<PAGE>
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] 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 0-28488
MULTIPLE ZONES INTERNATIONAL, INC
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1431894
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
707 SOUTH GRADY WAY
RENTON, WASHINGTON 98055-3233
(Address of Principal Executive Offices) (Zip Code)
(425) 430-3000
(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 X No
------- -------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PROCEEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. The number of shares of the
registrant's Common Stock outstanding as of May 8, 2000 was 13,373,967.
<PAGE>
<TABLE>
<CAPTION>
MULTIPLE ZONES INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION
<C> <S> <C>
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
March 31, 2000 (unaudited) and December 31, 1999 3
Consolidated Statements of Operations and Comprehensive Income (Loss)
Three months ended March 31, 2000 and 1999 (unaudited) 4
Statements of Shareholders' Equity
Three months ended March 31, 2000 (unaudited) 5
Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 1999 (unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
</TABLE>
<PAGE>
PART I.
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MULTIPLE ZONES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $12,649 $25,774
Receivables, net 34,396 32,484
Inventories, net 19,991 17,752
Prepaid expenses 1,334 1,805
Deferred income taxes 1,682 1,682
Notes receivable 1,552 181
--------- ------------
Total current assets 71,604 79,678
Property and equipment, net 11,010 11,435
Other assets 5,487 5,381
--------- ------------
Total assets $88,101 $96,494
========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines of credit $ 709
Accounts payable $46,441 52,664
Accrued liabilities and other 7,277 7,916
Current portion of capital lease obligations 823 905
--------- ------------
Total current liabilities 54,541 62,194
Capital lease obligations, net of current portion 820 986
Other 1,233 1,326
--------- ------------
Total liabilities 56,594 64,506
--------- ------------
Minority interest 146 148
Commitments and contingencies
Shareholders' equity:
Common stock 39,234 39,184
Retained deficit (7,873) (7,368)
Foreign currency translation adjustment 24
--------- ------------
Total shareholders' equity 31,361 31,840
--------- ------------
Total liabilities and shareholders' equity $88,101 $96,494
========= ============
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
MULTIPLE ZONES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2000 1999
---------- ------------
<S> <C> <C>
Net sales $124,622 $135,092
Cost of sales 112,015 120,616
---------- ------------
Gross profit 12,607 14,476
Selling, general and administrative expense 14,846 14,011
---------- ------------
Income (loss) from operations (2,239) 465
---------- ------------
Interest expense 129 132
Other income, net (1,567) (206)
Minority interest (2) (28)
---------- ------------
Other income (1,440) (102)
---------- ------------
Income (loss) before taxes (799) 567
Provision for (benefit from) income taxes (294) 224
---------- ------------
Net income (loss) $ (505) $ 343
========== ============
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment 24 (152)
---------- ------------
Other comprehensive income (loss) 24 (152)
---------- ------------
Comprehensive income (loss) $ (481) $ 191
========== ============
Net income (loss) attributable to basic and diluted earnings per share $ (505) $ 343
Basic earnings (loss) per share $ (0.04) $ 0.03
Shares used in computing basic earnings (loss) per share 13,354 13,204
Diluted earnings (loss) per share $ (0.04) $ 0.03
Shares used in computing diluted earnings (loss) per share 13,354 13,619
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
MULTIPLE ZONES INTERNATIONAL, INC. AND SUBSIDIARIES
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
Foreign
Currency
Common Stock Retained Translation
Shares Amount Deficit Adjustment Total
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 2000 13,346,287 $39,184 $(7,368) $ 24 $31,840
Issuance of common stock 3,835 18 18
Exercise of stock options 19,829 32 32
Net loss (505) (505)
Foreign currency translation
adjustments (24) (24)
------------- ------------- ------------- ------------- -------------
Balance, March 31, 2000 13,369,951 $39,234 $(7,873) $ $31,361
============= ============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements
<PAGE>
MULTIPLE ZONES INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
---------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (505) $ 343
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 1,318 791
Gain on disposal of subsidiaries (1,333)
Minority interest (2) (28)
Changes in assets and liabilities:
Accounts receivable (2,098) 4,445
Inventory (2,369) 18,345
Prepaid expenses and other assets (593) 1,468
Accounts payable (5,273) (27,477)
Accrued liabilities (584) (2,744)
Income taxes payable 12 (283)
---------- ------------
Net cash used in operating activities (11,427) (5,140)
Cash flows from investing activities:
Purchases of property and equipment (963) (1,708)
---------- ------------
Net cash used in investing activities (963) (1,708)
Cash flows from financing activities:
Net borrowing (payments) under line of credit agreement 253
Net change in book overdrafts (556) 589
Payments on capital leases (229) (358)
Net proceeds from sale of common stock 50 231
Capital lease obligation 2,101
---------- ------------
Net cash provided by (used in) financing activities (735) 2,816
Effect of exchange rate on cash and cash equivalents (98)
---------- ------------
Net increase (decrease) in cash and cash equivalents (13,125) (4,130)
Cash and cash equivalents at beginning of period 25,774 19,092
---------- ------------
Cash and cash equivalents at end of period $ 12,649 $ 14,962
========== ============
</TABLE>
See notes to consolidated financial statements
<PAGE>
MULTIPLE ZONES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Multiple Zones International, Inc., together with its majority owned
subsidiary (collectively the "Company"), is a leading direct marketer of over
100,000 computer products and services to businesses and consumers. The
Company serves customers through its flagship brands: Zones Business
Solutions-TM-, serving small to medium size businesses, government and
education; and Zones.com-TM-, the Company's Internet store, portal to THE PC
ZONE-Registered Tradmark- and THE MAC ZONE-Registered Tradmark-, targeting
Small Office/Home Office ("SOHO"), small business and the sophisticated
end-user. The Company offers products from leading manufacturers including
3Com, Apple, Compaq, Hewlett-Packard, IBM, Microsoft and Toshiba. The Company
began operations in 1988 by advertising in national trade publications.
Catalog circulation commenced with THE MAC ZONE in 1990, followed by THE PC
ZONE in 1992. The Company added outbound telemarketing operations,
principally to business accounts, in 1993. Internet sales and electronic
marketing via e-mail began in 1997. The Company launched touchMarketing.com,
an Internet-based application service provider of Affordable 1-to-1
Marketing, in 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements and notes have
been prepared in accordance with the rules and regulations of the Securities
and Exchange Commission and consequently do not include all of the
disclosures normally required by generally accepted accounting principles. In
the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position and operating results for
the interim periods. The results of operations for such interim periods are
not necessarily indicative of results for the full year. These financial
statements should be read in conjunction with the audited financial
statements and notes thereto contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1999 as filed with the Securities and
Exchange Commission on March 29, 2000.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and of its' majority owned subsidiaries. Intercompany transactions and
balances have been eliminated in consolidation.
EARNING PER SHARE
Basic earnings per share ("EPS") exclude all dilution. It is based upon the
weighted average number of shares outstanding during the period. Diluted EPS
reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting
Standard Board issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." Among other provisions, SFAS No. 133 requires that
entities recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Gains and losses resulting from changes in the fair values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. The effective date of SFAS No. 133
has been delayed until the fiscal year beginning January 1, 2001.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION IN FINANCIAL
STATEMENTS, which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB No. 10 does not impact the
Company's revenue recognition policies
Management believes that the adoption of these new standards will not have a
material impact on the Company's financial position or results of operations.
<PAGE>
3. SEGMENT INFORMATION
The Company's reportable segments through December 31, 1999 were based on
geographic areas of operation: the United States and International. The
Company's majority interest in all its international operations have been
divested over the 1999 calendar year. The Company was unable to segregate the
assets based on the reportable segments. The Company has not disclosed prior
years' segment data on a comparative basis because management found it
impracticable.
As of January 1, 2000 and thereafter, the Company will report its segments
based on its delineation into three distinct business segments, each segment
catering to a different customer base. These segments are based on the
Company's method of internal reporting.
A summary of the Company's operations by segment follows (in thousands):
<TABLE>
<CAPTION>
ZONES BUSINESS
SOLUTIONS ZONES.COM TOUCHMARKETING.COM ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
QUARTER ENDED MARCH 31, 2000
- ----------------------------
Net sales $72,785 $51,760 $192 $(115) $124,622
Gross profit 7,023 5,588 89 (93) 12,607
Operating (expense) (7,097) (7,441) (401) 93 (14,846)
Loss from operations (74) (1,853) (312) (2,239)
Consolidated assets 88,101
UNITED STATES INTERNATIONAL ELIMINATIONS TOTAL
QUARTER ENDED MARCH 31, 1999
- ----------------------------
Net sales $116,861 $18,240 $(9) $135,092
Depreciation (710) (81) (791)
Income from operations 506 (41) 465
Interest revenue (expense) 135 (24) 111
Total assets 94,435 14,151 (3,226) 105,360
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The matters described below contain forward-looking statements which involve
known and unknown risks, uncertainties and other factors that may cause
actual results, performance or achievements of the Company or industry trends
to differ materially from those expressed or implied by such forward-looking
statements.
The following discussion and analysis should be read in conjunction with the
Risk Factors and other information contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
GENERAL
Multiple Zones International, Inc., together with its majority owned
subsidiary (collectively the "Company"), is a leading direct marketer of over
100,000 computer products and services to businesses and consumers. The
Company serves customers through its flagship brands: Zones Business
Solutions, serving small to medium size businesses, government and education;
and Zones.com, the Company's Internet store, portal to THE PC ZONE and THE
MAC ZONE, targeting SOHO, small business and the sophisticated end-user. The
Company offers products from leading manufacturers including 3Com, Apple,
Compaq, Hewlett-Packard, IBM, Microsoft and Toshiba. The Company began
operations in 1988 by advertising in national trade publications. Catalog
circulation commenced with THE MAC ZONE in 1990, followed by THE PC ZONE in
1992. The Company added outbound telemarketing operations,
<PAGE>
principally to business accounts, in 1993. Internet sales and electronic
marketing via e-mail began in 1997. The Company launched touchMarketing.com,
an Internet-based application service provider of Affordable 1-to-1
Marketing, in 1999.
The Company's revenues consist primarily of sales of computer hardware,
software, peripherals and accessories, as well as royalties from foreign
licensees. Net sales reflect the effects of product returns. Gross profit
consists of net sales less product and freight costs. Selling, general and
administrative ("SG&A") expenses include advertising expense net of co-op
advertising revenue, warehousing, selling commissions, order processing,
telephone and credit card fees and other costs such as administrative
salaries, depreciation, rent and general overhead expenses. Other expense
represents interest expense net of non-operating income and minority interest
in the Company's subsidiary.
RESULTS OF OPERATIONS
The following table presents the Company's unaudited consolidated results of
operations, as a percentage of net sales, and selected domestic operating
data for the periods indicated. This information has been prepared by the
Company on a basis consistent with the Company's unaudited Consolidated
Financial Statements and, in the opinion of management, includes all
adjustments, consisting only of normal recurring accruals, necessary for a
fair presentation of the results of such periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
------------- ------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 89.9 89.3
------------- ------------
Gross profit 10.1 10.7
Selling, general and administrative expenses 11.9 10.4
------------- ------------
Income (loss) from operations (1.8) 0.3
Other income (1.2) (0.1)
------------- ------------
Income (loss) before income taxes (0.6) 0.4
Provision for (benefit from) income taxes (0.2) 0.1
------------- ------------
Net income (loss) (0.4)% 0.3%
============= ============
SELECTED DOMESTIC OPERATING DATA:
Catalog circulation 5,900,000 7,875,000
E-media circulation 4,600,000 1,800,000
Number of orders 250,000 239,000
Average order size $521 $515
Number of account managers 250 177
</TABLE>
COMPARISON OF THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
NET SALES. Net sales decreased 7.8% to $124.6 million for the quarter ended
March 31, 2000 from $135.1 million in 1999. The decrease was due to the
divestiture of the Company's international operations. Domestic net sales
increased 6.6% to 124.6 million for the quarter ended March 31, 2000 from $116.8
million for the quarter ended March 31, 1999. The domestic increase resulted
primarily from an increase in the Company's Zones Business Solutions ("ZBS")
division, which grew 26.1% to $72.8 million for the quarter ended March 31,
2000. ZBS sales growth is due to an increase in account managers to 250 at March
31, 2000 compared to 177 a year ago. Sales by the Company's Zones.com division,
which is comprised of the Internet and inbound catalog operations, decreased
12.2% to $51.8 million for the quarter ended March 31, 2000 compared to $58.9
million in 1999. Internet sales increased 71.4% to $32.6 million for the quarter
ended March 31, 2000, while catalog sales declined 52.1% to $19.1 million
principally due to a 25.1% decline in catalog circulation.
Net domestic PC product sales increased 11.0% to $64.9 million for the quarter
ended March 31, 2000 from $58.5 million in 1999. The increase was due primarily
to an increase in the number of ZBS outbound account managers.
<PAGE>
PC sales represented 52.1% of total sales for the quarter ended March 31,
2000 compared to 50.1% in 1999. Net domestic Mac product sales increased 2.1%
to $59.6 million for the quarter ended March 31, 2000 from $58.4 million in
1999. This increase was driven in part by strong product availability and
continued growth in Mac on-line sales, offset partially by the sales of iMacs
resulting from our heavy promotions in the first quarter of 1999.
GROSS PROFIT. Gross profit decreased to $12.6 million for the quarter ended
March 31, 2000 from $14.5 million in 1999, and declined as a percentage of net
sales to 10.1% from 10.7%, for the same periods. Domestically, gross profit
dollars increased to $12.6 million for the quarter ended March 31, 2000 from
$12.3 million at March 31, 1999. This increase primarily was due to improved
merchandising strategies. Additionally, sales of CPU's for the quarter ended
March 31, 2000 represented 41.4% of net sales compared to 40.1% in 1999. CPU's
generally carry a lower average gross margin percentage than other products
offered by the Company. Sales of hardware and software in the first quarter
represented 43.2% and 15.4% of total net sales, respectively
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased to $14.8
million for the quarter ended March 31, 2000 from $14.0 million in 1999,
representing 11.9% and 10.4% of net sales, respectively.
OTHER INCOME. Other income increased to $1.4 million for the quarter ended March
31, 2000 from $102,000 in 1999. The increase primarily was due to the gain on
divestiture of the Company's India subsidiary. Also, interest income earned from
the Company's cash equivalent investments increased in the first quarter of 2000
compared to 1999. .
INCOME TAX EXPENSE/BENEFIT. The income tax benefit for the quarter ended March
31, 2000 was $294,000, the income tax expense for the quarter ended March 31,
1999 was $224,000.
NET INCOME/LOSS. Net loss for the three months ended March 31, 2000, was
$505,000, compared to a net income of $343,000 for the three months ended March
31, 1999. Diluted loss was $0.04 per share for the three months ended March 31,
2000 compared to earnings per share of $0.03 for 1999.
TRENDS
During the quarter ended March 31, 2000, sales through the Company's Internet
store, Zones.com, grew to $32.6 million, or 26.2% of domestic sales, an increase
of 71.4% over the first quarter of 1999 and an increase of 3.2% over the
seasonally strong fourth quarter of 1999. The Company initiated several new
promotional strategies to drive on-line revenues, including on-line discounts,
free-shipping promotions and product-specific, on-line-only promotions. 66% of
net sales dollars through the Company's Internet store are phone-assisted, which
affords additional sales opportunities and results in increased order sizes. In
addition, during the quarter the Company became a premier merchant on CNET.
Outbound sales to business, government and education accounts grew to $72.80
million during the first quarter of 2000, an increase of 26.1% and 10.2% over
the first quarter of 1999 and fourth quarter of 1999, respectively. This
growth was achieved through a combination of process-based productivity
improvements and the Company's successful efforts to increase sales through
the expansion of outbound account executive headcount. The Company had 250
account executives at March 31, 2000, representing a 41.2% increase from
March 31, 1999, and intends to continue its aggressive efforts to expand the
number of outbound sales personnel. Marketing efforts for ZBS include
e-marketing and a business-focused catalog to support the efforts of the
Account Executives. ZBS launched the Learning Zone at the end of the first
quarter. The Learning Zone features both computer-based training and a
request-for-quote feature for in person training courses. In addition, during
the first quarter of 2000 ZBS announced that it was selected to be the
primary supplier of computer products to Microsoft Corporation.
touchMarketing.com, an Internet-based e-marketing application service provider
developed and launched by Multiple Zones generated outside sales during the
first quarter and continued refining its e-vehicle delivery system.
touchMarketing.com increased its staff to 26 people across six US states.
Inbound sales resulting from the circulation of the Company's catalogs, by
contrast, declined year over year to $19.1 million during the first quarter,
representing a 52.1% decrease from inbound sales in the first quarter of 1999.
The
<PAGE>
Company believes that the rapid growth of its Internet sales has been a
significant factor in the decline of its inbound catalog sales, as increasing
numbers of catalog recipients choose to place their orders electronically
rather than over the phone. The Company encourages this transition by
featuring its Internet superstore prominently throughout its catalogs and by
making its inbound telephone sales personnel available to assist online
customers. The Company intends to continue to adapt and adjust the size,
content and circulation of its catalogs in an effort to optimize the combined
sales of its inbound and Internet divisions. In addition, the Company is
utilizing e-media distribution. In the first quarter 2000, the Company sent
4.6 million e-vehicles through its subsidiary touchMarketing.com.
Gross product margins have continued to decline industry-wide, primarily due
to falling average unit selling prices and increased price competition. The
Company's gross profit percentage decreased to 10.1% for the first quarter of
2000 from 10.7% for 1999, but increased from 9.4% for the fourth quarter of
1999. The Company's average order size in the first quarter of 2000 grew to
$521, an increase of 1.1% over the first quarter of 1999. Although this
increase in order size has partially offset the recent declines in gross
margin percentage on an average order, the Company expects that there may be
further declines in gross product margins, and that continued growth in order
size, as well as continued cost reductions, will likely be required to
improve profitability.
The Company uses cooperative advertising funds to offset the costs associated
with its catalog circulation and other marketing activities. The amount of
funding available from the Company's vendor-partners has generally declined
since 1997, both in dollars and as a percentage of sales. The Company's
domestic net cost of advertising increased to $1.6 million in the first
quarter ended March 31, 2000 from $462,000 in the comparable 1999 period and
declined from $2.0 million in the fourth quarter of 1999. Net advertising
costs may continue to fluctuate or rise in the future, as the Company
continues to adapt and adjust its catalog circulation, Internet and other
marketing activities in an effort to optimize sales and profitability in
light of changing market conditions.
INDUSTRY
The market for computer products is characterized by rapid changes and
frequent introductions of new products and product enhancements. These
changes result in rapid price fluctuations and have led to continued average
price reductions and lower margin dollars per transaction. A number of
Internet-based competitors are selling computer products at cost plus a
transaction fee. In order to remain competitive, the Company may be required
to reduce its prices. Such a reduction in prices could have a material
adverse effect on the Company's future results of operations.
INFLATION
The Company does not believe that inflation has had a material impact on its
results of operations. However, there can be no assurance that inflation will
not have such an effect in future periods.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had total assets of $88.1 million, of which
$71.6 million were current assets. At March 31, 2000 and December 31, 1999
the Company had cash and cash equivalents of $12.6 million and $25.8 million,
respectively, and working capital of $17.1 million and $17.5 million,
respectively. Net cash used by operating activities was $11.3 million for the
quarter ended March 31, 2000 and net cash used by operating activities was
$5.1 million for the three-month ended March 31, 1999.
Operating cash outflows for the quarter ended March 31, 2000 were primarily
due to a reduction in accounts payable and accrued liabilities and increases
in inventory and accounts receivable. In the period ended March 31, 2000
accounts payable and accrued liabilities decreased $5.3 million and $584,000,
respectively and net inventories and net accounts receivable increased $2.1
million and $2.4 million, respectively.
Cash outlays for capital expenditures were $963,000 and $1.7 million in the
quarter ended March 31, 2000 and 1999, respectively. These expenditures were
primarily for information system enhancements.
<PAGE>
The Company has a $15.0 million line of credit collateralized by accounts
receivable from a commercial bank . At March 31, 2000, there were no
borrowings outstanding under the facilities.
The net amount of accounts payable outstanding at March 31, 2000 was $46.4
million of which $3.6 million was drawn from a $20.0 million inventory
financing facility between the Company and a commercial lender, which
provides financing for, and is collateralized by, inventory purchased from
certain participating vendors. The facility contains various restrictive
covenants relating to profitability, tangible net worth, leverage,
dispositions and use of collateral, other asset dispositions, and merger and
consolidation of the Company.
The Company believes that its existing available cash and cash equivalents,
operating cash flow and existing credit facilities will be sufficient to
satisfy its operating cash needs for at least the next 12 months. However, if
working capital or other capital requirements are greater than currently
anticipated, the Company could be required to seek additional funds through
sales of equity, debt or convertible securities or increased credit
facilities. There can be no assurance that additional financing will be
available or that, if available, the financing will be on terms favorable to
the Company and its shareholders.
Due to strict adherence to guidelines, and effective planning and execution,
the Company successfully transitioned to the new millennium without incident.
The Company has not experienced any significant problems as a result of the
Year 2000 issue. No additional costs were incurred in the first quarter of
2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to the risk of fluctuating interest rates in the
normal course of business, primarily as a result of its short-term borrowing
and investment activities, which generally bear interest at variable rates.
Because the short-term borrowings and investments have maturities of three
months or less, the Company believes that the risk of material loss is low.
<PAGE>
PART II.
ITEM 1. LEGAL PROCEEDINGS
Various claims and actions of a type commonly encountered in the Company's
industry have been asserted and are pending against the Company. The Company
believes that such claims and actions will not have a material adverse effect
upon the Company's financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
2000.
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:
MULTIPLE ZONES INTERNATIONAL, INC.
Date: May 11, 2000
By: /S/ FIROZ H. LALJI
--------------------------------
Firoz H. Lalji, Chairman and
Chief Executive Officer
/S/ RONALD P. MCFADDEN
--------------------------------
Ronald P. McFadden, Chief
Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MULTIPLE
ZONES INTERNATIONAL, INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDING MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 12,649
<SECURITIES> 0
<RECEIVABLES> 36,869
<ALLOWANCES> 2,473
<INVENTORY> 19,991
<CURRENT-ASSETS> 71,604
<PP&E> 23,722
<DEPRECIATION> 12,712
<TOTAL-ASSETS> 88,101
<CURRENT-LIABILITIES> 54,541
<BONDS> 0
0
0
<COMMON> 39,234
<OTHER-SE> (7,873)
<TOTAL-LIABILITY-AND-EQUITY> 88,101
<SALES> 124,622
<TOTAL-REVENUES> 124,622
<CGS> 112,015
<TOTAL-COSTS> 112,015
<OTHER-EXPENSES> 13,277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129
<INCOME-PRETAX> (799)
<INCOME-TAX> (294)
<INCOME-CONTINUING> (505)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (505)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
