STELLENT INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------

FORM 10-K
(MARK ONE)

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

FOR THE FISCAL YEAR ENDED MARCH 31, 2003
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NUMBER 0-19817

STELLENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

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

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: PREFERRED SHARE
PURCHASE RIGHTS; COMMON STOCK, PAR VALUE $.01 PER SHARE

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

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. [ ]

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

The aggregate market value of the registrant's common stock held by
non-affiliates of the registrant as of September 30, 2002, the last business day
of the registrant's most recently completed second fiscal quarter was
$75,156,299, 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 25, 2003, the registrant had 21,793,506 shares of common stock
issued and outstanding.
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STELLENT, INC.

FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 2003

TABLE OF CONTENTS

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement dated for the
annual meeting of Shareholders to be held on August 27, 2003 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, 2003.

PART I

ITEM 1. BUSINESS

FORWARD-LOOKING STATEMENTS

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

OVERVIEW

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

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

MARKETS AND CUSTOMERS

Approximately 1,100 Universal Content Management customers, 450 corporate
desktop viewing and conversion customers and 400 content component original
equipment manufacturer (OEM) customers have seamlessly integrated our technology
into their operations, helping them reduce costs, increase productivity, gain
competitive advantages and improve internal and external communications
processes.

Our offerings span a number of horizontal and vertical markets:

- Universal Content Management: Our Universal Content Management
architecture enables organizations of all sizes within a broad range of
industries to implement Web-based line-of-business and enterprise-wide
initiatives. These initiatives help our customers increase employee
productivity, reduce expenses, improve company-wide collaboration and
communication, and often completely transform the way they do business.

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- Content Components: Our Content Components software is used by many
independent software vendors, handheld device manufacturers and service
providers to provide robust viewing and conversion functionalities to
their end users. It is also integrated into our Universal Content
Management software.

- Vertical Applications and Integrations: We leverage our content
management expertise and flexible universal content architecture to
provide vertical solutions for industries such as government,
manufacturing, commercial real estate and insurance; for horizontal
applications such as Sarbanes-Oxley compliance and partner extranets; and
for integrations with other applications such as Lotus Notes and portals.

PRODUCTS

Our product set is comprised of three main components:

- Universal Content Management Software

- Content Components Software

- Vertical Applications and Integrations

UNIVERSAL CONTENT MANAGEMENT SOFTWARE

We provide the five key elements of content management from a single
technology platform. This universal content architecture addresses each key
aspect of content management from one platform, enabling customers to fully
leverage their content management investment across the organization and
throughout various applications. Organizations deploying the Universal Content
Management software use this architecture to build line-of-business solutions,
such as Web sites, intranets, extranets and portals, and enterprise-wide content
management deployments to solve real business problems.

Our architecture is built upon one core repository and one Java code base
and allows companies to deploy and integrate content management applications
typically using fewer products and consulting services than other content
management suites, which can lead to a lower total cost of ownership. For
example, while some content management providers have acquired products from
other companies to fulfill critical content management needs, integrating those
disparate systems is often difficult and requires customers to spend more time
and money on expensive consulting services to get the systems implemented.

Our Universal Content Management software blends well into the existing
business process by offering content owners multiple methods for easy content
contribution of any type of content. Since many types of content are not Web
friendly, we also provide the unique, automatic conversion of over 225 content
types to 'consumption' friendly formats such as HTML, WML, XML and PDF. Our
flexible contribution methods and automatic conversion capabilities help the
Universal Content Management software to be quickly adopted by users and easily
integrated into their work initiatives.

In addition, through its open, standards-based architecture, our Universal
Content Management software integrates easily with enterprise infrastructure and
e-business applications for a seamless solution. Integration options include Web
services, Enterprise JavaBeans (EJB)/J2EE, JSP Tag libraries, Com, Scripting,
Command Line Interface, Information Content and Exchange (ICE) and HTTP.

Our Universal Content Management offers core services consisting of:

- Library services

- Conversion services

- Security

- Personalization

- Workflow

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- Search

- User input

- Administration services

On top of these Universal Content Management core services, we build the
following five key content application services:

- Web Content Manager

- Document Manager

- Collaboration Manager

- Records Manager

- Digital Asset Manager

The core Universal Content Management software consists of Stellent Content
Server plus one or more of the above five key content application services,
described below:

STELLENT CONTENT SERVER

Stellent Content Server is a fully functional content management system
providing end-to-end content management and personalized delivery of that
content. It provides a rich set of library services such as check-in/check-out,
revision control, security, subscription services, discussion threads, graphical
workflow, metadata and full-text searching, archiving, thumb-nailing and content
replication.

The system provides both native format contribution and HTML-based
contribution templates; contribution through WebDAV; personalized navigation;
and a personalized search or content bookmark capability. Our Content Server
allows anyone -- regardless of technical ability -- to easily contribute any
kind of content, including rich media content such as e-learning files and
videos, to the system via a Web browser. Content can be contributed in any
format, such as a word processing document, spreadsheet or CAD file, and
Stellent automatically converts it to a variety of Web formats, such as PDF,
HTML, XML, WML and cHTML. This automatic conversion capability enables users to
easily publish content to Web sites, such as an employee portal or partner
extranet, without Webmaster assistance. As a result, many of our customers
applaud the fact that their employees are able to use the system with minimal
training and quickly adopt it as a critical piece of business technology that is
used on a daily basis.

Our system maintains a single, up-to-date version of each piece of content
that can be delivered to and used by multiple e-business applications throughout
an organization. Content Server offers two content storage options -- the
traditional repository that is optimized for standard business content and the
Tamino XML repository which is optimized for managing large amounts of pure XML
content.

Included with Stellent Content Server are the following:

- Stellent Dynamic Converter: Stellent Dynamic Converter brings a new
level of simplicity and productivity to providing Web-viewable business
content. With Dynamic Converter, users only need to store native files.
Dynamic Converter generates Web-viewable formats on demand and is able to
convert more than 225 file formats to HTML, WML or cHTML. With
sophisticated template technology, Stellent Dynamic Converter serves
content to Web sites with a consistent "look and feel." Using a metadata
rules-based mechanism, Webmasters can define conditions when files are
served as HTML or when particular templates are used. A graphical
template editor allows remote Web developers to create, edit and modify
conversion templates, all through the Web-based Universal Content
Management software.

- Stellent XML Converter: Stellent XML Converter enables the automatic
publishing of native business content to XML format. Upon the check-in of
new business content, a conversion to XML will occur. This XML file can
then be accessed from other enterprise applications, as well as
dynamically rendered to HTML using the Stellent Dynamic Converter.

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- Stellent Desktop: Stellent Desktop combines two powerful technologies to
directly link Stellent Content Server and enterprise authoring
applications. Stellent Desktop allows direct contribution from
ODMA-compliant applications, such as Word, WordPerfect, Excel and
PowerPoint, as well as drag and drop capabilities for non-ODMA or
non-WebDAV compliant applications. Our integration with Microsoft Outlook
also allows direct contribution from Outlook, including email messages as
well as attachments, and it allows users to attach content pulled
directly from the Stellent Content Server.

- Stellent Enterprise Search: Stellent Enterprise Search lets users search
for content across multiple Stellent Content Servers.

- Stellent Content Tracker: Stellent Content Tracker delivers both static
and dynamic reports allowing administrators to analyze Web site traffic,
perform clickstream analysis and track users within Stellent Content
Server. Using key metrics to evaluate Web site effectiveness and to
examine granular areas of a site, Content Tracker highlights areas of
improvement to help companies maintain customer, partner, and employee
interest in the site content.

CONTENT APPLICATION SERVICES

One or more of our key content application services are licensed in
addition to the Stellent Content Server to solve specific horizontal business
problems. Each application service consists of one or more products.

- Stellent Web Content Manager: Stellent Web Content Manager addresses the
need for businesses to create and manage multiple Web sites. Without
content management, Web site content can be inaccurate and stale;
Webmasters can be bottlenecks to updating it; multiple versions of
content can be posted to different Web Sites; content consumers can find
it difficult to find the information they need; central management and
control of Web site creation is difficult or non-existent; and the
architecture of Web sites is inconsistent from site to site. All of these
problems can diminish a site's usefulness and add to operational cost.
Our Web Content Manager helps solve these problems by providing a strong
underlying Web content management infrastructure; an easy to use,
in-context Web site authoring environment for business users; and a
consistent approach for Web site creation and contribution that enforces
IT standards for architecture, branding and corporate Web presence.
Stellent Web Content Manager consists of the following modules:

o Stellent Site Studio: Stellent Site Studio is an application that
optimizes, automates and enforces key Web site creation and contribution
methodologies to minimize time-to-deployment and maximize ROI. Stellent
Site Studio supports the growing trend of companies building multiple
(i.e. tens to hundreds) Web sites, enabling them to quickly deploy these
sites and easily maintain consistent branding, security and
infrastructure across all sites being developed by their various
business units. Site Studio is tightly integrated with the Stellent
Content Server to provide a structured, metadata-driven management
environment for multiple Web sites. Web developers and site designers
are provided with a robust tool to create template-driven and
fragment-based Web sites to minimize site complexity and development.

For decentralized Web site creation, Web development teams and graphic
artists can take advantage of Site Studio Designer's customizable
library to provide business units with reusable drag-and-drop layouts,
fragments, navigation and code that integrate with back-end applications
for developing their own unique Web sites -- yet with a consistent look
and feel. Site Studio enables business users to contribute content in a
user-friendly WYSIWYG XML form-based environment with regional-level
security and in-context preview, workflow and approval. Stellent Site
Studio can also take advantage of content authored in native
applications in which business users regularly work, such as Microsoft
Office or Lotus Suite, using Stellent Dynamic Converter.

o Stellent Content Publisher: Stellent Content Publisher provides
advanced template-based technology to automatically publish over 225
business-content formats to fully linked Web sites/pages in HTML, XML
and wireless formats. Content may be managed in a Stellent Content
Server or

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stored in a standard file system. Features include single source
publishing, abstraction, personalization, XML support, scripting
language inclusions, content release scheduling, layout template design
by HTML Editors and automated creation of navigation.

o Stellent Site Builder: Stellent Site Builder facilitates the use of
client software by a Webmaster to design, publish and maintain Web
sites. Site Builder defines the site hierarchy, the mapping between the
Web site and source content, the published format (HTML, XML, ASP, JSP,
etc.) and the look and feel of the Web site.

o Stellent Connection Server: Stellent Connection Server enables users to
easily deploy content from staging environments to production
environments and to roll-back to earlier versions of Web sites.
Connection Server's robust content distribution capabilities allow users
to move content to external sites, including business partners and
employees who may be working either online or offline.

- Stellent Document Manager: Stellent's Document Manager application
service consists of the following options on top of a Stellent Content
Server:

o Stellent Content Categorizer: Stellent Content Categorizer enables
organizations to quickly categorize and move content into a managed
environment, easily re-categorize managed content and efficiently
navigate and search for content. As an open API for third party
categorization engines, Content Categorizer enables customers to choose
the best categorization engine for their enterprise needs. Customers can
use our out-of-the-box categorization functionality or can leverage rule
sets and taxonomies from third-party categorization tools.

o Stellent PDF Converter: Stellent PDF Converter enables the automatic
publishing of native business content to a Web-viewable PDF upon
check-in. This Adobe PDF rendition maintains the fidelity of the content
and enables Web viewing without the need for the native application.

o Stellent Report Parser: Stellent Report Parser provides additional
functionality to the Stellent Content Server with report parsing and
loading capabilities. With Report Parser, business-critical information
from the enterprise reporting applications can easily be made available
in one centralized, secured, easy-to-use source. It allows customers to
intelligently read reports from disparate expert reporting systems, and
then manages the distribution of these reports through Content Server in
PDF, XML, text or HTML format.

o Stellent Legacy: Stellent Legacy automatically scans and converts an
organization's paper-based legacy data and content into Web-ready files.
Stellent Legacy uses both Adobe Acrobat Capture and Kofax Ascent Capture
scanning technology to provide users with a single, compact, fully
searchable file that exactly replicates the original paper version.

o Stellent Tiff Conversion: Stellent Tiff Conversion converts TIFF images
to a PDF format. Upon check-in of single or multi-page TIFF files, Tiff
Conversion will convert single TIFF images to a single PDF file or
convert the multi-page TIFF file to a multi-page PDF file.

o Stellent PDF Interchange: Stellent PDF Interchange provides the ability
to deliver a PDF file to a consumer in an HTML format. This capability
is ideal for extranet environments where the consumers may not have the
Acrobat Reader plug-in installed on their system.

o Stellent PDF Watermark: Stellent PDF Watermark is used by contributors
to specify various security attributes that will be applied to a
published PDF file, including the ability to overlay or underlay a
watermark, disable printing, disable text selection and disable note
creation. An example of a watermark may be the overlaying of the word
"CONFIDENTIAL" on a secure file within the Stellent repository.

o Stellent PDF Merge: Stellent PDF Merge is a Web-based content assembly
solution used to assemble disparate content into one composite PDF
document. The user may also apply a watermark, consecutively paginate
the document, add a Table of Contents, insert metadata and personalize
the assembled document with delimited data files.

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- Stellent Collaboration Manager: Stellent Collaboration Manager enables
individual users, such as employees and business partners, to easily
create and maintain online, ad-hoc collaboration environments for
content, projects or team spaces, without needing IT assistance. Stellent
Collaboration Manager facilitates collaborative, team-based content
creation with ad-hoc security using Access Control Lists (ACL),
discussion threads, user-initiated content routing and project level
search. Specific project content can also be "promoted" to Stellent
Content Server to be managed as enterprise business content. Stellent
Collaboration Manager extends content management to the workgroup level
and provides the same revolutionary empowerment to the business user for
project team definition, collaboration and management that Stellent
Content Server provides for enterprise business content management.

- Stellent Records Manager: Stellent Records Manager leverages the
functionality of the Stellent Content Server to designate content as
records to be stored, managed and archived for compliance with industry
regulations in vertical markets such as finance, healthcare, commercial
real estate and government industries. Stellent Records Manager provides
security to content records so that only authorized users can perform
specific tasks. We have a robust security model that distinguishes
between record creation, record deletion, file plan modification and
retention rules and can be modified for different types of content.
Stellent Records Manager provides metadata-based management to various
attributes applied to records, folders and file plans. Stellent Records
Manager also provides for date-and-date logic, which enables actions
based on dates in the past, present, and future. Finally, Stellent
Records Manager provides for the management of any record
type -- electronic, non-electronic, email, documents and rich media
(audio and video files).

- Stellent Digital Asset Manager: Stellent's Digital Asset Manager helps
to meet Global 2000 businesses' needs to access, manage and deliver
video, audio and graphical business content. Digital Asset Manager
enables companies to easily input, manage, publish and distribute the
rich media assets found within one's daily business activities -- items
such as e-learning files, videos and images.

o Stellent Audio Video Indexer: Stellent Audio Video Indexer provides
additional functionality to the Stellent Content Server, allowing for
more robust searching and retrieval of audio and video files. Stellent
Audio Video Indexer allows for the indexing of the audio portions of the
following audio and video file types: .mpg, .avi, .asf, .wmv. The voice
recognition results and file property information are formatted in XML,
allowing the end user the ability to perform a full text search and find
the timestamp associated with the keyword. Stellent Audio Video Indexer
also provides thumbnail images of the video on the search results
screen.

o Stellent Compression: Stellent Compression provides the ability to
check-in large image files and automatically convert them to a
compressed MrSID format or the ability to check-in pre-processed MrSID
files. The MrSID representation is visible as a thumbnail and provides
consumers a lightweight, Web-viewable image with panning and zooming
controls.

o Stellent Image Conversion: Stellent's image conversion capabilities
enable access to business content residing in scanning, marketing
communications and engineering environments by automatically rendering
more than 25 original image file formats to Web-friendly formats. For
example, Stellent conversion technology can convert non Web-viewable
file formats such as .DXF, .PCS Bitmap, Lotus PIC and TIFF to
Web-viewable formats, giving users access to the files without needing
to have the native application installed on their desktop.

o Stellent Thumbnailing: Stellent offers thumbnailing of a variety of
file formats, allowing users to quickly identify and retrieve the
content for which they are searching and even publish these renditions
to Web sites. These thumbnails can be generated for Microsoft Office
documents, emails, images/graphics, PowerPoint presentations, Visio
diagrams and other graphic-intensive content.

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CONTENT COMPONENTS SOFTWARE

Our Content Components software provides unique native file filtering,
conversion and presentation capabilities for our Universal Content Management
and original equipment manufacturer (OEM) customers such as IBM and Palm. The
technology gives application developers, device manufacturers and service
providers the ability to view, filter and convert more than 225 file formats
without using native applications. These technologies support multiple operating
systems and international environments and enable access to documents in
applications for diverse markets such as content management, search and
retrieval, security and policy management, mobile and wireless, messaging,
collaboration and publishing. From applications on desktop and handheld device
platforms to Web and wireless servers in high-throughput 7x24 environments, over
400 OEMs license our Content Components software for critical access to
unstructured data.

CONVERSION TECHNOLOGIES

Outside In conversion technologies are designed to automatically convert
business content stored in more than 225 common file formats to Web or
wireless-viewable formats, or for further processing or storage of a document as
XML. The Outside In conversion technologies include:

- Outside In Wireless Export

- Outside In HTML Export

- Outside In XML Export

- Outside In Image Export

- Outside In Content Access

PUBLISHING TECHNOLOGY

Our Transit publishing technology provides a fast and cost-effective way to
create and maintain Web sites. Once users have identified their source documents
(in a file system), Transit publishes the document to the Web in a HTML or XML
format. When source content changes, users can update the site easily and
thereby ensure that it's well maintained, up-to-date, and has reliable links.

VIEWING TECHNOLOGIES

Outside In and Quick View Plus viewing technologies and applications offer
developers file viewing and printing capabilities with the highest fidelity, for
the broadest number of file types across multiple operating systems. These
technologies include:

- Outside In Viewer Technology for Desktop Environments

- Outside In Viewer Technology for Mobile Devices

- Quick View Plus

VERTICAL APPLICATIONS AND INTEGRATIONS

We leverage our content management expertise and flexible Universal Content
Management architecture to provide solutions for vertical industries such as
government, manufacturing, commercial real estate and insurance; horizontal
applications such as Sarbanes-Oxley compliance and partner extranets; and
integrating with applications such as Lotus Notes and portals.

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
experi-

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ence-based project methodology and management knowledge to facilitate the
rollout of content management solutions at all levels of a customer's
organization. Available on a worldwide basis, we act as a business partner to
our customers by providing a broad spectrum of services including:

- Technical architecture analysis and needs assessment, e.g. software,
security and metadata analysis

- Solutions development and deployment strategies

- Software installation and configuration

- Custom application development

- Third party product integration

- Project management

- Knowledge transfer

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

PRODUCT SUPPORT

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

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

PRODUCT TRAINING

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

SALES AND MARKETING

We market and sell our products using a combination of direct and indirect
distribution channels primarily in North America and Europe. Our primary
distribution channel is our direct sales force, which targets mid- and
large-size organizations. Our sales approach is a solution selling sales model
which is a consultative approach to selling where sales personnel work in a
consultative manner with target accounts to uncover unsolved business needs
which can be remedied by the application of a business process solution built
around our Stellent Universal Content Management software. The solution
discovery process will typically include a business process and technical
systems evaluation performed by our pre-sales personnel, followed by
demonstrations of our products' capabilities and direct negotiations with our
sales staff. As part of our solution selling model, Stellent has chosen to focus
on specific vertical markets where we have developed subject matter expertise in
these markets to solve common business problems. Our initial vertical industries
of focus are manufacturing, insurance, commercial real estate and e-government.
We expect this to expand to other vertical industries in the future. In
addition, we have an internal telemarketing operation that is responsible for
customer prospecting, lead generation and follow-up. These activities identify
and develop leads for further
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sales efforts by our direct sales force. As of March 31, 2003, we had a
worldwide total of 113 direct and indirect sales and sales support personnel and
24 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, France,
Germany, Japan, Korea, the Netherlands, the United Kingdom and the United
States. Our ability to achieve significant revenue growth in the future will
depend in large part on how successfully we recruit, train and retain sufficient
direct and indirect sales and support personnel, and how well we continue to
establish and maintain relationships with our strategic partners' resellers,
OEMs, key systems integrators and other channel partners.

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

RESEARCH AND DEVELOPMENT

We have made substantial investments in research and development through
both internal development and technology acquisitions. Our research and
development expenditures for fiscal 2001, 2002 and 2003, were approximately $9.8
million, $17.6 million and $15.8 million, respectively. Research and development
expenses represented 15%, 20% and 24%, 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, 2003, we had 86
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 September 1999, we acquired InfoAccess, a Web-based software company, in
a transaction accounted for using the pooling-of-interests method. This further
enhanced our conversion of various file types to Web formats, including XML and
HTML, and our ability to publish business data to the Web. Accordingly, our
financial information includes the results of operations of InfoAccess for all
periods presented.

In July 2000, we acquired the Information Exchange Division (now referred
to as our Content Components Division or "CCD") of eBT International, Inc.
(formerly Inso Corporation). CCD is a market leader in mobile and wireless
device viewing technologies and applications and Web conversion. CCD's products
provide conversion of over 225 different file types to Web formats including
XML, HTML or
9

Wireless Markup Language (WML). Additionally, CCD provides viewing technology
for the Windows CE and Symbian operating systems that allows users of applicable
mobile and wireless devices to readily view files from desktop applications. The
total cost of the acquisition, including transaction costs, was approximately
$55.3 million. The acquisition was accounted for as a purchase business
combination. Accordingly, the net fair value of tangible and intangible assets
acquired and liabilities assumed were recorded at their estimated fair values at
the effective date of the acquisition and the results of operations of CCD are
included for the periods subsequent to the date of the acquisition.

In July 2001, we acquired select assets of RESoft, Inc., a leading provider
of end-to-end content management solutions for the real estate and legal
industries, for 200,000 shares of our common stock. The acquisition was valued
at approximately $5.6 million, including acquisition costs. This acquisition has
been accounted for under the purchase method of accounting, and approximately
$4.6 million of the purchase price was allocated to goodwill, $0.5 million to
intangible assets and $0.5 million to fixed assets.

In April 2002, we acquired certain assets and assumed certain liabilities
of Kinecta Corporation, a provider of software infrastructure for digital
networks, for approximately $2.6 million in cash.

In March 2003, we acquired certain assets of Active IQ Corporation, a
provider of hosted solutions for the commercial real estate industry, for
approximately $0.7 million in cash.

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 expect competition to persist and intensify in the future. Our
primary source of competition is from Web content management or components
products offered by companies such as Documentum, Inc., FileNET Corporation,
Interwoven, Inc., Microsoft Corporation, Verity, Inc., and Vignette Corporation.
We also compete with current or potential customers who may develop solutions
internally.

Many of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do and thus
may be able to respond more quickly to new or changing opportunities,
technologies and customer requirements. 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
10

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

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

EMPLOYEES

As of March 31, 2003, we had 340 employees. Our future success will depend
in part on our ability to attract, retain, integrate and motivate highly
qualified sales, technical and management personnel, for whom competition is
intense. From time to time we also employ independent contractors to support our
services, product development, sales and marketing departments. Our employees
are not represented by any collective bargaining unit, and we have never
experienced a work stoppage. We believe our relations with our employees are
good.

GEOGRAPHIC INFORMATION

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

AVAILABLE INFORMATION

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

ITEM 2. PROPERTIES

In July 2000, we began a five-year lease of approximately 32,000 square
feet in Eden Prairie, Minnesota, which is our corporate headquarters facility.
We are currently sub-letting approximately 18,000 square feet of our former
headquarters pursuant to a lease expiring in July 2005, and approximately 6,000
square feet of office space in Scottsdale, Arizona pursuant to a lease expiring
in February 2004.

Additionally, we lease approximately 8,000 square feet of office space in
Boston, Massachusetts with lease terms expiring June 2004 and September 2006;
approximately 28,000 square feet of space in downtown Chicago, Illinois with a
lease term expiring September 2006; approximately 5,000 square feet of space in
New York, New York with a lease term expiring in January 2007; approximately
12,000 square feet in Redmond, Washington with a lease term expiring in December
2007; approximately 9,000 square feet in London, United Kingdom with a lease
term expiring in May 2016; and approximately 6,000 square feet in the
Netherlands with a lease term expiring in April 2006. Management believes that
our facilities are suitable and adequate for current office requirements.
11

ITEM 3. LEGAL PROCEEDINGS

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

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

No matter was submitted to a vote of our security holders during the fourth
quarter of the fiscal year ended March 31, 2003.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

(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.

David S. Batt has served as our Executive Vice President, Global Field
Operations, since February 2003. From October 2001 to October 2002, he was
Executive Vice President of Marketing, Sales and Services for Selectica, Inc., a
leading provider of product configuration and pricing solutions. From July 1999
to September 2001, Mr. Batt served as Vice President of CRM Sales for Oracle
Corp., an enterprise software company, and from September 1998 to June 1999 as
Senior Vice President of Sales for Adaytum Software, Inc., an enterprise
business planning software company. From April 1998 to August 1998, he served as
Vice President of Middle Markets Sales for Siebel Systems, an eBusiness
application software company. Prior to that time, Mr. Batt was employed by Wall
Data, Inc.

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

Daniel P. Ryan has served as our Executive Vice President of Marketing and
Business Development since April 2003 and as our Senior Vice President of
Marketing and Business Development from April 2002 through March 2003. He has
also served as our Senior Vice President of Corporate and Business Development
from November 2001 to April 2002. From April 1999 to November of 2001, he served
as Vice President of Marketing and Business Development. From September 1997 to
April 1999, he served as Vice President of

12

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.

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.

Michael S. Rudy has served as our Vice President of Canada since April 2003
and was our Vice President of Alliances and Services from April 2002 through
March 2003. He has also served as our Vice President of Technology Services from
January 2001 to April 2002. From 1999 to 2000, Mr. Rudy was President and CEO of
Hypertree Corporation, a software startup providing Web infrastructure for
building corporate portals. Prior to that time, Mr. Rudy was employed by
Workgroup Technology, supplier of software for product data management, from
1994-1999 in various sales and management positions, and by ELDEC from 1983-1994
in various information services positions.

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.

13

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock, par value $0.01 per share, is traded on the Nasdaq
National Market tier of The Nasdaq Stock Market under the symbol STEL. At June
25, 2003, our common stock was held by approximately 4,900 shareholders
consisting of 332 record holders and an estimated 4,600 shareholders whose stock
was held in the name of a bank, broker or other nominee. On June 25, 2003, the
closing sale price of a share of our common stock was $5.10.

The high and low sale prices per share of our common stock for the four
quarters during the fiscal years ended March 31, 2002 and 2003 were as follows:

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

EQUITY COMPENSATION PLAN INFORMATION

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

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ITEM 6. SELECTED FINANCIAL DATA

The Selected Consolidated Financial Data (in thousands except per share
data) presented below as of and for each of the fiscal years in the five year
period ended March 31, 2003 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.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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) infrastructures -- was an emerging technology used to help companies easily
and quickly share information internally or externally using the Web.

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

Our customers are primarily located throughout the United States and
Europe. We are responsible for developing our current business which was founded
in 1990. In July 1996, we merged with and into a publicly traded corporation,
which was organized under Minnesota law in November 1989. In July 2000, we
acquired the Information Exchange Division (currently our Content Components
Division or "CCD") of eBT

16

International, Inc. (formerly Inso Corporation) in a transaction accounted for
as a purchase. In July 2001, we acquired select assets of RESoft, a leading
provider of end-to-end content management solutions for the real estate and
legal industries. This acquisition has been accounted for under the purchase
method of accounting. In April 2002 and in March 2003, we acquired certain
assets of Kinecta Corporation and Active IQ Corporation, respectively. On August
29, 2001, we changed our name to Stellent, Inc. Our headquarters is located in
Eden Prairie, Minnesota and we have operations or collaborations in Australia,
France, Germany, Japan, Korea, the Netherlands, the United Kingdom and in other
cities in the United States.

Beginning in April 2002 and continuing through April 2003, we have
implemented several cost cutting measures, including a reduction in work force
of approximately 30% since our December 2001 quarter. These restructuring
measures were in response to the economic slowdown both in the United States and
internationally and were in all functional areas and geographies. However, we
have recently been investing in certain areas in order to expand our customer
base and grow our revenues. Because of this, we anticipate that the percentage
of expenses as compared to total revenues represented by sales and marketing
expenses, research and development expenses and general and administrative
expenses will fluctuate from period to period depending primarily on when we
hire new personnel, the timing of certain sales and marketing programs, the
research programs that we put in place and the potential expansion of
operations. In addition, our limited operating history makes it difficult for us
to predict future operating results. We cannot be certain that we will sustain
revenue growth.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our significant accounting policies are more fully described in Note 1 to
our consolidated Financial Statements. The policies described below are
particularly important to understanding our financial position and results of
operations and may require management to make estimates or judgments that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

Revenue Recognition

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

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

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

Delivery has Occurred -- Our software may be either physically or
electronically delivered to the customer. We determine that delivery has
occurred upon shipment of the software pursuant to the billing terms of the
arrangement or when the software is made available to the customer through
electronic delivery. Customer acceptance generally occurs at delivery.

The Fee is Fixed or Determinable -- If at the outset of the customer
arrangement, we determine that the arrangement fee is not fixed or determinable,
revenue is typically recognized when the arrangement fee becomes due and
payable. Fees due under an arrangement are generally deemed fixed and
determinable if they are payable within twelve months.
17

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

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

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

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

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

Cost of Revenues

We expense all manufacturing, packaging and distribution costs associated
with product license revenue as cost of revenues. We expense all technical
support service costs associated with service revenue as cost of revenues. We
also expense amortization of capitalized software from acquisitions as cost of
revenues.

In January 2002, the FASB issued Emerging Issues Task Force (EITF) Issue
No. 01-14, Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred, which requires companies to report
reimbursements of "out-of-pocket" expenses as revenues and the corresponding
expenses incurred as costs of revenues within the income statement. We report
our out-of-pocket expenses reimbursed by customers as revenue and the
corresponding expenses incurred as costs of revenues within the statement of
operations. As a result, this EITF did not have a material effect on our
consolidated financial statements.

18

Investments in and Notes with Other Companies

Investments in other equity securities and related notes with other
companies in the software industry are classified as long-term as we anticipate
holding them for more than one year. We hold less than 20% interest in, and do
not directly or indirectly exert significant influence over, any of the
respective investees. A portion of these investments are publicly traded and are
deemed by management to be available for sale. We use the specific
identification method to determine cost and fair value for computing gains and
losses. Accordingly, these investments are reported at fair value with net
unrealized gains or losses reported within shareholders' equity as accumulated
other comprehensive income or loss. No sales of available for sale investments
have occurred through March 31, 2003. During fiscal 2001, 2002 and 2003, we
determined that permanent declines in the value of these publicly traded
investments had occurred. As a result, we recorded write-downs of $0.4 million,
$0.1 million, and $1.1 million during the years ended March 31, 2001, 2002 and
2003, respectively. Investments in other companies also include investments in
several non-public, start-up technology companies for which we use the cost
method of accounting. For the years ended March 31, 2002 and 2003, we determined
that a permanent decline in value of certain investments had occurred and
recorded a $5.6 million and $0.7 million write-down on the investments in and
advances to these entities. We determined the permanent declines in value of
these public and non-public companies using quarterly procedures such as
reviewing their operating results and financial position, discussions with
company management and review of the overall business climate.

Accounts Receivable

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

No customer accounted for 10% or more of our revenues in the years ended
March 31, 2001, 2002, and 2003.

Goodwill and Other Acquired Intangible Assets

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

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

19

ceased. The remaining other acquired intangible assets continue to be amortized
on a straight-line basis over their remaining, definite useful lives.

The carrying value of goodwill and other intangible assets is tested for
impairment on an annual basis or when factors indicating impairment are present.
We completed our transitional goodwill impairment test on April 1, 2002 and
determined that no impairment existed at that time. We have elected to complete
the annual impairment test of goodwill on January 1 of each year. We engaged an
independent outside professional services firm to assist us in our impairment
testing of goodwill. Based on this assistance, we completed our annual goodwill
impairment test on January 1, 2003 and determined that there was no impairment
of goodwill at that time. Additionally, no circumstances occurred during the
fourth quarter of the year ended March 31, 2003 which would have created an
impairment loss at March 31, 2003.

Impairment of Long-Lived Assets

We evaluate the recoverability of its long-lived assets in accordance with
SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS
144 requires recognition of impairment of long-lived assets in the event that
events or circumstances indicate an impairment may have occurred and when the
net book value of such assets exceeds the future undiscounted cash flows
attributed to such assets. We assess the impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. No impairment of long-lived assets has occurred through the
year ended March 31, 2003.

New Accounting Pronouncements

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

Accounting for Income Taxes

Deferred tax liabilities and deferred tax assets reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. The valuation allowance has been established due to the uncertainty of
future taxable income, which is necessary to realize the benefits of the
deferred tax assets. The Company had net operating loss (NOL) carryforwards of
approximately $84,300 at March 31, 2003, which begin to expire in 2011. These
NOL's are subject to annual utilization limitations due to prior ownership
changes.

Realization of the NOL carryforwards and other deferred tax temporary
differences are contingent on future taxable earnings. The deferred tax asset
was reviewed for expected utilization using a "more likely than not" approach as
required by SFAS No. 109, Accounting for Income Taxes, by assessing the
available positive and negative evidence surrounding its recoverability.
Accordingly, in fiscal 2003 we increased the valuation allowance to fully offset
the deferred tax asset. The increase in the valuation allowance has been
recognized as a reduction in paid in capital to the extent that a tax benefit
from employee stock option exercises was previously recognized as additional
paid in capital.

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

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. In general, these

20

estimates and assumptions are based on historical experience of our management;
but may include consideration of industry trends or information from other
outside sources. Actual results could differ from those estimates.

RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE
MONTHS ENDED MARCH 31, 2002

REVENUES

Total revenues increased by $2.8 million, or 20%, to $16.8 million for the
three months ended March 31, 2003 from $14.0 million for the three months ended
March 31, 2002. The increase in total revenues was primarily attributable to an
increase in Content Components revenues in the United States and an increase in
post-contract customer support due to a larger installed base of products.

Product Licenses. Revenues for product licenses increased by $1.7 million,
or 20%, to $10.0 million for the three months ended March 31, 2003 from $8.3
million for the three months ended March 31, 2002. The increase in revenues was
primarily attributable to an increase in Content Components software revenues in
the United States.

Services. Revenues for services, consisting of consulting services,
training and post-contract customer support, increased by $1.1 million, or 20%,
to $6.8 million for the three months ended March 31, 2003 from $5.7 million for
the three months ended March 31, 2002. Expressed as a percentage of total
service revenue, consulting services and training was approximately 38% and
post-contract customer support was 62% in the March 31, 2003 quarter, and 37%
and 63%, respectively in the March 31, 2002 quarter. The increase in revenues
for services was primarily attributable to increases in consulting services and
post-contract customer support due to a larger installed base of products.

COST OF REVENUES AND GROSS PROFIT

Total cost of revenues increased by $0.1 million, or 1.5%, to $5.2 million
for the three months ended March 31, 2003 from $5.1 million for the three months
ended March 31, 2002. Total cost of revenues as a percentage of total revenues
was 31% for the three months ended March 31, 2003 compared to 37% for the three
months ended March 31, 2002. Gross profit increased by $2.7 million, or 31%, to
$11.6 million for the three months ended March 31, 2003 from $8.9 million for
the three months ended March 31, 2002. Total gross profit as a percentage of
total revenues was 69% for the three months ended March 31, 2003 compared to 63%
for the three months ended March 31, 2002. The increase in gross profit dollars
and percentage was primarily due to increased revenues for product licenses and
post-contract customer support.

Product Licenses. Cost of revenues for product licenses decreased by $0.1
million, or 4%, to $1.4 million for the three months ended March 31, 2003 from
$1.5 million for the three months ended March 31, 2002. Gross profit as a
percentage of revenues for product licenses was 85% for the three months ended
March 31, 2003 compared to 82% for the three months ended March 31, 2002. The
decrease in gross profit percentage was due primarily to increased sales of
Content Components software in the quarter ended March 31, 2003 versus the
quarter ended March 31, 2002. Our Content Components software typically has a
lower cost of revenues than our Universal Content Management software.

Amortization of capitalized software from acquisitions. Cost of revenues
related to amortization of capitalized software from acquisitions increased $0.2
million for the three months ended March 31, 2003 to $0.5 million from $0.3
million for the three months ended March 31, 2002. The increase in cost of
revenues for amortization of capitalized software from acquisitions was
primarily attributable to the amortization of capitalized software obtained in
the acquisition of the assets of Kinecta Corporation in April 2002.

Services. Cost of revenues, consisting of primarily personnel for
consulting services, training and post-contract customer support, decreased by
$0.1 million, or 3%, to $3.3 million for the three months ended March 31, 2003
from $3.4 million for the three months ended March 31, 2002. Expressed as a
percentage of total services costs, consulting services and training were
approximately 72% and post-contract customer

21

support 28% in the March 31, 2003 quarter, respectively, and 72% and 28% in the
March 31, 2002 quarter, respectively. Gross profit as a percentage of revenues
for services was 52% for the three months ended March 31, 2003 and 41% for the
three months ended March 31, 2002. The increase in the gross profit dollars and
as a percentage of revenues for services was primarily due to the increase in
revenues from post-contract customer support from a larger installed base of
products.

OPERATING EXPENSES

Sales and Marketing. Sales and marketing expenses decreased by $2.2
million, or 20%, to $8.8 million for the three months ended March 31, 2003 from
$11.0 million for the three months ended March 31, 2002. Sales and marketing
expenses as a percentage of total revenues were 52% for the three months ended
March 31, 2003 compared to 78% for the three months ended March 31, 2002. The
decrease in sales and marketing expense was primarily due to decreased staffing
and related costs as a result of the restructurings undertaken during the year
and decreased marketing expenses for name and brand awareness, advertising, and
trade shows.

General and Administrative. General and administrative expenses decreased
by $1.0 million, or 23% to $3.4 million for the three months ended March 31,
2003 from $4.4 million for the three months ended March 31, 2002. General and
administrative expenses as a percentage of total revenues were 20% for the three
months ended March 31, 2003 compared to 31% for the three months ended March 31,
2002. General and administrative expenses decreased due primarily to decreased
staffing and related costs as a result of the restructurings undertaken during
fiscal year 2003 and a decrease in the provision for doubtful accounts.

Research and Development. Research and development expenses decreased by
$1.4 million, or 31%, to $3.2 million for the three months ended March 31, 2003
from $4.6 million for the three months ended March 31, 2002. Research and
development expenses as a percentage of total revenues were 19% for the three
months ended March 31, 2003 compared to 33% for the three months ended March 31,
2002. The decrease in research and development expenses was primarily due to
decreased staffing related to the restructurings undertaken by the company.

Acquisition and Related Costs. For the three months ended March 31, 2003,
acquisition and related costs represent charges associated with the payment of
employee costs which resulted from the acquisition of certain assets of Active
IQ Corporation in March 2003. For the three months ended March 31, 2002
acquisition and related costs primarily represent costs associated with
developing the Japanese market through a potential acquisition.

Amortization of Intangibles. A portion of the purchase price of CCD was
allocated to excess cost over fair value of net assets acquired, core
technology, customer base, trademarks and other intangibles, and is being
amortized over the assets' estimated useful lives of three years. A portion of
the purchase price of RESoft was allocated to certain intangible assets, such as
trademarks, and is also being amortized over their useful lives of three years.
Intangible amortization and other expense was $1.7 million for the three month
period ended March 31, 2003 and $3.4 million for the three months ended March
31, 2002. The decrease in amortization expense was primarily due to the adoption
of SFAS 142 in April 2002.

Restructuring Charges. In the quarter ended March 31, 2003, in connection
with management's plan to reduce costs and improve operating efficiencies, we
recorded a restructuring charge of approximately $0.4 million. The restructuring
charge was comprised primarily of severance pay and benefits related to the
involuntary termination of several employees.

OTHER INCOME (EXPENSE)

Interest income was $0.3 million for the three months ended March 31, 2003
compared to $0.8 million for the three months ended March 31, 2002. Interest
income is primarily related to marketable securities purchased with the proceeds
of our public stock offerings completed in June 1999 and March 2000. The
decrease in net interest income was primarily due to decreases in the interest
rates earned by invested funds,

22

which have declined over 50%, and a reduction in the amount of invested funds
due to use of cash in acquisitions and in operations.

RESULTS OF OPERATIONS -- FISCAL YEAR ENDED MARCH 31, 2003 COMPARED TO FISCAL
YEAR ENDED MARCH 31, 2002

REVENUES

Total revenues decreased by $22.9 million, or 26%, to $65.4 million for the
year ended March 31, 2003 from $88.3 million for the year ended March 31, 2002.
The decrease in revenues was primarily attributable to a shortfall in our
product license revenue as a result of the worldwide economic slowdown, which
has resulted in a reduction in overall customer spending in information
technology initiatives.

Product Licenses. Revenues for product licenses decreased by $26.5
million, or 40%, to $40.4 million for the year ended March 31, 2003 from $66.9
million for the year ended March 31, 2002. The decrease in revenues was
primarily attributable to the worldwide economic slowdown, which has resulted in
a reduction in overall customer spending in information technology initiatives.

Services. Revenues for services, consisting of consulting services,
training and post-contract customer support, increased by $3.7 million, or 17%,
to $25.1 million for the year ended March 31, 2003 from $21.4 million for the
year ended March 31, 2002. Expressed as a percentage of total service revenue,
consulting services and training was approximately 31% and post-contract
customer support was 69% in the year ended March 31, 2003, and 45% and 55%,
respectively in the year ended March 31, 2002. The increase in revenues for
services was primarily attributable to post-contract customer support due to a
larger installed base of products and partially offset by a decrease in
consulting services due to a decrease in product license revenue.

COST OF REVENUES AND GROSS PROFIT

Total cost of revenues increased by $1.1 million, or 6%, to $20.5 million
for the year ended March 31, 2003 from $19.4 million for the year ended March
31, 2002. Total cost of revenues as a percentage of total revenues was 31% for
the year ended March 31, 2003 compared to 22% for the year ended March 31, 2002.
Gross profit decreased by $24.1 million, or 35%, to $44.9 million for the year
ended March 31, 2003 from $69.0 million for the year ended March 31, 2002. Total
gross profit as a percentage of total revenues was 69% for the year ended March
31, 2003 compared to 78% for the year ended March 31, 2002. The decrease in
gross profit dollars and percentage was primarily attributable to the decrease
in product license revenues described above.

Product Licenses. Cost of revenues for product licenses increased by $1.5
million or 29%, to $6.5 million for the year ended March 31, 2003 from $5.0
million for the year ended March 31, 2002. Gross profit as a percentage of
revenues for product licenses was 84% for the years ended March 31, 2003 and 93%
for the year ended March 31, 2002. The increase in cost of revenues and
resulting decrease in gross profit dollars and percentage for product licenses
was primarily attributable to decreased revenues and the increased amortization
of prepaid royalties and the increased amortization of capitalized software
developed for us by a third party or purchased from a third party. The fixed
costs associated with the amortization of these prepaid royalties and
capitalized software was approximately $3.1 million for the year ended March 31,
2003 versus approximately $2.0 million for the year ended March 31, 2002.

Amortization of Capitalized Software from Acquisitions. Cost of revenues
related to amortization of capitalized software from acquisitions increased $0.9
million for the year ended March 31, 2003 to $1.9 million from $1.0 million for
the year ended March 31, 2002. The increase in cost of revenues for amortization
of capitalized software from acquisitions was primarily attributable to the
amortization of capitalized software obtained in the acquisition of the assets
of Kinecta Corporation in April 2002.

Services. Cost of revenues, consisting of primarily personnel for
consulting services, training and post-contract customer support, decreased by
$1.3 million, or 9%, to $12.1 million for the year ended March 31, 2003 from
$13.4 million for the year ended March 31, 2002. Expressed as a percentage of
total service cost,
23

consulting services and training was approximately 69% and post-contract
customer support 31% in the year ended March 31, 2003 and 75% and 25% in the
year ended March 31, 2002, respectively. The gross profit as a percentage of
revenues for services was 52% for the year ended March 31, 2003 compared to 38%
for the year ended March 31, 2002. The increase in the gross profit dollars and
as a percentage of revenues for services was primarily due to decreased employee
headcount and other staffing costs for consulting services personnel associated
with restructurings.

OPERATING EXPENSES

Sales and Marketing. Sales and marketing expenses decreased by $8.4
million, or 18%, to $38.3 million for the year ended March 31, 2003 from $46.7
million for the year ended March 31, 2002. Sales and marketing expenses as a
percentage of total revenues were 59% for the year ended March 31, 2003 compared
to 53% for the year ended March 31, 2002. The decrease in sales and marketing
expense was primarily due to reduced commission expense as a result of decreased
sales, decreased travel expense, and decreased staffing related to the
restructurings of our company during the year ended March 31, 2003. Sales and
marketing expenses increased as a percentage of revenues due primarily to the
decrease in product license revenues as described above.

General and Administrative. General and administrative expenses decreased
by $0.6 million, or 5%, to $11.3 million for the year ended March 31, 2003 from
$11.9 million for the year ended March 31, 2002. General and administrative
expenses as a percentage of total revenues were 17% for the year ended March 31,
2003 and 13% for the year ended March 31, 2002. General and administrative
expense dollars decreased primarily due to decreased personnel expenses
associated with fewer personnel as a result of the restructurings offset by an
increase in the allowance for doubtful accounts.

Research and Development. Research and development expenses decreased by
$1.8 million, or 10%, to $15.8 million for the year ended March 31, 2003 from
$17.6 million for the year ended March 31, 2002. Research and development
expenses as a percentage of total revenues were 24% for the year ended March 31,
2003 and 20% for the year ended March 31, 2002. The decrease in research and
development expense dollars was primarily due to decreased staffing and related
costs as a result of the restructurings and a decrease in purchased services.

Acquisition and Related Costs. Acquisition and related costs were $1.1
million in the year ended March 31, 2003 and $0.2 million in the year ended
March 31, 2002. For the year ended March 31, 2003, these costs were primarily
related to a potential transaction with a Japanese company that would have given
us new wireless technologies and an avenue 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. Approximately $0.7 million of expenses
are associated with this project and represent funds that we advanced to the
company for a trade show, product integration testing, test marketing costs of
the products and other. 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 and Other. Amortization of
intangible assets acquired related to our acquisition of CCD in July 2000, our
acquisition of RESoft in July 2001, and our acquisition of Kinecta in April
2002. Amortization of goodwill and acquired workforce ceased as of April 1, 2002
in connection with the adoption of SFAS 142. As a result, amortization expense
decreased $6.3 million for the year ended March 31, 2003 as compared to fiscal
year 2002.

OTHER INCOME (EXPENSE)

Interest income was $2.0 million for the year ended March 31, 2003 compared
to $3.8 million for the year ended March 31, 2002. Interest income for both
years was primarily related to short-term investments purchased with the
proceeds of our public stock offerings completed in June 1999 and March 2000.
Investment impairment expense was $1.7 million for the year ended March 31, 2003
compared to $5.7 million for the year ended March 31, 2002. Investment
impairment expense for both years related to the permanent
24

decline in the values of certain investments we made. The decrease in net
interest income was primarily due to decreases in the interest rates earned by
invested funds resulting from decreases in market interest rates, which have
declined over 50%.

RESULTS OF OPERATIONS -- FISCAL YEAR ENDED MARCH 31, 2002 COMPARED TO FISCAL
YEAR ENDED MARCH 31, 2001

REVENUES

Total revenues increased by $21.6 million, or 32%, to $88.3 million for the
year ended March 31, 2002 from $66.7 million for the year ended March 31, 2001.
The increase in revenues was primarily attributable to the growth in of our
customer base and the increase in customers as a result of our acquisition of
CCD, increased sales to existing customers and increased sales of our Universal
Content Management software.

Product Licenses. Revenues for product licenses increased by $13.0
million, or 24%, to $66.9 million for the year ended March 31, 2002 from $53.9
million for the year ended March 31, 2001. The increase in revenues was
primarily attributable to growth in our customer base and the increase in
customers as a result of our acquisition of CCD, increased sales to existing
customers and increased sales of our Universal Content Management software.

Services. Revenues for services, consisting of consulting services,
training and post-contract customer support, increased by $8.6 million, or 67%,
to $21.4 million for the year ended March 31, 2002 from $12.9 million for the
year ended March 31, 2001. Expressed as a percentage of total service revenue,
consulting services and training was approximately 45% and post-contract
customer support 55% in the year ended March 31, 2002, respectively, and 49% and
51% in the year ended March 31, 2001. The increase in revenues for services was
primarily attributable to a larger installed base of products.

COST OF REVENUES AND GROSS PROFIT

Total cost of revenues increased by $7.6 million, or 64%, to $19.4 million
for the year ended March 31, 2002 from $11.8 million for the year ended March
31, 2001. Total cost of revenues as a percentage of total revenues was 22% for
the year ended March 31, 2002 compared to 18% for the year ended March 31, 2001.
Gross profit increased by $14.1 million, or 26%, to $69.0 million for the year
ended March 31, 2002 from $54.9 million for the year ended March 31, 2001. Total
gross profit as a percentage of total revenues was 78% for the year ended March
31, 2002 compared to 82% for the year ended March 31, 2001. The increase in
gross profit dollars was primarily attributable to the increase in product
license revenues while the decrease in gross profit percentage was primarily due
to lower gross profits on services.

Product Licenses. Cost of revenues for product licenses increased by $1.1
million or 28%, to $5.0 million for the year ended March 31, 2002 from $3.9
million for the year ended March 31, 2001. Gross profit as a percentage of
revenues for product licenses was 93% for the years ended March 31, 2002 and
2001.

Amortization of Capitalized Software from Acquisitions. Cost of revenues
related to amortization of capitalized software from acquisitions increased $0.3
million for the year ended March 31, 2002 to $1.0 million from $0.7 million for
the year ended March 31, 2001. The increase in cost of revenues for amortization
of capitalized software from acquisitions was primarily attributable to the
amortization of capitalized software obtained in the acquisition of the assets
of RESoft in July 2001.

Services. Cost of revenues, consisting of primarily personnel for
consulting services, training and post-contract customer support, increased by
$6.2 million, or 86%, to $13.4 million for the year ended March 31, 2002 from
$7.2 million for the year ended March 31, 2001. Expressed as a percentage of
total service cost, consulting services and training was approximately 75% and
post-contract customer support was 25% in the year ended March 31, 2002 and 73%
and 27%, respectively in the year ended March 31, 2001. The gross profit as a
percentage of revenues for services was 38% for the year ended March 31, 2002
compared to 44% for the year ended March 31, 2001. The decrease in the gross
profit as a percentage of revenues for services was primarily due to increased
employee headcount and other staffing costs for consulting services personnel
associated with increased training for our partners for which we receive minimal
revenue, and an increase in
25

the amount of services work performed by our partners, which typically would
have been performed by us and which led to under-utilization of certain of our
employees in the quarters ended September 30, 2001 and December 31, 2001.

OPERATING EXPENSES

Sales and Marketing. Sales and marketing expenses increased by $17.2
million, or 58%, to $46.7 million for the year ended March 31, 2002 from $29.5
million for the year ended March 31, 2001. Sales and marketing expenses as a
percentage of total revenues were 53% for the year ended March 31, 2002 compared
to 44% for the year ended March 31, 2001. Sales and marketing expenses increased
as a percentage of total revenues primarily due to the decrease in fourth
quarter fiscal year 2002 revenues.

General and Administrative. General and administrative expenses increased
by $2.9 million, or 32%, to $11.9 million for the year ended March 31, 2002 from
$9.0 million for the year ended March 31, 2001. General and administrative
expenses as a percentage of total revenues were 13% for the years ended March
31, 2002 and 2001. General and administrative expense dollars increased
primarily due to increased personnel expenses of approximately $2.4 million,
increased professional services of approximately $0.3 million and an increase in
the allowance for doubtful accounts.

Research and Development. Research and development expenses increased by
$7.8 million, or 80% to $17.6 million for the year ended March 31, 2002 from
$9.8 million for the year ended March 31, 2001. Research and development
expenses as a percentage of total revenues were 20% for the year ended March 31,
2002 and 15% for the year ended March 31, 2001. The increase in research and
development expenses was primarily due to increased staffing and related costs
of $6.3 million, and purchased services of $0.7 million.

Acquisition and Related Costs. Acquisition costs of approximately $0.2
million in the year ended March 31, 2002 consisted of uncapitalized costs
related to our acquisition of RESoft in July 2001 and the costs associated with
developing the Japanese market through a potential acquisition. The acquisition
costs of approximately $0.8 million in the fiscal year ended March 31, 2001
consisted primarily of uncapitalized costs related to our acquisition of CCD in
July 2000, accounted for as a purchase.

Amortization of Acquired Intangible Assets and Other. Amortization of
intangible assets acquired related to our acquisition of CCD in July 2000, and
our acquisition of RESoft in July 2001, accounted for as purchases. Amortization
of goodwill and acquired workforce ceased as of April 1, 2002 in connection with
the adoption of SFAS 142.

OTHER INCOME (EXPENSE)

Interest income was $3.8 million for the year ended March 31, 2002 compared
to $7.0 million for the year ended March 31, 2001. Interest income for both
years was primarily 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 was primarily due to decreases in the
interest rates earned by invested funds resulting from decreases in market
interest rates, which have declined over 50%. Investment impairment expense of
$5.7 million for the year ended March 31, 2002 related to the permanent decline
in the values of certain investments that we made.

26

QUARTERLY RESULTS

The following tables present unaudited consolidated statements of
operations data both in absolute dollars and as a percentage of total revenues
for each of our last eight quarters. This data has been derived from unaudited
consolidated financial statements that have been prepared on the same basis as
the annual audited consolidated financial statements and, in our opinion,
include all normal recurring adjustments necessary for a fair presentation of
such information. These unaudited quarterly results should be read in
conjunction with the Consolidated Financial Statements and related Notes
appearing elsewhere in this Annual Report on Form 10-K. The consolidated results
of operations for any quarter are not necessarily indicative of the results for
any future period.