-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TJpQvBBvZxzwGgWuZbz8RiRGBgJ69wOgcOQ+lSnS8fzo5AZDmwxg5cbXnjB3DFtF afBO+OBlsEnHNK82Weu0Ng== 0000891020-96-001429.txt : 19961118 0000891020-96-001429.hdr.sgml : 19961118 ACCESSION NUMBER: 0000891020-96-001429 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MULTIPLE ZONES INTERNATIONAL INC CENTRAL INDEX KEY: 0001013786 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 911431894 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-28488 FILM NUMBER: 96663487 BUSINESS ADDRESS: STREET 1: 15815 SE 37TH ST CITY: BELLEVUE STATE: WA ZIP: 98006 BUSINESS PHONE: 2066032400 MAIL ADDRESS: STREET 1: 15815 S E 37TH ST CITY: BELLEVUE STATE: WA ZIP: 98006-1800 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED 9/30/96 1 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1996 COMMISSION FILE NUMBER 0-28488 MULTIPLE ZONES INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) WASHINGTON 91-1431894 (State of incorporation) (I.R.S. Employer Identification Number) 707 SOUTH GRADY WAY RENTON, WASHINGTON 98055-3233 (Address of principal executive offices) (Zip Code) (206) 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 / / The number of shares of the registrant's Common Stock outstanding as of October 31, 1996, was 12,869,510. - -------------------------------------------------------------------------------- 2 MULTIPLE ZONES INTERNATIONAL, INC. INDEX
PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets December 31, 1995 and September 30, 1996 ......................... 3 Consolidated Statements of Operations Three and nine months ended September 30, 1996 and 1995 .......... 4 Statements of Shareholders' Equity Three months ended March 31, 1996, June 30, 1996 and September 30, 1996.............................................................. 5 Consolidated Statements of Cash Flows Nine months ended September 30, 1996 and 1995 .................... 6 Notes to Consolidated Financial Statements .......................... 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ....................... 8 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .................................... 13 SIGNATURES .......................................................... 13
2 3 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL INFORMATION MULTIPLE ZONES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, September 30, 1995 1996 ------------ ------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,214,581 $ 1,570,762 Receivables, net 23,111,478 33,433,408 Inventories, net 42,030,676 50,291,911 Prepaids 6,292,209 4,039,568 Deferred income taxes 695,060 961,732 ------------ ------------ Total current assets 73,344,004 90,297,381 Property and equipment, net 4,518,555 8,046,238 Other assets 1,529,605 2,434,741 ------------ ------------ Total assets $ 79,392,164 $100,778,360 ============ ============ LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities: Bank lines of credit $ 12,034,890 $ 82,492 Accounts payable 46,594,671 40,676,300 Accrued liabilities and other 5,155,322 9,187,066 Current portion of capital lease obligations 722,558 807,930 Income taxes payable 1,086,223 1,274,609 ------------ ------------ Total current liabilities 65,593,664 52,028,397 Capital lease obligations, net of current portion 1,664,553 1,572,529 Deferred income taxes 295,482 225,378 Other 401,940 430,303 ------------ ------------ Total liabilities 67,955,639 54,256,607 ------------ ------------ Minority interest 239,415 360,875 ------------ ------------ Commitments and contingencies Series B Redeemable Convertible Preferred Stock 6,461,096 -- Shareholders' equity: Common stock 2,750,000 36,911,911 Retained earnings 1,987,736 9,345,628 Foreign currency translation adjustment (1,722) (96,661) ----------- ------------ Total shareholders' equity 4,736,014 46,160,878 ----------- ------------ Total liabilities & shareholders' equity $79,392,164 $100,778,360 =========== ============
3 4 MULTIPLE ZONES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the nine months For the three months ended September 30, ended September 30, -------------------------------- --------------------------------- 1995 1996 1995 1996 ------------- ------------- ------------- -------------- Net sales $ 155,720,398 $ 321,734,319 $ 58,676,835 $ 109,396,495 Cost of sales 135,126,270 276,818,952 50,904,308 93,875,000 ------------- ------------- ------------- ------------- Gross profit 20,594,128 44,915,367 7,772,527 15,521,495 Selling, general and administrative expenses 17,304,093 31,558,294 6,325,620 10,436,336 ------------- ------------- ------------- ------------- Income from operations 3,290,035 13,357,073 1,446,907 5,085,159 ------------- ------------- ------------- ------------- Other (income) expense: Interest expense 770,593 1,258,240 319,292 241,867 Other income (137,887) (237,654) (97,277) (78,992) Minority interest 95,908 121,460 53,949 (6,174) ------------- ------------- ------------- ------------- 728,614 1,142,046 275,964 156,701 ------------- ------------- ------------- ------------- Income before income taxes 2,561,421 12,215,027 1,170,943 4,928,458 Provision for income taxes 969,953 4,397,873 443,582 1,726,481 ------------- ------------- ------------- ------------- Net income $ 1,591,468 $ 7,817,154 $ 727,361 $ 3,201,977 ============= ============= ============= ============= Primary earnings per share $ 0.16 $ 0.66 $ 0.07 $ 0.24 ============= ============= ============= ============= Shares used in computation of primary earnings per share 9,805,876 11,144,002 9,815,060 13,393,899 ============= ============= ============= ============= Fully diluted earnings per share $ 0.16 $ 0.67 $ 0.07 $ 0.24 ============= ============= ============= ============= Shares used in computation of fully diluted earnings per sharE 10,141,206 11,706,971 10,150,390 13,542,504 ============== ============= ============= =============
4 5 MULTIPLE ZONES INTERNATIONAL, INC. AND SUBSIDIARIES STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Foreign Common Stock Currency ------------------------- Retained Translation Shares Amount Earnings Adjustment Total ---------- ------------ ----------- ------------ ----------- Balance at December 31, 1995 9,374,999 $ 2,750,000 $ 1,987,736 $ (1,722) $ 4,736,014 Accretion (229,631) (229,631) Net income 2,173,061 2,173,061 Translation adjustment 26,093 26,093 ---------- ------------ ----------- ---------- ------------ Balance at March 31, 1996 9,374,999 $ 2,750,000 $ 3,931,166 $ 24,371 $ 6,705,537 Accretion (229,631) (229,631) Net income 2,442,116 2,442,116 Translation adjustment (54,386) (54,386) ---------- ------------ ----------- ---------- ------------ Balance at June 30, 1996 9,374,999 $ 2,750,000 $ 6,143,651 $ (30,015) $ 8,863,636 Issuance of common stock 2,530,000 27,237,473 27,237,473 Conversion of Series B Preferred Stock 918,711 6,920,358 6,920,358 Exercise of stock options 24,000 4,080 4,080 Net income 3,201,977 3,201,977 Translation adjusment (66,646) (66,646) ---------- ------------ ----------- ---------- ------------- Balance at September 30, 1996 12,847,710 $ 36,911,911 $ 9,345,628 $ (96,661) $ 46,160,878 ========== ============ =========== ========== ============
5 6 MULTIPLE ZONES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
For the nine months ended September 30, -------------------------- 1995 1996 Cash flows from operating activities: Net income $ 1,591,468 $ 7,817,154 Adjustments to reconcile net income to net cash used in operating activities: Allowance for doubtful accounts and returns 99,671 444,414 Inventory valuation allowance 100,000 543,908 Depreciation and amortization 659,308 1,144,377 Deferred income taxes (175,004) (336,776) Minority interest 95,908 121,460 Foreign currency translation adjustment 21,958 (94,939) Changes in assets and liabilities: Accounts receivable (7,956,559) (9,835,111) Inventory (11,255,443) (8,437,712) Prepaids and other assets (2,369,043) 1,929,834 Accounts payable 12,576,898 (9,235,326) Accrued liabilities 312,467 2,974,089 Income taxes payable 209,200 103,642 ----------- ------------ Net cash used in operating activities (6,089,171) (12,860,986) ----------- ------------ Cash flows from investing activities: Purchases of property and equipment (987,575) (4,090,967) ----------- ------------ Net cash used in investing activities (987,575) (4,090,967) ----------- ------------ Cash flows from financing activities: Borrowings under line of credit agreement 42,414,443 48,604,552 Payments under line of credit agreement (33,520,000) (60,556,950) Proceeds from sale of common stock -- 27,237,473 Proceeds from exercise of stock options -- 4,080 Net change in book overdrafts (921,119) 2,659,809 Payments on capital leases (389,224) (545,100) Other 40,644 (95,730) ----------- ----------- Net cash provided by financing activities 7,624,744 17,308,134 ----------- ------------ Net increase in cash and cash equivalents 547,998 356,181 Cash and cash equivalents at beginning of period 513,789 1,214,581 ----------- ----------- Cash and cash equivalents at end of period $ 1,061,787 $ 1,570,762 =========== ===========
6 7 MULTIPLE ZONES INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The consolidated financial statements and related notes thereto for the three and nine month periods ended September 30, 1996 are unaudited and reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. The results of operations for such interim periods are not necessarily indicative of the results for the entire fiscal year ending December 31, 1996. These financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company's Prospectus dated June 27, 1996. 2. INITIAL PUBLIC OFFERING On July 2, 1996, the Company issued 2,200,000 shares of Common Stock at $12.00 per share in an initial public offering. On July 12, 1996, an additional 330,000 shares were issued pursuant to the underwriters' over-allotment option. The proceeds to the Company were $27,237,473, net of the underwriting discount and other direct expenses of $3,122,527. Upon consummation of the offering all outstanding shares of Series B Preferred Stock converted to 918,711 shares of Common Stock. 3. EARNINGS PER SHARE Earnings per share is computed using the weighted average number of common and dilutive common equivalents outstanding during the period. Dilutive common equivalents consist of stock options and warrants. The accretion relating to the Series B Redeemable Convertible Preferred Stock ("Series B Preferred Stock") prior to the conversion to common stock is deducted from income only in the calculation of primary earnings per share. For the three and nine months ended September 30, 1995, fully diluted earnings per share assumes the conversion of Series B Preferred Stock to Common Stock. For the three and nine months ended September 30, 1996, fully diluted earnings per share is computed using the weighted average effect of the conversion of Series B Preferred Stock to Common Stock. Common and common equivalent shares issued at prices below the public offering price during the 12 months preceding the offering date have been included in the calculation as if they were outstanding for all periods presented. The calculation uses the treasury stock method in determining the resulting incremental weighted average equivalent shares outstanding. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING INFORMATION 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 Prospectus dated June 27, 1996 filed with the Securities and Exchange Commission. General Multiple Zones International, Inc. and its majority owned subsidiaries (collectively the "Company") is a leading international direct marketer of microcomputer hardware, software, peripherals and accessories through its two flagship catalogs, The Mac Zone(R) and The PC Zone(R). The Company began operations in 1988 by advertising in national trade publications. Catalog circulation commenced with The Mac Zone(R) in 1990, followed by The PC Zone(R) in 1992. International subsidiary operations and licensing activities commenced in 1992, and outbound telemarketing operations, principally to business accounts, were added in 1993. The Company distributed 30.1 million catalogs domestically in the nine months ended September 30, 1996, with additional circulation by its subsidiaries and licensees through operations in 27 other countries worldwide. The Company intends to distribute at least 43 million catalogs during 1996 which includes a significant increase in circulation that began late in the third quarter. Results of Operations The following tables present the Company's unaudited consolidated results of operations, in dollars and as a percentage of net sales, and selected 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.
Nine months ended Three months ended September 30, September 30, -------------------------------------------------------- 1995 1996 1995 1996 ---- ---- ---- ---- (In thousands, except operating data) Net sales $155,720 $321,734 $58,677 $109,396 Cost of sales 135,126 276,819 50,904 93,875 -------- ------- ------- -------- Gross profit 20,594 44,915 7,773 15,521 SG&A expenses 17,304 31,558 6,326 10,436 -------- -------- ------ -------- Income from operations 3,290 13,357 1,447 5,085 Other expense 729 1,142 276 157 -------- -------- ------- -------- Income before taxes 2,561 12,215 1,171 4,928 Provision for taxes 970 4,398 444 1,726 -------- -------- ------- -------- Net income $ 1,591 $ 7,817 $ 727 $ 3,202 ======== ======== ======= ========
8 9
Nine months ended Three months ended September 30, September 30, ---------------------------------------------------------- 1995 1996 1995 1996 ---- ---- ---- ---- Selected Operating Data: Circulation 22,000,000 30,050,000 6,750,000 11,450,000 Number of Shipments 572,000 838,000 208,000 282,000 Average Order Size $ 265 $ 364 $ 272 $ 368 Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 86.8 86.0 86.8 85.8 ----------- ----------- ---------- ------------ Gross profit 13.2 14.0 13.2 14.2 SG&A expenses 11.1 9.8 10.7 9.5 ----------- ----------- ---------- ------------ Income from operations 2.1 4.2 2.5 4.7 Other expense 0.5 0.4 0.5 0.1 ----------- ----------- ---------- ------------ Income before taxes 1.6 3.8 2.0 4.6 Provision for taxes 0.6 1.4 0.8 1.6 ----------- ----------- ---------- ------------ Net income 1.0% 2.4% 1.2% 3.0% =========== =========== ========== =============
Comparison of the Three-Month Periods Ended September 30, 1996 and 1995 Net Sales. Net sales increased 86.4% to $109.4 million in the three months ended September 30, 1996 from $58.7 million in the comparable period. The increase resulted primarily from an increase in domestic hardware sales to 82.7% of gross sales in the three months ended September 30, 1996 from 71.3% in the comparable period. The increase in hardware sales contributed to a 35.3% increase between periods in domestic average order size to $368 from $272. Also contributing to the increase in net sales was an increase in orders due primarily to higher catalog circulation, which grew to 11.5 million in the three months ended September 30, 1996, an increase of 69.6% over the comparable period. International subsidiary net sales in the three months ended September 30, 1996 were $13.9 million, an increase of 131.7% over the comparable period primarily resulting from the addition of subsidiaries in Austria, Germany and The Netherlands and sales growth in the Company's operations in Denmark, France and the United Kingdom. Gross Profit. Gross profit increased to $15.5 million in the three months ended September 30, 1996 from $7.8 million in the comparable period, and increased between periods to 14.2% from 13.2% of net sales. Gross profit dollars increased due to higher sales volumes generated by increases in orders and average order size. The increase in gross margin percentage resulted from improved mix of higher-margin product offerings and improved recovery of domestic freight costs, partially offset by increased sales of hardware products and sales to business accounts, which generally carry a lower average gross margin percentage. Selling, General and Administrative Expenses. SG&A expense increased to $10.4 million in the three months ended September 30, 1996 from $6.3 million in the comparable period, but decreased between periods as a percentage of net sales to 9.5% from 10.7%. The dollar increase in SG&A expenses was primarily attributable to an increase in transaction costs associated with higher sales volume, as well as to increased administrative salaries. The decline in SG&A expenses as a percentage of net sales resulted primarily from the leveraging of SG&A expenses over a larger sales base. 9 10 Other Expense. Other expense decreased to $157,000 in the three months ended September 30, 1996 from $276,000 in the comparable period, primarily as a result of lower interest expense related to lower levels of borrowing on the Company's primary line of credit. Income Taxes. Income tax expense increased in the three months ended September 30, 1996 to $1.7 million from $444,000 in the comparable prior period due to the significant increase in profitability between periods. The effective income tax rate, expressed as a percentage of income before income taxes, decreased to 35.0% for the three months ended September 30, 1996 from 37.9% for the three months ended September 30, 1995. The change is primarily due to a decrease in the international subsidiary income before taxes as a percentage of the consolidated income before taxes. Net Income. As a result of the above factors, net income increased to $3.2 million or 3.0% of net sales in the three months ended September 30, 1996 from $727,000 or 1.2% of net sales in the comparable prior period. Comparison of the Nine Months Ended September 30, 1996 and 1995 Net Sales. Net sales increased 106.6% to $321.7 million in the nine months ended September 30, 1996 from $155.7 million in the comparable period. The increase resulted primarily from an increase in hardware sales to 81.0% of gross sales in the nine months ended September 30, 1996 from 68.0% in the comparable period. The increase in hardware sales contributed to a 37.4% increase between periods in domestic average order size to $364 from $265. Also contributing to the increase in net sales was an increase in orders due primarily to higher catalog circulation, which grew to 30.1 million in the nine months ended September 30, 1996, an increase of 36.6% over the comparable period. International subsidiary net sales in the nine months ended September 30, 1996 were $41.3 million, an increase of 147.3% over the comparable period primarily resulting from the addition of subsidiaries in Austria, Germany, Mexico and The Netherlands and sales growth in the Company's operations in Denmark, France and the United Kingdom. Gross Profit. Gross profit increased to $44.9 million in the nine months ended September 30, 1996 from $20.6 million in the comparable period, and increased between periods to 14.0% from 13.2% of net sales. Gross profit dollars increased due to higher sales volumes generated by increases in orders and average order size. The increase in gross margin percentage resulted from improved mix of higher-margin product offerings and improved recovery of domestic freight costs, partially offset by increased sales of hardware products and sales to business accounts, which generally carry a lower average gross margin percentage. Selling, General and Administrative Expenses. SG&A expense increased to $31.6 million in the nine months ended September 30, 1996 from $17.3 million in the comparable period, but decreased between periods as a percentage of net sales to 9.8% from 11.1%. The dollar increase in SG&A expenses was primarily attributable to an increase in transaction costs associated with higher sales volume, as well as to increased administrative salaries, partially offset by a decrease in net advertising expense. The decline in SG&A expenses as a percentage of net sales resulted from a lower net advertising expense and the leveraging of SG&A expenses over a larger sales base. Other Expense. Other expense increased to $1.1 million in the nine months ended September 30, 1996 from $729,000 in the comparable period, primarily as a result of higher interest expense related to higher levels of borrowing on the Company's primary line of credit. Income Taxes. Income tax expense increased in the nine months ended September 30, 1996 to $4.4 million from $970,000 in the comparable prior period due to the significant increase in profitability between periods. The effective income tax rate, expressed as a percentage of income before income taxes, decreased to 36.0% for the nine months ended September 30, 1996 from 37.9% for the nine months ended September 30, 1995. The change is primarily due to a decrease in the international subsidiary income before taxes as a percentage of the consolidated income before taxes. 10 11 Net Income. As a result of the above factors, net income increased to $7.8 million or 2.4% of net sales in the nine months ended September 30, 1996 from $1.6 million or 1.0% of net sales in the comparable prior period. SEASONALITY AND TRENDS The Company believes that certain seasonal factors cause sales of microcomputer software and hardware products through the direct marketing channel to be somewhat stronger in the fourth and first calendar quarter than in the second and third quarters. The fourth quarter tends to be stronger as manufacturers make year-end introductions of new products and increase related marketing activities, and as corporate purchasing activities increase at the end of the budgetary cycles. Sales in the first quarter typically benefit from the fourth quarter sales as customers add peripherals and additional memory products. The market for microcomputer products is characterized by rapid change and frequent introductions of new products and product enhancements. These changes result in frequent price fluctuations. Typically, prices of microcomputers initially increase with improvements in features, such as processing speed and storage capacity, and subsequently decrease as manufacturers pass on savings from lower-cost components and reduce their inventories of older models. The Company's Mac operating system ("Mac") business was strong during the first nine months of 1996, growing 97.8% over the comparable 1995 period. Sales of Mac products represented 67.9% and 71.1% of gross sales in the three months and nine months ended September 30, 1996, respectively, compared to 74.4% and 72.5% of gross sales in the three and nine months ended September 30, 1995, respectively. Sales of Apple Computer, Inc. ("Apple") products alone constituted 21.6% and 22.4% of gross sales in the three and nine months ended September 30, 1996, respectively, compared to 24.9% and 22.8% of gross sales in the three and nine months ended September 30, 1995, respectively. The Company believes that the percentage of its sales represented by Mac products is likely to decline gradually over time as a result of increasing acceptance of the direct marketing channel by PC/Wintel operating system ("PC") product manufacturers and users, the Company's expanded focus on PC product sales, and its effort to increase sales to business accounts which tend to be concentrated more heavily on PC products. Apple has recently experienced a decline in CPU sales, reflecting uncertainties in the Mac marketplace, as well as manufacturing and product availability problems. Further decline in the demand for, or availability of, Apple or other Mac products could have a material adverse effect on the Company's future results of operations. The Company intends to place larger inventory stocking orders, increase participation in first-to-market purchase opportunities, continue end-of-life-cycle purchase opportunities and market more products on a private-label basis, all of which increase the risk of inventory obsolescence. To reduce this risk, the Company has agreements with many vendors containing provisions whereby vendors supply price protection and product return privileges, subject to some limitations. End-of-life-cycle products are typically acquired without return privileges. 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. 11 12 LIQUIDITY AND CAPITAL RESOURCES On July 2nd, 1996 the Company completed an initial public offering of its Common Stock resulting in net proceeds to the Company of $27.2 million. The Company paid off bank debts totaling $20.8 million by using funds generated by its initial public offering. The remaining proceeds have been used to finance ongoing working capital requirements. As of September 30, 1996, the Company had total assets of $100.8 million, of which $90.3 million were current assets. At September 30, 1996 and December 31, 1995 the Company had cash and cash equivalents of $1.6 and $1.2 million, respectively, and working capital of $38.3 million and $7.8 million, respectively. Net cash used in operating activities was $12.9 million and $6.1 million for the nine months ended September 30, 1996 and 1995, respectively. Cash outflows in these periods were primarily due to higher accounts receivable resulting from growing sales to business accounts, to investment in increased inventories necessary to support rapidly growing sales. Additionally, cash outflows during the nine months ended September 30, 1996 increased due to the decrease in accounts payable. In the nine months ended September 30, 1996 and in 1995 accounts receivable increased by $9.8 million and $8.0 million, respectively, and inventories increased by $8.4 million and $11.3 million, respectively. Cash outlays for capital expenditures were $4.1 million and $988,000 in the nine months ended September 30, 1996 and 1995, respectively. In addition, the Company incurred capital lease obligations during the nine months ended September 30, 1996 and 1995 of $538,000 and $1.7 million, respectively. These expenditures were primarily for information and telecommunication system enhancements, furniture and equipment, leasehold improvements and the relocation of its corporate headquarters and telemarketing operations to a larger facility in July 1996. The Company estimates that its annualized capital expenditures in 1996 will approximate $6.0 million, as it continues to make other investments in its infrastructure to support its anticipated growth. The Company has a revolving line of credit of $25.0 million from a commercial bank collateralized by inventories and accounts receivable. At September 30, 1996, there were no borrowings outstanding under the facility. Additionally, at September 30, 1996, the Company had $3.5 million of unused letters of credit. The net amount of vendor credit outstanding at September 30, 1996 was $40.7 million of which $18.2 million was drawn from a $25.0 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 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. STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 With the exception of the historical information contained herein, the matters described herein contain forward-looking statements that involve risk and uncertainties including but not limited to variability of quarterly results, reliance on vendor support and relationships, and dependence on sales of Mac products. These and other risk factors are described generally in the Risk Factors section of the Company's Prospectus dated June 27, 1996 filed with the Securities and Exchange Commission. 12 13 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 11.1 Computation of earnings per share (b) Reports on Form 8-K No Reports on Form 8-K were filed during the Quarter ended September 30, 1996. 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: MULTIPLE ZONES INTERNATIONAL, INC. Dated: November 14, 1996 By:_______________________________________ Victor Melfi, Jr., Chief Executive Officer Dated: November 14, 1996 By:_______________________________________ Peter J. Biere, Chief Financial Officer 13 EX-11.1 2 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit 11.1 MULTIPLE ZONES INTERNATIONAL, INC. COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
Nine Months Ended Three Months Ended ------------------------------- ------------------------------ September 30, September 30, September 30, September 30, 1995 1996 1995 1996 ------------- ------------- ------------- ------------- Net income $ 1,591,468 $ 7,817,154 $ 727,361 $ 3,201,977 Shares used in calculating primary earnings per share: Weighted average common shares outstanding 7,500,000 8,632,148 7,500,000 10,896,442 Weighted average common shares giving effect to conversion of Series A Preferred Stock to Common Stock 1,875,000 1,875,000 1,875,000 1,875,000 Net effect of stock options and warrants granted during the 12 months prior to the public offering calculated using the treasury stock method and treated as outstanding for the entire period 266,268 615,161 266,268 615,161 Weighted average Series B Convertible Preferred stock issued during the 12 months prior to the public offering calculated using the treasury stock method and treated as outstanding for the entire period 335,331 426,237 335,331 6,988 Weighted average stock options outstanding issued prior to 12 months before this offering calculated using the treasury stock method 164,607 150,157 173,791 127,106 Weighted average stock options outstanding issued after the public offering calculating using the treasury stock method 8,268 21,807 ----------- ----------- ----------- ----------- Total shares 10,141,206 11,706,971 10,150,390 13,542,504 =========== =========== =========== =========== Fully diluted earnings per share $ 0.16 $ 0.67 $ 0.07 $ 0.24 =========== =========== =========== ===========
2 Exhibit 11.1 MULTIPLE ZONES INTERNATIONAL, INC. COMPUTATION OF PRIMARY EARNINGS PER SHARE
Nine Months Ended Three Months Ended -------------------------------- ------------------------------ September 30, September 30, September 30, September 30, 1995 1996 1995 1996 ------------- ------------- ------------- ------------- Net income $ 1,591,468 $ 7,817,154 $ 727,361 $ 3,201,977 Adjustment to net income for accretion of Series B Convertible Preferred Stock (459,262) ----------- ----------- ----------- ----------- Net income applicable to common stock $ 1,591,468 $ 7,357,892 $ 727,361 $ 3,201,977 equivalents =========== =========== =========== =========== Shares used in calculating primary earnings per share: Weighted average common shares outstanding 7,500,000 8,632,148 7,500,000 10,896,442 Weighted average common shares giving effect to conversion of Series A Preferred Stock to Common Stock 1,875,000 1,875,000 1,875,000 1,875,000 Net effect of stock options and warrants granted during the 12 months prior to the public offering calculated using the treasury stock method and treated as outstanding for the entire period 266,268 486,147 266,268 486,147 Weighted average stock options outstanding issued prior to 12 months before the offering calculated using the treasury stock method 164,608 145,547 173,792 122,702 Weighted average stock options outstanding issued after the public offering calculating using the treasury stock method 5,160 13,608 ----------- ----------- ----------- ----------- Total shares 9,805,876 11,144,002 9,815,060 13,393,899 =========== =========== =========== =========== Primary earnings per share $ 0.16 $ 0.66 $ 0.07 $ 0.24 =========== =========== =========== ===========
EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 JUL-01-1996 SEP-30-1996 1,570,762 0 33,433,408 0 50,291,911 90,297,381 8,046,238 0 100,778,360 52,028,397 0 0 0 36,911,911 9,248,967 100,778,360 109,396,495 109,396,495 93,875,000 10,436,336 156,701 0 0 4,928,458 1,726,481 3,201,977 0 0 0 3,201,977 0.24 0.24
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