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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

|                |  |                                                                                                                                         
|--------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|X IN BALLOT BOX |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
April 30, 2002 OR
|                |  |                                                                                                                                         
|OPEN BALLOT BOX |  | 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 IN BALLOT BOX
     No     OPEN BALLOT BOX

As of May 31, 2002, the registrant had 28,859,893 shares of $.01 par value
common stock issued and outstanding.



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TABLE OF CONTENTS



|                                                                                              |                                                                                          |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                                                                
|Item 1. Financial Statements (unaudited)                                                     
|                                                                                              | Consolidated Statements of Operations for the three months ended April 30, 2002 and 2001
|                                                                                              | Consolidated Balance Sheets as of April 30, 2002 and January 31, 2002                   
|                                                                                              | Consolidated Statements of Cash Flows for the three months ended April 30, 2002 and 2001
|                                                                                              | Notes to Consolidated Financial Statements                                              
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|PART II. OTHER INFORMATION                                                                   
|Item 1. None                                                                                 
|Item 2. Changes in Securities and Use of Proceeds                                            
|Item 3-5. None                                                                               
|Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                                                   
|EX-11 Statement Re: Computation of Net Loss                                                  



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COMPUTER NETWORK TECHNOLOGY CORPORATION

INDEX

|        |  |                       |  | 
|------- |  | --------------------- |  | 
|PART I. |  | FINANCIAL INFORMATION |  | 

|           |  |                                                                                          |  |     
|---------- |  | ---------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                          |  | Page
|           |  |                                                                                          |  |     
|Item 1.    |  | Financial Statements (unaudited)                                                         |  |     
|           |  |                                                                                          |  |     
|           |  | Consolidated Statements of Operations for the
three months ended April 30, 2002 and 2001 |  | 3   
|           |  |                                                                                          |  |     
|           |  | Consolidated Balance Sheets as of April 30, 2002
and January 31, 2002                    |  | 4   
|           |  |                                                                                          |  |     
|           |  | Consolidated Statements of Cash Flows for the
three months ended April 30, 2002 and 2001 |  | 5   
|           |  |                                                                                          |  |     
|           |  | Notes to Consolidated Financial Statements                                               |  | 6   
|           |  |                                                                                          |  |     
|Item 2.    |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations    |  | 9   
|           |  |                                                                                          |  |     
|PART II.   |  | OTHER INFORMATION                                                                        |  | 19  
|           |  |                                                                                          |  |     
|Item 1.    |  | None                                                                                     |  |     
|           |  |                                                                                          |  |     
|Item 2.    |  | Changes in Securities and Use of Proceeds                                                |  | 19  
|           |  |                                                                                          |  |     
|Item 3-5.  |  | None                                                                                     |  |     
|           |  |                                                                                          |  |     
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                         |  | 19  
|           |  |                                                                                          |  |     
|SIGNATURES |  |                                                                                          |  | 21  

2



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COMPUTER NETWORK TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)
(unaudited)

|                                 |                                                 |                                                                                            |                          |        |                    |        |         |         |        |        | 
|-------------------------------- | ----------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------ | ------ | ------------------ | ------ | ------- | ------- | ------ | ------ | 
|                                 |                                                 |                                                                                            |                          |        | Three months ended |       
|                                 |                                                 |                                                                                            |                          |        |                    |       
|                                 |                                                 |                                                                                            |                          |        | April 30,          |       
|                                 |                                                 |                                                                                            |                          |        |                    |       
|                                 |                                                 |                                                                                            |                          |        | 2002               |        |         | 2001    |       
|                                 |                                                 |                                                                                            |                          |        |                    |        |         |         |       
|Revenue:                         |                                                 |                                                                                            |                          |        |                    |        |         |        
|                                 | Product sales                                   |                                                                                            | $                        | 29,754 |                    |        | $       | 16,037  |       
|                                 | Service fees                                    |                                                                                            |                          | 15,458 |                    |        |         | 13,376  |       
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|                                 |                                                 |                                                                                            | Total revenue            |        |                    | 45,212 |         |         |        | 29,413 | 
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|Cost of revenue:                 |                                                 |                                                                                            |                          |        |                    |        |         |        
|                                 | Cost of product sales                           |                                                                                            |                          | 17,368 |                    |        |         | 9,461   |       
|                                 | Cost of service fees                            |                                                                                            |                          | 9,760  |                    |        |         | 9,487   |       
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|                                 |                                                 |                                                                                            | Total cost of revenue    |        |                    | 27,128 |         |         |        | 18,948 | 
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|Gross profit                     |                                                 |                                                                                            | 18,084                   |        |                    |        | 10,465  |        
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|Operating expenses:              |                                                 |                                                                                            |                          |        |                    |        |         |        
|                                 | Sales and marketing                             |                                                                                            |                          | 15,577 |                    |        |         | 10,895  |       
|                                 | Engineering and development                     |                                                                                            |                          | 6,668  |                    |        |         | 6,284   |       
|                                 | General and administrative                      |                                                                                            |                          | 2,513  |                    |        |         | 2,768   |       
|                                 | Restructuring charge                            |                                                                                            |                          |       |                    |        |         | 996     |       
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|                                 |                                                 |                                                                                            | Total operating expenses |        |                    | 24,758 |         |         |        | 20,943 | 
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|Loss from operations             |                                                 |                                                                                            | (6,674                   | )      |                    |        | (10,478 | )      
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|Other income (expense):          |                                                 |                                                                                            |                          |        |                    |        |         |        
|                                 | Loss on sale and write-down of webMethods stock |                                                                                            |                          |       |                    |        |         | (10,283 | )     
|                                 | Interest income                                 |                                                                                            |                          | 1,865  |                    |        |         | 1,976   |       
|                                 | Interest expense                                |                                                                                            |                          | (893   | )                  |        |         | (68     | )     
|                                 | Other, net                                      |                                                                                            |                          | 84     |                    |        |         | (56     | )     
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|Other income (expense), net      |                                                 |                                                                                            | 1,056                    |        |                    |        | (8,431  | )      
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|Loss before income taxes         |                                                 |                                                                                            | (5,618                   | )      |                    |        | (18,909 | )      
|Benefit for income taxes         |                                                 |                                                                                            | (1,921                   | )      |                    |        | (5,931  | )      
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|Loss from continuing operations  |                                                 |                                                                                            | (3,697                   | )      |                    |        | (12,978 | )      
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|Discontinued operations:         |                                                 |                                                                                            |                          |        |                    |        |         |        
|                                 |                                                 | Gain of $21,390 on sale of IntelliFrame (net of tax,
$8,770)                               |                          |        |                   |        |         |         | 12,620 |       
|                                 |                                                 | Provision of $9,250 for losses until divestiture of
Propelis Software (net of tax, $3,053) |                          |        |                   |        |         |         | (6,197 | )     
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|                                 |                                                 |                                                                                            |                         |        |                    |        | 6,423   |        
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|Net loss                         |                                                 | $                                                                                          | (3,697                   | )      |                    | $      | (6,555  | )      
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|Basic income (loss) per share:   |                                                 |                                                                                            |                          |        |                    |        |         |        
|                                 | Continuing operations                           |                                                                                            | $                        | (.12   | )                  |        | $       | (.44    | )     
|                                 | Discontinued operations                         |                                                                                            |                          |       |                    |        |         | .22     |       
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|                                 | Net loss                                        |                                                                                            | $                        | (.12   | )                  |        | $       | (.22    | )     
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|                                 | Shares                                          |                                                                                            |                          | 30,441 |                    |        |         | 29,718  |       
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|Diluted income (loss) per share: |                                                 |                                                                                            |                          |        |                    |        |         |        
|                                 | Continuing operations                           |                                                                                            | $                        | (.12   | )                  |        | $       | (.44    | )     
|                                 | Discontinued operations                         |                                                                                            |                          |       |                    |        |         | .22     |       
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|                                 | Net loss                                        |                                                                                            | $                        | (.12   | )                  |        | $       | (.22    | )     
|                                 |                                                 |                                                                                            |                          |        |                    |        |        
|                                 | Shares                                          |                                                                                            |                          | 30,441 |                    |        |         | 29,718  |       
|                                 |                                                 |                                                                                            |                          |        |                    |        |        

See accompanying Notes to Consolidated Financial Statements

3



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COMPUTER NETWORK TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

|                                                           |                                                                                                                                         |                           |                            |         |        |             |         |         |             |         |  | 
|---------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | -------------------------- | ------- | ------ | ----------- | ------- | ------- | ----------- | ------- |  | 
|                                                           |                                                                                                                                         |                           |                            |         |        | April 30,   |         |         |             |         | 
|                                                           |                                                                                                                                         |                           |                            |         |        | 2002        |         |         | January 31, |        
|                                                           |                                                                                                                                         |                           |                            |         |        | (unaudited) |         |         | 2002        |        
|                                                           |                                                                                                                                         |                           |                            |         |        |             |         |         |             |        
|                                                           |                                                                                                                                         |                           |                            | Assets  |        |             |         |         |             |         |  | 
|Current assets:                                            |                                                                                                                                         |                           |                            |         |        |             |         |        
|                                                           | Cash and cash equivalents                                                                                                               |                           | $                          | 134,248 |        |             | $       | 34,402  |            
|                                                           | Marketable securities                                                                                                                   |                           |                            | 108,721 |        |             |         | 83,612  |            
|                                                           | Receivables, net                                                                                                                        |                           |                            | 40,262  |        |             |         | 53,962  |            
|                                                           | Inventories                                                                                                                             |                           |                            | 33,512  |        |             |         | 31,410  |            
|                                                           | Deferred tax asset                                                                                                                      |                           |                            | 5,134   |        |             |         | 5,134   |            
|                                                           | Other current assets                                                                                                                    |                           |                            | 5,625   |        |             |         | 4,138   |            
|                                                           |                                                                                                                                         |                           |                            |         |        |            
|                                                           |                                                                                                                                         |                           | Total current assets       |         |        | 327,502     |         |         |             | 212,658 | 
|                                                           |                                                                                                                                         |                           |                            |         |        |            
|Property and equipment, net                                |                                                                                                                                         |                           | 25,557                     |         |        |             | 25,604  |        
|Field support spares, net                                  |                                                                                                                                         |                           | 4,594                      |         |        |             | 4,562   |        
|Deferred tax asset                                         |                                                                                                                                         |                           | 11,048                     |         |        |             | 11,048  |        
|Goodwill                                                   |                                                                                                                                         |                           | 14,058                     |         |        |             | 14,066  |        
|Other intangibles, net                                     |                                                                                                                                         |                           | 450                        |         |        |             | 467     |        
|Other assets                                               |                                                                                                                                         |                           | 4,544                      |         |        |             | 1,333   |        
|                                                           |                                                                                                                                         |                           |                            |         |        |            
|                                                           |                                                                                                                                         | $                         | 387,753                    |         |        | $           | 269,738 |        
|                                                           |                                                                                                                                         |                           |                            |         |        |            
|Liabilities and Shareholders Equity
Current liabilities:  |                                                                                                                                         |                           |                            |         |        |             |         |        
|                                                           | Accounts payable                                                                                                                        |                           | $                          | 16,274  |        |             | $       | 17,240  |            
|                                                           | Accrued liabilities                                                                                                                     |                           |                            | 15,438  |        |             |         | 20,158  |            
|                                                           | Deferred revenue                                                                                                                        |                           |                            | 16,009  |        |             |         | 13,466  |            
|                                                           | Current installments of obligations under
capital lease                                                                                 |                           |                            | 1,457   |        |             |         | 1,523   |            
|                                                           |                                                                                                                                         |                           |                            |         |        |            
|                                                           |                                                                                                                                         | Total current liabilities |                            |         | 49,178 |             |         |         | 52,387      |        
|                                                           |                                                                                                                                         |                           |                            |         |        |            
|3% Convertible subordinated debt                           |                                                                                                                                         |                           | 125,000                    |         |        |             |        |        
|Obligations under capital lease, less current
installments |                                                                                                                                         |                           | 474                        |         |        |             | 708     |        
|                                                           |                                                                                                                                         |                           |                            |         |        |            
|                                                           |                                                                                                                                         |                           | Total liabilities          |         |        | 174,652     |         |         |             | 53,095  | 
|                                                           |                                                                                                                                         |                           |                            |         |        |            
|Shareholders equity:                                      |                                                                                                                                         |                           |                            |         |        |             |         |        
|                                                           | Undesignated preferred stock, authorized 960
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
30,469 at April 30, 2002 and
30,383 at January 31, 2002 |                           |                            | 305     |        |             |         | 304     |            
|                                                           | Additional paid-in capital                                                                                                              |                           |                            | 203,613 |        |             |         | 202,996 |            
|                                                           | Unearned compensation                                                                                                                   |                           |                            | (1,191  | )      |             |         | (1,232  | )          
|                                                           | Retained earnings                                                                                                                       |                           |                            | 11,762  |        |             |         | 15,459  |            
|                                                           | Accumulated other comprehensive loss                                                                                                    |                           |                            | (1,388  | )      |             |         | (884    | )          
|                                                           |                                                                                                                                         |                           |                            |         |        |            
|                                                           |                                                                                                                                         |                           | Total shareholders equity |         |        | 213,101     |         |         |             | 216,643 | 
|                                                           |                                                                                                                                         |                           |                            |         |        |            
|                                                           |                                                                                                                                         | $                         | 387,753                    |         |        | $           | 269,738 |        
|                                                           |                                                                                                                                         |                           |                            |         |        |            

See accompanying Notes to Consolidated Financial Statements

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COMPUTER NETWORK TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                                     |                                                                  |                                                      |                                                 |         |        |                    |         |         |         |         |   | 
|---------------------------------------------------- | ---------------------------------------------------------------- | ---------------------------------------------------- | ----------------------------------------------- | ------- | ------ | ------------------ | ------- | ------- | ------- | ------- | - | 
|                                                     |                                                                  |                                                      |                                                 |         |        | Three months ended |        
|                                                     |                                                                  |                                                      |                                                 |         |        | April 30,          |        
|                                                     |                                                                  |                                                      |                                                 |         |        |                    |        
|                                                     |                                                                  |                                                      |                                                 |         |        | 2002               |         |         | 2001    |        
|                                                     |                                                                  |                                                      |                                                 |         |        |                    |         |         |         |        
|Operating Activities:                                |                                                                  |                                                      |                                                 |         |        |                    |         |        
|                                                     | Net loss                                                         |                                                      | $                                               | (3,697  | )      |                    | $       | (6,555  | )      
|                                                     | Discontinued operations                                          |                                                      |                                                 |        |        |                    |         | (6,423  | )      
|                                                     | Depreciation and amortization                                    |                                                      |                                                 | 4,020   |        |                    |         | 3,537   |        
|                                                     | Compensation expense                                             |                                                      |                                                 | 161     |        |                    |         | 130     |        
|                                                     | Loss on sale and write-down of webMethods stock                  |                                                      |                                                 |        |        |                    |         | 10,283  |        
|                                                     | Changes in operating assets and liabilities,
net of acquisition: |                                                      |                                                 |         |        |                    |         |         |        
|                                                     |                                                                  | Receivables                                          |                                                 |         | 13,611 |                    |         |         | 10,646  |        
|                                                     |                                                                  | Inventories                                          |                                                 |         | (2,102 | )                  |         |         | (8,482  | )      
|                                                     |                                                                  | Other current assets                                 |                                                 |         | (1,487 | )                  |         |         | 54      |        
|                                                     |                                                                  | Accounts payable                                     |                                                 |         | (966   | )                  |         |         | (14,334 | )      
|                                                     |                                                                  | Accrued liabilities                                  |                                                 |         | (4,720 | )                  |         |         | (12,135 | )      
|                                                     |                                                                  | Deferred revenue                                     |                                                 |         | 2,543  |                    |         |         | 1,342   |        
|                                                     |                                                                  |                                                      |                                                 |         |        |                   
|                                                     |                                                                  | Net cash provided by (used in) continuing
operations |                                                 |         | 7,363  |                    |         |         | (21,937 | )      
|                                                     |                                                                  | Net cash used in discontinued operations             |                                                 |         |       |                    |         |         | (1,224  | )      
|                                                     |                                                                  |                                                      |                                                 |         |        |                   
|                                                     |                                                                  |                                                      | Cash provided by (used in) operating
activities |         |        | 7,363              |         |         |         | (23,161 | )
|                                                     |                                                                  |                                                      |                                                 |         |        |                   
|Investing Activities:                                |                                                                  |                                                      |                                                 |         |        |                    |         |        
|                                                     | Additions to property and equipment                              |                                                      |                                                 | (2,931  | )      |                    |         | (2,626  | )      
|                                                     | Additions to field support spares                                |                                                      |                                                 | (1,049  | )      |                    |         | (758    | )      
|                                                     | Acquisition of Articulent, net of cash acquired                  |                                                      |                                                 |        |        |                    |         | (11,132 | )      
|                                                     | Net proceeds from the sale of IntelliFrame                       |                                                      |                                                 |        |        |                    |         | 5,800   |        
|                                                     | Proceeds from the sale of webMethods stock                       |                                                      |                                                 |        |        |                    |         | 6,281   |        
|                                                     | Net purchase and redemption of marketable securities             |                                                      |                                                 | (25,694 | )      |                    |         | 9,278   |        
|                                                     | Other assets                                                     |                                                      |                                                 | 83      |        |                    |         | 557     |        
|                                                     |                                                                  |                                                      |                                                 |         |        |                   
|                                                     |                                                                  |                                                      | Cash provided by (used in) investing
activities |         |        | (29,591            | )       |         |         | 7,400   |  
|                                                     |                                                                  |                                                      |                                                 |         |        |                   
|Financing Activities:                                |                                                                  |                                                      |                                                 |         |        |                    |         |        
|                                                     | Net proceeds from issuance of convertible
subordinated debt      |                                                      |                                                 | 121,706 |        |                    |         |        |        
|                                                     | Proceeds from issuance of common stock                           |                                                      |                                                 | 499     |        |                    |         | 387     |        
|                                                     | Repayments of obligations under capital
leases                   |                                                      |                                                 | (300    | )      |                    |         | (350    | )      
|                                                     |                                                                  |                                                      |                                                 |         |        |                   
|                                                     |                                                                  |                                                      | Cash provided by financing
activities           |         |        | 121,905            |         |         |         | 37      |  
|                                                     |                                                                  |                                                      |                                                 |         |        |                   
|Effects of exchange rate changes                     |                                                                  |                                                      | 169                                             |         |        |                    | (139    | )      
|                                                     |                                                                  |                                                      |                                                 |         |        |                   
|Net increase (decrease) in cash and cash
equivalents |                                                                  |                                                      | 99,846                                          |         |        |                    | (15,863 | )      
|Cash and cash equivalents  beginning of
period      |                                                                  |                                                      | 34,402                                          |         |        |                    | 39,444  |        
|                                                     |                                                                  |                                                      |                                                 |         |        |                   
|Cash and cash equivalents  end of period            |                                                                  | $                                                    | 134,248                                         |         |        | $                  | 23,581  |        
|                                                     |                                                                  |                                                      |                                                 |         |        |                   



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, represents the twelve months ended January 31, 2003 and
2002, respectively.

(2)  MARKETABLE SECURITIES

During the first quarter of 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 bank certificates of deposit, U.S. government and agency securities
and corporate debt securities. 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 quarter of fiscal 2002 or fiscal
2001.

(3)  INVENTORIES

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

|             |                              |   |           |        |  |             |        |        | 
|------------ | ---------------------------- | - | --------- | ------ |  | ----------- | ------ | ------ | 
|             |                              |   | April 30, |        |  | January 31, |       
|             |                              |   | 2002      |        |  | 2002        |       
|             |                              |   |           |        |  |             |       
|Inventories: |                              |   |           |        |  |             |        |       
|             | Components and subassemblies |   | $         | 21,551 |  |             | $      | 22,391 | 
|             | Work in process              |   |           | 3,612  |  |             |        | 3,834  | 
|             | Finished goods               |   |           | 8,349  |  |             |        | 5,185  | 
|             |                              |   |           |        |  |            
|             |                              | $ | 33,512    |        |  | $           | 31,410 |       
|             |                              |   |           |        |  |            

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(4)  COMPREHENSIVE LOSS

Comprehensive loss consists of the following:

|                                                                    |  |                              |        |   |      |   |        |  
|------------------------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | -
|                                                                    |  | Three months ended April 30, |       
|                                                                    |  |                              |       
|                                                                    |  | 2002                         |        |   | 2001 |  
|                                                                    |  |                              |        |   |      |  
|Net loss                                                            |  | $                            | (3,697 | ) |      | $ | (6,555 | )
|Unrealized loss on marketable securities,
net of tax effect of $338 |  |                              | (586   | ) |      |   |       |  
|Foreign currency translation adjustment, net
of tax effect of $0    |  |                              | 82     |   |      |   | (196   | )
|                                                                    |  |                              |        |   |      |  
|Total comprehensive loss                                            |  | $                            | (4,201 | ) |      | $ | (6,751 | )
|                                                                    |  |                              |        |   |      |  

(5)  SEGMENT INCOME

The Company has two reportable segments consisting of its
Networking Solutions business unit and Storage Solutions business
unit. The Networking Solutions business unit consists of our storage
and channel networking products and related services. The Storage
Solutions business consists of our storage networking design and
implementation services and the storage management business we
acquired from Articulent in April of 2001. The Companys two
reportable segments are strategic business units that offer different
products and services. They are managed separately because each
business requires different market strategies. The Company evaluates
performance based on operating profit or loss before special charges
and income taxes.

|                      |                      |       |   |                              |        |   |      |        |         |  
|--------------------- | -------------------- | ----- | - | ---------------------------- | ------ | - | ---- | ------ | ------- | -
|                      |                      |       |   | Three months ended April 30, |       
|                      |                      |       |   |                              |       
|                      |                      |       |   | 2002                         |        |   | 2001 |       
|                      |                      |       |   |                              |        |   |      |       
|Revenue:              |                      |       |   |                              |        |   |      |       
|                      | Networking Solutions |       | $ | 33,201                       |        |   | $    | 25,156 |        
|                      | Storage Solutions    |       |   | 12,011                       |        |   |      | 4,257  |        
|                      |                      |       |   |                              |        |  
|                      |                      | Total |   | $                            | 45,212 |   |      | $      | 29,413  |  
|                      |                      |       |   |                              |        |  
|Loss from Operations: |                      |       |   |                              |        |   |      |       
|                      | Networking Solutions |       | $ | (4,240                       | )      |   | $    | (5,436 | )      
|                      | Storage Solutions    |       |   | (2,434                       | )      |   |      | (1,721 | )      
|                      | Special charges      |       |   |                             |        |   |      | (3,321 | )      
|                      |                      |       |   |                              |        |  
|                      |                      | Total |   | $                            | (6,674 | ) |      | $      | (10,478 | )
|                      |                      |       |   |                              |        |  

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(6)  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 premium 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
Company is required and intends to register for resale the notes and 6.5
million shares of common stock issuable upon conversion within 180 days of the
original issuance of the notes.

(7)  NEW ACCOUNTING PRONOUNCEMENTS

On February 1, 2002, Financial Accounting Standards Board (FASB)
Statement of Accounting Standard No. (SFAS) 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets became effective for the
Company. As a result and from that date forward, goodwill is no longer being
amortized against earnings and goodwill balances are subject to impairment
review on at least an annual basis.

SFAS No. 141 requires, upon adoption of SFAS No. 142, that effective
February 1, 2002 the Company evaluate its existing intangible assets and
goodwill that were acquired in a prior purchase business combination, and to
make any necessary reclassifications in order to conform with the new criteria
in SFAS No. 141 for recognition apart from goodwill. As result of this
evaluation, there were no reclassifications to the Companys existing
intangible assets and goodwill.

The Company is required to reassess the useful lives and residual values
of all intangible assets acquired, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In
addition, to the extent an intangible asset is identified as having an
indefinite useful life, the Company is required to test the intangible asset
for impairment in accordance with the provisions of SFAS No. 142 within the
first half of 2002. Any impairment loss will be measured as of the date of
adoption and recognized as the cumulative effect of a change in accounting
principle in the first quarter of 2002.

In connection with SFAS No. 142s transitional impairment evaluation, the
SFAS requires the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To accomplish
this, the Company must identify its reporting units and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units as of the
date of adoption. The Company has up to six months from the date of adoption
to determine the fair value of each reporting unit and compare it to the
carrying amount of the reporting unit. To the extent the carrying amount of a
reporting unit exceeds the fair value of the reporting unit, an indication
exists that the reporting unit goodwill may be impaired and the Company must
perform the second step of the transitional impairment test. In the second
step, the Company must compare the implied fair value of the reporting unit
goodwill with the carrying amount of the reporting unit goodwill, both of which
would be measured as of the date of adoption. The implied fair value of
goodwill is determined by allocating the

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fair value of the reporting unit to all of the assets (recognized and
unrecognized) and liabilities of the reporting unit in a manner similar to a
purchase price allocation, in accordance with SFAS No. 141. The residual fair
value after this allocation is the implied fair value of the reporting unit
goodwill. This second step is required to be completed as soon as possible,
but no later than the end of the year of adoption. Any transitional impairment
loss will be recognized as the cumulative effect of a change in accounting
principle in the Companys statement of operations.

Intangible assets as of April 30, 2002 consisted of a customer list with a
gross carrying value of $505,000 and accumulated amortization of $55,000.
Amortization of this intangible asset for the three months ended April 30, 2002
was $17,000.

The following table discloses reported net loss and the adjusted net loss
that would have been reported assuming that SFAS No. 142 were to have been
effective for all reported periods.

|                                              |  |                              |        |   |      |   |        |  
|--------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------ | -
|                                              |  | Three months ended April 30, |       
|                                              |  |                              |       
|                                              |  | 2002                         |        |   | 2001 |  
|Net loss, as reported                         |  | $                            | (3,697 | ) |      | $ | (6,555 | )
|Add back amortization
Goodwill                |  |                              |       |   |      |   | 66     |  
|                                              |  |                              |        |   |      |  
|Net loss, as adjusted                         |  | $                            | (3,697 | ) |      | $ | (6,489 | )
|                                              |  |                              |        |   |      |  
|Basic and diluted loss per share, as reported |  | $                            | (0.12  | ) |      | $ | (0.22  | )
|Add back amortization
Goodwill                |  |                              |       |   |      |   |       |  
|                                              |  |                              |        |   |      |  
|Basic and diluted loss per
share, as adjusted |  | $                            | (0.12  | ) |      | $ | (0.22  | )
|                                              |  |                              |        |   |      |  

Because of the extensive effort needed to comply with adopting SFAS No.
142, it is not practicable to reasonably estimate the impact of adopting this
SFAS on the Companys financial statements as of the date of this report,
including whether it will be required to recognize any transitional impairment
losses as an cumulative effect of a change in accounting principle.

In August 2001, the Financial Accounting Standards Board approved SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS
No. 144 addresses the financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
However, this SFAS retains the fundamental provisions of SFAS No. 121 for (a)
recognition and measurement of the impairment of long-lived assets to be held
and used and (b) measurement of long-lived assets to be disposed of by sale.

SFAS No. 144 also supersedes the accounting and reporting provisions of
APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment
of a business. However, this SFAS retains the requirement of APB No. 30 to
report discontinued operations separately from continuing operations and
extends that reporting to a component of an entity that either has been
disposed of or is classified as held for sale. The Company adopted the

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provisions of SFAS No. 144 as of February 1, 2002. The adoption of SFAS No.
144 did not have a material effect on the Companys financial statements.

(8)  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 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 2001.

In the first quarter of 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 2001.

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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 out 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.

Economic conditions have 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 2001:



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

Sale and Write-down of webMethods Stock

During the first quarter of 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.

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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 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 2001.

In the first quarter of 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 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 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.

Convertible Debt Offering

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 premium 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. We are required and intend to
register the notes and 6.5 million shares of common stock issuable upon
conversion within 180 days of the original issuance of the notes.

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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 segment operating information for the three months ended April 30,
2002 and 2001 is for illustrative purposes only and has been adjusted to
eliminate the effects of special items and other charges recognized by our
Networking Solutions segment during the first quarter of 2001, including a
$2.0 million write-down of inventory, a $325,000 write-off of our FileSpeed®
product and a $996,000 restructuring charge.

|                     |       |      |     |       |      |                     |                      |                             |                            |       |      |     |  |       |       |     |  |  | 
|-------------------- | ----- | ---- | --- | ----- | ---- | ------------------- | -------------------- | --------------------------- | -------------------------- | ----- | ---- | --- |  | ----- | ----- | --- |  |  | 
|Networking Solutions |       |      |     |       |      | Storage Solutions   |                     
|Three months ended   |       |      |     |       |      | Three months ended  |                     
|April 30,            |       |      |     |       |      | April 30,           |                     
|                     |       |      |     |       |      |                     |                      |                             |                            |      
|                     |       | 2002 |     | 2001  |      |                     |                      |                             |                            |       | 2002 |     |  | 2001  |      
|                     |       |      |     |       |      |                     |                      |                             |                            |       |      |     |  |       |      
|                     |       |      |     |       |      | Revenue:            |                      |                             |                            |       |      |     |  |      
|                     |       | 67.0 | %   |       | 54.0 | %                   |                      | Product sales               |                            |       | 62.5 | %   |  |       | 57.9  | %  
|                     |       | 33.0 |     |       | 46.0 |                     |                      | Service fees                |                            |       | 37.5 |     |  |       | 42.1  |    
|                     |       |      |     |       |      |                     |                      |                             |                            |       |      |     |  |      
|                     | 100.0 |      |     | 100.0 |      |                     | Total revenue        |                             |                            | 100.0 |      |     |  | 100.0 |      
|                     |       |      |     |       |      |                     |                      |                             |                            |       |      |     |  |      
|                     |       |      |     |       |      | Gross profit:       |                      |                             |                            |       |      |     |  |      
|                     |       | 50.7 |     |       | 61.3 |                     |                      | Product sales               |                            |       | 14.6 |     |  |       | 23.8  |    
|                     |       | 45.1 |     |       | 41.3 |                     |                      | Service fees                |                            |       | 16.9 |     |  |       | (49.8 | )  
|                     |       |      |     |       |      |                     |                      |                             |                            |       |      |     |  |      
|                     |       | 48.9 |     |       | 52.1 |                     |                      | Total gross profit          |                            |       | 15.4 |     |  |       | (7.2  | )  
|                     |       |      |     |       |      |                     |                      |                             |                            |       |      |     |  |      
|                     |       |      |     |       |      | Operating expenses: |                      |                             |                            |       |      |     |  |      
|                     |       | 35.6 |     |       | 38.7 |                     |                      | Sales and marketing         |                            |       | 31.3 |     |  |       | 27.5  |    
|                     |       | 19.8 |     |       | 25.0 |                     |                      | Engineering and development |                            |       | .9   |     |  |       |      |    
|                     |       |      | 6.3 |       |      | 10.0                |                      |                             | General and administrative |       |      | 3.5 |  |       |       | 5.7 | 
|                     |       |      |     |       |      |                     |                      |                             |                            |       |      |     |  |      
|                     |       | 61.7 |     |       | 73.7 |                     |                      | Total operating expenses    |                            |       | 35.7 |     |  |       | 33.2  |    
|                     |       |      |     |       |      |                     |                      |                             |                            |       |      |     |  |      
|                     | (12.8 | )%   |     | (21.6 | )%   |                     | Loss from operations |                             |                            | (20.3 | )%   |     |  | (40.4 | )%   
|                     |       |      |     |       |      |                     |                      |                             |                            |       |      |     |  |      

Revenue

Networking Solutions

Our networking solutions business generated revenues of $33.2 million in
the first quarter of 2002, up $8.0 million or 32% from the first quarter of
2001. Storage networking product revenues for the first quarter of 2002 totaled
$18.6 million, up 141% from $7.7 million in the first quarter of 2001.
Approximately $2.8 million of storage networking product revenue for the first
quarter of 2002 resulted from the sale of our new UltraNet® Edge product.
Channel networking product revenues for the first quarter of 2002 totaled $3.7
million, down 37% from $5.9 million in the first quarter of 2001. We expect
sales of channel extension products to continue for the foreseeable future, but
do not expect revenues to grow substantially. Although total revenue was
higher in the first quarter of 2002 compared to the first quarter of 2001,
there continues to be a global slow down in capital spending for information
technology equipment.

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Service revenues associated with our networking business totaled $10.9
million for the first quarter of 2002, down $634,000 or 5% from the first
quarter of 2001. The decrease in service revenue was due to some customers
electing not to re-new their maintenance agreements for our older Channelink
products.

Storage Solutions

Revenue from our Storage Solutions Division increased in the first quarter
of 2002 to $12.0 million, up 182% from $4.3 million in the first quarter of
2001. Our acquisition of Articulent in April 2001 significantly expanded our
solution offerings and accounted for most of the year-to-year increase in
revenue for the Storage Solutions division.

General

Revenue generated from the sale of products and services outside the
United States for the first quarter of 2002 totaled $9.5 million, a decrease of
2% from the first quarter of 2001. Although sales outside of the United States
in the first quarter of 2002 were comparable to the same period of 2001, there
continues to be a global slow down in capital spending for information
technology equipment.

No single customer accounted for more than 10% of our revenue during the
first quarter of 2002 or 2001. Price discounting had a small impact on our
product revenue during these periods.

During the first quarter of 2002, approximately 32% and 9% of our product
revenue was derived from businesses in the financial services and information
outsourcing industries, respectively.

We primarily sell our storage networking 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 will 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 Margin

Networking

Gross product margins for our networking business for the first quarter of
2002 were 51%, compared to 44% in the first quarter of 2001. Excluding the
$2.0 million write-down of slow moving inventory and the $325,000 write-off of
our FileSpeed® product, gross product margins from the sale of networking
products for the first quarter of 2001 would have been 61%. 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, and higher levels of sales discounts.

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Gross service margins for our networking business improved in the first
quarter of 2002 to 45%, compared to 41% in the first quarter of 2001. The
improvement was 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 for our storage solutions business for the first
quarter of 2002 were 15%, compared to 24% in the first quarter of 2001. The
decline in gross margin percentage was primarily due to an increase in the sale
of lower margin third party products resulting from the acquisition of
Articulent in April 2001. Historically, the product solutions offered by
Articulent have generated gross margins in the 15% to 25% range.

Gross service margins for our storage solutions business improved to 17%
in the first quarter of 2002, compared to a negative 50% in the first quarter
of 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.

Operating Expenses

Networking

Sales and marketing expense for the first quarter of 2002 totaled $11.8
million, up 22% from $9.7 million in the first quarter of 2001. Since the
beginning of 2001, we have increased our sales force by over 25% and have added
additional sales management to increase revenue and grow our business. Commission expense was higher in the first quarter
of 2002 compared to the first quarter of 2001 due to higher product sales.

Engineering and development expense for the first quarter of 2002 totaled
$6.6 million, up 4% from $6.3 million in the first quarter of 2001. The
increase was primarily due to continued development of our UltraNet® family
of products, particularly the UltraNet® Edge product, which has generated
$6.0 million of revenue since its introduction in the third quarter of 2001.
This increase was partially offset by cost reduction actions taken in April
2001, including a workforce reduction, wage cuts and reductions in
discretionary spending.

Storage Solutions

Sales, marketing, engineering and development expense for the first
quarter of 2002 totaled $3.9 million, up 231% from $1.2 million in the first
quarter of 2001. The increase was primarily due to the incremental costs
associated with the acquisition of Articulent in April 2001.

General and administrative

General and administrative expenses for the first quarter of 2002 totaled
$2.5 million compared to $2.8 million in the first quarter of 2001.
Elimination of goodwill amortization in the first quarter of 2002 due to
adoption of SFAS 142 reduced expense by $66,000 compared to the first quarter
of 2001. The remaining decrease relates to reductions in discretionary spending
initiated at the end of the first quarter of 2001.

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Other

Excluding the $10.3 million loss from the sale and write-down of
webMethods stock in the first quarter of 2001, other income for the three
months April 30, 2002 and 2001 totaled $1.1 million and $1.9 million,
respectively. 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 an $825,000 increase in interest expense in the first quarter of
2002 compared to the first quarter 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 first quarter of 2002, we recorded interest income of $1.9 million
compared to $2.0 million in the first quarter 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 first quarter of 2002 at an
effective income tax rate of 34%, compared to 31% for first quarter of 2001.
The $10.3 million loss on the sale and write-down of the webMethods stock in
the first quarter of 2001 was taxed at an effective tax rate of 30%. Excluding
this item, our effective tax rate for first quarter of 2001 would have been
33%. 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. We may be
required to provide a valuation allowance for 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 April 30, 2002 totaled
$243 million, an increase of $125 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. Operations also contributed $7.4 million of cash in the first
quarter of 2002. Uses of cash in the first quarter of 2002 included $4.0
million for capital equipment and field support spares.

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 2002.

In April of 2001, our board of directors authorized the repurchase of up
to $50.0 million of our common stock. As of May 31, 2002 we had repurchased
1.7 million shares of our common stock for $15.6 million.

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

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Our future minimum contractual cash obligations at April 30, 2002,
including open purchase orders incurred in the ordinary course of business, are
as follows:

|                                              |  |       |               |          |           |             |              |   |             |              |  |            |               |  |  |   |             |  |  |  |  |  |  |  | 
|--------------------------------------------- |  | ----- | ------------- | -------- | --------- | ----------- | ------------ | - | ----------- | ------------ |  | ---------- | ------------- |  |  | - | ----------- |  |  |  |  |  |  |  | 
|                                              |  |       |               |          | Less Than |             | One to Three |   |             | Four to Five |  |            | After         |  |  |   |             |  |  | 
|Cash Obligation                               |  | Total |               | One Year |           | Years       |              |   | Years       |              |  | Five Years |               |  |  |   |             |  | 
|                                              |  |       |               |          |           |             |              |   |             |              |  |            |               |  |  |   |             |  |  |  | 
|Capital Leases                                |  | $     | 2.1 million   |          | $         | 1.7 million |              | $ | 442,000     |              |  | $          | None          |  |  | $ | None        |  | 
|Operating Leases                              |  | $     | 26.3 million  |          | $         | 5.2 million |              | $ | 9.2 million |              |  | $          | 2.5 million   |  |  | $ | 9.4 million |  | 
|Purchase Orders                               |  | $     | 8.2 million   |          | $         | 7.4 million |              | $ | 861,000     |              |  | $          | None          |  |  | $ | None        |  | 
|Convertible Subordinated
notes, plus interest |  | $     | 143.8 million |          | $         | 3.8 million |              | $ | 9.4 million |              |  | $          | 130.6 million |  |  | $ | None        |  | 

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 five major financial institutions in the United States. As of
April 30, 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 money market instruments, bank certificates of
deposits, U.S. government and agency securities and corporate debt securities.
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 April 30, 2002, the average
bid and ask price of our convertible subordinated notes due February 2007 was 74.31, resulting
in an aggregate fair value of approximately $92.9 million. Our common stock is quoted on the Nadsaq National Market under
the symbol CMNT. On April 30, 2002, the last reported sale price of our
common stock on the Nasdaq Market was $9.54 per share.

At April 30, 2002, our marketable securities included a $342,000
investment in a Standard & Poors 500 stock price index fund and a $329,000
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
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 pounds sterling. As of April 30, 2002, we had an open forward
exchange contract for 300,000 British pounds sterling that settles in June
2002.

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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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PART II. OTHER INFORMATION







Item 1. None

Item 2. Changes in Securities and Use of Proceeds

On February 20, 2002, we sold, in a private placement pursuant to Rule
144A of the Securities Act of 1933 as amended, $125 million in aggregate
principal amount of 3 percent convertible subordinated notes due February 15,
2007. The subordinated notes were sold at par value. Holders of the notes
may, in whole or in part, convert the notes into shares of our common stock at
a conversion price of approximately $19.17 per share (aggregate of
approximately 6.5 million shares) at any time prior to maturity on February 15,
2007. We may redeem the notes upon payment of the outstanding principal
balance, accrued interest and a make whole premium if the closing price of our
common stock exceeds 175% of the conversion price for at least 20 trading days
within a period of 30 consecutive trading days ending on the trading day prior
to the date on which we mail the provisional redemption notice.

We are required to pay interest on February 15 and August 15 of each year,
beginning August 15, 2002. Debt issuance costs of $3.2 million are being
amortized over a five-term using the straight-line method, which approximates
the effective interest rate method. The amortization of these debt issuance
costs will accelerate upon early redemption or conversion of the notes. The
offer and sale of the notes was exempt from the registration requirements of
the Securities Act of 1933, as amended, pursuant to the provisions of section 5
of the Securities Act provided by Rule 144A. On May 1, 2002 we filed a
registration statement for the resale of the notes and the shares of common
stock issuable upon conversion of the notes. During the quarter ended April
30, 2002, the net proceeds of $121 million were invested in investment grade,
highly liquid investments, consisting of money market instruments, bank
certificates of deposits, U.S. government and agency securities and corporate
debt securities. The net proceeds remain available for general working capital
purposes, including potential acquisitions.

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Item 3-5. 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 Loss per Basic and Diluted
Share.                                                                                                                                                                                                                                                                



|(b) |  | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | During the quarter ended April 30, 2002 the Company filed three
reports on Form 8-K. On February 11, 2002, a Form 8-K was
filed outlining the 10(b)5-1 trading plans of its officers and
directors. On February 12, 2002, a Form 8-K was filed
containing the Companys press releases announcing fourth
quarter 2001 results and the convertible debt offering. On
February 14, 2002, a Form 8-K was filed containing the
Companys press release announcing the pricing of its
convertible debt offering.

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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: | June 12, 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)

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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 Loss per Basic and Diluted
Shares......................................................Electronically
Filed                                                                                                                                                                                      

22