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UNITED STATES

FORM 10-K

x   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

FOR THE FISCAL YEAR ENDED APRIL 30, 2002

OR

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

Commission file number 0-8141

5101 Shady Oak Road, Minnetonka, Minnesota 55343

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

Common Stock ($.10 par value per share)

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

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

      As of July 17, 2002, the aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the average high and low prices on such date as reported by the Nasdaq National Market System was approximately $48,920,000.

      As of July 17, 2002 there were outstanding 12,416,341 shares of the registrant’s common stock, par value $.10 per share, its only class of equity securities.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant’s definitive proxy statement to be filed within 120 days after the end of the fiscal year covered by this report are incorporated by reference into Part III hereof.

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PART I

BUSINESS

      Norstan, Inc. (“Norstan” or the “Company”) is a full-service communications solutions and services company that delivers voice and data technologies and services, and remanufactured equipment to select corporate end-users and channel partners. Norstan also offers a full range of technologies for call center design, IP telephony/ PBX, messaging, infrastructure, conferencing, and mobility. Norstan manages the operations of its subsidiaries, Norstan Communications, Inc., Norstan Canada, Ltd., Norstan Financial Services, Inc., Vibes Technologies, Inc., Norstan International, Inc., and Norstan-UK Limited. The Company is headquartered in Minnetonka, Minnesota with sales and services throughout North America. Norstan’s common stock is listed on the Nasdaq stock market under the symbol NRRD.

      Norstan drives its business by delivering legendary service through the installation of a broad array of technology platforms, software solutions and on-going system maintenance needs. The Company currently works with approximately 18,000 customers, drawing its customers from the banking/finance, healthcare, manufacturing, retail, government, education, utilities, finance/insurance and non-profit sectors. The Company derives revenues from technology service support sales to a broad channel of manufacturers, resellers and distributors and through partnerships with manufacturers offering best-in-class technology. Norstan also maintains a direct sales effort focused on Fortune 2000 companies and an inside sales force focused on smaller opportunities. The Company’s remanufactured equipment segment supports Norstan’s customer base, channel partners, resellers and distributors with efficient and reliable resale services.

      To address the complex communication requirements of its customers, Norstan provides a broad range of products and services through three interrelated business segments: Communications Technology Solutions and Services, Resale Services, and Financial Services which accounted for 85.5%, 12.3%, and 2.2% of Norstan’s fiscal year 2002 revenues, respectively. Communications Technology Solutions and Services provides best-in-class technologies and services focused on selected enterprise customers throughout North America and technology implementation and support services for network providers, manufacturers, integrators, and resellers. Resale Services provides refurbished and re-certified voice and data products to end users. Financial Services supports the sales process by providing customers with customized financing alternatives.

      The Company maintains 34 sales and service locations in 24 cities throughout the United States and Canada. Norstan serves approximately 18,000 customers across a broad range of industries and focuses its marketing efforts on middle-market and Fortune 2000 companies with complex technology and communication requirements. Current customers include Charles Schwab, Best Buy, IBM, and Harley-Davidson. Norstan’s strong emphasis on customer satisfaction is evidenced by a fiscal year 2002 survey. Administered by an independent third party, the survey recorded an overall customer satisfaction rating of 97.2%. This dedication to customer service, together with the Company’s breadth of service offerings, has resulted in Norstan becoming the fourth largest communications services provider in North America. The Company believes that its outstanding customer service will enable Norstan to capture a greater portion of each customer’s communication budgets in the future as well as provide other growth opportunities through multi-channel marketing (see Norstan’s Growth Strategy).

      Norstan provides leading-edge technologies in its Communications Technology Solutions and Services and Resale Services segments. The Company has established strategic alliances with leading communication companies that enhance Norstan’s ability to offer best-in-class, custom-tailored solutions to its customers. Norstan improves the way its customers communicate. Strategic partners include Alcatel, Aspect Communications, Captaris, Cisco Systems, Ericsson, IntervoiceBrite, Latitude, Nortel Networks, Nuance, PolyCom, Rockwell FirstPoint Contact, Siemens, SpectraLink, SpeechWorks, Verint and VTEL.

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      In July 2002, Norstan completed the sale of its Network Services business to NetWolves Corporation for $7.5 million, including $3.75 million in cash and a promissory note for $3.75 million. Network Services provides multiple source long distance services and related consulting and professional services to its customers. Management concluded that Network Services lacks synergies with the Company’s strategic focus.

      During fiscal 2001, Norstan divested its IT consulting business in order to focus on its core competencies of providing communications technology services and solutions to channel partners and direct enterprise customers. The two units that made up the Company’s IT consulting business, Connaissance Consulting and Norstan Consulting, were sold on February 7 and April 30, 2001, respectively. The absence of synergies between Norstan’s communications and consulting businesses and recurring losses within the consulting businesses also contributed to the decision to divest of this non-strategic business segment.

      Until recently, intense global competition and accelerating technological change have driven businesses to depend on technology-based solutions to enhance their competitive position, and to improve productivity and the quality of their products and services. Current economic conditions, however, have significantly slowed that trend. Companies that traditionally relied on technology-based solutions as strategic business tools are postponing or curtailing technology decisions. This has had a significant effect on both the business climate and the telecommunications industry.

      While customers continue to rely heavily on technology to reduce transaction costs by increasing operational efficiencies, the bias toward software-centric solutions in lieu of hardware continues. Notwithstanding the slow economic conditions, growth continues to occur in areas such as customer contact solutions, CTI (computer telephony integration), unified media, convergence (IP telephony), and mobility.

      Current financial pressures also are making it increasingly difficult for communications equipment manufacturers to support a direct distribution model. Most independent distribution channels lack an adequate geographic footprint, infrastructure, processes, and resources to effectively fulfill the manufacturer’s need to deploy complex high-end technology solutions. This has resulted in the need for systems integration and support services through third-party providers. A key competency being driven by the market is the ability to effectively integrate disparate technology platforms into enterprise-wide applications solutions.

      As a result of these factors, demand for communication services and products has been relatively flat. Phillips InfoTech (InfoTech), a market research firm specializing in telecommunications market information, estimates that the U.S. market for traditional voice PBX systems will continue to decline over the next five years as enterprises shift to converged solutions, a combined form of voice and data, also referred to as IP Telephony. In 2001, total PBX line shipments declined 12.2% from the same period in 2000. In contrast, IP line shipments grew nearly 230.0% to 1.6 million lines during the same period. Purchases associated with converged solutions are forecasted to grow approximately 29.0% between 2001 and 2002, increasing to 47.8% growth from 2002 to 2003. Recent slowdowns in technology spending may delay this development, however. Overall revenues in the U.S. marketplace for voice and convergence are projected to reach $5.6 billion by 2005. Field maintenance and repair is the largest, but slowest growing segment in services associated with the voice marketplace. This includes the maintenance and repair of PBX, Key/ Hybrid, Voice Processing: IVR, CTI, ACD and fax. Growth in 2001 was estimated by Phillips InfoTech at 2.8% to $4.2 billion, with expected growth to $4.8 billion by 2005. Spending in video conferencing totaled an estimated $600.0 million in 2001, and is projected to grow to $1.4 billion by 2006, while the audio and data conferencing market is projected to grow to $2.4 billion in 2004 from $1.7 billion in 2001, according to Wainhouse Research and Frost & Sullivan, market research firms specializing in collaboration and telecommunications data.

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      Norstan is a provider of a wide range of communication software, services and equipment that enable its customers to compete and succeed in the global marketplace. Norstan has leveraged its established reputation as a provider of premier communication products and services to deliver complex, high-end technology solutions to middle-market and Fortune 2000 companies. This broad range of offerings enables Norstan to serve as a single-source provider of communication solutions and services throughout the entire life cycle of a project. Norstan’s ability to serve as a single-source provider results in closer integration, reduced risk and greater management control for the customer. Norstan believes that its customer relationships, its geographic reach and size, and its expertise in providing communication solutions and service will enable it to capitalize on the continuing growth and convergence of the hardware and software needs of middle-market and Fortune 2000 companies.

      Norstan’s objective is to become the leading provider of communications technology solutions and services to the enterprise market in North America. Key to the achievement of this objective are the following elements:

      Capitalize on the trend of “dis-integration” by manufacturers, integrators and distributors in the converged communications and information technology areas. Equipment and software providers are increasingly outsourcing functions that are not core competencies. This trend has led to the rapid development of outsourced manufacturing, installation and ongoing services rather than the use of limited resources to maintain North American-wide installation and servicing organizations. Norstan is one of the largest product-independent communications technology solutions and services organization targeting the enterprise market in North America.

      Focus on delivering integrated solutions to select enterprise customers. Enterprise customers demand robust communications technology solutions and services that integrate multiple platforms, increase productivity, improve customer touch, reduce costs, offer custom-tailored best-in-class technologies and round-the-clock customer service while realizing the highest return on their investment. This requires expertise in selected practice areas, best-in-class product independence and a servicing capability that spans a wide geography. Norstan specializes in attracting and retaining high value customers who demand a broad spectrum of expertise, including customer contact solutions, voice and converged communications, communications services and enterprise mobility and infrastructure.

      Capitalize on the growth and consolidation of the secondary market for re-sale and re-manufacture of voice and data equipment. The secondary market for telecommunications continues to grow and continues to be fragmented. The one exception to this fragmentation is the Resale Services Group, an alliance between Norstan and Siemens Enterprise Networks LLC, which controls nearly 70% of the resale and re-manufacture of Siemens equipment in North America. Through its wholly-owned subsidiary, Vibes Technologies, Inc. (Vibes), Norstan believes it can provide a new level of integrated direct and web-based service to the secondary market for such products as those manufactured by Cisco, Avaya and Nortel.

      Provide superior customer service. Norstan’s dedication to providing service beyond its customers’ expectations has produced many favorable customer relationships and resulted in increased exposure to potential new customers. Norstan’s emphasis on customer satisfaction is evidenced by a fiscal year 2002 survey of Norstan’s customers, in which Norstan received an overall satisfaction rating of 97.2%. Customers were surveyed by an independent third party. The Company believes that its reputation for superior service will lead to opportunities in its multi-channel marketing and cross-selling strategy designed to expand the products and services it sells to its customer base.

      Attract, develop and retain highly skilled professionals. Norstan will continue to attract, develop and retain the highest caliber of personnel by providing a rewarding work environment, competitive pay and benefits, and opportunities for individual growth and development. Norstan has had a long history of creating a values-based culture that emphasizes ethical actions and respect for the individual.

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      Norstan expects growth from each of its three primary and inter-related business strategies. Norstan’s Communications Technology Solutions and Services business provides best-in-class technologies and services focused on selected end-user customers throughout North America. Within this business segment is Norstan’s Communications Technology Channel Partner Development unit, which specializes in technology implementation and support services for network providers, manufacturers, integrators, and resellers. Norstan’s Resale Services business provides refurbished and re-certified voice and data products to end users.

      The largest of these units is the Communications Technology Solutions and Services business, which has been organized into specific practice areas designed to provide opportunities for increased revenues from both new and existing customers. Norstan has defined these practice areas as Voice and Converged Solutions, Customer Contact Solutions, Communications Services and Enterprise Mobility and Infrastructure. Within each practice area, Norstan offers consulting, best-in-class technologies and legendary customer service.

      Norstan’s Communications Technology Channel Partner Development business has successfully developed new channel partnerships with companies such as Alcatel, Calence, Highwire Networks, Mitel Networks, Datatec Systems, and VorTecs. In addition to the Company’s current direct enterprise marketing activities, Norstan is focused on marketing its industry-leading professional, consulting and traditional support services through a broad spectrum of enterprise solution providers. Such enterprise solution providers include CLECs, Incumbent Local Exchange Carriers (ILECs), Internet Service Providers (ISPs), and Applications Services Providers (ASPs) as well as other channel partners, such as Value-Added Resellers (VARs), Systems Integrators, and Manufacturer Direct channels.

      Services offered to these multi-channel partners include a complete spectrum of capabilities from applications planning through solution implementation, network monitoring, installation, support, upgrades and maintenance. According to industry studies by InfoTech, the combined markets for these services are projected to be $28.0 billion by 2004 and are expected to grow at an average annual growth rate of nearly 40.0% between 2000 and 2004.

      Finally, Norstan’s Resale Services business expects the re-sale of used telecommunication and data equipment to continue to grow and the segment to consolidate. Vibes is uniquely positioned to take advantage of this growth and consolidation with its state-of-the-art e-commerce web site. The combination of this web based approach and Norstan’s premier knowledge of the secondary market will provide the basis for growth in this business group.

      Norstan provides customers with a broad range of communication and IT products and services to design, develop and implement technology solutions in a variety of customer environments. These products and services are delivered through the Company’s three business segments; Communications Technology Solutions and Services, Resale Services, and Financial Services:

      Within its core Communications Technology segment are two interrelated business units:

	•	Direct Solutions and Services. Provides best-in-class technologies and services focused on selected end-user customers throughout North America.
	•	Channel Partner Services. Technology implementation and support services for network providers, manufacturers, integrators, and resellers.

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      Norstan’s product and service offerings are centered around four Practice Areas:

	•	Voice and Converged Solutions

	–	Voice Systems
	–	IP Telephony
	–	Data Networking
	–	Video Conferencing
	–	Audio Conferencing
	–	Data Collaboration
	–	Advanced messaging

	•	Customer Contact Solutions

	–	Contact Center Switching Platforms
	–	Self Service: Interactive Voice Response & Speech Recognition
	–	CTI (Computer Telephony Integration)
	–	Intelligent and Pre-Call Routing
	–	Media Blending/ Web Enablement
	–	Work Force Optimization: Workforce Management & Quality Monitoring and Recording

	•	Enterprise Mobility and Infrastructure

	–	Enterprise Mobile Networking

	•	Wireless Voice Solutions (Dedicated and IP-based)
	•	Wireless LAN (802.11a & 802.11b)
	•	Access Gateways (Wireless Integration Solutions)
	•	Broadband Wireless Infrastructure for the Enterprise

	–	Structured Cabling

	•	Optical Networks
	•	Multimedia Solutions

	•	Communications Services

	–	Remote System Monitoring & Diagnostic Analysis
	–	System Modifications (Moves, Adds, and Changes)
	–	Managed Communication Services
	–	24 x 7 Customer Support
	–	Customized Maintenance Contract Offerings
	–	Professional and Consultation Services

      Within each Practice Area Norstan provides world class communications consulting services, leading edge technologies, and legendary implementation and support services.

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      Norstan’s Resale Services segment provides refurbished and re-certified voice and data products to end users. This business is comprised of two units:

	•	Resale Services Group is a 12-year alliance between Siemens Enterprise Networks LLC and Norstan. This business offers value-minded customers the highest quality refurbished systems, components, desktop products, accessories and services.
	•	Vibes Technologies, Inc., a wholly owned subsidiary of Norstan Communications, Inc., is a leader in telecom and data equipment remanufacture and repair, specializing in top-line key systems, phones, data and other components. They provide customers legendary customer service and expertise in systems manufactured by Nortel Networks, Avaya (formerly Lucent Technologies), Executone, Aspect Communications and Cisco Systems.

      Norstan Financial Services provides Norstan customers with creative and flexible financial solutions for technology and business essential equipment acquisitions. These financial alternatives are offered under a private label leasing program through a partnership between Fidelity Leasing and Norstan Financial Services.

      Norstan focuses its marketing efforts on middle-market and Fortune 2000 companies with complex communication requirements. Norstan has served approximately 18,000 customers across a broad range of industries over the last three fiscal years. No single customer accounted for more than 5% of Norstan’s total revenue during any of the last three fiscal years.

      A sample of current premier customers of the Company include the following:

      Norstan’s relationships with a wide range of leading technology companies enhance its ability to deliver the appropriate solution to each customer. Strategic alliance partners include Alcatel, Aspect Communications, Captaris, Cisco Systems, Ericsson, IntervoiceBrite, Latitude, Nortel Networks, Nuance, Polycom, Siemens, Sprint, Rockwell FirstPoint Contact, SpectraLink, SpeechWorks, Verint and VTEL. In addition, Norstan distributes complementary communication products that fit specific segments of the marketplace. These include hybrid switching systems, personal computer-based voice processing and video conferencing systems, as well as data communication products.

      Norstan has been a distributor of Siemens communication equipment since 1976 and is Siemens’ largest independent distributor in North America. The term of the current distributor agreement with Siemens, signed in January 1999, is five years. Norstan and Siemens have also renewed an agreement through July 27, 2003 under which Norstan is an authorized agent for the refurbishment and sale of previously owned Siemens equipment.

      Throughout the United States and Canada, Norstan’s product and services offerings are brought to market through three separate but complementary distribution channels. These channels use a direct,

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      This multi-channel distribution model uses the most cost-effective sales channels to bring Norstan’s products and service offerings to market. Each channel is staffed with Sales Professionals who are highly focused on their respective target markets. In addition to having a comprehensive understanding of their markets, these Professionals also have a sound understanding of all Norstan’s product and services offerings to recognize additional sales opportunities and maximize account share.

      Within the Direct Solutions channel, each Sales Professional has been trained to use a comprehensive approach to evaluate each customer’s technology and service needs. The Sales Professional begins by working with the customer to fully understand the customer’s goals and objectives. Next the Sales Professional conducts a detailed analysis of the customer’s current and future communication and IT systems requirements, as well as service delivery needs. After determining the customer’s needs, the sales Professional and a Norstan Solutions Engineer develop a solution that satisfies current and anticipated requirements. Norstan’s Service Delivery team then works with the customer to plan the delivery and implementation of the solution and to identify required training. By planning the precise requirements of each phase of the solution delivery, Norstan’s team of Sales, Solutions Engineering and Service Delivery specialists are able to minimize service interruption for the customer.

      Norstan also provides an ongoing customer service program tailored to meet each customer’s specific application requirements. This service program incorporates remote diagnostics, in-field service and support, additional training, and help desk resources from Norstan’s expert customer support team, located in four Solution Centers across North America.

      Norstan’s marketing strategy both captures the maximum possible share of Norstan’s existing customers’ communication and IT budgets and also identifies and develops new customer relationships. Additionally, Norstan’s team of highly trained Enterprise Account Managers (EAM) focus on the Company’s largest and most strategic accounts. The EAMs work with the client’s senior-level management to gain a comprehensive understanding of their business needs, and to ensure the most effective deployment of Norstan’s resources to satisfy those business needs. Norstan believes the use of EAMs will provide high quality sales and customer service, and will advance Norstan’s ongoing marketing efforts. Norstan believes that highly satisfied and loyal customers are more likely to continue to choose Norstan to provide them with additional communication and IT products and services.

      Norstan believes that providing exceptional customer service is an important element of its ability to compete effectively in the communication marketplace. Norstan has invested heavily in new technology designed to help resolve a substantial portion of customer support and service issues quickly and remotely. Norstan coordinates its customer service response through four centers located in Minneapolis, Cleveland, Los Angeles, and Montreal. In fiscal year 2002, these centers handled more than 450,000 customer calls with approximately 66.0% of the service-related calls addressed remotely. By comparison, only 18.0% of customer calls were resolved remotely in fiscal year 1994. For calls requiring immediate on-site service and

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      Norstan has approximately 150 employees in its four remote diagnostics and dispatch centers devoted primarily to providing customer service, and has more than 350 service technicians in the field. With Norstan’s remote problem resolution capability and its staff of highly trained technicians, the Company is able to promptly resolve customer support requests. Norstan’s commitment to customer service is evidenced by a fiscal year 2002 survey of Norstan’s communication customers that found an overall satisfaction rating of 97.2%. This survey was administered by an independent third party.

      Norstan currently supports its clients with 34 sales and service locations in 24 cities within the United States and Canada, including the following:

      Norstan had a total of 1,477 employees as of April 30, 2002, including 1,341 in the U.S. and 136 in Canada. The employee population consists of 274 in sales and marketing, 771 in operations, service and installation, 395 administrative and professional personnel and 37 consultants. Of these employees, 86 are covered by collective bargaining agreements. Norstan considers relations with its employees to be good and has not experienced any work stoppages.

      Norstan’s marketing strategy is designed to capture a larger portion of existing customers’ communication and IT budgets and to identify and develop new customer relationships. The Company competes with its customers’ internal resources, particularly when these resources represent a fixed cost to the customer. Such competition may impose additional pricing pressures on Norstan. Subject to this competitive environment, Norstan competes on the basis of: the depth and breadth of services and products offered; the ability to integrate IT and communication systems as the related technologies continue to converge; its reputation for providing superior customer service; and the number and strength of customer relationships.

      Norstan also competes in its markets with Avaya Communications, of Basking Ridge, NJ; NextiraOne, a division of Platinum Equities, of Houston, TX; and RBOCs such as SBC Communications, San Antonio, TX and Telcos such as Verizon Communications of New York, NY.

      Norstan relies upon a combination of nondisclosure and other contractual arrangements with certain key employees and business partners, and trade secret, copyright and trademark laws to protect its proprietary rights and the proprietary rights of third parties from whom the Company licenses intellectual property. Norstan enters into confidentiality agreements with certain of its employees and business partners and limits the distribution of proprietary information.

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      Except for the sale of long distance service, Norstan is not subject to any government regulations that have a material impact on its operations. Effective May 1, 1992, the Company became a direct reseller of long distance network services and became subject to certain state tariff regulations throughout the United States. Norstan is currently registered and certified to provide interstate services in all 50 states and intrastate services in 49 states. The Company is also subject to FCC regulations, which require the filing of federal tariffs. With the sale of Norstan Network Services in July of 2002, Norstan is no longer subject to these regulations.

      As of April 30, 2002, Norstan had signed contracts for telecommunications products and professional services aggregating approximately $23.5 million, substantially all of which are expected to be fulfilled by the end of fiscal 2003. As of April 30, 2001, Norstan had signed contracts aggregating approximately $18.9 million, substantially all of which were fulfilled by the end of fiscal 2002. The usual time period between the execution of a contract and the completion of the installation is three to twelve months, depending on the size and complexity of the system.

      The executive offices of Norstan are located in Minnetonka, Minnesota, where the Company leases approximately 165,000 square feet of office space. Norstan also has area headquarters in Brecksville, Ohio, and Phoenix, Arizona, where the Company leases approximately 42,750 and 34,400 square feet of office space, respectively. In addition to the space above, Norstan leases sales and service offices in 21 other cities within the United States. In Canada, Norstan leases approximately 28,800 square feet of office space in Toronto, Ontario, which serves as its Canadian headquarters. Norstan also leases sales and service offices in three other cities within the Canadian provinces of Alberta, Quebec and British Columbia. Norstan believes that the above-mentioned facilities are adequate and suitable for its current needs.

      Norstan is involved in legal actions in the ordinary course of its business. Although the outcomes of any such legal actions cannot be predicted, in the opinion of management there is no legal proceeding pending against or involving Norstan for which the outcome is likely to have a material adverse effect upon the business, operating results and financial condition of the Company.

      On February 25, 2002, Norstan was awarded $7.2 million resulting from a claim before the American Arbitration Association against the former owner of PRIMA Consulting (“PRIMA”) which claims arise out of the Company’s September 1997 acquisition of PRIMA. Subsequently, Norstan reached a settlement with Mr. Michael Vadini. The settlement provides that Norstan receive $3.0 million in cash, a promissory note issued by Mr. Vadini for $1.0 million to be paid in monthly installments beginning in June 2002, and certain real properties. As a result of the settlement, Norstan recorded a $3.0 million gain in the fourth quarter of fiscal 2002, based on cash received. Norstan recorded a full reserve against the real property and the promissory note and will record any future gains on the sale of the real properties and collection of the promissory note as amounts are assured of realization.

      In May 2000, Norstan was sued in the U.S. District Court for the District of Minnesota by a former sales representative who claims he is owed $458,675 in additional commissions. On July 26, 2001, the U.S. District Court entered summary judgment in favor of the former sales representative and against Norstan. The Company believes the ruling is in error and has filed an appeal. However, there can be no assurance that Norstan will be successful in its appeal. Management believes that the April 30, 2002 consolidated financial statements adequately reflect Norstan’s exposure under this lawsuit.

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      Norstan did not submit any matters to a vote of security holders during the last quarter of the fiscal year covered by this report.

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PART II

      Norstan’s common stock is traded on the National Over-the-Counter market and is listed on the national market system of the National Association of Securities Dealers’ Automated Quotations System (“NASDAQ”) under the symbol “NRRD”. The following table sets forth the high and low sale prices for the Company’s common stock as reported by NASDAQ for each quarterly period during the two most recent fiscal years:

      The quotations reflect prices between dealers and do not include retail mark-ups, mark-downs or commissions, and do not necessarily represent actual transactions.

      As of July 17, 2002, there were 4,029 holders of record of Norstan’s common stock.

      Norstan has not recently declared or paid any cash dividends on its common stock and does not intend to pay cash dividends on its common stock in the foreseeable future. The Company currently expects to retain earnings to finance the operations and the expansion of its business. In addition, Norstan’s current revolving long-term credit agreement prohibits the payment of cash dividends without the prior written consent of the lenders thereunder.

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      The selected consolidated financial data set forth below as of and for the year ended April 30, 2002, have been derived from Norstan’s consolidated financial statements, which have been audited by Deloitte & Touche LLP, independent auditors. The selected consolidated financial data set forth below as of and for each of the fiscal years in the four-year period ended April 30, 2001 have been derived from the Company’s consolidated financial statements, which have been audited by Arthur Andersen LLP, independent public accountants. 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 notes thereto included elsewhere in this report.