## QuickLinks

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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-Q

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(Mark One)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 1999

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from  to

Commission File Number 0-22718

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ZAMBA CORPORATION(Exact name of Registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization) |  | #41-1636021(I.R.S. Employer
Identification No.)
|---------------------------------------------------------------------- |  | -----------------------------------------------

7301 Ohms Lane, Suite 200, Minneapolis, Minnesota 55439(Address of principal executive offices, including zip code)

(612) 832-9800(Registrant's telephone number, including area code)

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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
the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

|Class                         |  | Outstanding at September 30, 1999
|----------------------------- |  | ---------------------------------
|Common Stock, $0.01 par value |  | 29,696,786                       

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ZAMBA CORPORATION

INDEX

|                             |  |                                                                                       |  |                                                                                                       |  | Page No.
|---------------------------- |  | ------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- |  | --------
|PART IFinancial Information
|Item 1.                      |  | Financial Statements (Unaudited)                                                      |  |                                                                                                      
|                             |  |                                                                                       |  | Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 1999 and 1998 |  | 3       
|                             |  |                                                                                       |  | Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998                            |  | 4       
|                             |  |                                                                                       |  | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998           |  | 5       
|                             |  |                                                                                       |  | Consolidated Notes to Financial Statements                                                            |  | 6       
|Item 2.                      |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 7                                                                                                    
|Item 3.                      |  | Not Applicable                                                                        |  |                                                                                                      
|PART IIOther Information   
|Items 1-5.                   |  | None                                                                                  |  | 12                                                                                                   
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                      |  | 12                                                                                                   
|Signatures                   |  | 13                                                                                   



## 

PART I. FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

ZAMBA CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

|                                              |  | Three Months Ended
September 30, |        | Nine Months Ended
September 30, |  
|--------------------------------------------- |  | -------------------------------- | ------ | ------------------------------- | -
|
|Net revenues:                                 |  |                                  |        |                                 |  
|Services                                      |  | $                                | 7,410  |                                 | $
|Products                                      |  |                                  | 21     |                                 |  
|                                              |  |                                  |        |                                 |  
|                                              |  |                                  | 7,431  |                                 |  
|Cost and expenses:                            |  |                                  |        |                                 |  
|Project costs                                 |  |                                  | 3,326  |                                 |  
|Other costs                                   |  |                                  | 818    |                                 |  
|Sales and marketing                           |  |                                  | 714    |                                 |  
|General and administrative                    |  |                                  | 1,274  |                                 |  
|Research and development                      |  |                                  |       |                                 |  
|Amortization of intangibles                   |  |                                  | 944    |                                 |  
|                                              |  |                                  |        |                                 |  
|Income (loss) from operations                 |  |                                  | 355    |                                 |  
|Other income (expense):                       |  |                                  |        |                                 |  
|Interest income                               |  |                                  | 18     |                                 |  
|Interest expense                              |  |                                  | (21    | )                               |  
|                                              |  |                                  |        |                                 |  
|                                              |  |                                  | (3     | )                               |  
|Net income (loss)                             |  | $                                | 352    |                                 | $
|                                              |  |                                  |        |                                 |  
|Net income (loss) per sharebasic and diluted |  | $                                | 0.01   |                                 | $
|                                              |  |                                  |        |                                 |  
|Weighted average shares outstandingbasic     |  |                                  | 29,674 |                                 |  
|                                              |  |                                  |        |                                 |  
|Weighted average shares outstandingdiluted   |  |                                  | 30,238 |                                 |  
|                                              |  |                                  |        |                                 |  

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

ZAMBA CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

|                                                                                                                                                            |  | September 30,
1999 |         | December 31,
1998 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ----------------- | -
|ASSETS                                                                                                                                                      | 
|Current assets:                                                                                                                                             |  |                    |         |                   |  
|Cash and cash equivalents                                                                                                                                   |  | $                  | 6,311   |                   | $
|Accounts receivable, net                                                                                                                                    |  |                    | 3,659   |                   |  
|Unbilled receivables                                                                                                                                        |  |                    | 260     |                   |  
|Prepaid expenses and other current assets                                                                                                                   |  |                    | 298     |                   |  
|                                                                                                                                                            |  |                    |         |                   |  
|Total current assets                                                                                                                                        |  |                    | 10,528  |                   |  
|Property and equipment, net                                                                                                                                 |  |                    | 1,021   |                   |  
|Restricted cash                                                                                                                                             |  |                    | 100     |                   |  
|Identifiable intangible assets, net                                                                                                                         |  |                    | 3,975   |                   |  
|Goodwill, net                                                                                                                                               |  |                    | 83      |                   |  
|Other assets                                                                                                                                                |  |                    | 76      |                   |  
|                                                                                                                                                            |  |                    |         |                   |  
|Total assets                                                                                                                                                |  | $                  | 15,783  |                   | $
|                                                                                                                                                            |  |                    |         |                   |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                        | 
|Liabilities:                                                                                                                                                |  |                    |         |                   |  
|Current installments of long-term debt                                                                                                                      |  | $                  | 258     |                   | $
|Accounts payable                                                                                                                                            |  |                    | 879     |                   |  
|Accrued expenses                                                                                                                                            |  |                    | 2,295   |                   |  
|Deferred revenue                                                                                                                                            |  |                    | 1,356   |                   |  
|                                                                                                                                                            |  |                    |         |                   |  
|Total current liabilities                                                                                                                                   |  |                    | 4,788   |                   |  
|                                                                                                                                                            |  |                    |         |                   |  
|Long-term debt, less current installments                                                                                                                   |  |                    | 969     |                   |  
|                                                                                                                                                            |  |                    |         |                   |  
|Commitments                                                                                                                                                 |  |                    |         |                   |  
|Total liabilities                                                                                                                                           |  |                    | 5,757   |                   |  
|                                                                                                                                                            |  |                    |         |                   |  
|Stockholders' equity:                                                                                                                                       |  |                    |         |                   |  
|Common stock, $0.01 par value, 55,000 shares authorized, 29,697 and 29,014 issued and outstanding at September 30, 1999 and December 31, 1998, respectively |  |                    | 297     |                   |  
|Additional paid-in capital                                                                                                                                  |  |                    | 78,991  |                   |  
|Accumulated deficit                                                                                                                                         |  |                    | (69,262 | )                 |  
|                                                                                                                                                            |  |                    |         |                   |  
|Total stockholders' equity                                                                                                                                  |  |                    | 10,026  |                   |  
|                                                                                                                                                            |  |                    |         |                   |  
|Total liabilities and stockholders' equity                                                                                                                  |  | $                  | 15,783  |                   | $
|                                                                                                                                                            |  |                    |         |                   |  

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



ZAMBA CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

|                                                                                          |  | Nine Months Ended
September 30, |       
|----------------------------------------------------------------------------------------- |  | ------------------------------- | ------
|
|Cash flows from operating activities:                                                     |  |                                 |       
|Net loss                                                                                  |  | $                               | (1,427
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                                 |       
|Depreciation and amortization                                                             |  |                                 | 3,392 
|Write-down of fixed assets                                                                |  |                                 |      
|Write-off of shareholder loan                                                             |  |                                 |      
|Provision for bad debts                                                                   |  |                                 | 132   
|Amortization of discounts on investments                                                  |  |                                 |      
|Changes in operating assets and liabilities:                                              |  |                                 |       
|Accounts receivable                                                                       |  |                                 | (1,641
|Unbilled receivables                                                                      |  |                                 | 24    
|Prepaid expenses and other current assets                                                 |  |                                 | (1    
|Accounts payable                                                                          |  |                                 | 684   
|Accrued expenses                                                                          |  |                                 | 1,530 
|Deferred revenue                                                                          |  |                                 | 1,022 
|                                                                                          |  |                                 |       
|Net cash provided by (used in) operating activities                                       |  |                                 | 3,715 
|Cash flows from investing activities:                                                     |  |                                 |       
|Purchase of investments                                                                   |  |                                 |      
|Proceeds from maturity of investments                                                     |  |                                 |      
|Purchase of equipment                                                                     |  |                                 | (410  
|Payment on debt                                                                           |  |                                 | (194  
|Other                                                                                     |  |                                 | (84   
|                                                                                          |  |                                 |       
|Net cash provided by (used in) investing activities                                       |  |                                 | (688  
|Cash flows from financing activities:                                                     |  |                                 |       
|Proceeds from exercises of stock options and warrants                                     |  |                                 | 222   
|Change in restricted cash                                                                 |  |                                 | 100   
|Cash paid in connection with acquisition                                                  |  |                                 |      
|                                                                                          |  |                                 |       
|Net cash provided by (used in) financing activities                                       |  |                                 | 322   
|                                                                                          |  |                                 |       
|Net change in cash and cash equivalents                                                   |  |                                 | 3,349 
|Cash and cash equivalents, beginning of period                                            |  |                                 | 2,962 
|                                                                                          |  |                                 |       
|Cash and cash equivalents, end of period                                                  |  | $                               | 6,311 
|                                                                                          |  |                                 |       
|Financing activities not affecting cash                                                   |  |                                 |       
|                                                                                          |  |                                 |       
|Conversion of stock warrants and notes payable to common stock                            |  | $                               | 108   
|                                                                                          |  |                                 |       

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



ZAMBA CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note A. Basis of Presentation:

The unaudited consolidated financial statements of Zamba Corporation ("Zamba" or the "Company") as of September 30, 1999, and for the three and nine
month periods ended September 30, 1999, and 1998, reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly state our
financial position as of September 30, 1999, and our results of operations and cash flows for the reported periods. The results of operations for any interim period are not necessarily
indicative of the results to be expected for any other interim period or for the full year. The year-end balance sheet data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles. Certain prior year amounts have been reclassified to conform with the 1999 presentation. These financial statements should
be read in conjunction with our audited consolidated financial statements and related notes for the year ended December 31, 1998, which were included in our 1998 Annual Report on
Form 10-K.

Note B. Selected Balance Sheet Information:

|                                               |  | September 30,
1999 |        | December 31,
1998 |  
|---------------------------------------------- |  | ------------------ | ------ | ----------------- | -
|
|
|Accounts receivable, net:                      |  |                    |        |                   |  
|Accounts receivable                            |  | $                  | 3,954  |                   | $
|Less allowance for doubtful accounts           |  |                    | (295   | )                 |  
|                                               |  |                    |        |                   |  
|                                               |  | $                  | 3,659  |                   | $
|                                               |  |                    |        |                   |  
|Property and equipment, net:                   |  |                    |        |                   |  
|Computer equipment                             |  | $                  | 2,712  |                   | $
|Furniture and equipment                        |  |                    | 668    |                   |  
|Leasehold improvements                         |  |                    | 186    |                   |  
|                                               |  |                    |        |                   |  
|                                               |  |                    | 3,566  |                   |  
|Less accumulated depreciation and amortization |  |                    | (2,545 | )                 |  
|                                               |  |                    |        |                   |  
|                                               |  | $                  | 1,021  |                   | $
|                                               |  |                    |        |                   |  



## 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS

Overview

Zamba is a national customer care consulting company. According to the Gartner Group, customer care is expected to grow at a cumulative average growth rate of
54% per year through 2002. Our services are designed to assist clients in building lasting relationships with customers, increase the effectiveness of customer service and sales operations, and
improve overall communication with customers. We deliver our services using a unique combination of accumulated expertise in the customer care field, existing technology, and client knowledge.
Typically, we perform our services on a fixed-bid, fixed-timetable basis. Rapid development and significant client involvement are key aspects to our methodologies. We offer our clients
end-to-end assistance with their implementations, including business case evaluation, system planning and design, software implementation, modification and development,
training, installation, change management, network management, and post-implementation support. Our services include the design, implementation and integration of enterprise level
applications to facilitate sales automation, call center management, marketing automation and automated field service and sales. We also own approximately 40% of the equity in NextNet, Inc., a
private corporation engaged in the development of wireless data products targeted at wireless DSL. The chairman of Zamba, Joseph B. Costello, is also the chairman of NextNet.

We
currently derive most of our revenue from systems integration services including business case evaluation, system planning and design, software package implementation, custom
software development, training, installation and change management. We also derive recurring revenue from providing post-implementation support.

Our
revenues and earnings may fluctuate from quarter to quarter based on the number, size and scope of projects in which we are engaged, the contractual terms and degree of completion
of such projects, any delays incurred in connection with a project, employee utilization rates, the adequacy of provisions for losses, the accuracy of estimates of resources required to complete
ongoing projects, and general economic conditions and other factors. Also, revenues from a large client may constitute a significant portion of our total revenues in any particular quarter.

Results of Operations

Three months ended September 30, 1999, compared to the three months ended September 30, 1998

Revenues increased 355% to $7.43 million in 1999 compared to $1.63 million in 1998. 1999 revenues were comprised of $7.41 million of
services revenue, an increase of 436% from the $1.38 million in services revenue recorded in 1998, and $21,000 of product revenue, a decrease of 92% from $250,000 in product revenue recorded in
1998. The increase in revenues is partially due to Zamba's acquisition of The QuickSilver Group ("QuickSilver") in September 1998 and primarily due to the growth in the combined business since
the acquisition and the result of completing several large fixed bid projects. The decrease in product revenue is due to our transition away from selling stand-alone software products.

Project
costs consist primarily of salaries and employee benefits for personnel dedicated to client projects and direct expenses incurred to complete projects that were not reimbursed
by the client. These costs represent the most significant expense Zamba incurs in providing its services. Project costs were $3.33 million or 45% of net revenues in the third quarter of 1999
compared to $724,000 or 44% in the third quarter of 1998. The increase in dollar terms was primarily due to the increase in project personnel. Project personnel increased as a result of the
acquisition of QuickSilver, our change in focus from software to services, and the increased number and size of our engagements.

Other
costs consist of non-billable project personnel costs and other business costs, including training and recruiting costs. Other costs were $818,000 or 11% of net
revenues in 1999 compared to $76,000 or 5%

of net revenues in 1998. The increase in other costs relates primarily to the increase in headcount for both training and recruiting personnel.

Sales
and marketing expenses were $714,000 or 10% of net revenues in 1999 compared to $387,000 or 24% of net revenues in 1998. The increase in dollar terms is due to the hiring of
additional direct sales personnel. The decrease in percentage terms is due to our increased revenue and our success in the marketplace. We expect the amount spent for sales and marketing costs will
increase over the next few quarters as we grow our staff and pay commissions for the expected increase in sales.

General
and administrative expenses were $1.27 million or 17% of net revenues in 1999 compared to $515,000 or 32% of net revenues in 1998. The increase in dollar terms is
primarily due to the acquisition of QuickSilver and the related increase in staff headcount as well as increased facilities and depreciation expenses. The decrease in percentage terms mostly reflects
our increased revenues. We anticipate general and administrative costs to increase on a dollar basis over the next several quarters as we continue to expand geographically and invest in developing a
technology infrastructure to support our anticipated revenue and headcount growth.

No
research and development expenses were incurred in 1999 compared to $258,000 in 1998. The 1998 expenses represent costs we incurred to develop NextNet before completing the outside
financing for NextNet on September 21, 1998, as discussed in our Form 10-K for the year ended December 31, 1998. We do not expect to incur any research and development
costs for the foreseeable future.

Intangible
asset amortization expense was $944,000 in 1999 compared to $0 in 1998. This increase is due to the acquisition of QuickSilver. The acquisition was accounted for using the
purchase method of accounting and the purchase price was allocated to tangible and identifiable intangible assets. The fair value of identifiable intangible assets was $7.70 million and was
allocated to the following categories: people and experiences, client references, client lists, and intellectual property and delivery methodology. These amounts are being amortized over economic
useful lives of between two and four years. Approximately 97% of the costs related to the QuickSilver acquisition will be amortized by September 30, 2000.

Interest
income was $18,000 in 1999 compared to $69,000 in 1998. The decrease is due to decreases in our cash and investment accounts, which were used to fund operating activities and
the QuickSilver acquisition.

Interest
expense was $21,000 in 1999 compared to $0 in 1998. The increase is due to interest charges paid on debt acquired as result of the acquisition of QuickSilver and interest
charges accrued for future payments of the notes payable issued in connection with the acquisition of QuickSilver.

Income
tax expense was $0 in 1999 due to the utilization of the net operating loss carryforwards.

Nine months ended September 30, 1999, compared to the nine months ended September 30, 1998

Revenues increased 318% to $18.59 million in 1999 compared to $4.45 million in 1998. The increase in revenues is due to the acquisition of
QuickSilver in September 1998 and growth in the combined business since the acquisition. 1999 revenues were comprised of $18.51 million of services revenue, an increase of 351% from the
$4.10 million in services revenue recorded in 1998, and $75,000 of product revenue, a decrease of 78% from $345,000 in product revenue recorded in 1998. The increase in service revenue is
primarily due to our transition to the sale of system integration services, the QuickSilver acquisition, and increased market acceptance of our services. The decrease in product revenue is due to our
transition away from selling stand-alone software products.

Project
costs consist primarily of salaries and employee benefits for personnel dedicated to client projects and direct expenses incurred to complete projects that were not reimbursed
by the client. These costs represent the most significant expense Zamba incurs in providing its services. Project costs were $9.74 million or 52% of net revenues in 1999 compared to
$1.92 million or 43% in 1998. The increase in

costs is primarily due to the increase in project personnel. Project personnel increased as a result of the acquisition of QuickSilver, our change in focus from software to services, and the increased
number and size of our engagements.

Other
costs consist of non-billable project personnel costs and other business costs, including training and recruiting costs. Other costs were $1.87 million or 10%
of net revenues in 1999 compared to $128,000 or 3% of net revenues in 1998. The increase in other costs relates primarily to the increase in headcount for both training and recruiting personnel.

Sales
and marketing expenses were $1.74 million or 9% of net revenues in 1999 compared to $1.36 million or 31% of net revenues in 1998. The increase in dollar terms is
due to the hiring of additional direct sales personnel. The decrease in percentage terms is due to our increased revenue and success in the marketplace. We expect the amount spent for sales and
marketing costs will increase over the next few quarters as we grow our staff and pay commissions for the expected increase in sales.

General
and administrative expenses were $3.83 million or 21% of net revenues in 1999 compared to $1.42 million or 32% of net revenues in 1998. The increase in dollar
terms is primarily due to the acquisition of QuickSilver and the related increase in staff headcount as well as increased expenses for facilities and depreciation. The decrease in percentage terms
mostly reflects our increased revenues. We anticipate general and administrative costs to increase on a dollar basis over the next several quarters as we increase the size of our offices or open
offices in additional locations, and invest in developing our technology infrastructure.

No
research and development expenses were incurred in 1999 compared to $1.07 million in 1998. The 1998 expenses represent costs we incurred to develop NextNet before completing
the outside financing for NextNet on September 21, 1998, as discussed in our Form 10-K for the year ended December 31, 1998. We do not expect to incur any research and
development costs for the foreseeable future.

Intangible
asset amortization expense was $2.82 million in 1999 compared to $0 in 1998. This increase is due to the acquisition of QuickSilver. The acquisition was accounted
for using the purchase method of accounting and the purchase price was allocated to tangible and identifiable intangible assets. The fair value of identifiable intangible assets was
$7.70 million and was allocated to the following categories:
people and experiences, client references, client lists, and intellectual property and delivery methodology. These amounts are being amortized over economic useful lives of between two and four years.
Approximately 97% of the costs related the QuickSilver acquisition will be amortized by September 30, 2000.

Interest
income was $60,000 in 1999 compared to $201,000 in 1998. The decrease is due to decreases in our cash and investment accounts, which were used to fund operating activities
and the QuickSilver acquisition.

Interest
expense was $66,000 in 1999 compared to $0 in 1998. The increase is due to interest charges paid on debt acquired as result of the acquisition of QuickSilver and interest
charges accrued for future payments of the notes payable issued in connection with the acquisition of QuickSilver.

Liquidity and Capital Resources

As of September 30, 1999, we had no significant capital spending or purchase commitments and had cash and cash equivalents totaling $6.31 million
and working capital of $5.74 million. For the nine months ended September 30, 1999, $3.72 million was provided from operating activities compared to the $979,000 used in operating
activities in the same period in 1998. The increase in cash provided from operating activities is due to our improved operating performance and a more focused effort on cash management. During the
nine months ended September 30, 1999, we used $688,000 in investing activities. We believe our existing capital resources will be sufficient to meet our capital requirements into 2000.

Year 2000

Year 2000 computer issues may impact Zamba. The full extent and scope of the risks from the Year 2000 issue have not yet been fully assessed. In the event that
internal products and systems, or those products and systems provided or utilized by third parties do not correctly recognize and process date information beyond the year 1999, material adverse
effects on our business, operating results, and financial condition could result.

To
address Year 2000 issues, we have initiated a program designed to address the most critical Year 2000 items that would affect our products and the operations of the following
functions: operations, finance, sales, and human resources.

In
December 1998, we commenced a program to inventory, assess, remediate, and test the Year 2000 capability of our software products. All Year 2000 activities concerning
current and legacy products are expected to be completed by December 1999.

To
date, nominal amounts have been spent to address Year 2000 issues, aside from amounts spent in the normal course of business to upgrade our information system infrastructure. We
don't expect the total cost associated with required modifications to become Year 2000 ready to be significant or to have a material adverse effect on our business, operating results and financial
condition. Our current estimates of the amount of time and costs necessary to implement and test our systems are based on the facts and circumstances existing at this time. New developments may occur
that could affect our estimates for the required modifications to become Year 2000 ready. These developments include, but are not limited to: (a) the availability and cost of personnel trained
in this area, (b) the ability to locate and correct all relevant computer code and equipment, and (c) the planning and modification success needed to achieve full implementation.

Readers
are cautioned that the foregoing discussion regarding Year 2000 computer issues contains forward-looking statements based on current expectations that involve risks and
uncertainties and should be considered in conjunction with the following. The failure to correct a material Year 2000 problem could result in an interruption in, or a failure of, certain normal
business activities or operations. Such failures could materially and adversely affect our business, operating results, and financial condition. Due in large part to the uncertainty of the Year 2000
readiness of third-party suppliers and customers, as well as the lack of a final Year 2000 project plan for the remaining internal business systems that are not yet assessed as Year 2000 ready, we are
currently unable to determine whether the consequences of Year 2000 issues will have a material impact on our business, operating results or financial condition. Our programs addressing Year 2000
computer issues are expected to reduce our level of uncertainty regarding Year 2000 issues and, in particular, about the Year 2000 readiness of our material internal operations, suppliers, customers,
and other third-parties. In addition, we believe that the current Year 2000 activities surrounding our software products and internal systems have reduced the risk of any disruption caused by any Year
2000 issues in these areas.

New Accounting Standards

Statement of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), effective in
2001, establishes new standards for recognizing all derivatives as either assets or liabilities, and measuring those instruments at fair value. We have no derivative financial instruments. At the
present time, we do not anticipate that SFAS No. 133 will have a material impact on the financial position or results of operations.

Quantitative and Qualitative Disclosures About Market Risk

We have debt at a fixed interest rate of 7%, as described in Item 7A in the 1998 Annual Report to Shareholders on Form 10-K. There has been
no material change to this information.

Factors That May Affect Future Results

There can be no assurance that our business will grow as anticipated or that we will achieve or sustain profitability on a quarterly or annual basis in the
future. We derive a substantial part of our revenues from a small number of clients whom, after evaluating our capabilities, decide whether to engage us to create business case evaluations, consult on
change management practices and, in some cases, to design, implement and deploy their customer care systems. A decision by any one of these clients to delay a customer care project may have a material
adverse effect on our business and results of operations.

In
order for our revenues from consulting and integration services to grow, we must continue to add more clients and larger projects to plan, design and implement customer care
systems. Inability to obtain clients for large-scale consulting and integration services could materially and adversely affect the growth of its business.

In
addition to the factors listed above, actual results could vary materially from the foregoing forward-looking statements due to our inability to hire and retain qualified
personnel, the risk that we may need to enhance products and services beyond what is currently planned, the levels of promotion and marketing required to promote our products and services so as to
attain a competitive position in the marketplace, or other risks and uncertainties identified in this Quarterly Report and our other filings with the SEC.



PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 2. Changes in Securities.

None

Item 3. Defaults Upon Senior Securities.

None

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

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

## 

SIGNATURES

Pursuant to the requirements 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.

|                         |  | ZAMBA CORPORATION
|------------------------ |  | -----------------
|Dated: November 15, 1999 |  | By:              
|                         |  | By:              
|                         |  |                  



## 

EXHIBIT INDEX

|Exhibit Number |  | Title                                                 |  | Sequentially
Numbered
Page
|-------------- |  | ----------------------------------------------------- |  | --------------------------
|11             |  | Computation of Net Income Per Basic and Diluted Share |  | 15                        
|27             |  | Financial Data Schedule                               |  | 16                        

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## QuickLinks

PART I. FINANCIAL INFORMATIONITEM 1: FINANCIAL STATEMENTS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONSPART II. OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Changes in Securities.Item 3. Defaults Upon Senior Securities.Item 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. Exhibits and Reports on Form 8-K

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