SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C.  20549 FORM 10-Q (Mark One)xQUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
             THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended
March 31, 2001 OR oTRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF
1934For the transition period from _____ to _____ Commission
File Number 0-22718 ZAMBA CORPORATION(Exact name of Registrant as specified in
its charter) Delaware
  #41-1636021(State or other
  jurisdiction of
  (I.R.S. Employerincorporation or
  organization)
  Identification No.)3033 Excelsior Boulevard, Suite 200, Minneapolis, Minnesota
  55416(Address of principal executive offices, including zip code)(952) 832-9800(Registrant's
  telephone number, including area code)
 Indicate by check mark whether the
Registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. YESxNOo Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date. Outstanding atClass
  May 4, 2001Common Stock, $0.01
  par value
  32,287,146
    ZAMBA CORPORATION

INDEX

PART I  Financial
  InformationItem 1.
  Financial Statements
  (Unaudited)Consolidated
  Statements of Operations for the Three Months Ended March 31, 2001 and 2000Consolidated
  Balance Sheets as of March 31, 2001 and December 31, 2000Consolidated
  Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000Notes to
  Consolidated Financial StatementsItem
  2.
  Management's
  Discussion and Analysis of Financial Condition and Results of OperationsItem
  3.
  Quantitative
  and Qualitative Disclosures About Market RiskPART II  Other
  InformationItem 1.
  Legal ProceedingsItem 2.
  Changes in SecuritiesItem 3.
  Defaults Upon
  Senior SecuritiesItem
  4.
  Submission
  of Matters to a Vote of Security HoldersItem 5.
  Other InformationItem 6.
  Exhibits and
  Reports on Form 8-KSignaturesPart I: Financial Information

Item 1:  Financial
Statements

ZAMBA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

(In
thousands, except per share data)

For the three months
  endedMarch 31,2001
  2000Net revenues
  $11,810
  $8,217Costs and expenses:Project and
  personnel costs
  6,080
  4,315Sales and
  marketing
  1,893
  1,055General and
  administrative
  4,857
  2,767Amortization of
  intangibles andnon-cash compensation
  92
  1,017Total
  costs and expenses
  12,922
  9,154Loss from operations
  (1,112)
  (937)Other income (expense):Interest income
  54
  74Interest expense
  (24)
  (23)30
  51Net loss
  ($1,082)
  ($886)Net loss per share - basic
  and diluted
  ($0.03)
  ($0.03)Weighted average shares
  outstanding - basic and diluted
  32,174
  31,303The accompanying notes are an integral part of the
consolidated financial statements.

ZAMBA
CORPORATIONCONSOLIDATED BALANCE SHEETS
(Unaudited)

(In thousands, except per share
data)

March 31,
  December 31,2001
  2000ASSETSCurrent assets:Cash and cash
  equivalents
  $5,594
  $4,843Accounts
  receivable, net
  5,852
  5,858Unbilled
  receivables
  183
  426Notes receivable
  1,835
  1,979Notes receivable
  - related parties
  847
  859Prepaid expenses
  and other current assets
  625
  660Total current assets
  14,936
  14,625Property and equipment, net
  1,788
  1,650Restricted cash
  471
  264Intangible assets, net
  190
  231Other assets
  310
  243Total
  assets
  $17,695
  $17,013LIABILITIES AND STOCKHOLDERS' EQUITYLiabilities:Line of credit
  $3,000
  $0Current
  installments of long-term debt
  446
  607Accounts payable
  1,239
  1,589Accrued expenses
  3,256
  3,306Deferred revenue
  648
  1,480Total
  current liabilities
  8,589
  6,982Long-term debt, less current installments
  400
  469CommitmentsTotal
  liabilities
  8,989
  7,451Stockholders' equity:Common stock,
  $0.01 par value, 55,000 shares authorized, 32,287 and 32,164    shares issued and outstanding at
  March 31, 2001 and December 31, 2000,    respectively
  323
  322Additional
  paid-in capital
  82,101
  81,876Accumulated
  deficit
  (73,718)
  (72,636)Total
  stockholders' equity
  8,706
  9,562Total
  liabilities and stockholders' equity
  $17,695
  $17,013The accompanying notes
  are an integral part of the consolidated financial statements.

ZAMBA
CORPORATIONCONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)

(In thousands)
  Three Months EndedMarch 31,2001
  2000Cash flows from operating
  activities:Net loss
  ($1,082)
  ($886)Adjustments
  to reconcile net loss to netcash usedin operating activities:Depreciation
  and amortization
  257
  1,152Provision
  for bad debts
  95
  20Changes
  in operating assets and liabilities:Accounts
  receivable
  (89)
  (1,957)Unbilled
  receivables
  243
  (50)Notes
  receivable
  144
  -Prepaid
  expenses and other assets
  (32)
  (115)Accounts
  payable
  (350)
  493Accrued
  expenses
  (50)
  (1,271)Deferred
  revenue
  (832)
  510Net
  cash used in operating activities
  (1,696)
  (2,104)Cash flows from investing
  activities:Purchase of
  property and equipment
  (302)
  (129)Restricted
  cash
  (207)
  10Notes
  receivable - related parties
  12
  (180)Net
  cash used in investing activities
  (497)
  (299)Cash flows from financing
  activities:Line of
  credit, net
  3,000
  -Proceeds
  from exercises of stock options and warrants
  174
  552Payments of
  long-term debt
  (230)
  (94)Net
  cash provided by financing activities
  2,944
  458Net increase (decrease) in
  cash and cash equivalents
  751
  (1,945)Cash and cash equivalents,
  beginning of period
  4,843
  7,973Cash and cash equivalents,
  end of period
  $5,594
  $6,028The accompanying notes are an integral part of the
consolidated financial statements.ZAMBA CORPORATIONNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)

Note
A.  Basis of Presentation:

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

Note
B. Selected Balance Sheet Information:

(in thousands)
  March 31, 2001
  December 31, 2000Accounts receivable,
  net:Accounts receivable
  $6,274
  $6,287Less allowance for doubtful accounts
  (422)
  (429)$5,852
  $5,858Property and
  equipment, net:Computer equipment
  $1,503
  $1,406Furniture and equipment
  629
  694Leasehold improvements
  1,074
  9313,206
  3,031Less accumulated depreciation and
  amortization
  (1,418)
  (1,381)$1,788
  $1,650

Note C. 
Recent Accounting Standards:

The
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard No. 133 Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133), as amended by SFAS No. 138.  SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities.  SFAS No. 133 requires companies to recognize
all derivatives as either assets or liabilities, and measure those instruments
at fair value. The statement is effective beginning after January 1, 2001. We
have implemented SFAS No. 133, as amended, in fiscal year 2001.  The implementation of this statement did not
have an impact on our financial position, results of operations or cash flows
for the quarter ended March 31, 2001.

In
December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial
Statements, which provides guidance related to revenue recognition. The
implementation of this statement was effective beginning in the fourth quarter
of 2000, but it had no impact on our business, financial position, results of
operations or cash flows.

Item 2.  Managements Discussion and Analysis of
Financial Condition and Results of Operations

Overview

ZAMBA
Solutions is a leading customer relationship management (CRM) consulting and
systems integration company for Global 2000 organizations. We help clients
better anticipate, understand and respond to the needs of their current and
potential customers through integrated, multi-channel solutions. Based on our
CRM expertise and experience, we have created an end-to-end blueprint of
industry-leading solutions addressing each aspect of CRM, including strategy,
marketing and analytics, commerce and content, contact center, mobile and
wireless, sales, customer experience and support.

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

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

Results of Operations

Three months ended March 31, 2001, compared to the three
months ended March 31, 2000

Net RevenuesNet
revenues increased 44% to $11.81 million in 2001 compared to $8.22 million in
2000.  The increase was due principally
to increases in the number of billable personnel, average size and number of
client projects as well as the average billing rate on these projects.

Project and Personnel CostsProject
and personnel costs consist primarily of payroll and payroll-related expenses
for personnel dedicated to client assignments and is directly associated with,
and varies with, the level of client services being delivered.  These costs represent the most significant
expense we incur in providing service. 
Project costs were $6.08 million or 51% of net revenues in the first
quarter of 2001 compared to $4.32 million or 53% of net revenues in the first
quarter of 2000.  The 41% increase in
dollar terms was due primarily to the increase in the number of project personnel.  Project personnel increased primarily as a
result of the increased size of our engagements.



Sales and MarketingSales
and marketing costs consist primarily of salaries, employee benefits, travel
expenses of sales and marketing personnel and promotional costs.  Sales and marketing expenses were $1.89
million or 16% of net revenues in 2001, compared to $1.06 million or 13% of net
revenues in 2000.  The increase in
dollar and percentage terms is due primarily to the hiring of additional direct
sales personnel.  We anticipate that the
dollar amount and percentage of sales and marketing expenses will increase in
2001.

General and AdministrativeGeneral
and administrative costs consist primarily of expenses associated with our
management, information technology, training and recruiting, occupancy costs,
and finance and administrative groups. 
General and administrative expenses were $4.86 million or 41% of net
revenues in 2001, compared to $2.77 million or 34% of net revenues in
2000.  The dollar and percentage
increases were due primarily to investments we made in growing the business,
which resulted in an increase in the number of employees hired during the past
year, an increase in occupancy costs related to a significant expansion of our
office space, and an increase in information technology infrastructure
spending.

Amortization of Intangibles and Non-cash CompensationAmortization
of intangibles and non-cash compensation was $92,000 in 2001 compared to $1.02
million in 2000.  The amortization was
mainly due to the acquisition of The QuickSilver Group, Inc. (QuickSilver) in
September 1998.  The QuickSilver
acquisition was accounted for using the purchase method of accounting, and the
purchase price was allocated to tangible and identifiable intangible
assets.  The fair value of identifiable
intangible assets was $7.7 million and was allocated to the following
categories: people and experiences, client references, client lists, and
intellectual property and delivery methodology.  These amounts are being amortized over economic useful lives of
between two and four years.  
Approximately 98% of the costs related to the QuickSilver acquisition
have been amortized as of March 31, 2001.

Non-cash
compensation is due to stock options granted to non-shareholder employees of
Camworks and Fusion following our acquisitions of each company.  These options were granted with an exercise
price less than fair market value as an incentive to the employees to continue
employment with ZAMBA.  The remaining
deferred compensation balance related to these options is $467,000 as of March
31, 2001.  The amount of this charge
will be approximately $42,000 per quarter for each quarter through 2003.

Interest IncomeInterest
income was $54,000 in 2001 compared to $74,000 in 2000.  The decrease is due to decreases in our cash
and investment accounts, which were used in operating and investing activities,
as well as the overall decline in interest rates in 2001.

Interest ExpenseInterest
expense was $24,000 in 2001 compared to $23,000 in 2000.  The interest charges are due to the line of
credit with Silicon Valley Bank, which was established in 2001 as well as
interest charges accrued for future payments of the notes payable issued in
connection with the acquisition of QuickSilver. Interest expense is expected to
increase over the next few quarters as the line of credit is used.

Income TaxesWe
have incurred net operating losses since inception.  Because we are uncertain as to whether we will have taxable
earnings in the future, we have not reflected any benefit of such net operating
loss carryforwards in the accompanying unaudited consolidated financial
statements.



Net LossAs
a result of the above, our net loss for the quarter ended March 31, 2001 was
$1.08 million, or ($0.03) per share, compared to a net loss for the quarter
ended March 31, 2000 of $886,000, or ($0.03) per share.

Liquidity and Capital Resources

We
invest predominantly in instruments that are highly liquid, investment grade
and have maturities of less than one year. At March 31, 2001, we had
approximately $5.6 million in cash and cash equivalents compared to $4.8
million at December 31, 2000.

Cash
used in operating activities was $1.7 million for the three months ended March
31, 2001 and resulted primarily from a loss before amortization, depreciation
and other non-cash stock compensation charges of  $825,000 and a decrease in deferred revenue of $832,000.  Cash used in operating activities was $2.1
million for the three months ended March 31, 2000, due primarily to income
before amortization, depreciation and other non-cash stock compensation charges
of  $266,000, increases in accounts
payable of $493,000 and deferred revenue of $510,000, but was offset by a
decrease in accrued expenses of $1.3 million and an increase in accounts
receivable of $2.0 million.

Cash
used in investing activities was $497,000 for the three months ended March 31,
2001, and primarily resulted from the purchase of property and equipment of
$303,000 and the increase in restricted cash of $207,000.  Cash used in investing activities was
$299,000 for the three months ended March 31, 2000 and primarily resulted from
the purchase of property and equipment and the increase in notes receivable to
related parties.

Cash
provided by financing activities was $2.9 million for the three months ended
March 31, 2001 and consisted primarily of cash received from the line of
credit. Cash provided by financing activities was $458,000 for the three months
ended March 31, 2000 and consisted primarily of cash received from the sale of
common stock upon the exercise of stock options, but was offset partially by
payments of outstanding debt.

In
February 2001, we established a secured revolving credit facility with Silicon
Valley Bank of up to a maximum of $5.0 million based on eligible
collateral.  Borrowings under this line
of credit bear interest at the banks prime rate plus 2.0%.  This agreement requires that we maintain
certain financial covenants and levels of tangible net worth.  This facility is renewable annually.

As
of March 31, 2001, we had no significant capital spending or purchase
commitments, except for a commitment of approximately $325,000 relating to
professional services software.  We had
cash and cash equivalents totaling $5.59 million and working capital of $6.35
million.  We also have a secured
revolving credit facility with Silicon Valley Bank that allows us to withdraw
up to $5.0 million based on eligible accounts receivable.  Under the secured revolving credit facility,
we must be in compliance with certain tangible net worth covenants. We believe
that our existing cash and cash equivalents, together with cash provided from
operations and our secured revolving credit facility, should be sufficient to
meet our working capital and capital expenditure requirements in the near
term.  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 additional financing will be available to us on favorable terms if
required, or at all. If our financial performance causes us to violate the
covenants in our secured revolving credit facility or adversely affects the
amount of our eligible accounts receivable, and we are unable to obtain
additional financing, we may not be able to meet our near term cash
requirements.

Item 3.  Quantitative and Qualitative Disclosures
About Market Risk

We
are exposed to market risk from changes in security prices and interest rates.
Market fluctuations could impact our results of operations and financial
condition. We are exposed to certain market risks based on our outstanding debt
obligations of $846,000 as well as our line of credit at March 31, 2001. The
interest rates charged on our long-term debt obligations range from 6.0% to
10.5%, and the obligations mature monthly and quarterly through December
2003.  We do not invest in any
derivative financial instruments. Excess cash is invested in short-term
low-risk vehicles, such as money market investments. Changes in interest rates
are not expected to have a material effect on our business, financial condition
or results of operations.

On
February 27, 2001, we established a secured revolving credit facility with
Silicon Valley Bank. Borrowings under this line of credit bear interest at the
banks prime rate plus 2.0%, and is payable monthly.

Cautionary Statement for Purposes of the Safe Harbor
Provisions of the Private Securities Litigation Reform Act of 1995

Certain statements in this Report on Form 10-Q are
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.When
used in this Report on Form 10-Q, the words may, should, expects,
plans, anticipates, believes, estimates, predicts, intends,
potential or continue and similar expressions are generally intended to
identify forward-looking statements. Because these forward-looking statements
involve risks and uncertainties, actual results could differ materially from
those expressed or implied by these forward-looking statements. These
statements are only predictions. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance and/or achievements.

Factors that may impact forward-looking statements
include, among others, the growth rate of the marketplace for customer-centric
solutions, our ability to develop skills in implementing customer-centric
solutions, the ability of our partners to maintain competitive products, the
impact of competition and pricing pressures from actual and potential
competitors with greater financial resources, our ability to obtain large-scale
consulting services agreements, client decision-making processes, changes in
expectations regarding the information technology industry, our ability to hire
and retain competent employees, our ability to make acquisitions under
advantageous terms and conditions, our success in integrating acquisitions into
our business and our culture and possible costs incurred related to the
integration, our ability to grow revenues from acquired companies, possible
changes in collections of accounts receivable, changes in general economic
conditions and interest rates,and
other factors identified in our filings with the Securities and Exchange
Commission. We disclaim any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

PART II.  OTHER
INFORMATION



Item 1.  Legal Proceedings



We
are subject to various legal proceedings and claims that arise in the ordinary
course of business.  We currently
believe that resolving these matters will not have a material adverse effect on
our business, financial condition or results of operations.Item 2.  Changes in Securities

None

Item
3.  Defaults Upon Senior Securities

None

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

None

Item 5.  Other Information

None

Item
6.  Exhibits and Reports on Form 8-K

(a)         Exhibits:
None

(b)        Reports
on Form 8-K: None

SIGNATURES

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

ZAMBA CORPORATIONBy:
  /s/ Douglas M. HoldenDouglas
  M. HoldenPresident
  and Chief Executive OfficerBy:
  /s/
  Michael H. CarrelMichael
  H. CarrelExecutive
  Vice President and Chief Financial OfficerDated: May 14, 2001