**Exhibit99.01**

 

**CAUTIONARYSTATEMENT REGARDING FORWARD-LOOKING STATEMENTS**

 

Zamba Corporation desiresto take advantage of the “safe harbor” provisions of the Private SecuritiesLitigation Reform Act of 1995 and is filing this cautionary statement in connectionwith the reform act. This Quarterly Report on Form 10-Q and any otherwritten or oral statements made by or on our behalf may include forward-lookingstatements that reflect our current views with respect to future events andfinancial performance. The words “believe,” “expect,” “anticipate,” “intend,”“estimate,” “forecast,” “project,” “could,” “may” and other similar expressionsidentify forward-looking statements.

 

We wish to caution youthat any forward-looking statements made by or on our behalf are subject touncertainties and other factors that could cause such statements to be wrong.Some of these uncertainties and other factors are listed under the caption“Risk Factors” below (many of which we have discussed in prior SEC filings).Though we have attempted to list comprehensively these important factors, wewish to caution investors that other factors may prove to be important in thefuture in affecting our operating results. New factors emerge from time totime, and it is not possible for us to predict all of these factors, nor can weassess the impact each factor or combination of factors may have on ourbusiness.

 

You are further cautionednot to place undue reliance on those forward-looking statements because theyspeak only of our views as of the date the statements were made. We undertakeno obligation to publicly update or revise any forward-looking statements,whether as a result of new information, future events or otherwise.

 

**RISKFACTORS**

 

**We could become insolvent.**

 

Our loss from operationsduring the third quarter was $1.26 million on revenues of approximately $2.62million, and our liabilities exceeded our assets by approximately $4.14 millionas of the end of the third quarter.  Ourrevenues decreased by more than 68% from the revenues we recorded during thethird quarter of 2001.  In large part,we have funded our losses by sales of our holdings in NextNet Wireless, Inc.(“NextNet”).  If we are unable to reduceour losses and become profitable, or if we are unable to continue to sell portionsof our holdings in NextNet, we may not be able to continue as a goingconcern.  We currently haveapproximately 221,667 shares of NextNet available for sale, net of shares thatwe have reserved for transactions with Entrx Corporation (“Entrx”).  The number of potential purchasers of ourNextNet holdings is quite limited, for many reasons, including the fact thatinvestors have not been generally interested in telecommunications productscompanies over the past few years.  Wecontinue to have difficulties achieving profitability for a variety of reasons,not the least of which are that certain potential customers may decide not todo business with us out of concern regarding the general economy and ourpotential insolvency, which negatively impacts our revenues.  Further, the largest component of our coststructure is employment costs, which are difficult to decrease without riskingthe loss of the billable hours those employees could produce.

 

Werecently signed a loan agreement with Entrx for $2.5 million, payable in threestages.  We have received the first $1.0million, and are to receive the second advance of $750,000 on December 15,2002, and the third advance of $750,000 on February 15, 2003.  We need to meet certain milestones in orderto receive the second and third advances, including the following: (i) a lossfrom operations for the period from October 1, 2002 through November 30, 2002no greater than $515,000 for the second advance and a loss from operations forthe period from October 1, 2002 through January 31, 2003 no greater than$807,000 for the third advance; (ii) no “Material Adverse Occurrence” exists orhas occurred as of the date of the advance; (iii) each and everyrepresentation, warranty and covenant by us in the loan agreement was true asof the date of the loan agreement and remains true as of the date of the secondadvance; and (iv) no event occurs which constitutes, or with the passage oftime or giving of notice would constitute, an “Event of Default” by us.  Generally, a Material Adverse Occurrencemeans any event or occurrence that Entrx

 

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determines has, will orcould reasonably be expected to materially adversely affect our business orfinancial condition or NextNet’s business or financial condition.  An Event of Default by us under the loanagreement generally means any of the following:

 
| • |   | Any failure by us to  make to make an interest payment on any outstanding advance that is not paid  within 15 days of written notice from Entrx;                                  |
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| • |   | Any material  misrepresentation by us in the loan agreement that continues for a period of  30 days after written notice from Entrx;                                              |
| • |   | The application by us  or consent to the appointment of a trustee or receiver of our business or  property;                                                                       |
| • |   | The institution of any  dissolution or liquidation proceeding by or against us;                                                                                                   |
| • |   | The entry of judgments  against us for the payment of money totaling in excess of $10.00 million,  which remains outstanding for a period of 90 days without a stay of execution. |

 

Ifwe do not receive the second or third advances, our ability to meet our ongoingfinancial obligations could be materially adversely affected.  Another important source of funding for usis our relationship with Silicon Valley Bank. We currently receive funds from Silicon Valley Bank pursuant to anAccounts Receivable Purchase Agreement, in which Silicon Valley Bank advancesus amounts up to 80% of the invoice value for eligible accounts receivable, toa maximum accounts receivable balance of $2.5 million.  Silicon Valley Bank can reject any or all ofthe invoices we submit, which could cause us to be dependent upon thetimeliness of our collections from our clients.

 

If we become unable to borrow a sufficient amount ofmoney from Silicon Valley Bank and are unable to collect our receivables in atimely enough manner, we may not have sufficient funds on hand to meet ourcurrent obligations.  If we are unableto reverse our decrease in revenues, grow our business and manage our growthand projects effectively, we may realize a material adverse effect in thequality of our services and products, our ability to retain key personnel, andour business, financial condition and results of operations.  Further, if our financial performanceadversely affects our ability to obtain funds through accounts receivable, andwe are unable to obtain additional financing, we may not be able to meet ourcash requirements beyond January 31, 2003.

 

**We could be classified as aninadvertent investment company.**

 

Our holdings of NextNet may constitute investmentsecurities under the Investment Company Act of 1940.  We will suffer adverse consequences if we are deemed to be aninvestment company under the Investment Company Act of 1940.  A company may be deemed to be an investmentcompany if it owns investment securities with a value exceeding 40% of itstotal assets, subject to certain exclusions. We have not held ourselves out as an investment company, but if we wereto be deemed an investment company, we would become subject to registration andregulation as an investment company under the Investment Company Act of1940.  If we failed to register, wewould be prohibited from engaging in business or issuing our securities andmight be subject to civil and criminal penalties for noncompliance.  In addition, certain of our contracts mightbe voidable, and a court-appointed receiver could take control of our companyand liquidate our business.  If we registeredas an investment company, we would be subject to restrictions regarding ouroperations, investments, capital structure, governance and reporting of ourresults of operations, among other things, and our ability to operate as wehave in the past would be adversely affected.

 

Unless an exclusion or safe harbor were available tous, in certain circumstances, we would have to attempt to reduce our investmentsecurities as a percentage of our total assets in order to avoid becomingsubject to the requirements of the Investment Company Act of 1940.  This reduction can be attempted in a numberof ways, including the disposition of investment securities and the acquisitionof non-investment security assets.  Ifwe were required to sell investment securities, we may sell them sooner than weotherwise would, which may require that those securities be sold at asubstantial discount, and we may never realize anticipated benefits from, ormay incur losses on, these investments. Further, if only a portion of the shares of NextNet that we own are soldat a discount, the value of the remaining shares may be

 

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adversely affected.  Someinvestments may not be sold due to contractual or legal restrictions or theinability to locate a suitable buyer. Moreover, we may incur tax liabilities when we sell assets.

 

We are in the process ofapplying to the Securities and Exchange Commission (“SEC”) to seek an orderdeclaring Zamba to be engaged in a business other than that of owning orholding securities based on our historical development, the activities of ourofficers, directors and employees, how we represent Zamba’s business, thenature of our assets and sources of our income.  We can give no assurance, however, that the SEC will issue thisorder.

 

**We are subject to claims andlitigation and adverse results of these claims and litigation matters couldnegatively impact our financial condition and results of operations.**

 

We have been sued inMinnesota State District Court in Hennepin County by Key Equipment Leasing, whohas alleged default and sought to accelerate the balance of payments due underleases for office furniture.  Key hasrequested approximately $375,000 to resolve this matter.  Further, our former president and C.E.O.,Doug Holden, has notified us that he may seek continued payroll and benefitsand continued vesting of stock options for six months from June 27, 2002, thedate of his separation.  Mr. Holden’sannualized salary at the time of his separation was $240,000, so the value ofhis claims is approximately $120,000 plus the value of his benefits andcontinued option vesting.  For furtherdescription of these and other legal matters, please see our discussion of“Legal Proceedings” under Item II of our Quarterly Report on Form 10-Q.  We are attempting to resolve these matters,but we cannot be certain that we will be able to successfully resolve thesematters prior to litigation, and we cannot be certain that we will besuccessful in litigation.  If we areunable to resolve these matters, and if we lose the litigation for thesematters, our financial position could be materially harmed.

 

**We face risks from the possibletermination of our relationship with HCL, and HCL may bring claims against us.**

 

We are currently usingHCL to provide services to some of our clients.  If we are unable to maintain a working relationship with HCL, wecould have to find an alternative provider to provide the services that arecurrently being provided by HCL for these clients.  We are currently using fewer than ten HCL consultants.  We believe that we would eventually be ableto obtain at least one offshore provider to replace HCL, but there can be noassurance that we will be able to do so on a timely and effective basissufficient to keep our cost structure as it currently is.  Therefore, at least in the short-term, wewould likely have to use a provider based in North America and the hourly rateswe would pay to such a provider would likely be significantly higher than therates charged by HCL.  HCL may alsowithhold deliverables or otherwise attempt to disrupt our relationships withour clients.  Further, although thealliance was not successful in obtaining clients, HCL has indicated to us thatit believes it is owed a portion of the revenues received by Zamba for certainZamba clients that were jointly serviced by Zamba and HCL consultants duringthe second and third quarters.  HCL hasprovided us with estimates up to approximately $400,000 for its portion of therevenues.  Although we dispute that HCLis owed any amount of these revenues, there can be no assurance that we willprevail.  We are currently indiscussions with HCL regarding whether any amount is owed.  During our discussions, HCL has alsoindicated to us that it may bring a claim against us for the fact that theregistration for the shares of Zamba common stock HCL purchased for one milliondollars when the alliance was formed has not yet been declared effective.  If HCL does bring a claim against us, or ifwe are not successful in finding another offshore provider, it could negativelyaffect our ability to meet our milestones under the loan from Entrx orotherwise harm our ability to obtain further funding.  In our opinion, we believe we have potential claims against HCLand we have advised them of such claims. We believe HCL has failed to pay us for assets we have transferred tothem and provide finders fees or other revenue sharing for businessopportunities that we forwarded to HCL. Also, at least in part because HCL stopped funding the alliance marketingexpenses after June 30, 2002, which in our opinion HCL was required to fund, wehave had to eliminate certain personnel and reduce the salaries forothers.  These employment actions couldharm our ability to obtain and service clients.  While we believe we have defenses to HCL's claims at this time wecannot predict whether we will prevail, and if we do not prevail, what ourexposure is.

 

**The market for our stock is subjectto rules and risks relating to low-priced stock.**

 

Our common stock is currently listed for trading on the NASD Over-The-CounterBulletin Board and is subject to the “penny stock rules” adopted pursuant toSection 15(g) of the Securities Exchange Act of 1934, as amended.  In general, the penny stock rules apply tonon-Nasdaq or non-national stock exchange companies whose common stock tradesat less than $5.00 per share or which have tangible net worth of less than$5,000,000 ($2,000,000 if the company has been operating for three or moreyears).  Such rules require, among otherthings, that brokers who trade “penny stock” to persons other than “establishedcustomers” complete certain documentation, make suitability inquiries ofinvestors and provide investors with certain information concerning trading inthe security, including a risk disclosure document, quote information, broker’scommission information and rights and remedies available to investors in pennystocks.  Many brokers have decided notto trade “penny stock” because of the requirements of the penny stock rulesand, as a result, the number of broker-dealers willing to act as market makersin such securities is limited.  The“penny stock rules,” therefore, may have an adverse impact on the market forour common stock and may affect our ability to attract competitive funding.  Further, because our stock is currently

 

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listed on the Over-The-Counter Bulletin Board, this means that, amongother things, our stock is less liquid as compared to when it was listed on theNasdaq stock market.  As a result,investors in our common stock will be less able to sell stock holdings orreceive accurate stock price quotations.

 

**The loss of a significant clientcould impact our operations.**

 

We derive a substantial part of our revenues from a small number ofclients.  During the third quarter offiscal 2002, 93% of our revenues came from our top ten customers and 73% camefrom our top five customers.  During thethird quarter of fiscal 2002, three clients — Best Buy Corporation (21%), UnionBank of California (21%) and Enbridge Services (15%) — each comprised more than10% of our revenues.  The loss of one ormore of these clients would materially adversely affect our business, financialcondition and results of operations. Our services often involve the implementation of complex informationsystems that are critical to our clients’ operations.  Our failure to meet client expectations in the performance of ourservices may damage our reputation and adversely affect our ability to attractand retain clients.  If a client is notsatisfied with our services, we will generally spend additional human and otherresources at our own expense to ensure client satisfaction.  Such expenditures will typically result in alower margin on such engagements and could materially adversely affect ourbusiness, financial condition and results of operations.

 

**There may be a conflict of interestamong Zamba’s directors with regard to our holdings in NextNet Wireless, Inc.**

 

Two of our directors, JoeCostello and Dixon Doll, are also shareholders and directors of NextNet.  Mr. Costello is Chairman of bothcompanies.  We have sold approximately$5.3 million of our NextNet preferred stock during 2002 to fund operations,including sales of approximately $2.0 million to Mr. Costello and $150,000 toinvestment entities managed by Dr. Doll. Additionally, another director of Zamba, Sven Wehrwein, is a consultantfor NextNet.  In their roles asdirectors of Zamba and directors or consultants for NextNet, these directorsmay be faced with situations that require them to recuse themselves from votingon matters affecting our company.

 

**We face additional risks that areincidental to our business.**

 
| • |   | We may experience decreasing margins on the sale of  our services, which may impair our ability to achieve profitability or positive  cash flow.                            |
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| • |   | The markets we face are highly competitive and we  may not be able to compete effectively, especially against competitors with  greater resources or market identification. |
| • |   | Our business may suffer unless economic conditions  improve.                                                                                                                |
| • |   | The price of our common stock could fluctuate  significantly, which may result in losses for investors.                                                                     |
| • |   | Anti-takeover effects of Delaware law, our  Stockholder Rights Plan, and our change in control severance arrangements  could prevent a change in control of our company.    |
| • |   | Our success depends on our retention of certain key  personnel, our ability to hire additional key personnel and the maintenance  of good relations with our employees.     |

 

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