UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10–Q  x
  QUARTERLY
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001ORo
  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 ZONES, INC(Exact name of registrant as specified in
its charter) Washington
  91–1431894(State
  of Incorporation)
  (I.R.S.
  EmployerIdentification
  Number)707
  South Grady WayRenton,
  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. YesxNoo  The
number of shares of the registrant's Common Stock outstanding as of May 9, 2001
was 13,475,640.   ZONES,
INC.

INDEX

PART I.  FINANCIAL
INFORMATION

Item 1.
  Consolidated Financial
  Statements:Consolidated
  Balance Sheets March 31, 2001 and December 31, 2000Consolidated
  Statements of Operations and Comprehensive Income Three months ended March
  31, 2001 and 2000Statements
  of Shareholders Equity Three months ended March 31, 2001Consolidated
  Statements of Cash Flows Three months ended March 31, 2001 and 2000Notes to
  Consolidated Financial StatementsItem 2.
  Managements
  Discussion and Analysis of Financial Condition and Results of OperationsItem 3.
  Quantitative
  and Qualitative Disclosures About Market RiskPART
  II.  OTHER INFORMATIONItem 1.
  Legal ProceedingsItem 6.
  Exhibits
  and Reports on Form 8-KSignaturesPart I.

Item 1. Financial Statements

ZONES, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

March 31,
  December 31,2001
  2000ASSETSCurrent
  assets:Cash and cash equivalents
  $7,212
  $3,816Restricted cash
  930
  930Receivables, net
  55,263
  56,608Inventories, net
  29,282
  29,050Prepaid expenses
  989
  1,110Deferred income taxes
  1,970
  1,970Notes Receivable
  1,080
  1,080Total current assets
  96,726
  94,564Property
  and equipment, net
  11,387
  11,710Other
  assets
  5,047
  4,996Total assets
  $113,160
  $111,270LIABILITIES
  AND SHAREHOLDERS' EQUITYCurrent
  liabilities:Bank lines of credit
  $
  $Accounts payable
  69,499
  66,267Accrued liabilities and other
  7,893
  9,212Current portion of capital lease
  obligations
  1,904
  1,905Total current liabilities
  79,296
  77,384Capital
  lease obligations, net of current portion
  1,126
  1,197Other
  liabilities
  863
  955Total liabilities
  81,285
  79,536Minority
  interest
  130
  131Commitments
  and contingenciesShareholders'
  equity:Common stock
  39,398
  39,360Accumulated deficit
  (7,653)
  (7,757)Total shareholders' equity
  31,745
  31,603Total liabilities and
  shareholders' equity
  $113,160
  $111,270

See notes to consolidated financial
statements

ZONES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except earnings per share)
(unaudited)

Three months ended
  March 31,2001
  2000Net
  revenue
  $161,169
  $126,306Cost
  of sales
  145,691
  113,865Gross
  profit
  15,478
  12,441Selling,
  general and administrative expense
  15,199
  14,846Income
  (loss) from operations
  279
  (2,405)Interest
  expense
  148
  129Other
  income, net
  (36)
  (1,567)Minority
  interest
  (2)
  (2)Other (income) expense
  110
  (1,440)Income
  (loss) before taxes
  169
  (965)Provision
  for (benefit from)  income taxes
  65
  (351)Net
  income (loss) before cumulative effect of change in accounting principle
  104
  (614)Cumulative
  effect of change in method of revenue recognition
  
  (59)Net
  income (loss)
  $104
  $(673)Other
  comprehensive income (loss), net of tax:Foreign currency translation adjustment
  
  24Other comprehensive income (loss)
  
  24Comprehensive
  income (loss)
  $104
  $(649)Net
  income (loss) attributable to basic and diluted earnings per share
  $104
  $(673)Basic
  earnings (loss) per share
  $0.01
  $(0.05)Shares
  used in computing basic earnings (loss) per share
  13,438
  13,354Diluted
  earnings (loss) per share
  $0.01
  $(0.05)Shares
  used in computing diluted earnings (loss) per share
  13,438
  13,354

See notes to consolidated financial
statements

ZONES, INC. AND SUBSIDIARIESSTATEMENTS OF SHAREHOLDERS'
EQUITY
(in thousands, except share data)
(unaudited)

Common Stock
  RetainedShares
  Amount
  Deficit
  TotalBalance,
  January 1, 2001
  13,403,658
  $39,360
  $(7,757)
  $31,603Issuance
  of common stock
  33,200
  33
  
  33Exercise
  of stock options
  1,500
  5
  
  5Net
  loss
  
  
  104
  104Balance,
  March 31, 2001
  13,438,358
  $39,398
  $(7,653)
  $31,745

See notes to consolidated financial
statements



ZONES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF
CASH FLOWS
(in thousands)
(unaudited)

Three months endedMarch
  31,2001
  2000Cash
  flows from operating activities:Net income (loss)
  $104
  $(673)Adjustments to reconcile net income to net
  cash from operating activities:Depreciation and amortization
  1,503
  1,318(Gain) Loss on sale of subsidiaries
  
  (1,333)Minority interest
  (1)
  (2)Changes in assets and liabilities:Accounts receivable
  1,345
  760Inventory
  (232)
  (4,971)Prepaid expenses and other assets
  70
  (651)Accounts payable
  9,194
  (5,273)Accrued liabilities
  (1,411)
  (615)Income taxes
  -
  12Net cash provided by (used by)
  operating activities
  10,572
  (11,428)Cash
  flows from investing activities:Purchases of property and equipment
  (1,180)
  (963)Net cash used in investing activities
  (1,180)
  (963)Cash
  flows from financing activities:Net change in book overdrafts
  (5,962)
  (556)Net proceeds from sale of common stock
  38
  50Net proceeds from capital lease
  445Payments on capital leases
  (517)
  (229)Net cash used by financing
  activities
  (5,996)
  (735)Net
  increase (decrease) in cash and cash equivalents
  3,396
  (13,126)Cash
  and cash equivalents at beginning of period
  3,816
  25,774Cash
  and cash equivalents at end of period
  $7,212
  $12,648

See notes to consolidated financial
statements

ZONES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

1.  Description of Business

Zones,
Inc. is a single-source direct reseller of multi-brand information technology
products and services to the small to medium sized business and enterprise
market.  Zones sells these products and
services through specialty print and e-catalogs, inbound and outbound account
executives and the Internet.  Zones
offers more than 150,000 products from leading manufacturers including Apple,
Compaq, Hewlett-Packard, IBM, Microsoft and Toshiba.

Incorporated
in 1988, Zones, Inc., is headquartered in Renton, Washington. Company and
buying information is available at http://www.zones.com, or by calling
800-258-2088.

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, 2000 as filed with the Securities and Exchange Commission on March
13, 2001.

Principles
of ConsolidationThe 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.

Earnings
Per ShareEPS is based upon the weighted average
number of shares outstanding during the period. Basic earnings per share
(EPS) exclude all dilution.  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 PronouncementsIn June 1998, the
Financial Accounting Standards 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 was
delayed by the issuance of SFAS No. 137 until the fiscal years beginning
January 1, 2001. In June 2000, SFAS 138 was issued, which amends provisions of
SFAS 133.The
adoption of these standards did not have a material impact on the Companys
financial position , as the Company currently holds no derivatives.

Revenue
RecognitionThe Company recognizes revenue on product
sales at the point in time when the risks and rewards of ownership of the
product have transferred to the customer. 
The Company considers this to be at the point of delivery of the
product.  The Company offers limited
return rights on it product sales.  At
the point of sale, the Company also provides for an allowance for sales
returns, which is established based on historical experience.

3.  Earnings Per Share

The
Company has 45,000,000 common shares authorized.  The Company has granted options to purchase common shares to
employees and directors of the Company. 
The options may have a dilutive effect on the calculation of earnings
per share.  The following is a
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computations (in thousands).

Three months ended March 31,2001
  
  2000Basic
  earnings per share:Net income (loss)
  $104
  
  $(673)Weighted-average
  shares used in computing basic Earnings (loss) per share
  13,438
  
  13,354Basic earnings (loss)
  per share
  $0.01
  
  $(0.05)Diluted earnings (loss) per
  share:Net income (loss)
  $104
  
  $(673)Weighted average
  shares outstanding
  13,438
  
  13,354Stock optionsTotal commons shares
  and dilutive securities
  13,438
  
  13,354Dilutive earnings
  (loss) per share
  $0.01
  
  $(0.05)Pro
  forma amount for new revenue recognition policyLoss before cumulative change
  
  
  $(505)Basic and diluted loss per share
  
  
  $(0.04)Net loss
  
  
  $(673)Basic and diluted loss per share
  
  
  $(0.05)

All
options to purchase common stock were excluded from the computation of diluted
earnings per share for the three months ended March 31, 2000 because the effect
of the options on the calculation would have been antidilutive.

4.  Segment Information

The
Company reports its segments based on its two distinct business segments.  These segments are based on the Companys
method of internal reporting. Inter-segment revenues are eliminated as the
operations of the segments are consolidated. 
The Company does not segregate the assets based on the reportable
segments.

On
January 2, 2001, the Company discontinued its touchMarketing.com
subsidiary.  Accordingly, no separate
segment exists in fiscal year 2001.

One
of the Companys customers represented over 10% of total revenue for the
three-month period ended March 31, 2001. 
Net revenue for this company was $45.3 million for first quarter of
2001.  This customers sales are
included in the Companys ZBS segment. 
The loss of this customer could have a material adverse effect on the
Company.



(in thousands, except
  per share data)Zones.com
  
  ZBS
  
  TotalQuarter ended March 31, 2001Net sales
  $30,389
  $130,780
  
  
  $161,169Gross profit
  3,202
  12,276
  
  
  15,478Operating expense
  (5,355)
  (9,844)
  
  
  (15,199)Income (loss) from operations
  (2,153)
  2,432
  
  
  279Consolidated assets
  
  
  
  
  113,160Zones.com
  
  ZBS
  tM.com
  Eliminations
  TotalQuarter ended March 31, 2000Net sales
  $52,826
  $73,403
  $192
  
  $(115)
  $126,306Gross profit
  5,518
  6,927
  89
  
  (93)
  12,441Operating expense
  (7,439)
  (7,099)
  (401)
  
  93
  (14,846)Income (loss) from operations
  (1,920)
  (173)
  (312)
  
  
  (2,405)Consolidated assets
  
  
  
  
  111,2705.          Subsequent Event

The
Company filed to change its name on May 10, 2001 to Zones, Inc. from Multiple
Zones, Inc. with the Securities Exchange Commission.  The Company is now quoted on the Nasdaq National Market under the
symbol ZONS.

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, achievements of the Company or industry trends, to differ
materially from those expressed or implied by such forward-looking statements.  Forward-looking statements may be identified
by the use of forward-looking terminology such as may, will, expect,
estimate, anticipate, continue, or similar terms, variations of such
terms or the negative of those terms, but the absence of such terms does not
mean that a statement is not forward-looking.

Factors
that could affect the Companys actual results include, but are not limited to:
(i) future growth, (ii) dependence on sales of Mac products, (iii) vendor
support, (iv) competition, (v) pressure on margin, (vi) variability of
operating results, (vii) changing methods of distributions, (viii) potential
disruption of business, (ix) potential increased in postage, shipping, and
paper costs, (x) reliance on vendor relationships, (xi) state sales or use tax
uncertainties, (xii) dependence on personnel, (xiii) reliance on outsourced
distribution, and (xiv) rapid technological change and inventory obsolescence,
and other risks and uncertainties detailed in the Companys filing with the SEC.
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, 2000 and filed on March 13, 2001 with
the Securities Exchange Commission.

General

The
Companys revenues consist primarily of sales of computer hardware, software,
services, peripherals and accessories, as well as revenue associated with
freight billed to its customers.  Net
revenues 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 funds, warehousing, selling
commissions, order processing, telephone, credit card fees, and other costs
such as administrative salaries, depreciation, rent, and general overhead
expenses.  Other expense represents
interest expense, net non-operating expense and minority interests in the
Company's domestic and former foreign subsidiaries.

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.

Three months ended March 31,2001
  2000Net
  revenue
  100.0%
  100.0%Cost
  of sales
  90.4
  90.1Gross
  profit
  9.6
  9.9Selling,
  general and administrative expenses
  9.4
  11.8Income
  (loss) from operations
  0.2
  (1.9)Other
  (income) expense
  0.1
  (1.1)Income
  (loss) before income taxes
  0.1
  (0.8)Provision
  for (benefit from) income taxes
  0.0
  (0.3)Net
  income (loss)
  0.1%
  (0.5)%Selected
  domestic operating data:Catalog
  circulation
  3,200,000
  5,900,000E-media
  circulation
  3,065,000
  4,600,000Number
  of orders
  183,000
  250,000Average
  order size
  $888
  $521Number
  of account executives, end of period
  281
  250

Comparison
of Three Month Periods Ended March 31, 2001 and 2000

Net
Revenue.Net
revenue for the first quarter ended March 31, 2001 increased 27.6% to $161.2
million compared to $126.3 million in the first quarter of 2000.  The Company also realized an increase in
average order size to $888 for the three months ended March 31, 2001 from $521
in the first quarter of 2000.  The
increase in revenue resulted primarily from increases in the Companys Zones
Business Solutions (ZBS) segment. ZBS sales increased 77.6% to $131.0 million
for the three months ended March 31, 2001 compared to $73.7 million in the
comparable period in 2000. Continued expansion of enterprise accounts, as well
as growth in the commercial accounts core business, contributed to this
increase.  To support this growth the
Company has continued to hire individuals into the ZBS division.  ZBS had 281 Account Executives (AE) at
March 31, 2001 compared to 250 at March 31, 2000.  Sales by the Companys Zones.com segment, which is comprised of
the Internet and inbound catalog operations, decreased 42.5% to $30.2 million
in the first quarter of 2001 from $52.5 million in the first quarter of
2000.  Internet sales decreased 47.9% to
$17.2 million for the first quarter of 2001, while catalog sales declined 33.4%
to $12.9 million.   The decrease in
Internet sales resulted primarily from decreased consumer spending.  Zones.com is a consumer sensitive segment,
and in response to an expected slowing economy, the Company scaled back its
advertising expenditures.

The
following platform sales have not been effected for the reclassification of
freight revenue in compliance with EITF 00-10 Accounting for Shipping and
Handling Fees and Costs.  PC platform
sales accounted for 76.1% of total sales for the first quarter ended March 31,
2001 compared to 52.1% in first quarter of 2000.  Net PC product sales for the three months ended March 31, 2001
increased 88.5% to $120.5 million compared to $63.9 million in 2000.  The increase was due primarily to the 77.6%
net sales growth in ZBS for the first quarter of 2001. PC product sales
increased to 85.0% of total ZBS sales in the first quarter of 2001 compared to
64.3% in the first quarter of 2000.  Net
Mac product sales decreased 35.5% to $37.8 million for the three months ended
March 31, 2001 from $58.7 million in 2000. This decrease is consistent with the
industry-wide Mac platform sales decline. 
The decrease is primarily due to the Companys conscious effort to scale
back its Mac advertising expenditures for Mac platform products, consistent
with its overall advertising strategy in the three months ended March 31, 2001
and product availability constraints. 
In particular, sales of Apple branded products declined 34.3% in the
first quarter 2001 compared with the corresponding period of the prior year.

The
fastest growing product categories in terms of sales dollars and the respective
growth rates in the first quarter of 2001 compared to the first quarter of 2000
were:

Product Category
  Growth RateServers
  347.4%Networking Hardware
  97.6%Licensing
  89.4%Storage & Memory
  65.1%

Gross
Profit.Gross profit dollar
contribution increased to $15.5 million for the first quarter of 2001, up 24.4%
from the first quarter of 2000. 
However, gross profit as a percentage of net sales declined slightly to
9.6% in the quarter ended March 31, 2001 compared to 9.9% in the first quarter
of 2000. This decline in gross profit percentage is primarily due to pricing
pressures from intense competition in spite of the continued shift in revenue
mix to higher margin products as well as an increase in ZBS sales as a
percentage of total sales, particularly large enterprise accounts.  ZBS sales to business, enterprise and
education accounts, which tend to carry a lower average gross profit,
represented 81.3% of net revenue in the three months ended March 31, 2001.  Gross profit for ZBS was $12.3 million, or
9.4% of ZBS sales, in the first quarter of 2001.  Gross profit for Zones.com was $3.2 million, or 10.5% of
Zones.com sales, in the first quarter of 2001.

Selling,
General and Administrative Expenses.As
a percent of sales,  SG&A decreased
to 9.4% for the quarter ended March 31, 2001 from 11.8% in the first quarter of
2000 as the Company leveraged its existing infrastructure over a broader
revenue base. However, the Company continued to invest in the training and
development of its account executives to maintain the sales growth in ZBS.  SG&A expense dollars increased 2.4% to
$15.2 million for the quarter ended March 31, 2001 from $14.8 million in the
first quarter of 2000, however, sequentially, SG&A expense dollars
decreased 4.6% from $15.9 million in the fourth quarter of 2000. The Company
rationalized its operating costs during the quarter in anticipation of a more
difficult economic and operating environment.

The
Company produces and distributes catalogs at various intervals throughout the
year.  The Company's net cost of
advertising decreased to $757,000 in the three month period ended March 31,
2001 from $1.5 million in the comparable 2000 period, but increased
sequentially from $493,000 in the fourth quarter of 2000.

Other
Income/Expense.Other
expense increased to $110,000 for the quarter ended March 31, 2001 from other
income of $1.4 million in the first quarter of 2000. The change was primarily
due to a gain on divestiture of the Companys India subsidiary recorded in the
first quarter of 2000.  Net interest
expense decreased to $148,000 for the three months ended March 31, 2001 from
$381,000 in the fourth quarter of 2000, primarily as a result of decreased
borrowing costs associated with the financing of accounts receivable and
inventory.

Income
Tax Benefit/Expense.The income tax expense for the quarter ended
March 31, 2001 was $65,000 as compared to a recorded benefit of $351,000 in the
comparable period of the prior year. 
The Companys effective tax rate expressed as a percentage of income
before taxes was 38.5% for the quarter ended March 31, 2001.

Net
Income/Loss.Net
income for the quarter ended March 31, 2001 was $104,000 compared to a $673,000
loss in the first quarter of 2000. 
Basic and diluted earnings per share were $0.01 for the quarter ended
March 31, 2001 and basic and diluted loss per share was $0.05 in the first
quarter of 2000.

Trends

The
Company is completing its transition to a multi-vendor business to business IT
reseller and will continue to formalize and clarify its strategy as a single
point of contactcorporation. The Companys strategy has evolved
over the past two years to meet market demand. 
To this end, the Companys name change illustrates its intent to create
a unified brand to sell to the SMB and enterprise marketplace.  This singular focus will keep the Company
moving forward and growing in order to remain competitive in todays economic
landscape.

The
Company remains susceptible to a slowdown in IT spending.  The entire industry is experiencing a
slowing economy, which may impact the Companys future sales growth and may
have an adverse impact on gross profit. 
In addition, the economic conditions may make available financing
increasingly difficult to obtain.  There
can be no assurance that the Company will realize future growth in net sales or
will not experience decreases in net sales, or that the Company will be
profitable on a quarterly or annual basis.

The
computer products industry is highly competitive. The Company competes with
other national direct marketers, product manufacturers entering the direct to
user market, specialty computer retailers, computer and general merchandise
superstores, and consumer electronic and office supply stores. Some of the
Company's larger competitors compete principally on the basis of price and may
have lower costs than the Company.  The
Company believes that competition may intensify in the future due to market
conditions and consolidation, and that it may be required to reduce its margins
to remain competitive. There can be no assurance that the Company will be able
to maintain its gross margins in the future.

The
Companys category merchandising group determines the manufacturers whose
products are featured in its Internet and catalog offerings and negotiates the
terms and conditions of product coverage. The brand management group works with
certain manufacturers and distributors to provide the Company with incentives
in the form of rebates, discounts and allowances. The merchandising group is
also responsible for developing effective advertising campaigns for
manufacturers, managing web-site and catalog design and layout, and
coordinating product procurement and inventory management with the Company's
purchasing group. In addition, the merchandising group works closely with the purchasing
group to capitalize on opportunities for first-to-market and end-of-life-cycle
product offerings. If any of these relationships are terminated, there can be
no assurance that the Company's business, financial condition and results of
operations will not be adversely affected.

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 below 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, 2001, the Company had total assets of $113.2 million, of which
$96.7 million were current assets.  At
March 31, 2001 and December 31, 2000 the Company had cash and cash equivalents,
and restricted cash of $8.1 million and $4.7 million, respectively, and working
capital of $17.4 million and $17.2 million, respectively.

Net
cash provided by operating activities was $10.6 million for the three months ended
March 31, 2001 compared to cash used by operating activities of $11.4 million
for the three months ended March 31, 2000. 
Cash inflows for the three months ended March 31, 2001 were primarily
due to an decrease in accounts receivable and by increases in accounts payable.
In the three months ended March 31, 2001, accounts receivable decreased $1.3
million, and accounts payable increased by $9.2 million from the three months
ended December 31, 2000.

Cash
outlays for capital expenditures were $1.2 million and $963,000 in the three
months ended March 31, 2001 and 2000, respectively.  These expenditures were primarily for continued improvement, and
other enhancements, of the Companys information systems.

The
net amount of accounts payable outstanding at March 31, 2001 was $69.5 million
of which $17.6 million was drawn from a $35.0 million flooring facility and
working capital line, collateralized by inventory and accounts receivable.  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 at our current
year over year rate of growth.  However,
if the Companys future rate of growth exceeds the current rate, or 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.

Other
Matters

The
Companys state tax filings are currently under review by the Washington State
Department of Revenue for tax years 1996 through 1999.  There are no assurances that the Company
will not have a liability resulting from this audit.

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.

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(b)
  Reports
  on Form 8-KOn
  May 10, 2001, the Company filed a report on form 8-K containing the release
  that it had changed its name from Multiple Zones, Inc. to Zones,
  Inc.  The Company is now quoted on
  the Nasdaq National Market under the symbol ZONS.  No other Reports on Form 8-K were filed during the quarter
  ended March 31, 2001.





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:





ZONES, INC.Date:  May 14, 2001By:
  /S/     FIROZ H. LALJIFiroz
  H. Lalji, Chairman and Chief Executive Officer/S/     RONALD P. MCFADDENRonald
  P. McFadden, Chief Financial Officer