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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|/x/ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED APRIL 30, 2000
OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number 0-8141

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NORSTAN, INC.

(Exact name of registrant as specified in its chapter)

Minnesota(State of incorporation)

41-0835746(I.R.S. Employer identification No.)


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

|The Company's phone number:612-352-4000 |  | The Company's internet address:www.norstan.com
|--------------------------------------- |  | ----------------------------------------------

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

Securities
registered pursuant to Section 12(g) of the Act:

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

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

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

As
of July 17, 2000, the aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the average high and low
prices on such date as reported by the Nasdaq National Market System was approximately $44,500,000.

As
of July 17, 2000 there were outstanding 11,271,003 shares of the registrant's common stock, par value $.10 per share, its only class of equity securities.

DOCUMENTS INCORPORATED BY REFERENCE

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

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TABLE OF CONTENTS

|           |          |  |                                                                                       |  | Page
|---------- | -------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART I     |          |  |                                                                                       |  |     
|           | Item 1.  |  | Business                                                                              |  | 1   
|           |          |  | Summary                                                                               |  | 1   
|           |          |  | Industry Overview                                                                     |  | 1   
|           |          |  | The Norstan Solution                                                                  |  | 2   
|           |          |  | Norstan's Business Strategy                                                           |  | 3   
|           |          |  | Norstan's Growth Strategy                                                             |  | 4   
|           |          |  | Products and Services                                                                 |  | 5   
|           |          |  | Customers                                                                             |  | 6   
|           |          |  | Strategic Alliances                                                                   |  | 7   
|           |          |  | Sales and Marketing                                                                   |  | 7   
|           |          |  | Customer Service                                                                      |  | 8   
|           |          |  | Locations                                                                             |  | 8   
|           |          |  | Employees                                                                             |  | 9   
|           |          |  | Competition                                                                           |  | 9   
|           |          |  | Intellectual Property Rights                                                          |  | 9   
|           |          |  | Government Regulation                                                                 |  | 9   
|           |          |  | Backlog                                                                               |  | 10  
|           | Item 2.  |  | Properties                                                                            |  | 10  
|           | Item 3.  |  | Legal Proceedings                                                                     |  | 10  
|           | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 10  
|PART II    |          |  |                                                                                       |  |     
|           | Item 5.  |  | Market for the Company's Common Equity and Related Shareholder Matters                |  | 11  
|           | Item 6.  |  | Selected Consolidated Financial Data                                                  |  | 11  
|           | Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 13  
|           | Item 7A. |  | Quantitative and Qualitative Disclosure About Market Risk                             |  | 20  
|           | Item 8.  |  | Financial Statements and Supplementary Data                                           |  | 21  
|           | Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 43  
|PART III   |          |  |                                                                                       |  |     
|           | Item 10. |  | Directors and Executive Officers of the Registrant                                    |  | 43  
|           | Item 11. |  | Executive Compensation                                                                |  | 43  
|           | Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 43  
|           | Item 13. |  | Certain Relationships and Related Transactions                                        |  | 43  
|PART IV    |          |  |                                                                                       |  |     
|           | Item 14. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 43  
|SIGNATURES |          |  |                                                                                       |  | 44  

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PART I

Item 1. Business.

BUSINESS

Summary

Norstan is a single-source provider of leading-edge technology solutions and world-class technology services including converged voice and data
infrastructure, information technology, networking, internet conferencing, communication solutions and e-business solutions to more than 18,000 business clients worldwide. Headquartered in
Minneapolis, Minnesota, Norstan employs over 2,200 people with offices located throughout North America.

To
address the complex communication and information technology (IT) requirements of its customers, Norstan provides a broad range of products and services through three business
segments; Communications, Consulting and Financial Services which accounted for 77.0%, 20.9% and 2.1% of Norstan's fiscal year 2000 revenues, respectively. Within the Communications business segment;
Communication Solutions offers a comprehensive portfolio of technology solutions including IP Telephony, traditional PBXs, unified messaging, long distance, and conferencing and call center solutions;
Communication Services provides a full array of customer support services including maintenance and support services, systems modifications and managed communication services; Advanced Services Group
provides unified media and converged infrastructure solutions, Voice-Over Data Networking and IP Telephony services; and Conferencing Solutions offers audio and video bridging services,
internet conferencing, webcasting, consulting services and conferencing products. The Consulting business segment provides e-business solutions including e-commerce consulting
services, e-business integration services, knowledge management consulting services, customer relationship management solutions and infrastructure services. The
Financial Services segment supports the sales process by providing customers with customized financing alternatives.

The
Company operates in 59 locations in 45 cities throughout the United States and Canada. Norstan has served over 18,000 customers across a broad range of industries in the last
three years and focuses its marketing efforts on middle-market and Fortune 500 companies with complex technology and communication requirements. Current customers include IBM, Kellogg Company, 3M and
Harley-Davidson. Norstan's strong emphasis on customer satisfaction is evidenced by a fiscal year 2000 survey of Norstan's communication customers, in which Norstan received an overall satisfaction
rating of 93.9%. This dedication to customer service, together with the Company's breadth of service offerings has resulted in Norstan becoming the fourth largest communications services provider in
North America. The Company believes that its outstanding customer service will enable Norstan to capture a greater portion of each customer's communication and IT budgets in the future as well as
provide other growth opportunities through multi-channel marketing (see Norstan's Growth Strategy)

Norstan
provides leading-edge technologies in both its Communications and Consulting operations. The Company has established strategic alliances with leading communication
and IT companies that enhance Norstan's ability to offer objective solutions to its customers. Communication strategic alliance partners include Siemens, VTEL, PictureTel, Latitude, Cisco Systems,
Sprint, Lucent Technologies (formerly Octel), Applied Voice Technology, Rockwell, SpeechWorks and SpectraLink. IT strategic alliance partners include IBM, Siebel Systems, Lotus, Mercator and
Microsoft.

Industry Overview

In the current climate of intense global competition and accelerating technological change, businesses increasingly depend upon technology-based solutions to
enhance their competitive position, and to improve their productivity and the quality of their products and services. Today's business environment mandates the availability of efficient voice and
video communication channels and information in formats suited to a wide variety of users. Businesses are looking to a variety of new technologies to enhance the

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performance of their communication systems and to allow IT systems to collect, analyze and communicate information within the enterprise and among customers and suppliers. An organization's ability to
integrate and deploy new communication and IT technologies in a unified and cost-effective manner has become critical to competing successfully in today's rapidly changing business
environment.

While
organizations recognize the importance of communication and IT systems in this business environment, the selection, implementation, customization and maintenance of these
systems are becoming more complex and the resources required to perform these tasks are becoming increasingly scarce. Faced with a shortage of qualified technical resources and great demands to
implement the latest technology, customers are increasingly relying on outside vendors to provide the necessary resources. By outsourcing communication and IT services, companies are able to focus on
their core businesses; access specialized technical skills; implement solutions more rapidly; benefit from flexible staffing; and reduce the cost of recruiting, training and retaining communication
and IT professionals.

As
a result of these factors, demand for communication and IT services and products has grown significantly. For calendar year 1999, Phillips InfoTech (InfoTech), a market research
firm specializing in telecommunications market information, estimates that the U.S. market for switching, maintenance and professional services and application equipment was over $17 billion,
and the U.S. market for telecommunications maintenance and professional services was estimated to be approximately $4 billion. As customers seek the competitive advantages that advanced
communication and computer telephony integration can deliver, growth of certain segments of call processing are expected to be particularly strong. According to InfoTech, between 1999 and 2004, the
U.S. market for voice mail, interactive voice response units, automated call distribution equipment and other telecommunications peripherals and applications is expected to grow at a compound annual
growth rate of approximately 7.5%. By 2004, the U.S. market for these associated applications and peripherals is projected to be over $10 billion. The 1999 worldwide market for IT services was
estimated at $605 billion and is projected to grow to $1.3 trillion by 2004 according to Dataquest, Inc., a unit of Gartner Group, the world's premier business technology advisor. The
market will continue to be fueled by end-user demand for external service providers for everything from product support to e-business transformation services to business
process outsourcing. Business management services are projected to achieve the fastest growth at a compound annual growth rate of 21% through 2004.

The
markets and technologies for communication equipment and IT applications and systems continue to converge as communication equipment migrates from proprietary switches to
software-driven systems operating on standardized computer platforms. As a result, businesses are integrating their communication and IT systems. In addition, many middle-market and Fortune 500
companies rely on multiple, often specialized, providers to help implement and manage their communication and IT systems. The Company believes that relying on multiple service providers, where there
is no distinct responsible party, creates vendor relationships that are difficult and expensive to manage and adversely impacts the quality and compatibility of communication and IT solutions. As
previously separate communication and IT technologies converge and their interoperability increases, more organizations will seek a unified technology solution. Norstan believes that these
organizations will attempt to reduce costs and management complexity by establishing relationships with a small number of providers that offer a broad range of both communication and IT products and
services throughout the full life cycle of a project.

The Norstan Solution

The Company is a single-source provider of a wide range of communication and IT solutions that enable its customers to compete and succeed in the global
marketplace. The Company has leveraged its established reputation as a provider of premier communication products and services, along with the capability of its IT consultants, to deliver a unified
communication and IT solution to middle-market and Fortune 500 companies. This broad range of offerings enables Norstan to serve as a single-source provider of communication and IT solutions
throughout the entire life cycle of a project. Norstan's ability to serve

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as a single-source provider results in closer integration, reduced risk and greater management control for the customer. The Company believes that its customer relationships, its geographic reach and
size, and its expertise in providing both communication and IT solutions will enable it to capitalize on the continuing growth and convergence of communication and IT needs of middle-market and
Fortune 500 companies.



The Company's objective is to become a leading provider of communication and IT offerings to middle-market and Fortune 500 companies. The Company's strategy to
achieve this objective includes the following key elements:

Capitalize on the Accelerating Convergence of Communication and Information Technologies.Norstan's established
communication expertise, coupled with its IT consulting capabilities, positions the Company to exploit the convergence of voice, video and information technologies onto a single platform. Norstan
believes that it is one of the few firms offering this combination of skills and services, enabling the Company to serve as a single-source provider of a unified technology solution.

Increase Focus on Providing Technology Services.As communication and information technologies converge, the Company
intends to increase its percentage of revenues derived from technology services, which typically command higher margins than product sales. Management believes that its increased focus on technology
services will enhance its overall profitability.

Offer a Broad Range of Communication and IT Solutions.Norstan's broad range of voice, video and data solutions allows
the Company to serve as a single-source provider for its customers' communication and IT needs. The ability to provide consulting services, hardware, software, training and on-going
support enables Norstan to offer a unified communication and IT solution throughout the life cycle of a project. This capability will become increasingly important as communication and information
technologies continue to converge and customers look to retain a single-source provider for all their communication and IT needs.

Attract, Develop and Retain Highly Skilled Professionals.The Company seeks to attract, develop and retain the highest
caliber of communication and IT consultants and service personnel. Norstan places a strong emphasis on the career development and training of its IT consultants through its Consulting Manager program.
Consulting Managers provide career guidance and ensure that employees maintain skills in state-of-the-art technologies. Norstan offers a competitive combination of
employee benefits and incentives, including employee stock option and stock purchase programs, as well as incentive compensation based on the amount billed by individual consultants.

Provide Superior Customer Service.Norstan believes its dedication to providing service beyond its customers'
expectations has produced many favorable customer relationships and resulted in increased exposure to potential customers. Norstan's strong emphasis on customer satisfaction is evidenced by a fiscal
year 2000 survey of Norstan's communication customers, in which Norstan received an overall satisfaction rating of 93.9%. The Company believes that its reputation for superior service will lead to
opportunities in its multi-channel marketing strategy and for cross-selling additional products and services to its customer base.

Offer Leading-Edge Technologies.Norstan maintains several strategic alliances with business partners that
enhance Norstan's ability to offer leading-edge technologies. Communication strategic alliance partners include Siemens, VTEL, PictureTel, Latitude, Cisco Systems, Sprint, Lucent
Technologies (formerly Octel), Applied Voice Technology, Rockwell, SpeechWorks and SpectraLink. IT strategic alliance partners include IBM, Siebel Systems, Lotus, Mercator and Microsoft. These
strategic alliances provide the Company with access to training, product support and current technology as well as the use of the

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"business partner" designation in marketing the Company's products and services. The Company intends to strengthen its existing alliances and pursue additional alliances with leading technology
companies.

Norstan's Growth Strategy

The Company has expanded its traditional "direct-to-the-end-user" marketing strategy with a multi-channel
marketing organization that focuses on expanded opportunities. This strategy is intended to bring the Company's core competencies in communication and professional services to the forefront of its new
business model. More specifically, Norstan is now focused on marketing its industry-leading professional, consulting and traditional support services through a broad spectrum of enterprise solution
providers in addition to the Company's current direct enterprise marketing activities. Such enterprise solution providers include Competitive Local Exchange Carriers (CLECs), Incumbent Local Exchange
Carriers (ILECs), Internet Service Providers (ISPs), and Applications Services Providers (ASPs) as well as other channel partners, such as Value-Added Resellers (VARs), Systems Integrators, and
Manufacturer Direct channels.

The
Company's growth strategy is centered around the development of marketing relationships and alliances with other enterprise solution providers looking to deliver to their
customers the leading-edge New Economy technology solutions that Norstan provides. These include Customer Relationship Management, Custom Contact Center, Unified Media, Hosted Internet
Conferencing, Network Management Services and Converged Infrastructure, including Internet Protocol (IP) Telephony. Norstan's new business partners can turn to the Company for assistance when their
own focus or capabilities lie outside the required comprehensive support services. This will open Norstan to a large, fast-growing, and essentially untapped layer of service opportunities
for these enterprise solution providers seeking to better serve their own end-user customers.

Services
offered to these multi-channel partners include a complete spectrum of capabilities from applications planning through solution implementation, network monitoring,
installation, support and maintenance. According to industry studies by InfoTech, the combined markets for these services are projected to be $28 billion by 2004 and expected to grow at an
average annual growth rate of nearly 40% between 2000 and 2004. InfoTech participated with Norstan in the development of the Company's growth strategy.

In
addition, the Company will provide a complete "end-to-end" offering for Network Management Support and Services, including 24-hour monitoring,
remote trouble shooting, and the traditional "break-fix" capability to the data networking and Internet Protocol Telephony markets. Demand for Network Management Services is projected to
increase significantly as business enterprises increase mission-critical e-Business voice and data applications over their data networks, a trend fueled by implementation of IP Telephony.
These IP solutions are projected to grow at an average annual rate of 138% over the next four years, according to a study published by InfoTech. The requirement for 100%
availability of integrated voice-data applications will demand that these networks be continuously monitored for quality of service and "up-time."

The
Company has established a New Business Development Group whose mission is to ensure maximum penetration for these market opportunities through the development of new channels and
strategic alliances. In July 2000, the Company entered into agreements with Rockwell Electronic Commerce Corporation and Science Applications International Corporation (SAIC) establishing two
new channels for the delivery of Norstan's products and services.

Norstan
also intends to grow its technology services business by leveraging the Company's existing base of over 18,000 customers. These relationships provide Norstan with significant
advantages in marketing new communication and IT services and solutions. Management believes the convergence of communication and information technologies, together with the Company's high level of
customer satisfaction, will position Norstan to become a preferred provider of both communication and IT solutions.

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Products and Services

Norstan provides customers with a broad range of communication and IT products and services to design, develop and implement technology solutions in a variety
of customer environments. These products and services are delivered through three business units, Communications, Consulting and Financial Services and are summarized in the following tables:

COMMUNICATIONSSolutions

  Communication Systems-PBX systems-IP Telephony  Voice and Unified Messaging  Contact Center Solutions-Interactive Voice Response-Computer Telephony Integration-Workforce Management, Quality Monitoring, Intelligent Call Routing and Web Conferencing Software and Integration  Network ServicesConvergence

  Advanced Services Group- Consultancy Practices in:
Customer Contact
Unified Messaging
Converged Infrastructure  Conferencing Solutions Group-Consulting Services-Conferencing Services: Audio/Video/Internet
Shared and Dedicated Services  Protectnet-Network Management Services:
Data Network "Break & Fix" Services
Network Monitoring ServicesServices

  Communication Maintenance and Support Services  System Modifications (Moves, Adds & Changes)  Managed Communication Services  24x7 Customer Support  Remote System Monitoring & Diagnostic Analysis  Cabling & Multimedia SolutionsResale

  Vibes Technologies, Inc.-e-commerce provider of refurbished communications equipment (www.vibestech.com)  Siemens Resale Services Group-reseller of refurbished Siemens communications products


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CONSULTINGe-Commerce

  Develop a total e-commerce application including creative, technological, and infrastructure componentse-Business Integration

  Provide services and solutions which allow the exchange of a client's data and business process with customers and suppliersKnowledge Management

  Create tools that allow employees throughout the client's organization to take advantage of information as it is generatedCustomer Relationship Management

  Integrate customer relationship management solutions such as Siebel SystemsInfrastructure Services

  Design, develop and deploy critical e-business applications as well as data and voice network infrastructureFINANCIAL SERVICESLeasing Services

  Provide customers with efficient and competitive financing for the purchase or lease of products and services  Support the sales process by offering lease structures that eliminate the need for third party financing


Customers

Norstan focuses its marketing efforts on middle-market and Fortune 500 companies with complex communication and IT requirements. Norstan has served over 18,000
customers across a broad range of industries over the last three fiscal years. No single customer accounted for more than 5% of Norstan's total revenue during any of the last three fiscal years.

Norstan
customers include the following:

COMMUNICATIONSAmerican Freightways

Harley-Davidson

ImationBest Buy

IBM

Marquette UniversityCIBC



Paul Brown StadiumCONSULTING3M

Diageo/Pillsbury

GMAC/RFCAmerican Express

Harley-Davidson

MichelinFinancial Advisors

Invacare

SuperValuKellogg Company


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Strategic Alliances

The Company believes that its relationships with a wide range of leading technology companies enhance Norstan's ability to deliver the appropriate solution to
each customer. Communication strategic alliance partners include Siemens, VTEL, PictureTel, Latitude, Cisco Systems, Sprint, Lucent Technologies (formerly Octel), Applied Voice Technology, Rockwell,
SpeechWorks and SpectraLink. In addition, the Company distributes complementary communication products that fit specific segments of the marketplace. These include hybrid switching systems, personal
computer-based voice processing and video conferencing systems, as well as data communication products from Novell, Newbridge and others. IT strategic alliance partners include IBM, Siebel Systems,
Lotus, Mercator and Microsoft. Siebel Systems, a leading customer care and sales automation software provider, has granted Premier Consulting Partner status to Connaissance Consulting (a
majority-owned Norstan affiliate).

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

Sales and Marketing

Norstan has over 400 sales and marketing personnel within the United States and Canada. The sales force includes product and service specialists with expertise
in IT consulting services, video conferencing, call centers, communication services, education and training, and other areas. These specialists partner with the sales representatives who have primary
responsibility for the customer relationship to develop integrated technology solutions which address the specific technology needs of Norstan's customers. Norstan uses several techniques to pursue
new customer opportunities, including telemarketing, seminars, participation in trade shows and advertising. Norstan also maintains a new account sales team to pursue new customer prospects.

Norstan's
sales representatives and specialists use a comprehensive approach to evaluate each customer's technology needs. The sales representative begins with a detailed analysis of
the customer's current and future communication and IT systems requirements. After determining the customer's needs, the sales representative and product specialist develop a solution that satisfies
current and anticipated future requirements. Norstan's consulting and operations teams then work with the customer to plan the delivery and implementation of the solution and to identify required
training. By planning the precise requirements of each phase of the solution delivery, Norstan's specialists are able to minimize service interruption for the customer. Norstan also provides an
ongoing support program tailored to meet the customer's specific application requirements that incorporates remote diagnostics, in-field service and support, additional training and help
desk support from Norstan's customer support representatives.

Norstan's
marketing strategy is designed to capture a larger portion of existing customers' communication and IT budgets and to identify and develop new customer relationships. In
particular, the Company believes that its installed base of communication systems customers offers extensive opportunities for the marketing of IT consulting services. Management also believes that
Norstan IT Consulting Services will be a source of additional communication business. Norstan anticipates that its high quality customer service will support ongoing marketing efforts, as satisfied
customers are more likely to choose Norstan to supply additional communication and IT products and services.

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Customer Service

Norstan believes that providing exceptional customer service is an important element of its ability to compete effectively in the communication and IT
marketplace. Norstan has invested heavily in new technology designed to help it resolve a substantial portion of customer support and service issues quickly and remotely. Norstan coordinates its
customer service response through three remote diagnostics and dispatch centers located in the Minneapolis, Cleveland and Toronto areas. In fiscal year 2000, these centers handled over 220,000
customer calls with approximately 59% of the service-related calls being addressed remotely. Only 18% of customer calls were resolved remotely in fiscal year 1994. The Company's goal for fiscal year
2001 is to resolve in excess of 60% of service calls remotely. For calls requiring immediate on-site service and support, Norstan maintains a force of highly trained service technicians,
design engineers and customer support representatives.

Norstan
has approximately 140 employees in its three remote diagnostics and dispatch centers devoted primarily to providing customer service and has over 400 service technicians in
the field. With Norstan's remote problem resolution capability and its staff of highly trained technicians, Norstan is able to promptly resolve customer support requests. Norstan's commitment to
customer service is evidenced by a fiscal year 2000 survey of Norstan's communication customers that found an overall satisfaction rating of 93.9%.

Locations

The Company currently supports its Communications and Consulting business clients with sales and service locations in the United States and Canada. The Company
maintains 59 sales and service locations in 45 cities, including the following:

COMMUNICATIONSAlbuquerque, NM

Duluth, MN

Minneapolis, MNAmarillo, TX

Edmonton, Alberta

Montreal, QuebecAppleton, WI

El Paso, TX

New Orleans, LABirmingham, AL

Las Vegas, NV

Oklahoma City, OKCalgary, Alberta

Lexington, KY

Ottawa, OntarioCedar Rapids, IA

Little Rock, AR

Phoenix, AZCincinnati, OH

London, Ontario

Tempe, AZCleveland, OH

Louisville, KY

Toledo, OHColumbus, OH

Lubbock, TX

Toronto, OntarioDavenport, IA

Madison, WI

Tucson, AZDayton, OH

Milwaukee, WI

Tulsa, OKDes Moines, IA



Vancouver, British ColumbiaCONSULTINGAtlanta, GA

Des Moines, IA

Omaha, NECharlotte, NC

Emeryville, CA

Warren, NJCleveland, OH

Milwaukee, WIColumbus, OH

Minneapolis, MN


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Employees

The Company's U.S. operations had a total of 2,077 employees as of April 30, 2000, consisting of 382 sales and marketing personnel, 793 operations,
service and installation employees, 556 consulting employees and 346 administrative employees. Of these employees, approximately 95 were covered by collective bargaining agreements. The Company
considers relations with its employees to be good and has not experienced any work stoppages.

The
Company's Canadian operations had a total of 170 employees as of April 30, 2000, consisting of 55 sales and consulting personnel, 88 operations, service and installation
employees, and 27 administrative personnel. The Company considers relations with the Canadian employees to be good and has not experienced any work stoppages.

Competition

The communication industry is intensely competitive and rapidly changing. Norstan's primary competitors in this area include Lucent Technologies, Nortel and
the RBOCs. Many of its competitors have longer operating histories, greater financial and human resources, and greater name recognition than Norstan. The passage of the Telecommunications Act of 1996
has fostered competition by providing access to a number of entities that were previously precluded from the industry. As a result of this legislation, the pace of consolidation in the industry has
accelerated. These changes in the regulatory environment may affect Norstan's ability to compete successfully.

The
market for IT services includes a large number of competitors, is subject to rapid change and is highly competitive. Primary competitors include participants from a variety of
market segments, including national accounting firms, systems consulting and implementation firms, application software firms, service groups of computer equipment companies, facilities management
companies, general management consulting firms and programming companies. Many of these competitors have significantly greater financial, technical and marketing resources and greater name recognition
than the Company. In addition, the Company competes with its customers' internal resources, particularly when these resources represent a fixed cost to the customer. Such competition may impose
additional pricing pressures on the Company.

Subject
to this competitive environment, the Company competes on the basis of: (i) the depth and breadth of services and products offered; (ii) the ability to integrate
IT and communication systems as the related technologies continue to converge; (iii) its reputation for providing superior customer service; and (iv) the number and strength of customer
relationships.

Intellectual Property Rights

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

Government Regulation

Except for the sale of long distance service, the Company is not subject to any government regulations that have a material impact on its operations. Effective
May 1, 1992, the Company became a direct reseller of long distance network services and became subject to certain state tariff regulations throughout the United States. The Company is currently
registered and certified to provide interstate services in all 50 states and intrastate services in 49 states. The Company is also subject to FCC regulations, which require the filing of federal
tariffs.

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Backlog

As of April 30, 2000, the Company had signed contracts for telecommunications products aggregating approximately $35.9 million, substantially all
of which are expected to be fulfilled by the end of fiscal 2001. As of April 30, 1999, the Company had signed contracts aggregating approximately $47.3 million, substantially all of
which were fulfilled by the end of fiscal 2000. The usual time period between the execution of a contract and the completion of the installation is one to six months, depending on the size and
complexity of the system.

Item 2. Properties.

The executive offices of the Company are located in Minnetonka, Minnesota, where the Company leases approximately 234,000 square feet of office space. The
Company also has area headquarters in Brecksville, Ohio, and Phoenix, Arizona, where the Company leases approximately 61,250 and 34,400 square feet of office space, respectively. In addition to the
space above, the Company leases sales and service offices in 42 other cities within the United States. In Canada, the Company leases approximately 36,000 square feet of office space in Toronto,
Ontario, which serves as its Canadian headquarters. The Company also leases sales and service offices in seven other cities within the Canadian provinces of Alberta, Manitoba, Ontario, Quebec and
British Columbia. The Company believes that the above-mentioned facilities are adequate and suitable for its current needs.

Item 3. Legal Proceedings.

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

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

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

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## 

PART II

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

Price Range of Common Stock

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

High

LowFiscal year ended April 30, 2000:First Quarter

141/4

91/4Second Quarter

127/8

7Third Quarter

113/8

51/8Fourth Quarter

97/8

51/8Fiscal year ended April 30, 1999:First Quarter

263/16

223/4Second Quarter

235/16

131/8Third Quarter

185/8

115/8Fourth Quarter

129/16

8


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

As
of July 17, 2000, there were 2,854 holders of record of the Company's common stock.

Restrictions on the Payment of Dividends

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

Item 6. Selected Consolidated Financial Data.

The selected consolidated financial data set forth below as of and for each of the fiscal years in the five-year period ended April 30, 2000
have been derived from the Company's consolidated financial statements, which have been audited by Arthur Andersen LLP, independent public accountants. The selected consolidated financial data should
be read in conjunction with "Management's Discussion and

11

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Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the notes thereto included elsewhere in this report.

|                                             |                    | Fiscal Years Ended April 30, |        
|-------------------------------------------- | ------------------ | ---------------------------- | -------
|
|
|Statements of Operations Data:               |                    |                              |        
|REVENUES                                     |                    |                              |        
|                                             | Communications     |                              | $      
|                                             | Consulting         |                              |        
|                                             | Financial Services |                              |        
|                                             |                    |                              |        
|                                             |                    | Total Revenues               |        
|                                             |                    |                              |        
|COST OF SALES                                |                    |                              |        
|                                             | Communications     |                              |        
|                                             | Consulting         |                              |        
|                                             | Financial Services |                              |        
|                                             |                    |                              |        
|                                             |                    | Total Cost of Sales          |        
|                                             |                    |                              |        
|GROSS MARGIN                                 |                    |                              |        
|                                             | Communications     |                              |        
|                                             | Consulting         |                              |        
|                                             | Financial Services |                              |        
|                                             |                    |                              |        
|                                             |                    | Total Gross Margin           |        
|Selling, general and administrative expenses |                    |                              | 143,824
|Restructuring charges                        |                    |                              | 1,969  
|Writedown of goodwill                        |                    |                              | 32,244 
|                                             |                    |                              |        
|OPERATING INCOME (LOSS)                      |                    |                              | (80,305
|Interest expense                             |                    |                              | (6,258 
|Other income (expense), net                  |                    |                              | 538    
|                                             |                    |                              |        
|INCOME (LOSS) BEFORE INCOME TAXES            |                    |                              | (86,025
|Income tax (benefit) provision               |                    |                              | (17,076
|                                             |                    |                              |        
|NET INCOME (LOSS)                            |                    | $                            | (68,949
|                                             |                    |                              |        
|NET INCOME (LOSS) PER SHARE:                 |                    |                              |        
|                                             |                    |                              | BASIC  
|                                             |                    |                              |        
|                                             |                    |                              | DILUTED
|                                             |                    |                              |        
|WEIGHTED AVERAGE SHARES:                     |                    |                              |        
|                                             |                    |                              | BASIC  
|                                             |                    |                              |        
|                                             |                    |                              | DILUTED
|                                             |                    |                              |        

|                                                    |  | As of April 30,
|--------------------------------------------------- |  | ---------------
|
|Working capital                                     |  | $              
|Total assets                                        |  |                
|Long-term debt, net of current maturities           |  |                
|Discounted lease rentals, net of current maturities |  |                
|Shareholders' equity                                |  |                
|Cash dividends declared and paid                    |  |                

On June 20, 1996, the Company's Board of Directors approved a two-for-one
stock split effected in the form of a stock dividend. The stock split has been retroactively reflected in the selected 1996 consolidated financial data presented above.

12

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

General

Norstan is a single-source provider of leading-edge technology solutions and world-class technology services including converged voice and data
infrastructure, information technology, networking, internet conferencing, communication solutions and e-business solutions to more than 18,000 business clients worldwide. To address the
complex communication requirements of its customers, Norstan provides a broad range of products and services through three business segments; Communications, Consulting and Financial Services which
accounted for 77.0%, 20.9% and 2.1% of Norstan's fiscal year 2000 revenues, respectively. Within the Communications business segment; Communication Solutions offers a comprehensive portfolio of
technology solutions including IP Telephony, traditional PBXs, unified messaging, long distance and conferencing and call center solutions; Communication Services provides a full array of customer
support services including maintenance and support services, systems modifications and managed communication services; Advanced Services Group provides unified media and converged infrastructure
solutions and Voice-Over Data Networking and IP Telephony services and Conferencing Solutions offers audio and video bridging services, internet conferencing, webcasting, consulting
services and conferencing products. The Consulting business segment provides e-business solutions including e-commerce consulting services, e-business integration
services, knowledge management consulting services, customer relationship management solutions and infrastructure services. The Financial Services segment supports the sales process by providing
customized financing alternatives.

Results of Operations

The following table sets forth certain items from the Company's consolidated statements of operations expressed as a percentage of total revenues:

Years Ended April 30,2000

1999

1998Revenues:Communications

77.0
%
74.5
%
84.6
%Consulting

20.9

23.9

13.8Financial Services

2.1

1.6

1.6Total revenues

100.0

100.0

100.0Cost of sales:Communications

60.3

53.8

62.1Consulting

15.7

15.6

9.1Financial Services

0.6

0.6

0.5Total cost of sales

76.6

70.0

71.7Gross margin

23.4

30.0

28.3Selling, general and administrative expenses

34.4

26.7

22.8Writedown of goodwill

7.7



Restructuring charges

0.5

0.3

3.2Operating income (loss)

(19.2
%)
3.0
%
2.3
%Net income (loss)

(16.5
%)
1.2
%
0.8
%


13

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The following table sets forth the gross margin percentages for Communications, Consulting and Financial Services:

Years Ended April 30,2000

1999

1998Gross margin percentage:Communications

21.7
%
27.8
%
26.6
%Consulting

24.8

34.8

33.9Financial Services

69.5

62.7

67.2


Fiscal 2000 Compared to Fiscal 1999

Revenues.Total revenues decreased 13.3% to $418.5 million in fiscal year 2000 from $482.7 million in
fiscal year 1999.

Revenues
from Communications decreased 10.3% to $322.3 million in fiscal year 2000 from $359.4 million in fiscal year 1999. Communications revenues decreased as a result
of weaker sales in most Communication Solutions product lines including Siemens PBX, voice processing and conferencing. These decreases were somewhat offset by an increase in Network Services
revenues. Also within this segment, Communication Services revenues decreased on a year-to-year basis. Maintenance service contract revenues were flat while revenues from
moves, adds and changes and cabling services were down as compared to fiscal 1999. Overall, performance in the Communications segment was negatively affected by significant management and
organizational changes occurring during the fiscal year. In addition, customer concerns about the Year 2000 issue resulted in depleted budgets, postponed equipment purchases and installations and
delayed communications and IT projects until after January 1, 2000. This is also evident in the performance of the Company's Consulting segment.

Revenues
from Consulting decreased 24.3% to $87.3 million in fiscal year 2000 from $115.3 million in fiscal year 1999. The decrease in Consulting revenues was partially
due to the disruption experienced in Norstan Consulting's business as it transitioned from a staff augmentation, geographic consulting model to a project based consulting model. In addition,
significant management and organizational changes were made to address problems within the Consulting segment during the fiscal year. These changes resulted from problems associated with weak sales,
decreased productivity and reduced consultant utilization in fiscal 2000. Consulting revenues were also negatively impacted by the overall slowdown in IT consulting projects as a result of Year 2000
issues. Norstan Consulting's revenue decrease was only somewhat offset by an increase in Connaissance Consulting's fiscal 2000 revenues.

Revenues
from Financial Services increased 11.8% to $8.9 million in fiscal year 2000 from $8.0 million in fiscal year 1999. This increase was primarily attributable to
the increased size of the Company's leasing base.

Gross Margin.The Company's gross margin was $97.7 million and $145.0 million for the fiscal years ended
April 30, 2000 and 1999, respectively. As a percent of total revenues, gross margin was 23.4% for fiscal year 2000 compared to 30.0% for fiscal year 1999.

Gross
margin as a percent of revenues for Communications was 21.7% for fiscal year 2000 as compared to 27.8% for fiscal year 1999. During fiscal 2000, gross margin as a percent of
revenues in both Communication Solutions and Communication Services declined as compared to fiscal 1999. These decreases were the result of staffing for higher volumes of revenues which did not
materialize, charges associated with project cost overruns and revaluations of inventory which were recorded during the fiscal year. In addition, Communication Solutions' gross margin continues to be
adversely affected by competitive price pressure on communication equipment and by increased product costs.

14

---

Gross margin as a percent of revenues for Consulting was 24.8% for fiscal year 2000 as compared to 34.8% for fiscal year 1999. The decline in Consulting's gross margin was caused
primarily by lower utilization of consultants which occurred as Norstan Consulting transitioned its business model and while significant management and organizational changes were undertaken.

Gross
margin as a percent of revenues for Financial Services was 69.5% for fiscal year 2000 as compared to 62.7% for fiscal year 1999.

Selling, General and Administrative Expenses.Selling, general and administrative expenses increased 11.8% to
$143.8 million in fiscal year 2000 from $128.7 million in fiscal year 1999. As a percent of revenues, selling, general and administrative expenses increased to 34.4% for fiscal year
2000, as compared to 26.7% for fiscal year 1999. The percentage increase was primarily due to the lower than planned sales volume in the Communications and Consulting business segments. The Company
budgeted for, staffed and built the infrastructure to support higher revenue levels which did not materialize during the fiscal year.

The
Company has begun to take significant cost saving measures within the Consulting segment. On March 9, 2000, approximately 180 consultants and sales positions were
eliminated. The eliminated jobs represented about 25% of the total workforce of Norstan Consulting. These actions were taken to bring the Company's consultant utilization rate back in line with
industry averages and reduce excess capacity, particularly in practice areas that are less in demand. The Company is refining its skill base in order to focus on and facilitate future growth in
customer care solutions with an emphasis on e-business and enterprise relationship management. In conjunction with the workforce reduction, the Company also addressed
non-personnel related spending in both the Consulting and Communications business segments. The combined effect of these actions is expected to produce estimated annual savings of up to
$30 million.

Restructuring Charges.During the second quarter of fiscal 2000, the Company recorded a restructuring charge of
approximately $2.0 million related to its Consulting business. The emphasis of the restructuring was to consolidate branch offices and reduce certain general and administrative costs. Norstan
Consulting has transitioned to a project-based business model in which the physical presence of geographic branches becomes far less important than the ability to move skilled consulting resources to
customer engagements. The $2.0 million charge consisted of noncancelable lease obligations for branch offices to be closed ($1.0 million), software and other asset write-offs
($800,000), and severance costs ($200,000).

Writedown of Goodwill.During the fourth quarter of fiscal year 2000, the Company recorded a charge of
$32.2 million to write down goodwill created in connection with its consulting business acquisitions, principally as a result of significant operating losses and negative cash flows incurred in
the Consulting business segment during fiscal 2000.

Interest Expense.Interest expense was $6.3 million for fiscal year 2000 as compared to $4.9 million for
fiscal year 1999. Interest expense is incurred primarily in connection with the Company's revolving credit line used for working capital purposes. Average month-end borrowings outstanding
under the Company's revolving long-term credit agreements were $74.0 million for fiscal year 2000 and $64.9 million for fiscal year 1999. Weighted average interest rates
under the Company's revolving long-term credit agreements were 7.1% for fiscal year 2000 as compared to 6.5% for fiscal year 1999.

Other Income (Expense), net.In October 1999, the Company sold its web-based consumer education
business to TechSkills.com (formerly AmeriTrain) of Milwaukee, Wisconsin. Terms of the sale called for the transfer of four training sites and 32 instructors and other education services staff to
TechSkills.com. The total sale price was approximately $2.6 million, with a $734,000 gain recorded in fiscal year 2000.

Income Taxes.The Company's effective income tax rate was 20.0% for fiscal year 2000 and 43.5% for fiscal year 1999.
The Company's effective tax rate differs from the federal statutory rate primarily due to state income taxes and the effect of nondeductible goodwill amortization, as well as the impact of the fiscal
2000 goodwill writedown discussed previously.

15

---

Net Income (Loss).A net loss of $68.9 million or $6.37 per basic and diluted share was incurred in fiscal year
2000, as compared to net income of $5.9 million or $0.56 per diluted share in fiscal year 1999. The net loss before the writedown of goodwill for the year ended April 30, 2000 was
$43.0 million or $3.98 per share.

Fiscal 1999 Compared to Fiscal 1998

Revenues.Total revenues increased 5.8% to $482.7 million in fiscal year 1999 from $456.4 million in
fiscal year 1998.

Revenues
from Communications decreased 6.9% to $359.4 million in fiscal year 1999 from $385.9 million in fiscal year 1998. The decrease was primarily attributable to
decreased sales volume in the Siemens PBX, call center, and conferencing product lines which resulted from distractions in the overall marketing and sales effort during the significant third quarter
restructuring actions. These decreases were some what offset by an increase in Network Services revenue and maintenance service contract revenue of 25% and 6%, respectively.

Revenues
from Consulting increased 83.1% to $115.3 million in fiscal year 1999 from $63.0 million in fiscal year 1998. This increase was the result of growth in Norstan
Consulting's revenues including (i) internal revenue growth of 22%, (ii) inclusion of a full year results from PRIMA Consulting, which was acquired in September of 1997,
(iii) inclusion of Wordlink, Inc. results since June of 1998, and (iv) inclusion of Connaissance Consulting results.

Revenues
from Financial Services increased 7.0% to $8.0 million in fiscal year 1999 from $7.4 million in fiscal year 1998. This increase was primarily attributable to
the increased size of the Company's leasing base.

Gross Margin.The Company's gross margin was $145.0 million and $128.9 million for the fiscal years ended
April 30, 1999 and 1998, respectively. As a percent of total revenues, gross margin was 30.0% for fiscal year 1999 compared to 28.3% for fiscal year 1998.

Gross
margin as a percent of revenues for Communications was 27.8% for fiscal year 1999 as compared to 26.6% for fiscal year 1998. Within Communications, Network Services' increase in
gross margin more than offset a decrease in Communications Solutions' product gross margin. Communication Services' gross margin was relatively flat year-to-year.

Gross
margin as a percent of revenues for Consulting was 34.8% for fiscal year 1999 as compared to 33.9% for fiscal year 1998. The improved margin was primarily a result of Norstan
Consulting's increased billing rates and utilization of consultants and a decreased emphasis on lower margin IT consulting as well as the inclusion of Connaissance Consulting.

Gross
margin as a percent of revenues for Financial Services was 62.7% for fiscal year 1999 as compared to 67.2% for fiscal year 1998.

Selling, General and Administrative Expenses.Selling, general and administrative expenses increased 24.1% to
$128.7 million in fiscal year 1999 from $103.7 million in fiscal year 1998. As a percent of revenues, selling, general and administrative expenses increased to 26.7% for fiscal year
1999, as compared to 22.7% for fiscal year 1998. This increase was primarily the result of fiscal 1999 investments in the Consulting business segment, including the opening of five new consulting
branch locations and the startup of Connaissance Consulting.

Restructuring Charges.During the third quarter of fiscal year 1999, Norstan recorded a restructuring charge of
$1.5 million relating to a workforce reduction. This resource reduction in the Communications business was made to bring the Company's expense structure in line with anticipated growth. The
restructuring charge related to the costs of severance and other employment termination benefits.

16

---

Interest Expense.Interest expense was $4.9 million for fiscal year 1999 as compared to $3.9 million for
fiscal year 1998. This increase was primarily the result of higher borrowing levels in fiscal year 1999 due to the additional investments in the Consulting business, including the operations of PRIMA
Consulting and Connaissance Consulting, as well as for working capital purposes. Average month-end borrowings outstanding under the Company's revolving long-term credit
agreements were $64.9 million for fiscal year 1999 and $46.7 million for fiscal year 1998. Weighted average interest rates under the Company's revolving long-term credit
agreements were 6.5% for fiscal year 1999 as compared to 7.0% for fiscal year 1998.

Income Taxes.The Company's effective income tax rate was 43.5% for fiscal year 1999 and 42.0% for fiscal year 1998.
The Company's effective tax rate differs from the federal statutory rate primarily due to state income taxes and the effect of nondeductible goodwill amortization.

Net Income.Net income was $5.9 million or $0.56 per diluted share in fiscal year 1999, as compared to
$3.9 million or $0.39 per diluted share in fiscal year 1998.

Unaudited Quarterly Results

The following table sets forth certain unaudited quarterly operating information for each of the eight quarters in the two year period ending April 30,
2000. This data includes, in the opinion of management, all normal recurring adjustments necessary for the fair presentation of the information for the periods presented when read in conjunction with
the Company's Consolidated Financial Statements and related Notes thereto. Results for any previous fiscal quarter are not necessarily indicative of results for the full year or for any future
quarter. The Company has historically experienced a seasonal fluctuation in its operating results, with a larger proportion of its revenues and operating income occurring during the fourth quarter of
the fiscal year.

|                                    |                    | For the Quarters Ended |        
|----------------------------------- | ------------------ | ---------------------- | -------
|
|Revenues:                           |                    |                        |        
|                                    | Communications     |                        | $      
|                                    | Consulting         |                        |        
|                                    | Financial Services |                        |        
|                                    |                    |                        |        
|                                    |                    | Total Revenues         |        
|Cost of Sales                       |                    |                        | 76,348 
|                                    |                    |                        |        
|Gross Margin                        |                    |                        | 17,561 
|SG&A Expenses                       |                    |                        | 39,304 
|Restructuring Charges               |                    |                        |       
|Writedown of Goodwill               |                    |                        | 32,244 
|                                    |                    |                        |        
|Operating Income (Loss)             |                    |                        | (53,987
|Interest Expense                    |                    |                        | (1,688 
|Other Income (Expense), net         |                    |                        | 104    
|                                    |                    |                        |        
|Income (Loss) Before Income Taxes   |                    |                        | (55,571
|Income Tax (Benefit) Provision      |                    |                        | (9,728 
|                                    |                    |                        |        
|Net Income (Loss)                   |                    | $                      | (45,843
|                                    |                    |                        |        
|Net Income (Loss) Per ShareDiluted |                    | $                      | (4.19  
|                                    |                    |                        |        

17

---

Liquidity and Capital Resources

Cash Flows.Net cash provided by operating activities was $17.9 million, $6.4 million and
$5.5 million for fiscal 2000, 1999 and 1998, respectively. Net cash of $15.8 million was used for investing activities in fiscal 2000, which was a decrease from fiscal 1999 and 1998
levels of $38.5 million and $44.9 million, respectively. This lower level of cash used for investing activities in fiscal year 2000 compared to fiscal 1999 and 1998 was mainly due to
decreased investments in property and equipment. Financing activities utilized $2.9 million in cash in fiscal 2000 as compared to providing cash of $31.1 million in fiscal 1999 and
$36.1 million in fiscal 1998.

Capital Expenditures.The Company used $11.0 million for capital expenditures during fiscal year 2000 as
compared to $26.8 million in fiscal year 1999 and $19.9 million in fiscal year 1998. These expenditures were primarily for capitalized costs incurred in connection with obtaining or
developing internal use software and computer equipment.

Investment in Lease Contracts.The Company continues to make a significant investment in lease contracts with its
customers. The additional investment made in lease contracts in fiscal year 2000 totaled $32.5 million as compared to $35.6 million in fiscal 1999 and $28.0 million in fiscal
1998. Net lease receivables increased to $67.7 million at April 30, 2000 from $63.0 million at April 30, 1999. The Company utilizes its lease receivables and corresponding
underlying equipment to borrow funds from financial institutions on a nonrecourse basis by discounting the stream of future lease payments. Proceeds from discounting are presented on the consolidated
balance sheet as discounted lease rentals. Discounted lease rentals totaled $44.8 million at April 30, 2000 as compared to $54.2 million at April 30, 1999. Interest rates
on these credit agreements at April 30, 2000 ranged from 6.0% to 10.0%, while payments are due in varying monthly installments through November 2005. Payments due to financial
institutions are made from monthly collections of lease receivables from customers.

Capital Resources.As of June 30, 2000, the Company had a $90.0 million revolving credit agreement with
certain banks. Sublimits exist related to the Company's support of its leasing activities. Borrowings under this agreement bear interest at rates based on the banks' reference rate, as well as LIBOR
or CD based options. Interest rates on borrowings outstanding as of April 30, 2000 ranged from 7.1% to 10.3%. Total consolidated borrowings under this agreement at April 30, 2000 and
April 30, 1999 were $66.8 million and $60.2 million, respectively. There were no borrowings on account of the Company's leasing activities at April 30, 2000 and 1999.
Annual commitment fees on the unused portions of the credit facility are 0.25%. Under the agreement, the Company is required to maintain minimum levels of EBITDA and achieve certain other financial
ratios.

As
of April 30, 2000, the Company was in violation of certain covenants under this credit agreement. The Company has been provided a temporary forbearance period until
September 25, 2000 with respect to these covenant violations. In addition, borrowing capacity has been reduced to $78.0 million as of July 31, 2000. Additional financial reporting
and collateral are also required. The Company expects to repay borrowings under this agreement with anticipated proceeds from the new financing arrangements discussed below.

On
August 14, 2000, the Company received a letter of commitment from a new banking group for funding of up to $80.0 million. The commitment includes $50.0 million
available under a revolving credit agreement (subject to borrowing base limitations related to eligible accounts receivable, inventories and lease receivables) and $30.0 million in the form of
a term note. Under this credit facility, the first $10.0 million borrowed under the revolving line will bear interest at 2.25% above the banks' reference rate. Additional revolver borrowings in excess
of $10.0 million will bear interest at between 1.0% and 1.5% above the banks' reference rate depending on the Company's EBITDA for applicable periods. The rate of interest charged on the term
loan will be 6.0% above the greater of 9.0% and the banks' reference rate. The revolving credit agreement will be effective through the third anniversary of the agreements' initial

18

---

closing date. The term note will mature on the first anniversary of the initial closing date. Under the agreement, the Company will be required to comply with various financial and other covenants.

Management
of the Company believes that a combination of cash expected to be generated from operations, and borrowing capacity available under the new financing arrangements discussed
above will be adequate to meet the anticipated liquidity and capital resource requirements of its business through at least April 30, 2001.

Acquisitions

On June 19, 1998, the Company acquired Wordlink, Inc. (Wordlink) in a transaction accounted for under the
pooling-of-interests method. Wordlink delivers network integration, groupware messaging, Internet/ intranet/e-commerce and education solutions to customers
operating in a multi-vendor network environment. The merger agreement provided for the conversion of all shares of Wordlink common stock and all vested Wordlink stock options issued and outstanding
into 420,539 shares of Norstan common stock valued at approximately $10.3 million. All outstanding Wordlink unvested stock options were converted
into the equivalent value of Norstan stock options. Wordlink's shareholders' equity and operating results were not material in relation to the Company's financial statements. As such, the Company has
recorded the combination without restating prior periods' consolidated statements of operations to reflect the pooling-of-interests combination.

On
September 30, 1997, the Company acquired PRIMA Consulting (PRIMA) in a transaction accounted for under the purchase method. PRIMA provides IT consulting services, including
information systems planning and development, consulting and programming services for collaborative computing solutions, and ERP integration services. The acquisition consideration totaled
approximately $27.5 million, consisting of $19.5 million in cash, $6.3 million of Common Stock and $1.7 million paid to certain members of PRIMA management under
non-compete agreements. This transaction resulted in the recording of $24.9 million in goodwill and other intangible assets.

On
June 4, 1996, the Company acquired Connect Computer Company (Connect) in a transaction accounted for under the purchase method. Connect is a provider of consulting, design
and implementation services for local and wide area networks, Internets and intranets, client/server applications and workgroup computing. The acquisition consideration totaled approximately
$15.0 million, consisting of $12.0 million in cash, $2.0 million of Common Stock and $1.0 million payable to certain members of Connect management under
non-compete agreements. In addition, the Company paid $4.0 million in contingent consideration over a three-year period ending April 30, 1999. This transaction
resulted in the recording of $18.4 million in goodwill and other intangible assets.

Impact of Year 2000

The Company experienced no significant system problems at the beginning of calendar 2000. In addition, the Company is not aware of any material problems
experienced by its suppliers and business partners. The Company believed it adequately addressed the Year 2000 issue related to its internal systems and that it did not have a material impact on its
business, financial condition or its results of operations.

During
the third quarter of fiscal 2000, the Company completed an assessment of its systems hardware and software, completed testing of its critical systems to verify
date-handling functionality, and made all necessary modifications. This comprehensive Year 2000 initiative cost the Company approximately $2.0 million. The Company continues to
monitor its systems' performance, and does not anticipate future issues related to Year 2000 matters.

19

---

Forward-Looking Statements

From time to time, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects,
technological developments, new products, Year 2000 compliance and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements including
those made in this document. In order to comply with the terms of the Private Securities Litigation Reform Act, the Company notes that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations,
performance, developments and results of the Company's business include the following: national and regional economic conditions; pending and future legislation affecting the IT and telecommunications
industries; the Company's business in Canada; stability of foreign governments; market acceptance of the Company's products and services; the Company's continued ability to provide integrated
communication solutions for customers in a dynamic industry; and other competitive factors. Because these and other factors could affect the Company's operating results, past financial performance
should not necessarily be considered as a reliable indicator of future performance, and investors should not use historical trends to anticipate future period results.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk.

In the ordinary course of business, the Company is exposed to foreign currency and interest rate risks. These risks primarily relate to the sale of products to
foreign customers and changes in interest rates on the Company's long-term debt obligations, discounted lease rentals, capital leases and other long-term debt obligations.

The
potential loss from a hypothetical 10% adverse change in foreign currency rates on the Company's foreign installment contracts at April 30, 2000 would not materially affect
the Company's consolidated financial position, results of operations or cash flows.

The
Company's current unsecured revolving long-term credit agreement carries interest rate risk that is generally related to either the banks' reference rate, LIBOR or CD
rates or commercial paper based options. If any of those rates or options were to change while the Company was borrowing under the
agreement, interest expense would increase or decrease accordingly. As of April 30, 2000, total consolidated borrowings under this agreement were $66.8 million.

The
Company has no earnings or cash flow exposure due to market risks on its discounted lease rentals or its capital lease and other long-term debt obligations as a result
of the fixed-rate nature of the lease rentals, capital leases and obligations. However, interest rate changes would affect the fair market value of the lease rentals, capital leases and
debt. At April 30, 2000, the Company had fixed rate lease rentals of $44.8 million and capital lease and other long-term debt obligations of $1.8 million.

20

---

## 

Item 8. Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS  AND FINANCIAL STATEMENT SCHEDULES

|                                                                                                  |  | Page
|------------------------------------------------------------------------------------------------- |  | ----
|Consolidated Financial Statements:                                                                |  |     
|Report of Independent Public Accountants                                                          |  | 22  
|Consolidated Statements of Operations for the years ended April 30, 2000, 1999 and 1998           |  | 23  
|Consolidated Balance Sheets as of April 30, 2000 and 1999                                         |  | 24  
|Consolidated Statements of Shareholders' Equity for the years ended April 30, 2000, 1999 and 1998 |  | 25  
|Consolidated Statements of Cash Flows for the years ended April 30, 2000, 1999 and 1998           |  | 26  
|Notes to Consolidated Financial Statements                                                        |  | 27  
|Financial Statement Schedules:                                                                    |  |     
|Schedule IIValuation and Qualifying Accounts                                                     |  | 42  

21

---

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Norstan, Inc.:

We
have audited the accompanying consolidated balance sheets of Norstan, Inc. (a Minnesota corporation) and Subsidiaries as of April 30, 2000 and 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended April 30, 2000. These financial statements and the schedule referred
to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and this schedule based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Norstan, Inc. and Subsidiaries as of
April 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 2000 in conformity with accounting principles
generally accepted in the United States.

Our
audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The Schedule of Valuation and Qualifying Accounts is presented for
purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements
taken as a whole.



Minneapolis,
Minnesota,
June 16, 2000
(except for certain matters discussed in Note 6, as to which the date is August 15, 2000)

22

---

NORSTAN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts)

|                                  |                                              | Years Ended April 30, |        
|--------------------------------- | -------------------------------------------- | --------------------- | -------
|
|REVENUES                          |                                              |                       |        
|                                  | Communications                               |                       | $      
|                                  | Consulting                                   |                       |        
|                                  | Financial Services                           |                       |        
|                                  |                                              |                       |        
|                                  |                                              | Total Revenues        |        
|                                  |                                              |                       |        
|COST OF SALES                     |                                              |                       |        
|                                  | Communications                               |                       |        
|                                  | Consulting                                   |                       |        
|                                  | Financial Services                           |                       |        
|                                  |                                              |                       |        
|                                  |                                              | Total Cost of Sales   |        
|                                  |                                              |                       |        
|GROSS MARGIN                      |                                              |                       |        
|                                  | Communications                               |                       |        
|                                  | Consulting                                   |                       |        
|                                  | Financial Services                           |                       |        
|                                  |                                              |                       |        
|                                  |                                              | Total Gross Margin    |        
|                                  | Selling, general and administrative expenses |                       |        
|                                  | Restructuring charges (Note 4)               |                       |        
|                                  | Writedown of goodwill (Note 4)               |                       |        
|                                  |                                              |                       |        
|OPERATING INCOME (LOSS)           |                                              |                       | (80,305
|                                  | Interest expense                             |                       |        
|                                  | Other income (expense), net                  |                       |        
|                                  |                                              |                       |        
|INCOME (LOSS) BEFORE INCOME TAXES |                                              |                       | (86,025
|                                  | Income tax (benefit) provision               |                       |        
|                                  |                                              |                       |        
|NET INCOME (LOSS)                 |                                              | $                     | (68,949
|                                  |                                              |                       |        
|NET INCOME (LOSS) PER SHARE:      |                                              |                       |        
|                                  |                                              |                       | BASIC  
|                                  |                                              |                       |        
|                                  |                                              |                       | DILUTED
|                                  |                                              |                       |        
|WEIGHTED AVERAGE SHARES:          |                                              |                       |        
|                                  |                                              |                       | BASIC  
|                                  |                                              |                       |        
|                                  |                                              |                       | DILUTED
|                                  |                                              |                       |        

The
accompanying notes are an integral part of these consolidated financial statements.

23

---

NORSTAN, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)

|                                                   |                                                                                                                    | As of April 30,            |        
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | -------------------------- | -------
|
|ASSETS                                             |                                                                                                                   
|CURRENT ASSETS                                     |                                                                                                                    |                            |        
|                                                   | Cash                                                                                                               |                            | $      
|                                                   | Accounts receivable, net of allowances for doubtful accounts of $5,628 and $1,437                                  |                            |        
|                                                   | Lease receivables                                                                                                  |                            |        
|                                                   | Inventories                                                                                                        |                            |        
|                                                   | Costs and estimated earnings in excess of billings of $14,986 and $18,508                                          |                            |        
|                                                   | Deferred income taxes                                                                                              |                            |        
|                                                   | Prepaid expenses, deposits and other                                                                               |                            |        
|                                                   |                                                                                                                    |                            |        
|                                                   |                                                                                                                    | Total Current Assets       |        
|                                                   |                                                                                                                    |                            |        
|PROPERTY AND EQUIPMENT                             |                                                                                                                    |                            |        
|                                                   | Machinery and equipment                                                                                            |                            |        
|                                                   | Lessaccumulated depreciation and amortization                                                                     |                            |        
|                                                   |                                                                                                                    |                            |        
|                                                   |                                                                                                                    | Net Property and Equipment |        
|                                                   |                                                                                                                    |                            |        
|OTHER ASSETS                                       |                                                                                                                    |                            |        
|                                                   | Goodwill, net of accumulated amortization of $533 and $11,033                                                      |                            |        
|                                                   | Lease receivables, net of current portion                                                                          |                            |        
|                                                   | Deferred income taxes                                                                                              |                            |        
|                                                   | Other assets                                                                                                       |                            |        
|                                                   |                                                                                                                    |                            |        
|                                                   |                                                                                                                    | Total Other Assets         |        
|                                                   |                                                                                                                    |                            |        
|                                                   |                                                                                                                    | $                          | 243,593
|                                                   |                                                                                                                    |                            |        
|LIABILITIES AND SHAREHOLDERS' EQUITY               |                                                                                                                   
|CURRENT LIABILITIES                                |                                                                                                                    |                            |        
|                                                   | Current maturities of long-term debt                                                                               |                            | $      
|                                                   | Current maturities of discounted lease rentals                                                                     |                            |        
|                                                   | Accounts payable                                                                                                   |                            |        
|                                                   | Deferred revenue                                                                                                   |                            |        
|                                                   | Accrued liabilities:                                                                                               |                            |        
|                                                   |                                                                                                                    | Salaries and wages         |        
|                                                   |                                                                                                                    | Warranty costs             |        
|                                                   |                                                                                                                    | Other liabilities          |        
|                                                   | Billings in excess of costs and estimated earnings of $20,624 and $10,858                                          |                            |        
|                                                   |                                                                                                                    |                            |        
|                                                   |                                                                                                                    | Total Current Liabilities  |        
|LONG-TERM DEBT,net of current maturities           |                                                                                                                    |                            | 67,445 
|DISCOUNTED LEASE RENTALS,net of current maturities |                                                                                                                    |                            | 24,285 
|OTHER LIABILITIES                                  |                                                                                                                    |                            | 1,864  
|DEFERRED INCOME TAXES                              |                                                                                                                    |                            |       
|                                                   |                                                                                                                    |                            |        
|COMMITMENTS AND CONTINGENCIES (Note 11)            |                                                                                                                    |                            |        
|SHAREHOLDERS' EQUITY                               |                                                                                                                    |                            |        
|                                                   | Common stock$.10 par value; 40,000,000 authorized shares; 11,239,113 and 10,763,726 shares issued and outstanding |                            |        
|                                                   | Capital in excess of par value                                                                                     |                            |        
|                                                   | Retained earnings (deficit)                                                                                        |                            |        
|                                                   | Unamortized cost of stock                                                                                          |                            |        
|                                                   | Accumulated other comprehensive income (loss)                                                                      |                            |        
|                                                   |                                                                                                                    |                            |        
|                                                   |                                                                                                                    | Total Shareholders' Equity |        
|                                                   |                                                                                                                    |                            |        
|                                                   |                                                                                                                    | $                          | 243,593
|                                                   |                                                                                                                    |                            |        

The accompanying notes are an integral part of these consolidated balance sheets.

24

---

NORSTAN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In Thousands)

|                        |                                          |                      |   | Common Stock |         |     |   |       |    |   |        |       |   |        |        
|----------------------- | ---------------------------------------- | -------------------- | - | ------------ | ------- | --- | - | ----- | -- | - | ------ | ----- | - | ------ | -------
|
|Balance, April 30, 1997 |                                          |                      |   |              | 9,387   |     | $ | 939   |    | $ | 34,556 |       | $ | 50,192 |        
|                        | Net income                               |                      | $ | 3,855        |         |    |   |       |   |   |        |      |   |        | 3,855  
|                        | Stock issued for employee benefit plans  |                      |   |              |         | 258 |   |       | 25 |   |        | 3,892 |   |        | 1      
|                        | Stock issued for acquisition             |                      |   |              |         | 319 |   |       | 32 |   |        | 6,293 |   |        |       
|                        | Foreign currency translation adjustments |                      |   | (298         | )       |    |   |       |   |   |        |      |   |        |       
|                        |                                          |                      |   |              |         |     |   |       |    |   |        |       |   |        |        
|                        |                                          | Comprehensive income |   | $            | 3,557   |     |   |       |    |   |        |       |   |        |        
|                        |                                          |                      |   |              |         |     |   |       |    |   |        |       |   |        |        
|Balance, April 30, 1998 |                                          |                      |   |              | 9,964   |     | $ | 996   |    | $ | 44,741 |       | $ | 54,048 |        
|                        | Net income                               |                      | $ | 5,890        |         |    |   |       |   |   |        |      |   |        | 5,890  
|                        | Stock issued for employee benefit plans  |                      |   |              |         | 379 |   |       | 38 |   |        | 6,607 |   |        |       
|                        | Stock issued for acquisition             |                      |   |              |         | 421 |   |       | 42 |   |        | 72    |   |        | 326    
|                        | Foreign currency translation adjustments |                      |   | (147         | )       |    |   |       |   |   |        |      |   |        |       
|                        |                                          |                      |   |              |         |     |   |       |    |   |        |       |   |        |        
|                        |                                          | Comprehensive income |   | $            | 5,743   |     |   |       |    |   |        |       |   |        |        
|                        |                                          |                      |   |              |         |     |   |       |    |   |        |       |   |        |        
|Balance, April 30, 1999 |                                          |                      |   |              | 10,764  |     | $ | 1,076 |    | $ | 51,420 |       | $ | 60,264 |        
|                        | Net loss                                 |                      | $ | (68,949      | )       |    |   |       |   |   |        |      |   |        | (68,949
|                        | Stock issued for employee benefit plans  |                      |   |              |         | 475 |   |       | 48 |   |        | 2,100 |   |        | 3      
|                        | Foreign currency translation adjustments |                      |   | (146         | )       |    |   |       |   |   |        |      |   |        |       
|                        |                                          |                      |   |              |         |     |   |       |    |   |        |       |   |        |        
|                        |                                          | Comprehensive loss   |   | $            | (69,095 | )   |   |       |    |   |        |       |   |        |        
|                        |                                          |                      |   |              |         |     |   |       |    |   |        |       |   |        |        
|Balance, April 30, 2000 |                                          |                      |   |              | 11,239  |     | $ | 1,124 |    | $ | 53,520 |       | $ | (8,682 | )      
|                        |                                          |                      |   |              |         |     |   |       |    |   |        |       |   |        |        

The accompanying notes are an integral part of these consolidated financial statements.

25

---

NORSTAN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

|                                        |                                                                                          | Years Ended April 30,                                   |                                                   
|--------------------------------------- | ---------------------------------------------------------------------------------------- | ------------------------------------------------------- | --------------------------------------------------
|
|OPERATING ACTIVITIES                    |                                                                                          |                                                         |                                                   
|                                        | Net income (loss)                                                                        |                                                         | $                                                 
|                                        | Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                                         |                                                   
|                                        |                                                                                          | Restructuring charges                                   |                                                   
|                                        |                                                                                          | Restructuring costs paid                                |                                                   
|                                        |                                                                                          | Depreciation and amortization                           |                                                   
|                                        |                                                                                          | Writedown of goodwill                                   |                                                   
|                                        |                                                                                          | Deferred income taxes                                   |                                                   
|                                        |                                                                                          | Changes in operating items, net of acquisition effects: |                                                   
|                                        |                                                                                          |                                                         | Accounts receivable                               
|                                        |                                                                                          |                                                         | Inventories                                       
|                                        |                                                                                          |                                                         | Costs and estimated earnings in excess of billings
|                                        |                                                                                          |                                                         | Prepaid expenses, deposits and other              
|                                        |                                                                                          |                                                         | Accounts payable                                  
|                                        |                                                                                          |                                                         | Deferred revenue                                  
|                                        |                                                                                          |                                                         | Accrued liabilities                               
|                                        |                                                                                          |                                                         | Income taxes payable/receivable                   
|                                        |                                                                                          |                                                         | Billings in excess of costs and estimated earnings
|                                        |                                                                                          |                                                         |                                                   
|                                        |                                                                                          |                                                         |                                                   
|                                        |                                                                                          |                                                         |                                                   
|INVESTING ACTIVITIES                    |                                                                                          |                                                         |                                                   
|                                        | Additions to property and equipment, net                                                 |                                                         |                                                   
|                                        | Cash paid for acquisitions, net of cash acquired                                         |                                                         |                                                   
|                                        | Investment in lease contracts                                                            |                                                         |                                                   
|                                        | Collections from lease contracts                                                         |                                                         |                                                   
|                                        | Other, net                                                                               |                                                         |                                                   
|                                        |                                                                                          |                                                         |                                                   
|                                        |                                                                                          |                                                         |                                                   
|                                        |                                                                                          |                                                         |                                                   
|FINANCING ACTIVITIES                    |                                                                                          |                                                         |                                                   
|                                        | Repayment of debt assumed in acquisition                                                 |                                                         |                                                   
|                                        | Borrowings on long-term debt                                                             |                                                         |                                                   
|                                        | Repayments of long-term debt                                                             |                                                         |                                                   
|                                        | Borrowings on discounted lease rentals                                                   |                                                         |                                                   
|                                        | Repayments of discounted lease rentals                                                   |                                                         |                                                   
|                                        | Proceeds from sale of common stock                                                       |                                                         |                                                   
|                                        |                                                                                          |                                                         |                                                   
|                                        |                                                                                          |                                                         |                                                   
|                                        |                                                                                          |                                                         |                                                   
|EFFECT OF EXCHANGE RATE CHANGES ON CASH |                                                                                          |                                                         | 8                                                 
|                                        |                                                                                          |                                                         |                                                   
|NET DECREASE IN CASH                    |                                                                                          |                                                         | (838                                              
|CASH, BEGINNING OF YEAR                 |                                                                                          |                                                         | 867                                               
|                                        |                                                                                          |                                                         |                                                   
|CASH, END OF YEAR                       |                                                                                          | $                                                       | 29                                                
|                                        |                                                                                          |                                                         |                                                   

The
accompanying notes are an integral part of these consolidated financial statements.

26

---

NORSTAN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1Nature of Business:

Norstan is a single-source provider of leading-edge technology solutions and world-class technology services including converged voice and data
infrastructure, information technology, networking, internet conferencing, communication solutions and e-business solutions to more than 18,000 business clients worldwide.
Norstan, Inc. ("Norstan" or the "Company") manages the operations of its subsidiaries, Norstan Communications, Inc. ("NCI"), Norstan Canada, Ltd. ("NCDA"), Norstan
Consulting, Inc. ("NCON") Connaissance Consulting, LLC ("Connaissance"), Norstan Financial Services, Inc. ("NFS"), Norstan Network Services, Inc. ("NNS"), Norstan
International, Inc. ("NII"), and Norstan-UK Limited ("NUK"). The Company is headquartered in Minnetonka, Minnesota, with sales and service offices in 59 locations in the United
States and Canada. The Company provides IT consulting and communication services, communications and technology products and competitive financing through its three operating units, Communications,
Consulting and Financial Services. Through strategic partnerships and
acquisitions, the Company has become a single-source provider of a wide range of communication and IT solutions that enable its customers to compete and succeed in the global marketplace.

Note 2Summary of Significant Accounting Policies:

Principles of Consolidation:

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

Use of Estimates:

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the
financial statements. Estimates also affect the reported amounts of revenues and expenses during the periods presented. Estimates are used for such items as allowances for doubtful accounts, inventory
reserves, depreciable lives of property and equipment, warranty reserves and others. Ultimate results could differ from those estimates.

Revenue Recognition:

Within the Communications business unit, Communication Solutions' revenues from the sale and installation of products and systems are recognized under the
percentage-of-completion method of accounting for long-term contracts, while revenues generated from the secondary equipment market are recognized upon performance
of contractual obligations, which is generally upon installation or shipment. Communication Services' revenues from maintenance service contracts, moves, adds, and changes, resale of long distance
services, and network integration services, are recognized as the services are provided. Revenues from Consulting services are recognized as services are provided. Financial Services' revenues are
recognized over the life of the related lease receivables using the effective interest method. In addition, Norstan grants credit to customers and generally does not require collateral or any other
security to support amounts due, other than equipment originally leased.

Fair Value of Financial Instruments:

Fair values of financial instruments, including long-term obligations, lease receivables and trade receivables, were estimated at their carrying
values at April 30, 2000 and 1999.

27

---

Inventories:

Inventories include purchased parts and equipment and are stated at the lower of cost, determined on a first-in, first-out basis, or
realizable market value.

Property and Equipment:

Property and equipment are stated at cost and include expenditures that increase the useful lives of existing property and equipment. Maintenance, repairs and
minor renewals are charged to operations as incurred. Generally, when property and equipment are disposed of, the related cost and accumulated depreciation are removed from the respective accounts and
any gain or loss is reflected in operations. Machinery and equipment is depreciated over the estimated useful lives of two to ten years under the straight-line method for financial
reporting purposes. Accelerated methods of depreciation are used for income tax reporting. In the event that facts and circumstances indicate that the carrying amount of property may not be
recoverable, an evaluation would be performed using such factors as recent operating results, projected cash flows and management's plans for future operations.

Goodwill:

Goodwill is being amortized on a straight-line basis over 15-20 years. The Company periodically evaluates whether events or
circumstances have occurred that may indicate that the remaining estimated useful lives may warrant revision or that the remaining goodwill balance may not be fully recoverable. In the event that
factors indicate that the goodwill in question should be evaluated for possible impairment, a
determination of the overall recoverability would be made. See Note 4 for discussion regarding the fiscal year 2000 writedown of goodwill related to the Consulting operations.

Foreign Currency:

For the Company's foreign operations, assets and liabilities are translated at year-end exchange rates, and revenues and expenses are translated at
average exchange rates prevailing during the year. Translation adjustments are recorded as a separate component of shareholders' equity.

Income Taxes:

Deferred income taxes are provided for differences between the financial reporting basis and tax basis of the Company's assets and liabilities at currently
enacted tax rates.

Earnings Per Share Data:

The Company reports net income (loss) per share pursuant to the requirements of the Statement of Financial Accounting Standards No. 128 "Earnings per
Share" ("SFAS No. 128"). SFAS No. 128 requires presentation of basic and diluted earnings (loss) per share (EPS). Basic EPS is computed by dividing net income by the weighted average
number of shares of common stock outstanding during the period. Diluted EPS reflects potential dilution from outstanding stock options and other securities using the treasury stock method.

28

---

A reconciliation of EPS calculations under SFAS No. 128 is as follows (in thousands, except per share amounts):

|                                                   |                              | Years Ended April 30,
|-------------------------------------------------- | ---------------------------- | ---------------------
|
|Net income (loss)                                  |                              | $                    
|                                                   |                              |                      
|Weighted average common shares outstandingBasic   |                              |                      
|Effect of dilutive securities:                     |                              |                      
|                                                   | Stock option plans           |                      
|                                                   | Employee stock purchase plan |                      
|                                                   |                              |                      
|Weighted average common shares outstandingDiluted |                              |                      
|                                                   |                              |                      
|Net income (loss) per share:                       |                              |                      
|                                                   |                              | Basic                
|                                                   |                              |                      
|                                                   |                              | Diluted              
|                                                   |                              |                      

Comprehensive Income:

The Company reports comprehensive income and its components pursuant to the requirements of SFAS No. 130, "Reporting Comprehensive Income". This
statement establishes standards for the reporting of comprehensive income and its components. For the Company, comprehensive income consists of net income (loss) adjusted for foreign currency
translation adjustments and is presented in the Consolidated Statements of Shareholders' Equity.

Supplemental Cash Flow Information:

Supplemental disclosure of cash flow information is as follows (in thousands):

|                                             |                                                           | Years Ended April 30,
|-------------------------------------------- | --------------------------------------------------------- | ---------------------
|
|Cash paid for:                               |                                                           |                      
|                                             | Interest                                                  |                      
|                                             | Income taxes                                              |                      
|Non-cash investing and financing activities: |                                                           |                      
|                                             | Stock issued for acquisitions                             |                      
|                                             | Earnout and noncompete agreements related to acquisitions |                      

Recently Issued Accounting Standards:

Statement of Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities", was issued in
June 1998 and amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging ActivitiesDeferral of the Effective Date of SFAS No. 133" to require
adoption at the beginning of the Company's fiscal year ending April 30, 2002. The standard
requires every derivative to be recorded on the balance sheet as either an asset or liability measured at fair value with changes in the derivative's fair value recognized in earnings unless specific
hedge accounting

29

---

criteria are met. SFAS No. 133 is not expected to have a material effect on the Company's financial position or results of operations.

In
December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition" (SAB No. 101), which provides guidance on
the recognition, presentation and disclosure of revenue in financial statements. SAB No. 101 is effective for the Company's fiscal quarter ending April 30, 2001. SAB No. 101 is
not expected to have a material effect on the Company's financial position or results of operations.

Note 3Acquisitions:

On June 4, 1996, the Company acquired Connect Computer Company (Connect) in a transaction accounted for under the purchase method. Connect is a provider
of consulting, design and implementation services for local and wide area networks, Internets and intranets, client/server applications and workgroup computing. The acquisition consideration totaled
approximately $15.0 million, consisting of
$12.0 million in cash, $2.0 million of Norstan common stock and $1.0 million payable to certain members of Connect management under non-compete agreements. In
addition, the Company paid $4.0 million in contingent consideration over a three-year period ending April 30, 1999. This transaction resulted in the recording of
$18.4 million in goodwill and other intangible assets (see Note 4).

On
September 30, 1997, the Company acquired PRIMA Consulting (PRIMA) in a transaction accounted for under the purchase method. PRIMA provides IT consulting services, including
information systems planning and development, consulting and programming services for collaborative computing solutions and ERP integration services. The acquisition consideration totaled
approximately $27.5 million, consisting of $19.5 million in cash, $6.3 million of Norstan common stock and $1.7 million paid to certain members of PRIMA management under
non-compete agreements. This transaction resulted in the recording of $24.9 million in goodwill and other intangible assets (see Note 4).

Pro
forma information to reflect the operations of Connect and PRIMA in the years of acquisition have not been disclosed as such information was not materially different from the
Company's reported results.

On
June 19, 1998, the Company acquired Wordlink, Inc. (Wordlink) in a transaction accounted for under the pooling-of-interests method. Wordlink
delivers network integration, groupware messaging, Internet/ intranet/e-commerce and education solutions to business clients operating in a multi-vendor network environment. The merger
agreement called for all shares of Wordlink common stock and all vested stock options issued and outstanding to be converted into 420,539 shares of Norstan common stock valued at approximately
$10.3 million. All outstanding Wordlink unvested stock options were converted into the equivalent value of Norstan stock options. Wordlink's shareholders' equity and operating results were not
material in relation to the Company's financial statements. As such, the Company recorded the combination without restating prior periods' financial statements.

Note 4Restructuring Charges and Goodwill Writedown:

Restructuring Charges:

During the second quarter of fiscal year 2000, the Company recorded a restructuring charge of approximately $2.0 million related to its IT consulting
business. The emphasis of the restructuring is to

30

---

consolidate branch offices and reduce certain general and administrative costs. Norstan Consulting is transitioning to a project-based business model in which the physical presence of geographic
branches becomes far less important than the ability to move skilled consulting resources to customer engagements. The charge consisted of noncancelable lease obligations for branch offices which were
closed ($1.0 million), software and other asset write-offs ($800,000), and severance costs ($200,000).

During
fiscal year 1999, the Company recorded a restructuring charge of $1.5 million relating to a workforce reduction. This resource reduction in the communications business
was made to bring the
Company's expense structure in line with anticipated growth. The restructuring charge related to the costs of severance and other employment termination benefits.

During
fiscal year 1998, the Company recorded a restructuring charge of $14.7 million. Restructuring efforts focused primarily on the following: (i) the consolidation of
seven semi-autonomous geographic sales and service organizations into a single, more focused sales and operations organization; (ii) the consolidation of 36 warehouses and parts
locations into three strategically located distribution centers; and (iii) the reorganization and integration of the IT consulting services operations. The restructuring charge related
primarily to the write-down of certain assets to their fair market values ($12.2 million), severance and employee benefit costs ($1.2 million), and lease termination costs
($1.3 million).

During
fiscal year 2000 and 1999, payments totaling $2.0 million and $4.5 million were charged against the restructuring reserves which were established as part of the
above-described restructuring charges. At April 30, 2000, a reserve of approximately $637,000 remained for future payments to be made related to the most recent restructuring charge.

Goodwill Writedown:

In the fourth quarter of fiscal 2000, the Company recorded a charge of $32.2 million, or $2.38 per diluted share, for the write-down of
goodwill related to the 1996 purchase of Connect Computer Company and the 1997 purchase of PRIMA Consulting. Yearly amortization of such goodwill was approximately $2.7 million.

This
writedown resulted from management's consideration of factors related to the recent performance of the Consulting segment including operating losses and negative cash flows.
Based on these considerations, the Company updated its operating and cash flow projections for the consulting business. An analysis of the projected undiscounted future cash flows indicated that
future recoverability of goodwill related to the Consulting operations was uncertain. Accordingly, an impairment charge was recorded.

Note 5Lease Receivables:

The Company has financed customer equipment purchases in the amounts of $32.5 million, $35.6 million, and $28.0 million during the fiscal
years ended April 30, 2000, 1999 and 1998, respectively. Leases are primarily accounted for as sales-type leases for financial reporting purposes.

31

---

The components of lease receivables outstanding are summarized as follows (in thousands):

As of April 30,2000

1999Gross lease receivables

$
75,794

$
67,723Residual values


9,202


8,060Less:Unearned income


(15,852
)

(11,387
)Allowance for financing losses


(1,411
)

(1,361
)Total lease receivablesnet


67,733


63,035Lesscurrent maturities


(25,859
)

(23,299
)Long-term lease receivables

$
41,874

$
39,736


The
aggregate amount of gross lease receivables maturing in each of the five years following April 30, 2000 is as follows (in thousands):

Years Ending April 30,

Amount2001

$
32,2642002


22,2972003


11,3112004


5,6342005 and thereafter


4,288$
75,794


Note 6Debt Obligations:

Long-Term Debt:

Long-term debt consists of the following (in thousands):

As of April 30,2000

1999Bank financing:Revolving credit agreement

$
3,400

$
780Certificates of deposit and commercial paper


63,400


59,410Capital lease obligations and other long-term debt


1,839


4,225Total long-term debt


68,639


64,415Lesscurrent maturities


(1,194
)

(3,004
)$
67,445

$
61,411


32

---

Bank Financing:

As of June 30, 2000, the Company had a $90.0 million revolving credit agreement with certain banks. Sublimits exist related to the Company's
support of its leasing activities. Borrowings under this agreement bear interest at rates based on the banks' reference rate, as well as LIBOR or CD based options. Interest rates on borrowings
outstanding as of April 30, 2000 ranged from 7.1% to 10.3%. Total consolidated borrowings under this agreement at April 30, 2000 and April 30, 1999 were $66.8 million and
$60.2 million, respectively. There were no borrowings on account of the Company's leasing activities at April 30, 2000 and 1999. Annual commitment fees on the unused portions of the
credit facility are 0.25%. Under the agreement, the Company is required to maintain minimum levels of EBITDA and achieve certain other financial ratios.

As
of April 30, 2000, the Company was in violation of certain covenants under this credit agreement. The Company has been provided a temporary forbearance period until
September 25, 2000 with respect to these covenant violations. In addition, borrowing capacity has been reduced to $78.0 million as of July 31, 2000. Additional financial reporting
and collateral are also required. The Company expects to repay borrowings under this agreement with anticipated proceeds from the new financing arrangements discussed below.

On
August 14, 2000, the Company received a letter of commitment from a new banking group for funding of up to $80.0 million. The commitment includes $50.0 million
available under a revolving credit agreement (subject to borrowing base limitations related to eligible accounts receivable, inventories and lease receivables) and $30 million in the form of a
term note. Under this credit facility, the first $10.0 million borrowed under the revolving line will bear interest at 2.25% above the banks' reference rate. Additional revolver borrowings in excess
of $10.0 million will bear interest at between 1.0% and 1.5% above the banks' reference rate depending on the Company's EBITDA for applicable periods. The rate of interest charged on the term
loan will be 6.0% above the greater of 9.0% and the banks' reference
rate. The revolving credit agreement will be effective through the third anniversary of the agreements' initial closing date. The term note will mature on the first anniversary of the initial closing
date. Under the agreement, the Company will be required to comply with various financial and other covenants.

Short-Term Borrowings:

In addition to borrowing funds under its revolving credit agreement, the Company periodically borrows funds from banks on a short-term basis for
working capital purposes. There were no short-term borrowings during fiscal 2000 and 1999.

Note 7Discounted Lease Rentals:

NFS and NCDA utilize their lease receivables and corresponding underlying equipment to borrow funds from financial institutions at fixed rates on a nonrecourse
basis by discounting the stream of future lease payments. Proceeds from discounting are recorded on the consolidated balance sheet as discounted lease rentals. Interest rates on these credit
agreements range from 6% to 10% and payments are generally due in varying monthly installments through November 2005.

33

---

Discounted
lease rentals consisted of the following (in thousands):

As of April 30,2000

1999Total discounted lease rentals

$
44,835

$
54,154Lesscurrent maturities


(20,550
)

(21,550
)$
24,285

$
32,604


Aggregate
maturities of discounted lease rentals as of April 30, 2000 are as follows (in thousands):

Years Ending April 30,

Amount2001

$
20,5502002


12,6102003


6,3742004


3,1562005 and thereafter


2,145$
44,835


Note 8Income Taxes:

The
domestic and foreign components of income (loss) before the provision (benefit) for income taxes are as follows (in thousands):

Years Ended April 30,2000

1999

1998Domestic

$
(81,312
)
$
10,850

$
5,914Foreign


(4,713
)

(424
)

732$
(86,025
)
$
10,426

$
6,646


34

---

The provision (benefit) for income taxes consisted of the following (in thousands):

Years Ended April 30,2000

1999

1998CurrentDomestic

$
(254
)
$
2,865

$
410Foreign





(1,200
)

437(254
)

1,665


847DeferredDomestic


(16,020
)

2,201


2,840Foreign


(802
)

670


(896
)(16,822
)

2,871


1,944Provision (benefit) for income taxes

$
(17,076
)
$
4,536

$
2,791


The
differences between the effective tax rate and income taxes computed using the federal statutory rate were as follows:

Years Ended April 30,2000

1999

1998Federal statutory rate

35.0
%
35.0
%
35.0
%State income taxes, net of federal tax benefit

5.0

5.0

5.0Goodwill and other, net

(20.0
)
3.5

2.020.0
%
43.5
%
42.0
%


The
tax effects of significant temporary differences representing deferred tax assets and liabilities are as follows as of April 30 (in thousands):

2000

1999Accelerated depreciation

$
(49,652
)
$
(43,124
)Capital and operating leases


41,268


34,738Long-term contract costs


755


(1,213
)Inventory and warranty reserves


2,231


713Allowance for doubtful accounts


2,887


1,111Vacation reserves


120


541Self insurance reserve


663


518Net operating loss carryforwards


11,042


Other, net


1,474


690Net deferred taxes

$
10,788

$
(6,026
)


Realization
of the net deferred tax asset is dependent on the Company's ability to generate sufficient future taxable income. Although realization is not assured, the Company believes
that it is more likely than not that the recorded asset will be realized.

35

---

Note 9Stock Options and Stock Plans:

The 1986 Long-Term Incentive Plan of Norstan, Inc. ("1986 Plan") provided for the granting of non-qualified stock options,
incentive stock options and restricted stock. The 1986 Plan, as amended in fiscal year 1994, provided for a maximum of 1,600,000 shares to be granted to key employees in the form of stock options or
restricted stock. As of September 20, 1995, with the adoption of a successor plan, no additional grants will be issued under the 1986 Plan.

The
Norstan, Inc. 1995 Long-Term Incentive Plan ("1995 Plan") permits the granting of non-qualified stock options, incentive stock options, stock
appreciation rights and restricted stock, providing for a maximum of 2,400,000 shares to be granted as performance awards and other stock-based awards. Stock options are granted at a price equal to
the market price on the date of grant, are generally exercisable at 33% per year and expire after ten years. At April 30, 2000, 679,029 shares were available for future grants.

The
Restated Non-Employee Directors' Stock Plan ("Directors' Plan") provides for a maximum of 292,000 shares to be granted. As determined by the Board of Directors,
options for 20,000 shares are to be granted to each non-employee director of the Company upon election and additional discretionary stock options may be awarded upon board approval. These
options are granted at a price equal to the market price on the date of grant, are generally exercisable at 20% to 25% per year and expire after ten years. In addition, the Directors' Plan provides
for the payment of an annual retainer to each non-employee director on the date of each annual meeting of shareholders. As of April 30, 2000, 25,240 shares had been issued as annual
retainers and 52,260 shares were available for future grant/payment under the Directors' Plan.

Shares
subject to option are summarized as follows:

|                        |                   | 1995 Plan |            | 1986 Plan |       | Directors' Plan
|----------------------- | ----------------- | --------- | ---------- | --------- | ----- | ---------------
|
|BalanceApril 30, 1997  |                   | 310,500   |            | $         | 15.01 |                
|                        | Options granted   |           | 647,000    |           | $     | 17.76          
|                        | Options canceled  |           | (104,900   | )         | $     | 15.62          
|                        | Options exercised |           | (15,300    | )         | $     | 15.01          
|                        |                   |           |            |           |       |                
|BalanceApril 30, 1998  |                   | 837,300   |            | $         | 17.06 |                
|                        | Options granted   |           | 854,043    |           | $     | 20.57          
|                        | Options canceled  |           | (435,966   | )         | $     | 18.97          
|                        | Options exercised |           | (36,600    | )         | $     | 14.95          
|                        |                   |           |            |           |       |                
|BalanceApril 30, 1999  |                   | 1,218,777 |            | $         | 18.91 |                
|                        | Options granted   |           | 1,198,400  |           | $     | 7.94           
|                        | Options canceled  |           | (1,045,217 | )         | $     | 14.97          
|                        | Options exercised |           | (2,300     | )         | $     | 5.62           
|                        |                   |           |            |           |       |                
|BalanceApril 30, 2000  |                   | 1,369,660 |            | $         | 12.34 |                
|                        |                   |           |            |           |       |                
|Options exercisable at: |                   |           |            |           |       |                
|                        | April 30, 1998    |           | 57,100     |           | $     | 14.72          
|                        |                   |           |            |           |       |                
|                        | April 30, 1999    |           | 147,070    |           | $     | 16.75          
|                        |                   |           |            |           |       |                
|                        | April 30, 2000    |           | 332,668    |           | $     | 14.35          
|                        |                   |           |            |           |       |                

36

---

Additional information regarding options outstanding/exercisable at April 30, 2000 is as follows:

|                |  | Number of
Options
Outstanding |  | Exercise
Price Range |              | Weighted
Average
Exercise Price |   | Weighted
Average
Remaining
Contractual Life |  | Number of
Options
Exercisable |  | Weighted
Average
Exercise Price
|--------------- |  | ----------------------------- |  | -------------------- | ------------ | ------------------------------- | - | ------------------------------------------- |  | ----------------------------- |  | -------------------------------
|1995 Plan       |  | 517,900                       |  | $                    | 5.62$6.56   |                                 | $ | 5.73                                        |  | 9.68 years                    |  | 105,350                        
|                |  | 431,350                       |  | $                    | 7.19$15.47  |                                 | $ | 11.86                                       |  | 8.45 years                    |  | 88,537                         
|                |  | 420,410                       |  | $                    | 16.00$28.25 |                                 | $ | 20.99                                       |  | 7.75 years                    |  | 138,781                        
|                |  |                               |  |                      |              |                                 |   |                                             |  |                               |  |                                
|                |  | 1,369,660                     |  | $                    | 5.62$28.25  |                                 | $ | 12.34                                       |  | 8.70 years                    |  | 332,668                        
|                |  |                               |  |                      |              |                                 |   |                                             |  |                               |  |                                
|1986 Plan       |  | 44,000                        |  | $                    | 11.88        |                                 | $ | 11.88                                       |  | 5.11 years                    |  | 34,000                         
|                |  |                               |  |                      |              |                                 |   |                                             |  |                               |  |                                
|                |  | 44,000                        |  | $                    | 11.88        |                                 | $ | 11.88                                       |  | 5.11 years                    |  | 34,000                         
|                |  |                               |  |                      |              |                                 |   |                                             |  |                               |  |                                
|Directors' Plan |  | 32,000                        |  | $                    | 7.19$7.63   |                                 | $ | 7.47                                        |  | 5.39 years                    |  | 32,000                         
|                |  | 32,000                        |  | $                    | 9.00$12.50  |                                 | $ | 11.19                                       |  | 6.89 years                    |  | 32,000                         
|                |  | 30,500                        |  | $                    | 18.31$20.06 |                                 | $ | 19.77                                       |  | 7.57 years                    |  | 18,500                         
|                |  |                               |  |                      |              |                                 |   |                                             |  |                               |  |                                
|                |  | 94,500                        |  | $                    | 7.19$20.06  |                                 | $ | 12.70                                       |  | 6.60 years                    |  | 82,500                         
|                |  |                               |  |                      |              |                                 |   |                                             |  |                               |  |                                

The Company has awarded restricted stock grants to selected employees under the 1986 Plan and the 1995 Plan. Recipients of restricted stock
awards under these plans were not required to make any payments for the stock or provide consideration other than the rendering of services. Shares of stock awarded under the plans are subject to
certain restrictions on transfer and all or part of the shares awarded to an employee may be subject to forfeiture upon the occurrence of certain events, including termination of employment. Through
April 30, 2000, 140,706 shares and 486,216 shares have been awarded under the 1986 Plan and the 1995 Plan, respectively. The fair market value of the shares granted under these plans is
generally amortized over a three-year period. Amortization of $104,500, $544,200, and $165,800 has been charged to operations in 2000, 1999 and 1998, respectively.

The
Company also had an Employee Stock Purchase Plan (the "1990 Employee Stock Plan") that allowed employees to set aside up to 10% of their earnings for the purchase of shares of the
Company's common stock. The 1990 Employee Stock Plan was amended effective July 1998 to allow shares to be purchased quarterly rather than annually at a price equal to 85% of the low market
price on the last day of the quarter rather than the last day of the calendar year. During fiscal year 2000, 222,717 shares were issued under this plan. As of January 1, 2000, with the adoption
of a successor plan, no additional shares will be issued under the 1990 Employee Stock Plan.

The
Company has an Employee Stock Purchase Plan (the "2000 Employee Stock Plan") that allows employees to set aside up to 10% of their earnings for the purchase of shares of the
Company's
common stock. Effective January 1, 2000, the 2000 Employee Stock Plan allows for quarterly share purchases at a price equal to the lesser of the closing market price of the Company's stock on
the first or last day of each calendar quarter. During fiscal 2000, 71,630 shares were issued under this plan and at April 30, 2000, 328,400 shares were available for future issuance.

The
Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock option plans. Accordingly, no
compensation cost has been recognized in the accompanying statements of operations. Had compensation cost been recognized based on the fair values of options at the grant dates consistent with the
provisions of SFAS No. 123, "Accounting

37

---

for Stock-Based Compensation," the Company's net income (loss) (in thousands) and net income (loss) per common share would have decreased to the following pro forma amounts:

Years Ended April 30,2000

1999

1998Net income (loss):As reported

$
(68,949
)
$
5,890

$
3,855Pro forma

$
(69,444
)
$
3,050

$
1,968Net income (loss) per common share:As reportedBasic

$
(6.37
)
$
0.56

$
0.40Diluted

$
(6.37
)
$
0.56

$
0.39Pro formaBasic

$
(6.42
)
$
0.29

$
0.20Diluted

$
(6.42
)
$
0.29

$
0.20


Because
the SFAS No. 123 method of accounting has not been applied to options granted prior to May 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.

The
weighted average fair values of options granted and Employee Stock Plan shares were as follows:

1995 Plan

1986 Plan

Directors'
Plan

Employee
Stock PlanFiscal 1998 grants

$
8.99

N/A

$
11.63

$
5.54Fiscal 1999 grants

$
9.36

N/A

$
7.54

$
4.32Fiscal 2000 grants

$
3.77

N/A

$
3.91

$
2.69


The
fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the weighted-average assumptions used for grants in each fiscal
year as follows:

Years Ended April 30,2000

1999

1998Risk-free interest rate

5.87%

5.00%

6.06%Expected life of options

7 years

7 years

7 yearsExpected life of Employee Stock Plan shares

1 year

1 year

1 yearExpected volatility

44%

37%

36%Expected dividend yield

N/A

N/A

N/A


Note 10401(k) Plans:

The Company has 401(k) profit-sharing plans (the "401(k) Plans") covering substantially all full-time employees. Eligible employees may elect to
defer up to 15% of their eligible compensation. The Company may make discretionary matching contributions on a portion of this deferral and/or qualified nonelective contributions to employee accounts.
Company contributions to the 401(k) Plans were $2,770,882, $3,582,000, and $1,822,000 for the years ended April 30, 2000, 1999 and 1998, respectively.

38

---

Note 11Commitments and Contingencies:

Legal Proceedings:

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

Operating Lease Commitments:

The Company and its subsidiaries conduct a portion of their operations in leased facilities. Most of the leases require payment of maintenance, insurance,
taxes and other expenses in addition to the minimum annual rentals. Lease expense, as recorded in the accompanying consolidated statements of operations, was $12,890,000, $13,415,000, and $11,494,000
in fiscal years 2000, 1999, and 1998, respectively.

Future
minimum lease payments under noncancelable leases with initial or remaining terms of one year or more were as follows at April 30, 2000 (in thousands):

Years Ending April 30,

Amount2001

$
8,8812002


7,0852003


6,1212004


3,8282005 and thereafter


13,163$
39,078


Vendor Agreements:

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

Shareholder Rights Plan:

The Company has a shareholder rights plan, as amended in March 1998 (the "Plan"), which expires in 2008. Under the Plan, shareholders are deemed the
owners of "Rights" attaching to each share of common stock. Generally, upon any person (an "Acquiring Person") becoming the owner of 15% or more of the issued and outstanding shares of the Company's
common stock (a "Stock Acquisition Date"), each Right will enable the holder to purchase an additional share of the Company's common stock at a price equal to 50% of the then current market price. In
the event that the Company is acquired in a merger or other business combination transaction where the Company is not the surviving corporation or 50% or more of the Company's assets or earnings power
is sold, each Right entitles the holder to receive, upon exercise of the Right at the then current purchase price of the Right, common stock of the acquiring entity that has a value of two times the
purchase price of the Right. The Plan also authorizes the Company, under certain circumstances, to redeem the Rights at a redemption price of $0.01 per Right and, following any Stock

39

---

Acquisition Date, to exchange one share of the Company's common stock for each Right held by a shareholder other than an Acquiring Person.

Note 12Business Segments and Geographic Areas:

The Company delivers its products and services through three business units, Communications, Consulting and Financial Services, which accounted for 77.0%,
20.9% and 2.1% of Norstan's fiscal year 2000 revenues, respectively. Communications segment offerings include telephone systems, integrated voice processing, call center technologies, long distance,
video/audio/data conferencing solutions, as well as customer support services for communication systems, including maintenance services, systems modifications and managed communication services.
Consulting provides e-business solutions including e-commerce consulting services, e-business integration services, knowledge management consulting services,
customer relationship management solutions and infrastructure services. Financial Services supports the sales process by providing customized financing alternatives.

In
fiscal year 2000, the Company changed its reportable operating segments to reflect how it evaluates its operating performance and allocates resources. Prior to fiscal year 2000,
the Company's reportable segments included Global Services, Communication Solutions and Financial Services. Beginning in fiscal year 2000, the components of the former Global Services segment are now
included within the Communications and Consulting segments.

The
Company's disclosures under the requirements of SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," are as follows:

|                               |  | Communications |         | Consulting |   | Financial
Services |   | Corporate |        | Total |  
|------------------------------ |  | -------------- | ------- | ---------- | - | ------------------ | - | --------- | ------ | ----- | -
|2000:                          |  |                |         |            |   |                    |   |           |        |       |  
|Revenue                        |  | $              | 322,313 |            | $ | 87,304             |   | $         | 8,904  |       | $
|Operating income (loss) (1)(4) |  |                | (17,702 | )          |   | (66,099            | ) |           | 3,496  |       |  
|Depreciation an amortization   |  |                | 11,023  |            |   | 6,450              |   |           | 9      |       |  
|Identifiable assets            |  |                | 102,311 |            |   | 28,304             |   |           | 65,997 |       |  
|Capital expenditures           |  |                | 5,975   |            |   | 2,562              |   |           | 13     |       |  
|1999:                          |  |                |         |            |   |                    |   |           |        |       |  
|Revenue                        |  | $              | 359,406 |            | $ | 115,340            |   | $         | 7,963  |       | $
|Operating income (loss) (2)    |  |                | 17,034  |            |   | (5,689             | ) |           | 3,507  |       |  
|Depreciation and amortization  |  |                | 9,376   |            |   | 6,770              |   |           | 14     |       |  
|Identifiable assets            |  |                | 115,944 |            |   | 74,411             |   |           | 63,187 |       |  
|Capital expenditures           |  |                | 15,629  |            |   | 3,442              |   |           |       |       |  
|1998:                          |  |                |         |            |   |                    |   |           |        |       |  
|Revenue                        |  | $              | 385,921 |            | $ | 63,001             |   | $         | 7,443  |       | $
|Operating income (loss) (3)    |  |                | 9,543   |            |   | (2,396             | ) |           | 3,426  |       |  
|Depreciation and amortization  |  |                | 11,387  |            |   | 4,434              |   |           | 15     |       |  
|Identifiable assets            |  |                | 107,465 |            |   | 63,554             |   |           | 52,616 |       |  
|Capital expenditures           |  |                | 11,898  |            |   | 2,115              |   |           | 20     |       |  

---

40

---



The
following table sets forth the Company's operations and related asset information by geographic area as of and for the years ended April 30 (in thousands):

2000

1999

1998Revenues:United States

$
386,897

$
445,825

$
423,446Canada


31,624


36,884


32,919$
418,521

$
482,709

$
456,365Net Income (Loss):United States

$
(64,236
)
$
6,129

$
4,679Canada


(4,713
)

(239
)

(824
)$
(68,949
)
$
5,890

$
3,855Assets:United States

$
222,953

$
287,316

$
258,192Canada


20,640


21,200


17,416$
243,593

$
308,516

$
275,608


Revenues,
net income and assets from other international operations including the European Community are immaterial and as such are not separately listed above. These amounts are
included in the US figures as listed.

41

---

NORSTAN, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

|(In thousands)                    |                                 | Balance at
Beginning of
Year |   | Charged to Costs
and Expenses |  | Deductions |        | Balance at End of
Year
|--------------------------------- | ------------------------------- | ---------------------------- | - | ----------------------------- |  | ---------- | ------ | ----------------------
|For the year ended April 30, 2000 |                                 |                              |   |                               |  |            |        |                       
|                                  | Allowance for doubtful accounts |                              | $ | 1,437                         |  | $          | 7,344  |                       
|                                  |                                 |                              |   |                               |  |            |        |                       
|                                  | Allowance for financing losses  |                              | $ | 1,361                         |  | $          | 50     |                       
|                                  |                                 |                              |   |                               |  |            |        |                       
|                                  | Restructuring reserves          |                              | $ | 697                           |  | $          | 1,969  |                       
|                                  |                                 |                              |   |                               |  |            |        |                       
|For the year ended April 30, 1999 |                                 |                              |   |                               |  |            |        |                       
|                                  | Allowance for doubtful accounts |                              | $ | 1,171                         |  | $          | 480    |                       
|                                  |                                 |                              |   |                               |  |            |        |                       
|                                  | Allowance for financing losses  |                              | $ | 1,645                         |  | $          |       |                       
|                                  |                                 |                              |   |                               |  |            |        |                       
|                                  | Restructuring reserves          |                              | $ | 3,644                         |  | $          | 1,522  |                       
|                                  |                                 |                              |   |                               |  |            |        |                       
|For the year ended April 30, 1998 |                                 |                              |   |                               |  |            |        |                       
|                                  | Allowance for doubtful accounts |                              | $ | 1,783                         |  | $          | 183    |                       
|                                  |                                 |                              |   |                               |  |            |        |                       
|                                  | Allowance for financing losses  |                              | $ | 1,845                         |  | $          |       |                       
|                                  |                                 |                              |   |                               |  |            |        |                       
|                                  | Restructuring reserves          |                              | $ |                              |  | $          | 14,667 |                       
|                                  |                                 |                              |   |                               |  |            |        |                       

42

---

## 

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

No
changes in or disagreements with accountants which required reporting on Form 8-K have occurred within the two-year period ended April 30,
2000.

PART III

Item 10. Directors and Executive Officers of the Registrant.

Information with respect to the directors and executive officers of the Company, set forth under "Information Concerning Directors, Nominees and Executive
Officers" and under "Compliance with Section 16 (a)" in the Company's definitive proxy statement for the annual meeting of shareholders to be held September 14, 2000, is incorporated
herein by reference.

Item 11. Executive Compensation.

Information with respect to Executive Compensation set forth under "Executive Compensation" in the Company's definitive proxy statement for the annual meeting
of shareholders to be held September 14, 2000, other than the subsections captioned "Report of the Compensation and Stock Option Committee" and "Performance Graph", is incorporated herein by
reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

Information with respect to security ownership of certain beneficial owners and management, set forth under "Beneficial Ownership of Principal Shareholders and
Management" in the Company's definitive proxy statement for the annual meeting of shareholders to be held September 14, 2000, is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

Information with respect to certain relationships and related transactions, set forth under "Information Concerning Directors, Nominees and Executive Officers"
in the Company's definitive proxy statement
for the annual meeting of shareholders to be held September 14, 2000, is incorporated herein by reference.

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.





See
Index to Exhibits on page 45 of this report.



43

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## 

SIGNATURES

Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.

Dated:
August 15, 2000

| |  | NORSTAN, INC.
REGISTRANT
| |  | ------------------------
| |  | By:                     
| |  | By:                     

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

|Signature                                                |  |  |  | Date   
|-------------------------------------------------------- |  |  |  | -------
|                                                         |  |  |  |        
|/s/PAUL BASZUCKIPaul Baszucki
Chairman of the Board      |  |  |  | 8/15/00
|/s/RICHARD COHENRichard Cohen
Vice-Chairman of the Board |  |  |  | 8/15/00
|/s/DR. JAGDISH N. SHETHDr. Jagdish N. Sheth
Director     |  |  |  | 8/15/00
|/s/CONNIE M. LEVIConnie M. Levi
Director                 |  |  |  | 8/15/00
|/s/ALAN M. MENDELSONAlan M. Mendelson
Director           |  |  |  | 8/15/00
|/s/GERALD D. PINTGerald D. Pint
Director                 |  |  |  | 8/15/00
|Herbert F. Trader
Director                               |  |  |  |        
|Mercedes Walton
Director                                 |  |  |  |        
|                                                         |  |  |  |        

44

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## 

EXHIBIT INDEX

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3(a)        |  | Restated Articles of Incorporation of the Company, as amended [filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the year ended April 30, 1988 and incorporated herein by reference]; Amendments
adopted September 9, 1993 and June 20, 1996 [filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the year ended April 30, 1996 and incorporated herein by reference]                                                                                                                                                                                                                                                         
|3(b)        |  | Bylaws of the Company [filed as Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended April 30, 1993 and Incorporated herein by reference]; Amendments adopted August 8, 1995 [filed as
Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended April 30, 1996 and incorporated herein by reference]; Amendments adopted September 20, 1995, July 30, 1996 and April 9, 1997 [filed as Exhibit 3(b) to the
Company's Annual Report on Form 10-K for the year ended April 30, 1998 and incorporated herein by reference]                                                                                                   
|3(c)        |  | Rights Agreement dated May 17, 1988 between Norstan, Inc. and Norwest Bank Minnesota, N.A. [filed as Exhibit 1 to the Company's Registration Statement on Form 8-A and incorporated herein by reference]; Amended and
Restated Rights Agreement dated April 1, 1998 [filed as Exhibit 1 to the Company's Registration Statement on Form 8-A/A (Amendment No. 1) dated April 1, 1998 and incorporated herein by reference]; First Amendment to Amended and Restated
Rights Agreement dated February 28, 1999 [filed as Exhibit 4.1 to the Company's Registration Statement on Form 8-A/A (Amendment No. 2) dated April 21, 1999 and incorporated herein by reference]
|10(a)       |  | Agreement for ROLM Authorized Distributors, effective July 27, 1993, between Norstan Communications, Inc. and ROLM Company [filed as Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year ended April
 30, 1993 and incorporated herein by reference]                                                                                                                                                                                                                                                                                                                                                                                             
|10(b)       |  | Credit Agreement dated as of July 23, 1996, among Norstan, Inc., First Bank National Association, and Harris Trust and Savings Bank and the Sumitomo Bank Limited, Chicago Branch; First Amendment to Credit Agreement dated
October 11, 1996 [filed as Exhibit 10 to the Company's quarterly report on Form 10-Q for the period ended August 3, 1996 and incorporated herein by reference]                                                                                                                                                                                                                                                                         
|10(c)       |  | Loan and Security Agreement dated April 29, 1993, between Norstan Financial Services, Inc. and Sanwa Business Credit Corporation  [filed as Exhibit 10(b) to the Company's Current Report on Form 8-K, dated April
 29, 1993 and incorporated herein by reference]; First Amendment dated December 30, 1993 [filed as Exhibit 10(c) to the Company's Annual Report on Form 10-K for the year ended April 30, 1994 and incorporated herein by reference]                                                                                                                                                                                                             
|10(d)(1)    |  | 1990 Employee Stock Purchase Plan of Norstan, Inc., as amended May 29, 1998 [filed as Exhibit 10(d)(1) to the Company's Annual Report on Form 10-K for the year ended April 30, 1998 and incorporated herein by
reference]                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10(e)(1)    |  | Norstan, Inc. 1986 Long-Term Incentive Plan, as amended [filed as Exhibit 10(e) to the Company's Annual Report on Form 10-K for the year ended April 30, 1993 and incorporated herein by reference]; Amendments
adopted August 8, 1995 and July 30, 1996 [filed as Exhibit10(e) to the Company's Annual Report on Form 10-K for the year ended April 30, 1996 and incorporated herein by reference]                                                                                                                                                                                                                                                                 

45

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|10(f)(1) |  | Norstan, Inc. Restated Non-Employee Directors' Stock Plan, [filed as Exhibit 28.1 to the Company's Registration Statement on Form S-8 dated September 27, 1995 and incorporated herein by reference]                                                                                                                                                                                                                                                                                                                                                 
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10(g)(1) |  | Norstan, Inc. 1995 Long-Term Incentive Plan [filed as Exhibit 28.1 to the Company's Registration Statement on Form S-8 dated September 27, 1995 and incorporated herein by reference]; Amendment adopted July 30, 1996 [filed
as Exhibit 10(g) to the Company's Annual Report on Form 10-K for the year ended April 30, 1996 and incorporated herein by reference]; Amendment adopted August 16, 1996 [filed as Exhibit 10(g)(1) to the Company's Annual Report on Form
 10-K for the year ended April 30, 1998 and incorporated herein by reference]
|10(h)(1) |  | Employment Agreement dated April 7, 1995 between Paul Baszucki and the Company filed as Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year ended April 30, 1995 and incorporated herein by
reference]                                                                                                                                                                                                                                                                                                                            
|10(i)(1) |  | Consulting Agreement dated September 1, 1998 between Richard Cohen and the Company [filed as Exhibit 10(i)(1) of the Company's Annual Report on Form 10-K for the year ended April 30, 1999 and incorporated herein by
reference]                                                                                                                                                                                                                                                                                                                    
|10(j)(1) |  | Employment Agreement dated April 30, 1997 between David R. Richard and the Company [filed as Exhibit 10(j)(1) to the Company's Annual Report on Form 10-K for the year ended April 30, 1998 and incorporated herein
by reference]                                                                                                                                                                                                                                                                                                                    
|10(k)(1) |  | Agreement and Plan of Merger dated May 24, 1996 among the Company, Connect Computer Company and CCC Acquisition Subsidiary, Inc [filed as Exhibit 2 to the Company's Current Report on Form 8-K dated June 4, 1996 and
incorporated herein by reference]                                                                                                                                                                                                                                                                                             
|10(k)(2) |  | Amended and Restated Stock Purchase Agreement dated September 5, 1997 by and among the Company, Vadini, Inc. (d.b.a. PRIMA  Consulting) and Michael Vadini [filed as Exhibit 2 to the Company's Current Report on Form
8-K dated October 8, 1997 and incorporated herein by reference]                                                                                                                                                                                                                                                               
|10(l)(1) |  | Third Amendment to Credit Agreement, dated as of March 20, 1998, by and among the Company, certain banks as signatories thereto (the "Banks") and US Bank National Association, as one of the Banks and as agent for the
Banks [filed as Exhibit 10(l)(1) to the Company's Annual Report on Form 10-K for the year ended April 30, 1998 and incorporated herein by reference]                                                                                                                                                                        
|10(l)(2) |  | Fourth Amendment to Credit Agreement, dated as of July 23, 1998, by and among the Company, certain banks as signatories thereto (the "Banks") and US Bank National Association, as one of the Banks and as agent for the
Banks [filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the period ended August 1, 1998 and incorporated herein by reference]                                                                                                                                                                         
|10(l)(3) |  | Fifth Amendment to Credit Agreement, dated as of September 28, 1998, by and among the Company, certain banks as signatories thereto (the "Banks") and US Bank National Association, as one of the Banks and as agent for the
Banks [filed as Exhibit 10 (a) to the Company's Quarterly Report on Form 10-Q for the period ended October 31, 1998 and incorporated herein by reference]                                                                                                                                                               
|10(l)(4) |  | Sixth Amendment to Credit Agreement, dated as of October 21, 1998, by and among the Company, certain banks as signatories thereto (the "Banks") and US Bank National Association, as one of the Banks and as agent for the
Banks [filed as Exhibit 10 (b) to the Company's Quarterly Report on Form 10-Q for the period ended October 31, 1998 and incorporated herein by reference]                                                                                                                                                                 

46

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|10(l)(5) |  | Seventh Amendment to Credit Agreement, dated as of May 31, 1999, by and among the Company, certain banks as signatories thereto (the "Banks") and US Bank National Association, as one of the Banks and as agent for the
Banks [filed as Exhibit 10(l)(5) to the Company's Annual Report on Form 10-K for the year ended April 30, 1999 and incorporated herein by reference]       
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10(l)(6) |  | Eighth Amendment to Credit Agreement, dated as of January 24, 2000, by and among the Company, certain banks as signatories thereto (the "Banks") and US Bank National Association, as one of the Banks and as agent for the
Banks [filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the period ended January 29, 2000 and incorporated herein by reference]
|10(l)(7) |  | Ninth Amendment to Credit Agreement, dated as of April 26, 2000, by and among the Company, certain banks as signatories thereto (the "Banks") and US Bank National Association, as one of the Banks and as agent for the
Banks                                                                                                                                                      
|10(l)(8) |  | Tenth Amendment to Credit Agreement, dated as of June 30, 2000, by and among the Company, certain banks as signatories thereto (the "Banks") and US Bank National Association, as one of the Banks and as agent for the
Banks                                                                                                                                                       
|10(1)(9) |  | Eleventh Amendment to Credit Agreement, dated as of July 28, 2000, by and among the Company, certain banks as signatories hereto (the "Banks") and US Bank National Association, as one of the Banks and as agent for
the Banks                                                                                                                                                     
|10(m)    |  | Lease Agreement, dated December 23, 1997, by and between Thomas Edward Limited Partnership and the Company [filed as Exhibit 10(m) to the Company's Annual Report on Form 10-K for the year ended April 30, 1998
and incorporated herein by reference]                                                                                                                              
|10(n)    |  | Employment agreement dated December 1, 1999 between Richard Cohen and the Company                                                                                                                                                                                                                                                                                                   
|23(a)    |  | Consent of Independent Public Accountants                                                                                                                                                                                                                                                                                                                                           
|27       |  | Financial Data Schedule                                                                                                                                                                                                                                                                                                                                                             

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A
copy of any of the exhibits listed or referred to above will be furnished at a reasonable cost to any shareholder of the Company, upon receipt of a written request from such person for any such
exhibit. Such request should be sent to Norstan, Inc., 5101 Shady Oak Road, Minnetonka, Minnesota 55343, Attention: Investor Relations.

47

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