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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

|  |                                                                                                                                           
|- | ------------------------------------------------------------------------------------------------------------------------------------------
|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
October 31, 2002 OR
| 
|o | 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: 0-13994

|                                                      
|------------------------------------------------------
|COMPUTER NETWORK TECHNOLOGY CORPORATION               
|                                                      
|(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



|                         |  |                                     
|------------------------ |  | ------------------------------------
|Minnesota                |  | 41-1356476                          
|                         |  |                                     
|(State of Incorporation) |  | (I.R.S. Employer Identification No.)

|                                                    
|----------------------------------------------------
|6000 Nathan Lane North, Minneapolis, Minnesota 55442
|                                                    
|(Address of principal executive offices)(Zip Code)  
|                                                    
|                                                    
|Telephone Number: (763) 268-6000                    
|                                                    
|(Registrants telephone number, including area code)

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 the filing
requirements for at least the past 90 days. Yes x No

As of December 4, 2002, the registrant had
26,803,035 shares of $.01 par value
common stock issued and outstanding.



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TABLE OF CONTENTS



|                                                                                              |                                            |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                                                                
|                                                                                              | CONSOLIDATED STATEMENTS OF INCOME         
|                                                                                              | CONSOLIDATED BALANCE SHEETS               
|                                                                                              | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                                                                              | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|ITEM 3. MARKET RISK                                                                          
|ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION                                                                   
|Item 1-5. None                                                                               
|Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                                                   
|EXHIBIT INDEX                                                                                
|EX-11 Statement Re: Computation of Net Income                                                



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##### Table of Contents



COMPUTER NETWORK TECHNOLOGY CORPORATION

INDEX




PART I. FINANCIAL INFORMATION

|           |  |                                                                                                     |  |     
|---------- |  | --------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                     |  | Page
|           |  |                                                                                                     |  |     
|Item 1.    |  | Financial Statements (unaudited)                                                                    |  |     
|           |  |                                                                                                     |  |     
|           |  | Consolidated Statements of Operations for the
three and nine months ended October 31, 2002 and 2001 |  | 3   
|           |  |                                                                                                     |  |     
|           |  | Consolidated Balance Sheets as of October 31, 2002
and January 31, 2002                             |  | 4   
|           |  |                                                                                                     |  |     
|           |  | Consolidated Statements of Cash Flows for the
nine months ended October 31, 2002 and 2001           |  | 5   
|           |  |                                                                                                     |  |     
|           |  | Notes to Consolidated Financial Statements                                                          |  | 6   
|           |  |                                                                                                     |  |     
|Item 2.    |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations               |  | 11  
|           |  |                                                                                                     |  |     
|Item 3.    |  | Market Risk                                                                                         |  | 19  
|           |  |                                                                                                     |  |     
|Item 4.    |  | Controls and Procedures                                                                             |  | 20  
|           |  |                                                                                                     |  |     
|PART II    |  | OTHER INFORMATION                                                                                   |  | 22  
|           |  |                                                                                                     |  |     
|Item 1-5.  |  | None                                                                                                |  |     
|           |  |                                                                                                     |  |     
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                    |  | 22  
|           |  |                                                                                                     |  |     
|SIGNATURES |  |                                                                                                     |  | 23  

2



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##### Table of Contents






CNT
CONSOLIDATED STATEMENTS OF INCOME(in thousands, except per share data)
(unaudited)

|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |         |         |   |         |         |         | 
|---------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------ | ------ | ------------------ | ------ | - | ----------------- | ------ | ------ | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                             |                                                     |                          |        | Three months ended |        |   | Nine months ended |       
|                                                                             |                                                     |                          |        |                    |        |   |                   |       
|                                                                             |                                                     |                          |        | October 31,        |        |   | October 31,       |       
|                                                                             |                                                     |                          |        |                    |        |   |                   |       
|                                                                             |                                                     |                          |        | 2002               |        |   | 2001              |        |        | 2002 |         |         | 2001    |  
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |         |         |  
|Revenue:                                                                     |                                                     |                          |        |                    |        |   |                   |        |        |      |         |         |         |   |         |        
|                                                                             | Product sales                                       |                          | $      | 39,009             |        |   | $                 | 40,392 |        |      | $       | 101,891 |         |   | $       | 84,111  |        
|                                                                             | Service fees                                        |                          |        | 16,894             |        |   |                   | 14,970 |        |      |         | 48,090  |         |   |         | 42,247  |        
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|                                                                             |                                                     | Total revenue            |        |                    | 55,903 |   |                   |        | 55,362 |      |         |         | 149,981 |   |         |         | 126,358 | 
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|Cost of revenue:                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |         |         |   |         |        
|                                                                             | Cost of product sales                               |                          |        | 24,842             |        |   |                   | 23,471 |        |      |         | 61,822  |         |   |         | 48,488  |        
|                                                                             | Cost of service fees                                |                          |        | 9,511              |        |   |                   | 9,864  |        |      |         | 28,579  |         |   |         | 28,818  |        
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|                                                                             |                                                     | Total cost of revenue    |        |                    | 34,353 |   |                   |        | 33,335 |      |         |         | 90,401  |   |         |         | 77,306  | 
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|Gross profit                                                                 |                                                     |                          | 21,550 |                    |        |   | 22,027            |        |        |      | 59,580  |         |         |   | 49,052  |        
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|Operating expenses:                                                          |                                                     |                          |        |                    |        |   |                   |        |        |      |         |         |         |   |         |        
|                                                                             | Sales and marketing                                 |                          |        | 13,614             |        |   |                   | 14,040 |        |      |         | 43,399  |         |   |         | 36,789  |        
|                                                                             | Engineering and development                         |                          |        | 7,063              |        |   |                   | 6,023  |        |      |         | 20,322  |         |   |         | 17,441  |        
|                                                                             | General and administrative                          |                          |        | 2,696              |        |   |                   | 2,290  |        |      |         | 7,903   |         |   |         | 7,227   |        
|                                                                             | Restructuring charge                                |                          |        |                   |        |   |                   |       |        |      |         |        |         |   |         | 996     |        
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|                                                                             |                                                     | Total operating expenses |        |                    | 23,373 |   |                   |        | 22,353 |      |         |         | 71,624  |   |         |         | 62,453  | 
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|Loss from operations                                                         |                                                     |                          | (1,823 | )                  |        |   | (326              | )      |        |      | (12,044 | )       |         |   | (13,401 | )      
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|Other income (expense):                                                      |                                                     |                          |        |                    |        |   |                   |        |        |      |         |         |         |   |         |        
|                                                                             | Loss on sale/write-down of webMethods stock         |                          |        |                   |        |   |                   |       |        |      |         |        |         |   |         | (10,283 | )      
|                                                                             | Interest
income and other income, net               |                          |        | 1,344              |        |   |                   | 1,306  |        |      |         | 4,816   |         |   |         | 4,657   |        
|                                                                             | Interest
expense                                    |                          |        | (1,146             | )      |   |                   | (86    | )      |      |         | (3,189  | )       |   |         | (214    | )      
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|Other income (expense), net                                                  |                                                     |                          | 198    |                    |        |   | 1,220             |        |        |      | 1,627   |         |         |   | (5,840  | )      
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|Income (loss) before income taxes                                            |                                                     |                          | (1,625 | )                  |        |   | 894               |        |        |      | (10,417 | )       |         |   | (19,241 | )      
|Provision (benefit) for income taxes                                         |                                                     |                          | (554   | )                  |        |   | 295               |        |        |      | (3,543  | )       |         |   | (6,041  | )      
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|Income (loss) from continuing operations                                     |                                                     |                          | (1,071 | )                  |        |   | 599               |        |        |      | (6,874  | )       |         |   | (13,200 | )      
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|Discontinued operations, net of tax                                          |                                                     |                          | 207    |                    |        |   | 1,799             |        |        |      | 207     |         |         |   | 8,222   |        
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|Net income (loss) before cumulative effect of
change in accounting principle |                                                     |                          | (864   | )                  |        |   | 2,398             |        |        |      | (6,667  | )       |         |   | (4,978  | )      
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|Cumulative effect of change in accounting principle                          |                                                     |                          |       |                    |        |   |                  |        |        |      | (10,068 | )       |         |   |        |        
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|Net income (loss)                                                            |                                                     | $                        | (864   | )                  |        | $ | 2,398             |        |        | $    | (16,735 | )       |         | $ | (4,978  | )      
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|Basic
income (loss) per share:                                               |                                                     |                          |        |                    |        |   |                   |        |        |      |         |         |         |   |         |        
|                                                                             | Continuing operations                               |                          | $      | (.04               | )      |   | $                 | .02    |        |      | $       | (.24    | )       |   | $       | (.44    | )      
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|                                                                             | Discontinued operations                             |                          | $      | .01                |        |   | $                 | .06    |        |      | $       | .01     |         |   | $       | .28     |        
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|                                                                             | Cumulative effect of change in accounting
principle |                          | $      |                   |        |   | $                 | -      |        |      | $       | (.35    | )       |   | $       |        |        
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|                                                                             | Net income (loss)                                   |                          | $      | (.03               | )      |   | $                 | .08    |        |      | $       | (.59    | )       |   | $       | (.17    | )      
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|                                                                             | Shares                                              |                          |        | 26,896             |        |   |                   | 29,923 |        |      |         | 28,574  |         |   |         | 29,806  |        
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|Diluted
income (loss) per share:                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |         |         |   |         |        
|                                                                             | Continuing operations                               |                          | $      | (.04               | )      |   | $                 | .02    |        |      | $       | (.24    | )       |   | $       | (.44    | )      
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|                                                                             | Discontinued operations                             |                          | $      | .01                |        |   | $                 | .06    |        |      | $       | .01     |         |   | $       | .28     |        
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|                                                                             | Cumulative effect of change in accounting
principle |                          | $      |                   |        |   | $                 | -      |        |      | $       | (.35    | )       |   | $       |        |        
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|                                                                             | Net income (loss)                                   |                          | $      | (.03               | )      |   | $                 | .08    |        |      | $       | (.59    | )       |   | $       | (.17    | )      
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        
|                                                                             | Shares                                              |                          |        | 26,896             |        |   |                   | 31,195 |        |      |         | 28,574  |         |   |         | 29,806  |        
|                                                                             |                                                     |                          |        |                    |        |   |                   |        |        |      |         |        

See accompanying notes to Consolidated Financial Statements

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CNT
CONSOLIDATED BALANCE SHEETS(in thousands, except per share data)

|                                                           |                                                                                                |                                                                                                                                           |                           |                                      |         |             |         |   |             |        |         | 
|---------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------------------------------------ | ------- | ----------- | ------- | - | ----------- | ------ | ------- | 
|                                                           |                                                                                                |                                                                                                                                           |                           |                                      |         | October 31, |         |   |             |        |        
|                                                           |                                                                                                |                                                                                                                                           |                           |                                      |         | 2002        |         |   | January 31, |       
|                                                           |                                                                                                |                                                                                                                                           |                           |                                      |         | (unaudited) |         |   | 2002        |       
|                                                           |                                                                                                |                                                                                                                                           |                           |                                      |         |             |         |   |             |       
|                                                           |                                                                                                |                                                                                                                                           |                           | Assets                               |         |             |         |   |             |        |         | 
|Current
assets:                                            |                                                                                                |                                                                                                                                           |                           |                                      |         |             |         |  
|                                                           |                                                                                                | Cash and cash equivalents                                                                                                                 |                           | $                                    | 100,326 |             |         | $ | 34,402      |       
|                                                           |                                                                                                | Marketable securities                                                                                                                     |                           |                                      | 102,548 |             |         |   | 83,612      |       
|                                                           |                                                                                                | Receivables, net                                                                                                                          |                           |                                      | 51,069  |             |         |   | 53,962      |       
|                                                           |                                                                                                | Inventories                                                                                                                               |                           |                                      | 30,304  |             |         |   | 31,410      |       
|                                                           |                                                                                                | Deferred tax asset                                                                                                                        |                           |                                      | 6,463   |             |         |   | 5,134       |       
|                                                           |                                                                                                | Other current assets                                                                                                                      |                           |                                      | 2,881   |             |         |   | 4,138       |       
|                                                           |                                                                                                |                                                                                                                                           |                           |                                      |         |            
|                                                           |                                                                                                |                                                                                                                                           |                           | Total current assets                 |         |             | 293,591 |   |             |        | 212,658 | 
|                                                           |                                                                                                |                                                                                                                                           |                           |                                      |         |            
|Property and equipment, net                                |                                                                                                |                                                                                                                                           | 23,175                    |                                      |         |             | 25,604  |  
|Field support spares, net                                  |                                                                                                |                                                                                                                                           | 6,092                     |                                      |         |             | 4,562   |  
|Deferred tax asset                                         |                                                                                                |                                                                                                                                           | 14,520                    |                                      |         |             | 11,048  |  
|Goodwill and other intangibles, net                        |                                                                                                |                                                                                                                                           | 15,339                    |                                      |         |             | 14,533  |  
|Other assets                                               |                                                                                                |                                                                                                                                           | 4,238                     |                                      |         |             | 1,333   |  
|                                                           |                                                                                                |                                                                                                                                           |                           |                                      |         |            
|                                                           |                                                                                                | $                                                                                                                                         | 356,955                   |                                      |         | $           | 269,738 |  
|                                                           |                                                                                                |                                                                                                                                           |                           |                                      |         |            
|                                                           |                                                                                                |                                                                                                                                           |                           | Liabilities and Shareholders Equity |         |             |         |   |             |        |         | 
|Current
liabilities:                                       |                                                                                                |                                                                                                                                           |                           |                                      |         |             |         |  
|                                                           |                                                                                                | Accounts payable                                                                                                                          |                           | $                                    | 19,359  |             |         | $ | 17,240      |       
|                                                           |                                                                                                | Accrued liabilities                                                                                                                       |                           |                                      | 24,615  |             |         |   | 20,158      |       
|                                                           |                                                                                                | Deferred revenue                                                                                                                          |                           |                                      | 15,992  |             |         |   | 13,466      |       
|                                                           |                                                                                                | Current installments of obligations under capital lease                                                                                   |                           |                                      | 984     |             |         |   | 1,523       |       
|                                                           |                                                                                                |                                                                                                                                           |                           |                                      |         |            
|                                                           |                                                                                                |                                                                                                                                           | Total current liabilities |                                      |         | 60,950      |         |   |             | 52,387 |        
|                                                           |                                                                                                |                                                                                                                                           |                           |                                      |         |            
|Convertible subordinated debt                              |                                                                                                |                                                                                                                                           | 125,000                   |                                      |         |             | -       |  
|Obligations under capital lease, less current installments |                                                                                                |                                                                                                                                           | 69                        |                                      |         |             | 708     |  
|                                                           |                                                                                                |                                                                                                                                           |                           |                                      |         |            
|                                                           |                                                                                                |                                                                                                                                           |                           | Total liabilities                    |         |             | 186,019 |   |             |        | 53,095  | 
|                                                           |                                                                                                |                                                                                                                                           |                           |                                      |         |            
|Shareholders equity:                                      |                                                                                                |                                                                                                                                           |                           |                                      |         |             |         |  
|                                                           |                                                                                                | Undesignated preferred stock, authorized 965
shares; none issued and outstanding                                                          |                           |                                      |        |             |         |   |            |       
|                                                           | Series A Junior participating preferred stock,
authorized 40 shares, none issued & outstanding |                                                                                                                                           |                           |                                     |         |             |         |  |            
|                                                           |                                                                                                | Common stock, $.01 par value; authorized
100,000 shares, issued and outstanding
26,799 at October 31, 2002 and
30,383 at January 31, 2002 |                           |                                      | 268     |             |         |   | 304         |       
|                                                           |                                                                                                | Additional paid-in capital                                                                                                                |                           |                                      | 173,277 |             |         |   | 202,996     |       
|                                                           |                                                                                                | Unearned compensation                                                                                                                     |                           |                                      | (879    | )           |         |   | (1,232      | )     
|                                                           |                                                                                                | Retained earnings (accumulated deficit)                                                                                                   |                           |                                      | (1,276  | )           |         |   | 15,459      |       
|                                                           |                                                                                                | Accumulated other comprehensive loss                                                                                                      |                           |                                      | (454    | )           |         |   | (884        | )     
|                                                           |                                                                                                |                                                                                                                                           |                           |                                      |         |            
|                                                           |                                                                                                |                                                                                                                                           |                           | Total shareholders equity           |         |             | 170,936 |   |             |        | 216,643 | 
|                                                           |                                                                                                |                                                                                                                                           |                           |                                      |         |            
|                                                           |                                                                                                | $                                                                                                                                         | 356,955                   |                                      |         | $           | 269,738 |  
|                                                           |                                                                                                |                                                                                                                                           |                           |                                      |         |            

See accompanying notes to Consolidated Financial Statements

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COMPUTER NETWORK TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

|                                                     |                                                                                 |                                                                  |                      |                                                        |        |                   |         |         |        |         |         |  
|---------------------------------------------------- | ------------------------------------------------------------------------------- | ---------------------------------------------------------------- | -------------------- | ------------------------------------------------------ | ------ | ----------------- | ------- | ------- | ------ | ------- | ------- | -
|                                                     |                                                                                 |                                                                  |                      |                                                        |        | Nine months ended |        
|                                                     |                                                                                 |                                                                  |                      |                                                        |        | October 31,       |        
|                                                     |                                                                                 |                                                                  |                      |                                                        |        |                   |        
|                                                     |                                                                                 |                                                                  |                      |                                                        |        | 2002              |         |         | 2001   |        
|                                                     |                                                                                 |                                                                  |                      |                                                        |        |                   |         |         |        |        
|Operating Activities:                                |                                                                                 |                                                                  |                      |                                                        |        |                   |         |        
|                                                     | Net loss                                                                        |                                                                  | $                    | (16,735                                                | )      |                   | $       | (4,978  | )     
|                                                     | Adjustments to reconcile net loss to net cash
provided by operating activities: |                                                                  |                      |                                                        |        |                   |         |         |       
|                                                     |                                                                                 | Cumulative effect of change in accounting principle              |                      |                                                        | 10,068 |                   |         |         |       |        
|                                                     |                                                                                 | Discontinued operations                                          |                      |                                                        | (207   | )                 |         |         | (8,222 | )      
|                                                     |                                                                                 | Depreciation and amortization                                    |                      |                                                        | 11,889 |                   |         |         | 11,636 |        
|                                                     |                                                                                 | Non-cash compensation expense                                    |                      |                                                        | 436    |                   |         |         | 436    |        
|                                                     |                                                                                 | Changes in deferred taxes                                        |                      |                                                        | (5,447 | )                 |         |         |       |        
|                                                     |                                                                                 | Loss on sale and write-down of webMethods stock                  |                      |                                                        |       |                   |         |         | 10,283 |        
|                                                     |                                                                                 | Changes in operating assets and liabilities,
net of acquisition: |                      |                                                        |        |                   |         |         |        |        
|                                                     |                                                                                 |                                                                  | Receivables          |                                                        |        | 6,774             |         |         |        | 8,368   |        
|                                                     |                                                                                 |                                                                  | Inventories          |                                                        |        | 1,157             |         |         |        | (11,695 | )      
|                                                     |                                                                                 |                                                                  | Other current assets |                                                        |        | 1,257             |         |         |        | 662     |        
|                                                     |                                                                                 |                                                                  | Accounts payable     |                                                        |        | 360               |         |         |        | (22,139 | )      
|                                                     |                                                                                 |                                                                  | Accrued liabilities  |                                                        |        | (2,275            | )       |         |        | (6,814  | )      
|                                                     |                                                                                 |                                                                  | Deferred revenue     |                                                        |        | 2,526             |         |         |        | (3,424  | )      
|                                                     |                                                                                 |                                                                  |                      |                                                        |        |                  
|                                                     |                                                                                 |                                                                  |                      | Net cash provided by (used in) continuing
operations   |        |                   | 9,803   |         |        |         | (25,887 | )
|                                                     |                                                                                 |                                                                  |                      | Net cash provided by (used in) discontinued operations |        |                   | 207     |         |        |         | (8,830  | )
|                                                     |                                                                                 |                                                                  |                      |                                                        |        |                  
|                                                     |                                                                                 |                                                                  |                      | Cash provided by (used in) operating
activities        |        |                   | 10,010  |         |        |         | (34,717 | )
|                                                     |                                                                                 |                                                                  |                      |                                                        |        |                  
|Investing Activities:                                |                                                                                 |                                                                  |                      |                                                        |        |                   |         |        
|                                                     | Additions to property and equipment                                             |                                                                  |                      | (4,738                                                 | )      |                   |         | (4,176  | )     
|                                                     | Additions to field support spares                                               |                                                                  |                      | (4,448                                                 | )      |                   |         | (2,284  | )     
|                                                     | Acquisition of Articulent, net of cash acquired                                 |                                                                  |                      |                                                       |        |                   |         | (10,891 | )     
|                                                     | Acquisition of Bi-Tech, net of cash acquired                                    |                                                                  |                      | (7,723                                                 | )      |                   |         |        |       
|                                                     | Net proceeds from the sale of IntelliFrame                                      |                                                                  |                      |                                                       |        |                   |         | 5,800   |       
|                                                     | Proceeds from the sale of Propelis Software, Inc.                               |                                                                  |                      |                                                       |        |                   |         | 6,000   |       
|                                                     | Proceeds from the sale of webMethods stock                                      |                                                                  |                      |                                                       |        |                   |         | 6,281   |       
|                                                     | Net (purchase) redemption of marketable securities                              |                                                                  |                      | (18,939                                                | )      |                   |         | 27,808  |       
|                                                     | Other assets                                                                    |                                                                  |                      | 390                                                    |        |                   |         | 779     |       
|                                                     |                                                                                 |                                                                  |                      |                                                        |        |                  
|                                                     |                                                                                 |                                                                  |                      | Cash provided by (used in) investing
activities        |        |                   | (35,458 | )       |        |         | 29,317  |  
|                                                     |                                                                                 |                                                                  |                      |                                                        |        |                  
|Financing Activities:                                |                                                                                 |                                                                  |                      |                                                        |        |                   |         |        
|                                                     | Net proceeds from issuance of convertible
subordinated debt                     |                                                                  |                      | 121,706                                                |        |                   |         |        |       
|                                                     | Proceeds from issuance of common stock                                          |                                                                  |                      | 2,119                                                  |        |                   |         | 1,782   |       
|                                                     | Repurchase of common stock                                                      |                                                                  |                      | (31,975                                                | )      |                   |         | (1,168  | )     
|                                                     | Repayments of obligations under capital
leases                                  |                                                                  |                      | (1,179                                                 | )      |                   |         | (687    | )     
|                                                     |                                                                                 |                                                                  |                      |                                                        |        |                  
|                                                     |                                                                                 |                                                                  |                      | Cash provided by (used in) financing
activities        |        |                   | 90,671  |         |        |         | (73     | )
|                                                     |                                                                                 |                                                                  |                      |                                                        |        |                  
|Effects of exchange rate changes                     |                                                                                 |                                                                  | 701                  |                                                        |        |                   | (48     | )      
|                                                     |                                                                                 |                                                                  |                      |                                                        |        |                  
|Net increase (decrease) in cash and cash
equivalents |                                                                                 |                                                                  | 65,924               |                                                        |        |                   | (5,521  | )      
|Cash and cash equivalents  beginning of period      |                                                                                 |                                                                  | 34,402               |                                                        |        |                   | 39,444  |        
|                                                     |                                                                                 |                                                                  |                      |                                                        |        |                  
|Cash and cash equivalents  end of period            |                                                                                 | $                                                                | 100,326              |                                                        |        | $                 | 33,923  |        
|                                                     |                                                                                 |                                                                  |                      |                                                        |        |                  
|Cash
paid for interest                               |                                                                                 | $                                                                | 1,950                |                                                        |        | $                 | 214     |        
|                                                     |                                                                                 |                                                                  |                      |                                                        |        |                  

See accompanying notes to Consolidated Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)

(1)  BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in
accordance with instructions to Form 10-Q and do not include all of the
information and notes required by accounting principles generally accepted
in the United States of America for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and accompanying notes included in the
Companys Annual Report on Form 10-K for the fiscal year ended January 31,
2002 as filed with the Securities and Exchange Commission. References to
fiscal 2002 and 2001, represent the twelve months ended January 31, 2003 and
2002, respectively.

(2)  MARKETABLE SECURITIES

During the first quarter of fiscal 2001, the Company sold 232,511 shares
of webMethods stock received from the sale of IntelliFrame for approximately
$6.3 million, resulting in a pre-tax loss of approximately $8.7 million. The
Company also wrote-down the carrying value of the remaining 41,031 shares of
webMethods stock that it still owns, resulting in a pre-tax loss of
approximately $1.5 million.

The Companys remaining investments in marketable securities primarily
consist of U.S. government and agency securities, corporate debt securities and
bank certificates of deposit. Excluding the sale of webMethods stock noted
above, the Company did not realize any significant gains or losses from the
sale of marketable securities during the first nine months of fiscal 2002 or
2001.

(3)  INVENTORIES

Inventories, stated at the lower of cost (first-in, first-out method) or
market, consist of:

|             |                              |   |             |        |  |             |        |        | 
|------------ | ---------------------------- | - | ----------- | ------ |  | ----------- | ------ | ------ | 
|             |                              |   | October 31, |        |  | January 31, |       
|             |                              |   | 2002        |        |  | 2002        |       
|             |                              |   |             |        |  |             |       
|Inventories: |                              |   |             |        |  |             |        |       
|             | Components and subassemblies |   | $           | 23,164 |  |             | $      | 22,391 | 
|             | Work in process              |   |             | 1,594  |  |             |        | 3,834  | 
|             | Finished goods               |   |             | 5,546  |  |             |        | 5,185  | 
|             |                              |   |             |        |  |            
|             |                              | $ | 30,304      |        |  | $           | 31,410 |       
|             |                              |   |             |        |  |            

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(4)  CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS
No. 141 requires use of the purchase method of accounting for all business
combinations initiated after June 30, 2001. SFAS No. 141 also provides new
criteria in the determination of intangible assets, including goodwill acquired
in a business combination, and expands financial disclosure concerning business
combinations consummated after June 30, 2001. SFAS No. 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized but instead be tested for impairment at least annually using a
two-step impairment test. The application of SFAS No. 141 did not affect
previously reported amounts included in goodwill and other intangible assets.

Effective February 1, 2002, the Company adopted SFAS No. 142. SFAS No.
142 provides a six-month transitional period from the effective date of
adoption for the Company to perform an assessment of whether there is an
indication of goodwill impairment. The Company tested its reporting units for
impairment by comparing fair value to carrying value. Fair value was
determined using a discounted cash flow and cost methodology. The Company
engaged a third-party appraisal firm to determine the fair value of a reporting
unit within its former Storage Solutions segment. This valuation indicated
that the goodwill associated with the acquisition of Articulent in April of
2001 was impaired. The performance of this business has not met managements
original expectations, primarily due to the unexpected global slow down in
capital spending for information technology equipment. Accordingly, a non-cash
impairment charge of $10.1 million from the adoption of SFAS No. 142 was
recognized as a cumulative effect of change in accounting principle in the
first quarter ended April 30, 2002. Impairment adjustments recognized after
adoption, if any, generally are required to be recognized as an operating
expense.

(5)  ACQUISITION

On June 24, 2002, the Company acquired all the outstanding stock of
Bi-Tech Solutions, Inc. (Bi-Tech), a leading provider of storage management
solutions and services, for $12 million in cash plus the assumption of
approximately $3.6 million of liabilities and the acquisition of approximately
$8.7 million of tangible assets. The Company has allocated $5.9 million and
$1.8 million of the purchase price to goodwill and customer list, respectively.
The customer list is currently being amortized over a ten-year period. The
final allocation of the purchase price will be subject to adjustment based on
an independent third party appraisal. The accompanying financial statements
include the results of Bi-Tech since June 24, 2002.

The purchase agreement requires payment of additional consideration to the
former stockholders and the Bi-Tech employees based on achievement of certain
earnings levels for each of the next two years starting July 1, 2002. The
additional consideration can be paid in cash or stock of the Company at the
Companys option. The portion payable to the former stockholders will be
recorded as goodwill. The portion payable to Bi-Tech employees will be
recorded as compensation expense. During the third quarter and nine months
ended October 31, 2002 and based on Bi-Techs operations since July 1, 2002, an
additional $2.6 million and $3.1 million respectively, was added to goodwill
and $537,000 and $625,000 respectively, was recorded as compensation
expense. The additional consideration payable to the employees for
the three and nine months ended October 31, 2002 net of tax was
$376,000 and $438,000, respectively.

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(6)  GOODWILL AND INTANGIBLE ASSETS

As described previously, the Company adopted SFAS No. 142 as of February
1, 2002. The following table reflects the consolidated results adjusted as if
the adoption of SFAS No. 142 occurred as of the beginning of the nine month
period ended October 31, 2001:

|                                             |  |                                |       |   |                               |   |       |                                |  |   |         |   |  |      |        |   |  |   |        |  
|-------------------------------------------- |  | ------------------------------ | ----- | - | ----------------------------- | - | ----- | ------------------------------ |  | - | ------- | - |  | ---- | ------ | - |  | - | ------ | -
|                                             |  | Three months ended October 31, |       |   | Nine months ended October 31, |   |       | Twelve
months endedJanuary 31, | 
|                                             |  |                                |       |   |                               |   |       |                                | 
|                                             |  | 2002                           |       |   | 2001                          |   |       | 2002                           |  |   | 2001    |   |  | 2002 |       
|                                             |  |                                |       |   |                               |   |       |                                |  |   |         |   |  |      |       
|Net income (loss), as reported               |  | $                              | (864  | ) |                               | $ | 2,398 |                                |  | $ | (16,735 | ) |  | $    | (4,978 | ) |  | $ | (3,706 | )
|Add back amortization of
goodwill            |  |                                |      |   |                               |   | 163   |                                |  |   |        |   |  |      | 414    |   |  |   | 624    |  
|                                             |  |                                |       |   |                               |   |       |                                |  |   |         |   |  |      |       
|Net income (loss), as adjusted               |  | $                              | (864  | ) |                               | $ | 2,561 |                                |  | $ | (16,735 | ) |  | $    | (4,564 | ) |  | $ | (3,082 | )
|                                             |  |                                |       |   |                               |   |       |                                |  |   |         |   |  |      |       
|Basic income (loss) per
share, as reported   |  | $                              | (0.03 | ) |                               | $ | 0.08  |                                |  | $ | (0.59   | ) |  | $    | (0.17  | ) |  | $ | (0.12  | )
|Add back amortization of
goodwill            |  |                                |      |   |                               |   | 0.01  |                                |  |   |        |   |  |      | 0.01   |   |  |   | 0.02   |  
|                                             |  |                                |       |   |                               |   |       |                                |  |   |         |   |  |      |       
|Basic income (loss) per
share, as adjusted   |  | $                              | (0.03 | ) |                               | $ | 0.09  |                                |  | $ | (0.59   | ) |  | $    | (0.16  | ) |  | $ | (0.10  | )
|                                             |  |                                |       |   |                               |   |       |                                |  |   |         |   |  |      |       
|Diluted income (loss) per
share, as reported |  | $                              | (0.03 | ) |                               | $ | 0.08  |                                |  | $ | (0.59   | ) |  | $    | (0.17  | ) |  | $ | (0.12  | )
|Add back amortization of
goodwill            |  |                                |      |   |                               |   | 0.01  |                                |  |   |        |   |  |      | 0.01   |   |  |   | 0.02   |  
|                                             |  |                                |       |   |                               |   |       |                                |  |   |         |   |  |      |       
|Diluted income (loss) per
share, as adjusted |  | $                              | (0.03 | ) |                               | $ | 0.09  |                                |  | $ | (0.59   | ) |  | $    | (0.16  | ) |  | $ | (0.10  | )
|                                             |  |                                |       |   |                               |   |       |                                |  |   |         |   |  |      |       

The change in the net carrying amount of goodwill for the nine months
ended October 31, 2002 was as follows:

|                               |  |       |         |  
|------------------------------ |  | ----- | ------- | -
|                               |  | Total |        
|                               |  |       |        
|Balance February 1, 2002       |  | $     | 14,070  |  
|Acquisition of Bi-Tech         |  |       | 9,233   |  
|Translation adjustment         |  |       | (46     | )
|Impairment charge              |  |       | (10,068 | )
|                               |  |       |        
|Balance as of October 31, 2002 |  | $     | 13,189  |  
|                               |  |       |        

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The components of other amortizable intangible assets were as follows:

|                                   |  |                  |       |  |                  |   |      |                |  |   |              |  |  |   |     |  
|---------------------------------- |  | ---------------- | ----- |  | ---------------- | - | ---- | -------------- |  | - | ------------ |  |  | - | --- | -
|                                   |  | October 31, 2002 |       |  | January 31, 2002 |  
|                                   |  |                  |       |  |                  |  
|                                   |  | Gross Carrying   |       |  | Accumulated      |   |      | Gross Carrying |  |   | Accumulated  | 
|                                   |  | Amount           |       |  | Amortization     |   |      | Amount         |  |   | Amortization | 
|                                   |  |                  |       |  |                  |   |      |                |  |   |              | 
|Customer list                      |  | $                | 2,298 |  |                  | $ | (148 | )              |  | $ | 505          |  |  | $ | (42 | )
|                                   |  |                  |       |  |                  |   |      |                |  |   |              | 
|Total                              |  | $                | 2,298 |  |                  | $ | (148 | )              |  | $ | 505          |  |  | $ | (42 | )
|                                   |  |                  |       |  |                  |   |      |                |  |   |              | 
|Total other intangible
assets, net |  | $                | 2,150 |  |                  |   |      |                |  | $ | 463          |  |  |   |     |  
|                                   |  |                  |       |  |                  |   |      |                |  |   |              |  |  |  

Amortization expense for intangible assets during the nine months ended
October 31, 2002 was $106. Amortization expense for the remainder of fiscal
2002 is estimated to be $62. Amortization expense is estimated to be
$248 each
year from 2003 through 2007.

(7) COMPREHENSIVE LOSS

Comprehensive loss consists of the following:

|                                                                   |  |                              |         |   |      |   |        |  
|------------------------------------------------------------------ |  | ---------------------------- | ------- | - | ---- | - | ------ | -
|                                                                   |  | Nine
months endedOctober 31, |        
|                                                                   |  |                              |        
|                                                                   |  | 2002                         |         |   | 2001 |  
|                                                                   |  |                              |         |   |      |  
|Net loss                                                           |  | $                            | (16,735 | ) |      | $ | (4,978 | )
|Unrealized loss on marketable securities,
net of tax effect of $60 |  |                              | (116    | ) |      |   |       |  
|Foreign currency translation adjustment, net
of tax effect of $0   |  |                              | 546     |   |      |   | (157   | )
|                                                                   |  |                              |         |   |      |  
|Total comprehensive loss                                           |  | $                            | (16,305 | ) |      | $ | (5,135 | )
|                                                                   |  |                              |         |   |      |  

(8)  CONVERTIBLE DEBT

In February 2002, the Company sold $125 million of 3% convertible
subordinated notes due February 2007, raising net proceeds of $121 million.
The notes are convertible into the Companys common stock at a price of $19.17
per share. The Company may redeem the notes upon payment of the outstanding
principal balance, accrued interest and a make whole payment if the closing
price of its common stock exceeds 175% of the conversion price for at least 20
consecutive trading days within a period of 30 consecutive trading days ending
on the trading day prior to the date the redemption notice is mailed.
The make whole payment represents additional interest payments that
would have been made if the notes would not have been redeemed prior
to its due date. On
August 15, 2002 a registration statement for the resale of the notes and the
6.5 million shares of common stock issuable upon conversion of the notes became
effective.

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(9)  DISCONTINUED OPERATIONS

Propelis Software, Inc., formerly known as the Enterprise Integration
Solutions Division, including IntelliFrame, developed and sold EAI software
that automates the integration of computer software applications, and business
workflow processes. In August 2000, the Company determined to divest Propelis
Software, Inc. and focus on its core storage networking business. As a result,
Propelis Software, Inc. has been accounted for as a discontinued operation in
the accompanying financial statements. During 2001 the Company sold
substantially all of the assets of its discontinued operations in a series of
transactions. These included the sale of its IntelliFrame subsidiary to
webMethods and the sale of other assets to Jacada Ltd. All outstanding options
to purchase stock of Propelis Software were cancelled or have lapsed.

On February 2, 2001 the Company sold all of the outstanding stock of
IntelliFrame Corporation, including the technology underlying the Propelis BPm
product, to webMethods, Inc. for $8.8 million in cash and 273,542 shares of
webMethods common stock. The stock received from webMethods, Inc. was valued at
$17.1 million which reflects a discount from its publicly reported trading
price due to the initial restrictions placed on the Companys ability to freely
sell the stock. In connection with this transaction, the Company paid $3.0
million to two employees, who were former shareholders of IntelliFrame, to
satisfy all obligations to make further bonus payments under their employment
agreements. The sale resulted in an after tax gain of $12.6 million in the
first quarter of fiscal 2001.

In the first quarter of fiscal 2001, the Company accrued $9.3 million for
the estimated future operating losses of Propelis Software, Inc. through the
potential date of divestiture, resulting in an after tax loss of $6.2 million.

On August 23, 2001 the Company sold substantially all of the remaining
assets and liabilities of Propelis Software, Inc. to Jacada Ltd. for $6.0
million in cash, plus a warrant to purchase 350,000 ordinary shares of Jacada
Ltd. stock at a price of $3.26 per share. The transaction resulted in an
after tax gain of $1.8 million in the third quarter of fiscal 2001.

In the third quarter of fiscal 2002, the Company received $207,000 of
royalty income, net of tax, related to the sale of discontinued operations in
2001.

(10)  NEW ACCOUNTING PRONOUNCEMENTS

In July 2002, the Financial Accounting Standards Board issued SFAS No. 146
Accounting for Costs Associated with Exit or Disposal Activities. The
standard requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at a date of a commitment to an
exit or disposal plan. Management believes the adoption of SFAS No. 146 will
not have a material effect on the Companys financial statements. SFAS No. 146
is to be applied prospectively to exit or disposal activities initiated after
December 31, 2002 with early application encouraged.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a leading provider of end-to-end storage solutions, including
hardware and software products, related consulting and integration services,
and managed services in the growing storage networking market. We focus
primarily on helping our customers design, develop, deploy and manage storage
networks, including storage area networks, or SANs, a high speed network within
a business existing computer system that allows the business to manage its
data storage needs with greater efficiency and less disruption to its overall
network. We design, manufacture, market and support a wide range of solutions
for critical storage networking applications such as remote data replication,
or the real-time backup of data to remotely located disks, and remote tape
vaulting, or the backup of data to remotely archived tapes. We also supply
storage systems, Fibre Channel switches, telecommunications capacity and
storage application software.

Our storage networking solutions enable businesses to cost-effectively
design, implement, monitor and manage their storage requirements, connect
geographically dispersed storage networks, provide continuous availability to
greater amounts of data and protect increasing amounts of data more
efficiently. We market our storage networking products and services directly
to customers through our sales force and worldwide distributors. We also have
strategic marketing and supply relationships with leading storage,
telecommunications and fibre switching companies, including Brocade, Dynergy
Global Communications, EMC, Hewlett-Packard, Hitachi Data Systems, IBM, McDATA,
StorageTek and Veritas.

During the third quarter of fiscal 2002, we consolidated our Storage
Solutions and Networking sales force into a single unit. Our business has
evolved to the point where many of our traditional Networking sales personnel
are now selling complete storage solutions, in addition to our proprietary
UltraNet and Channelink products. It is no longer possible to allocate costs
and prepare separate meaningful statements for what had been our Networking and
Storage Solutions segments. As a result, our management now reviews and makes
decisions utilizing financial information for the consolidated business.

Economic conditions in early 2001 caused our customers to reevaluate their
capital spending plans, and to defer previously planned projects for
information technology infrastructure. However, we believe the need for
storage networking solutions is significant and will continue to increase. The
reduction in demand for our products and services resulted in the following
charges in the first quarter of fiscal 2001:



| |  |  | $2.0 million to write-down slow moving inventory  
| | - |  | --------------------------------------------------
|
| |  |  | $325,000 for the write-off of a product; and      
|
| |  |  | $996,000 for restructuring, principally severance.

Cumulative Effect of Change in Accounting Principle

Effective February 1, 2002, we adopted SFAS No. 142 Goodwill and Other
Intangible Assets. In connection with the adoption of SFAS No. 142, we
engaged a third party appraisal firm to determine the fair value of one of the
reporting units within our former Storage Solutions segment. This valuation

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indicated that the goodwill associated with our acquisition of Articulent in
April of 2001 was impaired resulting in a $10.1 million non-cash charge. This
non-cash charge was recognized as a cumulative effect of change in accounting
principle in our first quarter ended April 30, 2002.

Sale and Write-down of webMethods Stock

During the first quarter of fiscal 2001, we sold 232,511 shares of
webMethods stock received from the sale of IntelliFrame for approximately $6.2
million, resulting in a pre-tax loss of approximately $8.7 million. We also
wrote-down the carrying value of the remaining 41,031 shares of webMethods
stock that we still own, resulting in a pre-tax loss of approximately $1.5
million.

Discontinued Operations  Divestiture of Propelis Software, Inc.

Propelis Software, Inc., formerly known as our Enterprise Integration
Solutions Division, including IntelliFrame, developed and sold our Enterprise
Access Integration software that automates the integration of computer software
applications, and business workflow processes. In August 2000, we determined
to divest Propelis Software, Inc. and focus on our core storage networking
business. As a result, Propelis Software, Inc. has been accounted for as a
discontinued operation in the accompanying financial statements. During fiscal
2001 we sold substantially all of the assets of our discontinued operations in
a series of transactions. These included the sale of our IntelliFrame
subsidiary to webMethods and the sale of other assets to Jacada Ltd. All
outstanding options to purchase stock of Propelis Software have been cancelled
or have lapsed.

On February 2, 2001 we sold all of the outstanding stock of IntelliFrame
Corporation, including the technology underlying the Propelis BPm product, to
webMethods, Inc. for $8.8 million in cash and 273,542 shares of webMethods
common stock. The stock received from webMethods, Inc. was valued at $17.1
million, which reflects a discount from its publicly reported trading price due
to the initial restrictions placed on our ability to freely sell the stock. In
connection with this transaction, we paid $3.0 million to two employees, who
were former shareholders of IntelliFrame, to satisfy all obligations to make
further bonus payments under their employment agreements. The sale resulted in
an after tax gain of $12.6 million in the first quarter of fiscal 2001.

In the first quarter of fiscal 2001, we accrued $9.3 million for the
estimated future operating losses of Propelis Software, Inc. through the
potential date of divestiture, resulting in an after tax loss of $6.2 million.

On August 23, 2001 we sold substantially all of the remaining assets and
liabilities of Propelis Software, Inc. to Jacada Ltd. for $6.0 million in cash,
plus a warrant to purchase 350,000 ordinary shares of Jacada Ltd. stock at a
price of $3.26 per share. The transaction resulted in an after tax gain of
$1.8 million in the third quarter of fiscal 2001.

In the third quarter of fiscal 2002, the Company received $207,000 of
royalty income, net of tax, related to the sale of discontinued operations in
2001.

Acquisition of Articulent

On April 3, 2001 we acquired all of the outstanding stock of Articulent
Inc., a leading provider of storage solutions and services for $12.4 million

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in cash, plus the assumption of approximately $24.4 million of liabilities and
the acquisition of approximately $19.3 million of tangible assets. The
accompanying financial statements include the results of Articulent since April
3, 2001.

Acquisition of Bi-Tech Solutions, Inc.

On June 24, 2002, we acquired all the outstanding stock of Bi-Tech
Solutions, Inc. (Bi-Tech), a leading provider of storage management solutions
and services, for $12 million in cash plus the assumption of approximately $3.6
million of liabilities and the acquisition of approximately $8.7 million of
tangible assets. The accompanying financial statements include the results of
Bi-Tech since June 24, 2002.

The purchase agreement requires that we pay at our option in cash or in
our stock to the former stockholders and the Bi-Tech employees additional
consideration based on certain earnings levels for each of the next two years
starting July 1, 2002. The portion payable to the former stockholders will be
recorded as goodwill. The portion payable to Bi-Tech employees will be
recorded as compensation expense. During the three and nine months ended
October 31, 2002 and based on Bi-Techs earnings since July 1, 2002, additional
consideration of $2.6 million and $3.1 million, respectively, was added to
goodwill and $537,000 and $625,000, respectively, was recorded as compensation
expense.

Convertible Debt Offering

The additional consideration payable to the
employees for the three and nine months ended October 31, 2002 net of tax was
$376,000 and $438,000, respectively.

In February 2002, we sold $125 million of 3% convertible subordinated
notes due February 2007, raising net proceeds of $121 million. The notes are
convertible into our common stock at a price of $19.17 per share. We may
redeem the notes upon payment of the outstanding principal balance, accrued
interest and a make whole payment if the closing price of our common stock
exceeds 175% of the conversion price for at least 20 consecutive trading days
within a period of 30 consecutive trading days ending on the trading day prior
to the date we mail the redemption notice. The make whole payment
represents additional interest payments that would have been made if
the notes would not have been redeemed prior to its due date. On August 15, 2002 a registration
statement for the resale of the notes and the 6.5 million shares of common
stock issuable upon conversion of the notes became effective.

13



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##### Table of Contents



Results of Continuing Operations

The following table sets forth financial data for our continuing
operations for the periods indicated as a percentage of total revenue except
for gross profit, which is expressed as a percentage of the related revenue.

The operating information for the three and nine months ended October 31,
2002 and 2001 is for illustrative purposes only and has been adjusted to
eliminate the effects of special items and other charges recognized during the
first quarter of fiscal 2001, including a $2.0 million write-down of
inventory, a $325,000 write-off of a product and a $996,000 restructuring
charge. Results for the three and nine months ended October 31, 2001 exclude
goodwill amortization expense of $163,000 and $414,000, respectively. Goodwill
amortization stopped effective February 1, 2002 when we adopted SFAS No. 142
Goodwill and Other Intangibles Assets. It also eliminates the effects of an
earn-out payable to the employees of Bi-Tech of $537,000 and $625,000,
respectively, for the three and nine months ended October 31, 2002.

|                            |                          |  |                    |       |  |                   |      |       |      |  |      |       |  |  |      |       | 
|--------------------------- | ------------------------ |  | ------------------ | ----- |  | ----------------- | ---- | ----- | ---- |  | ---- | ----- |  |  | ---- | ----- | 
|                            |                          |  | Three months ended |       |  | Nine months ended |     
|                            |                          |  | October 31,        |       |  | October 31,       |     
|                            |                          |  |                    |       |  |                   |     
|                            |                          |  | 2002               |       |  | 2001              |      |       | 2002 |  |      | 2001  | 
|                            |                          |  |                    |       |  |                   |      |       |      |  |      |       | 
|Revenue:                    |                          |  |                    |       |  |                   |      |       |      |  |      |       |  |  |      |      
|Product sales               |                          |  | 69.8               | %     |  |                   | 73.0 | %     |      |  | 68.0 | %     |  |  | 66.6 | %    
|Service fees                |                          |  | 30.2               |       |  |                   | 27.0 |       |      |  | 32.0 |       |  |  | 33.4 |      
|                            |                          |  |                    |       |  |                   |      |       |      |  |      |      
|                            | Total revenue            |  |                    | 100.0 |  |                   |      | 100.0 |      |  |      | 100.0 |  |  |      | 100.0 | 
|                            |                          |  |                    |       |  |                   |      |       |      |  |      |      
|Gross profit:               |                          |  |                    |       |  |                   |      |       |      |  |      |       |  |  |      |      
|Product sales               |                          |  | 36.3               |       |  |                   | 41.9 |       |      |  | 39.3 |       |  |  | 45.1 |      
|Service fees                |                          |  | 44.5               |       |  |                   | 34.1 |       |      |  | 40.9 |       |  |  | 31.8 |      
|                            |                          |  |                    |       |  |                   |      |       |      |  |      |      
|                            | Total gross profit       |  |                    | 38.8  |  |                   |      | 39.8  |      |  |      | 39.8  |  |  |      | 40.7  | 
|                            |                          |  |                    |       |  |                   |      |       |      |  |      |      
|Operating expenses:         |                          |  |                    |       |  |                   |      |       |      |  |      |       |  |  |      |      
|Sales and marketing         |                          |  | 24.1               |       |  |                   | 25.4 |       |      |  | 28.8 |       |  |  | 29.1 |      
|Engineering and
development |                          |  | 12.3               |       |  |                   | 10.9 |       |      |  | 13.4 |       |  |  | 13.8 |      
|General and
administrative  |                          |  | 4.7                |       |  |                   | 3.8  |       |      |  | 5.2  |       |  |  | 5.4  |      
|                            |                          |  |                    |       |  |                   |      |       |      |  |      |      
|                            | Total operating
expenses |  |                    | 41.1  |  |                   |      | 40.1  |      |  |      | 47.4  |  |  |      | 48.3  | 
|                            |                          |  |                    |       |  |                   |      |       |      |  |      |      
|Loss from operations        |                          |  | (2.3               | )%    |  |                   | (.3  | )%    |      |  | (7.6 | )%    |  |  | (7.6 | )%   
|                            |                          |  |                    |       |  |                   |      |       |      |  |      |      

Revenue

Product revenue

Sales of our networking products generated revenues of $21.4 million and
$67.3 million for the three and nine months ended October 31, 2002,
respectively, a decrease of 23% and an increase of 11%, respectively, from
$27.8 million and $60.5 million for the three and nine months ended October 31,
2001. Storage networking product revenues for the three and nine months ended
October 31, 2002 totaled $18.6 million and $57.0 million, respectively, a
decrease of 13% and an increase of 26%, respectively, from $21.3 million and
$45.1 million for the three and nine months ended October 31, 2001. The

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decline in storage networking revenue in the third quarter of fiscal 2002
compared to the prior year period was due to delays in the receipt of certain
sizable orders, and was not due to a loss of business. Channel networking
product revenues for the three and nine months ended October 31, 2002 totaled
$2.8 million and $10.3 million, respectively, down 57% and 33%, respectively,
from $6.5 million and $15.4 million for the three and nine months ended October
31, 2001. We expect that revenue from our storage networking products will
account for a substantial portion of our total networking product sales for the
foreseeable future. Further we do not expect revenue for our channel
networking products to increase significantly and it may decline in the future.

Sales of our storage solutions products generated revenues for the three
and nine months ended October 31, 2002 of $17.6 million and
$34.6 million, respectively,
increases of 40% and 47%, respectively, from $12.6 million and $23.6 million
for the three and nine months ended October 31, 2001. Our acquisition of
Bi-Tech in June 2002 contributed $7.3 million and $8.6 million of product
revenue for the three and nine months ended October 31, 2002. Our acquisition
of Articulent in April 2001 and Bi-Tech in June 2002 has significantly expanded
our solution offerings and accounts for a significant portion of the increase
in revenue when comparing the three and nine months ended October 31, 2002 to
same periods of 2001.

Service revenue

Service revenues from maintenance of our networking products for the three
and nine months ended October 31, 2002 totaled $10.8 million and $32.6 million,
respectively, down 3% for both periods, from $11.1 million and $33.5 million for the
three and nine months ended October 31, 2001. The decrease can be attributed
to cancellation of maintenance related to our Channelink® products and
migrations of customers to our UltraNet® products.

Our storage solutions service revenues for the three and nine months ended
October 31, 2002 totaled $6.1 million and $15.4 million, respectively,
increases of 59% and 77%, respectively, from $3.9 million and $8.7 million for
the three and nine months ended October 31, 2001. The increase relates to our
acquisition of Articulent in April of 2001 and Bi-Tech in June of 2002. During
the three and nine months ended October 31, 2002, Bi-Tech contributed service
revenue of $1.4 million and $1.8 million, respectively.

General

Revenue generated from the sale of products and services outside the
United States for the three and nine months ended October 31, 2002 totaled
$19.1 million and $41.3 million, respectively, increases of 50% and 23%,
respectively, from $12.8 million and $33.5 million for the three and nine
months ended October 31, 2001. Bi-Tech increased our international sales for
the three and nine months ended October 31, 2002 by $8.7 million and $10.4
million, respectively. Bi-Tech is based in the United Kingdom and we expect it
will increase our international sales in future periods.

No single customer accounted for more than 10% of our revenue during the
three and nine months ended October 31, 2002. Price discounting had a small
impact on our product revenue during these periods.

During the nine months ended October 31, 2002, approximately 38%, 11% and
5% of our product revenue was derived from businesses in the financial
services, information outsourcing and telecommunication industries,
respectively.

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We primarily sell our storage network products directly to end-user
customers in connection with joint marketing activities with our business
partners. For a new customer, the initial sales and design cycle, from first
contact through shipment, can vary from 90 days to 12 months or more. We
expect this cycle to continue.

We expect continued quarter-to-quarter fluctuations in revenue in both
domestic and international markets. The timing of sizable orders, because of
their relative impact on total quarterly sales, may contribute to such
fluctuations. The level of product sales reported by us in any given period
will continue to be affected by the receipt and fulfillment of sizable new
orders in both domestic and international markets.

Gross Profit Margins

Networking

Gross product margins from our networking products for the three and nine
months ended October 31, 2002 were 49%, down from 53% and 51% for the three and
nine months ended October 31, 2001. Excluding the $2.0 million write-down of
slow moving inventory and the $325,000 write-off of a product, gross product
margins from the sale of networking products for the nine months ended October 31,
2001 would have been 55%. The decline in gross margin percentage, excluding
charges, was due to the continued movement in sales mix toward our UltraNet®
products which carry a lower margin than our older Channelink® products.

Gross service margins from maintenance of our networking products for the
three and nine months ended October 31, 2002 were 47% and 48%, respectively,
down from 52% and 47% for the three and nine months ended October 31, 2001.
The slight decrease for the three months ended October 31, 2002 when compared
to the prior period was due to the lower maintenance revenue and a slight
increase in costs. Overall we have been able to maintain or slightly improve
our service margins due to economies of scale resulting from the steadily
increasing base of customers contracting for services, actions taken in April
2001 to reduce headcount and wage expense, and a change in third party
maintenance and logistic suppliers in 2001 that also reduced costs.

Storage Solutions

Gross product margins from our storage solution products for the three and
nine months ended October 31, 2002 were 21% and 20%, respectively, compared to
17% and 20%, respectively, for the three and nine months ended October 31,
2001. The increase for the third quarter of fiscal year 2002 when compared to
the prior year period was primarily due to product mix.

Gross service margins from our storage solution services improved for the
three and nine months ended October 31, 2002 to 37% and 26%, respectively, from
a negative 17% and 27%, respectively, for the three and nine months ended
October 31, 2001. The service costs for the solutions business, mainly people,
tend to be fixed in nature. The improvement in gross service margins was due
to higher utilization of our employee consultants.

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Operating Expenses

Sales and marketing

Sales and marketing expense for the three and nine months ended October
31, 2002 totaled $13.6 million and $43.4 million, respectively, a decrease of
3% and an increase of 18%, respectively, from $14.0 million and $36.8 million
for the three and nine months ended October 31, 2001. When comparing the third
quarter of fiscal 2002 to the prior year, lower sales and marketing costs for
travel, recruitment and product evaluations were partially offset by the
incremental sales and marketing costs associated with our Bi-Tech acquisition
in June of 2002, which totaled $878,000 and $1.0 million for the three and nine
months ended October 31, 2002. The increase for the nine months
ended October 31, 2002 when compared to the prior fiscal year
period was due to higher employee related costs, including wages, fringe
benefits and commissions.

Engineering

Engineering and development expense for the three and nine months ended
October 31, 2002 totaled $7.1 million and $20.3 million, up 17% for both
periods, from $6.0 million and $17.4 million for the three and nine months
ended October 31, 2001. The increase was primarily due to continued
development of our UltraNet® family of products, particularly the UltraNet®
Edge product, which has generated $12.8 million of revenue since its
introduction in the third quarter of fiscal 2001. It also includes the
incremental engineering costs from the Bi-Tech acquisition that totaled
$667,000 and $864,000, respectively, for the three and nine months ended
October 31, 2002. This increase was partially offset by cost reduction actions
taken in April 2001, including a workforce reduction, wage cuts and reductions
in discretionary spending.

General and administrative

General and administrative expenses for the three and nine months ended
October 31, 2002 totaled $2.7 million and $7.9 million, respectively, up 18%
and 9%, respectively, from $2.3 million and $7.2 million for the three and nine
months ended October 31, 2001. General and administrative expense for the nine
months ended October 31, 2002 includes approximately $122,000 of legal fees for
potential acquisitions that were not pursued. The Bi-Tech acquisition also
increased general and administrative expenses by $397,000 and $503,000 for the
three and nine months ended October 31, 2002. The remainder of the increase
was due to higher professional fees and employee related expenses. Elimination
of goodwill amortization for the three and nine months ended October 31, 2002
due to adoption of SFAS 142 reduced expense by $163,000 and $414,000,
respectively, when compared to the three and nine months ended October 31,
2001.

Other

Excluding the $10.3 million loss from the sale and write-down of
webMethods stock in the first quarter of fiscal 2001, other income for the
three and nine months ended October 31, 2002 totaled $198,000 and $1.6 million,
respectively, compared to $1.2 million and $4.4 million for the three and nine
months ended October 31, 2001. In February 2002, we sold $125 million of 3%
convertible subordinated notes due February 2007, raising net proceeds of $121
million. Coupon interest on the notes, plus amortization of debt issuance
costs, resulted in increases of $1.1 million and $3.1 million in interest
expense for the three and nine months ended October 31, 2002 when

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compared to the same periods of 2001. Pending use of the offering proceeds for
general corporate purposes or complementary acquisitions, the funds will be
invested in investment grade, interest-bearing securities. During the three
and nine months ended October 31, 2002, we recorded interest and other income
of $1.3 million and $4.8 million, respectively, compared to $1.3 million and
$4.7 million for the three and nine months of 2001. Additional interest income
resulting from investment of the debt offering proceeds was offset by lower
interest rates.

We recorded a benefit for income taxes for the three and nine months ended
October 31, 2002 at an effective income tax rate of 34%, compared to 33% and
31% for three and nine months ended October 31, 2001. The $10.3 million loss
on the sale and write-down of the webMethods stock in the first quarter of
fiscal year 2001 was taxed at an effective tax rate of 30%. Excluding this
item, our effective tax rate for the nine months ended October 31, 2001 would
have been 33%. As of October 31, 2002 we have net deferred tax
assets of $21 million. Based on an assessment of our taxable earnings history and
prospective future taxable income, we have determined it to be more likely than
not that our net deferred tax asset will be realized in future
periods. This determination is reviewed on a quarterly basis. We may
be required to provide a valuation allowance for all or a portion of this asset in the future if we
do not generate sufficient taxable income as planned.

Liquidity and Capital Resources

We have historically financed our operations through the public and
private sale of debt and equity securities, bank borrowings under lines of
credit, capital and operating leases and cash generated by operations.

Cash, cash equivalents and marketable securities at October 31, 2002
totaled $203 million, an increase of $85 million since January 31, 2002. The
increase is primarily due to receipt of the $121 million of net proceeds from
the sale of 3% convertible subordinated notes in February 2002. The proceeds
from the offering will be used for general working capital purposes, including
potential acquisitions. Continuing operations also contributed $9.8 million of cash for
the nine months ended October 31, 2002. Contributing to the cash
provided by continuing operations for the nine months ended
October 31, 2002 were a $6.8 million reduction in
receivables and a $1.2 million reduction in inventory. Uses of cash for the nine months ended
October 31, 2002 included $9.2 million for capital equipment and field support
spares, along with $7.7 million for the acquisition of Bi-Tech. In April of
2001, our board of directors authorized the repurchase of up to $50.0 million
of our common stock. As of October 31, 2002 we had repurchased 4.1 million
shares of our common stock for $32.8 million pursuant to this authorization.
Approximately $32 million of these repurchases were in the second and third
quarters of fiscal 2002.

Expenditures for capital equipment and field support spares have been, and
will likely continue to be, a significant capital requirement. We believe that
our current balances of cash, cash equivalents and marketable securities, when
combined with anticipated cash flows from operations will be adequate to fund
our operating plans and meet our current anticipated aggregate capital
requirements, at least through the next twelve months.

We believe that inflation has not had a material impact on our operations
or liquidity to date.

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##### Table of Contents



Our future minimum contractual cash obligations at October 31, 2002,
including open purchase orders incurred in the ordinary course of business, are
as follows:

|                                              |   |               |   |             |  |             |              |        |  |       |  |               |  |            |   |             |  |  |  |  |  |  |  | 
|--------------------------------------------- | - | ------------- | - | ----------- |  | ----------- | ------------ | ------ |  | ----- |  | ------------- |  | ---------- | - | ----------- |  |  |  |  |  |  |  | 
|                                              |   |               |   |             |  | Less Than   |              | One to |  |       |  | Four to Five  |  |            |   | After      
|Cash Obligation                               |   | Total         |   | One year    |  | Three Years |              |        |  | Years |  |               |  | Five Years
|                                              |   |               |   |             |  |             |              |        |  |       |  |               |  |           
|Capital leases                                | $ | 1.2 million   | $ | 1.1 million |  | $           | 98,000       |        |  | $     |  | None          |  |            | $ | None       
|Operating leases                              | $ | 24.3 million  | $ | 5.0 million |  | $           | 8.8 million  |        |  | $     |  | 2.5 million   |  |            | $ | 8.0 million
|Purchase orders                               | $ | 14.4 million  | $ | 4.7 million |  | $           | 9.7 million  |        |  | $     |  | None          |  |            | $ | None       
|Convertible subordinated
notes, plus interest | $ | 142.0 million | $ | 3.8 million |  | $           | 11.3 million |        |  | $     |  | 126.9 million |  |            | $ | None       

On December 3, 2002 we entered into a product development agreement that
requires us to purchase $10.0 million of product. The commitment expires if
the product is not generally available by March 31, 2004. This purchase
commitment has also been reflected in the above table.

Our acquisition of Bi-Tech requires that we pay to the former stockholders
and the Bi-Tech employees additional consideration based on achievement of
certain earnings levels for each of the next two years starting July 1, 2002.
The additional consideration is not reflected in the above table and payment
may be in the form of cash or stock at our option.




ITEM 3. MARKET RISK

Our exposure to market risk due to changes in the general level of U.S.
interest rates relates primarily to our cash, cash equivalents, and marketable
securities. Our cash, cash equivalents and marketable securities are primarily
maintained at six major financial institutions in the United States. As of
October 31, 2002, we did not hold any derivative instruments. The primary
objective of our investment activities is the preservation of principal while
maximizing investment income and minimizing risk. We mainly invest our cash,
cash equivalents and marketable securities in investment grade, highly liquid
investments, consisting of U.S. government and agency securities, corporate
debt securities and bank certificates of deposits. We believe that market risk
due to changes in interest rates is not material.

Our convertible subordinated debt is subject to a fixed interest rate and
the notes are based on a fixed conversion ratio into common stock. Therefore,
we are not exposed to changes in interest rates related to our long-term debt
instruments. On December 4, 2002, the average bid and ask price of our
convertible subordinated notes due 2007 was 77.38, resulting in an aggregate
fair value of approximately $96.7 million. Our common stock is quoted on the
Nadsaq National Market under the symbol CMNT. On December 4, 2002, the last
reported sale price of our common stock on the Nasdaq Market was $8.73 per
share.

At October 31, 2002, our marketable securities included a $73,000
investment in a Standard & Poors 500 stock price index fund and a $342,000
investment in a NASDAQ 100 index tracking stock. These investments were
purchased to directly offset any investment gains or losses owed to
participants under our executive deferred compensation plan which has been

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established for selected key employees. We also own 41,031 shares of
webMethods stock received from the sale of IntelliFrame.

We are exposed to market risks related to fluctuations in foreign exchange
rates because some sales transactions, and the assets and liabilities of our
foreign subsidiaries, are denominated in foreign currencies, primarily the euro
and British pound sterling. As of October 31, 2002, we had no open forward
exchange contracts.




ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The Company reviewed and evaluated the effectiveness of our disclosure controls
and procedures (as defined in the Securities Exchange Act of 1934 Rules
13a-14(c) and 15d-14(c)) as of a date within 90 days of the filing date of this
quarterly report on Form 10-Q (the Evaluation Date). This review and
evaluation was done under the supervision and with the participation of
management, including our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO). Based on their review and evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that, as of the Evaluation
Date, our disclosure controls and procedures were adequate and effective to
ensure that material information relating to us and our consolidated
subsidiaries has been made known to them in a timely manner, particularly
during the period in which this quarterly report on Form 10-Q was being
prepared, and that no changes are required at this time.

The companys management, including the CEO and CFO, does not expect that our
disclosure controls or our internal controls will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions; over time, control may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur
and not be detected.

(b) Change in Internal Controls

There have been no significant changes in our internal controls or in other
factors that could significantly affect our internal controls subsequent to the
Evaluation Date, or any significant deficiencies or material weaknesses in such
internal controls requiring corrective actions. As a result, no corrective
actions have been taken.

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Forward Looking Statements

This Form 10-Q and other documents we have filed with the Securities and
Exchange Commission contain forward-looking statements, which may include
statements about our:



| |  |  | anticipated receipt of orders and their impact on quarterly sales;                                              
| | - |  | ----------------------------------------------------------------------------------------------------------------
|
| |  |  | business strategy;                                                                                              
|
| |  |  | expectations regarding future revenue levels, gross margins, expenses,
operating margins and earnings per share;
|
| |  |  | timing of and plans for the introduction or phase-out of products or
services;                                  
|
| |  |  | enhancements of existing products or services;                                                                  
|
| |  |  | plans for hiring or reducing personnel;                                                                         
|
| |  |  | entering into strategic partnerships;                                                                           
|
| |  |  | other plans, objectives, expectations and intentions contained in this
Form 10-Q that are not historical facts. 

When used in this Form 10-Q, the words may, should, expect, plan,
anticipate, believe, estimate, predict, intend, potential or
continue and similar expressions are generally intended to identify
forward-looking statements, although not all forward-looking statements contain
these identifying words. These forward-looking statements involve
risks and uncertainties. Actual results could differ materially from those
expressed or implied by these forward-looking statements as a result of certain
risk factors, including but not limited to (i) competitive factors, including
pricing pressures; (ii) variability in quarterly sales; (iii) economic trends
generally and in various geographic markets; (iv) relationships with our
strategic partners; (v) technological change affecting our products; (vi)
whether any delayed orders will be received; (vii) whether share repurchases,
if continued, will have a positive impact on our stock price; (viii)
unanticipated risks associated with introducing new products and features, and,
(ix) other events and other important factors, including those discussed under
cautionary statements in Exhibit 99 to our Form 10-K filing with the Securities
and Exchange Commission for the year ended January 31, 2002. We assume no
obligation to update any forward-looking statements. These statements are only
predictions. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. The forward looking
statements speak as of the date hereof. Unless otherwise required by
applicable securities laws, we disclaim any intention or obligation to update
or revise any forward looking statements, whether as a result of new
information, future events or otherwise.

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##### Table of Contents






PART II. OTHER INFORMATION




Item 1-5. None




Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits filed herewith.

|    |  |                                                                                                                                                                                                                                                                                                                                   
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1 |  | Second Restated Articles of incorporation of the
Company. (Incorporated by reference to Exhibits 3(i)-1
and 3(i)-2 to current report on Form 8-K dated May 25,
1999).                                                                                                                                                             
|    |  |                                                                                                                                                                                                                                                                                                                                   
|3.2 |  | Articles of Amendment of the Second Restated Articles
of the Company. (Incorporated by reference to Exhibit
3(i)-1 to current report on Form 8-K dated May 25,
1999.)                                                                                                                                                             
|    |  |                                                                                                                                                                                                                                                                                                                                   
|3.3 |  | By-laws of the Company (Incorporated by reference to
Exhibit 3 (ii)-1 to current report on Form 8-K dated
May 25, 1999.)                                                                                                                                                                                                          
|    |  |                                                                                                                                                                                                                                                                                                                                   
|4.1 |  | Rights Agreement between the
Company and Chase Mellon
Shareholder Services, L.L.C., as Rights Agent including
the form of Rights Certificate and the Summary of
Rights to Purchase Preferred Shares.
(Incorporated by reference to Exhibit 1 to Form 8-A dated
July 29, 1998 and Exhibit 1 to Form 8-A/A dated
November 27, 2000.)
|    |  |                                                                                                                                                                                                                                                                                                                                   
|4.2 |  | First Amendment of Rights Agreement dated November 21,
2000. (Incorporated by reference to Exhibit 1 to Form
8-A/A dated November 27, 2000.)                                                                                                                                                                                      
|    |  |                                                                                                                                                                                                                                                                                                                                   
|4.3 |  | First Amendment of Certificate of Designations,
Preferences and Right of Series A Junior Participating
Preferred Stock. ($.01 Par Value Per Share) of
Computer Network Technology Corporation (Incorporated
by reference to Exhibit 2 to Form 8-A/A dated November
27, 2000.)                                                     
|    |  |                                                                                                                                                                                                                                                                                                                                   
|11. |  | Statement Re: Computation of Net income (loss) per
Basic and Diluted Share.                                                                                                                                                                                                                                                       

(b)  Reports on Form 8-K



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On August 5, 2002, the Company filed a report on Form 8-K
containing the Approval of Amendments related to the Companys
1992 and 2002 Stock Award Plans. On September 12, 2002 the
Company filed a report on 8-K containing the certifications by
(i) Thomas G. Hudson as Chairman, Chief Executive Officer and
President of Computer Network Technology Corporation, and (ii)
Gregory T. Barnum, Chief Financial Officer of Computer Network
Technology Corporation, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

22



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officers.

COMPUTER NETWORK TECHNOLOGY CORPORATION
(Registrant)

|                           |  |  |     |                                                                                                               
|-------------------------- |  |  | --- | --------------------------------------------------------------------------------------------------------------
|                           | 
|Date:    December 13, 2002 |  |  | By: | /s/ Gregory T.
BarnumGregory T. Barnum
Chief Financial Officer
(Principal financial officer)                  
|                           | 
|                           |  |  | By: | /s/ Jeffrey A. BertelsenJeffrey A. Bertelsen
Corporate Controller
and Treasurer
(Principal accounting officer)

23



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##### Table of Contents



CERTIFICATIONS

I, Thomas G. Hudson, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Computer Network
Technology Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13 a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
|
| | b. evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date; and                                                                                                   
|
| | c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
function):



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weakness
in internal controls; and
|
| | b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                      

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: December 13, 2002



| | /s/ Thomas G. Hudson
Thomas G. Hudson
Chief Executive Officer
| | -------------------------------------------------------------

24



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##### Table of Contents



I, Gregory T. Barnum, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Computer Network
Technology Corporation;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13 a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
|
| | b. evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date; and                                                                                                   
|
| | c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
function):



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weakness
in internal controls; and
|
| | b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                      

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: December 13, 2002



| | /s/ Gregory T. Barnum
Gregory T. Barnum
Chief Financial Officer
| | ---------------------------------------------------------------

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##### Table of Contents






EXHIBIT INDEX

|     |  |                                                                                                                                                                                                                                                                                                                                   
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item |  | Description                                                                                                                                                                                                                                                                                                                       
|     |  |                                                                                                                                                                                                                                                                                                                                   
|3.1  |  | Second Restated Articles of incorporation of the
Company. (Incorporated by reference to Exhibits 3(i)-1
and 3(i)-2 to current report on Form 8-K dated
May 25,1999).                                                                                                                                                              
|     | 
|3.2  |  | Articles of Amendment of the Second Restated Articles
of the Company. (Incorporated by reference to
Exhibit 3(i)-1 to current report on Form 8-K dated
May 25, 1999.)                                                                                                                                                             
|     | 
|3.3  |  | By-laws of the Company (Incorporated by reference to
Exhibit 3 (ii)-1 to current report on Form 8-K dated
May 25, 1999.)                                                                                                                                                                                                          
|     | 
|4.1  |  | Rights Agreement between the Company and Chase Mellon
Shareholder Services, L.L.C., as Rights Agent including
the form of Rights Certificate and the Summary of Rights
to Purchase Preferred Shares. (Incorporated by reference
to Exhibit 1 to Form 8-A dated July 29, 1998 and
Exhibit 1 to Form 8-A/A dated November 27, 2000.)
|     | 
|4.2  |  | First Amendment of Rights Agreement dated November 21,
2000. (Incorporated by reference to Exhibit 1 to Form
8-A/A dated November 27, 2000.)                                                                                                                                                                                      
|     | 
|4.3  |  | First Amendment of Certificate of Designations,
Preferences and Right of Series A Junior Participating
Preferred Stock. ($.01 Par Value Per Share) of
Computer Network Technology Corporation (Incorporated
by reference to Exhibit 2 to Form 8-A/A dated
November 27, 2000.)                                                     
|     | 
|11.  |  | Statement Re: Computation of Net income (loss) per Basic and
Diluted Shares Electronically Filed                                                                                                                                                                                                                                  

26