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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

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

or

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

Commission file number 0-19817

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act: Preferred Share

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x     No o

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

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

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

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

STELLENT, INC.

FORM 10-K

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DOCUMENTS INCORPORATED BY REFERENCE

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

PART I

Forward-Looking Statements

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

OVERVIEW

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

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

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

MARKETS AND CUSTOMERS

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

      Customers use our products as follows:

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

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

PRODUCTS

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

Universal Content Management Software

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

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

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

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

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

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

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

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

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

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

Content Components Software

      Stellent’s Content Components software makes information created in more than 225 common office software applications more accessible to the business users that need it. Other technology companies embed this technology in their own products to enable their users to view and convert business information to formats viewable on handheld devices or in a web browser. Such information is often difficult to find and view without access to the software application that created it; with Stellent’s Content Components software, users can locate and view this information, even if they don’t have the software application that created the file installed on their desktop or handheld device. These technologies are also integrated into Stellent’s Universal Content Management software.

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

SUPPLIERS

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

CONTRACTS

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

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CONSULTING SERVICES

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

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

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

PRODUCT SUPPORT

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

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

PRODUCT TRAINING

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

SALES AND MARKETING

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

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

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

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

RESEARCH AND DEVELOPMENT

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

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

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

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ACQUISITIONS

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

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

COMPETITION

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

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

      Competition in our market could materially and adversely affect our ability to obtain revenues from software license fees from new or existing customers on terms favorable to us. Further, competitive pressures may require us to reduce the price of our software. In either case, we cannot be sure that we will be able to compete successfully with existing or new competitors or that competition will not have a material adverse effect on our business, operating results and financial condition.

PROPRIETARY RIGHTS AND LICENSING

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

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

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

EMPLOYEES

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

GEOGRAPHIC INFORMATION

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

AVAILABLE INFORMATION

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

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

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

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

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

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

	(a)	Executive Officers of the Registrant

      The Executive Officers of our company are:

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

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

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

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

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

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

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PART II

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

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

Dividend Policy

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

Equity Compensation Plan Information

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

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

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Overview

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

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

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

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

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

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

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

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

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

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

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

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

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

RESULTS OF OPERATIONS

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

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Revenues

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

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

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

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

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

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

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

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

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

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Cost of Revenues and Gross Profit

       Cost of Revenues — General

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

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

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       Cost of Revenues — Product Licenses

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

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

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

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

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

       Cost of Revenues — Services

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

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

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

Operating Expenses

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

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

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

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

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

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

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

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

                  Amortization of Acquired Intangible Assets and Other