<PAGE>   1
                                  EXHIBIT 13.1

       ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1996
























                                       21
<PAGE>   2




               SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

          (in thousands, except per share and selected operating data)

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31, 
                                                  -------------------------------------------------------------------------------
                                                      1996               1995              1994            1993           1992
                                                  -----------        -----------       -----------      ----------     ----------
<S>                                               <C>                <C>               <C>              <C>            <C> 
STATEMENT OF OPERATIONS DATA:

Net Sales.....................................    $   457,007        $   242,587       $   113,456      $   80,515     $   77,023  
Costs of sales................................        393,998            211,037            98,211          69,298         67,155 
                                                  -----------        -----------       -----------      ----------     ----------
Gross profit..................................         63,009             31,550            15,245          11,217          9,868
Selling, general and administrative
   expenses...................................         44,613             25,425            14,411          10,586         11,821 
                                                  -----------        -----------       -----------      ----------     ----------
Income (loss) from operations.................         18,396              6,125               834             631         (1,953)

Other (income) expense:
                       
   Interest expense...........................          1,500              1,149               277             213            193
   Other income...............................           (298)              (132)              (78)            (44)           (62)
   Minority interest..........................            195                 69                16               8            (19)
                                                  -----------        -----------       -----------      ----------     ----------
Income (loss) before income taxes.............         16,999              5,039               619             454         (2,065)
                                                  -----------        -----------       -----------      ----------     ----------
Provision for income taxes(1).................          6,125              1,847               207               3     
                                                  -----------        -----------       -----------      ----------     ----------
Net income (loss)(1)..........................    $    10,874        $     3,192       $       412      $      451     $   (2,065)
                                                  ===========        ===========       ===========      ==========     ==========

Fully diluted earnings per share(1)...........    $      0.92        $      0.31       $      0.04 
                                                  ===========        ===========       ===========  
Shares used in computation of fully diluted
   earnings per share(1)......................         11,871             10,144            10,099 
                                                  ===========        ===========       =========== 

SELECTED OPERATING DATA(2):
Catalogs distributed..........................     44,000,000         29,000,000        15,000,000       8,000,000      6,900,000 
Number of shipments(3)........................      1,229,000            859,000           522,000         415,000        395,000
Average order size(3).........................    $       352        $       273       $       212      $      201     $      211
Customer and inquirer database(4).............      2,504,000          1,908,000         1,626,000
</TABLE>


<TABLE>
<CAPTION>
                                                                             Year Ended December 31,            
                                                             -------------------------------------------------------------
                                                               1996          1995         1994         1993        1992
                                                             ---------    ---------    ---------    ---------    --------- 
<S>                                                          <C>          <C>         <C>           <C>         <C> 
BALANCE SHEET DATA:
Working capital (deficit).....................               $  39,809    $   7,750    $     525    $     217    $  (2,142)
Total assets..................................                 149,801       79,392       25,705       17,681       12,589
Short-term debt...............................                   3,138       12,757        3,617        1,303        2,007
Long-term debt, net of current portion........                   1,748        1,665          791          732          305
Series B preferred stock......................                                6,461
Total Shareholders' equity (deficit)..........                  49,469        4,736        1,705        1,287       (1,164)
</TABLE>




(1)      During the period from its inception through June 5, 1993, the Company
elected to be treated as an S Corporation for federal income tax purposes and
accordingly made no provision for federal income taxes on income earned, and
derived no federal income tax benefit from any losses incurred, during that
period.  If the Company had been subject to federal income taxes for all of
1993 at the statutory rates in effect for that year, its pro forma net income
for 1993 would have been $299,600.

(2)   Selected operating data exclude international operations.

(3)      Number of shipments is the number of domestic outbound shipments to
customers from the third-party distribution center utilized by the Company.
Average order size is calculated by dividing domestic gross sales by the number
of domestic shipments.

(4)      The database includes customer and inquirer records. Customers are
people who have purchased or received products from the Company. Inquirers are
people who have requested a catalog or product information from the Company.
Due to a change in the Company's customer and inquirer database, data for 1992
and 1993 are not comparable to the data for more recent periods and accordingly
have been omitted.





                                       22
<PAGE>   3




                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company's financial condition and
results of operations contains certain forward-looking statements.  For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements.  Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects" and similar
expressions are intended to identify forward-looking statements.  There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by any such forward-looking statements.
These factors include, without limitation, those set forth under the caption
"Risk Factors" of the Company's Annual Report on Form 10-K.

The following discussion and analysis should be read in conjunction with the
Company's Selected Consolidated Financial and Operating Data and the
Consolidated Financial Statements and Notes included in this Annual Report.

GENERAL

The Company began operations in November 1988, generating customer orders for
Macintosh operating system ("Mac") products 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.

Over the past several years, the Company has focused on adding management
depth; improving the size, quality and responsiveness of its customer database;
investing in scalable information systems; developing its international
operations; increasing product offerings to support growing customer demand;
strengthening sales of PC/Wintel ("PC") products; establishing an outbound
telemarketing force to increase sales to business accounts; and developing
in-house catalog design and production capability. In addition, the Company has
aggressively increased its domestic catalog circulation, which grew to 44
million catalogs in 1996 from 6.9 million catalogs in 1992.  The Company has
also developed Internet sites with over 10,000 products available for sale.

The Company now offers complete computing solutions, a primary factor
underlying growth in average order size and sales, particularly to business
accounts.  As a result of the Company's authorization to sell microcomputer
products by Apple, Hewlett-Packard, IBM and other manufacturers, the Company's
sales of these and other hardware products increased to 81.8% of gross sales in
1996, compared 71.0% and 53.1% of gross sales in 1995 and 1994, respectively.
The increase in hardware sales, along with increased sales to business
accounts, led to continued growth in average order size to $352 in 1996, up
from $273 in 1995 and $212 in 1994.

Gross margin percentage increased to 13.8% in 1996, compared to 13.0% in 1995
and 13.4% in 1994.  The increase in the gross margin percentage was primarily
the result of improved recovery of domestic freight costs, improved sales mix
of higher margin products, such as memory, as well as from increased purchases
directly from manufacturers which typically provide a lower cost than
distributors.  These improvements during 1996 offset factors which tend to
lower gross margin percentage, such as increased industry price competition and
the Company's increased sales to business accounts.

Sales by the Company's foreign subsidiaries accounted for 12.9% of the
Company's net sales in 1996, compared to 10.9% and 10.2% of net sales in 1995
and 1994, respectively. The Company expects foreign subsidiary sales to
increase as a percentage of net sales due to increasing foreign demand for
microcomputer products, growing acceptance of the direct marketing channel in
foreign markets and the Company's continued efforts to expand its foreign
business operations. The Company currently has 11





                                       23
<PAGE>   4




foreign subsidiaries and has license relationships with 15 foreign licensees.

The Company's revenues consist primarily of sales of microcomputer hardware,
software, peripherals and accessories, as well as license fees and 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 recovery, 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 interests in the
Company's foreign subsidiaries.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected items from
the Company's Consolidated Statements of Operations expressed as a percentage
of net sales.


<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                                               ---------------------------------
                                                  1996         1995        1994
                                               --------     --------    -------- 
              <S>                                 <C>          <C>         <C>
              Net Sales                           100.0%       100.0%      100.0%
              Cost of sales                        86.2         87.0        86.6
                                               --------     --------    -------- 
              Gross profit                         13.8         13.0        13.4
              SG&A expenses                         9.8         10.5        12.7
                                               --------     --------    -------- 
              Income from operations                4.0          2.5         0.7
              Other expense                         0.3          0.4         0.2
                                               --------     --------    -------- 
              Income before income taxes            3.7          2.1         0.5
              Provision for income taxes            1.3          0.8         0.1
                                               --------     --------    -------- 
              Net income                            2.4%         1.3%        0.4%
                                               ========     ========    ======== 
</TABLE>


Comparison of Years Ended December 31, 1996 and 1995

Net Sales.  Net sales increased 88.4% to $457.0 million in 1996 from $242.6
million in 1995. The increase resulted primarily from an increase in orders due
primarily to higher catalog circulation, which grew 51.7% to 44 million in 1996
from 29 million in 1995.  The increase in net sales was also due in part to an
increase in hardware sales to 81.8% of gross sales in 1996 from 71.0% in 1995,
which contributed to a 28.9% increase in average order size to $352 in 1996
from $273 in 1995. International subsidiary net sales in 1996 were $59.2
million, an increase of 125.1% over 1995, primarily resulting from sales growth
in the Company's operations in Denmark and France and the addition of
subsidiaries in Germany, Mexico, Australia and Belgium.

Gross Profit.  Gross profit increased to $63.0 million in 1996 from $31.6
million in 1995, and increased to 13.8% of net sales in 1996 from 13.0% in
1995. 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 enhanced recovery of domestic freight costs, improved
mix of higher-margin product offerings and increased purchases directly from
manufacturers.  Partially offsetting the increase in gross margin percentage
was an increase in sales to business accounts, which generally carry a lower
average gross margin percentage.

Selling, General and Administrative Expenses.  SG&A expenses increased to $44.6
million in 1996 from $25.4 million in 1995, but decreased as a percentage of
net sales to 9.8% in 1996 from 10.5% in 1995. The dollar increase in SG&A
expenses was primarily attributable to an increase in transaction costs
associated with higher sales volumes, as well as to increased administrative
salaries. The decline in SG&A expenses as a percentage of net sales resulted
primarily from improved co-op advertising recovery and the leveraging of SG&A
expenses over a larger sales base.





                                       24

<PAGE>   5

Other Expense.  Other expense increased to $1.4 million in 1996 from $1.1
million  in 1995, primarily as a result of higher interest expense related to
higher levels of borrowing on the Company's primary bank line of credit during
first and second quarters of 1996.

Income Taxes.  Income tax expense increased in 1996 to $6.1 million from $1.8
million  in 1995, due to the significant increase in profitability during 1996.

Net Income.  As a result of the above factors, net income increased to $10.9
million or 2.4% of net sales in 1996 from $3.2 million or 1.3% of net sales in
1995.

Comparison of Years Ended December 31, 1995 and 1994

Net Sales.  Net sales increased 113.7% to $242.6 million in 1995 from $113.5
million in 1994. The increase resulted primarily from an increase in orders due
primarily to higher catalog circulation, which grew 93.3% to 29 million in 1995
from 15 million in 1994. The increase in net sales was also due in part to an
increase in hardware sales to 71.0% of gross sales in 1995 from 53.1% in 1994,
which contributed to a 28.8% increase in average order size to $273 in 1995
from $212 in 1994. International subsidiary net sales in 1995 were $26.3
million, an increase of 128.7% over 1994, primarily resulting from sales growth
in the Company's operations in Denmark, Great Britain and France and the
addition of a subsidiary in The Netherlands in mid-1995.

Gross Profit.  Gross profit increased to $31.6 million in 1995 from $15.2
million in 1994, but decreased to 13.0% of net sales in 1995 from 13.4% in
1994. Gross profit dollars increased due to higher sales volumes generated by
increases in orders and average order size. The decline in gross margin
percentage reflects the increased proportion of sales of hardware products,
partially offset by improved recovery of domestic freight costs in 1995.

Selling, General and Administrative Expenses.  SG&A expenses increased to $25.4
million in 1995 from $14.4 million in 1994, but decreased as a percentage of
net sales to 10.5% in 1995 from 12.7% in 1994. The dollar increase in SG&A
expenses was primarily attributable to an increase in transaction costs
associated with higher sales volumes, as well as to increased administrative
salaries. The decline in SG&A expenses as a percentage of net sales was due
primarily to a decrease in net advertising expense as a percentage of sales,
resulting from improved co-op advertising recovery and the leveraging of SG&A
expenses over a larger sales base.

Other Expense.  Other expense increased to $1.1 million in 1995 from $215,000
in 1994, primarily as a result of higher interest expense related to higher
levels of borrowing on the Company's primary bank line of credit.

Income Taxes.  Income tax expense increased in 1995 to $1.8 million from
$207,000 in 1994, due to the significant increase in profitability during 1995.

Net Income.  As a result of the above factors, net income increased to $3.2
million or 1.3% of net sales in 1995 from $412,000 or 0.4% of net sales in
1994.

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 quarters than in the second
and third quarters.  Sales during the fourth quarter tend 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 budgetary cycles.  Sales in the first quarter typically benefit from the
fourth quarter sales as customers add peripherals and additional memory




                                       25
<PAGE>   6




products.

The Company has historically experienced fluctuations in its gross margin
percentage and average order size due primarily to variability in sales of
hardware products as a percentage of gross sales, price fluctuations resulting
from new product introductions, changes in the proportion of products purchased
directly from manufacturers rather than distributors and other general
conditions in technology markets.  Average order size declines sequentially to
$326 in the fourth quarter of 1996 from $368 in the third quarter of 1996, due
primarily to lower average selling prices on certain key hardware products,
particularly microprocessors and memory.  In addition, the gross margin
percentage declined sequentially to 13.4% in the fourth quarter of 1996 from
14.2% in the third quarter of 1996, due primarily to lower selling prices for
memory, an increased percentage mix of PC products, the Company's increased
focus on sales to business accounts, as well as intense industry price
competition.

The Company intends to continue to invest in increasing sales to business
accounts.  As sales to business accounts increase, the gross margin percentage
is likely to decline.  Further decline in average order size or gross margin
percentage could have a material adverse effect on the Company's future results
of operations.

The Company's Mac business was strong during 1996.  However, the Company has
experienced a decline in the growth of Mac products.  Sales of Mac products
grew 76.2% in 1996 compared to 122.9% in 1995.  In addition, sales of Mac
products grew 28.8% in the fourth quarter of 1996 compared to a growth rate of
140.4% in the fourth quarter of 1995.  Mac product sales represented 69.8% of
gross sales in 1996 compared to 73.1% in 1995.  The Company believes that the
percentage of its sales represented  by Mac products is likely to decline over
time as a result of increasing acceptance of the direct marketing channel by 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 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.

Pursuant to its business strategy, the Company intends, among other things, to
place larger inventory stocking orders, increase its participation in
first-to-market and 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 receives co-op advertising support from product manufacturers,
which significantly defrays catalog production and distribution costs. Growth
in sales has led to increased manufacturer support for the Company's catalog
marketing efforts and, coupled with improved controls over catalog costs and
recovery efforts, has resulted in a reduction of net advertising expense as a
percentage of sales. Advertising expense net of co-op advertising recovery
represented 0.4%,  0.7% and 2.3% of net sales for 1996, 1995 and 1994
respectively.

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.





                                       26
<PAGE>   7





LIQUIDITY AND CAPITAL RESOURCES

On July 2, 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 were used to finance ongoing
working capital requirements.

The Company had total assets of $149.8 million at December 31, 1996, of which
$136.8 million were current assets. At December 31, 1996 and 1995, the Company
had cash and cash equivalents of $976,000 and $1.2 million respectively, and
working capital of $39.8 million and $7.8 million, respectively. Net cash used
in operating activities was $10.3 million, $14.4 million and $4.4 million in
1996, 1995 and 1994, respectively. Cash outflows in these periods were primarily
due to higher accounts receivable resulting from growing sales to business
accounts, and to investment in increased inventories necessary to support
rapidly growing sales.  In 1996, 1995 and 1994, accounts receivable increased by
$26.7 million, $12.5 million and $3.1 million, respectively, and inventories
increased by $35.3 million, $28.2 million and $3.9 million, respectively.  The
increase in inventory is mainly due to strategic buy-ins at year end to obtain
favorable pricing and constrained product.

Cash outlays for capital expenditures were $5.7 million, $1.4 million and
$538,000 in 1996, 1995 and 1994, respectively.  In addition, the Company
incurred capital lease obligations during 1996, 1995 and 1994 of $1.1 million,
$1.8 million and $405,000, respectively.  These expenditures were primarily for
information and telecommunication system enhancements, furniture and equipment,
and leasehold improvements.

The Company has a revolving line of credit of $30.0 million from a commercial
bank collateralized by inventories and accounts receivable expiring June 30,
1998.  At December 31, 1996, there were borrowings outstanding under the
facility of $2.0 million accruing interest at the bank's prime rate (8.25% at
December 31, 1996), in addition to $2.5 million of unused letters of credit.
The facility contains certain restrictive covenants related to leverage,
current ratios and subsidiary investments.

The net amount of vendor credit outstanding at December 31, 1996 was $83.8
million. A portion of this vendor credit was drawn from a $35.0 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 terms of each advance under the facility are
determined at the time inventory is purchased.  Outstanding advances under the
facility totaled $24.1 million at December 31, 1996.  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.








                                       27
<PAGE>   8




              MULTIPLE ZONES INTERNATIONAL, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                          DECEMBER 31,
                                                                            -----------------------------------
                                                                                 1996                 1995
                                                                            --------------       --------------
 <S>                                                                        <C>                  <C>
 ASSETS
 Current assets:
   Cash and cash equivalents                                                $      976,464       $    1,214,581
   Receivables, net                                                             49,974,983           23,111,478
   Inventories, net                                                             77,501,216           42,030,676
   Prepaids                                                                      7,148,161            6,292,209
   Deferred income taxes                                                         1,216,228              695,060
                                                                            --------------       --------------
           Total current assets                                                136,817,052           73,344,004
 Property and equipment, net                                                     9,758,647            4,518,555
 Other assets                                                                    3,225,314            1,529,605
                                                                            --------------       --------------
           Total assets                                                     $  149,801,013       $   79,392,164
                                                                            ==============       ==============

                                               LIABILITIES AND SHAREHOLDERS' EQUITY
 Current liabilities:
   Bank lines of credit                                                      $   2,203,697       $   12,034,890
   Accounts payable                                                             83,847,781           46,594,671
   Accrued liabilities and other                                                 9,227,483            5,155,322
   Current portion of capital lease obligations                                    934,172              722,558
   Income taxes payable                                                            794,776            1,086,223
                                                                            --------------       --------------
           Total current liabilities                                            97,007,909           65,593,664
 Capital lease obligations, net of current portion                               1,748,227            1,664,553
 Deferred income taxes                                                             249,506              295,482
 Other                                                                             857,838              401,940
                                                                            --------------       --------------
           Total liabilities                                                    99,863,480           67,955,639
                                                                            --------------       --------------
 Minority interest                                                                 468,741              239,415
                                                                            --------------       --------------
 Commitments and contingencies
 Series B Redeemable Convertible Preferred Stock, no par
   value, $11.43 per share liquidation preference, 612,476
   shares authorized, issued and outstanding at December 31, 1995                                     6,461,096
                                                                            --------------       --------------
 Shareholders' equity:
   Common stock, no par value, 45,000,000 shares authorized;
      issued and outstanding 12,876,616 shares at December 31,
      1996 and 9,374,999 shares at December 31, 1995                            36,987,825            2,750,000
   Retained earnings                                                            12,563,859            1,987,736
   Foreign currency translation adjustment                                         (82,892)              (1,722)
                                                                            --------------       --------------
           Total shareholders' equity                                           49,468,792            4,736,014
                                                                            --------------       --------------
           Total liabilities and shareholders' equity                       $  149,801,013       $   79,392,164
                                                                            ==============       ==============
</TABLE>





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





                                       28

<PAGE>   9





              MULTIPLE ZONES INTERNATIONAL, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>

                                                      Year ended December 31,
                                          ------------------------------------------------ 
                                                1996            1995              1994
                                          --------------   --------------   -------------- 
 <S>                                      <C>              <C>              <C>
 Net sales                                $  457,006,975   $  242,586,898   $  113,455,563
 Cost of sales                               393,997,580      211,036,693       98,210,972
                                          --------------   --------------   -------------- 
   Gross profit                               63,009,395       31,550,205       15,244,591
 Selling, general and
   administrative expenses                    44,613,132       25,425,306       14,410,275
                                          --------------   --------------   -------------- 
   Income from operations                     18,396,263        6,124,899          834,316
                                          --------------   --------------   -------------- 
 Other (income) expense:
   Interest expense                            1,499,624        1,148,939          276,744
   Other income                                 (297,353)        (132,246)         (77,514)
   Minority interest                             195,297           69,569           16,154
                                          --------------   --------------   -------------- 
                                               1,397,568        1,086,262          215,384
                                          --------------   --------------   -------------- 
 Income before income taxes                   16,998,695        5,038,637          618,932
 Provision for income taxes                    6,124,407        1,847,100          206,779
                                          --------------   --------------   -------------- 
      Net income                          $   10,874,288   $    3,191,537   $      412,153
                                          ==============   ==============   ============== 

 Net income attributable to primary
     earnings per share                   $   10,415,026   $    3,038,449   $      412,153
                                          --------------   --------------   -------------- 
 Primary earning per share                $         0.89   $         0.31   $         0.04
                                          --------------   --------------   -------------- 
 Shares used in computation of primary
 earnings per share                           11,638,114        9,808,212        9,763,277
                                          --------------   --------------   -------------- 
 Fully diluted earnings per share         $         0.92   $         0.31   $         0.04
                                          --------------   --------------   -------------- 
 Shares used in computation of fully
 diluted earnings per share                   11,870,813       10,143,542       10,098,608
                                          --------------   --------------   -------------- 
</TABLE>














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



                                       29
<PAGE>   10
              MULTIPLE ZONES INTERNATIONAL, INC. AND SUBSIDIARIES
                       STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                         Foreign              
                                                                                          Retained      Currency 
                                            Preferred Stock           Common Stock        Earnings     Translation  
                                         Shares       Amount      Shares       Amount     (Deficit     Adjustment      Total
                                        --------   -----------  ----------  -----------  -----------   -----------   -----------
<S>                                     <C>        <C>          <C>         <C>          <C>            <C>         <C>
 Balance, January 1, 1994                625,000   $ 2,000,000   7,500,000  $   750,000  $(1,462,866)   $           $ 1,287,134
 Net income                                                                                  412,153                    412,153
 Translation adjustment                                                                                    5,953          5,953
                                        --------   -----------  ----------  -----------  -----------    --------    -----------
 Balance, December 31, 1994              625,000     2,000,000   7,500,000      750,000   (1,050,713)      5,953      1,705,240
 Conversion of Series A Convertible
   Preferred Stock to common stock      (625,000)   (2,000,000)  1,874,999    2,000,000
 Accretion of Series B Redeemable    
   Convertible Preferred Stock                                                              (153,088)                  (153,088)
 Net income                                                                                3,191,537                  3,191,537
 Translation adjustment                                                                                   (7,675)        (7,675)
                                        --------   -----------  ----------  -----------  -----------    --------    -----------
 Balance, December 31, 1995                                      9,374,999    2,750,000    1,987,736      (1,722)     4,736,014
 Accretion of Series B Redeemable    
   Convertible Preferred Stock                                                              (459,262)                  (459,262)
 Issuance of common stock                                        2,537,106   27,302,787                              27,302,787
 Conversion of Series B Redeemable  
   Convertible Preferred Stock                                     918,711    6,920,358                               6,920,358
 Exercise of stock options                                          45,800       14,680                                  14,680
 Net income                                                                               10,874,288                 10,874,288
 Tax effect of stock options                                                                 161,097                    161,097
   exercised
 Translation adjustment                                                                                  (81,170)       (81,170)
                                        --------   -----------  ----------  -----------  -----------    --------    -----------
 Balance, December 31, 1996                                     12,876,616  $36,987,825  $12,563,859    $(82,892)   $49,468,792
                                        ========   ===========  ==========  ===========  ===========    ========    ===========
</TABLE>



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



                                       30
<PAGE>   11



              MULTIPLE ZONES INTERNATIONAL, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                YEAR ENDED DECEMBER 31,
                                                                        ----------------------------------------------------------- 
                                                                             1996                    1995                  1994
                                                                        --------------          --------------       -------------- 
 <S>                                                                      <C>                    <C>                  <C>
 Cash flows from operating activities:
   Net income                                                           $   10,874,288          $    3,191,537       $      412,153
   Adjustments to reconcile net income to net
     cash used in operating activities:
     Depreciation and amortization                                           1,650,912               1,000,646              650,844
     Allowance for inventory and receivables                                   669,176                 477,647              297,964
     Deferred income taxes                                                    (567,144)               (226,411)            (138,135)
     Minority interest                                                         229,326                  69,569               16,154
     Tax effect of stock options exercised                                     161,097
     Changes in assets and liabilities excluding effect of acquisitions:
       Accounts receivable                                                 (26,733,956)            (12,464,835)          (3,117,109)
       Inventory                                                           (35,251,742)            (28,217,690)          (3,940,469)
       Prepaids and other assets                                            (1,967,845)             (5,689,140)            (751,611)
       Accounts payable                                                     37,039,010              24,267,853              236,068
       Accrued liabilities                                                   3,924,574               2,400,818            1,705,133
       Income taxes payable                                                   (371,187)                802,283              224,159
                                                                        --------------          --------------       -------------- 

        Net cash used in operating activities                              (10,343,491)            (14,387,723)          (4,404,849)

 Cash flows from investing activities:
   Purchases of property and equipment                                      (5,724,964)             (1,397,289)            (538,188)
   Acquisitions of subsidiaries                                               (479,399)               (689,720)
   Other                                                                                                12,947              161,523
                                                                        --------------          --------------       -------------- 

        Net cash used in investing activities                               (6,204,363)             (2,074,062)            (376,665)

 Cash flows from financing activities:
   Payments under line of credit agreement                                (110,918,580)            (56,665,000)         (23,488,720)
   Borrowings under line of credit agreement                               100,997,372              65,408,357           25,745,800
   Net change in book overdrafts                                              (260,341)              2,754,389            3,017,362
   Payments on capital leases                                                 (768,607)               (548,868)            (288,802)
   Net proceeds from sale of common stock                                   27,317,467
   Net proceeds from sale of preferred stock                                                         6,308,008
   Other                                                                        12,032                 (86,634)              21,171
                                                                        --------------          --------------       -------------- 

         Net cash provided by financing activities                          16,379,343              17,170,252            5,006,811

 Effect of exchange rate on cash and cash equivalents                          (69,606)                 (7,675)              (5,953)
 Net increase (decrease) in cash and cash equivalents                         (238,117)                700,792              219,344
 Cash and cash equivalents at beginning of period                            1,214,581                 513,789              294,445
                                                                        --------------          --------------       -------------- 
 Cash and cash equivalents at end of period                             $      976,464          $    1,214,581        $     513,789
                                                                        ==============          ==============       ============== 

 Supplemental cash flow information:
   Cash paid during the period for interest                             $    1,499,624          $    1,111,213        $     239,470
   Cash paid for income taxes                                           $    6,795,806          $    1,251,382        $     100,000
   Noncash investing and financing activity:
     Capital leases to finance purchases of equipment                   $    1,063,895          $    1,804,330        $     405,304
</TABLE>





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





                                       31
<PAGE>   12



              MULTIPLE ZONES INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.  DESCRIPTION OF BUSINESS

Multiple Zones International, Inc. and its majority owned subsidiaries
(collectively the "Company") are international direct marketers of
microcomputer hardware, software, peripherals and accessories for users of
Macintosh operating system ("Mac") and PC/Wintel ("PC") computers.  The Company
has licensed its trade name to independent licensees that operate in a number
of countries worldwide.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

Cash Equivalents

Cash equivalents are all highly liquid investments with initial maturities of
three months or less.

Concentration of Credit Risk

Cash balances subject to credit risk consist of cash balances held in one
financial institution in the United States and cash balances held in foreign
financial institutions. The Company has not experienced any losses associated
with cash balances and believes that there is minimal risk associated with the
cash balances. Concentration of credit risk with respect to trade receivables
is limited due to the Company's diverse customer base. The Company closely
monitors extensions of credit but does not require collateral, and has not
experienced significant credit losses.

Inventories

Inventories consist primarily of computer software and hardware. Inventories
are valued at the lower of first-in, first-out (FIFO) cost or market. Balances
at December 31, 1996 and  1995 are net of allowances of approximately $700,000
and $600,000 respectively.

Property and Equipment

Property and equipment is recorded at cost. Depreciation is based on the
straight-line method over the estimated useful lives of the related assets,
generally 3 to 10 years. Amortization of capital leases is based on the
straight-line method over the estimated useful lives of the related assets or
lease life, whichever is shorter, generally 3 to 10 years. Expenditures for
maintenance and repairs are charged to expense as incurred, while additions,
renewals and betterments are capitalized. Gains or losses from sales or
retirements are included in other income and expense.

Income Taxes

Deferred income taxes are provided based on the estimated future tax effects of
temporary differences between financial statement carrying amounts of existing
assets and liabilities and their respective tax bases.








                                       32
<PAGE>   13





Deferred tax assets and liabilities are measured using enacted tax rates that
are expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Foreign Currency Translation

Assets and liabilities of the Company's foreign subsidiaries are translated
into U.S. dollars at the exchange rate in effect at the balance sheet date and
revenues and expenses are translated at weighted average rates during the
period. The resulting translation adjustment is reflected as a separate
component of shareholders' equity on the balance sheet.

Computation of 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 years ended December
31, 1995 and 1994, fully diluted earnings per share assumes the conversion of
Series B Preferred Stock to common stock.  For the year ended December 31,
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.

Revenue Recognition

Revenue on product sales is recognized at the time of shipment. The Company
generally allows its customers to return products within 30 days of purchase.
An allowance for product returns is established based on experience.

License Fees and Royalties

The Company records revenues from license fees in net sales when licenses are
granted. Royalty income from licensees is recorded in net sales based on a
percentage of the licensees' gross sales in the period sales are made.

Catalog Costs and Revenues

The Company produces and distributes catalogs at various intervals throughout
the year. Costs to produce and distribute individual catalogs, including paper,
printing, postage, production and design costs, are capitalized and amortized
to selling expense during the period in which the catalogs are generating
substantial sales (generally one month). At December 31, 1996 and 1995
$4,013,432 and $3,753,666, respectively, of capitalized advertising costs were
included with prepaids. The Company receives market








                                       33
<PAGE>   14




development funds and cooperative advertising revenues from most vendors who
have placed advertisements in the Company's catalogs. These revenues are
recognized as a reduction of selling expense in the same period in which the
corresponding catalog cost is recognized as selling expense. Advertising
expense net of co-op advertising recovery is included in selling, general and
administrative expenses and totaled $2,026,361 and $1,774,783 for the years
ended December 31, 1996 and 1995, respectively.

The Company adopted Statement of Position 93-7 "Reporting on Advertising Costs"
(SOP 93-7) effective January 1, 1995. Management believes that if SOP 93-7 had
been adopted in prior years, it would not have had a material impact on the
Company's financial position or results of operations.

The Company provides advertising in its catalogs in exchange for products or
services to be received from its vendors. These transactions are reported at
the estimated fair market value of the advertising provided by the Company
which approximates the value of products or services received in exchange.
Barter revenues are recorded when the catalogs are published and receivables
are recorded for the products or services to be received. Barter expenses are
recorded when the products or services are used.

Dependence on Sales of Mac Products

The Company is largely dependent on sales of Mac products manufactured by a
broad variety of vendors, including Apple. A decline in the demand for, or
availability of, Apple or other Mac products would likely have a material
adverse effect on the Company's business, financial condition and results of
operations. Although the Company intends to pursue increased sales of PC
products to reduce its dependence on sales of Mac products, there can be no
assurance that the Company will be successful in doing so.

Reclassifications

Certain reclassifications have been made to the 1995 and 1994 financial
statements, category mix percentages and product mix percentages to conform to
the 1996 presentations.

3.  FAIR VALUE OF FINANCIAL INSTRUMENTS

For certain financial instruments, including cash, cash equivalents and bank
lines of credit, the carrying value approximates fair value.

4.  RECEIVABLES

   Receivables consist of the following:


<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                   ----------------------------
                                                       1996           1995
                                                   ----------------------------
   <S>                                              <C>             <C>
   Trade                                           $ 31,112,707    $ 16,204,425
   Co-op Advertising                                  5,896,046       3,194,886
   Licensees                                            690,111         665,522
   Returns, rebates and other                        13,423,497       3,653,074
                                                   ------------    ------------
                                                     51,122,361      23,717,907
   Less allowances                                   (1,147,378)       (606,429)
                                                   ------------    ------------
                                                   $ 49,974,983    $ 23,111,478
                                                   ============    ============
</TABLE>





                                       34
<PAGE>   15




5.  PROPERTY AND EQUIPMENT

Property and equipment consist of the following:



<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                   ----------------------------
                                                      1996             1995
                                                   ------------    ------------
 <S>                                               <C>             <C>
 Equipment                                         $  3,535,676    $  2,351,015
 Computer hardware and software under
   capital leases                                     6,470,765       3,621,598
 Computer software                                      498,941         773,300
 Furniture and fixtures                                 721,231         265,884
 Leasehold improvements                               2,836,203         155,975
                                                   ------------    ------------
                                                     14,062,816       7,167,772


 Less accumulated depreciation and
   amortization                                      (4,304,169)     (2,649,217)
                                                   ------------    ------------
           Property and equipment, net             $  9,758,647    $  4,518,555
                                                   ============    ============
</TABLE>


Included in accumulated depreciation and amortization is accumulated
amortization associated with capital leases at December 31, 1996 and 1995 of
$2,081,820 and $1,246,279, respectively.

6.   BANK LINES OF CREDIT

At December 31, 1996, the Company had a $30.0 million bank line of credit
expiring June 30, 1998.  Interest is charged at the prime lending rate (8.25%
at December 31, 1996). At December 31, 1996 and 1995, $2,000,000 and
$11,575,000, respectively, was borrowed on the line. The line is collateralized
by the Company's accounts receivable and inventories.

The line of credit agreement contains certain covenants and restrictions
requiring, among other things, a minimum tangible net worth and certain other
financial ratios and restrictions.

Bank lines of credit also included $203,697 and $459,890 of borrowings by the
Company's foreign subsidiaries at December 31, 1996 and 1995, respectively.

The lines of credit are used by the Company under its cash management system to
cover checks presented for payment in excess of cash balances.  As of December
31, 1996 and 1995 the Company had book overdrafts of $5,967,973 and
$6,228,314, respectively, which are included with accounts payable.

7.  TRADE CREDIT ARRANGEMENT

In 1996, the Company entered into security agreements with Deutsche Financial
Services ("Deutsche") to facilitate the purchase of inventory from various
suppliers under certain terms and conditions. The agreement allows a
collateralized position in inventory financed by Deutsche up to an aggregate of
$35.0 million. At December 31, 1996, accounts payable included $24.1 million
owed to Deutsche.  Amounts purchased under these agreements generally require
payment within a period of 45 days, and no interest is charged. Interest will
accrue on amounts not paid by the end of this period at variable rates.

8.  INCOME TAXES

The income tax provision consists of the following:
<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                     ------------------------------------------------  
                                                         1996               1995             1994
                                                     ------------       ------------     ------------  
 <S>                                                   <C>               <C>                <C>
 Current                                             $  6,691,551       $  2,073,511     $    344,914
 Deferred                                                (567,144)          (226,411)        (138,135)
                                                     ------------       ------------     ------------  
 Total                                               $  6,124,407       $  1,847,100     $    206,779
                                                     ============       ============     ============  
</TABLE>










                                       35
<PAGE>   16
The components of deferred taxes were as follows:

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,
                                                                         ------------------------------------ 
                                                                             1996                    1995
                                                                         -----------              ----------- 
<S>                                                                      <C>                      <C>
  Assets:
    Allowance for doubtful accounts                                      $   422,235              $   192,699
    Inventory allowances                                                     253,389                  204,000
    Deferred advertising revenue                                                                       10,700
    Inventory capitalization                                                  99,364                   58,152
    Accrued liabilities and other                                            629,842                  263,509
                                                                         -----------              ----------- 
            Total                                                        $ 1,404,830              $   729,060
                                                                         -----------              ----------- 

  Liabilities:
    Property and equipment depreciation                                  $  (312,680)             $  (185,891)
    Other                                                                   (125,428)                (143,591)
                                                                         -----------              ----------- 
                                                                         $  (438,108)             $  (329,482)
                                                                         -----------              ----------- 
    Net deferred tax asset                                               $   966,722              $   399,578
                                                                         ===========              =========== 

The net deferred tax asset is recognized in the accompanying balance sheet as follows:

 Current deferred tax asset                                              $ 1,216,228              $   695,060 
 Non-current deferred income tax liability                                  (249,506)                (295,482)           
                                                                         -----------              ----------- 
 Net deferred tax asset                                                  $   966,722              $   399,578                
                                                                         ===========              =========== 
</TABLE>

Although realization is not assured, management believes it is more likely than
not that all of the net deferred asset will be realized through future taxable
income or taxable loss carrybacks.

A reconciliation of the effective income tax rate on income before taxes with
the federal statutory rate follows:


<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                                    -----------------------------  
                                                                       1996      1995     1994
                                                                    --------   --------  --------  
  <S>                                                               <C>        <C>       <C>
  Statutory rate                                                        35.0%      34.0%     34.0%
  State income tax (net of federal income tax benefit)                   1.4        1.5
  Other                                                                 (0.4)       1.2      (0.6)
                                                                    --------   --------  --------  
  Effective tax rate                                                    36.0%      36.7%     33.4%
                                                                    ========   ========  ========  
</TABLE>


9.  COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases its office and returns warehouse space under noncancelable
operating leases which expire through 2003. Under the terms of certain leases,
the Company is responsible for its share of taxes, insurance and common area
charges. At December 31, 1996, future minimum payments under operating leases
were as follows:

<TABLE>
             <S>                         <C>
             1997                        $  499,366
             1998                         1,289,989
             1999                         1,834,800
             2000                         1,811,352
             2001 and thereafter          4,453,212
                                         ---------- 
                       Total             $9,888,719
                                         ========== 
</TABLE>

Rental expense totaled $1,532,329, $607,973 and $472,796 for the years ended
December 31, 1996, 1995 and 1994, respectively.





                                       36
<PAGE>   17




Obligations Under Capital Leases

The Company leases equipment and software under long-term capital leases.
Future lease payments as of December 31, 1996 were as follows:

<TABLE>
 <S>                                                      <C>
                                                                 
 1997                                                      $1,133,815
 1998                                                         991,644
 1999                                                         685,215
 2000                                                         159,385
 2001                                                          74,105
                                                           ----------
 Total future minimum lease payments                        3,044,164
 Less amount representing interest                           (361,765)
                                                           ---------- 
 Present value of net minimum lease payments                2,682,399
 Less current portion                                        (934,172)
                                                           ---------- 
 Noncurrent portion                                        $1,748,227
                                                           ========== 
</TABLE>

Distribution Center

The Company has contracted with a freight company to provide and operate its
primary distribution center under a contract which expires March 31, 1998.
Under this contract, the Company pays a flat rate for each order filled.

Letters of Credit

The Company had unused letters of credit totaling $2,536,149 at December 31,
1996.

Acquisitions

Certain of the purchase agreements relating to the Company's acquisitions allow
the minority owners to sell their remaining interests to the Company at the end
of three years.  The purchase price for the remaining interests is based on a
multiple of the subsidiaries' net income during the three-year period.

Legal Proceedings

Various claims and actions, considered normal to the Company's business, have
been asserted and are pending against the Company.  The Company believes that
such claims and actions should not have a material adverse effect upon the
Company's financial position or results of operations.

10.  SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK

On October 27, 1995, the Company completed a sale of 612,476 shares of Series B
Preferred Stock for $7,000,000. Each share of Series B Preferred Stock is
entitled to a cumulative annual dividend of $1.14 per share, payable only to
the extent that dividends are declared to common shareholders.  Voluntary and
involuntary liquidation value of each preferred share is $11.43 plus accrued
and unpaid dividends. Offering costs related to the sale were $691,992. In
connection with the offering, the Company also issued a warrant for the
purchase of 45,310 shares of common stock exercisable at $7.62 per share.  Upon
consummation of the initial public offering all outstanding shares of Series B
Preferred Stock converted to 918,711 shares of common stock.

Prior to the conversion of the Series B Preferred Stock to Common Stock the
difference between the issuance price, net of offering costs, of the Series B
Preferred Stock and the redemption value was accreted periodically by a charge
to retained earnings. The carrying value of the Series B Preferred Stock was
also increased for accrued but unpaid dividends.





                                       37
<PAGE>   18
11.  SHAREHOLDERS' EQUITY

Common Stock

In February 1994, the Company declared a common stock split which had the
effect of increasing the shares issued and outstanding to 5,000,000.  On
January 2, 1996, the number of authorized shares of common stock was increased
to 45,000,000. On June 3, 1996, the Company declared a common stock split which
had the effect of increasing the shares issued and outstanding to 9,374,999.
All share amounts have been restated to give effect to these stock splits.

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.

Stock Options

In 1993, the Company adopted a Stock Incentive Plan (the "Plan") whereby the
Company may issue incentive or nonqualified stock options, restricted shares,
stock units or stock appreciation rights to key employees.  As of December 31,
1996, only stock options have been granted under the plan.  Stock options are
granted solely at the discretion of the Board of Directors and are generally
issued at a price equal to the estimated fair market value of the stock at the
date of grant. The term of each option granted is for such period as determined
by the Board of Directors, but not more than ten years from date of grant.
Options may generally be exercised based on a vesting schedule determined by
the Board of Directors, and the plan provides for acceleration of outstanding
options under certain conditions, including certain changes in control of the
Company. Grants are nontransferable, and shares acquired upon exercise of
options may be subject to repurchase at the option of the Company under certain
conditions. The maximum number of shares to be granted under the Plan was
1,650,000 at December 31, 1996.

In addition to options granted under the Plan, the Company has granted options
to the Board of Directors. Options outstanding to these individuals at December
31, 1996, were 32,981 shares at option prices of $0.17 - $25.88 per share.

The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans.  Had compensation cost for the Company's stock option plans
been determined based on the fair value at the grant date of the awards in 1996
and 1995 consistent with the provisions of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                      1996              1995
--------------------------------------------------------------------------------
 <S>                                             <C>                <C>
 Net earnings - as reported                       $ 10,874,288      $  3,191,537
                                                  ============      ============
 Net earnings - pro forma                         $ 10,199,607      $  3,084,250
                                                  ============      ============
 Fully diluted earnings per share - as reported   $       0.92      $       0.31
                                                  ============      ============
 Fully diluted earnings per share - pro forma     $       0.86      $       0.30
                                                  ============      ============
</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: expected volatility of 66%;
risk-free interest rate of 6.5% and 6.0%; and expected lives of 4 years.



                                       38
<PAGE>   19




Information regarding the stock option plans is as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                              Weighted-
                                                               Average
                                            Options         Exercise Price
--------------------------------------------------------------------------------
 <S>                                        <C>              <C>
 Outstanding, January 1, 1994               151,500      $     0.17
   Granted                                   37,500            0.33
   Cancelled                                (67,500)           0.17
                                         ----------      ----------
 Outstanding, December 31, 1994             121,500            0.22
   Granted                                  335,250            4.65
   Cancelled                                   (750)           4.00
                                         ----------      ----------
 Outstanding, December 31, 1995             456,000            3.48
   Granted                                  789,500           11.66
   Exercised                                (45,800)           0.32
   Cancelled                               (104,940)           3.77
 Outstanding, December 31, 1996           1,094,760      $     9.21
                                         ==========      ==========


--------------------------------------------------------------------------------
 1996 option price range for exercised shares                 $ 0.17-$ 4.00
 1996 weighted-average fair value of options granted
    during the year                                                  $ 5.62
--------------------------------------------------------------------------------
</TABLE>

The following tables summarize information about fixed-price stock options
outstanding at December 31, 1996.

<TABLE>
  <S>                        <C>           <C>                 <C>
--------------------------------------------------------------------------------
                         Options Outstanding
--------------------------------------------------------------------------------
                                                   Weighted-
                                  Number             average           Weighted-
          Range of           outstanding           remaining             average
    exercise prices          at 12/31/96   contractual years      exercise price
--------------------------------------------------------------------------------
  $  0.17 - $  6.67              574,750                8.76              $ 5.18
  $ 12.00 - $ 17.75              480,250                9.35               12.72
  $ 20.00 - $ 25.88               39,760                9.81               25.03
---------------------- ----------------------- ------------------ --------------
  $  0.17 - $ 25.88            1,094,760                9.05              $ 9.21
</TABLE>


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                             Options Exercisable
--------------------------------------------------------------------------------
                 Range of                      Number           Weighted-average
           exercise prices                at 12/31/96             exercise price
--------------------------------------------------------------------------------
      <S>                                     <C>                        <C>
      $     0.17 - $  6.67                    128,575                    $  2.97
      $    12.00 - $ 17.75                     84,000                      12.67
      $    20.00 - $ 25.88
--------------------------------------------------------------------------------
      $     0.17 - $ 25.88                    212,575                    $  6.08
================================================================================
</TABLE>

Employee Stock Purchase Plan

In December 1995, the Company adopted an Employee Stock Purchase Plan (the
"Purchase Plan") which was effective upon the completion of the public
offering. Under the terms of the Purchase Plan, employees other than officers
and employees of the Company's subsidiaries may purchase a total of up to
450,000 shares of common stock. The purchase price per share is 85% of the
lower of the market value per share of common stock determined as of the
beginning or end of the quarterly purchase period specified in the Purchase
Plan.





                                       39
<PAGE>   20





12.  DEFERRED INCOME 401(K) PLAN

The Company offers a deferred income 401(k) plan to substantially all full time
employees with a minimum of six months of service.  Participants may make
tax-deferred contributions of up to 10% of annual compensation subject to
certain limitations specified by the Internal Revenue Code.

13.  RELATED PARTY TRANSACTIONS

      Related party transactions for 1996, 1995 and 1994 were as follows:

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                            ------------------------------------------------
                                                                1996              1995               1994
                                                            -----------       -----------        -----------
 <S>                                                        <C>               <C>                <C>
 Sales to licensees                                         $ 2,586,000       $ 1,274,142        $ 1,340,836
 Sales to affiliates                                                               87,564             20,355
 Purchases from affiliates                                                        881,857          3,510,200
 Accounts Payable to affiliates                                                    20,986            291,134
 Accounts receivable from affiliates                                               17,258
</TABLE>


14.  OPERATIONS BY GEOGRAPHIC AREA

The Company operates primarily in one industry segment, the distribution of
computer hardware and software. Information about the Company's operations in
different geographic areas for 1996, 1995 and 1994 is presented below.
International activities are principally concentrated in Europe. Corporate
assets consist of cash held by the international subsidiaries.

A summary of the Company's operations by geographic area follows:


<TABLE>
<CAPTION>
                                         UNITED STATES         INTERNATIONAL       ELIMINATIONS         TOTAL
                                        -------------          -------------      -------------     -------------  
 <S>                                    <C>                    <C>                <C>               <C>
 YEAR ENDED DECEMBER 31, 1996
 Net sales                               $397,852,756            $59,154,219      $                  $457,006,975
 Income from operations                    16,971,945              1,424,318                           18,396,263
 Identifiable assets                      137,915,667             16,033,268         (5,124,386)     $148,824,549
 Corporate assets                                                                                         976,464
                                                                                                    -------------
           Total assets                                                                             $ 149,801,013
                                                                                                    =============  
 YEAR ENDED DECEMBER 31, 1995
 Net sales                               $216,261,197            $26,325,701      $                 $ 242,586,898
 Income from operations                     5,575,361                549,538                            6,124,899
 Identifiable assets                       71,358,809              8,734,995         (1,916,221)    $  78,177,583
 Corporate assets                                                                                       1,214,581
                                                                                                    -------------
           Total assets                                                                             $  79,392,164
                                                                                                    =============
 YEAR ENDED DECEMBER 31, 1994
 Net sales                              $ 101,920,063          $  11,535,500      $                 $ 113,455,563
 Income from operations                       787,808                 46,508                              834,316
 Identifiable assets                       25,572,490              3,150,940         (3,532,201)    $  25,191,229
 Corporate assets                                                                                         513,789
                                                                                                    -------------
           Total assets                                                                             $  25,705,018
                                                                                                    =============
</TABLE>





                                       40
<PAGE>   21
15.  SELECTED QUARTERLY FINANCIAL DATE (UNAUDITED)

 The following information is for the years ended December 31, 1996 and 1995:


 (in thousands, except per share data)
<TABLE>
<CAPTION>
                                                First              Second                Third              Fourth
 DECEMBER 31, 1996                             Quarter             Quarter              Quarter             Quarter
                                             ----------           ----------           ----------          ----------
 <S>                                         <C>                   <C>                  <C>                 <C>
 Net sales                                     $100,927             $111,411             $109,396            $135,273
 Cost of sales                                   86,964               95,980               93,875             117,179
                                             ----------           ----------           ----------          ----------

 Gross profit                                    13,963               15,431               15,521              18,094
 SG&A expenses                                   10,078               11,044               10,436              13,055
                                             ----------           ----------           ----------          ----------

 Income from operations                           3,885                4,387                5,085               5,039
 Other expense                                      468                  518                  157                 254
                                             ----------           ----------           ----------          ----------

 Income before income  taxes                      3,417                3,869                4,928               4,785
 Provision  for  income taxes                     1,244                1,427                1,726               1,728
                                             ----------           ----------           ----------          ----------

 Net income                                   $   2,173             $  2,442             $  3,202            $  3,057
                                             ==========           ==========           ==========          ==========

 Fully diluted earnings per share            $     0.21            $    0.24            $    0.24           $    0.23
                                             ==========           ==========           ==========          ==========
</TABLE>


<TABLE>
<CAPTION>
                                              First               Second           Third         Fourth
 DECEMBER 31, 1995                          Quarter              Quarter         Quarter        Quarter
                                         ----------           ----------      ----------     ----------
 <S>                                      <C>                  <C>             <C>            <C>
 Net sales                                $  46,228            $  50,815       $  58,677      $  86,867
 Cost of sales                               39,927               44,295          50,904         75,911
                                         ----------           ----------      ----------     ----------

 Gross profit                                 6,301                6,520           7,773         10,956
 SG&A expenses                                5,758                5,220           6,326          8,121
                                         ----------           ----------      ----------     ----------

 Income from operations                         543                1,300           1,447          2,835
 Other expense                                  166                  287             276            357
                                         ----------           ----------      ----------     ----------

 Income before income  taxes                    377                1,013           1,171          2,478
 Provision for  income taxes                    143                  383             444            877
                                         ----------           ----------      ----------     ----------

 Net income                               $     234            $     630       $     727      $   1,601
                                         ==========           ==========      ==========     ==========

 Fully diluted earnings per share         $    0.02            $    0.06       $    0.07      $    0.16
                                         ==========           ==========      ==========     ==========
</TABLE>


                                       41
<PAGE>   22



                       REPORT OF INDEPENDENT ACCOUNTANTS


Board of Directors
Multiple Zones International, Inc.
Renton, Washington

We have audited the accompanying consolidated balance sheets of Multiple Zones
International, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Multiple Zones
International, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Seattle, Washington
January 29, 1997, except for Note 11
for which the date is February 24, 1997





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