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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported ) January 31, 1997
PREFERRED NETWORKS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-27658 58-1954892
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
850 Center Way, Norcross, Georgia 30071
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (770) 582-3500
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(Former name or former address, if changed since last report)
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Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
a) Financial Statements of Businesses Acquired
The audited combined financial statements of Mercury Paging &
Communications, Inc. and its affiliated companies as of and
for the years ended December 31, 1996 and 1995 were filed as
part of Preferred Networks, Inc.'s Current Report on Form 8-K
filed on February 18, 1997.
b) Pro Forma Financial Information
The unaudited pro forma condensed consolidated balance sheet
of Preferred Networks, Inc. as of December 31, 1996 and the
unaudited pro forma condensed consolidated statement of
operations of Preferred Networks, Inc. for the year ended
December 31, 1996 are filed as a part of this Current Report
on Form 8-K/A.
c) Exhibits
The following exhibits were filed as part of Preferred
Networks, Inc.'s Current Report on Form 8-K filed on February
18, 1997:
2.1 Stock Purchase Agreement by and among Preferred
Networks, Inc., Mercury Paging & Communications,
Inc., HTB Communications Inc., Custom Page, Inc., and
M.P.C. Distributors Inc. (collectively "Sellers") and
the Shareholders of Sellers, dated as of September
30, 1996.
23.1 Consent of Independent Auditors -- Ernst & Young LLP
23.2 Consent of Independent Auditors - Schneider Ehrlich &
Wengrover LLP
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Item 7(b). Pro Forma Financial Statements
The following unaudited pro forma condensed consolidated financial statements of
Preferred Networks, Inc. ("PNI") and Mercury Paging & Communications, Inc. and
its affiliated companies ("Mercury") are derived from, and should be read in
conjunction with the audited combined financial statements of Mercury contained
in PNI's Form 8-K filed with the Securities and Exchange Commission on February
18, 1997 and the audited consolidated financial statements of PNI contained in
PNI's Form 10-K for the year ended December 31, 1996 filed with the Securities
and Exchange Commission. The pro forma condensed consolidated financial
statements do not purport to be indicative of the results of operations or
financial position which would have actually been reported had the acquisition
of Mercury by PNI been consummated on the dates indicated, or which may be
reported in the future.
The pro forma balance sheet reflects adjustments as if the acquisition had been
consummated on December 31, 1996.
The pro forma statement of operations reflects adjustments as if the acquisition
had been consummated at the beginning of the period of the statement (i.e.,
January 1, 1996.)
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PREFERRED NETWORKS, INC.
Pro Forma Condensed Consolidated Balance Sheet
December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
PREFERRED PRO
NETWORKS, FORMA PRO
INC. MERCURY ADJUSTMENTS FORMA
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<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,645,354 $ 101,579 $(10,100,000) (a) $ 11,646,933
Accounts receivable, net 2,815,982 445,482 3,261,464
Receivables from related parties 93,397 -- 93,397
Inventory 5,630,478 446,309 6,076,787
Prepaid expenses and other current assets 540,190 15,919 556,109
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Total current assets 30,725,401 1,009,289 21,634,690
Property and equipment, net 21,559,407 925,271 22,484,678
Goodwill and FCC licenses, net 10,381,113 62,212 15,792,345 (a) 26,235,670
Other assets, net 3,459,416 95,445 3,544,861
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$ 66,125,337 $ 2,092,217 $ 5,692,345 $ 73,909,899
====================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 5,011,150 $ 552,258 $ $ 5,563,408
Accrued liabilities 2,878,573 522,703 3,401,276
Payables to related parties 6,317 809,601 815,918
Accrued salaries 621,493 -- 621,493
Current portion of notes payable and capital
lease obligations 995,164 1,900,000 2,895,164
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Total current liabilities 9,512,697 3,784,562 13,297,259
Notes payable and capital lease obligations,
less current portion 16,029,652 -- 16,029,652
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Total liabilities 25,542,349 3,784,562 29,326,911
Stockholders' equity (deficit)
Preferred stock -- -- --
Common stock 1,529 11,000 (10,376)(a),(b) 2,153
Additional paid-in capital 56,312,399 -- 3,999,376 (a) 60,311,775
Accumulated (deficit) (15,730,940) (1,703,345) 1,703,345 (b) (15,730,940)
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40,582,988 (1,692,345) 5,692,345 44,582,988
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$ 66,125,337 $ 2,092,217 $ 5,692,345 $ 73,909,899
====================================================================
</TABLE>
See accompanying pro forma adjustments.
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PREFERRED NETWORKS, INC.
Pro Forma Condensed Consolidated Statement of Operations
Year ended December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------
PREFERRED
NETWORKS, PRO FORMA PRO
INC. MERCURY ADJUSTMENTS FORMA
------------ ------------ --------- ------------
<S> <C> <C> <C> <C>
Revenues:
Network services $ 6,121,127 $ 2,531,591 $ $ 8,652,718
Product sales 5,818,074 2,818,879 8,636,953
Other services 1,411,471 -- (125,000) (c) 1,286,471
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13,350,672 5,350,470 (125,000) 18,576,142
Costs of revenues:
Network services 4,621,126 2,661,884 7,283,010
Product sales 8,328,771 157,719 8,486,490
Other services 662,310 -- 662,310
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13,612,207 2,819,603 16,431,810
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Gross margin (261,535) 2,530,867 (125,000) 2,144,332
Selling, general and administrative expenses 8,337,963 2,225,214 (125,000)(c) 10,438,177
Depreciation and amortization 2,479,080 197,160 53,000 (d) 2,729,240
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Operating income (loss) (11,078,578) 108,493 (53,000) (11,023,085)
Interest expense (242,337) (180,393) (422,730)
Interest income 1,121,585 -- 1,121,585
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Net loss $(10,199,330) $ (71,900) $ (53,000) $(10,324,230)
========================================================================
Net loss per share of common stock $ (0.79) $ (.76)
============ ============
Weighted average number of common shares
used in calculating net loss per share of
common stock 13,643,474 14,267,795
============ ============
</TABLE>
See accompanying pro forma adjustments.
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Certain reclassifications have been made to Mercury's financial statements to
conform to PNI's classifications.
BALANCE SHEET:
(a) To reflect the acquisition of Mercury's common stock and the allocation
of the purchase price on the basis of the estimated fair values of the
net assets acquired. The components of the purchase price and its
allocation to the assets and liabilities are as follows (in thousands):
Components of purchase price:
<TABLE>
<S> <C>
Cash $10,100
Stock (624,321 shares of PNI Common Stock, $.0001
par value, including 156,080 shares held in escrow) 4,000
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Total estimated purchase price $14,100
=======
</TABLE>
Allocation of purchase price:
<TABLE>
<S> <C>
Current assets $ 1,009
Property and equipment 925
Other assets 95
FCC licenses and goodwill 15,856
Current liabilities (3,785)
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Total purchase price allocation $14,100
=======
</TABLE>
(b) To eliminate Mercury's equity accounts.
STATEMENT OF OPERATIONS:
(c) To remove agency fees paid by Mercury to PNI.
(d) To amortize FCC licenses and goodwill recorded as a result of the
Mercury acquisition, using a 15-year life and the straight-line method.
No income tax expense was included in the pro forma statement of operations as
on a combined basis, PNI is in a net loss position.
See PNI's Form 8-K dated January 31, 1997 and filed February 18, 1997 and PNI's
Form 10-K for the year ended December 31, 1996 for details of loss per share
calculations.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: April 15, 1997 PREFERRED NETWORKS, INC.
By: /s/ Kim Smith Hughes
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Kim Smith Hughes
Chief Financial Officer
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE NO.
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2.1 Stock Purchase Agreement by and among Preferred Networks, Inc., Mercury
Paging & Communications, Inc., HTB Communications Inc., Custom Page,
Inc., and M.P.C. Distributors Inc. (collectively "Sellers") and the
Shareholders of Sellers dated as of September 30, 1996 (filed as a part
of the Current Report on Form 8-K, file no. 0-27658 filed with the SEC
on February 18, 1997 and incorporated by reference herein).
23.1 Consent of Independent Auditors - Ernst & Young LLP (filed as a part of
the Current Report on Form 8-K, file no. 0-27658 filed with the SEC on
February 18, 1997 and incorporated by reference herein).
23.2 Consent of Independent Auditors - Schneider Ehrlich & Wengrover LLP
(filed as a part of the Current Report on Form 8-K, file no. 0-27658
filed with the SEC on February 18, 1997 and incorporated by reference
herein).
</TABLE>
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