**Exhibit 99.01**

 

**CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS**

 

                ZambaCorporation desires to take advantage of the “safe harbor” provisions of thePrivate Securities Litigation Reform Act of 1995 and is filing this cautionarystatement in connection with the reform act. This Quarterly Report onForm 10-Q and any other written or oral statements made by or on ourbehalf may include forward-looking statements that reflect our current viewswith respect to future events and financial performance. The words “believe,”“expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “could,”“may” and other similar expressions identify forward-looking statements.

 

                Wewish to caution you that any forward-looking statements made by or on ourbehalf are subject to uncertainties and other factors that could cause suchstatements to be wrong. Some of these uncertainties and other factors arelisted under the caption “Risk Factors” below (many of which we have discussedin prior SEC filings). Though we have attempted to list comprehensively theseimportant factors, we wish to caution investors that other factors may prove tobe important in the future in affecting our operating results. New factorsemerge from time to time, and it is not possible for us to predict all of thesefactors, nor can we assess the impact each factor or combination of factors mayhave on our business.

 

                Youare further cautioned not to place undue reliance on those forward-lookingstatements because they speak only of our views as of the date the statementswere made. We undertake no obligation to publicly update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise.

 

**RISK FACTORS**

 

**We couldbecome insolvent.**

 

                Ourloss from operations during the second quarter was more than $4.6 million onrevenues of approximately $2.5 million, and our liabilities exceeded our assetsby approximately $3.1 million as of the end of the second quarter.  Our revenues decreased by more than 72% fromthe revenues we recorded during the second quarter of 2001.  In large part, we have funded our losses bysales of our holdings in NextNet Wireless, Inc. (“NextNet”), which is a privatecorporation that develops non-line-of-sight broadband wireless access platformsthat provide telecommunications carriers with solutions for rapid deployment ofhigh-speed, two-way voice and data services over the “last mile” of thecommunications network.  If we areunable to reduce our losses and become profitable, or if we are unable tocontinue to sell portions of our holdings in NextNet, we may not be able tocontinue as a going concern.  The amountof potential purchasers of our holdings is quite limited, for reasons includingthe fact that investors have not been generally interested intelecommunications products companies over the past few years.  We could have difficulties achievingprofitability, because potential customers may decide not to do business withus out of concern regarding our potential insolvency, which would negativelyimpact our revenues, and the largest component of our cost structure isemployment costs, which are difficult to decrease without risking the loss ofthe billable hours those employees could produce.  Another important source of funding for us is our relationshipwith Silicon Valley Bank.  We currentlyreceive funds from Silicon Valley Bank pursuant to an Accounts ReceivablePurchase Agreement, in which Silicon Valley Bank advances us amounts up to 80%of the invoice value for eligible accounts receivable, to a maximum accountsreceivable balance of $2.5 million. Silicon Valley Bank can reject any or all of the invoices we submit,which could cause us to be dependent upon the timeliness of our collectionsfrom our clients.  If we became unableto borrow a sufficient amount of money from Silicon Valley Bank and are unableto collect our receivables in a timely enough manner, we may not havesufficient funds on hand to meet our current obligations.  If we are unable to reverse our decrease inrevenues, grow our business and manage our growth and projects effectively, wemay realize a material adverse effect in the quality of our services andproducts, our ability to retain key personnel, and our business, financialcondition and results of operations. Further, if our financial performance adversely affects our ability toobtain funds through accounts receivable, and we are

 

 

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unable to obtain additional financing, we maynot be able to meet our cash requirements beyond September 10, 2002.

 

**We aresubject to claims and litigation and adverse results of these claims andlitigation matters could negatively impact our financial condition and resultsof operations.**

 

                Thelandlord for our St. Paul facility has sued us for failure to pay rent for afacility leased to our subsidiary, ZCA Corporation, and the landlord for ourCampbell facility has sued us for failure to replenish our security deposit forthat facility.  The St. Paul landlord isclaiming damages of approximately $35,000, plus interest, late fees and costs,and the amount of the security deposit that the Campbell landlord is seeking isapproximately $165,000.  The lease forthe St. Paul facility will expire on December 31, 2005, and the current monthlyrent is approximately $33,000.  Thelease for the Campbell facility runs through June 30, 2007, and the currentmonthly rent is approximately $60,000. The landlord for the St. Paul facility has notified us that it intendsto amend its claims to seek additional damages, including past due rents andacceleration of future rents.  TheCampbell landlord could also seek to amend its claim against us to acceleratefuture rents. If the claims are amended to include these additional claims andwe are unsuccessful in resolving these matters, we could incur judgments ofapproximately $1,700,000 to the St. Paul landlord and approximately $5,300,000to the Campbell landlord.  We have alsoreceived a letter demand for approximately $215,000 from one of our furniturelessors, who claims that we are in default of our lease and may seek toaccelerate the balance of the payments under the lease, and are in discussionswith another of our furniture lessors, who has also alleged default and mayseek to accelerate the balance of the payments under this lease, which isapproximately $400,000.  Further, ourformer president and C.E.O., Doug Holden, has notified us that he will seekcontinued payroll and benefits and continued vesting of stock options for sixmonths from June 27, 2002, the date of his separation.  The value of Mr. Holden’s claims isapproximately $150,000.  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 are also subject to other various legalproceedings and claims that in the aggregate do not appear to be material.

 

**Our commonstock is traded on the Over-The-Counter Bulletin Board.**

 

                Ourstock is currently listed on the Over-The-Counter Bulletin Board.  Generally, this means that our stock is lessliquid as compared to when it was listed on the Nasdaq stock market.  As a result, investors in our common stockwill be less able to sell stock holdings or receive accurate stock pricequotations.

 

 

**We may not realize expected benefits from our restructuringactions.**

 

                Inthe second quarter of 2001, we made certain changes to our operations in orderto focus on business on core operations and improve our operating performanceby restructuring and streamlining our operations.  In the restructuring process, we incurred a restructuring chargeof approximately $2.19 million, which includes a $1.173 million charge forfacility closing and other leasehold termination costs, $777,000 in employeeseverance payments, $123,000 for other employee-related costs and $115,000 forother related restructuring charges.  Inthis restructuring, we reduced our employee headcount by 89 employees, whichrepresented approximately 28% of our workforce.  Of these 89 employees, 62 employees (or approximately 70%) werebillable consultants and 27 employees (or approximately 30%) were non-billablestaff.  We made further cost-reductionactions in the third and fourth quarters of 2001, and also in the first quarterof 2002.  In the third and fourthquarters of 2001, our employee headcount decreased by 63 employees throughlayoffs and voluntary attrition. This decrease represented approximately 28% ofour remaining workforce.  The departedemployees included 41 (or approximately 65%) billable consultants and 22 (orapproximately 35%) non-billable staff. In the first quarter of 2002, we incurred unusual charges of $1.69,including a one-time charge for $1.34 million related to subleasing ourCampbell, California facility and terminating the lease for our ColoradoSprings, Colorado facility, and a $350,000 charge was taken for severance payrelating to reduced headcount, including three vice presidents, in the firstquarter of 2002.  Our headcountdecreased in the first quarter of 2002 by 32 employees, or 19% of our totalworkforce,

 

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through layoffs or voluntary attrition. Ofthese 32 employees, 24 employees (or approximately 75%) were billableconsultants and 8 employees (or approximately 25%) were non-billablestaff.  The reductions in our billablestaff may prevent us from obtaining future revenues from those positions, ifrevenue opportunities are available, unless we are able to hire replacementpersonnel in time to staff the potential future revenue opportunities.  In the second quarter of 2002, we incurredunusual charges of $1.64 million for facility and non-cash compensation matters.Included in this amount was a $1.19 million charge for facility closings andleasehold termination costs.  Thefacility charges included $190,000 for closing the Boston, Massachusettsfacility, $290,000 for reducing the amount of space leased in the Minneapolis,Minnesota by approximately 60%, and $713,000 for increasing the accrual for ourSt. Paul, Minnesota and Campbell, California facilities to amounts consistentwith buy-out offers made by our landlords. We cannot predictwhether we will receive expected synergies and improved operating performanceas a result of these restructuring and streamlining actions.  We also cannot predict whether ourrestructuring and streamlining changes will adversely affect our ability toretain key employees, which, in turn, would adversely affect our business,financial condition and results of operations.

 

**We may not realize benefitsfrom our alliance with HCL.**

 

                During the first quarter of2002, we entered into a Strategic Alliance Agreement with HCLTechnologies America, Inc. (“HCL America”) and HCL Technologies Limited, India(“HCL”), in which we will work with HCL and HCL America to pursue perceivedservice opportunities in certain identified markets.  Although HCL and HCL America will provide the initial funding forthe sales and marketing activities of the alliance, we will dedicate several ofour senior-level sales and delivery employees to the alliance.  If the alliance is not successful indeveloping its own business, we will have lost the opportunity cost of theseemployees, who could otherwise have been attempting to obtain business directlyfor us.  Also, our executive managementmay dedicate a significant amount of their time to alliance activities, whichmay distract them from our continuing business, which, in turn, could adversely affect our business,financial condition and results of operations.

 

**The October 2001 sale of thecustomer relationship management products developed by Clarify has adverselyimpacted our business.**

 

                A substantial portion of ourhistorical revenue was derived from implementation and customization of thecustomer relationship management (“CRM”) products developed by Clarify, which,prior to October 2001, was a business unit of Nortel Networks, Inc., and, priorto its acquisition by Nortel, was a stand-alone company.  On October 2, 2001, Nortel Networks soldClarify to Amdocs Limited.  At the timeof the sale, several of our clients and prospective clients decided to defer orcancel Clarify-related projects with which we were involved.  As a result, starting in the fourth quarterof 2001and continuing our revenues have been adversely affected by thesedeferrals and cancellations.  We areunsure about Amdocs’ plans for the Clarify suite of products.  Amdocs focuses its other products on alimited number of industries, particularly communications and IP serviceproviders.   We have not been able toreplace the revenue we received from performing services on Clarify productswith revenues derived from providing services for competitive or alternativeCRM products.

 

 

**Competition in thetechnology consulting industry is intense, and many of our competitors havesubstantially greater resources and name recognition than we do.**

 

                The CRM consulting and systemsintegration industry is highly competitive and served by numerous national,regional and local firms.  The CRMmarket includes participants from a variety of market segments, includingconsulting and systems integration firms, contract programming companies,application software firms and their professional services groups, ande-business solution providers.  Ourprimary competitors can be classified into three groups:

 

•      large systems integrators (e.g.,Accenture, PricewaterhouseCoopers, IBM, EDS);

 

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•      consulting firms located outside theUnited States (e.g., Wipro, Tata); and

 

•      other consulting companies (e.g.,E-Loyalty, One, Covansys, Syntel, Cognizant).

 

                We also face competition fromservice organizations within potential clients.  Some of these competitors, particularly large systemsintegrators, may have a pre-existing relationship with many of our potentialcustomers, either through non-CRM services that they provide to such customersor, in the case of large management consulting firms, through audit or othernon-audit services those management consulting firms provide to our current orpotential clients.  We differ fromnearly all of our competitors by our exclusive focus on CRM services.

 

                In addition to facing a largenumber of potential competitors, many of our competitors also have certainadvantages over us, including:

 

•      better name recognition;

 

•      a broader range of products andservices;

 

•      greater sales, marketing,distribution and technical capabilities;

 

•      significantly greater revenues andfinancial resources; and

 

•      established market positions.

 

                We may not be able to competeeffectively with these companies.  Inaddition, competitors with greater financial resources may be able to respondmore quickly to new or emerging technologies and changes in customerrequirements that may render our services obsolete or make it more difficultfor us to compete with these companies. In addition, the economic downturn has put downward pressure on pricing,and competitors with greater economic resources may be more willing to performservices under reduced prices, which could negatively affect our ability toobtain and retain customers, particularly if customers decide to differentiateamong vendors on the basis of price.  Wecannot predict whether we will be able to compete successfully with ourexisting and new services or with current and future competitors.   In addition, we believe that technologicalchange will continue to cause rapid evolution in the competitive environment.  The full scope and nature of these changesare difficult to predict at this time, but increased competition could lead toreduced gross margins and diminished market share, which could have a materialadverse effect on our business, financial condition and results of operations.

 

**Ouroperating results may fluctuate significantly from quarter-to-quarter.**

 

                Ahigh percentage of our operating expenses, particularly personnel and relatedcosts, depreciation, office rent and occupancy costs, are fixed in advance ofany particular quarter.  As a result,unanticipated variations in the number, or progress toward completion, of ourprojects may cause significant variations in operating results in anyparticular quarter and could result in losses for that quarter.  Our net revenue and operating results mayfluctuate significantly due to a number of other factors, some of which areoutside our control.  These factors mayinclude:

 

•      theloss of key personnel and other employees;

 

•      anyfluctuations in market demand for our services, consultant hiring and utilization;

 

•      thecontractual terms and timing of completion of projects;

 

•      anydelays incurred in connection with projects;

 

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•      theaccuracy of our estimates of resources required to complete projects;

 

•      anydelays or changes in our sales cycle;

 

•      theadequacy of provisions for losses;

 

•      thecosts of obtaining or losing customers and accounts; and

 

•      anincrease in competition and pricing pressures.

 

                Oneor more of the foregoing factors may cause our operating expenses to bedisproportionately high during any given period.  Based on the preceding factors, we may experience a shortfall inrevenue or earnings or otherwise fail to meet public market expectations, whichcould materially adversely affect our business, financial condition or resultsof operations.

 

**Ourrevenues are difficult to predict because they are generated on aproject-by-project basis.**

 

                Wederive our revenues primarily from fees for services generated on aproject-by-project basis.   These projects vary in size and scope.   Therefore, a client that accounts for asignificant portion of our revenues in a given period may not generate asimilar amount of revenues, if any, in subsequent periods.   In addition, after we complete a project,we have no assurance that the client will retain us in the future.

 

                We also have clients whomay terminate their agreements with us, whether time-and-materials or fixed-feebased, without any prior written notice.  Clients may terminate projects before completion.   If our clients terminate existingagreements, our business, financial condition and results of operations couldsuffer material harm.

 

**The loss ofa significant client could impact our operations.**

 

                Wederive a substantial part of our revenues from a small number of clients.   During the second quarter of fiscal 2002, 92% of our revenuescame from our top ten customers and 72% came from our top five customers.  During the second quarter of fiscal 2002,three clients — Best Buy Corporation (23%), Fleet Bank (16%) and EnbridgeServices (16%) — each comprised more than 10% of our revenues.  The loss of one or more ofthese clients wouldmaterially adversely affect our business, financial condition and results ofoperations.  Our services often involvethe implementation of complex information systems that are critical to ourclients’ operations.  Our failure tomeet client expectations in the performance of our services may damage ourreputation and adversely affect our ability to attract and retain clients.  If a client is not satisfied with ourservices, we will generally spend additional human and other resources at ourown expense to ensure client satisfaction. Such expenditures will typically result in a lower margin on suchengagements and could materially adversely affect our business, financialcondition and results of operations.

 

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