<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
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 (Commission File Number) I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
850 Center Way, Norcross, Georgia 30071
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (770) 582-3500
--------------
- --------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OF ASSETS.
On January 31, 1997, Preferred Networks, Inc. ("PNI") acquired all of
the outstanding common stock of Mercury Paging & Communications, Inc., a
Delaware corporation, HTB Communications Inc., a New York corporation, Custom
Page, Inc., a Delaware corporation and M.P.C. Distributors Inc., a New York
corporation (collectively, the "Sellers"), constituting all of the outstanding
capital stock of each of the Sellers, pursuant to a Stock Purchase Agreement
dated as of September 30, 1996 (the "Stock Purchase Agreement") among PNI, each
of the Sellers, and Michael Collins, Robert Lifton, Ronald Portnoy, Howard
Weingrow and Allen Wolfbiss, who are collectively the shareholders of the
Sellers (the "Shareholders"). PNI purchased the outstanding capital stock of
each of the Sellers (the "Shares") directly from the Shareholders.
As consideration for the Shares, PNI paid to the Shareholders (or to
third parties for the benefit of the Shareholders) $7,298,487.69 in cash and
468,241 shares of PNI's $.0001 par value common stock ("PNI Common Stock").
The cash consideration payable to the Shareholders is subject to adjustment
based upon the amount by which certain liabilities of the Sellers as of January
31, 1997 exceed certain of their assets as of such date, as set forth in the
Stock Purchase Agreement. The cash portion of the consideration paid to the
Shareholders on the closing date reflects an estimate of the January 31, 1997
adjustment, and an additional $100,000 held in escrow pending finalization of
the January 31, 1997 balance sheet of Sellers. PNI will pay the Shareholders
an additional 156,080 shares of PNI Common Stock and $5,000 cash after March
31, 1997, subject to reduction based upon the amount (if any) by which certain
of Sellers' revenues for March 1997 are less than corresponding revenues for
December 1996, as set forth in the Stock Purchase Agreement. PNI used a
combination of working capital and bank debt under its credit facility with
NationsBank, N.A. (South) to fund the cash consideration paid in connection
with the acquisition, and intends to use either working capital or bank debt
(or a combination) to fund any payment that may be required in connection with
the January 31, 1997 balance sheet of Sellers and corresponding purchase price
adjustment.
The total consideration paid to the Shareholders was the result of
arms-length negotiations between representatives of PNI and representatives of
the Sellers and the Shareholders. Michael Collins, one of the Shareholders, is
also an employee of PNI. Mr. Collins received less than one percent of the
total consideration paid by PNI in the acquisition.
The Sellers are engaged in the business of providing paging services on
the exclusive radio common carrier 931.3125 MHz frequency throughout New
Jersey, New York and Southern Connecticut. PNI intends to continue to use
Sellers' business assets in substantially the manner previously used by Sellers.
PNI intends to account for the acquisition as a purchase and will
include the results of Sellers' operations in its consolidated financial
statements as of January 31, 1997.
<PAGE> 3
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 are filed as
part of this Current Report on Form 8-K.
a) Pro Forma Financial Information
In accordance with Item 7(b) of Form 8-K, the unaudited pro
forma condensed consolidated balance sheet of PNI as of
December 31, 1996 and the unaudited pro forma condensed
consolidated statement of operations of PNI for the year ended
December 31, 1996 will be filed by an amendment to this Form
8-K no later than 60 days after February 18, 1997.
c) Exhibits
The following exhibits are filed as part of this current
report on Form 8-K:
2.1 Stock Purchase Agreement by and among Preferred
Networks, Inc., ("PNI") and Mercury Paging &
Communication, Inc., HTB Communications Inc., Custom
Page, Inc., and MPC Distributors, Inc. (collectively
"Sellers") and the Shareholders of Sellers, dated as of
September 30, 1996. This document appears as Exhibit
10.3 to PNI's Report on Form 10-Q for the quarterly
period ended September 30, 1996 and is incorporated by
reference herein. The exhibits and schedules to this
Stock Purchase Agreement have been omitted from this
Exhibit 2.1. PNI agrees to furnish supplementally such
exhibits and schedules to the Securities and Exchange
Commission upon request.
23.1 Consent of Independent Auditors -- Ernst & Young LLP
23.2 Consent of Independent Auditors - Schneider Ehrlich
& Wengrover LLP
<PAGE> 4
Item 7(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
Report of Independent Auditors
The Stockholders
Mercury Paging & Communications, Inc.
and its affiliated companies
We have audited the combined balance sheet of Mercury Paging & Communications,
Inc. and its affiliated companies (collectively, the Company) as of December
31, 1996 and the related combined statements of operations, changes in
deficiency in net assets, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Mercury Paging &
Communications, Inc. and its affiliated companies at December 31, 1996 and the
combined results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
January 24, 1997
<PAGE> 5
Mercury Paging & Communications, Inc.
and Its Affiliated Companies
Combined Balance Sheet
December 31, 1996
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash $ 101,579
Accounts receivable 445,482
Pager inventory 446,309
Prepaid expenses and other current assets 15,919
----------
Total current assets 1,009,289
Property and equipment, net 925,271
Other assets, net 157,657
----------
Total assets $2,092,217
==========
LIABILITIES AND DEFICIENCY IN NET ASSETS
Current Liabilities:
Accounts payable $ 552,258
Accrued expenses 232,445
Accrued taxes payable 216,254
Deferred revenue 74,004
Note payable to bank 1,900,000
Payables to stockholders 809,601
----------
Total current liabilities 3,784,562
Deficiency in net assets:
Common stock 11,000
Accumulated deficit (1,703,345)
----------
Total deficiency in net assets (1,692,345)
----------
Total liabilities and deficiency in net assets $2,092,217
==========
</TABLE>
See accompanying notes.
<PAGE> 6
Mercury Paging & Communications, Inc.
and Its Affiliated Companies
Combined Statement of Operations
Year ended December 31, 1996
<TABLE>
<S> <C>
Revenues:
Pager airtime $2,818,879
Pager sales 2,531,591
----------
5,350,470
Cost of revenues:
Pager airtime 157,719
Pager sales 2,661,884
----------
2,819,603
----------
2,530,867
Selling, general and administrative expenses 2,225,214
Depreciation and amortization 197,160
----------
Operating income 108,493
Interest expense 180,393
----------
Net loss $ (71,900)
==========
</TABLE>
See accompanying notes.
<PAGE> 7
Mercury Paging & Communications, Inc.
and Its Affiliated Companies
Combined Statement of Deficiency in Net Assets
Year ended December 31, 1996
<TABLE>
<CAPTION>
Total
Common Accumulated Deficiency in
Stock Deficit Net Assets
--------------------------------------------
<S> <C> <C> <C>
Balances at January 1, 1996 $ 11,000 $(1,631,445) $(1,620,445)
Net loss - (71,900) (71,900)
------------------------------------------
Balances at December 31, 1996 $ 11,000 $(1,703,345) $(1,692,345)
==========================================
</TABLE>
See accompanying notes.
<PAGE> 8
Mercury Paging & Communications, Inc.
and Its Affiliated Companies
Combined Statement of Cash Flows
Year ended December 31, 1996
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss $(71,900)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 197,160
Changes in operating assets and liabilities:
Increase in accounts receivable (192,945)
Decrease in inventory 49,833
Increase in prepaid expenses and other current assets (12,375)
Increase in accounts payable and accrued expenses 259,842
Decrease in deferred revenue (66,635)
----------
Net cash provided by operating activities 162,980
INVESTING ACTIVITIES
Purchase of furniture and equipment (128,351)
----------
Net cash used in investing activities (128,351)
FINANCING ACTIVITIES
Proceeds from increase in payables to stockholders 600,000
Repayments of payables to stockholders (442,826)
Repayments of note payable to bank (2,000,000)
Proceeds from note payable to bank 1,900,000
----------
Net cash provided by financing activities 57,174
----------
Net increase in cash 91,803
Cash at beginning of year 9,776
----------
Cash at end of year $ 101,579
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 176,163
==========
</TABLE>
See accompanying notes.
<PAGE> 9
Mercury Paging & Communications, Inc.
and Its Affiliated Companies
Notes to Combined Financial Statements
December 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Mercury Paging & Communications, Inc. and its affiliated companies
(collectively, the "Company") hold Federal Communications Commission ("FCC")
frequency licenses and operate a paging reseller business in the New York City
metropolitan area. The Company is engaged in the sale of pagers and pager
airtime.
BASIS OF PRESENTATION
The accompanying combined financial statements of the following companies,
which are related through common ownership and management: Mercury Paging &
Communications, Inc., Custom Page, Inc., M.P.C. Distributors Inc. and HTB
Communications Inc. All significant intercompany transactions have been
eliminated.
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 amounts reported in the combined financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes revenue on the sale of pager airtime when the service is
provided. Revenue from the sale of pagers is recognized when the product is
shipped.
ACCOUNTS RECEIVABLE
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Payment is generally due
upon shipment for pager sales and within 30 days from invoice date for airtime
sales. Credit losses have been consistent with management's expectations. No
allowance for doubtful accounts has been established. The Company writes off
uncollectable receivables directly against revenues.
<PAGE> 10
Mercury Paging & Communications, Inc.
and Its Affiliated Companies
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is computed on a
first-in, first-out basis. Pager inventory has been reduced to market value at
December 31, 1996.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is provided based on
the asset's estimated useful life (generally 5 to 7 years), principally using
the straight line method. Accumulated depreciation totaled approximately
$249,000 at December 31, 1996.
Property and equipment consist of the following as of December 31, 1996:
<TABLE>
<S> <C>
Furniture and fixtures $ 78,027
Computer training 131,891
Transmitter equipment 953,077
Leasehold improvements 11,454
----------
$1,174,449
==========
</TABLE>
OTHER ASSETS
Other assets include FCC licenses, license application fees and organization
costs. The FCC licenses and license application fees are amortized using the
straight-line method over a period of 15 years. Organization costs are amortized
over five-years. Accumulated amortization for these other assets totaled
approximately $34,000 at December 31, 1996.
LONG-LIVED ASSETS
The carrying value of long-lived assets including intangibles is periodically
reviewed by the Company for impairment, and losses are recognized as set forth
in Financial Accounting Standards Board Statement No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
There was no impact of adoption in 1996.
<PAGE> 11
Mercury Paging & Communications, Inc.
and Its Affiliated Companies
Notes to Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The stockholders have elected under Subchapter S of the Internal Revenue Code
to include the Company's income in their personal income tax returns.
Accordingly, there is no provision for income taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the combined balance sheet for cash, accounts
receivable, note payable to bank, loans payable to stockholders, and accounts
payable and accrued expenses approximate their fair values at December 31,
1996.
2. COMMITMENTS
The Company rents office space and transmitter or tower sites under operating
leases. The Company incurred approximately $255,000 in rent expense in 1996.
Approximate future minimum annual rental payments required by these operating
leases are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1997 $191,000
1998 162,000
1999 161,000
2000 123,000
2001 92,000
Thereafter 63,000
--------
$792,000
========
</TABLE>
<PAGE> 12
Mercury Paging & Communications, Inc.
and Its Affiliated Companies
Notes to Financial Statements (continued)
3. NOTE PAYABLE TO BANK
The Company has a note payable to a bank with an outstanding balance of
$1,900,000 at December 31, 1996. The note bears interest at 7% per annum and
matured January 17, 1997, although such amount has not yet been repaid. The
line is personally guaranteed by certain stockholders of the Company and
certain of their personal assets.
On January 2, 1997, the Company borrowed an additional $600,000 from the same
bank in order to repay the notes payable to stockholders described in Note 4
below.
4. PAYABLES TO STOCKHOLDERS
As of December 31, 1996, the Company had unsecured notes payable totaling
$600,000 to three stockholders bearing interest at 8.5%. The notes were repaid
on January 2, 1997, using the proceeds of the new bank notes described in Note
3 above. Interest incurred on notes payable to stockholders totaled
approximately $4,600 in 1996.
In addition, the Company owed another stockholder approximately $210,000 which
was non-interest bearing.
<PAGE> 13
Mercury Paging & Communications, Inc.
and Its Affiliated Companies
Notes to Financial Statements (continued)
5. STOCKHOLDERS' EQUITY
The capital structure of the Company is as follows:
<TABLE>
<CAPTION>
SHARES PAR SHARES
ENTITY AUTHORIZED VALUE OUTSTANDING
-----------------------------------------------------------------------
<S> <C> <C> <C>
Mercury Paging & Communications, Inc. 3,000,000 $.001 3,000,000
M.P.C. Distributors, Inc. 200 none 100
Custom Page, Inc. 200 none 100
HTB Communications Inc. 200 none 200
</TABLE>
Mercury Paging & Communications, Inc. changed its capital structure in April
1996 by establishing a new class of common stock, increasing the number of
authorized shares and exchanging each share of the no-par common stock
outstanding for 29,850 shares of $.001 par common stock.
6. PENDING EVENT
On September 30, 1996, the stockholders of the Company signed an agreement to
sell all of the outstanding common stock of the Company to a wholly-owned
subsidiary of Preferred Networks, Inc. ("PNI") for a combination of cash and
common stock of PNI. The sale is expected to be consummated on January 31,
1997.
In addition, the Company entered into an agency agreement with PNI whereby PNI
handled the billings to Mercury customers effective September 30, 1996. The
Company incurred $125,000 in agency fees to PNI during the year ended December
31, 1996.
<PAGE> 14
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Mercury Paging and Communications, Inc. and Its Affiliated Companies
Syosset, New York
We have audited the accompanying combined balance sheet of Mercury
Paging and Communications, Inc. and Its Affiliated Companies as of December 31,
1995, and the related combined statements of operations and accumulated deficit
and cash flows for the year then ended. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined 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 audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the financial position of Mercury
Paging and Communications, Inc. and its Affiliated Companies as of December 31,
1995, and the results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
/s/SCHNEIDER EHRLICH & WENGROVER LLP
Woodbury, New York
May 2, 1996
<PAGE> 15
MERCURY PAGING AND COMMUNICATIONS, INC.
AND ITS AFFILIATED COMPANIES
COMBINED BALANCE SHEET
DECEMBER 31, 1995
ASSETS
Current assets
Cash $ 9,776
Accounts receivable 252,537
Inventory 496,142
Prepaid expenses 3,664
---------
Total current assets 762,119
Property and equipment, net 1,136,000
Other assets - Security deposits 15,617
---------
Total assets $1,913,736
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Current liabilities
Note payable - bank $2,000,000
Accounts payable and accrued expenses 714,180
Loans payable - shareholders 653,427
Taxes payable 26,935
Deferred revenue 140,639
---------
Total current liabilities 3,535,181
COMMITMENTS (see notes)
STOCKHOLDERS' DEFICIT
Common stock, no par value, 100 shares authorized,
issued and outstanding 10,000
Accumulated deficit (1,631,445)
---------
Total stockholders' deficit (1,621,445)
---------
Total liabilities and stockholders' deficit $1,913,736
=========
See notes to combined financial statements.
-2-
<PAGE> 16
MERCURY PAGING AND COMMUNICATIONS, INC.
AND ITS AFFILIATED COMPANIES
COMBINED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
REVENUE
Sales $ 1,460,540
Rental 3,716
Service - net 615,722
Maintenance and parts 1,224
Miscellaneous 3,733
----------
Total revenue 2,084,935
COST OF SALES
Inventory - beginning 54,450
Purchases 2,029,376
Purchases - crystals 180,563
Purchases - repair parts 7,194
----------
Total 2,271,583
Less: inventory - ending 496,142
----------
Total cost of sales 1,775,441
----------
GROSS PROFIT 309,494
OPERATING EXPENSES 1,501,864
----------
LOSS FROM OPERATIONS (1,192,370)
OTHER EXPENSES
Depreciation 82,611
Interest and bank charges 120,461
----------
Total other expenses 203,072
----------
NET LOSS (1,395,442)
ACCUMULATED DEFICIT - JANUARY 1, 1995 (236,003)
----------
ACCUMULATED DEFICIT - DECEMBER 31, 1995 $(1,631,445)
==========
</TABLE>
See notes to combined financial statements.
-3-
<PAGE> 17
MERCURY PAGING AND COMMUNICATIONS, INC.
AND ITS AFFILIATED COMPANIES
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
INCREASE (DECREASE) IN CASH
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,395,442)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 82,611
Increase in accounts receivable (209,416)
Increase in inventories (441,692)
Increase in prepaid expenses (3,664)
Increase in security deposits (12,367)
Increase in accounts payable and other accrued expenses 628,418
Increase in deferred revenue 118,454
-----------
Total adjustments 162,344
-----------
Net cash used by operating activities (1,233,098)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,195,572)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable - bank 2,000,000
Increase in loan payable - stockholders 418,977
-----------
Net cash provided by financing activities 2,418,977
-----------
NET DECREASE IN CASH (9,693)
CASH AT BEGINNING OF YEAR 19,469
-----------
CASH AT END OF YEAR $ 9,776
===========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 120,461
===========
</TABLE>
See notes to combined financial statements.
-4-
<PAGE> 18
MERCURY PAGING AND COMMUNICATIONS, INC.
AND ITS AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
Mercury Paging and Communications, Inc. and Its Affiliated Companies
(collectively, "the Company") are engaged in the sale and
servicing of pagers in the Greater New York metropolitan area.
Principles of Combination
The accompanying combined financial statements include the financial
statements of the following companies, after elimination of all
significant intercompany transactions and balances:
Mercury Paging and Communications, Inc.
Custom Page, Inc.
M.P.C. Distributors, Inc.
HTB, Inc.
These entities are related through common ownership and management.
Accounts Receivable
The Company uses the specific write-off method for uncollectible
accounts.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization is provided using the straight-line method for financial
reporting purposes over the useful lives of the assets. For federal
income tax purposes, depreciation is computed under the accelerated
cost recovery system, the modified accelerated cost recovery system
and the straight-line method.
Income Taxes
Mercury Paging and Communications, Inc. and its affiliates have
elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under those provisions the Company is not
allowed a net operating loss or carryback as a deduction. Instead
the stockholders include their respective shares of the Company's net
operating loss in their individual income tax returns.
-5-
<PAGE> 19
MERCURY PAGING AND COMMUNICATIONS, INC.
AND ITS AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Use of Estimates
Management uses estimates and assumptions in preparing these
financial statements in accordance with generally accepted
accounting principles. Those estimates and assumptions affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities and the reported revenues and
expenses. Actual results could vary from the estimates that were
used.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method, and market
represents the lower of replacement cost of estimated net
realizable value.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Furniture and fixtures $ 75,541
Computer equipment 76,531
Transmitter equipment and frequency 951,420
Organization costs 106,803
Leasehold improvements 12,080
----------
$1,222,375
Less: Accumulated depreciation
and amortization 86,375
----------
$1,136,000
==========
</TABLE>
Total depreciation and amortization expense for the year ended
December 31, 1995 amounted to $82,611.
NOTE D - NOTE PAYABLE - BANK
The Company has a $2,500,000 line of credit, of which $500,000 was
available at December 31, 1995. Bank advances on the credit line
are payable December 1, 1996 and interest is being paid monthly at
the rate of Libra plus 1-1/2%. As of December 31, 1995, the
interest rate was 7.4375%. This line is personally guaranteed by
certain stockholders of the Company.
-6-
<PAGE> 20
MERCURY PAGING AND COMMUNICATIONS, INC.
AND ITS AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE E - TRANSACTIONS WITH RELATED PARTIES
The Company leases its premises in Syosset, New York under a
month-to-month lease from HTB, Inc., an entity owned by the
Company's stockholders. By agreement between the parties, total
rental expense and $66,872 for the year ended December 31, 1995.
In the opinion of management, these amounts represent fair market
rentals for the premises.
NOTE F - LOANS PAYABLE - OFFICERS
This amount represents advances by the officers of the Company
which are due on demand. Interest is accrued at the rate of 8%
per annum.
NOTE G - LEASE COMMITMENTS
In April, 1995, the Company signed an operating lease for its
location in Syosset, New York. The lease commenced on May 15,
1995. Monthly rental payments were $34,283 through December 31,
1995.
The Company also leases various sites for their transmitting
antennas throughout the New York metropolitan area. These leases
are operating leases over a period of one to five years. Site
rental expenses for 1995 were $92,907.
The following is a schedule by year of future minimum rents
required under the leases:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ -----
<S> <C>
1996 $196,046
1997 179,291
1998 162,706
1999 161,697
2000 125,091
Thereafter 155,310
--------
Total minimum lease payments $980,141
</TABLE> ========
-7-
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: February 18, 1997 PREFERRED NETWORKS, INC.
By: /s/Kim Smith Hughes
---------------------------
Kim Smith Hughes
Chief Financial Officer
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE NO.
----------------------------------------------------- ----------------
<S> <C> <C>
2.1 Stock Purchase Agreement by and among Preferred
Networks, Inc., Mercury Paging & Communications,
Inc., HTB Communications Inc., Custom Page, Inc.,
and MPC Distributing, Inc. 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
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-3962, Form S-8 No. 333-3824 and Form S-8 No. 333-3826) of
Preferred Networks, Inc. and in the related Prospectuses of our report dated
January 24, 1997 with respect to the combined financial statements of Mercury
Paging & Communications, Inc. and its affiliated companies for the year ended
December 31, 1996 included in this Form 8-K.
/s/ ERNST & YOUNG LLP
February 18, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-3962, Form S-8 No. 333-3824 and Form S-8 No. 333-3826) of
Preferred Networks, Inc. and in the related Prospectuses of our report dated
May 2, 1996 with respect to the combined financial statements of Mercury
Paging & Communications, Inc. and its affiliated companies for the year ended
December 31, 1995 included in this Form 8-K.
/s/ Schneider Ehrlich
& Wengrover LLP (formerly
Schneider Ehrlich Sosinsky Rodis
& Wengrover LLP)
February 18, 1997
