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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark One)

For the fiscal year ended March 31, 2005

or

SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-19817

STELLENT, INC.

(Exact name of registrant as specified in its charter)

7777 Golden Triangle Drive

Eden Prairie, Minnesota 55344-3736

(Address of principal executive offices and zip code)

(952) 903-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

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

Purchase Rights; Common Stock, par value $.01 per share

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

      The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of September 30, 2004 was approximately $188,318,284 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 2, 2005, the registrant had approximately 27,546,000 shares of common stock issued and outstanding.

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STELLENT, INC.

FORM 10-K

For the fiscal year ended March 31, 2005

TABLE OF CONTENTS

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant’s definitive Proxy Statement for the annual meeting of Shareholders to be held on August 10, 2005 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, 2005.

Forward-Looking Statements

      The information presented in this Annual Report on Form 10-K under the headings Item 1. “Business”, Item 2. “Properties”, Item 3. “Legal Proceedings” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation” 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 “approximate”, “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^tm software and Content Components software — help customers worldwide solve business problems related to efficiently creating, managing, sharing and archiving critical information.

MARKETS AND CUSTOMERS

      As of March 31, 2005, we had approximately 3,337 corporate customers for our Universal Content Management products, approximately 471 OEM customers and approximately 613 corporate customers for our desktop viewing and conversion technology. No single customer accounted for ten percent or more of our total revenues in fiscal year 2005.

      Customers use our products as follows:

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 a unified architecture and product which power multiple applications. These applications help organizations manage their business information — such as records, legal documents such as contracts, business documents, presentations, 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 — document management and imaging, Web content management, digital asset management, collaboration and records management — from a unified architecture, 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.

      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 the Stellent technology 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 easily publish information to a site, such as an employee portal or partner extranet, so the information can be shared with other users.

      Our Universal Content Management software is comprised primarily of Stellent Content Server and five key application modules, and is targeted toward four primary usage scenarios, all of which are described below.

Stellent Content Server

      Stellent Content Server is a fully functional system providing secure, personalized delivery of business information. This repository provides a core set of content services — such as check-in/check-out, revision control, security, workflow, personalization and subscription — that help ensure users can access only the most current information as appropriate to their role or permissions. Content Server also provides a variety of repository services, including file storage, metadata and search.

Application Modules

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

Primary Usage Scenarios

Content Components Software

      Stellent’s Content Components software makes information created in more than 370 common office software applications more accessible to the business users who need it. Other technology companies embed this software to enable their own solutions to extract text and metadata, provide a high-fidelity view of file contents, and convert files into any one of 10 output formats. Since business information is often difficult to access without the native software application in which it was created, Stellent’s Content Components software empowers users to locate and view information without needing 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.

      The Content Components software supports multiple operating systems and international environments, and enables 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 materially depend upon 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 and 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 post-contract support. 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 post-contract support. The primary risk of a term-based license arrangement is the potential non-renewal of that arrangement. Many of our direct customers enter into services arrangements, which may include needs assessment, software integration, security analysis, application development and training. Application development generally is not critical to the functionality of the delivered software.

CONSULTING SERVICES

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

      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 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 by us to the point of application deployment, our product support resources offer customer service through quick response time, 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 or percentage of product list price.

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 scheduled at our 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 personnel work with target accounts to address unsolved business needs which can be remedied by the application of a business process built around our Stellent Universal Content Management software. The analysis process will typically include a business process and technical systems evaluation performed by our pre-sales personnel, followed by demonstrations of our products’ capabilities and direct negotiations with our sales staff. In addition, we have used internal and external telemarketing operations that are responsible for customer prospecting, lead generation and follow-up. These activities identify and develop leads for further sales efforts by our direct sales force. As of March 31, 2005, we had a worldwide total of 117 direct and indirect sales and sales support personnel and 25 marketing personnel, which includes business development and alliances.

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

      We currently have operations or collaborations in Australia, Brazil, 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, 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 2003, 2004 and 2005, were approximately $15.8 million, $13.3 million and $18.0 million, respectively. Research and development expenses represented 24%, 18%, and 17%, 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, 2005, we had 136 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.

ACQUISITIONS

      In May 2004, we acquired all outstanding shares of Optika Inc. for $10.0 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 content management products offered by companies such as EMC Corporation, FileNET Corporation, IBM Corporation, Interwoven, Inc., Microsoft Corporation, and Vignette Corporation. We also compete with current or potential customers who may develop solutions internally. In the Content Components area our primary competition is Verity.

      Many of our competitors have significantly greater financial, technical, marketing and other resources than we do and may be able to apply such resources to new or changing opportunities, technologies and customer requirements to a greater extent than we can. 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 enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. However, the laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Any litigation could result in substantial costs and diversion of resources and could have a material adverse effect on our business, operating results and financial condition. Our efforts to protect our proprietary rights may not be adequate or our competitors may independently develop similar technology. Our failure to

meaningfully protect our property could have a material adverse effect on our business, operating results and financial condition.

      We believe third parties may make claims of infringements with respect to our current or future product, but we cannot be sure that any such claims will arise. 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, 2005, we had 488 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 11 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. In May of 2005 we entered into a new six-year facility lease of approximately 42,000 square feet also located in Eden Prairie, Minnesota. We are planning to move our corporate headquarters to this new facility in the September 2005 quarter. 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 our acquisition of Optika, we assumed a lease with approximately 39,000 square feet of office space in Colorado Springs, Colorado which expires in March 2007.

      Additionally, we lease approximately 7,000 square feet of office space in Massachusetts with lease terms expiring June 2006 and September 2006; approximately 28,000 square feet of space in downtown Chicago, Illinois with a lease term expiring September 2006; approximately 12,000 square feet in Redmond, Washington with a lease term expiring in December 2007; approximately 1,600 square feet in Grand Forks, North Dakota with a lease term on a month-to-month basis; approximately 9,000 square feet in London, United Kingdom with a lease term expiring in April 2016, approximately 4,000 square feet in Tokyo, Japan with a lease term expiring in December 2007; and approximately 6,000 square feet in the Netherlands with a lease term expiring in June 2006. Management believes that our facilities are suitable and adequate for current office requirements.

      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). 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. In fiscal year 2005 a settlement was reached, subject to final documentation and preliminary and final court approval. No further expenses of any significance are anticipated with this lawsuit.

      No matter was submitted to a vote of our security holders during the fourth quarter of fiscal year 2005.

      (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.

      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.

      Mark K. Ruport has served as our Executive Vice President of Field 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 acquisition of Optika.

      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.

      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.

PART II

      Our common stock, par value $0.01 per share, is traded on The NASDAQ National Market under the symbol STEL. At June 2, 2005, our common stock was held by approximately 460 record holders. This does not include shareholders whose stock was held in the name of a bank, broker or other nominee. On June 2, 2005, the closing sale price of a share of our common stock was $7.48.

      The high and low sale prices per share of our common stock for the four quarters during the fiscal years ended March 31, 2004 and 2005 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.

Issuer Purchases of Equity Securities

      We did not make any purchases of our equity securities during the fourth quarter of fiscal year 2005.

      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, 2005 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.

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 an enterprise infrastructure for content-centric applications; Web-based management of digital assets, which are digital materials such as photos and graphics; and Web-based management of 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 2005, our Universal Content Management software primarily addressed five areas of the enterprise content management market: Web content management, document management and imaging, digital asset management, records management and collaboration 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, business records, contracts, 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 Components 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.

      In May 2004, we acquired all outstanding shares of Optika Inc. for $10.0 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.

      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 used by companies for line-of-business applications or enterprise-wide deployment.

      We have experienced a difficult business environment in information technology spending over the past several years, but one that has been improving each year since fiscal year 2003. Our license revenue increased modestly by 3% from fiscal year 2003 to fiscal year 2004. Our license revenue grew at an improved rate of 31% from fiscal year 2004 to fiscal year 2005, due in part to the acquisition of Optika in May 2004. Our growth in fiscal year 2005 from fiscal year 2004 was also driven by both an increase in our services revenue of 38% and our post-contact support by 65%. Our post-contract support renewal rate continues to be very high, a trend that we see continuing. During fiscal year 2005, we derived approximately 73% of our revenue from the United States market and approximately 27% from various international markets, primarily Europe. We have also been expanding into the Asian markets, particularly Japan and Korea. The percentage of revenue derived from Asia remains small compared to the United States.

      As our installed software base has increased, our revenue mix has shifted from product licenses to post-contract support over the past three years. Our license revenue, as a percent of total revenue, has decreased from 62% to 55% to 51% in fiscal years 2003, 2004 and 2005, respectively, while our post-contact support revenue has increased from 23% to 26% to 31% in fiscal years 2003, 2004 and 2005, respectively. Our consulting services and training revenue, as a percent of total revenue, was 15%, 19% and 19% in fiscal years 2003, 2004 and 2005, respectively. We expect our installed software base to continue to grow, and with it our post-contract support revenue. With a larger portion of our revenues coming from both services and post-contract support, our overall gross margins may decrease. However, we anticipate our product license and total services revenue for fiscal year 2006 to be approximately 50% of our total revenue. On a longer term basis, we are anticipating our product license revenue to increase to approximately 52-55% of our total revenue.

      We believe Stellent today can compete effectively in a rapidly evolving marketplace. 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 2006. We believe that:

      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. Although we experienced an overall increase in our revenue for fiscal year 2005, the United States and international economic conditions continue to be a challenging environment to do business within, specifically for large capital expenditures. In addition, 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.

      In connection with the integration of Optika and in connection with our plans to reduce costs and improve operating efficiencies, we adopted two restructuring plans during fiscal 2005. The initial restructuring took place during the first quarter and included the termination of 30 employees and the closure of our New York facility. The second restructuring plan was completed during our fourth quarter of fiscal year 2005, which included the termination of 25 employees and the closure of our Boise, Idaho and Mexican facilities. The expenses recognized during the first and fourth quarter of fiscal year 2005 related to these restructuring plans totaled $2.5 million and $1.1 million, respectively. We expect the restructurings to reduce our annual operating

expenses and increase our cash flow by approximately $6.1 million. Additional information on our restructuring plans is contained in Footnote 10 to the Consolidated Financial Statements.

RESULTS OF OPERATIONS

      During fiscal year 2005, 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 decreased slightly in fiscal year 2005 to 27% from approximately 28% in fiscal year 2004. No customer accounted for more than 10% of total revenues in fiscal year 2005.

Revenues

      Total revenues increased by $31.0 million, or 41%, to $106.8 million for fiscal year 2005 from $75.8 million for fiscal year 2004. The increase in revenues was due to our acquisition of Optika on May 28, 2004, two seven-figure Content Component Software license transactions and an overall increase in our Universal Content Management license revenue. Additionally, we had an increase in revenues for services and post-contract support due to a larger base of installed products and a continued increase use by our customers in using 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 revenue increased by $10.3 million, or 16%, to $75.8 million for fiscal year 2004 from $65.4 million for fiscal year 2003. The increase in revenues was due to an increase in revenue for services due to a larger base of installed products and an increased reliance by our customer to use our Consulting Services personnel to implement our software.

      Sales outside the United States represented 27%, 28%, and 23% of our total revenues in fiscal years 2005, 2004, and 2003, respectively.

      Revenues for product licenses increased by $12.8 million, or 31%, to $54.4 million for year 2005 from $41.6 million for fiscal year 2004. The increase in product license revenues was attributable to sales generated from our acquisition of Optika in May of 2004, an increase in our Content Component software revenue and an overall increase in our Universal Content Management software license revenue, both domestic and

internationally. The increase in our Content Component software revenue relates to two-seven figure license transactions recognized during fiscal year 2005. As we experienced a favorable increase in demand for our Universal Content Management and Content Components software licenses during fiscal year 2005, the overall information technology environment for expenditures continued to remain soft. Although we anticipate this trend to continue through fiscal year 2006, we expect our overall license revenue to increase in absolute dollars and should represent approximately 50% of our total revenue.

      Revenues for product licenses increased by $1.2 million, or 3%, to $41.6 million for fiscal 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 software revenues and Content Components software revenues was due to a moderate increase in demand mitigated by continued longer sales cycles for those products.

      Revenues for services, consisting of consulting services, training and billable expenses, increased by $5.4 million, or 38%, to $19.8 million for fiscal year 2005 from $14.3 million for fiscal year 2004. The increase in revenues for services was due to the Optika acquisition and an increase number of consulting engagements associated with the increased number of new license transactions sold during fiscal year 2005. We anticipate that the percentage of service revenue to total revenue will be approximately 18% during fiscal year 2006 and service revenue in absolute dollars will increase.

      Revenues for services increased by $4.6 million, or 48%, to $14.3 million for fiscal year 2004 from $9.7 million for fiscal year 2003. The increase in consulting services revenue was due to our customers’ software implementations having become larger and more numerous.

      Generally, customers prefer to have us perform consulting services rather than using their internal information technology staff, a trend we believe will continue. Our consulting service revenue relates almost exclusively to our Universal Content Management software as our Content Components software is embedded in other companies’ software and those companies would typically perform the consulting services. 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 revenues attributable to consulting services to continue to increase. A decline in license revenues may result in fewer consulting services engagements.

      Revenues for post-contract support increased by $12.8 million, or 65%, to $32.7 million for fiscal year 2005 from $19.9 million for fiscal year 2004. The increase in revenues for our post-contract support was due to the Optika acquisition and supporting a larger customer installed base of Universal Content Management and Content Component products. We anticipate that the percentage of post-contract support revenue to total revenue will be approximately 32% during fiscal year 2006 and post-contract support revenue in absolute dollars will increase.

      Revenues for post-contract support increased by $4.5 million, or 29%, to $19.9 million for fiscal year 2004 from $15.3 million for fiscal year 2003. The increase in revenues for post-contract support was due to a larger installed base of Universal Content Management and Content Component products.

      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. 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 post-contract

customer support revenues. However, since post-contract customer support revenues are recognized over the duration of the support contract, the impact would lag behind a decline in license revenues.

Cost of Revenues and Gross Profit

      Total cost of revenues increased by $8.6 million, or 37%, to $32.3 million for fiscal year 2005 from $23.7 million for fiscal year 2004. Total cost of revenues as a percentage of total revenues was 30% in fiscal year 2005 compared to 31% for fiscal year 2004. Gross profit increased by $22.4 million, or 43%, to $74.5 million for fiscal year 2005 from $52.1 million for fiscal year 2004. Total gross profit as a percentage of total revenues was 70% for the fiscal year 2005 up slightly from 69% for fiscal year 2004. The increase in gross profit dollars was largely attributable to our acquisition of Optika.

      Total cost of revenues increased by $3.1 million, or 15%, to $23.7 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 was attributable to the increase in total revenue.

      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 9%, 12%, and 16% of total license revenues in fiscal years 2005, 2004 and 2003, respectively.

      Cost of revenues for product licenses increased by $0.1 million or 2%, to $5.0 million for fiscal year 2005 from $4.9 million for fiscal year 2004. Gross profit as a percentage of revenues for product licenses was 91% for fiscal year 2005 compared to 88% for fiscal year 2004. The overall gross profit percentage increase in product licenses for fiscal year 2005 was due to our acquisition of Optika, whose products yield a higher gross margin than our traditional Universal Content Management software sales. In addition, we also had higher levels of our Content Component software product license revenue during fiscal year 2005, which carry a higher gross margin than our Universal Content Management software revenue.

      The overall increase in cost of revenues dollars for product licenses was attributed to the acquisition of Optika, changes in product mix, amortization of capitalized software from acquisitions discussed below and was partially offset by a reduction in certain fixed costs related to royalties for third-party technology incorporated into our products, which had become fully amortized in the previous fiscal year. In an on going effort to enhance the features and functionality of our Universal Content Management suite of software products, we have continued to elect to license or purchase more third party software. We expect to continue to license or purchase third party software, which may cause our cost of license revenue to increase.

      Cost of revenues for product licenses decreased by $1.5 million or 24%, to $4.9 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 Content Component Software 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.

      Amortization of Capitalized Software from Acquisitions. Cost of revenues related to amortization of capitalized software from acquisitions was $2.4 million for fiscal year 2005 compared to $1.6 million for fiscal year 2004. 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, Ancept and Optika, in July 2001, April 2002, March 2003, August 2003 and May 2004, respectively. The increase in cost of revenues related to amortization of capitalized software from fiscal 2004 compared to fiscal 2005 was attributable to the acquisition of Optika, which was partially offset by the

completion of amortization of capitalized software in June of 2003 and June of 2004 related to our acquisition of Content Component Division (CCD) and RESoft, respectively. We acquired technology from the companies listed for incorporation of the technology into our Universal Content Management products in order to maintain competitive functionality. We expect to continue to evaluate selective potential acquisitions. To the extent we consummate additional acquisitions, and depending on the structure of such acquisitions, the assets acquired and the consideration paid, our costs of revenues related to amortization of capitalized software from acquisitions may increase.

      Cost of revenues related to amortization of capitalized software from acquisitions decreased $0.3 million for fiscal year 2004 to $1.6 million from $1.9 million for fiscal year 2003. The decrease in cost of revenues related to amortization of capitalized software from acquisitions was attributable to the completion in June of 2003 of amortization of capitalized software related to our acquisition of CCD.

      Cost of services, consisting of personnel, billable and unbilled travel expenses and other operating expenses, increased by $6.3 million, or 47%, to $19.6 million for fiscal year 2005 from $13.3 million for fiscal year 2004. Gross profit as a percentage of revenues for services was 1% for fiscal year 2005, compared to 7% for fiscal year 2004. The decrease in the gross profit dollars and percentage in service revenues was due to an increase in personnel related costs and the Optika acquisition. We have not integrated the consulting services operations of Optika with our primary consulting services operations. Our utilization of our consulting services personnel from Optika was lower than anticipated. We anticipate that our cost of consulting and training services as a percentage of total consulting and training revenue will decrease in fiscal year 2006 as we believe that we can improve utilization of the combined service departments of Stellent and Optika.

      Cost of services increased by $4.9 million, or 58%, to $13.3 million for fiscal year 2004 from $8.4 million for fiscal year 2003. Gross profit as a percentage for services was 7% for fiscal year 2004, compared to 13% for fiscal year 2003. The decrease in the gross profit as a percentage of services revenue 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 services revenue.

      Since our service revenues have lower gross margins than our license revenues, our overall gross margins will typically decline if our service revenues increase as a percent of total revenues. Our cost of service revenues as a percentage of 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 service revenues realized on a per-customer basis may decline and result in lower gross margins.

      Cost of post-contract support services, consisting of personnel and other operating expenses, increased by $1.5 million, or 38%, to $5.4 million for fiscal year 2005 from $3.9 million for fiscal year 2004. Gross profit as a percentage for post-contract support was 84% for fiscal year 2005, compared to 80% for fiscal year 2004. The increase in the gross profit dollars and as a percentage of post-contract support revenue was due to the revenue generated from the acquisition of Optika’s installed base since May 28, 2004 and an increase in post-contract support revenue generated by a growing install base of Universal Content Management customers in fiscal year 2005. We are able to achieve economies of scale as we continue to grow our installed base, which requires us to add a minimal level of additional staff, thus increasing our overall gross profit margin for post-contract support. We anticipate our gross profit as a percentage for post-contract support revenue to be 80% to 82% in fiscal 2006.

      Cost of post-contract support costs increased by $0.2 million, or 4%, to $3.9 million for fiscal year 2004 from $3.7 million for fiscal year 2003. Gross profit as a percentage for post-contract support was 80% for fiscal year 2004, compared to 76% for fiscal year 2003. The increase in the gross profit dollars and percentage was due to the increase in revenue from post-contract customer support from a larger installed base of Universal Content Management products, with little additional support personnel 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.

      Since our post-contract revenues have modestly lower gross margins than our license revenues, our overall gross margins will typically decline if our post-contract revenues increase as a percent of total revenues. Our cost of post-contract support as a percentage of post-contract support revenues may vary from period to period, depending in part on whether we are able to sell support on new product license revenue and also if our annual renewal rates with our existing customers continues to remain high. Any significant change in our annual renewal rates could result in a decline in our gross profit margins.

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 $3.2 million, or 8%, for fiscal year 2005 from fiscal year 2004. As a percentage of total revenues, sales and marketing expenses were 40% for fiscal year 2005 compared to 52% for fiscal year 2004. The increase in dollars is a direct result of the Optika acquisition, offset by cost synergies and the restructuring actions undertaken by us during fiscal year 2005. The overall decrease in sales and marketing as a percentage of revenue is primarily due to a larger revenue base, achieving improved productivity from our sales personnel, cost synergies from the acquisition of Optika and

the restructurings undertaken by us during the first and fourth quarters of fiscal year 2005. We believe that our sales and marketing expenses as a percentage of total revenue will be in the 37% to 39% range in fiscal year 2006 as we should start to see additional costs savings from the restructuring actions taken in fiscal year 2005. However, the overall sales and marketing expenses as a percentage of total revenue will be dependent on the timing of hiring of new sales and marketing personnel, our spending on marketing programs and the level of revenues, in particular license revenues, in each period which may offset anticipated cost savings related to the Optika acquisition.

      Sales and marketing expenses increased by $0.8 million, or 2%, for fiscal year 2004 from 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.

      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. General and administrative expenses increased by $5.2 million, or 59%, for fiscal year 2005 from fiscal year 2004. The increase in general and administrative expenses was due to increased legal, accounting and other professional fees associated with additional regulations enacted by the Federal government, acquisition related activities and the preliminary settlement of the class action shareholder lawsuit. These costs offset most of our anticipated expense savings associated with consolidating the accounting, finance and human resource departments of Optika with our corporate headquarters, along with eliminating duplicate expenses such as certain insurance expenses and professional service expense associated with the Optika acquisition during fiscal year 2005. We expect general and administrative expenses to decrease to approximately 10% to 12% of total revenue during fiscal year 2006 as a result of the elimination of significant costs associated with the class action lawsuit and an overall reduction in professional fees related to our compliance with the Sarbanes-Oxley Act of 2002. External professional service expenses associated with our Sarbanes-Oxley compliance was $824 and $0 in fiscal years 2005 and 2004, respectively. If new regulations are enacted by Congress, the Securities and Exchange Commission or the national stock exchanges, it could result in an increase to our general and administrative expenses.

      For fiscal year 2004, general and administrative expense dollars 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 us 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. External professional service expenses associated with Sarbanes-Oxley compliance was $0 and $121 in fiscal years 2004 and 2003, respectively.

      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 2005, research and development expenses increased by $4.7 million, or 35%, from fiscal year 2004. During fiscal year 2005, our research and development efforts were focused on enhancing our many products, while also increasing customer value through the interoperability of those products. These products include Universal Content Management, Imaging and Business Process Management and our Content Integration Suite of products, along with other outside product lines. During fiscal year 2005, we announced the release of version 7.5 of our Universal Content Management software, which furthers our primary value proposition of generating rapid customer success through fast implementations and quick, broad user adoption. We also announced the release of version 7.5 of our Sarbanes-Oxley Solution, which includes customer driven enhancements developed to speed implementations, increased ease-of-use and augmented reporting capabilities. The increase in research and development expense for fiscal year 2005 when compared to fiscal year 2004 was due to our acquisition of Optika and our continued effort to support the many enhancement initiatives currently underway for those products mentioned above. We believe that our research and development expense as a percentage of total revenue will be approximately 16% to 18% during fiscal year 2006.

      For fiscal year 2004, research and development expenses decreased by $2.5 million, or 16%, from fiscal year 2003, due to reduced headcount, the consolidation of research and development facilities and the completion of certain research and development projects in fiscal year 2003.

      During the first quarter of fiscal year 2005 we recognized acquisition-related sales, marketing and other costs totaling $0.9 million related to the Optika acquisition. Approximately $0.6 million of these costs were related to advertising in various periodicals announcing the completion of the Optika acquisition. We have generally not advertised in this manner in the past. 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-related sales and marketing and other costs may increase substantially.

      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.

      Amortization of acquired intangible assets relate to our acquisitions of CCD in July 2000, RESoft in July 2001, Kinecta in April 2002 and Optika in May 2004. A portion of the purchase price of certain assets of CCD was allocated to core technology, customer base, software, trademarks and other intangibles, and was being amortized over the assets estimated useful lives of three to four years. A portion of the purchase price of certain assets of each of RESoft and Kinecta was allocated to certain intangible assets, such as customer base and trademarks, and is also being amortized over their useful lives of three years. A portion of the purchase price of certain assets of Optika was allocated to contractual customer relationships and is being amortized over 10 years. Amortization of acquired intangible assets and unearned compensation totaled $0.7 million in fiscal year 2005 compared to $2.0 million in fiscal year 2004. The decrease when comparing fiscal year 2005 to fiscal year 2004 is attributable to the completion in June 2003 of amortization of substantially all of the intangibles related to our acquisition of CCD.

      For fiscal year 2004, amortization of intangible assets decreased $4.6 million, or 70% when compared to fiscal year 2003. The decrease in amortization expense was the result of the completion of amortization of substantially all of the intangible assets related to our acquisition of CCD in June 2003.

      During the fourth quarter of fiscal year 2005 we completed a physical inventory of our fixed assets which includes equipment, furniture and leasehold improvement on our leased facilities. As a result of this physical inventory, we identified certain fixed assets which had been either decommissioned and had no value or were physically disposed of during the fourth quarter of fiscal year 2005. In accordance with Statement of Financial Accounting Standard (SFAS) No. 144 Accounting for Impairment or Disposal of Long-Lived Assets we recorded an impairment charge of $0.4 million which represented the remaining net book value of these assets as of March 31, 2005.

      We assessed many factors in determining whether and when to restructure our operations, with a significant consideration being the performance of the economy and the information technology markets in the United States and in Europe. During fiscal year 2005, in connection with the acquisition of Optika and management’s plan to reduce costs and improve operating efficiencies, we recorded two restructuring charges. The initial charge of $2.5 million was recognized during the first quarter of fiscal year 2005, which included costs for pay and benefits related to the involuntary termination of 30 employees of approximately $1.9 million with the remaining $0.6 million related to the closure of our New York facility. In the fourth quarter of fiscal year 2005 a change of estimate and impairment charge was recorded which resulted in $0.1 million additional expense related to this restructuring plan. The annual effect on expenses and cash flows associated with the termination of these employees was estimated to have decreased our expenses and increase our cash flow by approximately $4.4 million. The second restructuring charge of $1.1 million was recorded during our fourth quarter of fiscal year 2005, which included costs for pay and benefits related to the involuntary termination of 25 employees of approximately $1.0 million and $0.1 million related to the closure of our Boise, Idaho and Mexican facilities. The annual effect on expenses and cash flow related to the restructuring action taken in the fourth quarter of fiscal year 2005 is expected to decrease our expenses and increase our cash flow by approximately $1.7 million. These cost reduction measures were adopted to take advantage of the cost synergies from the Optika acquisition. However, we may be required to re-invest in certain areas to expand our customer base, grow our revenues and invest in product development, which may eliminate or exceed these cost savings. See further discussion of restructuring charges in Note 10 to the Consolidated Financial Statements.

      For the fiscal year 2004, we recorded restructuring charges of approximately $0.7 million in connection with management’s plan to reduce costs and improve operating efficiencies. The restructuring charge was comprised of severance pay and benefits related to the involuntary termination of employees of approximately $0.4 million with remaining $0.3 million related to a change in estimate related to the closing of facilities and other exit costs.

Other Income (Expense)

Interest income, net

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

      The decrease in net interest income for the fiscal year ended March 31, 2005 from 2004 was due to reduced amounts of invested funds, partially offset by an increase in market interest rates earned by invested funds, which have increased on average over the prior year.

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

      During fiscal year 2005, we recognized an impairment charge of $1.1 million related to our remaining investments in two non-public, start-up technology companies. Both of these companies are still in business, but upon review of their business plans and the incremental financing that they received, we determined the change in their valuation was other-than-temporary impairment.

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

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

Net Operating Loss Carryforwards

      As of March 31, 2005, we had net operating loss carryforwards of approximately $152.4 million. The net operating loss carryforwards will expire at various dates beginning in 2010, if not utilized. The Tax Reform Act of 1986 imposes substantial restrictions on the utilization of net operating losses and tax credits in the event of an “ownership change” of a corporation. Our ability to utilize net operating loss carryforwards on an annual basis will be limited as a result of “ownership changes” in connection with the sale of equity securities. We have provided a valuation allowance against the entire amount of the deferred tax asset as of March 31, 2005

because of uncertainty regarding its full realization. Our accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of our deferred tax assets. In concluding that a valuation allowance was required, management considered such factors as our history of operating losses, potential future losses and the nature of our deferred tax assets. See Note 8 to the Consolidated Financial Statements.

Liquidity and Capital Resources

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

      To date, we have invested our capital expenditures in property and equipment, consisting largely of computer hardware and software. Capital expenditures for fiscal year 2005 and 2004 were $1.9 million and $2.3 million, respectively. We have also entered into capital and operating leases for facilities and equipment. We expect that our capital expenditures will increase as our employee base grows. At March 31, 2005, we had capital expenditure lease commitments with remaining total payments of $0.2 million.

      As of March 31, 2005, we had $72.8 million in cash and marketable securities and $67.4 million in working capital. We currently believe that our cash and cash equivalents on hand will be sufficient to meet our working capital requirements for the foreseeable future, particularly through March 31, 2006. On a longer term basis, we may require additional funds to support our working capital requirements or for other purposes and may seek to raise such additional funds through public or private equity financings or from other sources. We cannot be certain that additional financing will be available on terms favorable to us, or on any terms, or that any additional financing will not be dilutive.

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

      Cash, cash equivalents and marketable securities decreased $0.8 million, or 1%, to $72.8 million as of March 31, 2005 from $73.5 million at March 31, 2004. The decrease was primarily due to our acquisition of Optika, partially offset by the positive cash flow generated from operations and financing activities during fiscal year 2005. Our cash, cash equivalents and marketable securities decreased $7.7 million, or 9% from fiscal 2003 to fiscal 2004. The decrease were due to the operating loss experienced in those years.

      Cash provided by (used) in 2005, 2004 and 2003 was as follows (in thousands):

      Operating Activities: Net cash provided by operating activities of $2.9 million in fiscal year 2005 resulted from the effects of non-cash expenses including depreciation and amortization of $3.5 million, amortization of intangible assets of $3.1 million and an impairment charge on fixed assets of $0.4 million were included in our net loss of $5.8 million. The adjusted cash provided before the effect of changes in working capital components was $1.2 million. Additional cash provided was the result of an increase of $4.4 million in deferred revenue, $1.2 million of other accrued liabilities, $0.8 million in accounts payable, a $2.4 million decrease in prepaid expenses and other current assets, $1.1 million related to the write-down of investments in other companies, these additions to cash were partially offset by an increase of $8.1 million in accounts receivable.

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

deferred revenues and other accrued liabilities and an increase of approximately $0.5 million in accounts payable.

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

      A number of non-cash items were charged to expense and increased our net loss in 2005, 2004 and 2003, respectively. These items include depreciation and amortization of property and equipment and intangible assets. The extent to which these non-cash items increase or decrease in amount and increase or decrease our future operating results will have no corresponding impact on our operating cash flows.

      Our primary source of operating cash flow is the collection of accounts receivable from our customers offset by payments to our employees, vendors and service providers. We measure the effectiveness of our collection efforts by an analysis of average accounts receivable days outstanding (“days outstanding”). Days outstanding on an annual basis were 84 days on March 31, 2005, 2004 and 2003, respectively. Collections of accounts receivable and related days outstanding will fluctuate in future periods due to the timing and amount of our future revenues, payment terms on customer contracts and the effectiveness of our collection efforts.

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

      Investing Activities: Net cash used in investing activities was $2.2 million for fiscal year 2005. This resulted from net maturities of marketable securities of $10.9 million, offset by approximately $11.1 million used in acquiring Optika and other entities, and approximately $1.9 million to purchase equipment and furniture.

      Net cash provided by investing activities was $10.3 million for fiscal year 2004. This resulted from net proceeds from investment trading and maturities of $14.4 million and a $0.4 million investment gain on sale, partially offset by approximately $2.3 million to purchase property and equipment and $2.2 million used to acquire Ancept, Inc.

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

      Generally, our investment portfolio is classified as held to maturity. Our investments objectives are to preserve principal and provide liquidity while at the same time maximizing yields without significantly increasing risk. We generally hold investments in commercial paper, corporate bonds and United States government agency securities to maturity.

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

      Financing Activities: Net cash provided by financing activities of $3.9 million in fiscal 2005 included approximately $4.6 million from the net proceeds from the issuance of common stock under our Employee Stock Purchase Plan and upon the exercises of stock options, partially offset by $0.6 million of payments related to capital lease obligations.

      Net cash provided by financing activities of $1.9 million in fiscal 2004 included approximately $2.2 million from the net proceeds from the issuance of common stock under our Employee Stock Purchase Plan and upon the exercises of stock options, partially offset by $0.3 million of repurchased stock.

      Net cash used in financing activities of $2.7 million in fiscal 2003 included $3.5 million of repurchased stock, partially offset by $0.8 million from the net proceeds from issuance of common stock under our Employee Stock Purchase Plan and upon the exercises of stock options.

      Our cash flows from financing activities are the result of cash receipts from the issuance of common stock and our repurchases of common stock. We receive cash from the exercise of common stock options and the sale of common stock under our Employee Stock Purchase Plan. While we expect to continue to receive these proceeds in future periods, the timing and amount of such proceeds is difficult to predict and is contingent on a number of factors including the price of our common stock, the number of employees participating in our stock option plans and our Employee Stock Purchase Plan and general market conditions. Our Board of Directors has approved a common stock repurchase program in fiscal year 2002 allowing management to repurchase $20.0 million of our common stock in the open market of which we have purchased approximately $7.4 million.

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

      The table below discloses a summary of the Company’s specified contractual obligations at March 31, 2005 (in thousands):

Critical Accounting Policies and Estimates

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

      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 104, Revenue Recognition.

      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. Generally, we sell our consulting services separately, and have established VSOE on this basis. VSOE for PCS is determined based upon the customer’s annual renewal rates for these elements. Accordingly, assuming all other revenue recognition criteria are met, revenue from perpetual licenses is recognized upon delivery using the residual method in accordance with SOP 98-9, and revenue from PCS is recognized ratably over their respective terms, typically one year.

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

license arrangement is greater than twelve months. If the term of the time-based license arrangement is twelve months or less, we recognize revenue ratably over the term of the license arrangement.

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

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

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

      The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amount of assets and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Specifically, we make estimates as to the overall collectibility of accounts receivable and provide an allowance for amounts deemed to be uncollectible. Management specifically analyzes its accounts receivable and historical bad debt experience, customer concentrations, customer credit-worthiness, current economic trends and changes in its customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. At March 31, 2005 and 2004, our allowance for doubtful accounts balance, which related to specific accounts where we believe collection is not probable and to a lesser extent our historical experience applied to accounts receivable not specifically reserved, was $0.8 million and $1.1 million, respectively. These amounts represent 3% and 6% of total gross accounts receivable at March 31, 2005 and 2004, respectively.

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

      In connection with our restructuring plans, we accrue for severance payments and other related termination benefits provided to employees in connection with involuntary staff reductions. We accrue for these benefits in the period when benefits are communicated to the terminated employees. Typically, terminated employees are not required to provide continued service to receive termination benefits. If continued service is required, then the severance liability is accrued over the required service period. In general, we use a formula based on a combination of the number of years of service and the employee’s position within the Company to calculate the termination benefits to be provided to affected employees. At March 31, 2005, a total $1.0 million was accrued for future severance and termination benefits payments, which is payable through June 2006.

      In connection with our restructuring and facility consolidation plans, we perform evaluations of our then-current facilities requirements and identify facilities that are in excess of our current and estimated future needs. When a facility is identified as excess and we have ceased use of the facility, we accrue the fair value of the lease obligations. In determining fair value, we consider expected sublease income over the remainder of the lease term and related exit costs if any. To determine the estimated sublease income, we receive appraisals from real estate brokers to aid in our estimate. In addition, during our evaluation of our facilities requirements, we also identify operating equipment and leasehold improvements that may have suffered a reduction in their economic useful lives. Most of our excess facilities are being marketed for sublease and are currently unoccupied. Accordingly, our estimate of excess facilities could differ from actual results and such differences could result in additional charges that could materially affect our consolidated financial position and results of operations. At March 31, 2005, we had $0.7 million accrued for excess facilities, which is payable through January 2007. We reassess our excess facilities liability each period based on current real estate market conditions.

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

      Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. At March 31, 2005, we have recorded a full valuation allowance of $71.1 million against our deferred tax assets, due to uncertainties related to our ability to utilize our deferred tax assets, consisting principally of certain net operating loss carryforwards. The valuation allowance is based on our estimates of taxable income by jurisdiction and the period over which our deferred tax assets will be recoverable. The Company had U.S. net operating loss (NOL) carryforwards of approximately $120.4 million and foreign net operating losses of approximately $32.0 million at March 31, 2005, which begin to expire in 2010. These NOL’s are subject to annual utilization limitations due to prior ownership changes.

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

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

      We account for long-lived assets in accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). This Statement requires that long-lived and intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During the fourth quarter of fiscal year 2005 we completed a physical inventory of our fixed assets which includes equipment, furniture and leasehold improvement on our leased facilities. As a result of this physical inventory, we identified certain fixed assets which had been either decommissioned and had no value or were physically disposed of during fiscal year 2005. In accordance with SFAS No. 144 we recorded an impairment charge of $0.4 million which represented the remaining net book value of these assets as of March 31, 2005.

      On April 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No. 142 requires that goodwill no longer be amortized and that goodwill be tested annually for impairment or more frequently if events and circumstances warrant. We are required to perform an impairment review of goodwill on at least an annual basis. This impairment review involves a two-step process as follows:

      We have determined that we have two reporting units. We performed and completed our required annual impairment testing on January 1, 2005. As part of this review, we engaged a independent third-party valuation of the two reporting units. Upon completing our review, we determined that the carrying value of our recorded goodwill as of this date had not been impaired and no impairment charge was recorded.

      We are also required to assess goodwill for impairment on an interim basis when indicators exist that goodwill may be impaired based on the factors mentioned above. For example, if our market capitalization declines below our net book value or we suffer a sustained decline in our stock price, we will assess whether our goodwill has been impaired. A significant impairment could result in additional charges and have a material adverse impact on our consolidated financial condition and operating results. Additionally, no circumstances occurred during the fourth quarter of fiscal year 2005 which would have created an impairment loss at March 31, 2005.

Recent Accounting Pronouncements

      In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. This new standard replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements. Among other changes, SFAS No. 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements

presented on the new accounting principle, unless it is impracticable to do so. SFAS No. 154 also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a “restatement.” The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. We do not believe that the adoption of the provisions of SFAS No. 154 will have a material impact on our consolidated financial statements.

      In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), Share-Based Payment. Statement 123(R) will, with certain exceptions, require entities that grant stock options and shares to employees to recognize the fair value of those options and shares as compensation cost over the service (vesting) period in their financial statements. The measurement of that cost will be based on the fair value of the equity or liability instruments issued. We are required to adopt Statement 123(R) in the first interim period beginning after our fiscal year 2006. As part of this adoption, we will begin expensing our options effective April 1, 2006 and have also elected not to restate the prior period results. Since we will continue to issue stock options to our employees as a form of incentive compensation and because we have a significant amount of outstanding stock options that will vest on or after April 1, 2006, the adoption of this FASB is expected to have a significant impact on our financial statements, but the amount of the impact has not been determined.

      In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets — an amendment of Accounting Principles Board Opinion (APB) No. 29. The guidance in APB No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in APB No. 29, however, included certain exceptions to that principle. SFAS No. 153 amends APB No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. We are currently assessing the impact of the provisions. The provision of SFAS No. 153 is effective in periods beginning after June 15, 2005. We do not believe that the adoption of the provisions of SFAS No. 153 will have a material impact on our consolidated financial statements.

      In December 2004, the FASB issued FASB Staff Position No. 109-1 (FAS No. 109-1), Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004. The American Jobs Creation Act (AJCA) introduces a special 9% tax deduction on qualified production activities. FAS No. 109-1 clarifies that this tax deduction should be accounted for as a special tax deduction in accordance with SFAS No. 109. We do not expect the adoption of these new tax provisions to have a material impact on our consolidated financial position, results of operations or cash flows.

      In December 2004, the FASB issued FASB Staff Position No. 109-2 (FAS No. 109-2), Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creations Act of 2004. The AJCA introduces a limited time 85% dividends received deduction on the repatriation of certain foreign earnings to a United States taxpayer (repatriation provision), provided certain criteria are met. FAS No. 109-2 provides accounting and disclosure guidance for the repatriation provision. Although FAS No. 109-2 is effective immediately, we do not expect to be able to complete its evaluation of the repatriation provision until after the United States Congress or the Treasury Department provides additional clarifying language on key elements of the provision.

      In March 2004, the Emerging Issues Task Force (EITF) issued EITF No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments which provided new guidance for assessing impairment losses on investments. Additionally, EITF No. 03-1 includes new disclosure requirements for investments that are deemed to be temporarily impaired. In September 2004, the FASB delayed the accounting provisions of EITF No. 03-1; however the disclosure requirements remain effective for annual periods ending after June 15, 2004. We will evaluate the impact of EITF No. 03-1, once final guidance is issued.

      In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51. FIN 46 addresses the consolidation by business enterprises of variable interest entities as defined in the interpretation. In December 2003, the FASB issued a revised Interpretation (FIN 46R), which expands the criteria for consideration in determining whether a variable interest entity should be consolidated. We do not have any entities that required disclosure or consolidation as a result of adopting FIN 46R.

Related Party Transactions

      At March 31, 2002, we held investments in and notes with five non-public start-up technology companies, owning approximately 3% to 12% of these companies, and in publicly traded technology companies listed on NASDAQ, primarily Active IQ, in which the Company owned 5.4%, exclusive of warrants. Investments in these companies were made with the intention of giving us opportunities to have new technologies developed for us or to give us leverage into certain vertical markets that we may not otherwise be able to obtain on our own. At March 31, 2003, we had remaining value in two of these non-public company investments and owned approximately 9% to 13% of them. At March 31, 2004, our investments in these two non-public companies were approximately 8% and 11%. The value of these two investments at March 31, 2003 and 2004 was approximately $1.1 million. A permanent decline in value for these two companies of approximately $1.1 million was recorded in fiscal 2005.

      Upon our acquisition of certain assets of Active IQ (see Note 2 to the Consolidated Financial Statements) in March 2003, we recorded an impairment of approximately $1.1 million related to our investment in Active IQ. For substantially all of the year ended March 31, 2003, our investment in Active IQ was less than 5%. In fiscal 2004, we sold this investment and recorded a gain of approximately $0.4 million.

      During the years ended March 31, 2003, and March 31, 2004, we entered into several sales transactions with companies affiliated with members of our Board of Directors. Revenues of $0.4 million and $0.2 million from these sales transactions was recorded during the years ended March 31, 2003, and March 31, 2004, respectively. At March 31, 2003, and March 31, 2004, we had an account receivable balance of approximately $0.3 million and $0.1 million associated with these transactions, respectively. The terms and conditions, including fees, with respect to the transactions were substantially similar to those with unaffiliated third parties negotiated at arms length. The members of our Board of Directors affiliated with these companies had no direct or indirect material interest in the transactions. There were no sales transactions with these companies during the year ended March 31, 2005.

      In March 2004, we entered into a non-exclusive reseller agreement with Optika, Inc., a company with which we had announced a definitive merger agreement in January 2004 and later acquired in May 2004 (see Note 2 to the Consolidated Financial Statements). The agreement provided for the sale of Optika products by us. In the year ended March 31, 2004, we recognized approximately $0.2 million of revenue under the agreement.

RISK FACTORS

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

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

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

      Our revenues may not grow in future periods and we may not sustain profitability. If we do not sustain profitability, our financial position will suffer and the market price of our stock may fall. Our ability to sustain

profitable operations depends upon many factors beyond our direct control. These factors include, but are not limited to:

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

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

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

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

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

      We currently derive all of our revenues from product licenses and services associated with our system of content management, business process management and Content Component 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.

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

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

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

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

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

      Our products utilize interfaces that are compatible with commercial Web browsers. In addition, our Stellent Content Management System is a server-based system written in Java that functions in both Windows NT and UNIX environments. We must continually modify our products to conform to commercial Web browsers and operating systems. If our products were to become incompatible with commercial Web browsers and operating systems, our business would be harmed. In addition, uncertainty related to the timing and nature of product introductions or modifications by vendors of Web browsers and operating systems may have a material adverse effect on our business, operating results and financial condition.

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

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

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

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

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

      Shareholder class-action suits have been filed naming Stellent and certain of our current and former officers and directors as co-defendants. We have reached a settlement, subject to final document and preliminary and final court approval.

      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 again be the target of this kind of litigation, and such litigation could also result in substantial costs and divert management’s attention and resources.

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

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

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 Stellent without the approval of our board of directors. Consequently, our shareholders may lose opportunities to sell their stock for a price in excess of the prevailing market price.

NEW LEGISLATION AND POTENTIAL NEW ACCOUNTING PRONOUNCEMENTS ARE LIKELY TO IMPACT OUR FUTURE CONSOLIDATED FINANCIAL POSITION AND RESULTS OF OPERATIONS.

      Recently, there have been significant regulatory changes, including the Sarbanes-Oxley Act of 2002, and there are new accounting pronouncements or regulatory rulings that will have an impact on our future consolidated financial position and results of operations. The Sarbanes-Oxley Act of 2002 and other rule changes and proposed legislative initiatives following several highly publicized corporate accounting and corporate governance failures are likely to increase general and administrative costs. Further, in December 2004, the Financial Accounting Standards Board issued a revision to Statement No. 123, Share-Based Payment, that will, with certain exceptions, require entities that grant stock options and shares to employees to recognize the fair value of those options and shares as compensation expense over the service period in their financial statements. These and other potential changes could materially increase the expenses we report under accounting principles generally accepted in the United States of America and adversely affect our consolidated operating results. Additionally, the impact of these changes may increase costs incurred by our customers and prospects, which could result in delays or cancellations in spending on enterprise content management software and services like those that we provide. Such delays and cancellations could have a material adverse impact on our consolidated statement of operations and financial condition.

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

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

      The risks of failure to overcome these integration challenges include:

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

      In accordance with accounting principles generally accepted in the United States of America, we accounted for the acquisition of Optika using the purchase method of accounting, which will result in charges to earnings that could have a material adverse effect on the market value of our common stock. Under the purchase method of accounting, we allocated the total purchase price in the acquisition to Optika’s net tangible assets, amortizable intangible assets and intangible assets with indefinite lives based on their fair values as of the date of the closing of the acquisition, and recorded the excess of the purchase price over those fair values as goodwill. We will incur additional depreciation and amortization expense over the useful lives of certain of the net tangible and intangible assets acquired in connection with the acquisition. In addition, to the extent the value of goodwill or intangible assets with indefinite lives becomes impaired, we may be required to incur material charges relating to the impairment of those assets. These depreciation, amortization and potential impairment charges could have a material impact on our results of operations.

Interest Rate Risk

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

      The following table presents the fair value of cash, cash equivalents and marketable securities that are subject to interest rate risk and the average interest rate as of March 31, 2005 (dollars in thousands):

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

      Our cash equivalents and short-term investments are subject to interest rate risk and will decline in value if market interest rates increase or decrease. Assuming an average investment balance of $60.0 million, if interest rates were to increase (decrease) by 10%, this would result in an approximate $114,000 increase (decrease) in annual interest income. Additionally, we have the ability to hold our investments until maturity and, therefore, we would not expect to recognize an adverse impact on income or cash flows.

      As of March 31, 2005, we did not hold derivative financial instruments and have never held such instruments in the past.

Foreign Currency Risk

      The majority of our revenues and expenses are denominated in United States Dollars. As a result, we have not experienced significant foreign exchange gains and losses to date. While we do expect transactions in foreign currencies in 2005, we do not anticipate that foreign exchange gains or losses will be significant. We have engaged in limited and immaterial amount of foreign currency forward contract activities to date.

Commodity Price Risk

      We did not hold commodity instruments as of March 31, 2005, and have never had such instruments in the past.

Quarterly Financial Information (Unaudited)

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

      The consolidated financial statements required by this item are submitted as a separate section of this Annual Report on Form 10-K. See Item 15 “Exhibits and Financial Statements Schedules.”

      None.

Controls and Procedures

      Based on an evaluation as of March 31, 2005, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were sufficiently effective to ensure that the information required to be disclosed in this Annual Report on Form 10-K was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and instructions for Form 10-K.

      Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors or fraud. An internal control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all control issues, errors and instances of fraud, if any, within Stellent, Inc. have been detected.

Management’s Report on Internal Control over Financial Reporting

      Our management is responsible for establishing and maintaining adequate internal control over our financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2005. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this framework, management has concluded that our internal control over financial reporting was effective as of March 31, 2005. Our independent registered public accounting firm, Grant Thornton LLP, has issued an audit report on its assessment of our internal control over financial reporting, which is included in Item 15. of Form 10-K.

      There were no changes in our internal control over financial reporting during the quarter ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

      None.

PART III

      The information concerning our officers required by this Item is incorporated by reference to the information included herein under Item 4A. The information concerning our directors and other matters required by this Item is incorporated by reference to our definitive proxy statement to our 2005 Annual Meeting of Stockholders under the caption “Election of Directors”.

      The information concerning compliance with Section 16(a) of the Exchange Act required by this Item is incorporated by reference to our definitive proxy statement to our 2005 Annual Meeting of Stockholders under the caption “Section 16(a) Beneficial Ownership Reporting Compliance”.

      The information that is required by this Item is incorporated by reference to our definitive proxy statement to our 2005 Annual Meeting of Stockholders under the caption “Executive Compensation”.

      The information about security ownership of certain beneficial owners and management required by this Item is incorporated by reference to our definitive proxy statement to our 2005 Annual Meeting of Stockholders under the captions “Security Ownership of Certain Beneficial Owners and Management”. The information regarding securities authorized for issuance under equity compensation plans required by this Item is incorporated by reference to our proxy statement under the caption “Equity Compensation Plan Information” and the information appearing under the heading “Stock Options” in Note 5 of “Notes to Consolidated Financial Statements” in the financial statements.

      The information that is required by this Item is incorporated by reference to our definitive proxy statement for our 2005 Annual Meeting of Stockholders under the caption “Certain Relationships and Related Transactions”.

      The information that is required by this Item is incorporated by reference to our definitive proxy statement for our 2005 Annual Meeting of Stockholders under the caption “Ratification of Independent Auditors”.

      (a) Documents filed as part of this report:

Schedule II Valuation of Qualifying Accounts

REPORT OF INDEPENDENT REGISTERED CERTIFIED

PUBLIC ACCOUNTING FIRM ON SCHEDULE

To the Board of Directors and Shareholders

Stellent, Inc.

      We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated financial statements of Stellent, Inc. and subsidiaries referred to in our report dated June 6, 2005, which is included in the annual report to security holders and incorporated by reference in Part II of this form. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The Schedule II is presented for purposes of additional analysis and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

Minneapolis, Minnesota

June 6, 2005

      3. Exhibits

EXHIBITS

      (b) Exhibits

      See Item 15(a)(3)

      (c) Financial Statements

      See Item 15(a)(1)

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) 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.

Date: June 14, 2005

POWER OF ATTORNEY

      Each of the undersigned hereby appoints Robert F. Olson and Gregg A. Waldon, and each of them (with full power to act alone), as attorneys and agents for the undersigned, with full power of substitution, for and in the name, place and stead of the undersigned, to sign and file with the Securities and Exchange Commission under the Securities Act of 1934, as amended, any and all amendments and exhibits to this Annual Report on Form 10K and any and all applications, instruments, and other documents to be filed with the Securities and Exchange Commission pertaining to this Annual Report on Form 10-K or any amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary or desirable. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated on June 14, 2005.