<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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) May 28, 1999
Commission File Number: 0-27658
PREFERRED NETWORKS, INC.
(Exact name of Registrant as Specified in its Charter)
GEORGIA 58-1954892
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
850 Center Way, Norcross, GA 30071
(Address of principal executive offices)
(Zip Code)
(770) 582-3500
(Registrant's telephone number including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last year)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business as Acquired.
Not Applicable
(b) Pro Forma Financial Information.
The unaudited pro forma condensed consolidated
balance sheet of Preferred Networks, Inc. and
Preferred Technical Services, Inc. as of
March 31, 1999 and the unaudited pro forma condensed
consolidated statement of operations of Preferred
Networks, Inc. and Preferred Technical Services, Inc.
for the year ended December 31, 1998 and the
three months ended March 31, 1999, are filed
as part of this Current Report on Form 8-K/A.
(c) Exhibits.
The following exhibits are filed as part of
Preferred Networks, Inc.'s Current Report on Form
8-K filed June 14, 1999:
2.1 Asset Purchase Agreement, dated as of April
19, 1999, by and among Wireless Services
Operating Corporation, Preferred Technical
Services, Inc., and the Company
(incorporated by reference to the Quarterly
Report filed on Form 10-Q, No. 0-27658, for
the quarter ended March 31, 1999).
2.2 Amendment to Asset Purchase Agreement,
dated as of May 20, 1999, by and among
Wireless Services Operating Corporation,
Preferred Technical Services, Inc., and the
Company (filed as part of the Current
Report on Form 8-K, file no. 0-27658 filed
with the Commission on June 14, 1999 and
incorporated by reference herein).
2.3 Agreement Concerning Amendment to Credit
Agreement dated as of May 28, 1999, by and
among the Company, PNI Systems, LLC,
NationsBank, N.A., and the guarantors party
thereto (filed as part of the Current
Report on Form 8-K, file no. 0-27658 filed
with the Commission on June 14, 1999 and
incorporated by reference herein).
2.4 Modification Agreement by and between the
Company and Associates Capital Services
Corporation dated May 28, 1999 (filed as
part of the Current Report on Form 8-K,
file no. 0-27658 filed with the Commission
on June 14, 1999 and incorporated by
reference herein).
<PAGE> 3
Item 7(b). Pro Forma Financial Statements
The following unaudited pro forma condensed consolidated financial statements
of Preferred Networks, Inc. ("PNI") and Preferred Technical Services, Inc.
("PTS") are derived from, and should be read in conjunction with PNI's Form
10-K for the year ended December 31, 1998 and Form 10-Q for the quarter ended
March 31, 1999 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 the financial position which would have actually
been reported had the disposition of PTS by PNI been consummated on the dates
indicated, or which may be reported in the future.
The pro forma PNI balance sheet reflects PTS as a discontinued
operation.
The pro forma statement of operations reflects PTS as a discontinued
operation as if the transaction had been consummated at the beginning of the
period of the statement. (i.e. January 1, 1998 for the year ended statement
and January 1, 1999 for the three months ended statement.)
<PAGE> 4
PREFERRED NETWORKS INC
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
FOR THE PERIOD ENDING MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED
PREFERRED TECHNICAL
NETWORKS, INC. SERVICES, INC.
---------------- ----------------
<S> <C> <C>
Current assets
Cash and cash equivalents ................................................... $ 5,421,691 $ (6,969)
Accounts receivable, net .................................................... 3,259,197 2,230,054
Inventory ................................................................... 2,531,829 127,790
Prepaid expenses and other current assets ................................... 661,112 33,044
Current assets of discontinued operations ................................... 2,383,919 0
------------- -------------
Total current assets ...................................................... 14,257,748 2,383,919
Property and equipment, net .................................................... 19,661,879 0
Property and equipment of discontinued operations, net ........................ 1,107,363 1,107,363
Goodwill, net .................................................................. 11,564,829 0
Goodwill of discontinued operations, net ...................................... 626,245 626,245
FCC licenses, net .............................................................. 8,664,714 0
Other assets, net .............................................................. 679,338 0
Other assets of discontinued operations ........................................ 280 280
============= =============
$ 56,562,396 $ 4,117,807
============= =============
Current liabilities
Accounts payable ............................................................ $ 5,654,643 $ 0
Accrued liabilities ......................................................... 1,181,605 0
Accrued compensation ........................................................ 409,273 0
Current portion of notes payable and capital lease obligations .............. 18,702,495 0
Current liabilities of discontinued operations .............................. 635,822 635,822
------------- -------------
Total current liabilities ................................................. 26,583,838 635,822
Notes payable and capital lease obligations, less current portion of
continuing operations ....................................................... 178,074 0
Notes payable and capital lease obligations, less current portion of
discontinued operations ..................................................... 132,934 132,934
Class A Redeemable Preferred Stock, no par value, $1.50 per share redemption
price; 13,500,000 shares authorized, 10,000,000 shares issued and
outstanding (including $2,683,333 and $2,308,333 of undeclared dividends in
1999 and 1998 respectively) ................................................. 16,360,105 0
Class B Senior Redeemable Preferred Stock, no par value, $1.50 per share
redemption price; 5,500,000 shares authorized, 5,333,336 shares issued and
outstanding (including $1,245,161 and $945,161 of undeclared dividends in
1999 and 1998, respectively)................................................. 8,438,538 0
------------- -------------
Total liabilities and Redeemable Preferred Stock .......................... 51,693,489 132,934
Stockholders' equity
Common Stock, no par value, 100,000,000 shares authorized
in 1999 and 1998; 16,369,302 and 16,334,377 issued and
outstanding in 1999 and 1998, respectively ................................. 60,800,271 0
Investment in Subsidiary .................................................... 0 3,052,273
Accretion of Redeemable Preferred Stock .................................... (984,420) 0
Accumulated surplus (deficit) ............................................... (54,946,944) 296,778
------------- -------------
Total Stockholders' equity .............................................. 4,868,907 3,349,051
------------- -------------
$ 56,562,396 $ 4,117,807
============= =============
</TABLE>
See accompanying pro forma adjustments.
<PAGE> 5
PREFERRED NETWORKS INC
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
QUARTER ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED PREFERRED
NETWORKS, TECHNICAL
INC. SERVICES, INC.
-------------- ----------------
<S> <C> <C>
Revenues
Network services ............................................................. $ 3,306,154 $ 0
Product sales ................................................................ 3,845,690 0
Other services ............................................................... 2,494,267 1,550,765
-------------- --------------
Total revenues ...................................................... 9,646,111 1,550,765
Costs of revenues
Network services ............................................................. 2,125,048 0
Product sales ................................................................ 3,205,649 0
Other services ............................................................... 2,207,907 1,132,209
-------------- --------------
Total cost of revenues .............................................. 7,538,604 1,132,209
-------------- --------------
Gross margin ...................................................................... 2,107,507 418,556
Selling, general and administrative expenses ...................................... 3,360,735 255,653
Depreciation and amortization ..................................................... 1,396,095 98,488
-------------- --------------
Operating loss ...................................................... (2,649,323) 64,415
Interest expense .................................................................. (488,889) 3,777
Interest income ................................................................... 37,161 0
-------------- --------------
Net loss from continuing operations
before cumulative effect of change in accounting principle ...... (3,101,051) 60,638
Net income from discontinued operations, net of income taxes ........ 60,638 0
Cumulative effect of change in accounting principle ................. (1,832,398) 0
-------------- --------------
Net loss ............................................................ (4,872,811) 60,638
-------------- --------------
Accretion of Redeemable Preferred Stock ........................................... (155,642) 0
Redeemable Preferred Stock dividend requirements .................................. (675,000) 0
-------------- --------------
Net loss attributable to Common Stock ................................ $ (5,703,453) $ 60,638
============== ==============
Net earnings per Common Share:
Continuing operations before cumulative effect of change in
accounting principle ....................................................... $ (.24) $ .00
Discontinued operations ....................................................... .00 .00
Cumulative effect of change in accounting principle ........................... (.11) .00
-------------- --------------
Net loss per share of Common Stock ................................................ $ (.35) $ .00
============== ==============
Weighted average number of common shares
used in calculating net loss per share of Common Stock ......................... 16,265,377 16,265,377
============== ==============
Pro forma net loss assuming the change in
accounting principle is applied retroactively .................................. $ (3,040,413) $ 0
============== ==============
Pro forma net loss attributable to Common Stock assuming the change in
accounting principle is applied retroactively .................................. $ (3,871,055) $ 0
============== ==============
Pro forma net loss per share ...................................................... $ (.24) $ .00
============== ==============
</TABLE>
See accompanying pro forma adjustments.
<PAGE> 6
PREFERRED NETWORKS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED PREFERRED
NETWORKS, TECHNICAL
INC. SERVICES, INC.
-------------- ---------------
<S> <C> <C>
Revenues
Network services .................................................... $ 13,204,172 $ 0
Product sales ....................................................... 15,255,483 0
Other services ...................................................... 6,839,196 3,827,491
-------------- --------------
Total revenues ............................................. 35,298,851 3,827,491
Costs of revenues
Network services .................................................... 8,537,012 0
Product sales ....................................................... 13,248,038 0
Other services ...................................................... 6,489,369 2,902,924
-------------- --------------
Total costs of revenues .................................... 28,274,419 2,902,924
-------------- --------------
Gross margin ................................................................. 7,024,432 924,567
Selling, general and administrative expenses ................................. 13,709,629 602,339
Other expenses ............................................................... 169,637 0
Depreciation and amortization ................................................ 6,743,031 219,488
-------------- --------------
Operating loss ............................................. (13,597,865) 102,740
Interest expense ............................................................. (2,043,182) 4,512
Interest income .............................................................. 351,384 0
-------------- --------------
Net income (loss) from continuing operations ............... (15,289,663) 98,228
Net income from discontinued operations, net of income taxes 98,228 0
-------------- --------------
Net income (loss) (15,191,435) 98,228
Accretion of Redeemable Preferred Stock ...................................... (583,062) 0
Redeemable Preferred Stock dividend requirements ............................. (2,445,161) 0
-------------- --------------
Net income (loss) attributable to Common Stock ...................... $ (18,219,658) $ 98,228
============== ==============
Net Earnings per Common Share:
Continuing operations $ (1.13) $ .01
Discontinued operations $ .01 $ 0
-------------- --------------
Net income (loss) per share of Common Stock $ (1.12) $ .01
============== ==============
Weighted average number of common shares used in calculating net loss per
share of Common Stock ..................................................... 16,257,586 16,257,586
============== ==============
</TABLE>
See accompanying pro forma adjustments.
<PAGE> 7
BALANCE SHEET:
See PNI's Form 10-Q for the quarter ended June 30, 1999, and filed on August
16, 1999, for the gain reported from the sale of PTS.
STATEMENT OF OPERATIONS:
No income tax expense was included in the pro forma statement of operations on
a combined basis, PNI is in a net loss position.
See PNI's Form 10-Q for the quarter ending March 31, 1999 for details of the
loss per share calculation.
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.
PREFERRED NETWORKS, INC.
Date: August 13, 1999
By: /s/ Kathryn Loev Putnam
---------------------------------
Kathryn Loev Putnam
Senior Vice President &
Chief Financial Officer
<PAGE> 8
INDEX TO EXHIBITS
Exhibit
2.1 Asset Purchase Agreement, dated as of April 19, 1999, by and among
Wireless Services Operating Corporation, Preferred Technical Services,
Inc., and the Company (incorporated by reference to the Quarterly
Report filed on Form 10-Q, No. 0-27658, for the quarter ended March
31, 1999).
2.2 Amendment to Asset Purchase Agreement, dated as of May 20, 1999, by
and among Wireless Services Operating Corporation, Preferred Technical
Services, Inc., and the Company (filed as part of the Current Report
on Form 8-K, file no. 0-27658 filed with the Commission on June 14,
1999 and incorporated by reference herein).
2.3 Agreement Concerning Amendment to Credit Agreement dated as of May 28,
1999, by and among the Company, PNI Systems, LLC, NationsBank, N.A.,
and the guarantors party thereto (filed as part of the Current Report
on Form 8-K, file no. 0-27658 filed with the Commission on June 14,
1999 and incorporated by reference herein).
.
2.4 Modification Agreement by and between the Company and Associates
Capital Services Corporation dated May 28, 1999 (filed as part of the
Current Report on Form 8-K, file no. 0-27658 filed with the Commission
on June 14, 1999 and incorporated by reference herein).
Memo-648
