10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

OR

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

For 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 incorporation or organization)	(I.R.S. Employer 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.

YES ý NO o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES o NO ý

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

Class	Outstanding at May 7, 2004
Common Stock, $0.01 par value	38,900,470

ZAMBA CORPORATION

INDEX

Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2003
	Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003
	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
Item 4.	Controls and Procedures
PART II — Other Information
Item 1.	Legal Proceedings
Item 2.	Changes in Securities and Use of Proceeds
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

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Part I. Financial Information

Item 1:  Financial Statements

ZAMBA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

(In thousands, except per share data)

	Three months ended March 31,
	2004			2003
Revenues:
Professional services	$	2,161		$	2,510
Reimbursable expenses	186			264
Total revenues	2,347			2,774
Costs and expenses:
Project and personnel costs	1,231			1,442
Reimbursable expenses	186			264
Sales and marketing	197			249
General and administrative	679			782
Total costs and expenses	2,293			2,737
Income from operations	54			37
Other income (expense):
Gain on sale of NextNet shares	743			1,853
Interest expense	(23		)	(27		)
Other income, net	720			1,826
Income before extraordinary item	774			1,863
Extraordinary gain from extinguishment of debt	—			198
Net income	$	774		$	2,061
Basic and diluted net income per share:
Income before extraordinary item	$	0.02		$	0.05
Extraordinary gain from extinguishment of debt	—			—
Basic and diluted net income per share	$	0.02		$	0.05
Weighted average shares outstanding:
Basic	38,892			38,823
Diluted	38,912			39,525

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

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ZAMBA CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)

(In thousands, except per share data)

	March 31, 2004			December 31, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	109		$	699
Accounts receivable, net	1,086			618
Unbilled receivables	169			79
Prepaid expenses and other current assets	118			108
Total current assets	1,482			1,504
Property and equipment, net	271			326
Other assets	56			57
Total assets	$	1,809		$	1,887
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Liabilities:
Line of credit	$	482		$	436
Accounts payable	113			128
Accrued expenses	809			919
Deferred revenue	196			187
Deferred gain on sale of investment	—			783
Total current liabilities	1,600			2,453
Commitments and contingencies
Stockholders’ equity (deficit):
Common stock, $0.01 par value, 120,000 shares authorized, 38,900 and 38,892 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively	389			389
Additional paid-in capital	86,081			86,080
Accumulated deficit	(86,261		)	(87,035		)
Total stockholders’ equity (deficit)	209			(566		)
Total liabilities and stockholders’ equity (deficit)	$	1,809		$	1,887

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

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ZAMBA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(In thousands)

	Three months ended March 31,
	2004			2003
Cash flows from operating activities:
Net income	$	774		$	2,061
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	55			83
Provision for bad debts	(20		)	—
Gain on disposal of fixed assets	—			(5		)
Gain on sale of NextNet shares	(743		)	(1,853		)
Extraordinary gain on extinguishment of debt	—			(198		)
Changes in operating assets and liabilities:
Accounts receivable	(448		)	(637		)
Unbilled receivables	(90		)	330
Prepaid expenses and other assets	(9		)	280
Accounts payable	(14		)	(448		)
Accrued expenses and other long-term liabilities	(150		)	(637		)
Deferred revenue	9			57
Net cash used in operating activities	(636		)	(967		)
Cash flows from investing activities:
Purchase of property and equipment	—			(3		)
Proceeds from sale of NextNet shares	—			750
Proceeds from sale of equipment	—			6
Net cash provided by investing activities	—			753
Cash flows from financing activities:
Line of credit, net	45			42
Proceeds from short-term loan	—			750
Proceeds from sale of common stock	1			1
Payments of long-term debt	—			(167		)
Net cash provided by financing activities	46			626
Net increase (decrease) in cash and cash equivalents	(590		)	412
Cash and cash equivalents, beginning of period	699			549
Cash and cash equivalents, end of period	$	109		$	961
Supplemental Schedule for Disclosures of Cash Flow Information:
Cash paid during the period for interest	$	25		$	26
Non-cash investing and financing activity:
Conversion of note payable into sale of NextNet shares	$	—		$	1,750
Conversion of long-term debt into sale of NextNet shares	$	—		$	71

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

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ZAMBA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note A.  Basis of Presentation:

The unaudited consolidated financial statements of Zamba Corporation as of March 31, 2004, and for the three month periods ended March 31, 2004 and 2003, reflect all adjustments (which include only normal recurring adjustments, except as disclosed in the footnotes) necessary, in the opinion of management, to fairly state our financial position as of March 31, 2004, 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 accounting principles generally accepted in the United States of America.  Certain prior year amounts have been reclassified to conform with the 2004 presentation.  These financial statements should be read in conjunction with our audited consolidated financial statements and related notes for the year ended December 31, 2003, which were included in our 2003 Annual Report on Form 10-K.

Note B.  Liquidity:

We had a working capital deficit of $118,000 as of March 31, 2004.  We partially fund our operations through our Accounts Receivable Purchase Agreement with Silicon Valley Bank.  This agreement expires on July 29, 2004.  However, both parties have the right to terminate this Agreement at any time.  A total of $482,000 was outstanding as of March 31, 2004.  See Note G for additional discussion.

In May 2004, we issued a $750,000, 12% convertible promissory note. The note is payable in interest only through August 2004, and thereafter principal and interest is payable in equal monthly installments over the next 15 months. We have the option to make each payment due under the note by using our common stock, at a 12% discount to the average closing bid price of our common stock on the OTC Bulletin Board over the previous thirty trading days.  In connection with the financing we paid a 3% origination fee, and issued a five year warrant for the purchase of 1.34 million shares of our common stock at $0.28 per share.  In addition, we agreed to file a registration statement with the U.S. Securities and Exchange Commission, covering the issuance or resale of the shares of the Company’s common stock which may be issued in connection with the note and warrant issued to the noteholder.

Cash used in operating activities was $636,000 for the three months ended March 31, 2004 and resulted primarily from an increase in accounts receivable.  Accounts receivable increased primarily because revenue increased in the first quarter of 2004 compared to the fourth quarter of 2003.

Our ability to continue as a going concern depends upon our ability to generate cash from operations, continue to access our borrowing facility with Silicon Valley Bank, and obtain any additional funding that may be needed.  The accompanying financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business.  These financial statements do not include any adjustments that might result if we discontinued our operations.

Note C.  Stockholders’ Equity:

We have chosen to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations (APB No. 25).  We account for stock-based compensation to non-employees using the fair value method prescribed by Statements of Financial Accounting Standards (SFAS) No. 123.  Accordingly, compensation costs for stock options granted to employees are measured as the excess, if any, of the value of our stock at the date of the grant over the amount an employee must pay to acquire the stock.  Compensation cost for

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stock options granted to non-employees is measured as the fair value of the option at the date of grant.  Such compensation costs, if any, are amortized on a straight-line basis over the underlying option vesting terms.

No compensation cost has been recognized for stock options granted to employees or directors under our 1989 Stock Option Plan, 1993 Equity Incentive Plan, 1993 Directors Option Plan, 1997 Stock Option Plan, 1998 Non-Officers Plan, 1999 Non-Officers Plan, 2000 Non-Officers Plan, or 2000 Non-Qualified Plan (collectively referred to as the “Plans”).  Had compensation cost for the Plans been determined based on the fair value of options at the grant date for awards in the three month periods ended March 31, 2004 and 2003, our net income and net income per share would have changed to the pro forma amounts indicated below:

(In thousands, except per share amounts)

	Three Months Ended March 31,
	2004			2003
Net income, as reported	$	774		$	2,061
Deduct total stock based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(103		)	(426		)
Pro forma net income	$	671		$	1,635
Earnings per share:
Basic - as reported	$	0.02		$	0.05
Basic - pro forma	$	0.02		$	0.04
Diluted - as reported	$	0.02		$	0.05
Diluted - pro forma	$	0.02		$	0.04

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Note D. Selected Balance Sheet Information:

(in thousands)	March 31, 2004			December 31, 2003
Accounts receivable, net:
Accounts receivable	$	1,190		$	742
Less allowance for doubtful accounts	(104		)	(124		)
Totals	$	1,086		$	618
Property and equipment, net:
Computer equipment	$	828		$	828
Furniture and equipment	293			293
Leasehold improvements	60			60
Totals	1,181			1,181
Less accumulated depreciation and amortization	(910		)	(855		)
Totals	$	271		$	326

Note E.  Net Income Per Share:

Basic income per share is computed based on the weighted average number of common shares outstanding.  Diluted income per share is computed based on the weighted average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued.  Potentially dilutive shares of common stock include options and warrants to purchase our common stock at prices at or below the average market price for our common stock as of the last date of the time period being measured.  The following is a reconciliation from basic earnings per share to diluted earnings per share:

(In thousands, except per share data)

	Three months ended March 31,
	2004		2003
Net income	$	774	$	2,061
Weighted Average Shares Outstanding:
Basic	38,892		38,823
Effect of Dilution - Stock Options	20		702
Diluted	38,912		39,525
Earning Per Share:
Basic	$	0.02	$	0.05
Diluted	$	0.02	$	0.05

The calculation of weighted average diluted shares outstanding excludes options and warrants for approximately 5.4 million common shares at March 31, 2004 that were anti-dilutive, as the exercise prices of those options and warrants were greater than the average market price.

Note F.  Recent Accounting Standards:

In January 2003 the Financial Accounting Standards Board issued and, subsequently revised, Financial Interpretation No.46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. This Interpretation applies to all Variable Interest Entities. Adoption was required for public companies at the end of

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periods ending after March 15, 2004. The adoption of FIN 46 did not have an effect on our financial position and results of operations.

Note G.   Accounts Receivable Purchase Agreement:

We partially fund our operations through an Accounts Receivable Purchase Agreement with Silicon Valley Bank.  This agreement entitles us to borrow up to a maximum of $2.0 million based on 80% of eligible receivables, and is secured by virtually all of our assets.  Borrowings under this agreement bear interest at a monthly rate of 1% of the average daily balance outstanding during the period.  Additionally, on each reconciliation date, we pay an administrative fee equal to 0.25% of the face amount of each receivable purchased by Silicon Valley Bank during that reconciliation period.  The Accounts Receivable Purchase Agreement expires on July 29, 2004.  However, both parties have the right to terminate this agreement at any time.  If Silicon Valley Bank decides not to purchase receivables from us, our ability to fund our operations could be materially harmed.  The amount outstanding under this Accounts Receivable Purchase Agreement was $482,000 as of March 31, 2004.

Note H.   Sales of Investments:

In 2003, we sold portions of our equity holdings in NextNet Wireless, Inc to private investors.  Several members of our board and management team are and have been either directors, officers or consultants at NextNet.  Our chairman, Joseph B. Costello, was also the chairman of NextNet. Another of our directors, Dixon Doll, was also a director and a shareholder of NextNet.  Additionally, another director of Zamba, Sven Wehrwein, provided consulting services to NextNet, and Michael Carrel, our CFO, was also the CFO for NextNet from October 1, 2003 through March 31, 2004.

In the fourth quarter of 2003, we entered into stock purchase agreements with eleven private investors, in which we sold an aggregate of 495,333 shares of NextNet Series A Preferred Stock for an aggregate consideration of $743,000.  All of the shares were sold at a per share price of $1.50.  We recorded a deferred gain on sale of investment when we received the cash from these transactions in the fourth quarter of 2003, and recorded a gain on sale of investment of $743,000 in the first quarter of 2004, when the shares were transferred to the private investors.

On January 27, 2003, we entered into an agreement to pay a third party $165,000 and transfer 16,667 shares of NextNet Series A Preferred Stock to the third party’s family trust in exchange for cancellation of a debt obligation under which we owed approximately $434,000 in principal and accrued interest.  As a result, we recorded an extraordinary gain on debt extinguishment of approximately $198,000 and a gain on sale of NextNet shares of $71,000 in the first quarter of 2003.  

On February 17, 2003, we sold 177,306 shares of NextNet Series A Preferred Stock to two private investors for $750,000.  We recorded a deferred gain on sale of investment in the first quarter of 2003 when we received the cash from these transactions, and a gain on sale of investment was recorded in the second quarter of 2003, when the share transfer was completed. 

On November 5, 2002, we entered into a loan agreement with Entrx Corporation, under which Entrx agreed to lend us up to $2.5 million in three separate advances.  We received the first advance of $1 million on November 4, 2002.  On February 19, 2003, this loan agreement was amended.  In connection with the amendment, we received the second advance of $750,000 during the first quarter of 2003, but waived our right to receive the third advance.  On March 31, 2003, all principal and accrued interest totaling $1.76 million was, pursuant to the loan agreement, converted into 415,340 shares of NextNet Wireless Series A Preferred Stock. The conversion price was $4.23 per share, which was the per share price (on a common share equivalent basis, without giving effect to differences in rights or to anti-dilution provisions or any other purchase price adjustments set forth in the NextNet loan agreement) that NextNet agreed to receive for a sale of other preferred stock.

All NextNet shares that we sold were subject to the right of first refusal on the parts of NextNet and the holders of the Series B Preferred Stock of NextNet.

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During the first quarter of 2004, NextNet was acquired by a privately-held communications industry company.  Our NextNet shares were converted into warrants to purchase up to 59,113 shares of common stock of the acquirer.  We may exercise the warrants in all or in part through the earliest of March 16, 2010, or certain defined “Liquidity Events”, which include a change of control or a public offering of the acquirer’s shares.

Note I. Income Taxes:

We have not recorded any current or deferred income tax provision for any of the periods presented since we have a net operating loss carryforward.  Because of the uncertainty about whether we will have taxable earnings in the future, we have not reflected any benefit of such net operating loss carryforwards in the accompanying consolidated financial statements.  At March 31, 2004, we had approximately $85 million of net operating loss carryforwards remaining, which begin to expire in 2005.  The use of these carryforwards in any one year may be limited under Internal Revenue Code Section 382 due to significant ownership changes. 

Note J. Legal Matters:

We are subject to various legal proceedings and claims that arise in the ordinary course of business that we do not believe are material either separately or in the aggregate. 

Note K.Major Customers and Related Party Information:

A portion of our revenues have been derived from significant customers for the three month periods ended March 31, 2004 and 2003 as follows:

	Three Months Ended March 31,
	2004		2003
Customer 1	23	%	0	%
Customer 2	18	%	28	%
Customer 3	17	%	6	%
Customer 4 - think3	13	%	0	%
Customer 5	11	%	18	%
Customer 6	2	%	13	%

A portion of our revenue has been derived from related parties.   During the first quarter of 2004, $274,000 was from think3, which represented 13% of our total revenue.  Our chairman, Joseph B. Costello, is also the chairman of think3.  Also, $9,000 of our revenue for the three months ended March 31, 2004 was derived from NextNet.  See Note H for additional disclosures related to NextNet.

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

Overview

Zamba Corporation is a customer care services company.  We help our clients be more successful in acquiring, servicing, and retaining their customers.  Having served over 300 clients, Zamba is focused exclusively on customer-centric services by leveraging best practices and best-in-class technologies to enable insightful, consistent interactions across all customer touch points.  We provide strategy and business process consulting, as well as customization and systems integration for software applications, which we call “packages,” that our clients purchase from third parties.  Based on our expertise and experience, we have created a framework of interdependent processes and technologies to help our clients, including strategy, analytics and marketing, contact center, content and commerce, field sales, field service, and enterprise integration. 

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Our revenues and earnings historically have fluctuated 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, general economic conditions, and other factors.  Consequently, the results of operations described in this report may not be indicative of results to be achieved in future periods.  In addition, revenues from a large client may constitute a significant portion of our total revenues in any particular quarter.

Our operating results for the quarters ended March 31, 2004 and 2003 were adversely affected by rate pressures caused by the increase in customer usage of offshore developers.  Many companies continue to delay decisions on information technology consulting projects, or have cancelled the projects altogether.  The industry continues to be challenged as global economic and political conditions cause companies to be cautious about increasing their use of consulting services even as the demand for outsourcing continues to increase.

We also continue to experience pricing pressures from competitors, as well as from clients experiencing pressures to control costs.  In addition, the growing use of offshore resources to provide lower-cost service delivery capabilities within our industry continues to be a source of pressure on our revenues and operating margins.  Our utilization of our personnel, which is calculated as the percentage of the available working hours for which our consultants are performing billable services, was strong during the first quarter of 2004, albeit based on a reduced headcount.

The primary categories of operating expenses include cost of services, sales and marketing, and general and administrative costs. Cost of services is primarily driven by the cost of client-service personnel, which consists mainly of compensation, sub-contractor and other personnel costs, and non-payroll outsourcing costs. Cost of services as a percentage of revenues is driven by the relatively high labor costs in the marketplace for the type of highly skilled consultants we employ and the rate of utilization of our client-service workforces. Sales and marketing expense is driven primarily by business-development activities; the development of new service offerings; the level of concentration of clients in a particular industry or market; and client-targeting, image-development and brand-recognition activities. General and administrative costs primarily include costs for office personnel, information systems and office space.  We seek to manage our general and administrative costs at levels consistent with changes in activity levels in our business, but many of these costs are fixed and we are generally not able to reduce them quickly, if at all, if our business activity is reduced.

Our cost management strategy continues to be to anticipate changes in demand for our services and to identify cost management initiatives. We aggressively plan and manage our payroll costs to meet the anticipated demand for our services because our operating expenses can be significantly affected by variable compensation costs.

Results of Operations

Three months ended March 31, 2004, compared to the three months ended March 31, 2003

Net Revenues

Revenues decreased approximately 15% to $2.35 million in the first quarter of 2004 compared to $2.77 million in the first quarter of 2003.  Revenues before reimbursements decreased approximately 14% to $2.16 million in the first quarter of 2004 compared to $2.51 million in the first quarter of 2003.  The decrease was due primarily to a decrease in billable hours in the first quarter of 2004 as compared to the first quarter of 2003. 

Project and Personnel Costs

Project and personnel costs consist primarily of payroll and payroll-related expenses for personnel dedicated to client assignments.  These costs represent the most significant expense we incur in providing client service.  Project costs were $1.23 million or approximately 52% of net revenues in the first quarter of 2004 compared to $1.44 million or approximately 52% of net revenues in the first quarter of 2003.  The decrease in project costs in dollar terms between these periods was due primarily to the decrease in our headcount.

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Reimbursable Expenses

Reimbursable expenses consist of out-of-pocket expenses incurred while providing services that are reimbursed by our clients.  Reimbursable expenses were $186,000 or approximately 8% of net revenues in the first quarter of 2004 compared to $264,000 or approximately 10% of net revenues in the first quarter of 2003.  The decrease in reimbursable expenses between these periods was primarily caused because we performed a lower percentage of our billable work at client sites in the first quarter of 2004 compared to the first quarter of 2003.

Sales and Marketing Costs

Sales and marketing costs consist primarily of salaries, employee benefits and travel expenses of sales and marketing personnel, as well as promotional costs.  Sales and marketing expenses were $197,000 or approximately 8% of net revenues in the first quarter of 2004, compared to $249,000 or approximately 9% of net revenues in the first quarter of 2003.  The decrease between these periods was primarily due to a reduced headcount.

General and Administrative Costs

General and administrative costs consist primarily of expenses associated with our management, information technology, occupancy costs, and finance and administrative groups.  General and administrative expenses were $679,000 or approximately 29% of net revenues in the first quarter of 2004, compared to $782,000 or approximately 28% of net revenues in the first quarter of 2003.  A key factor in the decrease in general and administrative costs was due to a reduced headcount. 

Income Taxes

Because we are uncertain as to whether we will have taxable earnings in the future, we have not reflected any benefit of additional net operating loss carryforwards in the accompanying unaudited consolidated financial statements.  The use of these carryforwards in any one year may be limited under Internal Revenue Code Section 382 due to significant ownership changes.

Net Income

Our net income for the quarter ended March 31, 2004 was $774,000, or $0.02 per share, compared to a net income for the quarter ended March 31, 2003 of $2.06 million, or $0.05 per share.  Our income from operations, which does not include the gain on sale of NextNet shares, interest income and interest expense, was $54,000 for the quarter ended March 31, 2004, compared to an income from operations of $37,000 for the quarter ended March 31, 2003.

Critical Accounting Policies

We have identified the policies below as critical to our business operations and the understanding of our results of operations.  The impact and any associated risks to these policies on our business, financial condition and results of operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where these policies affect our reported financial results.  Our preparation of this Form 10-Q requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities as of the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period.  There can be no assurance that actual results will not differ from those estimates.

Our critical accounting policies are as follows:

•Revenue Recognition;

•Allowance for Doubtful Accounts; and

•Investment in NextNet Wireless, Inc.

For a detailed discussion of the application of these and other accounting policies, see Note 1 of the notes to the consolidated financial statements in our 2003 Annual Report on Form 10-K.

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Liquidity and Capital Resources

At March 31, 2004, we had approximately $109,000 in cash and cash equivalents, compared to $699,000 at December 31, 2003. As of March 31, 2004, we had no significant capital spending or purchase commitments.  We had a working capital deficit of $118,000 as of March 31, 2004.

Cash used in operating activities was $636,000 for the three months ended March 31, 2004 and resulted primarily from an increase in accounts receivable.  Accounts receivable increased primarily because revenue increased in the first quarter of 2004 compared to the fourth quarter of 2003.  For the three months ended March 31, 2003, cash used in operating activities was $967,000, which resulted primarily from an increase in accounts receivable of $637,000, a decrease in accrued expenses of $637,000, and a decrease in accounts payable of $448,000, which were partially offset by a decrease in unbilled receivables of $330,000 and a decrease in prepaid expenses and other current assets of $280,000. 

There was no cash flow from investing activities during the three months ended March 31, 2004.  For the three months ended March 31, 2003, cash provided from investing activities was $753,000, which resulted primarily from proceeds from the sale of a portion of our NextNet shares. 

Cash provided by financing activities was $46,000 for the three months ended March 31, 2004 and consisted primarily of an increase in borrowings under our accounts receivable purchase agreement with Silicon Valley Bank.  For the three months ended March 31, 2003, cash provided by financing activities was $626,000, which consisted primarily of proceeds of a short-term loan from Entrx Corporation.  This loan was subsequently converted into a sale of NextNet shares.  See Note H for further discussion regarding this loan.

Future payments due under debt and lease obligations as of March 31, 2004, are as follows (in thousands):

	Payments due by period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Accounts Receivable Puchase Agreement	$	482	$	482	$	—	$	—	$	—
Operating Leases	837		414		419		4		—
Total	$	1,319	$	896	$	419	$	4	$	—

To fund operations, we have an Accounts Receivable Purchase Agreement with Silicon Valley Bank. This agreement entitles us to borrow up to a maximum of $2.0 million based on 80% of eligible receivables, and is secured by virtually all of our assets.  Borrowings under this agreement bear interest at a monthly rate of 1% of the average daily balance outstanding during the period.  Additionally, on each reconciliation date, we pay an administrative fee equal to 0.25% of the face amount of each receivable purchased by Silicon Valley Bank during that reconciliation period.  This agreement expires on July 29, 2004.  However, both parties have the right to terminate this Agreement at any time.  The amount outstanding under this agreement was $482,000 at March 31, 2004.

In May 2004, we issued a $750,000, 12% convertible promissory note. The note is payable in interest only through August 2004, and thereafter principal and interest is payable in equal monthly installments over the next 15 months. We have the option to make each payment due under the note by using our common stock, at a 12% discount to the average closing bid price of our common stock on the OTC Bulletin Board over the previous thirty trading days.  In connection with the financing we paid a 3% origination fee, and issued a five year warrant for the purchase of 1.34 million shares of our common stock at $0.28 per share.  In addition, we agreed to file a registration statement with the U.S. Securities and Exchange Commission, covering the issuance or resale of the shares of the Company’s common stock which may be issued in connection with the note and warrant issued to the noteholder.

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We believe that our existing cash and cash equivalents, together with proceeds received in May 2004, from the convertible promissory note as described above, cash provided from operations, and our borrowings from the Accounts Receivable Purchase Agreement with Silicon Valley Bank, should be sufficient to meet our working capital and capital expenditure requirements through at least December 31, 2004.  However, this estimate is based in part on our good faith projections regarding revenue and the timing of collection of receivables.  There can be no assurance that revenue or the timing of collection of receivables will occur on the basis that we are projecting.  Beyond that date, our ability to continue as a going concern depends on our ability to achieve and sustain profitability and generate positive cash flow from operations, continue to access borrowing with Silicon Valley Bank, and obtain additional funding, if necessary.

We will continue to explore possibilities for additional financing, but we cannot be certain that additional financing will be available to us on favorable terms, if at all. If our financial performance adversely affects our ability to obtain funds secured by our accounts receivable, and we are unable to obtain additional financing, we may not be able to continue operations beyond December 31, 2004.  

RISK FACTORS

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

We wish to caution you that any forward-looking statements made by us or on our behalf are subject to uncertainties 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.  Although we have attempted to list comprehensively these important factors, we also wish to caution investors that other factors may prove to be important in the future in affecting our operating results.  New factors emerge from time to time, and it is not possible for us to predict all of these factors, nor can we assess the impact each factor or combination of factors may have on our business.

You are further cautioned not to place undue reliance on those forward-looking statements because they speak only of our views as of the date the statements were made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

If we do not grow our revenues enough to regain profitability, we will have to obtain additional financing to continue operations. 

Although we recorded net income of $774,000 during the quarter ended March 31, 2004, our income includes a gain on sale of investment of $743,000.  If we had not realized this gain, our income would have only been $31,000.  Our quarterly revenues decreased to $2.35 million from $2.77 million in the first quarters of 2004 and 2003, respectively.  As of March 31, 2004, we had only $109,000 in cash and $1.09 million in accounts receivable.  If we are unable to increase our revenues significantly, we may need to raise additional capital to offset our losses from operations.  Without additional capital, we may not be able to meet our working capital and capital expenditure requirements beyond December 31, 2004.  There is no assurance that we will be able to obtain any financing or that, if we are successful in finding financing, it will be on favorable terms.

Over the past two years, we have substantially funded our operations through private sales of Zamba common stock and shares of Series A Preferred Stock in NextNet Wireless, Inc., from which we have received approximately $10.1 million, but we do not expect to raise any further material amounts from sales of this investment.  We have also supported our operations by borrowing funds under our banking relationship with Silicon Valley Bank, which, since July 29, 2002, has been in the form of an Accounts Receivable Purchase Agreement.  However, Silicon Valley Bank can terminate the agreement at any time or reject any or all of our requests for advances, which could cause us to be dependent upon the timeliness of our collections from our clients. 

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If we are unable to increase our revenues, manage our growth and projects effectively, or obtain additional financing, we may realize a material adverse effect in the quality of our services and products, our ability to retain key personnel, and our business, financial condition and results of operations.

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

Our common stock is currently listed for trading on the NASD Over-The-Counter Bulletin Board and is subject to the “penny stock rules” adopted pursuant to Section 15(g) of the Securities Exchange Act of 1934, as amended.  In general, the penny stock rules apply to non-Nasdaq or non-national stock exchange companies whose common stock trades at 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 more years).  Such rules require, among other things, that brokers who trade “penny stock” to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document, quote information, broker’s commission information and rights and remedies available to investors in penny stocks.  Many brokers have decided not to trade “penny stock” because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited.  The “penny stock rules,” therefore, may have an adverse impact on the market for our common stock and may affect our ability to attract competitive funding.  Further, because our stock is currently listed on the Over-The-Counter Bulletin Board, this means that, among other things, our stock may be less liquid than stocks quoted on the Nasdaq.  As a result, investors in our common stock may have less of an ability to sell stock holdings or receive accurate stock price quotations.

The loss of a significant client could impact our operations.

We derive a substantial part of our revenues from a small number of clients.  During the quarter ended March 31, 2004, five clients each comprised more than 10% of our revenues, our top five clients comprised 82% of our revenues, and our top ten clients comprised 93% of our revenues.  The loss of one or more of these clients could materially adversely affect our business, financial condition and results of operations.  Although these large clients vary from time to time and our long-term revenues do not rely on any one client, our revenues could be negatively affected if we were to lose one of our top clients or if we were to fail to collect a large account receivable.

In addition, many of our contracts are short-term and our clients may be able to reduce or cancel our services without incurring any penalty. If our clients reduce or terminate our services, we would lose revenue and would have to reallocate our employees and our resources to other projects to attempt to minimize the effects of that reduction or termination. Accordingly, terminations, including any termination by a major client, could adversely impact our revenues. We believe the uncertain economic environment increases the probability that services may be reduced or canceled.

If we estimate incorrectly the time required to complete our projects, we will lose money on fixed-price contracts.

A portion of our contracts are fixed-price contracts, rather than contracts in which the client pays us on a time-and-materials basis. We must estimate the number of hours and the materials required before entering into a fixed-price contract. Our future success will depend on our ability to continue to set rates and fees accurately and to maintain targeted rates of employee utilization and project quality. If we fail to accurately estimate the time and the resources required for a project, any required increase in the time and resources to complete the project could cause our profits to decline.

We may be liable to our clients for damages caused by our services or by our failure to remedy system failures.

Many of our projects involve technology applications or systems that are critical to the operations of our clients’ businesses and handle very large volumes of transactions. If we fail to perform our services correctly, we may be unable to deliver applications or systems to our clients with the promised functionality or within the

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promised time frame, or to satisfy the required service levels for support and maintenance. While we have taken precautionary actions to create redundancy and back-up systems, any such failures by us could result in claims by our clients for substantial damages against us. Although we attempt to limit the amount and type of our contractual liability for defects in the applications or systems we provide, and carry insurance coverage, which mitigates this liability in certain instances, we cannot be assured that these limitations and insurance coverages will be applicable and enforceable in all cases. Even if these limitations and insurance coverages are found to be applicable and enforceable, our liability to our clients for these types of claims could be material in amount and affect our business, financial condition and results of operations.

Under many of our contracts, the payment of some or all of our fees is conditioned upon our performance.

Many clients require us to include in our contracts payment incentives related to factors such as costs incurred, benefits produced, goals attained and adherence to schedule.  In these contracts, payment of all or a portion of our fees is contingent upon our clients meeting revenue-enhancement, cost-saving or other contractually defined goals which are increasing in complexity and often dependent in some measure on our clients’ actual levels of business activity.  The trend to include greater incentives in our contracts related to additional revenues generated, costs incurred, benefits produced or our adherence to schedule may increase the variability in revenues and margins earned on such contracts.

We face difficulties growing our revenues.

Our utilization rates are measured by the percentage of hours billed by our consultants among all hours they are available to work on projects.  Over the past several quarters, our utilization rates have been high, relative to historical norms, which means that we would need to increase our number of billable consultants or use additional subcontractors if additional revenue opportunities were to become available.  There is no guarantee additional revenue opportunities will become available or that, if they were to become available, we would be able to retain consultants or subcontractors with the appropriate skills to perform the services for those opportunities.  Further, we face continuous pressure from several directions on the rates we charge our clients.  Many of our competitors, including larger consulting firms with greater financial and personnel resources than we have, smaller consulting firms with lower cost structures, and large consulting firms in offshore locations such as India and Romania that have access to pools of technical consultants at lower costs than consultants based in the United States, may be willing to provide the services we provide at a lower incremental cost than what we charge.  Any negative changes to our retention of consultants, utilization or billable rates could materially adversely affect our business, financial condition and results of operations. 

Our ability to remain profitable will suffer if we are not able to maintain our pricing and utilization rates and control our costs. A continuation of current pricing pressures could result in permanent changes in pricing policies and delivery capabilities.

Our profit margins are largely a function of the rates we are able to recover for our services and the utilization rate, or chargeability, of our professionals. Accordingly, if we are not able to maintain the pricing for our services or an appropriate utilization rate for our professionals without corresponding cost reductions, our profit margin and our profitability will suffer. The rates we are able to recover for our services are affected by a number of factors, including:

•our clients’ perceptions of our ability to add value through our services;

•competition;

•introduction of new services or products by us or our competitors;

•pricing policies of our competitors;

•our ability to accurately estimate, attain and sustain engagement revenues, margins and cash flows over increasingly longer contract periods; and

•the use of globally sourced, lower-cost service delivery capabilities by our competitors and our clients.

Our utilization rates are also affected by a number of factors, including:

•seasonal trends, primarily as a result of our hiring cycle;

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•our ability to transition employees from completed projects to new engagements;

•our ability to forecast demand for our services and thereby maintain an appropriate headcount in each of our workforces; and

•our ability to manage attrition.

We have significant fixed operating costs, which may be difficult to adjust in response to unanticipated fluctuations in revenues.

A high percentage of our operating expenses, particularly personnel, rent and depreciation, are fixed in advance of any particular quarter. As a result, an unanticipated decrease in the number or average size of, or an unanticipated delay in the scheduling for, our projects may cause significant variations in operating results in any particular quarter and could have a material adverse effect on operations for that quarter.

An unanticipated termination or decrease in size or scope of a major project, a client’s decision not to proceed with a project we anticipated or the completion during a quarter of several major client projects could require us to maintain underutilized employees and could have a material adverse effect on our business, financial condition and results of operations. Our revenues and earnings may also fluctuate from quarter to quarter because of such factors as:

•the contractual terms and timing of completion of projects, including achievement of certain business results;

•any delays incurred in connection with projects;

•the adequacy of provisions for losses and bad debts;

•the accuracy of our estimates of resources required to complete ongoing projects;

•loss of key highly skilled personnel necessary to complete projects; and

•general economic conditions.

Our future use of net operating loss carryforwards (NOL’s) may be limited.

Our current cash flow may be benefited by our substantial NOL’s, which can eliminate or reduce the federal and state income taxes on any future taxable income.  The NOL’s could be lost or significantly reduced if there is a significant change in our major shareholders.

We face additional risks that are incidental to our business.

•Our business may suffer unless global 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.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We are not currently exposed to market risk from changes in security prices and interest rates. 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 adverse effect on our business, financial condition or results of operations.

Item 4.  Controls and Procedures

Our principal executive officer and principal financial officer have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

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There has been no change in our internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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, which we do not believe to be material either separately or in the aggregate.

Item 2.Changes in Securities and Use of Proceeds

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:

10.01	Secured Promissory Note between Pandora Select Partners L.P. and Zamba Corporation, dated May 14, 2004
10.02	Warrant to Purchase Shares of Common Stock issued by Zamba Corporation to Pandora Select Partners L.P., dated May 14, 2004
10.03	Registration Rights Agreement between Pandora Select Partners L.P. and Zamba Corporation, dated May 14, 2004
31.01	Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a).
31.02	Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a).
32	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)Reports on Form 8-K:

None.

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SIGNATURES

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

ZAMBA CORPORATION
By:	/s/ Norm Smith
	Norman D. Smith
	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: May 14, 2004

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EX-10.01

EXHIBIT 10.01

SECURED PROMISSORY NOTE

$750,000 May 14, 2004

FOR VALUE RECEIVED, the undersigned, ZAMBA CORPORATION, a Delaware corporation (the “Maker”), hereby promises to pay to the order of Pandora Select Partners L.P., a British Virgin Islands limited partnership, or its assigns (the “Payee”), at such place as the Payee may designate in writing, the principal sum of Seven Hundred Fifty Thousand Dollars ($750,000), under the terms set forth herein.

1.Interest.  The unpaid principal balance hereof from time to time outstanding shall bear interest from the date hereof at the rate of twelve percent (12%) per annum.

2.Payment.  The principal and interest hereof is payable as follows:

(a)Payments in cash of interest only are payable in arrears on June 14, July 14 and August 14, 2004; and

(b)Commencing on September 14, 2004, and on the 14th day of each of the following 14 months, Maker shall pay amortized principal and interest on this Note of $54,092.84 (the “Monthly Scheduled Payment”).

3.Optional Payment in Stock.

(a)In lieu of making a cash payment under subsection 2(b) above, Maker may pay the Monthly Scheduled Payment, or any portion thereof, but only to the extent permitted by this subsection (a), by the issuance of shares of its $0.01 par value common stock (the “Common Stock”), the per share value of which is computed as provided in Subsection (b) below.  Despite the foregoing, the number of shares of Common Stock which may be issued to pay all or any portion of a particular Monthly Scheduled Payment may not exceed the lesser of (i) 10% of the aggregate number of traded shares of Common Stock reported on the NASDAQ System (or if not then traded on the NASDAQ System, on the OTC Bulletin Board as reported by bigcharts.com, or if this service is discontinued, such other reporting service acceptable to Payee) for the 30 trading days immediately preceding such Monthly Scheduled Payment due or (ii) a number of shares of Common Stock which, when added to the number of shares of Common Stock “Beneficially Owned” (within the meaning set forth in subsection (d) below) by Payee, would not cause Payee to Beneficially Own more than 4.99% of the Maker’s outstanding Common Stock.  In addition, in making the Monthly Scheduled Payments, the Maker shall not be permitted to issue more than 10,000,000 shares of Common Stock.   In computing under this subsection (a) the aggregate number of traded shares during any time period, the Maker shall exclude (i) shares sold by or for the account or at the direction of the Maker, officers or directors

of Maker or any members of their immediate families or any affiliates of Maker and (ii) shares determined solely by Payee (for which Payee shall so inform the Maker in writing) to represent unlawful or potentially unlawful sales.  Maker may pay the Monthly Scheduled Payment, or any portion thereof, by the issuance of Common Stock only if, at the time of such payment, Maker has in effect a registration statement on Form S-2 or S-3 with the SEC and applicable state securities laws covering the original issuance of such shares by the Maker or the resale of such shares by the Payee (the “Registration Statement”).

(b)The per share value of the Common Stock as of a specified Scheduled Monthly Payment date for the purposes of this Section 3 is 88% (rounded to the nearest $.01) of the average (rounded to the nearest $.01) of the high closing bid prices of Maker’s Common Stock on the NASDAQ System (or if not then traded on the NASDAQ System, then on the OTC Bulletin Board as reported by bigcharts.com, or if this service is discontinued, such other reporting service acceptable to Payee) for the 30 trading days immediately preceding the particular Scheduled Monthly Payment date.

(c)Payment by Common Stock shall be deemed to be made by Maker by giving written notice to the Payee of the number of shares being issued in such payment, and the Maker’s calculation of the per share market value under subsection (b) above; provided that certificates representing those shares are delivered to Payee within 20 days of the due date of the Scheduled Monthly Payment.

(d)The limitations on the right to exercise a warrant for 1,339,286 shares of Common Stock being issued to Payee in connection with this Note, as provided by such warrant (the “Warrant”), shall first reduce Payee’s Beneficial Ownership of Maker’s Common Stock before limiting the number of shares that Maker may issue to Payee as payment hereunder pursuant to Section 3(a) above.  The Payee will, at the request of Maker, from time to time, notify Maker of Payee’s computation of Payee’s Beneficial Ownership.  The parties shall compute Payee’s “Beneficial Ownership” of Maker’s Common Stock in accordance with U.S. Securities and Exchange Commission (“SEC”) Rule 13d-3.

4.Contingent Additional Interest.  In the event that Maker fails by November 15, 2004 (the “Registration Deadline”) to obtain effectiveness under the Securities Act of 1933, as amended, and applicable state securities laws of the Registration Statement (as required by the terms of a Registration Rights Agreement between Maker and Payee of this date) covering all of the shares of Common Stock issuable as payment under this Note or upon exercise of the Warrant, then for each full month thereafter (prorated for partial months) that this failure continues (the “Failure Term”), Maker shall pay in arrears in cash, with the next otherwise Scheduled Monthly Payment under Sections 2 or 3(a) above (or if the last Scheduled Monthly Payment has been made, then on the same day of each succeeding month), additional interest (the “Contingent Additional Interest”) equal to the greater of $1,000 or 1% of the outstanding principal balance on this Note as of the last day of the prior month.  However, if the Failure Term runs for more than three months, the additional monthly cash interest payable thereafter

2

shall increase to the greater of $2,000 or 2% of the outstanding principal balance on this Note as of the last day of the prior month.  Despite the foregoing, if the Payee consents (as provided under the Registration Rights Agreement) to an extension of the effective date of the Registration Statement beyond November 15, 2004, then the Registration Deadline hereunder shall be extended by a like period.

5.Security.  The full and timely payment of this Note (together with the Maker’s obligations under a Purchase Agreement of this date between Maker and Payee) shall be secured by a Security Agreement of this date (the “Security Agreement”) covering all of Maker’s assets.  The security interest granted under the Security Agreement shall be subordinate only to the secured rights of Silicon Valley Bank, as the senior lender to Maker (the “Senior Debt”).

6.Optional Prepayments.  The Maker may prepay this Note, in whole or in part, and in cash, without penalty by Maker upon fifteen days written notice to Payee.  Prepayments shall be applied first to accrued but unpaid interest and then to principal.

7.Default.  The occurrence of any one or more of the following events shall constitute an event of default, upon which Payee may declare the entire principal amount of this Note, together with all accrued but unpaid interest, to be immediately due and payable in cash (despite provisions otherwise for payment with Common Stock):

(a)The Maker shall fail to make any required payment of principal or interest (including Contingent Additional Interest) when due, and in its proper form (i.e., in cash, in stock or by a combination thereof), and such failure shall continue for 10 days after the due date thereof.

(b)The Maker shall be in default of any term or provision of the Security Agreement.

(c)The Maker shall become insolvent or any bankruptcy, reorganization, debt arrangement or other proceeding under any bankruptcy or insolvency law shall be instituted by or against the Maker.

(d)The Maker shall be in default of any term or provision relating to the Senior Debt.

Without limiting the above, the Maker acknowledges that payments on the various scheduled due dates in Sections 2 and 3(c) are of essence and that any failure to timely pay any installment of principal or interest (whether as permitted by cash, with stock or by a combination thereof and within any permitted grace period above) permits Payee to declare this Note immediately due in cash in its entirety without any prior notice of any kind to Maker.

8.Applicable Law.  THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THE NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF

3

MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF.

9.Waivers.  The Maker hereby waives presentment for payment, notice of dishonor, protest and notice of payment and all other notices of any kind in connection with the enforcement of this Note.

10.No Setoffs.  The Maker shall pay principal and interest under the Note without any deduction for any setoff or counterclaim.

10.Costs of Collection.  If this Note is not paid when due, the Maker shall pay Payee’s reasonable costs of collection, including reasonable attorney’s fees.

ZAMBA CORPORATION
By	/s/ Michael H. Carrel
	Michael H. Carrel, Treasurer

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EX-10.02

Exhibit 10.02

WARRANT NO. PSP 1

To Purchase 1,339,286 Shares of Common Stock

of

ZAMBA CORPORATION

This Warrant and the Securities issuable upon exercise of this Warrant have not been registered under the Securities Act of 1933 (the “1933 Act”) or under any state securities or “Blue Sky” laws (“Blue Sky Laws”).  No transfer, sale, assignment, pledge, hypothecation or other disposition of this Warrant or the Securities issuable upon exercise of this Warrant or any interest therein may be made except (a) pursuant to an effective registration statement under the 1933 Act and any applicable Blue Sky Laws or (b) if the Corporation has been furnished with an opinion of counsel for the holder, which opinion and counsel shall be reasonably satisfactory to the Corporation, to the effect that no registration is required because of the availability of an exemption from registration under the 1933 Act and applicable Blue Sky laws.

THIS CERTIFIES THAT, for good and valuable consideration Pandora Select Partners L.P., a British Virgin Islands limited partnership (the “Holder”), or the Holder’s registered assigns, is entitled to subscribe for and purchase from Zamba Corporation, a Delaware corporation (the “Corporation”), at any time on or after May 15, 2004, to and including May 14, 2009 (subject to the limitations provided in Section 10 below), 1,339,286 (one million three hundred thirty nine thousand two hundred eighty six) fully paid and nonassessable shares of the Common Stock of the Corporation at the price of $0.28 per share (the “Warrant Exercise Price”), subject to the anti-dilution provisions of this Warrant.

The shares which may be acquired upon exercise of this Warrant are referred to herein as the “Warrant Shares.”  As used herein, the term “Holder” means the Holder, any party who acquires all or a part of this Warrant as a registered transferee of the Holder, or any record holder or holders of the Warrant Shares issued upon exercise, whether in whole or in part, of the Warrant.  The term “Common Stock” means the common stock, $0.01 par value per share, of the Corporation.

This Warrant is subject to the following provisions, terms and conditions:

1.Exercise; Transferability.

(a)The rights represented by this Warrant may be exercised by the Holder hereof, in whole or in part (but not as to a fractional share of Common Stock), by written notice of exercise (in the form attached hereto) delivered to the Corporation at the principal office of the Corporation prior to the expiration of this Warrant and accompanied or preceded by the surrender

of this Warrant along with a check in payment of the Warrant Exercise Price for such Warrant Shares.

(b)Except as provided in Section 7 hereof, this Warrant may not be sold, transferred, assigned, hypothecated or divided into two or more Warrants of smaller denominations, nor may any Warrant Shares issued pursuant to exercise of this Warrant be transferred.

2.Exchange and Replacement.  Subject to Sections 1 and 7 hereof, this Warrant is exchangeable upon the surrender hereof by the Holder to the Corporation at its office for new Warrants of like tenor and date representing in the aggregate the right to purchase the number of Warrant Shares purchasable hereunder, each of such new Warrants to represent the right to purchase such number of Warrant Shares (not to exceed the aggregate total number purchasable hereunder) as shall be designated by the Holder at the time of such surrender.  Upon receipt by the Corporation of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and upon surrender and cancellation of this Warrant, if mutilated, the Corporation will make and deliver a new Warrant of like tenor, in lieu of this Warrant.  This Warrant shall be promptly canceled by the Corporation upon the surrender hereof in connection with any exchange or replacement.  The Corporation shall pay all expenses, taxes (other than stock transfer taxes), and other charges payable in connection with the preparation, execution, and delivery of Warrants pursuant to this Section 2.

3.Issuance of the Warrant Shares.

(a)The Corporation agrees that the Warrant Shares shall be and are deemed to be issued to the Holder as of the close of business on the date on which this Warrant shall have been surrendered and the payment made for such Warrant Shares as aforesaid.  Subject to the provisions of paragraph (b) of this Section 3, certificates for the Warrant Shares so purchased shall be delivered to the Holder within a reasonable time after the rights represented by this Warrant shall have been so exercised, and, unless this Warrant has expired, a new Warrant representing the right to purchase the number of Warrant Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be delivered to the Holder.

(b)Notwithstanding the foregoing, however, the Corporation shall not be required to deliver any certificate for Warrant Shares upon exercise of this Warrant except in accordance with exemptions from the applicable securities registration requirements or registrations under applicable securities laws.  Except as described in Section 9, nothing herein shall obligate the Corporation to effect registrations under federal or state securities laws.  If registrations are not in effect and if exemptions are not available when the Holder seeks to exercise the Warrant, the Warrant exercise period will be extended, if need be, to prevent the Warrant from expiring, until such time as either registrations become effective or exemptions are available, and the Warrant

2

shall then remain exercisable for a period of at least 30 calendar days from the date the Corporation delivers to the Holder written notice of the availability of such registrations or exemptions.  The Holder agrees to execute such documents and make such representations, warranties and agreements as may be required solely to comply with the exemptions relied upon by the Corporation, or the registrations made, for the issuance of the Warrant Shares.

4.Covenants of the Corporation.  The Corporation covenants and agrees that all Warrant Shares will, upon issuance, be duly authorized and issued, fully paid, non-assessable and free from all taxes, liens and charges with respect to the issue thereof.  The Corporation further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Corporation will at all times have authorized and reserved for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant.

5.Anti-dilution Adjustments.  The provisions of this Warrant are subject to adjustment as provided in this Section 5.

(a)Stock Splits, Dividends and Combinations.  The Warrant Exercise Price shall be adjusted from time to time such that in case the Corporation shall hereafter:

(i)  pay any dividends on any class of stock of the Corporation payable in Common Stock or securities convertible into Common Stock;

(ii)  subdivide its then outstanding shares of Common Stock into a greater number of shares;  or

(iii)  combine outstanding shares of Common Stock, by reclassification or otherwise;

then, in any such event, the Warrant Exercise Price in effect immediately prior to such event shall (until adjusted again pursuant hereto) be adjusted immediately after such event to a price (calculated to the nearest full cent) determined by dividing (A) the number of shares of Common Stock outstanding immediately prior to such event, multiplied by the then existing Warrant Exercise Price, by (B) the total number of shares of Common Stock outstanding immediately after such event (including in each case the maximum number of shares of Common Stock issuable in respect of any securities convertible into Common Stock), and the resulting quotient shall be the adjusted Warrant Exercise Price per share.  An adjustment made pursuant to this Subsection shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.  If, as a result of an adjustment made pursuant to

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this Subsection, the Holder of any Warrant thereafter surrendered for exercise shall become entitled to receive shares of two or more classes of capital stock or shares of Common Stock and other capital stock of the Corporation, the Board of Directors (whose determination shall be conclusive) shall determine the allocation of the adjusted Warrant Exercise Price between or among shares of such classes of capital stock or shares of Common Stock and other capital stock.  All calculations under this Subsection shall be made to the nearest cent or to the nearest 1/100 of a share, as the case may be.  In the event that at any time as a result of an adjustment made pursuant to this Subsection, the holder of any Warrant thereafter surrendered for exercise shall become entitled to receive any shares of the Corporation other than shares of Common Stock, thereafter the Warrant Exercise Price of such other shares so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in this Section.

(b)Mechanics of Adjustment for Stock Splits, Dividends and Combinations.  Upon each adjustment of the Warrant Exercise Price pursuant to Section 5(a) above, the Holder of each Warrant shall thereafter (until another such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price the number of shares, calculated to the nearest full share, obtained by multiplying the number of shares specified in such Warrant (as adjusted as a result of all adjustments in the Warrant Exercise Price in effect prior to such adjustment) by the Warrant Exercise Price in effect prior to such adjustment and dividing the product so obtained by the adjusted Warrant Exercise Price.

(c)Consolidations, Mergers and Reorganization Events.  In case of any consolidation or merger to which the Corporation is a party other than a merger or consolidation in which the Corporation is the continuing corporation, or in case of any sale or conveyance to another corporation of the property of the Corporation as an entirety or substantially as an entirety, or in the case of any statutory exchange of securities with another corporation (including any exchange effected in connection with a merger of a third corporation into the Corporation), there shall be no adjustment under Subsection (a) of this Section 5;  but the Holder of each Warrant then outstanding shall have the right thereafter to convert such Warrant into the kind and amount of shares of stock and other securities and property which he would have owned or have been entitled to receive immediately after such consolidation, merger, statutory exchange, sale or conveyance had such Warrant been converted immediately prior to the effective date of such consolidation, merger, statutory exchange, sale or conveyance and, in any such case, if necessary, appropriate adjustment shall be made in the application of the provisions set forth in this Section with respect to the rights and interests thereafter of any Holders of the Warrant, to the end that the provisions set forth in this Section shall thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to any shares of stock and other securities and property thereafter deliverable on the exercise of the Warrant.  The provisions of this Subsection shall similarly apply to successive consolidations, mergers, statutory exchanges, sales or conveyances.

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(d)Adjustments for Diluting Issues.  In addition to the adjustments of the Warrant Exercise Price provided above, the Warrant Exercise Price shall be subjected to further adjustment from time to time as follows (the main operative provision hereof is in Section 5(d)(iii) below):

(i)Special Definitions:

(A)“Options” shall mean rights, options or warrants (other than as excluded by Section 5(d)(i)(D) below) to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities (as defined herein).

(B)“Original Issue Date” shall mean the date hereof.

(C)“Convertible Securities” shall mean securities (other than as excluded by (4) below) convertible, either directly or indirectly, into or exchangeable for Common Stock.

(D)“Additional Shares of Common Stock” shall mean all shares of Common Stock issued (or, deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued (or deemed to be issued):

1.to employees, consultants or directors pursuant to stock option, stock grant, stock purchase or similar plans or arrangements approved by the Corporation’s Board of Directors;

2.as a dividend or other distribution in connection with which an adjustment to the Warrant Exercise Price is made;

3.in a merger, consolidation, acquisition or similar business combination that is approved by the Corporation’s Board of Directors;

4.pursuant to credit, lease or other commercial financing arrangements with parties not affiliated with the Corporation that are approved by the Corporation’s Board of Directors;

5.in exchange for technology or other non-cash assets as approved by the Corporation’s Board of Directors;

6.pursuant to any rights or agreements outstanding on the Original Issue Date; or

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7.if the Holder agrees in writing that such shares shall not constitute Additional Shares of Common Stock.

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(ii)Deemed Issue of Additional Shares of Common Stock. Except as otherwise provided in Section 5(d), in the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of any holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which Additional Shares of Common Stock are deemed to be issued:

(A)no further adjustment in the Warrant Exercise Price shall be made upon the subsequent issue of such Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;

(B)if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Company, or increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion or exchange thereof, the Warrant Exercise Price computed upon the original issue thereof or upon the occurrence of a record date with respect thereto, and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease;

(C)upon the expiration of any such Option or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Warrant Exercise Price computed upon the original issue thereof or upon occurrence of a record date with respect thereto, and any subsequent adjustments based thereon, shall, upon such expiration:

1.in the case of Convertible Securities or Options for Common Stock, be recomputed as though the only Additional Shares of Common Stock issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities, and the consideration received therefor was the consideration actually received by the Company for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Company upon such exercise, or for the issue of all such Convertible Securities, whether or not converted or exchanged, plus the additional consideration, if any, actually received by the Company upon such conversion or exchange;  and

2.in the case of Options for Convertible Securities, be recomputed as though only the Convertible Securities, if any, actually issued upon the exercise

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thereof were issued at the time of issue of such Options and the consideration received by the Company for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Company for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Company upon the issue of the Convertible Securities with respect to which such Options were actually exercised.

(D)no readjustment pursuant to Section 5(d) shall have the effect of increasing the Warrant Exercise Price to an amount which exceeds the Warrant Exercise Price existing immediately prior to the original adjustment with respect to the issuance of such Options or Convertible Securities, as adjusted for any Additional Shares of Common Stock issued (or deemed to be issued) between such original adjustment date and such readjustment date;  and

(E)in the case of any Option or Convertible Security with respect to which the maximum number of shares of Common Stock issuable upon exercise or conversion or exchange thereof is not determinable, no adjustment to the Warrant Exercise Price shall be made until such number becomes determinable.

(iii)Adjustments for Issuance of Additional Shares of Common Stock.  If the Company, at any time after the issuance of this Warrant, shall issue any Additional Shares of Common Stock (otherwise than as provided in the Sections 5(a) and 5(c) above) at a price per share less than the applicable Warrant Exercise Price then in effect or without consideration, then the applicable Warrant Exercise Price upon each such issuance shall be adjusted to that price (rounded to the nearest cent) determined by multiplying the applicable Warrant Exercise Price then in effect by a fraction, (i) the numerator of which shall be equal to the sum of (A) the number of shares of Common Stock outstanding immediately prior to the issuance of such Additional Shares of Common Stock plus (B) the number of shares of Common Stock (rounded to the nearest whole share) which the aggregate consideration for the total number of such Additional Shares of Common Stock so issued would purchase at a price per share equal to the applicable Warrant Exercise Price then in effect, and (ii) the denominator of which shall be equal to the number of shares of Common Stock outstanding immediately after the issuance of such Additional Shares of Common Stock.

The provisions of this Section 5(d)(iii) shall not apply under any of the circumstances for which an adjustment is provided in Sections 5(a), 5(b) or 5(c) above.  No adjustment of the applicable Warrant Exercise Price shall be made under this Section 5(d) upon the issuance of any Additional Shares of Common Stock which are issued pursuant to any Options or Convertible Securities if upon the issuance of such Options or Convertible Securities (x) any adjustment shall have been made pursuant to Section 5(d)(ii) above or (y) no adjustment was required pursuant to this Section 5(d)(iii).  No adjustment of the applicable Warrant Exercise Price shall be made under this Section 5(d)(iii) in an amount less than $.01 per share, but any such lesser adjustment shall be carried forward and shall be made at the time and together with

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the next subsequent adjustment, if any, which together with any adjustments so carried forward shall amount to $.01 per share or more;  provided, however, that upon any adjustment of the applicable Warrant Exercise Price as a result of any dividend or distribution payable in Common Stock or Convertible Securities or the reclassification, subdivision or combination of Common Stock into a greater or smaller number of shares, the foregoing figure of $.01 per share (or such figure as last adjusted) shall be adjusted (to the nearest one-half cent) in proportion to the adjustment in the applicable Warrant Exercise Price.

(iv)Determination of Consideration. For purposes of this Section 5(d), the consideration received by the Corporation for any Additional Shares of Common Stock issued (or deemed to be issued) shall be computed as follows:

(A)Cash and Property.  Such consideration shall:

(i)insofar as it consists of cash, be computed at the aggregate amount of cash received by the Company;

(ii)insofar as it consists of securities and the value of such securities is not determinable by reference to a separate agreement, (A) if the securities are then traded on a national securities exchange or the Nasdaq Stock Market (or a similar national quotation system), then the value shall be computed based on the average of the closing prices of the securities on such exchange or system over the thirty (30)-day period ending on the date of receipt by the Corporation, (B) if the securities are actively traded over-the-counter, then the value shall be computed based on the average of the closing bid prices over the thirty (30) day ending on the date of receipt by the Corporation, and (C) if there is no active public market, then the value shall be computed based on the fair market value thereof on the date of receipt by the Corporation, as determined in good faith by the Board of Directors;

(iii)insofar as it consists of property other than cash and securities, be computed at the fair market value thereof at the time of such issuance, as determined in good faith by the Board of Directors; and

(iv)if Additional Shares of Common Stock are issued (or deemed to be issued) together with other shares or securities or other assets of the Corporation for consideration which cover both, by the proportion of such consideration so received, computed as provided in the immediately preceding Sections 5(d)(iv)(A)(i), 5(d)(iv)(A)(ii) and 5(d)(iv)(A)(iii), as determined in good faith by the Board of Directors.

(B)Options and Convertible Securities.  The consideration received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 5(d) relating to Option and Convertible Securities, shall be the sum of (x) the total

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amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus (y) the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.

(e)Certificate as to Adjustments.  Upon the occurrence of each adjustment or readjustment of the Warrant Exercise Price or the number of Warrants covered hereby pursuant to this Section 5, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based.  The Corporation shall, upon the written request at any time of the Holder, furnish or cause to be furnished to the Holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Warrant Exercise Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the exercise of this Warrant.

6.No Voting Rights.  This Warrant shall not entitle the Holder to any voting rights or other rights as a shareholder of the Corporation.

7.Notice of Transfer of Warrant or Resale of the Warrant Shares.

(a)Subject to the sale, assignment, hypothecation or other transfer restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof, agrees to give written notice to the Corporation before transferring this Warrant or transferring any Warrant Shares of such Holder’s intention to do so, describing briefly the manner of any proposed transfer, the identity of the proposed transferee, whether such transferee is an accredited investor and whether such transferee is sufficiently knowledgeable to assess the risks and merits of an investment in the Warrant or the Common Stock.  Promptly upon receiving such written notice, the Corporation shall present copies thereof to the Corporation’s counsel.  If in the opinion of such counsel the proposed transfer may be effected without registration or qualification (under any federal or state securities laws), the Corporation, as promptly as practicable, shall notify the Holder of such opinion, whereupon the Holder shall be entitled to transfer this Warrant or to dispose of Warrant Shares received upon the previous exercise of this Warrant, all in accordance with the terms of the notice delivered by the Holder to the Corporation; provided that an appropriate legend may be endorsed on this Warrant or the certificates for such Warrant Shares respecting restrictions upon transfer thereof necessary or advisable in the opinion of counsel and satisfactory to the Corporation to prevent further transfers which would be in violation of Section 5 of the 1933 Act and applicable state securities laws;  and provided further that the prospective transferee or

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purchaser shall execute such documents and make such representations, warranties and agreements as may be required solely to ensure compliance with the exemptions from registration under the 1933 Act relied upon by the Corporation for the transfer or disposition of the Warrant or Warrant Shares, and compliance with the anti-fraud provisions of the Securities Exchange Act of 1934.

(b)If, in the opinion of the Corporation’s counsel, the proposed transfer or disposition of this Warrant or such Warrant Shares described in the written notice given pursuant to this Section 7 may not be effected without registration or qualification of this Warrant or such Warrant Shares, the Corporation shall promptly give written notice thereof to the Holder, and the Holder will limit its activities in respect to such transfer or disposition as, in the opinion of such counsel, are permitted by law.

8.Fractional Shares.  Fractional shares shall not be issued upon the exercise of this Warrant, but in any case where the holder would, except for the provisions of this Section, be entitled under the terms hereof to receive a fractional share, the Corporation shall, upon the exercise of this Warrant for the largest number of whole shares then called for, pay a sum in cash equal to the sum of (a) the excess, if any, of the Market Price of such fractional share over the proportional part of the Warrant Exercise Price represented by such fractional share, plus (b) the proportional part of the Warrant Exercise Price represented by such fractional share.  For purposes of this Section, the term “Market Price” with respect to shares of Common Stock of any class or series means the last reported sale price or, if none, the average of the last reported closing bid and asked prices on any national or regional securities exchange or quoted in the National Association of Securities Dealers, Inc.’s Automated Quotations System (“Nasdaq”), or if not listed on a national or regional securities exchange or quoted in Nasdaq, the average of the last reported closing bid and asked prices as reported by Metro Data Corporation, Inc. or the OTC Bulletin Board from quotations by market makers in such Common Stock on the Minneapolis-St. Paul local over-the-counter market, or if no quotations in such Common Stock are available, the fair market value of the shares as determined in good faith by the Board of Directors of the Corporation.

9.Registration Rights.  Holder shall have registration rights for the shares underlying its Warrants as described in the Registration Rights Agreement of this same date.

10.Limitation of Exercise of this Warrant.  Despite anything to the contrary in this Warrant, the Holder may not exercise this Warrant during the time period and to the extent that the shares of Common Stock that the Holder could acquire upon the exercise hereof would cause Holder’s Beneficial Ownership (as defined below) of the Corporation’s Common Stock to exceed 4.99%.  These limitations on the right to exercise this Warrant shall first reduce the Holder’s Beneficial Ownership of the Corporation’s Common Stock before limitation of the Corporation’s right to make payments in Common Stock under the Note.  The parties shall compute the

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Holder’s “Beneficial Ownership” of Common Stock in accordance with U.S. Securities and Exchange Commission Rule 13d-3.  The Holder will, at the request of the Corporation, from time to time, notify the Corporation of the Holder’s computation of Holder’s Beneficial Ownership.

IN WITNESS WHEREOF, Zamba Corporation has caused this Warrant to be signed by its duly authorized officer and this Warrant to be dated May 14, 2004.

ZAMBA CORPORATION
By	/s/ Michael H. Carrel
	Michael H. Carrel, Treasurer

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EXERCISE FORM

(To Be Executed by the Registered Holder in Order to Exercise the Warrant)

To:Zamba Corporation

The undersigned hereby irrevocably elects to exercise the attached Warrant to purchase for cash,                    of the shares issuable upon the exercise of such Warrant, and requests that certificates for such shares (together with a new Warrant to purchase the number of shares, if any, with respect to which this Warrant is not exercised) shall be issued in the name of:

	NAME:
	SOC. SEC. or
	TAX I.D. NO.
	ADDRESS:
Date:                  , 20      .
		Signature *

*The signature on the Notice of Exercise of Warrant must correspond to the name as written upon the face of the Warrant in every particular without alteration or enlargement or any change whatsoever.  When signing on behalf of a corporation, partnership, trust or other entity, please indicate your position(s) and title(s) with such entity.

ASSIGNMENT FORM

(To be Executed by the Registered Holder in Order to Transfer the Warrant)

To:Zamba Corporation

FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto                                   the right to purchase the securities of Zamba Corporation to which the within Warrant relates and appoints                        , attorney, to transfer said right on the books of Zamba Corporation with full power of substitution in the premises.

Dated:                   20
	(Signature)
	Address:

EX-10.03

Exhibit 10.03

REGISTRATION RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS AGREEMENT (the “Agreement”) is entered into as of May 14, 2004, by and among Zamba Corporation, a Delaware corporation (the “Company”), and Pandora Select Partners L.P., a British Virgin Islands limited partnership (the “Investor”).

R E C I T A L S :

WHEREAS, the Company has entered into that certain Purchase Agreement, dated as of the date hereof (the “Purchase Agreement”) with the Investor pursuant to which the Company has agreed to issue and sell to the Investor a secured promissory note (the “Note”) and a warrant (the “Warrant”) to purchase shares of the Company’s Common Stock, $0.01 par value per share (the “Common Stock”);

WHEREAS, the Company may make certain principal and interest payments on the Note by issuance of additional shares of its Common Stock;

WHEREAS, the Company has agreed to grant certain registration rights with respect to the shares of the Company’s Common Stock issuable as payments under the Note or upon exercise of the Warrant;

NOW, THEREFORE, in consideration of the foregoing and of the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows:

ARTICLE 1

DEFINITIONS

As used herein, the following terms shall have the following respective meanings:

1.1“Commission” shall mean the U.S. Securities and Exchange Commission or any other successor federal agency at the time administering the Securities Act.

1.2“Common Stock” shall mean the Company’s common stock, $0.01 par value per share.

1.3“Exchange Act” shall mean the Securities and Exchange Act of 1934, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

1.4“Holders” shall mean and include the Investor and any transferee thereof who holds Registrable Securities of record.

1.5“Register,” “registered” and “registration” refer to a registration effected by preparing and filing with the Commission a registration statement in compliance with the Securities Act, and the declaration or ordering by the Commission of the effectiveness of such registration statement.

1.6“Note Registrable Securities” means any and all shares of Common Stock issued or issuable as payments under the Note, including Common Stock issued or issuable with respect thereto upon any stock split, stock dividend, recapitalization, reclassification, merger, consolidation or other similar event; excluding in all cases, however, Note Registrable Securities sold by a Holder to the public pursuant to a registered offering or pursuant to Rule 144 promulgated under the Securities Act or sold in a private transaction in which the Holder’s registration rights under this Agreement are not assigned.

1.7“Registrable Securities” means the Note Registrable Securities or the Warrant Registrable Securities, or both.

1.8“Registration Expenses” shall mean all expenses incurred by the Company in complying with Articles 2 and 3 hereof, including, without limitation, all registration, qualification and Commission, National Association of Securities Dealers, Inc., stock exchange and other filing fees, printing expenses, escrow fees, fees and disbursements of legal counsel for the Company, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company).

1.9“Securities Act” shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

1.10“Selling Expenses” shall mean all underwriting fees, discounts, selling commissions and stock transfer taxes applicable to the Registrable Securities registered by the Holders and the fees and expenses of any special counsel engaged by the Holders.

1.11“Underwriter” shall mean (whether or not the term is capitalized) a broker-dealer engaged by the Company to distribute Registrable Securities as principal or agent.

1.12“Underwriting” or “Underwritten” shall mean (whether or not the term is capitalized) a method of publicly distributing securities through an Underwriter.

1.13“Warrant Registrable Securities” means any and all shares of Common Stock issued or issuable upon the exercise of the Warrant, including Common Stock issued or issuable with respect thereto upon any stock split, stock dividend, recapitalization, reclassification, merger, consolidation or other similar event; excluding in all cases, however, Warrant Registrable Securities sold by a Holder to the public pursuant to a registered offering or pursuant to Rule 144

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promulgated under the Securities Act or sold in a private transaction in which the Holder’s registration rights under this Agreement are not assigned.

ARTICLE 2

REQUIRED REGISTRATION

2.1Required Registration.

(a)Not later than August 15, 2004 (unless a majority in interest of the Holders request a delay of the Company for up to an additional 90 days in writing and in such case, upon expiration of this requested delaying period), the Company will prepare and file with the Commission a registration statement under the Securities Act (currently expected to be on Form S-2 or S-3) covering all of the Registrable Securities, and use its best efforts to obtain the effectiveness of such registration as soon as practicable as would permit or facilitate the original issuance or subsequent resale and distribution of all of such Registrable Securities.  The Company’s failure to obtain effectiveness of this registration statement by November 15, 2004 (subject to an extension of such date to correspond to a filing date extension, if any, granted by the Holders above, and subject to delays incurred by any Holder’s failure to comply with the provisions of Section 5(b) below) will commence the running of the first “Failure Term” as defined in Section 4 of the Note and will also constitute an event of default under this Agreement.

(b)At any time after the earlier of (i) the date upon which the high closing bid prices of the Company’s Common Stock on the NASDAQ System (or if not then traded on the NASDAQ System, then on the OTC Bulletin Board as reported by bigcharts.com, or if this service is discontinued, such other reporting service acceptable to a majority in interest of the Holders) exceeds 150% of the exercise price of the Warrant for 20 consecutive trading days, or (ii) November 15, 2007, the Holders of a majority of the Warrant Registrable Securities may, by notice to the Company, require that the Company file with the Commission a registration statement under the Securities Act (currently expected to be on Form S-2 or S-3) covering all of the Warrant Registrable Securities and any Note Registrable Securities then held by the Holders, and that the Company use its best efforts to obtain the effectiveness of such registration statement as soon as practicable as would permit or facilitate the subsequent resale and distribution of all of such Registrable Securities.  Notwithstanding the forgoing, if a registration statement covering the resale and distribution of any of the Registrable Securities is in effect at the time the notice is given to the Company as provided in this subsection 2.1(b), then the Company may satisfy its obligation to file a registration statement under this Subsection 2.1(b) by maintaining the effectiveness of the registration statement already in effect for an additional nine months.

2.2Underwriting.

(a)The resale distribution of the Registrable Securities covered by the registration statements referred to in Section 2.1 above shall be effected by means of the method of distribution selected by the Holders holding a majority of the Registrable Securities covered by

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such registration.  The Holders holding a majority of the Registrable Securities may also change the resale distribution method from time to time (subject to amendment of the registration statement as required to describe such changes).  If such distribution is to be effected by means of an underwriting, the right of any Holder to registration pursuant to this Article 2 shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein.

(b)If such distribution is effected by means of an underwriting, the Company (together with all Holders proposing to distribute their securities through such underwriting) shall enter into an underwriting agreement in customary form and under terms reasonably acceptable to the Company with a managing underwriter of nationally recognized standing selected for such underwriting by a majority in interest of the Holders and approved by the Company, which approval shall not be unreasonably withheld.  The reasonable fees of legal counsel for the Company solely in connection with the negotiation and execution of the underwriting agreement (but as to no other Registration Expenses) will be borne by the Holders.

(c)If any Holder disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the other Holders.  The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration.

2.3Inclusion of Shares by the Company.  If the resale distribution of Registrable Securities is being effected by means of an underwriting and if the managing underwriter will not limit the number of Registrable Securities to be underwritten, the Company may include securities for its own account or for the account of others in such registration if the managing underwriter so agrees.  The inclusion of such shares shall be on the same terms as the registration of shares held by the Holders.  In the event that the underwriters exclude some of the securities to be registered, the securities to be sold for the account of the Company and any other holders shall be excluded in their entirety prior to the exclusion of any Registrable Securities.

ARTICLE 3

COMPANY REGISTRATION

3.1Notice of Registration to Holders.  If at any time or from time to time commencing after the date hereof, the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration on Form S-8 (or any successor form) or (ii) a registration on Form S-4 (or any successor form) relating in whole or in part to a Commission Rule 145 transaction, the Company will:

(a)promptly give to each Holder written notice thereof and

(b)include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within 30 days after receipt of such written notice

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from the Company described in Section 3.1(a), by any Holder or Holders, but only to the extent that (i) if the proposed registration under this Article 3 is not an underwritten offering, the original issuance or resale distribution of such Registrable Securities is not already covered by an effective registration statement under Article 2 above or (ii) if the proposed registration under this Article 3 is an underwritten offering, such Registrable Securities are not then being offered in a separate underwritten offering under Article 2 above.

3.2Underwriting.  If the registration of which the Company gives notice is for an offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 3.1(a).  In such event, the right of any Holder to registration pursuant to this Article 3 shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein.  All Holders proposing to distribute their securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company.

(a)Notwithstanding any other provision of this Article 3, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the underwriter may exclude some or all Registrable Securities from such registration and underwriting.  The Company shall so advise all Holders of Registrable Securities, and the number of shares of Common Stock to be included in such registration shall be allocated as follows:  first, for the account of the Company, all shares of Common Stock proposed to be sold by the Company;  and second, for the account of the Holders and any other shareholders of the Company participating in such registration, the number of shares of Common Stock requested to be included in the registration by the Holders and such other shareholders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities that are proposed to be offered and sold by the Holders and such other shareholders of Registrable Securities at the time of filing the registration statement.  No Registrable Securities excluded from the underwriting in this Article 3 by reason of the underwriters’ marketing limitation shall be included in such registration.

(b)The Company shall so advise all Holders and the other holders distributing their securities through such underwriting of any such limitation, and the number of shares of Registrable Securities held by Holders that may be included in the registration.  If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the managing underwriter.  Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, but the Holder shall continue to be bound by the terms hereof.

(c)The Company shall have the right to terminate or withdraw any registration initiated by it under this Article 3 prior to the effectiveness of such registration, whether or not a Holder has elected to include Registrable Securities in such registration.

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ARTICLE 4

EXPENSES OF REGISTRATION

All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Articles 2 and 3 hereof shall be borne by the Company, except as provided by Section 2.2(b).  The expense described in Section 2.2(b), and all Selling Expenses relating to Registrable Securities registered by the Holders, shall be borne by the Holders of such Registrable Securities pro rata on the basis of the number of shares so registered.

ARTICLE 5

REGISTRATION PROCEDURES

(a)In the case of each registration effected by the Company pursuant to this Agreement, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof.  The Company agrees to use its best efforts to effect or cause such registration to permit the sale of the Registrable Securities covered thereby by the Holders thereof in accordance with the intended method or methods of distribution thereof described in such registration statement.  In connection with any registration of any Registrable Securities, the Company shall, as soon as reasonably possible:

(i)prepare and file with the Commission a registration statement with respect to such Registrable Securities and use its efforts to cause such registration statement filed to become effective;

(ii)prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus included therein as may be necessary to effect and maintain the effectiveness of such registration statement as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such registration statement (provided, however, that the Company shall not be obliged to maintain the effectiveness of the registration statement described in Subsection 2.1(a) longer than through the earlier of (A) the second anniversary of the date on which the last of the Note Registrable Securities are issued as payment under the Note, (B) the date on which the Holder may sell all Note Registrable Securities then held by the Holder, or which may become issuable as payment under the Note, pursuant to Rule 144 of the Securities Act, without restriction by the volume limitations of paragraph (e) of such Rule, or (C) such time as all Note Registrable Securities held by such Holder have been sold; and shall not be obligated to maintain the effectiveness of the registration statement described in Subsection 2.1(b) longer than nine months from the effectiveness of such registration statement), and furnish to the holders of the Registrable Securities covered thereby copies of any such supplement or amendment prior to this being used and/or filed with the Commission;

(iii)promptly notify the Holders of Registrable Securities to be included in a registration statement hereunder, the sales or placement agent, if any, therefor and the managing underwriter of the securities being sold, and confirm such advice in writing,

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(A) when such registration statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such registration statement or any post-effective amendment, when the same has become effective, (B) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation of any proceedings for that purpose, (C) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose or (D) if, to the Company’s knowledge, it shall be the case, at any time when a prospectus is required to be delivered under the Securities Act, that such registration statement or prospectus, or any document incorporated by reference in any of the foregoing, contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;

(iv)use its best efforts to obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any Registrable Securities included in such registration statement for sale in any jurisdiction at the earliest practicable date;

(v)furnish to each Holder of Registrable Securities to be included in such registration statement hereunder, each placement or sales agent, if any, therefor and each underwriter, if any, thereof a conformed copy of such registration statement, each such amendment and supplement thereto (in each case excluding all exhibits and documents incorporated by reference) and such number of copies of the registration statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically so requested by such holder, agent or underwriter, as the case may be) of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act, as such Holder, agent, if any, and underwriter, if any, may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder sold by such agent or underwritten by such underwriter and to permit such Holder, agent and underwriter to satisfy the prospectus delivery requirements of the Securities Act;

(vi)use its best efforts to (A) register or qualify the Registrable Securities to be included in such registration statement under such other securities laws or blue sky laws of such states of the United States or the District of Columbia to be designated by the Holders of a majority of such Registrable Securities participating in such registration and each placement or sales agent, if any, therefor and underwriter, if any, thereof, as any Holder and each underwriter, if any, of the securities being sold shall reasonably request (provided, that the Company shall not be required to use its best efforts to register or qualify the Registrable Securities in more than Minnesota and three other such jurisdictions unless the expenses thereof are borne by the Holders requesting such

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efforts), (B) keep such registrations or qualifications in effect and comply with such laws so as to permit, as to a registration statement filed under Article 2 above, the continuance of offers, sales and dealings therein in such jurisdictions for the same period after the initial effective date of the registration statement filed under the Securities Act as described in Section 5(a)(ii) above or, as to a registration statement filed under Article 3 above, for a period of 90 days after the effective date of the registration statement, or if underwritten, as long as may be necessary to enable the underwriter to complete its distribution of the Registrable Securities pursuant to such registration statement and (C) take any and all such actions as may be reasonably necessary or advisable to enable such Holder, agent, if any, and underwriter to consummate the disposition in such jurisdictions of such Registrable Securities;  provided, however, that in order to fulfill the foregoing obligations under this Section 5(a)(vi), the Company shall not (unless otherwise required to do so in any jurisdiction) be required to (1) qualify generally to do business as a foreign company or a broker-dealer, (2) execute a general consent to service of process or (3) subject itself to taxation;  and

(vii)furnish, at the request of a majority of the Holders participating in the registration, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and if permitted by applicable accounting standards, to the Holders requesting registration of Registrable Securities.

(b)The Company may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such Holder and such Holder’s method of distribution of such Registrable Securities as the Company may from time to time reasonably request in writing.  Each such Holder agrees to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by such Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such registration contains or would contain an untrue statement of a material fact regarding such Holder or the distribution of such Registrable Securities or omits to state any material fact regarding such Holder or the distribution of such Registrable Securities required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish to the Company any additional

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information required to correct and update any previously furnished information or required so that such prospectus shall not contain, with respect to such Holder or the distribution of such Registrable Securities, an untrue statement or a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing.

(c)Each of the Holders will comply with the provisions of the Securities Act with respect to disposition of the Registrable Securities to be included in any registration statement filed by the Company.

ARTICLE 6

INDEMNIFICATION

6.1The Company will indemnify each Holder, each of its officers, directors and partners, and such Holder’s legal counsel and independent accountants, if any, and each person controlling any such persons within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereof, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act or any state securities laws applicable to the Company and relating to action or inaction by the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder, each of its officers, directors and partners and such Holder’s legal counsel and independent accountants, and each person controlling any such persons, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action;  provided, however, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by such Holder, officers, directors, partners, legal counsel, accountants, underwriter or controlling persons, and expressly intended for use in such registration statement, prospectus, offering circular or other document, or any amendment or supplement thereof.

6.2Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers and its legal counsel and independent

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accountants, each underwriter, if any, of the Company’s securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other such Holder, each of its officers, directors, partners, legal counsel and independent accountants, if any, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such Holders, such directors, officers, partners, legal counsel, independent accountants, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, other document or amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Holder and expressly intended for use in such registration statement, prospectus, offering circular or other document, or any amendment or supplement thereof;  provided, however, that the obligations of each Holder hereunder shall be limited to an amount equal to the proceeds to such Holder of Registrable Securities sold as contemplated herein.

6.3Each party entitled to indemnification under this Section 6 (the “Indemnified Party”) shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld).  The Indemnified Party may participate in such defense at such party’s expense;  provided, however, that the Indemnifying Party shall bear the expense of such defense of the Indemnified Party if representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest.  The failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement, unless such failure is prejudicial to the ability of the Indemnifying Party to defend the action.  No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation.

6.4If the indemnification provided for in Section 6.1 or 6.2 is unavailable or insufficient to hold harmless an Indemnified Party, then each Indemnifying Party shall contribute to the amount

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paid or payable by such Indemnified Party as a result of the expenses, claims, losses, damages or liabilities (or actions or proceedings in respect thereof) referred to in Section 6.1 or 6.2, in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the sellers of Registrable Securities on the other hand in connection with statements or omissions which resulted in such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) or expenses, as well as any other relevant equitable considerations.  The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the sellers of Registrable Securities and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission.  The Company and the Holders agree that it would not be just and equitable if contributions pursuant to this Section 6.4 were to be determined by pro rata allocation (even if all Sellers of Registrable Securities were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this Section 6.4.  The amount paid by an Indemnified Party as a result of the expenses, claims, losses, damages or liabilities (or actions or proceedings in respect thereof) referred to in the first sentence of this Section 6.4 shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any claim, action or proceeding which is the subject of this Section 6.4.  No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.  The obligations of sellers of Registrable Securities to contribute pursuant to this Section 6.4 shall be several in proportion to the respective amount of Registrable Securities sold by them pursuant to a registration statement.

ARTICLE 7

RULE 144 REPORTING

With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of securities of the Company to the public without registration, the Company agrees to use its best efforts to:

7.1Make and keep public information available as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the date hereof;  and

7.2File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act.

ARTICLE 8

TRANSFER OF REGISTRATION RIGHTS

The rights to cause the Company to register Registrable Securities under this Agreement may be assigned by a Holder to Whitebox Advisors, LLC (“Whitebox”) or to a transferee or assignee of Registrable Securities that (i) is a subsidiary, parent or affiliated entity, general partner or limited partner, member or retired partner or member of a Holder or of Whitebox, (ii)

11

is an affiliated fund, a follow-on fund or predecessor fund of a Holder or a related fund or of Whitebox, (iii) is a Holder’s family member or trust for the benefit of an individual Holder or (iv) acquires at least 400,000shares of Registrable Securities (as adjusted for stock splits, stock dividends, stock combinations, reclassifications, recapitalizations, mergers, consolidations or other similar events);  provided, however, (A) the transferor shall, within ten days before such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and (B) such transferee shall agree in writing to be subject to all restrictions set forth in this Agreement.  In each case, such rights may only be transferred together with the underlying Registrable Securities in a transfer permitted hereunder, and by the Securities Act and applicable state securities laws.  Any such transferee or assignee shall be deemed a Holder hereunder.

ARTICLE 9

LIMITATIONS ON REGISTRATION RIGHTS GRANTED TO OTHER SECURITIES

From and after the date of this Agreement, the Company shall not without the prior written consent of the holders of a majority of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company providing for the grant to such holder of registration rights superior to those granted herein, except as to registrations for which the Holder is excluded from participation under Section 3.1.

ARTICLE 10

MISCELLANEOUS

10.1Governing Law.  The laws of the state of Minnesota shall govern the interpretation, validity and performance of the terms of this agreement, regardless of the law that might be applied under principles of conflicts of law.

10.2Successors and Assigns.  Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.

10.3Entire Agreement.  This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter hereof.

10.4Termination.  The obligations of the Company to register Registrable Securities under this Agreement shall terminate in any event on the tenth anniversary of the date of this Agreement.  In addition, the right of any Holder to request inclusion in any registration under Article 3 shall terminate on the date hereafter when (i) such Holder (together with its affiliates, partners, members and former partners and members) holds less than 1% of the Company’s outstanding Common Stock and (ii) all Registrable Securities held by or issuable to such Holder (and its affiliates, partners, members and former partners and members) as payment under the Note or upon exercise of the Warrant may be sold under Rule 144 during any 90 day period.

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10.5Notices.  All notices, requests, consents, and other communications hereunder shall be in writing and shall be deemed effectively given and received when delivered in person or by national overnight courier service or by certified or registered mail, return receipt requested, or by telecopier, addressed as follows:

(a)if to the Company, at

Zamba Corporation

3033 Excelsior Boulevard, Suite 200

Minneapolis, Minnesota  55416

Attention:  Norman D. Smith, President and Chief Executive Officer

Facsimile:  (952) 832-9383

with a copy to:

Felhaber, Larson, Fenlon &Vogt, P.A.

601 Second Avenue South, Suite 4200

Minneapolis, Minnesota  55402

Attention:  Roger H. Frommelt, Esq.

Facsimile:  (612) 338-4608

(b)if to the Investor, in care of:

Whitebox Advisors, LLC

3033 Excelsior Boulevard, Suite 300

Minneapolis, Minnesota  55416

Attention:  Jonathan Wood, Chief Financial Officer

Facsimile:  (612) 253-6151

with a copy to:

Messerli & Kramer P.A.

150 South Fifth Street, Suite 1800

Minneapolis, Minnesota  55402

Attention:  Jeffrey C. Robbins, Esq.

Facsimile:  (612) 672-3777

(c)if to any other Holder, to the address reflected on the records of the Company, or such other address or addresses as shall have been furnished in writing by such party to the Company and to the other parties to this Agreement.

10.6Severability.  The invalidity, illegality or unenforceability of one or more of the provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or

13

enforceability of this Agreement, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law.

10.7Titles and Subtitles.  The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.

10.8Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together constitute one instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their respective duly authorized officers or representatives as of the date first written above.

ZAMBA CORPORATION
By	/s/ Michael H. Carrel
	Michael H. Carrel, Treasurer
PANDORA SELECT PARTNERS L.P.
By	/s/ Jonathon Wood
Its	Director

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EX-31.01

Exhibit 31.01

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Norman D. Smith, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Zamba Corporation;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer and I, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date:	May 14, 2004
	/s/ Norman D. Smith
	President and Chief Executive Officer

EX-31.02

Exhibit 31.02

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael H. Carrel, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Zamba Corporation;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer and I, are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.   The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date:	May 14, 2004
	/s/ Michael H. Carrel
	Executive Vice President and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Zamba Corporation (the “Company”) on Form 10-Q for the three months ended March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Norman D. Smith, President and Chief Executive Officer of the Company, and Michael H. Carrel, Executive Vice President and Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, the undersigned has executed this Certification as of the 14th day of May 2004.

/s/ Norman D. Smith

Norman D. Smith President and Chief Executive Officer

/s/ Michael H. Carrel

Michael H. Carrel Executive Vice President and Chief Financial
Officer