**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

** **

**FORM 10-Q/A**

** **

**(Mark One)**
| **ý** |   | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|--------|----------------------------------------------------------------------------------------------|

 

**For the quarterlyperiod ended June 30, 2001**

** **

**OR**

 
| **o** |   | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|--------|-----------------------------------------------------------------------------------------------|

 

**For the transitionperiod from _____ to _____**

 

**Commission FileNumber 0-22718**

**ZAMBA CORPORATION**

(Exact name of Registrant as specified in itscharter)

** **

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

 

**3033 ExcelsiorBoulevard, Suite 200, Minneapolis, Minnesota 55416**

(Address of principal executive offices,including zip code)

 

**(952) 832-9800**

(Registrant's telephone number, includingarea code)

 

Indicateby check mark whether the Registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

YES         ý            NO          o

 

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

 

| **Class**                     |   | **Outstanding atMarch 21, 2002** |
|-------------------------------|--------|----------------------------------|
| Common Stock, $0.01 par value |   | 38,916,993                       |

 

 

ZAMBA CORPORATION

 

                This Quarterly Report on Form 10-Q has beenamended to add disclosure concerning the following:  (1) the reasons underlying the changes in our accountsreceivable and notes receivable balance between December 31, 2000 and June 30,2001 (see “Note B to the Notes to Consolidated Financial Statements”),(2) the restructuring charges we incurred in the second quarter of fiscal2001 (see “Note E to the Notes to Consolidated Financial Statements” and“Management’s Discussion and Analysis of Financial Condition and Results ofOperations—Restructuring Charges”), (3) the terms of our common stock andwarrant issuance in June 2001 (see “Note F to the Notes to ConsolidatedFinancial Statements” and “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Liquidity and Capital Resources,” (4) thenature of our customer relationship management consulting and systemsintegration services that we provide (see “Management’s Discussion and Analysisof Financial Condition and Results of Operations—Overview”) and (5) minoradjustments to the amount and allocation of our costs in the second quarter of2001 (see “Management’s Discussion and Analysis of Financial Condition andResults of Operations3⁄4Resultsof Operations"). This amended Quarterly Report on Form 10-Q contains theforegoing additional disclosure but does not contain any updates to ourbusiness or financial condition since the quarter ended June 30, 2001.

 

INDEX

 
| PART I -- Financial Information |
|---------------------------------|
|                            |   |   |
| Item 1.                         | Financial Statements (Unaudited) |   |
|                            |   |   |
|                            | Consolidated Statements of Operations for  the Three and Six Months Ended June 30, 2001 and 2000 |   |
|                            | Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 |   |
|                            | Consolidated Statements of Cash Flows for  the Six Months Ended June 30, 2001 and 2000 |   |
|                            | Notes to Consolidated Financial Statements |   |
| Item 2.                         | Management's Discussion and Analysis of Financial  Condition and Results of Operations |   |
| Item 3.                         | Quantitative and Qualitative Disclosures  About Market Risk |   |
|                            |   |   |
| PART II -- Other Information    |
|                            |   |   |
| Item 1.                         | Legal Proceedings |   |
| Item 2.                         | Changes in Securities |   |
| Item 3.                         | Defaults Upon Senior Securities |   |
| Item 4.                         | Submission of Matters to a Vote of Security  Holders |   |
| Item 5.                         | Other Information |   |
| Item 6.                         | Exhibits and Reports on Form 8-K |   |
| Signatures                      |   |   |

 

 

 

**PART I. FINANCIAL INFORMATION**

** **

**Item1:  Financial Statements**

** **

**ZAMBA CORPORATION**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

** **

**(In thousands, exceptper share data)**

 
|                                                          |       | **For the three months ended  June 30,** |       | **For the six months ended  June 30,** |       |
|---------------------------------------------------------------|------------|------------------------------------------|------------|----------------------------------------|------------|
|                                                          |       | **2001**                                 |       | **2000**                               |       | **2001** |   | **2000** |   |
| **Net revenues**                                              | ** ** | **$**                                    | **8,020**  | ** **                             | **$**      | **9,715** | ** ** | **$** | **19,830** | ** ** | **$** | **17,932** | ** ** |
|                                                          | ** ** |                                     | ** ** |                                   | ** ** |   | ** ** |   | ** ** |
| **Costs and expenses:**                                       | ** ** |                                     | ** ** |                                   | ** ** |   | ** ** |   | ** ** |
| **Project and personnel  costs**                              | ** ** | **5,716**                                | ** ** | **4,822**                              | ** ** | **11,831** | ** ** | **9,192** | ** ** |
| **Sales and marketing**                                       | ** ** | **1,304**                                | ** ** | **1,144**                              | ** ** | **3,212** | ** ** | **2,211** | ** ** |
| **General and  administrative**                               | ** ** | **4,044**                                | ** ** | **3,367**                              | ** ** | **8,903** | ** ** | **6,139** | ** ** |
| **Restructuring charges**                                     | ** ** | **2,188**                                | ** ** | **-**                                  | ** ** | **2,188** | ** ** | **-** | ** ** |
| **Amortization of  intangibles**                              | ** ** | **35**                                   | ** ** | **946**                                | ** ** | **75** | ** ** | **1,891** | ** ** |
| **Total costs and expenses**                                  | ** ** | **13,287**                               | ** ** | **10,279**                             | ** ** | **26,209** | ** ** | **19,433** | ** ** |
|                                                          | ** ** |                                     | ** ** |                                   | ** ** |   | ** ** |   | ** ** |
| **Loss from operations**                                      | ** ** | **(5,267**                               | **)**      | **(564**                               | **)**      | **(6,379** | **)** | **(1,501** | **)** |
|                                                          | ** ** |                                     | ** ** |                                   | ** ** |   | ** ** |   | ** ** |
| **Other income (expense):**                                   |       |                                     | ** ** |                                   | ** ** |   | ** ** |   | ** ** |
| **Interest income**                                           | ** ** | **36**                                   | ** ** | **57**                                 | ** ** | **90** | ** ** | **131** | ** ** |
| **Interest expense**                                          | ** ** | **(55**                                  | **)**      | **(16**                                | **)**      | **(79** | **)** | **(39** | **)** |
|                                                          |       | **(19**                                  | **)**      | **41**                                 | ** ** | **11** | ** ** | **92** | ** ** |
|                                                          | ** ** |                                     | ** ** |                                   | ** ** |   | ** ** |   | ** ** |
| **Net loss**                                                  | ** ** | **$**                                    | **(5,286** | **)**                                  | **$**      | **(523** | **)** | **$** | **(6,368** | **)** | **$** | **(1,409** | **)** |
|                                                          | ** ** |                                     | ** ** |                                   | ** ** |   | ** ** |   | ** ** |
| **Net loss per share - basic and diluted**                    | ** ** | **$**                                    | **(0.16**  | **)**                                  | **$**      | **(0.02** | **)** | **$** | **(0.20** | **)** | **$** | **(0.04** | **)** |
|                                                          | ** ** |                                     | ** ** |                                   | ** ** |   | ** ** |   | ** ** |
| **Weighted average shares outstanding -   basic and diluted** | ** ** | **32,340**                               | ** ** | **31,490**                             | ** ** | **32,258** | ** ** | **31,398** | ** ** |
|                                                               |            |                                          |            |                                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**The accompanying notesare an integral part of the consolidated financial statements.**

 

**ZAMBA CORPORATION**

**CONSOLIDATED BALANCESHEETS**

**(Unaudited)**

** **

**(In thousands, exceptper share data)**

 
|                                                                                                                                                                 |       | **June 30,  2001** |       | **December 31,  2000** |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|
| **ASSETS**                                                                                                                                                           | ** ** |
| **Current assets:**                                                                                                                                                  |       |               | ** ** |                   | ** ** |
| **Cash and cash  equivalents**                                                                                                                                       |       | **$**              | **4,925**  | ** **             | **$**      | **4,843** | ** ** |
| **Accounts receivable,  net**                                                                                                                                        |       | **3,067**          | ** ** | **5,858**              | ** ** |
| **Unbilled receivables**                                                                                                                                             |       | **483**            | ** ** | **426**                | ** ** |
| **Notes receivable, net**                                                                                                                                            |       | **1,377**          | ** ** | **1,979**              | ** ** |
| **Notes receivable -  related parties**                                                                                                                              |       | **338**            | ** ** | **359**                | ** ** |
| **Prepaid expenses and  other current assets**                                                                                                                       |       | **845**            | ** ** | **660**                | ** ** |
| **Total current assets**                                                                                                                                             |       | **11,035**         | ** ** | **14,125**             | ** ** |
|                                                                                                                                                                 |       |               | ** ** |                   | ** ** |
| **Property and  equipment, net**                                                                                                                                     |       | **1,931**          | ** ** | **1,650**              | ** ** |
| **Restricted cash**                                                                                                                                                  |       | **471**            | ** ** | **264**                | ** ** |
| **Intangible assets,  net**                                                                                                                                          |       | **156**            | ** ** | **231**                | ** ** |
| **Other assets**                                                                                                                                                     |       | **290**            | ** ** | **243**                | ** ** |
| **Total assets**                                                                                                                                                     |       | **$**              | **13,883** | ** **             | **$**      | **16,513** | ** ** |
|                                                                                                                                                                 |       |               | ** ** |                   | ** ** |
| **LIABILITIES AND STOCKHOLDERS' EQUITY**                                                                                                                             | ** ** |
| **Liabilities:**                                                                                                                                                     |       |               | ** ** |                   | ** ** |
| **Line of credit**                                                                                                                                                   |       | **$**              | **2,000**  | ** **             | **$**      | **0** | ** ** |
| **Current installments  of long-term debt**                                                                                                                          |       | **443**            | ** ** | **607**                | ** ** |
| **Accounts payable**                                                                                                                                                 |       | **944**            | ** ** | **1,589**              | ** ** |
| **Accrued expenses**                                                                                                                                                 |       | **4,218**          | ** ** | **3,306**              | ** ** |
| **Deferred revenue**                                                                                                                                                 |       | **925**            | ** ** | **1,480**              | ** ** |
| **Total current  liabilities**                                                                                                                                       |       | **8,530**          | ** ** | **6,982**              | ** ** |
|                                                                                                                                                                 |       |               | ** ** |                   | ** ** |
| **Long-term debt, less  current installments**                                                                                                                       |       | **333**            | ** ** | **469**                | ** ** |
|                                                                                                                                                                 |       |               | ** ** |                   | ** ** |
| **Commitments**                                                                                                                                                      |       |               | ** ** |                   | ** ** |
| **Total liabilities**                                                                                                                                                |       | **8,863**          | ** ** | **7,451**              | ** ** |
|                                                                                                                                                                 |       |               | ** ** |                   | ** ** |
| **Stockholders' equity:**                                                                                                                                            |       |               | ** ** |                   | ** ** |
| **Common stock, $0.01  par value, 120,000 shares authorized, 34,710 and 32,164 shares issued and  outstanding at June 30, 2001 and December 31, 2000, respectively** |       | **347**            |       | **322**                |       |
| **Additional paid-in  capital**                                                                                                                                      |       | **84,177**         | ** ** | **81,876**             | ** ** |
| **Note receivable from  director**                                                                                                                                   |       | **(500**           | **)**      | **(500**               | **)**      |
| **Accumulated deficit**                                                                                                                                              |       | **(79,004**        | **)**      | **(72,636**            | **)**      |
| **Total stockholders'  equity**                                                                                                                                      |       | **5,020**          | ** ** | **9,062**              | ** ** |
|                                                                                                                                                                 |       |               | ** ** |                   | ** ** |
| **Total liabilities and  stockholders' equity**                                                                                                                      |       | **$**              | **13,883** | ** **             | **$**      | **16,513** | ** ** |

 

**The accompanying notesare an integral part of the consolidated financial statements.**

 

 

**ZAMBA CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

** **

**(In thousands)**

 
|                                                                             |   | **Six Months Ended  June 30,** |       |
|----------------------------------------------------------------------------------|--------|--------------------------------|------------|
|                                                                             |   | **2001**                       |       | **2000** |   |
|                                                                             |   |                           | ** ** |   | ** ** |
| **Cash flows from  operating activities:**                                       |   |                           | ** ** |   | ** ** |
| **Net loss**                                                                     |   | **$**                          | **(6,368** | **)** | **$** | **(1,409** | **)** |
| **Adjustments to  reconcile net loss to net cash used in operating activities:** |   |                           |       |   |   |
| **Depreciation and  amortization**                                               |   | **420**                        | ** ** | **2,482** | ** ** |
| **Provision for bad  debts**                                                     |   | **641**                        | ** ** | **324** | ** ** |
| **Changes in operating  assets and liabilities:**                                |   |                           | ** ** |   | ** ** |
| **Accounts receivable**                                                          |   | **2,596**                      | ** ** | **(2,399** | **)** |
| **Unbilled receivables**                                                         |   | **(57**                        | **)**      | **(223** | **)** |
| **Notes receivable**                                                             |   | **156**                        | ** ** | **-** | ** ** |
| **Prepaid expenses and  other assets**                                           |   | **(232**                       | **)**      | **(538** | **)** |
| **Accounts payable**                                                             |   | **(645**                       | **)**      | **575** | ** ** |
| **Accrued expenses**                                                             |   | **912**                        | ** ** | **(1,427** | **)** |
| **Deferred revenue**                                                             |   | **(555**                       | **)**      | **568** | ** ** |
| **Net cash used in  operating activities**                                       |   | **(3,132**                     | **)**      | **(2,047** | **)** |
|                                                                             |   |                           | ** ** |   | ** ** |
| **Cash flows from  investing activities:**                                       |   |                           | ** ** |   | ** ** |
| **Purchase of property  and equipment**                                          |   | **(534**                       | **)**      | **(535** | **)** |
| **Restricted cash**                                                              |   | **(207**                       | **)**      | **110** | ** ** |
| **Notes receivable -  related parties**                                          |   | **21**                         | ** ** | **(754** | **)** |
| **Net cash used in  investing activities**                                       |   | **(720**                       | **)**      | **(1,179** | **)** |
|                                                                             |   |                           | ** ** |   | ** ** |
| **Cash flows from  financing activities:**                                       |   |                           | ** ** |   | ** ** |
| **Line of credit, net**                                                          |   | **2,000**                      | ** ** | **-** | ** ** |
| **Proceeds from sale of  common stock**                                          |   | **2,211**                      | ** ** | **-** | ** ** |
| **Proceeds from  exercises of stock options**                                    |   | **23**                         | ** ** | **647** | ** ** |
| **Payments of long-term  debt**                                                  |   | **(300**                       | **)**      | **(282** | **)** |
| **Net cash provided by  financing activities**                                   |   | **3,934**                      | ** ** | **365** | ** ** |
|                                                                             |   |                           | ** ** |   | ** ** |
| **Net increase  (decrease) in cash and cash equivalents**                        |   | **82**                         | ** ** | **(2,861** | **)** |
| **Cash and cash  equivalents, beginning of period**                              |   | **4,843**                      | ** ** | **7,973** | ** ** |
| **Cash and cash  equivalents, end of period**                                    |   | **$**                          | **4,925**  | ** ** | **$** | **5,112** | ** ** |
|                                                                             |   |                           | ** ** |   | ** ** |
| **Supplemental Schedule  of Disclosures of Cash Flow Information:**              |   |                           | ** ** |   | ** ** |
|                                                                             |   |                           | ** ** |   | ** ** |
| **Cash paid during the  period for interest**                                    |   | **$**                          | **64**     | ** ** | **$** | **41** | ** ** |
|                                                                                  |        |                                |            |  |  |  |  |  |  |

 

**The accompanying notesare an integral part of the consolidated financial statements.**

 

**ZAMBA CORPORATION**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(Unaudited)**

** **

NoteA.  Basis of Presentation:

 

                The unaudited consolidated financialstatements of ZAMBA Corporation as of June 30, 2001, and for the three and sixmonth periods ended June 30, 2001 and 2000, reflect all adjustments (whichinclude only normal recurring adjustments) necessary, in the opinion ofmanagement, to fairly state our financial position as of June 30, 2001, and ourresults of operations and cash flows for the reported periods.  The results of operations for any interimperiod are not necessarily indicative of the results to be expected for anyother interim period or for the full fiscal year.  The year-end balance sheet data was derived from auditedfinancial statements, but does not include all disclosures required bygenerally accepted accounting principles.  Certain prior year amounts have been reclassified to conform with the2001 presentation.  These financialstatements should be read in conjunction with our audited consolidatedfinancial statements and related notes for the year ended December 31, 2000,which were included in our 2000 Annual Report on Form 10-K.  

 

NoteB.  Selected Balance Sheet Information:

 
| (in  thousands)                                 |   | June 30,  2001 |   | December  31, 2000 |   |
|-------------------------------------------------|--------|----------------|--------|--------------------|--------|
|                                            |   |           |   |               |   |
| Accounts receivable,  net:                      |   |           |   |               |   |
| Accounts receivable                             |   | $              | 3,268  |               | $      | 6,287 |   |
| Less allowance for  doubtful accounts           |   | (201           | )      | (429               | )      |
|                                            |   | $              | 3,067  |               | $      | 5,858 |   |
|                                            |   |           |   |               |   |
| Notes receivable, net:                          |   |           |   |               |   |
| Notes receivable                                |   | $              | 1,823  |               | $      | 1,979 |   |
| Less allowance for  doubtful accounts           |   | (446           | )      | -                  |   |
|                                            |   | $              | 1,377  |               | $      | 1,979 |   |
|                                            |   |           |   |               |   |
| Property and equipment,  net:                   |   |           |   |               |   |
| Computer equipment                              |   | $              | 1,594  |               | $      | 1,406 |   |
| Furniture and equipment                         |   | 642            |   | 694                |   |
| Leasehold improvements                          |   | 1,201          |   | 931                |   |
|                                            |   | 3,437          |   | 3,031              |   |
| Less accumulated  depreciation and amortization |   | (1,506         | )      | (1,381             | )      |
|                                            |   | $              | 1,931  |               | $      | 1,650 |   |

 

                Accounts receivable represent amounts not yetpaid by our clients for services rendered during the ordinary course ofbusiness.  We entered intointerest-bearing promissory notes with the two of our customers who were unableto pay us the amounts due on a timely basis.                On August 28, 2000, weentered into an interest-bearing promissory note with Health Risk Management,Inc. (HRMI).  The principal amount ofthe note was $372,447, and it carried an interest rate of 12.0% per annum.  The client paid $250,049 in principal andinterest through March 30, 2001, but ceased making payments following thatdate.  As of June 30, 2001, we reservedthe $142,002 balance remaining on the promissory note because of oursubstantial doubt about HRMI’s ability to continue operations and makepayments.  HRMI subsequently filed forbankruptcy on August 2, 2001.  

 

                Between September 29, 2000 and December 6,2000, we entered into several interest-bearing promissory notes with Lifescape,LLC.  The principal amount of thesenotes totaled  $1,681,381, and each notecarried an interest rate of 12% per annum. Lifescape did not make payments as scheduled in the notes.  During the first and second quarters of2001, we had several discussions with Lifescape and its affiliated companies,ValueOptions, Inc. and FHC Health Systems, Inc., regarding payment.  As of June 30, 2001, based on thesenegotiations, we determined that it was appropriate to reserve for $300,000 ofthe amount due, because of our reduced expectation of full payment.  

 

NoteC.  Net Loss Per Share:  

 

                We incurred net losses for the three andsix month periods ended June 30, 2001 and 2000. The calculation of diluted netloss per common share does not include approximately 300,000 potential sharesof common stock equivalents as their inclusion would be anti-dilutive.  

 

NoteD.  Recent Accounting Standards:

 

                In July 2001, the Financial AccountingStandards Board (FASB) issued Statement of Financial Accounting Standards(SFAS) No. 141 “Business Combinations,” and SFAS No. 142 “Goodwill and OtherIntangible Assets,” which change the accounting for business combinations andgoodwill.  SFAS No. 141 requires thatthe purchase method of accounting be used for business combinations initiatedafter June 30, 2001.  Use of thepooling-of-interests method will be prohibited.  SFAS No. 142 changes the accounting for goodwill from anamortization method to an impairment-only approach.  Amortization of goodwill, including goodwill recorded in pastbusiness combinations, will therefore cease upon adoption of SFASNo. 142, which for us will be January 1, 2002.  We are currently evaluating SFAS No. 141 and SFAS No. 142, but do not expect that they will have amaterial effect on ourfinancial statements.  

 

                The Financial Accounting Standards Board(FASB) issued Statement of Financial Accounting Standard (SFAS) No. 133, “Accounting for Derivative Instruments and HedgingActivities,” asamended by SFAS No. 138.  SFAS No. 133establishes accounting and reporting standards for derivative instruments andfor hedging activities.  SFAS No. 133requires companies to recognize all derivatives as either assets orliabilities, and measure those instruments at fair value. SFASNo. 133 is effective beginning on January 1, 2001. We have implementedSFAS No. 133, as amended, in fiscal year 2001. The implementation of SFAS No. 133 did not have an impact on our financial position, resultsof operations or cash flows for the three or six months ended June 30, 2001.  

Note E. Restructuring Charges 

 

                Due to a decrease in demand for information technology consulting services, weundertook an initiative to focus our business and improve our operatingperformance by restructuring and streamlining our operations during the secondquarter of fiscal 2001.  Thisrestructuring initiative included a reduction in our workforce and theconsolidation of certain unproductive or duplicative facilities.  In connection with our restructuringinitiative, we incurred a restructuring charge of $2.19 million in the secondquarter of fiscal 2001.  This charge wascomposed of $777,000 for severance payments, $123,000 for otheremployee-related costs, such as continued medical benefits, $1.173 million forfacility closings and other leasehold termination costs, $87,000 arising out ofa contract dispute with a vendor, and $28,000 of other related restructuringcharges.  No non-cash write-offs wereincurred in connection with the restructuring charge.  

 

                In connection with the restructuring, wereduced our employee headcount by 89 employees, which represents approximately28% of our workforce.  Of these 89employees, 62 employees (or approximately 70%) were billable consultants and 27 employees (or approximately 30%)  were non-billable staff.  By the end of the second quarter of fiscal2001, $347,000 in severance costs and $23,000 in other employee-related costsremained, which are expected  to be paidduring the third and fourth quarters of fiscal 2001.  The facilitiescharges were due to office closures in Pleasanton and Carlsbad, California, andSt. Paul, Minnesota. By the end of the second quarter, $925,000in facilities-related costs remained. We also wrote off approximately $28,000 in fixtures and furniture.  No assets that were written off remained inuse as of the end of the second quarter.  

 

                As of June 30, 2001, restructuring activities by category were as follows:

 
| **Restructuring Charge**        |   | **Second Quarter  2001 Provision** |      | **Second Quarter  2001 Utilized** |   | **Balance as of  June 30, 2001** |   |
|---------------------------------|--------|------------------------------------|-----------|-----------------------------------|--------|----------------------------------|--------|
| Severance Payments to Employees |   | $                                  | 777,000   |                              | $      | 430,000                          |   | $ | 347,000 |   |
| Other Employee Related Costs    |   | $                                  | 123,000   |                              | $      | 100,000                          |   | $ | 23,000 |   |
| Facility Closings               |   | $                                  | 1,106,000 |                              | $      | 248,000                          |   | $ | 858,000 |   |
| Leasehold Termination Costs     |   | $                                  | 67,000    |                              | $      | –                           |   | $ | 67,000 |   |
| Other                           |   | $                                  | 115,000   |                              | $      | –                           |   | $ | 115,000 |   |
| Totals                          |   | $                                  | 2,188,000 |                              | $      | 778,000                          |   | $ | 1,410,000 |   |

 

Note F.  Stockholders’ Equity and Warrants  

 

                On June 29, 2001, we sold 2,352,942 shares ofcommon stock at $0.85 per share, which represented the average closing bidprice of our common stock on the Nasdaq Stock Market for the five trading daysprior to the date of issuance, to Joseph B. Costello, our Vice Chairman, for$2.0 million.  In connection with thistransaction, we also issued a warrant to Mr. Costello that entitles him topurchase up to 1,176,471 shares of our common stock, at an exercise price of$1.0625 per share.  The warrant exerciseprice represents 125% of the per share price of our common stock on the date ofissuance.  The fair value of the warrantis $809,000, which is included as part of additional paid-in capital. The fairvalue of the warrant was calculated by utilizing the Black-Scholesoption-pricing model and the following key assumptions:

 
| Assumptions:             |   |   |
|--------------------------|--------|--------|
| Risk-free  interest rate |   | 4.69%  |
| Volatility               |   | 111%   |
| Expected  life (months)  |   | 48     |

                On February 27,2001, as amended on August 2, 2001, we established a secured revolvingcredit facility with Silicon Valley Bank that allows us to borrow up to amaximum of $5.0 million based on our eligible accounts receivable.  The amended agreement requires, among otherthings, that we comply with minimum tangible net worth and profitabilitycovenants.  In connection with theestablishment of the credit facility, we issued a warrant to purchase 35,000shares at an exercise price of $2.80 per share to Silicon Valley Bank.  The fair value of the warrant issued uponestablishment of the credit facility is $62,000.  The remaining fair value is being charged to interest expenseover the life of the credit facility. As part of the amendment, we issued a warrant to Silicon Valley Bank topurchase an additional 35,000 shares of common stock at an exercise price of$0.86 per share.  The exercise price foreach warrant was established based on the average of the closing price of ourcommon stock for the five trading days prior to the date of issuance, and eachwarrant expires five years from the date of issuance.  The fair value of the warrant issued upon the August 2001amendment is $23,000.  The remaining fairvalue is being charged to interest expense over the life of the credit facility.  The aggregate fair value for thecompensation cost for the warrants granted in connection with the February 27,2001 establishment of the credit facility and the August 2, 2001 amendment werecalculated by using the fair value of the warrant on the date of grant,utilizing the Black-Scholes option-pricing model and the following keyassumptions:  

 
| Assumptions:               |   |   |   |                     |   |     |
|----------------------------|--------|--------|--------|--------------------------|--------|----------|
|                       |   |   |   |                     |   |     |
| February 27,  2001 warrant |   |   |   | August 2,  2001 warrant  |   |     |
| Risk-free  interest rate   |   | 4.80%  |   | Risk-free  interest rate |   | 4.54%    |
| Volatility                 |   | 83%    |   | Volatility               |   | 102%     |
| Expected  life (months)    |   | 48     |   | Expected  life (months)  |   | 60  |

**Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

** **

**Overview**

 

                ZAMBA Corporation provides customer relationship management (CRM)consulting and systems integration services for large corporations and other organizations.  CRM is a business strategy used bybusinesses and governmental organizations to help clients better anticipate, understand and respond tothe needs of their current and potential customers through integrated,multi-channel solutions.  CRMattempts to increase their customers’ access to the enterprise through the useof multiple channels of communication, including the internet, call-basedrouting, and sales force automation, and to increase the enterprise’s knowledgeof the preferences and needs of its customers. Based on our CRM expertiseand experience, we have created potential  solutionsto address eachaspect of CRM, including strategy, marketing and analytics, commerce andcontent, contact center, mobile and wireless, sales, customer experience andsupport. We also own approximately 33% of the equity in NextNet Wireless, Inc.,a private corporation engaged in the development of wireless data productstargeted at wireless digital subscriber lines.  Our chairman,Joseph B. Costello, is also the chairman of NextNet Wireless, Inc.  

 

                We currently derive most of our revenuesfrom systems integration services, including business case evaluation, systemplanning and design, software package implementation, custom softwaredevelopment, training, installation and change management.   Our revenues and earnings may fluctuatefrom quarter-to-quarter based on the number, size and scope of projects inwhich we are engaged, the contractual terms and degree of completion of suchprojects, any delays incurred in connection with a project, the adequacy ofprovisions for losses, the accuracy of estimates of resources required tocomplete ongoing projects, and general economic conditions and other factors.Consequently, the results of operations described in this report may not beindicative of results to be achieved in future periods. In addition, revenuesfrom a large client may constitute a significant portion of our total revenuesin any particular quarter. 

 

**Restructuring Charges**  

 

                In connection with our initiative to focusour business and improve our operating performance by restructuring andstreamlining our operations, we recorded a restructuring charge of $2.19 million in the second quarterof fiscal 2001 which represents approximately 27% and 11% of ourrevenue for the three and six months ended June 30, 2001, respectively.  We conducted this restructuring due toseveral factors, including (1) the impact of the slowing economy on ourbusiness and the decreasing demand for information technology consultingservices throughout the technology sector, as evidenced by the 17% decrease inour revenue during the secondquarter of 2001, compared to the second quarter of 2000,  (2) similar revenue decreases experienced bymany other information technology consulting companies, and  (3) our expectation that our revenue duringthe remainder of the year would be less than the amount we had anticipated atthe beginning of fiscal 2001.   Becausewe had increased our staffing and facilities during the last half of 2000 andthe first quarter of 2001 in anticipation of growth, our reduced expectationsrequired us to lower our ongoing costs, the largest of which are our payrolland facility expenses.                 In order to reduce ourpayroll expense, we reduced our headcount by 89 employees, which representsapproximately 28% of our total workforce. Of these 89 employees, 62 employees (or approximately 70%)  were billable consultants and 27 employees(or approximately 30%) were non-billable staff.   Because most of the consultants who were laid off were notengaged on full-time projects at the time of our workforce reduction, we do notbelieve that our ongoing operations will be significantly affected by thisreduction.  We paid $530,000 of theemployee-related restructuring expense during the three months ended June 30,2001, and expect to pay $370,000 of the employee-related restructuring expenseduring the third and fourth quarters of fiscal 2001.  We expect the headcount reductions to result in a quarterlysavings of approximately $2.0 million beginning in the third quarter of2001.  In addition to our workforcereductions, we also took steps to reduce the cost of our facilities on ouroperations.  The facilities portion ofthe restructuring charge includes new and additional lease termination costsand other expenses associated with our decision to consolidate our operationsand close unproductive or duplicative office facilities in St. Paul, Minnesota,and Pleasanton and Carlsbad, California. Of the approximately $1.2 million in facilities-related restructuringcharges, we paid $248,000 during the second quarter of fiscal 2001, and expectto pay the balance of approximately $925,000 between the third quarter offiscal 2001 and the third quarter of fiscal 2002.  

 

                Because our revenues were lower thananticipated in the second quarter and the number of our consultants and size ofour facilities was designed to correlate with our expected revenues during thethird quarter of fiscal 2001, we do not expect these restructuring charges tohave a material adverse effect on our operations.  In fact, we anticipate that these restructuring charges willreduce our cost structure during the remainder of fiscal 2001 and into fiscal2002.  We intend to continue ourinitiative to achieve cost-efficient operations throughout the remainder offiscal 2001.  In addition, certainactions may not be completed, or full savings realized, until sometime infiscal 2002.  Although we do not expectto incur additional restructuring charges, our restructuring initiative, or acontinued slowing of the demand for information technology consulting services,could cause us to incur additional restructuring expenses in amounts that havenot yet been determined.  Although theamount and timing of the cost savings that we expect to realize due to thisrestructuring is difficult to quantify, we currently anticipate that, incombination with other operational changes effectuated during the three monthsended June 30, 2001, we will realize cost savings of approximately $11.0million by the end of the second quarter of fiscal 2002.

 

**Results of Operations**

** **

**Three months ended June 30, 2001, compared to the three months endedJune 30, 2000**  

 

*Net Revenues*

*               *Net revenues decreased 17% to $8.02 million in thesecond quarter of 2001 compared to$9.72 million in the second quarter of 2000.  The decreasewas due principally to a significant reduction in the demand for informationtechnology consulting services, due to a general slowdown in the economy.  

 

*Project and Personnel Costs*

                Project and personnel costs consistprimarily of payroll and payroll -related expenses for personnel dedicated to clientassignments, and is directly associated with, and varies with, the level ofclient services being delivered.  Thesecosts represent the most significant expense we incur in providing services. Project costs were $5.72 million or 71% of net revenues in the second quarter of2001 compared to $4.82million or 50% of netrevenues in the second quarter of 2000. The increase in project costs between these periods was due primarily tothe increase in the number of project personnel.  Project personnel increased primarily as a result of an expectedincrease in the number and size of our engagements.  Because our overall revenue declined, these costs represented anincreased percentage of our overallrevenue in the second quarter of 2001.  We anticipate lowerproject and personnel costs in the next two fiscal quarters due to a reduction in workforceas a part of our restructuring plan, which was implemented due to the reduceddemand for information technology consulting services. *Sales andMarketing*

*               *Sales and marketing costs consist primarily of salaries,employee benefits and travel expenses of sales and marketing personnel, as wellas promotional costs.  Sales andmarketing expenses were $1.30 million or 16% of net revenues in the second quarter of2001, compared to $1.14million or 12% of net revenues in the second quarter of 2000.  The increase in both dollar and percentageterms is due primarily to the hiring of additional direct sales personnel.  We anticipate that the dollar amount andpercentage of sales and marketing expenses will increase throughout 2001.  

 

*General and Administrative*

*               *General and administrative costs consist primarily ofexpenses associated with our management, information technology, training andrecruiting, occupancy costs, and finance and administrative groups.  General and administrative expenses were$4.04 million or 50% of net revenues in the second quarter of 2001, compared to$3.37 million or 35%of net revenues in the second quarter of 2000. The dollar and percentageincreases were due primarily to investments we made in attempting to grow thebusiness, which resulted in an increase in payroll and benefitsexpense of $250,000, an increase in occupancy costs of$175,000 related to a significantexpansion of our office space, and an increase in provision for bad debtsof $240,000.  Dueto a reduced workforce and consolidation of office space from the realignment  ofour cost structure in the second quarter of 2001, we anticipate lower generaland administrative expenses in the next two fiscal quarters.  

 

*Amortization of Intangibles*

                Amortization of intangibles was $35,000 in 2001 compared to $946,000 in 2000.  The amortization was mainly due to the acquisition of TheQuickSilver Group, Inc. (“QuickSilver”) in September 1998.  The QuickSilver acquisition was accountedfor using the purchase method of accounting, and the purchase price wasallocated to tangible and identifiable intangible assets.  The fair value of identifiable intangibleassets was $7.7 million and was allocated to the following categories: peopleand experiences, client references, client lists, and intellectual property anddelivery methodology.  These amounts arebeing amortized over economic useful lives ranging from two to four years.  Approximately 98% of the costs related tothe QuickSilver acquisition have been amortized as of June 30, 2001. Theremaining costs will be amortized through the third quarter of 2002.  

 

*Interest Income*

*               *Interest income was $36,000 in the second quarter of 2001compared to $57,000 in the second quarter of 2000.  The decrease is due to decreases in our cash and investmentaccounts, which were used in operating and investing activities, as well as theoverall decline in interest rates in 2001.  

 

*Interest Expense*

                Interest expense was $55,000 in thesecond quarter of 2001 compared to $16,000 in the second quarter of 2000.  The increase in interest charges is due toincreased borrowings under our line of credit with Silicon Valley Bank, whichwe established in February 2001. 

 

*Income Taxes*

*               *We have incurred net operating losses since inception.  Because we are uncertain as to whether wewill have taxable earnings in the future, we have not reflected any benefit ofsuch net operating loss carryforwards in the accompanying unauditedconsolidated financial statements. *Net Loss*

*               *Our net loss for the quarter ended June 30, 2001 was $5.29million, or $0.16 per share, compared to a net loss for the quarter ended June30, 2000 of $523,000,or $0.02 per share.  

 

**Six months ended June 30, 2001, compared to the six months ended June30, 2000**  

 

*Net Revenues*

                Net revenues increased 11% to $19.83million in the six months ended June 30, 2001 compared to $17.93 million in thesix months ended June 30, 2000. The increase in revenues is principally due toincreases in both the average size and number of client projects, and due to anincrease in the number of billable consultants. Demand for our servicesincreased through the fourth quarter of 2000. However, the demand hassignificantly declined since that time due to a reduction in demand for informationtechnology services.  

 

*Project and Personnel Costs*

                Project and personnel costs consistprimarily of payroll and payroll-related expenses for personnel dedicated to clientassignments, and is directly associated with, and varies with, the level ofclient services being delivered.  Thesecosts represent the most significant expense we incur in providing services. Project costs were $11.83 million or 60% of net revenues in the six months ended June 30, 2001compared to $9.19million or 51% of net revenues in the six months ended June 30, 2000.  The increase in project costs between theseperiods was due primarily to the increase in the number of projectpersonnel.  Project personnel increasedprimarily as a result of an expected increase in the number and size of ourengagements. The increase in these costs as a percentage of revenue is due to adecline in our overall utilization. We anticipate lower project and personnelcosts in the next two fiscal quarters due to a reduction in workforce as a part of ourrestructuring plan, which was implemented due to the reduced demand forinformation technology consultingservices.  

 

*Sales and Marketing*

                Sales and marketing costs consistprimarily of salaries, employee benefits and travel expenses of sales and marketingpersonnel, as well as promotional costs. Sales and marketing expenses were $3.21 million or 16% of net revenues in the six months endedJune 30, 2001, compared to $2.21 million or 12% of net revenues in the six months endedJune 30, 2000.  The increase in bothdollar and percentage terms is due primarily to the hiring of additional directsales personnel.  We anticipate that thedollar amount and percentage of sales and marketing expenses will increase throughout2001.  

 

*General and Administrative*

                General and administrative costs consistprimarily of expenses associated with our management, information technology,training and recruiting, occupancy costs, and finance and administrativegroups.  General and administrativeexpenses were $8.90 million or 45% of net revenues in the six months ended June30, 2001, compared to $6.14 million or 34% of net revenues in the six months endedJune 30, 2000.  The dollar andpercentage increases were due primarily to investments we made in attempting togrow the business, which resulted in an increase in payroll andbenefits expense of $1,310,000, an increase in occupancy costs relatedto a significant expansion of our office space of $360,000, and an increase in provision for baddebts of $320,000.Due to a reduced workforce and consolidation of office space from the realignment of ourcost structure in the second quarter of 2001, we anticipate lower general and administrative expenses inthe next two quarters.  

 

*Amortization of Intangibles*

                Amortization of intangibles was $75,000 in the six months ended June 30, 2001compared to $1.89million in the six months ended June 30, 2000. The amortization was mainly due to the acquisition of The QuickSilverGroup, Inc. (“QuickSilver”) in September 1998, as described in the three monthperiod analysis above. *InterestIncome*

                Interest income was $90,000 in the sixmonths ended June 30, 2001 compared to $131,000 in the six months ended June30, 2000.  The decrease is due todecreases in our cash and investment accounts, which were used in operating andinvesting activities, as well as the overall decline in interest rates in 2001.  

 

*Interest Expense*

                Interest expense was $79,000 in the sixmonths ended June 30, 2001 compared to $39,000 in the six months ended June 30,2000. The increase in interest charges is due to increased borrowings under ourline of credit with Silicon Valley Bank, which we established in February 2001.  

 

*Income Taxes*

                We have incurred net operating lossessince inception.  Because we are uncertainas to whether we will have taxable earnings in the future, we have notreflected any benefit of such net operating loss carryforwards in theaccompanying unaudited consolidated financial statements.  

 

*Net Loss*

*               * Our net loss for thesix months ended June 30, 2001 was $6.37 million, or $0.20 per share, comparedto a net loss for the six months ended June 30, 2000 of $1.41 million, or $0.04per share.  

 

**Liquidity and Capital Resources**

 

                We invest predominantly in instrumentsthat are highly liquid, investment grade and have maturities of less than oneyear. At June 30, 2001, we had approximately $4.9 million in cash and cashequivalents compared to $4.8 million at December 31, 2000.  

 

                Cash used in operating activities was $3.1million for the six months ended June 30, 2001 and resulted primarily from aloss before amortization, depreciation and other non-cash stock compensationcharges of  $5.9 million, which wasoffset by a decrease in accounts receivable of $2.6 million.  Cash used in operating activities was $2.0million for the six months ended June 30, 2000, due primarily to income beforeamortization, depreciation and other non-cash stock compensation chargesof  $1.1 million, an increase inaccounts payable of $575,000, and an increase in deferred revenue of $568,000,but was offsetby increases in accounts receivable of $2.4 million and a decrease in accruedexpenses of $1.4 million. 

 

                Cash used in investing activities was$720,000 for the six months ended June 30, 2001, and resulted primarily from the purchase of propertyand equipment of $534,000 and an increase in restricted cash of $207,000.  Cash used in investing activities was $1.2million for the six months ended June 30, 2000 and resulted primarily from the purchase of propertyand equipment of $535,000 and an increase in notes receivable to related parties of$754,000.  

 

                Cash provided by financing activities was$3.9 million for the six months ended June 30, 2001 and consisted primarily ofcash received from the line of credit of $2.0 million and cash received fromthe sale of common stock to Joseph B. Costello, a member of ourBoard of Directors, of $2.0 million. See Note F to ourConsolidated Financial Statements.  Cash provided by financing activities was$365,000 for the six months ended June 30, 2000 and consisted of cash receivedfrom the sale of common stock upon the exercise of stock options of $647,000,which was offset partially by payments of outstanding debt of $282,000.                 On February 27,2001, as amended on August 2, 2001, we established a secured revolvingcredit facility with Silicon Valley Bank of up to a maximum of $5.0 millionbased on eligible collateral. Borrowings under this line of credit bear interest at the bank’s prime rateplus 2.0%, and are payable monthly. This agreement requires that we maintain certain financial covenants andlevels of tangible net worth.  Thisfacility is renewable annually. As of June 30, 2001, $2.0 million was outstanding under theSilicon Valley Bank line of credit.  

 

                On June 29, 2001, we sold 2,352,942 shares of ourcommon stock at market value, toJoseph B. Costello, our Vice Chairman, for $2.0 million.  In connection with this transaction, we alsoissued a warrant to Mr. Costello that entitles him to purchase up to 1,176,471 sharesof our common stock, at an exercise price of $1.0625 per share.  The warrant exercise price represents 125%of the per share price of our common stock on the date of issuance.  The fair value of the warrant is $809,000,which is included as part of additional paid-in capital.  The fair value of the warrant was calculatedby utilizing the Black-Scholesoption-pricing model.  SeeNote F to our Notes to Consolidated Financial Statements.  

 

                As of June 30, 2001, we had nosignificant capital spending or purchase commitments, except for a commitmentof approximately $325,000 relating to professional services software.  We had cash and cash equivalents totaling$4.9 million and working capital of $2.5 million.  We also have a secured revolving credit facility with SiliconValley Bank that allows us to withdraw up to $5.0 million based on eligibleaccounts receivable.  Under the securedrevolving credit facility, we must be in compliance with certain tangible networth covenants. We believe that our existing cash and cash equivalents,together with cash provided from operations and our secured revolving creditfacility, should be sufficient to meet our working capital and capitalexpenditure requirements through April 30, 2002. We will also continue to explore possibilities for additional financing,which may include debt, equity, or other forms of financing.  We cannot be certain that additionalfinancing will be available to us on favorable terms if required, or at all. Ifour financial performance causes us to violate the covenants in our securedrevolving credit facility or adversely affects the amount of our eligibleaccounts receivable, and we are unable to obtain additional financing, we maynot be able to meet our cash requirements beyond April 30,2002.  

 

**Item 3.  Quantitative and Qualitative Disclosures About Market Risk**  

 

                Weare exposed to market risk from changes in security prices and interest rates.Market fluctuations could impact our results of operations and financialcondition. We are exposed to certain market risks based on our outstanding debtobligations of $776,000 at June 30, 2001, as well as our line of credit withSilicon Valley Bank, under which $2.0 million was outstanding at June 30, 2001.The interest rates charged on our long-term debt obligations range from 6.0% to10.5% per annum, andthe obligations mature monthly and quarterly through December 2003.  We do not invest in any derivative financialinstruments. Excess cash is invested in short-term low-risk vehicles, such asmoney market investments. Changes in interest rates are not expected to have amaterial adverse effect on our business, financial condition or results ofoperations.  

 

                OnFebruary 27, 2001, asamended on August 2, 2001, we established a secured revolving credit facility withSilicon Valley Bank.  Borrowings underthis line of credit bear interest at the bank’s prime rate plus 2.0%. Theinterest is payable monthly.**Cautionary Statement for Purposes of the‘Safe Harbor’ Provisions of the Private Securities Litigation Reform Act of1995**  

 

                Certainstatements in this Quarterly Report on Form 10-Q are "forward-lookingstatements" within the meaning of the Private Securities Litigation ReformAct of 1995. When used in this Quarterly Report on Form 10-Q, the words “may,”“should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”“predicts,” “intends,” “potential” or “continue” and similar expressions aregenerally intended to identify forward-looking statements. Because theseforward-looking statements involve risks and uncertainties, actual resultscould differ materially from those expressed or implied by theseforward-looking statements. These statements are only predictions. Although webelieve that the expectations reflected in the forward-looking statements arereasonable, we cannot guarantee future results, levels of activity, performanceand/or achievements.  

 

                Forward-looking statements represent our expectations orbeliefs concerning future events, including statements regarding our ability to reverse ourrecent revenue declines, our ability to realize the expected benefits from ourrecent restructuring initiative, the effect of the recent sale of the CRMproducts of a major CRM developer on our business, our ability to attract andretain customers, our ability to adjust the mix of our services to meet theneeds of the market, our ability to adapt to rapidly changing technologies in the CRM industry, the ability of our partners to maintaincompetitive products, the impact of competition and pricing pressures fromactual and potential competitors with greater financial resources, our abilityto obtain large-scale consulting services agreements, client decision-makingprocesses, changes in expectations regarding the information technology consultingindustry, our ability to hire andretain competent employees, our ability to make acquisitions under advantageousterms and conditions, our success in integrating acquisitions into our businessand our culture and possible costs incurred related to the integration, ourability to grow revenues from acquired companies, possible changes incollections of accounts receivable and notes receivable, ourability to protect and reuse our intellectual property, our ability to continueto list our stock on the Nasdaq National Market, changes in general economic conditions and interest rates,and other factors identified in our filings with the Securities and ExchangeCommission, including those identified in Exhibit 99 to our Annual Report onForm 10-K.   We disclaim any intentionor obligation to update or revise any forward-looking statements, whether as aresult of new information, future events or otherwise.

**PART II.  OTHER INFORMATION**

 

**Item1.  Legal Proceedings**

 

                Weare subject to various legal proceedings and claims that arise in the ordinarycourse of business.  We currentlybelieve that resolving these matters will not have a material adverse effect onour business, financial condition or results of operations.  

 

**Item 2.  Changes in Securities**

** **

                On June 29, 2001, Zamba Corporation sold 2,352,942 shares of commonstock to Joseph B. Costello, our Vice Chairman, for $2,000,000.  In connection with this transaction, we alsoissued a warrant to Mr. Costello that entitles him to purchase up to 1,176,471shares of our common stock, at an exercise price of $1.0625 per share.  The warrant exercise price represents 125%of the per share price of our common stock on the date of issuance.  Because the transaction did not involve apublic offering, the shares of our common stock were deemed to be issuedpursuant to an exemption from registration provided by Section 4(2) of theSecurities Act of 1933, as amended.  

 

**Item 3.  Defaults Upon Senior Securities**

** **

                None.

 

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

** **

                Zamba held its Annual Meeting on May 17, 2001. Two proposals werepresented at the Annual Meeting for voting by the stockholders:  (1) the election of directors; and (2) theapproval of an increase in the authorized number of shares of common stock. Thestockholders approved both proposals.

 

                Each person nominated for director was elected.  For Joseph B. Costello, 24,911,873 voteswere cast in favor of his election, and 2,972,304 votes were withheld.  For Dixon R. Doll, 26,564,035 votes werecast in favor of his election, and 1,320,142 votes were withheld.  For Paul D. Edelhertz, 25,217,688 votes werecast in favor of his election, and 2,666,489 votes were withheld.  For Douglas M. Holden, 25,176,034 votes werecast in favor of his election, and 2,708,143 votes were withheld.  For John Olsen, 24,901,947 votes were castin favor of his election, and 2,982,230 votes were withheld. For Sven A.Wehrwein, 26,561,744 votes were cast in favor of his election, and 1,322,433votes were withheld.

 

                A total of 24,923,201 votes were cast in favor of the proposal toapprove the number of authorized shares of common stock, 2,798,130 votes werecast against, 162,846 votes were abstentions, and there were no brokernon-votes.  

 

**Item5.  Other Information**

** **

                None.**Item 6. Exhibits and Reports on Form 8-K**

** **

(a)           Exhibits:(See attached exhibit index)

 

(b)           Reportson Form 8-K:

 

                On May 23, 2001 we filed a report on Form 8-K to report a reduction inthe number of personnel and stating that revenues and earnings for the secondfiscal quarter would be lower than previously expected.  

 

                OnJuly 2, 2001, we filed a report on Form 8-K to report the purchase of 2,352,942shares of common stock by Joseph B. Costello, our Vice Chairman. We also issueda warrant to Mr. Costello that entitles him to purchase up to 1,176,471 sharesof common stock at an exercise price of $1.0625 per share.

**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the Registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.   

 
|   | ZAMBA  CORPORATION           |
|--------|------------------------------|
|   |                         |
|   | By:                          | /s/ Douglas M. Holden |   |
|   |                         | Douglas M. Holden |
|   |                         | President and Chief Executive Officer |
|   |                         |   |
|   | By:                          | /s/ Michael H. Carrel |   |
|   |                         | Michael H. Carrel |
|   |                         | Executive Vice President and Chief Financial  Officer |
|   |                         | (Principal Financial and Accounting Officer) |
|   |                         |   |
|   | Dated: March 29,  2002  |

 

EXHIBIT INDEX

 

| EXHIBIT  NUMBER |   | TITLE                                                                                                                                                                                                                                |
|-----------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.01           |   | Press  release dated May 22, 2001 (Incorporated by reference to Exhibit 99 to  Zamba’s Current Report on Form 8-K dated May  23, 2001)                                                                                     |
| 10.02           |   | Stock  Purchase Agreement dated June 29, 2001, between Zamba Corporation and Joseph  B. Costello (Incorporated by reference to Exhibit 10.1 to  Zamba’s Current Report on Form 8-K dated  July 2, 2001)                    |
| 10.03           |   | Warrant to  Purchase Shares of Common Stock issued by Zamba Corporation to Joseph B.  Costello (Incorporated by reference to Exhibit 10.2 to  Zamba’s Current Report on Form 8-K dated  July 2, 2001)                      |
| 10.04           |   | Press  release dated July 2, 2001 (Incorporated by reference to Exhibit 99 to  Zamba’s Current Report on Form 8-K dated  July 2, 2001)                                                                                     |
| 10.05           |   | Settlement  and Release Agreement dated August 2, 2001, between  Zamba and Paul Edelhertz (Incorporated by reference to Exhibit  10.05 to Zamba’s Quarterly Report on Form 10-Q for the quarter ended June 30,  2001)      |
| 10.06           |   | Amendment to  Loan Document as of June 30, 2001, between   Zamba and Silicon Valley Bank (Incorporated by reference to Exhibit  10.06 to Zamba’s Quarterly Report on Form 10-Q for the quarter ended June 30,  2001)       |
| 10.07           |   | Warrant to  Purchase Stock dated August 2, 2001, between   Zamba and Silicon Valley Bank (Incorporated by reference to Exhibit  10.07 to Zamba’s Quarterly Report on Form 10-Q for the quarter ended June 30,  2001)       |
| 10.08           |   | Fifth  Amended and Restated Certificate of Incorporation of Zamba Corporation, dated  August 3, 2001 (Incorporated by reference to Exhibit 10.08 to Zamba’s  Quarterly Report on Form 10-Q for the quarter ended June 30, 2001) |