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

FORM 10-K

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

FOR THE FISCAL YEAR ENDED APRIL 30, 2001

OR

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

Commission file number 0-8141

NORSTAN, INC.
(Exact name of registrant as specified in its chapter)

5101 Shady Oak Road, Minnetonka, Minnesota 55343
(Address of principal executive offices)

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

Common Stock ($.10 par value per share)
Common Stock Purchase Rights
(Title of class)

      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. [  ]

      As of July 13, 2001, 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 $36,715,000.

      As of July 13, 2001 there were outstanding 12,279,258 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

Item 1. Business.

BUSINESS

Summary

      Norstan is a full-service telecommunications solutions 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, messaging, infrastructure, conferencing, and mobility. The Company is headquartered in Minneapolis, Minnesota.

      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 more than 18,000 customers, ranging from start-up organizations to large global enterprises, drawing its customers from the banking/finance, healthcare, manufacturing, retail, government, education and non-profit sectors. The Company derives significant revenue from technology service support sales to a broad channel of manufacturers, resellers and distributors and through partnerships with manufacturers offering best of breed technology. Norstan also maintains a direct sales effort focused on Fortune 1000 companies, and an inside sales force focused on smaller opportunities. The Company’s remanufactured equipment segment supports the Company’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 four interrelated business segments: Communications Technology Solutions and Services, Resale, Network Services and Financial Services which accounted for 78.8%, 8.8%, 9.2% and 3.2% of Norstan’s fiscal year 2001 revenues, respectively. Solutions and Services provides best-of-breed technologies and services focused on selected end-user 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. Network Services provides multiple source local and long distance services including related consulting and professional services. Financial Services supports the sales process by providing customers with customized financing alternatives.

      The Company maintains 30 sales and service locations in 28 cities throughout the United States and Canada. Norstan has served more than 18,000 customers across a broad range of industries and focuses its marketing efforts on middle-market and Fortune 1000 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 2001 survey of Norstan’s communication customers that found an overall satisfaction rating of 95.6%. 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 Solutions and Services and Resale segments. The Company has established strategic alliances with leading communication companies that enhance Norstan’s ability to offer best of breed solutions to its customers. Strategic partners include Siemens, VTEL, PictureTel, Latitude, Ericsson, Aspect, Blue Pumpkin, Nuance, Cisco Systems, Sprint, Lucent Technologies (formerly Octel), Captaris, Rockwell, SpeechWorks, Alcatel, Comdial and SpectraLink.

      During fiscal 2001, the Company 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. In addition to refocusing the Company’s strategy, lack of realized synergies between the Company’s communications and consulting businesses and recurring losses within the consulting businesses contributed to the decision to divest of this non-strategic business segment.

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Industry Overview

      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. The current economic conditions, however, have significantly slowed that trend. Companies that have traditionally relied on technology-based solutions as strategic business tools are frequently postponing or curtailing technology decisions. This has had a significant effect on both the business climate and the telecommunications industry.

      The effect of the economic slowdown on the telecommunications industry has been a slowing in the rate of technological change. As technology spending has decreased, the highly leveraged Competitive Local Exchange Carriers (CLECs) segment has become a casualty of an overabundance of network bandwidth. The decline of the dot-com industry has also contributed to the situation now where technology equipment manufacturers have excess inventories and bad debt write-offs.

      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 such areas 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. For calendar year 2000, Phillips InfoTech (InfoTech), a market research firm specializing in telecommunications market information, estimates that the U.S. market for voice and converged solutions peaked at $4.9 billion in 1999, and remained stable in 2000; various forecasting firms, including Phillips, Frost & Sullivan, Data Communications and Vertical Systems group, project that PBX system spending will decline through 2002, with a potential increase in 2003. New PBX systems shipments decreased 15.8% in 2000 over 1999. This decline in PBX spending is attributed to the development of combined voice and data technology in the form of IP Telephony. Accelerated growth in IP Telephony is expected to take hold in 2002 and to reach equal market share with PBX systems by 2004. Recent slowdowns in technology spending may delay this development, however. 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 2000 was estimated by Blumberg & Associates at 0.7%, to $6.0 billion, with projected compound annual growth of approximately 3.3% through 2004. Growth in advanced or unified messaging is expected to grow at a compound annual rate of 75.0% through 2004, to $13.5 billion in annual revenue from $1.2 billion in spending in 2000. Spending in video conferencing totaled an estimated $1.5 billion in 2000, and is projected to grow at a compound rate of 20.8% through 2004, while the audio and data conferencing market is projected to grow to $3.0 billion in 2006 from $1.3 billion in 1999.

The Norstan Solution

      Norstan is a single-source provider of a wide range of communication software, services and equipment that enable its customers to compete and succeed in the global marketplace. The Company 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 1000 companies. This broad range of offerings enables Norstan to serve as a single-source provider of communication solutions 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. The Company believes that its customer relationships, its geographic reach and size, and its expertise in providing communication solutions will enable it to capitalize on the continuing growth and convergence of the hardware and software needs of middle-market and Fortune 1000 companies.

Norstan’s Business Strategy

      The Company’s objective is to become the leading provider of communications technology 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-integrating” by manufacturers 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 the largest, product independent, communications technology services organization targeting the enterprise customer in North America.

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      Focus on delivering integrated solutions to a select number of direct customers. Enterprise level customers are increasingly demanding integrated solutions that require providers to offer consulting, leading-edge technology and ongoing service to build and maintain complex communication systems. This requires expertise in selected practice areas, best of breed 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 call centers, conferencing, converged communications, and infrastructure development.

      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 Norstan/Siemens operation 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.   The Company’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 2001 survey of Norstan’s customers, in which Norstan received an overall satisfaction rating of 95.6%. 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. The Company 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.

Norstan’s Growth Strategy

      The Company expects growth from each of its three primary and inter-related business groups. Norstan’s Direct Solutions and Services business provides best-of-breed technologies and services focused on selected end-user customers throughout North America, its Channel Partner Services function specializes in technology implementation and support services for network providers, manufacturers, integrators, and resellers; and its Resale Services unit provides refurbished and re-certified voice and data products to end users.

      The largest of these units is the Company’s Direct 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. The Company has defined these practice areas as its Voice and Converged Solutions, Collaboration Solutions, Customer Contact Solutions, and Infrastructure and Services Solutions. Within each practice area the Company offers consulting, best-of-breed technologies and legendary customer service.

      Norstan has successfully developed new channel partnerships with Ericsson and Alcatel. 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 expected to grow at an average annual growth rate of nearly 40.0% between 2000 and 2004. InfoTech participated with Norstan in the development of the Company’s growth strategy.

      Finally, Norstan 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 bases for growth in this business group.

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Products and Services

      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 four business segments; Communications Technology Solutions and Services, Resale, Network Services and Financial Services:

      Communications Technology Solutions and Services & Resale

      Within its core Communications Technology segments are three interrelated business units:

	•		Direct Solutions and Services. Provides best-of-breed 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.
	•		Resale Services. Provides refurbished and re-certified voice and data products to end users.

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

•

Voice and Converged Solutions

	o		PBX Systems
	o		IP Telephony
	o		Wireless LANs

•

Collaboration Solutions

	o		Video Conferencing
	o		Audio Conferencing
	o		Data Collaboration
	o		Unified Messaging
	o		Voice Messaging

•

Customer Contact Solutions

	o		Call Center Switching Platforms
	o		Interactive Voice Response
	o		Speech Recognition
	o		CTI (Computer Telephony Integration)
	o		Workforce Management
	o		Quality Monitoring
	o		Intelligent Call Routing
	o		Media Blending / Web Enablement

•

Infrastructure and Services Solutions

	o		Structured Cabling
	o		Optical Networks
	o		Multimedia Solutions
	o		Remote System Monitoring & Diagnostic Analysis
	o		System Modifications (Moves, Adds, and Changes)
	o		Managed Communication Services
	o		24 x 7 Customer Support

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

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      Network Services

      Norstan Network Services provides multiple source local and long distance services and related consulting and professional services. Through strategic relationships with world class business partners, Network Services is able to deliver custom, flexible and unique solutions to the Company’s customers.

      Financial Services

      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 the partnership between Fidelity Leasing and Norstan Financial Services.

Customers

      Norstan focuses its marketing efforts on middle-market and Fortune 1000 companies with complex communication requirements. Norstan has served over 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:

Strategic Alliances

      The Company believes that its relationships with a wide range of leading technology companies enhance Norstan’s ability to deliver the appropriate solution to each customer. Strategic alliance partners include Siemens, VTEL, PictureTel, Latitude, Ericsson, Alcatel, Aspect, Blue Pumpkin, Nuance, Cisco Systems, Sprint, Lucent Technologies (formerly Octel), Captaris, Rockwell, SpeechWorks and SpectraLink. In addition, the Company distributes complimentary 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 from Novell, Newbridge and others.

      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.

Sales and Marketing

      Throughout the United States and Canada, Norstan’s product and services offerings are brought to market through four separate but complimentary distribution channels. These include Direct Solutions Sales, Telesales, Channel Account Sales, and Web-based e-business Sales. These distribution channels are reflected in the Company’s core business units as follows:

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      This multi-channel distribution model uses the most cost-effective sales channels to bring the Company’s products and service offerings to market. Each channel is staffed with Sales Specialists who are highly focused in one of the four Norstan Practice Areas. In addition to having a comprehensive understanding of their specialty, these Specialists also have a sound understanding of all Norstan’s product and services offerings to recognize additional sales opportunities and maximize account share. Each Sales Specialist uses a comprehensive approach to evaluate each customer’s technology needs. The Sales Specialist begins with a detailed analysis of the customer’s current and future communication and IT systems requirements. After determining the customer’s needs, the Sales Specialist, together with a Norstan Solutions Engineer, develop a solution that satisfies current and anticipated requirements. Norstan’s operations 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 specialists are able to minimize service interruption for the customer. Norstan also provides an ongoing support program tailored to meet the customer’s specific application requirements that incorporates remote diagnostics, in-field service and support, additional training and help desk support from Norstan’s customer support representatives.

      Norstan’s marketing strategy is designed to capture the maximum possible portion of Norstan’s existing customers’ communication and IT budgets and to identify and develop new customer relationships. Norstan has developed a team of highly trained Enterprise Account Managers (EAM) to focus on the Company’s largest and most strategic accounts. These 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 relative to the account strategy. Norstan believes the use of EAMs will provide high quality sales and customer service and support Norstan’s ongoing marketing efforts, as satisfied customers are more likely to choose Norstan to supply additional communication and IT products and services.

Customer Service

      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 remote diagnostics and dispatch centers located in the Minneapolis, Cleveland, Los Angeles, and Montreal areas. In fiscal year 2001, these centers handled more than 360,000 customer calls with approximately 60% of the service-related calls addressed remotely. By comparison, only 18% of customer calls were resolved remotely in fiscal year 1994. For calls requiring immediate on-site service and support, Norstan maintains a force of highly trained service technicians, design engineers and customer support representatives.

      Norstan has approximately 160 employees in its four remote diagnostics and dispatch centers devoted primarily to providing customer service, and has more than 400 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 2001 survey of Norstan’s communication customers that found an overall satisfaction rating of 95.6%.

Locations

      The Company currently supports its clients with 30 sales and service locations in 28 cities within the United States and Canada, including the following:

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Employees

      The Company’s U.S. operations had a total of 1,406 employees as of April 30, 2001 consisting of 294 sales and marketing personnel, 703 operations, service and installation employees, 36 consulting employees and 373 administrative employees. Of these employees, approximately 89 were covered by collective bargaining agreements. The Company considers relations with its employees to be good and has not experienced any work stoppages.

      The Company’s Canadian operations had a total of 145 employees as of April 30, 2001, consisting of 39 sales and consulting personnel, 85 operations, service and installation employees, and 21 administrative personnel. The Company considers relations with the Canadian employees to be good and has not experienced any work stoppages.

Competition

      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 the Company. Subject to this competitive environment, the Company 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.

      The Company also competes in its markets with Nortel Networks, of Brampton, Ontario; Avaya Communications, of Basking Ridge, NJ; Aspect Communications, of San Jose, CA, and Wiltel Communications, of Norcross, GA.

Intellectual Property Rights

      The Company 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.

Government Regulation

      Except for the sale of long distance service, the Company 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. The Company 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.

Backlog

      As of April 30, 2001, the Company had signed contracts for telecommunications products aggregating approximately $18.9 million, substantially all of which are expected to be fulfilled by the end of fiscal 2002. As of April 30, 2000, the Company had signed contracts aggregating approximately $35.9 million, substantially all of which were fulfilled by the end of fiscal 2001. 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.

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Item 2. Properties.

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

Item 3. Legal Proceedings.

      The Company 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 the Company for which the outcome is likely to have a material adverse effect upon the business, operating results and financial condition of the Company.

      The Company is pursuing various claims before the American Arbitration Association against the former owner of PRIMA Consulting (“PRIMA”) and certain former employees of PRIMA, which claims arise out of the Company’s September 1997 acquisition of PRIMA. The Company alleges that the respondents breached various covenants contained in agreements entered into in connection with the purchase transaction, aided and abetted tortious interference with those contracts and misappropriated trade secrets resulting in a substantial deterioration in the value of the acquired business. The Company further alleges an alternative claim of fraud in the inducement based on the former owner’s voiding of non-competes prior to Norstan’s acquisition of PRIMA. In addition, the Company has asserted claims in North Carolina federal district court against the new company established by the former owner of PRIMA, for tortious interference with contracts and misappropriation of trade secrets.

      The Company is seeking to recover compensatory damages of approximately $22.5 million, together with punitive damages. Although management believes the Company’s claims are meritorious, there can be no assurance that the Company will prevail in the arbitration proceeding, or in the event that the Company does prevail in the arbitration proceeding, the amount of any damages that may be awarded to the Company. Further, there can be no assurance that the respondents will have sufficient assets to satisfy any award received by the Company pursuant to the arbitration proceeding.

      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. Norstan denies that the former sales representative is entitled to any additional commissions. Norstan filed a counterclaim, seeking reimbursement of overpayments that had been made to the sales representative. 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 intends to file an appeal. However, there can be no assurance that the Company will be successful in its appeal. Management believes that the April 30, 2001 consolidated financial statements adequately reflect the Company’s exposure under this lawsuit.

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

      The Company 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

Item 5. Market for the Company’s Common Equity and Related Stockholder Matters.

Price Range of Common Stock

      The Company’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 13, 2001, there were 3,004 holders of record of the Company’s common stock.

NASDAQ Listing Requirements

      Norstan’s common stock is currently listed on the NASDAQ National Market. NASDAQ imposes on its member companies certain continued listing requirements, including the maintenance of a minimum of $4.0 million in net tangible assets. As of April 30, 2001, the Company had net tangible assets of $4.2 million. In the event that Norstan’s net tangible assets fall below $4.0 million, Norstan may be delisted and may be required to reapply for listing of its common stock for either the National Market or the NASDAQ SmallCap Market. The Company is currently developing plans to maintain compliance; however, there can be no assurance that these plans will be successful.

Restrictions on the Payment of Dividends

      The Company has not recently declared or paid any cash dividends on the common stock and does not intend to pay cash dividends on the 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, the Company’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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Item 6. Selected Consolidated Financial Data.

      The selected consolidated financial data set forth below as of and for each of the fiscal years in the five-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.