................................................... (3,013) (10,695)
Cash and equivalents, beginning of period ...................................... 37,439 15,493
------------ ------------

Cash and equivalents, end of period ............................................ $ 34,426 $ 4,798
============ ============

Non-cash investing activity-unrealized gain (loss) on investment ............... $ -- $ (952)
============ ============

Non-cash financing activity- issuance of common stock for acquisition .......... $ 754 $ --
============ ============


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

5


STELLENT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions for
Quarterly Reports on Form 10-Q and instructions for Article 10 of Regulation
S-X. In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, have been recorded as necessary to present fairly the
Company's consolidated financial position, results of operations and cash flow
for the periods presented. These financial statements should be read in
conjunction with the Company's audited consolidated financial statements
included in the Company's Fiscal Year 2003 Annual Report on Form 10-K. The
consolidated results of operations for the three and six month periods ended
September 30, 2003 and 2002 are not necessarily indicative of the results that
may be expected for any future period.

NOTE 2. USE OF ESTIMATES

The preparation of these financial statements requires that the Company make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities. On an ongoing basis, the Company evaluates its estimates, including
those related to revenue recognition, allowance for bad debts, income taxes,
commission expense accrual, and useful lives of intangible assets and property
and equipment, among others. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results could differ from the
estimates made by management with respect to these items and other items that
require management's estimates.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In 1997, Stellent (the "Company") 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,
which currently is considered a critical component of an organization's
communication and information technology (IT) infrastructures, was an emerging
technology used to help companies easily and quickly share information
internally or externally using the Web. Currently, the Company's solutions,
which are comprised of content components, universal content management and
vertical applications, help customers worldwide solve real business problems
related to efficiently creating, managing and sharing critical information. The
Company's customers are primarily located throughout the United States and
Europe. Its headquarters are located in Eden Prairie, Minnesota and the company
has operations or collaborations in Australia, France, Germany, Italy, Japan,
Korea, the Netherlands, Spain, Sweden, the United Kingdom and in other cities in
the United States.

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 the American Institute of Certified Public
Accountants (AICPA) Accounting Standards Executive Committee 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.


6


STELLENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)


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 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 Content Components Division 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 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.

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.

7


STELLENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

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 September
30, 2003, $2,360 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 are held in debt securities of the United
States government and with corporations that have the highest possible credit
rating. 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 intent to hold to maturity.

Investments in Other Companies: Investments in other equity securities with
other companies 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 are publicly traded and are deemed by management
to be available for sale. The Company uses the specific identification method to
determine cost and fair value for computing gains and losses. Accordingly, these
investments are reported at fair value with net unrealized gains or losses
reported within shareholders' equity as accumulated other comprehensive income
or loss. No sales of available for sale investments have occurred through
September 30, 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.

Accounts Receivable: The Company's accounts receivable balances are due from
companies across a broad range of industries, such as 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 typically 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 payment terms are considered past due.
The Company determined 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 any payments subsequently received on such receivables are
credited to the allowance for doubtful accounts.

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. The carrying
value of goodwill and other intangible assets is tested for impairment on an
annual basis or when factors indicating impairment are present.

Impairment of Long-Lived Assets: The Company evaluates the recoverability of its
long-lived assets and recognizes impairment 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 had occurred through September
30, 2003.

8


STELLENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

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.

Developed capitalized software is amortized on a straight-line basis over three
years. Amortization expense of developed capitalized software is included in
Cost of Revenues - Product Licenses. The capitalized software primarily relates
to software purchased from a third party or developed for the Company by a third
party.

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 have not been
material.

Indemnification Obligations: The Company generally provides to its customers
intellectual property indemnification in its arrangements for the Company's
software products or services. Typically these arrangements provide that the
Company will indemnify, defend and hold the customers harmless against claims by
third parties that the Company's software products or services infringe upon the
copyrights, trademarks, patents or trade secret rights of such third parties.

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.

Marketing: The Company expenses the cost of marketing as it is incurred. The
Company enters into cooperative marketing 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 marketing is accounted for as marketing
expense. If the fair value cannot be estimated or an identifiable benefit is not
received the cooperative marketing is accounted for as a reduction of revenue.

Stock-based Compensation: The Company has stock option plans for employees and a
separate stock option plan for directors. The intrinsic value method is used to
value the stock options issued to employees and directors, and the Company
accounts for those plans under the recognition and measurement principles of
Financial Accounting Standards Board (FASB) APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. In the periods
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, 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 periods:

9


STELLENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)



THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003 2002
---------- ---------- ---------- ----------

SUPPLEMENTAL INFORMATION:

Net loss as reported ....................................... $ (2,487) $ (8,874) $ (8,152) $ (18,485)
Less: Total stock based employee compensation expense
determined under fair value based method for all awards .... (2,433) (3,470) (4,271) (6,760)
---------- ---------- ---------- ----------
Net loss - pro forma ....................................... $ (4,920) $ (12,344) $ (12,423) $ (25,245)
========== ========== ========== ==========

Basic and diluted weighted average shares .................. 21,916 22,425 21,873 22,394

Basic and diluted net loss per share - as reported ......... $ (0.11) $ (0.40) $ (0.37) $ (0.83)

Basic and diluted net loss per share - pro forma ........... $ (0.22) $ (0.55) $ (0.57) $ (1.13)


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.

New Accounting Pronouncements: In November 2002, the FASB reached a consensus on
Emerging Issues Task Force (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 include 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. 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.

In January 2003, the FASB issued Financial Staff Position (FSP) FASB
Interpretation Number (FIN) 46, "Consolidation of Variable Interest Entities,"
which requires the assets, liabilities and results of operations of variable
interest entities (VIE) be consolidated into the financial statements of the
company that has controlling financial interest. FIN 46 is not anticipated to
have a material effect on the Company's consolidated financial statements.

In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
changes the classification of certain common financial instruments from either
equity or mezzanine presentation to liabilities in the balance sheet and
requires an issuer of those financial instruments to recognize changes in fair
value or redemption amount, as applicable, in earnings. This statement is
effective for financial instruments entered into or modified after May 31, 2003
and, with one exception, is effective for the quarter beginning July 1, 2003 for
public companies. As the Company has not issued any financial instruments
addressed by this new pronouncement its adoption is not anticipated to have a
material effect on the Company's financial statements.

NOTE 4. BASIC AND DILUTED NET LOSS PER SHARE

Basic net loss per share is computed using the weighted average number of shares
outstanding of common stock. Diluted net loss per share is computed using the
weighted average number of shares of common stock and common equivalent shares
outstanding during the period. Common equivalent shares consist of stock options
(using the treasury stock method). Common equivalent shares are excluded from
the computation if their effect is anti-dilutive.

For the three and six months ended September 30, 2003 and 2002, the Company
incurred net losses and therefore, basic and diluted per share amounts are the
same as all common equivalent shares are anti-dilutive.

10


STELLENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

NOTE 5. ACQUISITION

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 was valued at approximately
$800.

NOTE 6. RESTRUCTURING CHARGES

In the quarter ended June 30, 2002, in connection with management's plan to
reduce costs and improve operating efficiencies, the Company recorded a
restructuring charge of approximately $2,500. This restructuring charge was
comprised primarily of $2,100 in severance pay and benefits related to the
involuntary termination of approximately 50 employees, with the remaining $400
related to the closing of facilities and other exit costs. At September 30,
2003, no amounts remained to be paid in connection with these charges.

In the quarter ended September 30, 2002, in connection with management's plan to
reduce costs and improve operating efficiencies, the Company recorded a
restructuring charge of approximately $0.8 million. The additional restructuring
charge was comprised primarily of severance pay and benefits related to the
involuntary termination of 27 employees of approximately $400 with the remaining
$400 related to the closing of facilities and other exit costs. At September 30,
2003, approximately $600 remained to be paid in connection with these charges.

In the quarter ended June 30, 2003, the Company recorded a restructuring charge
of approximately $812. This restructuring charge was comprised primarily of $412
in severance pay and benefits related to the involuntary termination of
employees, with the remaining $400 related to the closing of facilities and
other exit costs. This plan included the closing of an office facility as part
of its acquisition of certain assets of Active IQ in March 2003. The facility
was closed during the quarter ended June 30, 2003 and approximately $50 was
recorded to facility closing costs and future lease payments. The remaining $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. At September 30, 2003, approximately $100
remained to be paid in connection with these charges.

The table below summarizes our restructuring plans:

11


STELLENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)



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, 615
2002 - - 168 341 70 36 - - - -
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
======= ===== ========= ===== ======== ===== ======= ===== ======= ====== =====


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The following discussion may contain forward-looking statements regarding the
Company, its business, prospects and results of operations that are subject to
certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be anticipated by such forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed herein as well as those discussed under
the caption Risk Factors. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
report. The Company undertakes no obligation to revise any forward-looking
statements in order to reflect events or circumstances that may subsequently
arise. Readers are urged to carefully review and consider the various
disclosures made by the Company in this report and in the Company's other
reports filed with the Securities and Exchange Commission that advise interested
parties of the risks and factors that may affect the Company's business.

12


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, which is today considered a
critical component of an organization's communication and information technology
(IT) infrastructures, was an emerging technology used to help companies easily
and quickly share information internally or externally using the Web.

Currently, our solutions are comprised of universal content management software,
content components software and vertical applications and help customers
worldwide solve real business problems related to efficiently creating, managing
and sharing critical information. Our company has strategically grown to become
one of the foremost content management software vendors in the industry, having
been ranked one of the top three content management software providers by
industry analyst firms Gartner Dataquest, Giga Information Group and Aberdeen
Group.

CRITICAL ACCOUNTING POLICIES AND JUDGMENTS

The policies described below are particularly important to understanding our
financial position and results of operations and may require management to make
estimates or judgments 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.

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 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

13


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.

Investments in Other Companies

Investments in Other Companies: Investments in other companies 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. These
investments are primarily equity securities of the respective companies.

A portion of these investments are publicly traded and are deemed by management
to be available for sale. The Company uses the specific identification method to
determine cost and fair value for computing gains and losses. Accordingly, these
investments are reported at fair value with net unrealized gains or losses
reported within shareholders' equity as accumulated other comprehensive income
or loss. No sales of available for sale investments have occurred through
September 30, 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.

Accounts Receivable

Our accounts receivable balances are due from companies across a broad range of
industries, such as 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. We determined our allowance by considering a
number of factors, including the length of time trade receivables are past due,
our previous loss history, the customer's current ability to pay its obligation
to us, and the condition of the general economy and the industry as a whole. We
write-off accounts receivable when they become uncollectible, and payments
subsequently received on such receivables are credited to the allowance for
doubtful accounts.

Goodwill and Other Acquired Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of net
assets acquired.

The carrying value of goodwill and other intangible assets is tested for
impairment on an annual basis or when factors indicating impairment are present.
We have elected to complete the annual impairment test of goodwill on January 1
of each

14


year. We engage an independent outside professional services firm to assist us
in our impairment testing of goodwill. Additionally, no circumstances occurred
during the first or second quarters of our fiscal year ending March 31, 2004
which would have created an impairment loss at September 30, 2003.

Impairment of Long-Lived Assets

We evaluate the recoverability of long-lived assets and recognize 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 during the three and six month periods ended
September 30, 2003 and 2002.

Accounting for Income Taxes

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. A
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
$84.3 million at March 31, 2003, 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.
Accordingly, in the fourth quarter of fiscal 2003 we increased the valuation
allowance to fully offset the deferred tax asset.

We 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" approach is satisfied.

THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

REVENUES

Total revenues increased by $3.0 million, or 19%, to $18.5 million for the three
months ended September 30, 2003 from $15.5 million for the three months ended
September 30, 2002. The increase in revenues was primarily attributable to
increased consulting services and post-contract customer support revenue.

Product Licenses. Revenues for product licenses increased by $0.6 million, or
6%, to $10.2 million for the three months ended September 30, 2003 from $9.6
million for the three months ended September 30, 2002. The increase in revenues
for product licenses was primarily attributable to increased revenue from our
Content Components Division.

Services. Revenues for services, consisting of consulting services, training and
post contract customer support, increased by $2.3 million, or 39%, to $8.3
million for the three months ended September 30, 2003 from $6.0 million for the
three months ended September 30, 2002. Expressed as a percentage of total
services revenue, consulting services and training revenues were approximately
43% and post-contract customer support was 57% in the September 30, 2003
quarter, respectively, and 39% and 61%, respectively, in the September 30, 2002
quarter.



THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
================== ==================

Consulting Services and Training $ 3,545 43% $ 2,300 39%
Post-Contract Support 4,761 57 3,658 61
------------ --- ------------ ---
Total Services $ 8,306 100% $ 5,958 100%
============ === ============ ===


15


The increase in revenues for services was primarily due to an increase
consulting services revenue as our customers' software implementations have
become larger and more numerous, and to an increase in post-contract customer
support revenue which is primarily attributable to a larger installed base of
products.

COST OF REVENUES

Total cost of revenues increased by $0.7 million, or 14%, to $5.6 million for
the three months ended September 30, 2003 from $4.9 million for the three months
ended September 30, 2002. Total cost of revenues as a percentage of total
revenues was 30% for the three months ended September 30, 2003 and 32% for the
three months ended September 30, 2002. Gross profit increased by $2.3 million,
or 22%, to $12.9 million for the three months ended September 30, 2003 from
$10.6 million for the three months ended September 30, 2002. Total gross profit
as a percentage of total revenues was 70% for the three months ended September
30, 2003 and 68% for the three months ended September 30, 2002. The increase in
gross profit dollars was primarily due to increased revenues for post-contract
customer support revenue attributable to a larger installed base of products and
by the decreased cost of revenues for product licenses due to the mix of
products sold.

Product Licenses. Cost of revenues for product licenses decreased $0.4 million
for the three months ended September 30, 2003 to $1.1 million from $1.5 million
for the three months ended September 30, 2002. The decrease in cost of revenues
for product licenses was primarily attributable to increased sales of our CCD
products, which generally have a lower cost of sales than our universal content
management products and the change in product mix in our universal content
management products.

Amortization of capitalized software from acquisitions. Cost of revenues related
to amortization of capitalized software from acquisitions was $0.3 million for
the three months ended September 30, 2003 compared to $0.5 million for the three
months ended September 30, 2002. The cost of revenues for amortization of
capitalized software from acquisitions was primarily 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 cost of revenues
related to amortization of capitalized software from acquisitions was primarily
attributable to the completion in June 2003 of amortization of capitalized
software related to our acquisition of CCD, which occurred in July 2000.

Services. Cost of revenues, primarily consisting of personnel for consulting
services, training and post-contract customer support, increased by $1.3
million, or 43%, to $4.2 million for the three months ended September 30, 2003
from $2.9 million for the three months ended September 30, 2002. Expressed as a
percentage of total services costs, consulting services and training costs were
approximately 78% and post-contract customer support was 22% in the September
30, 2003 quarter, respectively, and 68% and 32% in the September 30, 2002
quarter, respectively. Gross profit as a percentage of revenues for services was
50% for the three months ended September 30, 2003, compared to 51% for the three
months ended September 30, 2002. The decrease in the gross profit as a
percentage of revenues for services was primarily due to an increase in costs
related to an increase in consulting services personnel.

OPERATING EXPENSES

Sales and Marketing. Sales and marketing expenses decreased by $0.1 million, or
1%, to $9.6 million for the three months ended September 30, 2003 from $9.7
million for the three months ended September 30, 2002. Sales and marketing
expenses as a percentage of total revenues were 52% for the three months ended
September 30, 2003 compared to 62% for the three months ended September 30,
2002. The decrease in sales and marketing expense dollars and as a percentage of
total revenues was primarily due to reduced commission expense related to the
mix of products sold, changes in our compensation criteria, reduced staffing
related to the restructurings of our company, and reduced travel expense.

General and Administrative. General and administrative expenses increased $0.2
million, or 11% to $2.6 million for the three months ended September 30, 2003
from $2.4 million for the three months ended September 30, 2002. General and
administrative expenses as a percentage of total revenues were 14% for the three
months ended September 30, 2003 compared to 15% for the three months ended
September 30, 2002. The increase in general and administrative expenses was
primarily due to an increase in legal and professional fees.

Research and Development. Research and development expenses decreased by $1.5
million, or 30%, to $3.3 million for the three months ended September 30, 2003
from $4.8 million for the three months ended September 30, 2002. Research and
development expenses as a percentage of total revenues were 18% for the three
months ended September 30, 2003 compared to 31% for the three months ended
September 30, 2002. The decrease in research and development expenses was
primarily due to reduced headcount from the consolidation of research and
development facilities and the completion of certain research and development
projects in the quarter ended September 30, 2002.

16


Amortization of Intangibles. A portion of the purchase price of certain assets
of CCD was allocated to excess cost over fair value of net assets acquired, core
technology, customer base, software, trademarks and other intangibles, and is
being amortized over the assets' estimated useful lives of three years. A
portion of the purchase price of certain assets of RESoft was allocated to
certain intangible assets, such as customer base and trademarks, and is also
being amortized over their useful lives of three years. Intangible amortization
and other expense was $0.1 million for the three month periods ended September
30, 2003 and $1.7 million in the three months ended September 30, 2002. The
decrease in operating expenses related to amortization of intangibles was
primarily attributable to the completion in June 2003 of amortization of
intangibles related to our acquisition of CCD, which occurred in July 2000.

Restructuring Charges. There were no restructuring charges expensed or accrued
in the quarter ended September 30, 2003. In the quarter ended September 30,
2002, in connection with management's plan to reduce costs and improve operating
efficiencies, the Company recorded a restructuring charge of approximately $0.8
million. The restructuring charge was comprised primarily of severance pay and
benefits related to the involuntary termination employees of approximately $0.4
million with the remaining $0.4 million related to the closing of facilities and
other exit costs.

OTHER INCOME

Interest income. interest income was $0.2 million for the three months ended
September 30, 2003 compared to interest income of $0.6 million for the three
months ended September 30, 2002. interest income for the three months ended
September 30, 2003 and 2002 was primarily related to investments purchased with
the proceeds of our public stock offerings completed in June 1999 and March
2000. The decrease in interest income was primarily due to decreases in the
interest rates earned by invested funds resulting from decreases in market
interest rates and reduced amounts of invested funds.

SIX MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

REVENUES

Total revenues increased by $3.3 million, or 10%, to $35.9 million for the six
months ended September 30, 2003 from $32.6 million for the six months ended
September 30, 2002. The increase in revenues for services was primarily due to
an increase in consulting services revenue as our customers' software
implementations have become larger and more numerous, and to an increase in
post-contract customer support revenue, which is primarily attributable to a
larger installed base of products.

Product Licenses. Revenues for product licenses decreased by $0.6 million, or
3%, to $20.1 million for the six months ended September 30, 2003 from $20.7
million for the six months ended September 30, 2002. The decrease in revenues
for product licenses was primarily attributable to a decrease in our universal
content management revenue due to the worldwide economic slowdown, which has
resulted in a reduction in overall customer spending in information technology
initiatives, offset by an increase in our content components software revenue.

Services. Revenues for services, consisting of consulting services, training and
post contract customer support, increased by $3.9 million, or 33%, to $15.8
million for the six months ended September 30, 2003 from $11.9 million for the
six months ended September 30, 2002. Expressed as a percentage of total services
revenue, consulting services and training revenues were approximately 42% and
post-contract customer support was 58% in the September 30, 2003 quarter,
respectively, and 40% and 60%, respectively, in the September 30, 2002 quarter.



SIX MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2002
==== ====

Consulting Services and Training $ 6,582 42% $ 4,789 40%
Post-Contract Support 9,266 58 7,107 60
-------------------------------------
Total Services $ 15,848 100% $ 11,896 100%
=====================================


The increase in revenues for services was primarily due to an increase in
consulting services revenue as our customers' software implementations have
become larger and more numerous, and to an increase in post-contract customer
support revenue, which is primarily attributable to a larger installed base of
products.

17


COST OF REVENUES

Total cost of revenues increased by $0.7 million, or 7%, to $11.0 million for
the six months ended September 30, 2003 from $10.3 million for the six months
ended September 30, 2002. Total cost of revenues as a percentage of total
revenues was 31% for the six months ended September 30, 2003 compared to 32%
for the six months ended September 30, 2002. Gross profit increased by $2.6
million, or 11%, to $24.9 million for the six months ended September 30, 2003
from $22.3 million for the six months ended September 30, 2002. Total gross
profit as a percentage of total revenues was 69% for the six months ended
September 30, 2003 and 68% for the six months ended September 30, 2002. The
increase in gross profit dollars was primarily due to increased revenues for
post-contract customer support revenue attributable to a larger installed base
of products and by the decreased cost of revenues for product licenses due to
the mix of products sold.

Product Licenses. Cost of revenues for product licenses decreased $1.1 million
for the six months ended September 30, 2003 to $2.2 million from $3.3 million
for the six months ended September 30, 2002. The decrease in cost of revenues
for product licenses was primarily attributable to increased sales of our CCD
products, which generally have a lower costs of sales than our universal content
management products and the change in product mix in our universal content
management products.

Amortization of capitalized software from acquisitions. Cost of revenues related
to amortization of capitalized software from acquisitions was $0.8 million for
the six months ended September 30, 2003 compared to $0.9 million for the six
months ended September 30, 2002. The cost of revenues for amortization of
capitalized software from acquisitions was primarily 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 cost of revenues related to
amortization of capitalized software from acquisitions was primarily
attributable to the completion in June 2003 of amortization of capitalized
software related to our acquisition of CCD, which occurred in July 2000.

Services. Cost of revenues, primarily consisting of personnel for consulting
services, training and post-contract customer support, increased by $2.0
million, or 33%, to $8.0 million for the six months ended September 30, 2003
from $6.0 million for the six months ended September 30, 2002. Expressed as a
percentage of total services costs, consulting services and training costs were
approximately 76% and post-contract customer support 24% in the six months ended
September 30, 2003 quarter, respectively, and 67% and 33% in the September 30,
2002 quarter, respectively. Gross profit as a percentage of revenues for
services was 50% for the six months ended September 30, 2003 and 2002.

OPERATING EXPENSES

Sales and Marketing. Sales and marketing expenses decreased by $0.4 million, or
2%, to $19.5 million for the six months ended September 30, 2003 from $19.9
million for the six months ended September 30, 2002. Sales and marketing
expenses as a percentage of total revenues were 54% for the six months ended
September 30, 2003 compared to 61% for the six months ended September 30, 2002.
The decrease in sales and marketing expense dollars and as a percentage of total
revenues was primarily due to reduced commission expense related to the mix of
products sold, reduced staffing related to the restructurings of our company,
and reduced travel expense.

General and Administrative. General and administrative expenses decreased $0.2
million, or 3% to $4.9 million for the six months ended September 30, 2003 from
$5.1 million for the six months ended September 30, 2002. General and
administrative expenses as a percentage of total revenues were 14% for the six
months ended September 30, 2003 compared to 16% for the six months ended
September 30, 2002. The decrease in general and administrative expenses was
primarily due to a decrease in the allowance for doubtful accounts.

Research and Development. Research and development expenses decreased by $3.0
million, or 31%, to $6.5 million for the six months ended September 30, 2003
from $9.5 million for the six months ended September 30, 2002. Research and
development expenses as a percentage of total revenues were 18% for the six
months ended September 30, 2003 compared to 29% for the six months ended
September 30, 2002. The decrease in research and development expenses was
primarily due to reduced headcount from the consolidation of research and
development facilities and the completion of certain research and development
projects in the quarter ended September 30, 2002.

Amortization of Intangibles. A portion of the purchase price of certain assets
of CCD was allocated to excess cost over fair value of net assets acquired, core
technology, customer base, software, trademarks and other intangibles, and is
being amortized over the assets' estimated useful lives of three years. A
portion of the purchase price of certain assets of RESoft was allocated to
certain intangible assets, such as customer base and trademarks, and is also
being amortized over their useful lives of three years. Intangible amortization
and other expense was $1.8 million for the six month period ended September 30,
2003 and $3.3 million in the six months ended September 30, 2002. The decrease
in operating expenses related to

18


amortization of intangibles was primarily attributable to the completion in June
2003 of amortization of intangibles related to our acquisition of CCD, which
occurred in July 2000.

Restructuring Charges. In the six months ended September 30, 2003, in connection
with management's plan to reduce costs and improve operating efficiencies, the
Company recorded a restructuring charge of approximately $0.8 million. The
restructuring charge was comprised primarily of severance pay and benefits
related to the involuntary termination employees of approximately $0.4 million
with the remaining $0.4 million related to the closing of facilities and other
exit costs. In the six months ended September 30, 2002, the Company recorded
total restructuring charges of approximately $3.3 million. The restructuring
charge was comprised primarily of $2.5 million in severance pay and benefits
related to the involuntary termination of approximately 77 employees, with the
remaining $0.8 million related to the closing of facilities and other exit
costs.

OTHER INCOME

Interest income. interest income was $0.5 million for the six months ended
September 30, 2003 compared to interest income of $1.2 million for the six
months ended September 30, 2002. interest income for the six months ended
September 30, 2003 and 2002 was primarily related to investments purchased with
the proceeds of our public stock offerings completed in June 1999 and March
2000. The decrease in interest income was primarily due to decreases in the
interest rates earned by invested funds resulting from decreases in market
interest rates and reduced amounts of invested funds.

NET OPERATING LOSS CARRYFORWARDS

As of March 31, 2003 we had net operating loss carryforwards of approximately
$84.3 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", as defined by Section 382 of the
Internal Revenue Code, of a corporation. Our ability to utilize net operating
loss carryforwards on an annual basis may 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
September 30, 2003 because of the uncertainty regarding its realization. Our
accounting for deferred taxes and the valuation allowance involves the
evaluation of a number of factors such as our history of operating losses,
potential future losses and the nature of assets and liabilities giving rise to
deferred taxes.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations and satisfied our capital expenditure requirements
primarily through operating revenues and public offerings of securities. Net
cash used in operating activities was $5.5 million for the six months ended
September 30, 2003 compared to net cash used by operating activities of $9.8
million for the six months ended September 30, 2002. The change in cash flow
used in operations is primarily due to the reduced net loss in the six month
period ended September 30, 2003 from the six months ended September 30, 2002.

Our capital expenditures relate primarily to property and equipment consisting
largely of computer hardware. Capital expenditures for the six months ended
September 30, 2003 and 2002 were $1.0 million and $0.8 million, respectively. We
have also entered into capital and operating leases for facilities and
equipment.

As of September 30, 2003 the Company had $73.2 million in cash and equivalents
and marketable securities with a total of $61.3 million in working capital. Net
cash provided by investing activities was approximately $1.9 million, and net
cash provided by financing activities was approximately $0.4 million for the six
months ended September 30, 2003.

The Company currently believes that the cash and equivalents and marketable
securities on hand will be sufficient to meet our working capital requirements
through our fiscal year 2004 and for the foreseeable future thereafter.
Nevertheless, at any time, 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. The Company 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.

The Company continues to evaluate potential strategic acquisitions that could
utilize equity and, or, cash resources. Such opportunities could develop quickly
due to market and competitive factors.

19


PRO FORMA NET LOSS PER COMMON SHARE

In addition to reporting financial results in accordance with generally accepted
accounting principles, or GAAP, we include non-GAAP supplemental pro forma
financial information in our earnings press releases. Our non-GAAP supplemental
pro forma net loss and net loss per share results generally exclude from the
comparable GAAP amounts the effects of acquisition related charges, such as
amortization of capitalized software from acquisitions and acquisition and
related costs, and certain other charges such as amortization of intangible
assets and other, investment impairment and restructuring charges. Our
management believes the non-GAAP supplemental pro forma financial information is
useful to investors because it excludes certain non-cash expenses and
facilitates meaningful comparison of our performance between periods. In
accordance with SFAS 142, we discontinued the amortization of goodwill effective
April 1, 2002. The exclusion of amortization expense from the non-GAAP
supplemental pro forma financial information before and after April 1, 2002
enhances the comparability of our results between those periods. Investment
impairment charges and restructuring charges occur on an irregular basis, are
difficult to predict and often reflect in a single reporting period long-term
strategic decisions or external factors. The exclusion of such charges from the
non-GAAP supplemental pro forma financial information enhances comparisons of
our tactical performance between periods. Management uses the non-GAAP
supplemental pro forma financial information to evaluate our financial results,
develop budgets and manage expenditures. These non-GAAP measures may differ from
the non-GAAP measures used by other companies.

The pro forma supplemental financial information is presented for informational
purposes only and is not a substitute for the historical financial information
presented in accordance with accounting principles generally accepted in the
United States of America. Our pro forma basic net loss per share is computed by
dividing pro forma net loss by the weighted average number of outstanding common
shares and our pro forma diluted net loss per share is computed by dividing pro
forma net loss by the weighted average number of outstanding common shares and
common share equivalents relating to stock options and warrants, when dilutive.
Common stock equivalent shares consist of stock options and warrants (using the
treasury stock method). We urge readers to review and consider carefully the
GAAP financial information contained within our SEC filings.

Supplemental information (in thousands, except per share amounts):



THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
SUPPLEMENTAL INFORMATION: 2003 2002 2003 2002
--------- --------- --------- ---------

Net loss................................................ $ (2,487) $ (8,874) $ (8,152) $(18,485)
Add back charges:
Amortization of acquired intangible assets and other.. 118 1,662 1,770 3,323
Amortization of capitalized software from acquisitions 315 474 836 948
Acquisition and related costs......................... -- 739 -- 739
Restructuring charges................................. -- 839 812 3,343
-------- -------- -------- --------
Total add back charges.................................. 433 3,714 3,418 8,353
-------- -------- -------- --------
Pro forma net loss before pro forma income taxes........ (2,054) (5,160) (4,734) (10,132)
Pro forma income taxes.................................. -- -- -- --
-------- -------- -------- --------
Pro forma net loss...................................... $ (2,054) $ (5,160) $ (4,734) $(10,132)
======== ======== ======== ========

Pro forma basic and diluted net loss per share.......... $ (0.09) $ (0.23) $ (0.22) $ (0.45)

Weighted average common shares outstanding - Basic and
diluted................................................. 21,916 22,425 21,873 22,394


The accompanying supplemental financial information is presented for
informational purposes only and is not a substitute for the historical financial
information presented in accordance with US GAAP.

Pro forma net loss per share is computed using the weighted average number of
shares of Common Stock outstanding. The Company has included the effect of
options and warrants for common stock as calculated using the treasury stock
method when dilutive. Periods with pro forma loss before income taxes do not
include a tax benefit.

NEW ACCOUNTING PRONOUNCEMENTS

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 returns 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.

20


In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities," which requires the assets, liabilities and results of operations of
variable interest entities (VIE) be consolidated into the financial statements
of the company that has controlling financial interest. FIN 46 is not
anticipated to have a material effect on the Company's consolidated financial
statements.

In May 2003, the FASB issued Statement 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
changes the classification of certain common financial instruments from either
equity or mezzanine presentation to liabilities in the balance sheet and
requires an issuer of those financial instruments to recognize changes in fair
value or redemption amount, as applicable, in earnings. This statement is
effective for financial instruments entered into or modified after May 31, 2003
and, with one exception, is effective for the quarter beginning July 1, 2003 for
public companies. As the Company has not issued any financial instruments
addressed by this new pronouncement its adoption is not anticipated to have a
material effect on the Company's financial statements.

RISK FACTORS

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q for the period ended September 30, 2003 contains certain
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 (the "Exchange Act"). Such
forward-looking statements are based on the beliefs of our management as well as
on assumptions made by, and information currently available to, us at the time
such statements were made. When used in this Form 10-Q, the words "anticipate",
"believe", "estimate", "expect", "intend" and similar expressions, as they
relate us, are intended to identify such forward-looking statements. Although we
believe these statements are reasonable, readers of this Form 10-Q should be
aware that actual results could differ materially from those projected by such
forward-looking statements as a result of the risk factors listed below. Readers
of this Form 10-Q should consider carefully the factors listed below, as well as
the other information and data contained in this Form 10-Q. We caution the
reader, however, that such list of may not be exhaustive and that those or other
factors, many of which are outside of our control, could have a material adverse
effect on us and our results of operations. All forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by the cautionary statements set forth hereunder. We undertake no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.

FLUCTUATIONS IN OUR OPERATING RESULTS MAY MAKE IT DIFFICULT TO PREDICT OUR
FUTURE PERFORMANCE.

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;

21


- 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;

- general economic conditions; and

- public announcements by our competitors.

POTENTIAL ACQUISITIONS MAY BE DIFFICULT TO COMPLETE OR TO INTEGRATE AND MAY
DIVERT MANAGEMENT'S ATTENTION.

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 to 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.

Our revenues may not grow in future periods and we may not achieve quarterly pro
forma profitability. If we do not regain our pro forma profitability, the market
price of our stock may fall. Our ability to regain pro forma 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 MAY REDUCE OUR FUTURE SALES AND
PROFITS.

The market for our products is highly competitive and is likely to become more
competitive. 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 ITS KEY PERSONNEL.

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, 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.

22


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.

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 for the
foreseeable future. Our success will largely depend on our ability to increase
sales from existing 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.

WE DEPEND ON OUR ABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGY.

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.

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 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 PRODUCTS FAIL TO PERFORM
TO SPECIFICATIONS.

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 Web sites. 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.

23


FUTURE REGULATIONS COULD BE ADOPTED THAT RESTRICT OUR BUSINESS.

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 AND WE MAY IN THE
FUTURE BE NAMED IN ADDITIONAL LITIGATION, WHICH MAY RESULT IN SUBSTANTIAL COSTS
AND DIVERT MANAGEMENT'S ATTENTION AND RESOURCES.

As described in Part II - Item 1: Legal Proceedings, shareholder class action
suits have been filed naming the Company 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, it is possible that the litigation could be resolved adversely,
could result in substantial costs and/or could divert management's attention and
resources, which could seriously harm our business.

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.

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:

- 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.

OUR PERFORMANCE WILL DEPEND ON THE CONTINUING GROWTH AND ACCEPTANCE OF THE WEB.

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 SHAREHOLDERS HAVE SIGNIFICANT INFLUENCE OVER US.

As of September 30, 2003, Robert F. Olson, our President, Chief Executive
Officer and the Chairman, of our Board of Directors holds approximately 10.0% 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 13.0% 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

24


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.

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 the Company 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our interest income on cash and marketable securities is affected by changes in
interest rates in the United States. Through September 30, 2003, changes in
these rates have had a significant effect on our company. Interest rates earned
on invested funds have fallen by over 50% since September 2002. The Company
believes that there may be future exposure to interest rate market risk.

Our investments are held in commercial paper which is affected by equity price
market risk and other factors. The Company does not anticipate that exposure to
these risks will have a material impact on us, due to the nature of our
investments.

The Company has no history of, and do not anticipate in the future, investing in
derivative financial instruments. Many transactions with international customers
are entered into in U.S. dollars, precluding the need for foreign currency
hedges. Any transactions that are currently entered into in foreign currency are
not deemed material to the financial statements. Thus, the exposure to market
risk is not material.

ITEM 4. DISCLOSURE PROCEDURES AND CONTROLS

As of the end of the period covered by this report, we conducted an evaluation,
under the supervision and with the participation of our chief executive officer
and chief financial officer, of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this
evaluation, our chief executive officer and chief financial officer concluded
that our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms. There was no change in our internal control over financial reporting
during our most recently completed fiscal quarter that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, we are subject to various other 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.

As reported in our Quarterly Report on Form 10-Q for the period ended June 30,
2003, 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 the federal
securities laws. There were no material developments in the cases during the
quarter ended September 30, 2003.

25


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On August 20, 2003, we issued 100,000 shares of our common stock in a
transaction exempt from registration under the Securities Act of 1933, as
amended (the "Act), as partial consideration for certain assets of Ancept, Inc.
The issuance was made in a private placement in reliance upon the exemptions
from the registration provided under Section 4(2) of the Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On August 27, 2003 the Company held its Annual Meeting of the Shareholders to
consider a vote upon the following proposals. The tabulation of the votes, in
favor, against, and abstaining with regard to the proposals is set forth below.



PROPOSAL IN FAVOR WITHHELD AGAINST
-------- -------- -------- -------

1. Election of Directors:
Robert F. Olson 20,316,599 227,917 --
Philip E. Soran 19,315,831 228,685 --
Kenneth H. Holec 20,310,747 233,769 --
Raymond A. Tucker 20,315,645 228,871 --
Steven C. Waldron 20,314,524 229,992 --

2. Ratification of the appointment of Grant
Thornton LLP as independent auditors for
the Company for fiscal year March 31, 2004. 20,215,197 2,948 326,371


ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits filed with this report.



FILE DESCRIPTION REFERENCE
- ---- ----------- ---------

10.52 Employment Agreement Dated April 1, Electronic transmission
2003 by and between the Registrant
and Frank A. Radichel

31.1 Certification by Robert F. Olson, Electronic Transmission
Chairman of the Board, President and
Chief Executive Officer, pursuant to
Section 302 of the Sarbanes-Oxley Act
of 2002.

31.2 Certification by Gregg A. Waldon, Electronic Transmission
Executive Vice President, Chief
Financial Officer, Secretary
and Treasurer, pursuant to Section
302 of the Sarbanes-Oxley
Act of 2002.

32.1 Certification by Robert F. Olson, Electronic Transmission
Chairman of the Board, President and
Chief Executive Officer, pursuant to


26




Section 906 of the
Sarbanes-Oxley Act of 2002.

32.2 Certification by Gregg A. Waldon, Electronic Transmission
Executive Vice President, Chief
Financial Officer, Secretary
and Treasurer, pursuant to Section
906 of the Sarbanes-Oxley
Act of 2002


(b) Reports on Form 8-K.

None.

27


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)

Date: November 14, 2003 By: /s/ Robert F. Olson
--------------------------------------------
Robert F. Olson,
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)

Date: November 14, 2003 By: /s/ Gregg A. Waldon
--------------------------------------------
Gregg A. Waldon
Executive Vice President, Chief Financial
Officer, Secretary and Treasurer
(Principal Financial and Accounting Officer)

28




FILE DESCRIPTION REFERENCE
- ---- ----------- ---------

10.52 Employment Agreement Dated April 1, Electronic transmission
2003 by and between the Registrant
and Frank A. Radichel

31.1 Certification by Robert F. Olson, Electronic Transmission
Chairman of the Board, President and
Chief Executive Officer, pursuant to
Section 302 of the Sarbanes-Oxley
Act of 2002.

31.2 Certification by Gregg A. Waldon, Electronic Transmission
Executive Vice President, Chief
Financial Officer, Secretary
and Treasurer, pursuant to Section
302 of the Sarbanes-Oxley
Act of 2002.

32.1 Certification by Robert F. Olson, Electronic Transmission
Chairman of the Board, President and
Chief Executive Officer, pursuant to
Section 906 of the Sarbanes-Oxley
Act of 2002.

32.2 Certification by Gregg A. Waldon, Electronic Transmission
Executive Vice President, Chief
Financial Officer, Secretary
and Treasurer, pursuant to Section
906 of the Sarbanes-Oxley
Act of 2002.


29