SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) FEBRUARY 13, 1997
PREFERRED/TELECOM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 33-92894 75-2440201
(STATE OF OTHER JURIS- (COMMISSION (IRS EMPLOYER
DICTION OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
12655 N. CENTRAL EXPWY, SUITE 800, DALLAS, TEXAS 75243
- ------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (972)458-9950
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
CORPDAL:62213.2 26287-00001
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 4, 1997, Preferred/Telecom Inc. (the "Company") entered
into an Asset Purchase Agreement (the "Agreement") with Brite Voice Systems,
Inc. ("Brite") pursuant to which the Company agreed to sell to Brite all right,
title and interest in certain assets (the "Assets"). These Assets include the
Company's end-user customer base as of February 1, 1997, to include all
documents, notebooks, files and records on each customer relating to customer
billing, collection and customer service operations; all documents, files and
records relating to tariffs, both state and federal; all documents, files and
records relating to individual authority to do business in various states
throughout the United States; the currently being developed software system for
billing and customer service; all rights in the Company's Carrier Identification
Code (CIC); all Section 214 authority granted by the Federal Communications
Commission; and certain portions of the Barter Agreement. The purchase does not
include Accounts Receivable for any traffic prior to February 1, 1997. The
Company will provide Brite with Billing, Collection and Customer Service
assistance for six (6) months on a contract basis only to enable a smooth
transition. The total purchase price is $743,000, which will be distributed as
follows: $250,000 to MCI Telecommunications Corporation ("MCI") in full and
final settlement of the Company's liability to MCI; $143,000 in partial payment
of the Company's November note to Brite; $9,000 for Brite's services from
November, 1996 through January, 1997; and $341,000 to the Company. A new note to
Brite was executed for the balance of $84,831.31, payable in equal monthly
installments beginning March 1, 1997. The sale of the Assets to Brite pursuant
to the Agreement was consummated on February 13, 1997.
The sale of the Assets described above followed a reevaluation by the
Company of its marketing efforts and product strategies as expenses continued to
exceed revenues. The Company concluded that its services were applicable not
only to the end-user long distance markets but also in the newly-competitive
local calling arena and the realm of wireless communications. As a result, the
Company negotiated the divestiture of its long distance customer base. The
strategic focus of the Company will now shift to providing its products to
domestic and international interexchange carriers and other telecommunications
service providers who wish to offer speech recognition-enhanced services as a
value added product to their customers and to corporations who wish to make the
security and convenience of speech recognition available to its employees.
ITEM 5. OTHER MATERIAL INFORMATION
REVERSE STOCK SPLIT. On February 24, 1997, the Board of Directors of the Company
approved a one-for-two reverse stock split of the common stock (the "Common
Stock"), par value $.001 per share, of the Company. Any fractional shares
resulting from the reverse stock split shall be rounded up to the nearest whole
share of Common Stock. On February 25, 1997, the reverse stock split was
approved by stockholders holding more than 50% of the issued and outstanding
shares of Common Stock. It is expected that the reverse stock split will become
effective on March 7, 1997 upon the filing with the Secretary of the State of
Delaware of the Amendment to the Certificate of Incorporation (the "Amendment")
of the Company effectuating the reverse stock split.
CORPDAL:62213.2 26287-00001
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CHANGE OF NAME. On February 24, 1997, the Board of Directors also approved
changing the name of the Company to Preferred Voice, Inc. to better reflect the
nature of the business of the Company in light of the recent sale of assets. On
February 25, 1997, the name change was approved by stockholders holding more
than 50% of the issued and outstanding shares of Common Stock and will become
effective at the same time as the reverse stock split, upon the filing with the
Secretary of the State of Delaware of the Amendment.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a) Financial Statements of Business Acquired.
Not applicable.
b) Pro Forma Financial Information.
See Index to Pro Forma Financial Statements on page 4 hereof.
c) Exhibits. The following exhibit is furnished in accordance
with Item 601 of Regulation S-K.
2.1 Asset Purchase Agreement between Brite Voice
Systems, Inc. and Preferred/Telecom, Inc.
dated February 4, 1997. (Incorporated by
reference to Exhibit 2.1 to the Company's
Quarterly Report on Form 10-QSB for the
quarter ended December 31, 1996, which was
filed on February 14, 1997.)
CORPDAL:62213.2 26287-00001
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PREFERRED/TELECOM, INC.
INDEX TO PRO FORMA FINANCIAL STATEMENTS
Item 7. Financial Statements and Exhibits
Balance Sheets - December 31, 1996 as reported on Form
10-QSB, Pro Forma Adjustments, and Pro Forma Balance
Sheet at December 31, 1996. F-1
Statement of Operations - December 31, 1996 as
reported on Form 10-QSB, Pro Forma Adjustments, and
Pro Forma Statement of Operations at December 31, 1996. F-2
Notes to Pro Forma Financial Statements F-3
4
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SIGNATURE
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 thereunto duly authorized.
PREFERRED/TELECOM, INC.
Date: February 28, 1997 By:/s/Mary G. Merritt
---------------------
Mary G. Merritt, Secretary/Treasurer
(Principal Financial Officer)
CORPDAL:62213.2 26287-00001
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PREFERRED/TELECOM, INC.
<TABLE>
<CAPTION>
PRO FORMA
BALANCE SHEETS
SALE OF LONG DISTANCE ASSETS EFFECTIVE JANUARY 31, 1997
STATEMENTS PRESENTED AT DECEMBER 31, 1996 IN FORM 10-QSB
PRO FORMA
DECEMBER 31, PRO FORMA DECEMBER 31,
1996 ADJUSTMENTS 1996
ASSETS (UNAUDITED) (UNAUDITED) (UNAUDITED)
CURRENT ASSETS:
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS $ 39,218 $ 341,000 $ 380,218
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE 136,647 - 136,647
FOR DOUBTFUL ACCOUNTS OF $ 57,903, $-0-
AND $2,474 RESPECTIVELY
EMPLOYEE RECEIVABLES 1,529 - 1,529
PREPAID EXPENSES 206,657 (34,641) 172,016
----------------------- --------------------- ------------------------
TOTAL CURRENT ASSETS $ 384,050 $ 306,359 $ 690,409
----------------------- --------------------- ------------------------
PROPERTY AND EQUIPMENT:
COMPUTER EQUIPMENT $ 103,663 $ 103,663
FURNITURE AND FIXTURES 25,143 25,143
OFFICE EQUIPMENT 6,082 6,082
LEASEHOLD IMPROVEMENTS 6,248 6,248
CALL VALIDATION SYSTEM 122,087 (122,087) -
LESS: ACCUMULATED DEPRECIATION (63,801) 24,986 (38,815)
----------------------- --------------------- ------------------------
NET PROPERTY AND EQUIPMENT $ 199,422 $ (97,101) $ 102,321
----------------------- --------------------- ------------------------
OTHER ASSETS:
DEPOSITS $ 103,624 $ - $ 103,624
PREPAID EXPENSES 640,000 - 640,000
DEFERRED CONTRACT COSTS 100,203 - 100,203
DEFERRED DEBT ISSUE COSTS-NET 4,387 - 4,387
PATENTS AND TRADEMARKS-NET 19,443 - 19,443
CERTIFICATE OF DEPOSIT 52,039 - 52,039
STATE CERTIFICATIONS 22,891 (22,891) 0
DEFERRED STOCK ISSUE COSTS 68,241 - 68,241
----------------------- --------------------- -----------------------
TOTAL OTHER ASSETS $ 1,010,828 $ (22,891) $ 987,937
----------------------- --------------------- ------------------------
TOTAL ASSETS $ 1,594,299 $ 186,367 $ 1,780,666
======================= ===================== ========================
</TABLE>
F-1
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, PRO FORMA DECEMBER 31,
1996 ADJUSTMENTS 1996
LIABILITIES AND STOCKHOLDER'S DEFICIT (UNAUDITED) (UNAUDITED) (UNAUDITED)
CURENT LIABILITIES:
<S> <C> <C> <C>
ACCOUNTS PAYABLE $ 899,563 $ (365,835) $ 533,728
ACCRUED OPERATING & VACATION EXPENSES 43,419 (9,000) 34,419
ACCRUED PAYROLL AND RELATED TAX 475,421 - 475,421
ACCRUED INTEREST PAYABLE 123,589 - 123,589
NOTES PAYABLE 1,413,100 (143,000) 1,270,100
NOTES PAYABLE-OFFICERS 57,500 - 57,500
----------------------- --------------------- ------------------------
TOTAL CURRENT LIABILITIES $ 3,012,593 $ (517,835) $ 2,494,758
----------------------- --------------------- ------------------------
LONG TERM DEBT $ 875,000 $ - $ 875,000
----------------------- --------------------- ------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS DEFICIT:
COMMON STOCK, $0.001 PAR VALUE
20,000,000 SHARES AUTHORIZED;
SHARES ISSUED 10,860,142, 8,949,942
AND 8,949,942 RESPECTIVELY $ 10,860 $ - 10,860
ADDITIONAL PAID IN CAPITAL 2,898,955 - 2,898,955
ACCUMULATED DEFICIT (5,201,241) 704,202 (4,497,039)
TREASURY STOCK - AT COST (1,868) - (1,868)
STOCK SUBSCRIPTIONS RECEIVABLE -0- -0- -O-
----------------------- --------------------- ------------------------
TOTAL STOCKHOLDER DEFICIT $ (2,293,294) $ 704,202 $ (1,589,092)
----------------------- --------------------- ------------------------
TOTAL LIABILITIES AND STOCKHOLDER DEFICIT $ 1,594,299 $ 186,367 $ 1,780,666
======================= ===================== ========================
</TABLE>
F-1
The accompanying notes are an integral part of these statements.
<PAGE>
PREFERRED/TELECOM, INC.
<TABLE>
<CAPTION>
PRO FORMA
STATEMENT OF OPERATIONS
SALE OF LONG DISTANCE ASSETS EFFECTIVE JANUARY 31, 1997
STATEMENTS PRESENTED AT DECEMBER 31, 1996 IN FORM 10-QSB
NINE MONTHS ENDED PRO FORMA
---------------------------------------------
DECEMBER 31, PRO FORMA DECEMBER 31,
1996 ADJUSTMENTS 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED)
--------------------- ---------------------- --------------------------
<S> <C> <C>
SALES $ 696,190 $ 696,190
COST OF SALES 821,933 - 821,933
--------------------- ---------------------- --------------------------
GROSS PROFIT (LOSS) $ (125,743) $ - $ (125,743)
--------------------- ---------------------- --------------------------
COSTS AND EXPENSES:
SALES & MARKETING $ 879,877 $ 879,877
GENERAL & ADMINISTRATIVE 905,168 905,168
INTEREST EXPENSE 134,025 134,025
--------------------- ---------------------- --------------------------
TOTAL COSTS AND EXPENSES $ 1,919,070 $ - $ 1,919,070
--------------------- ---------------------- --------------------------
LOSS BEFORE INCOME TAX $ (2,044,813) $ (2,044,813)
NEGOTIATED SETTLEMENT 115,835 115,835
GAIN ON SALE OF ASSETS - 588,367 588,367
PROVISION FOR INCOME TAX - -
--------------------- ---------------------- --------------------------
NET LOSS $ (2,044,813) $ 704,202 $ (1,340,611)
===================== ====================== ==========================
NET LOSS PER SHARE $ (0.20) $ (0.13)
===================== ====================== ==========================
</TABLE>
F-2
The accompanying notes are an integral part of these statements.
<PAGE>
PREFERRED/TELECOM, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
NOTE A - DISPOSITION OF ASSETS
On February 4, 1997 an Asset Purchase Agreement was entered into with
Brite Voice Systems, Inc. ("Brite") pursuant to which the Company agreed to sell
to Brite all right, title and interest in certain assets (the "Assets"). These
Assets include the Company's end-user customer base as of February 1, 1997,
including all documentation on such customers; all documentation on tariffs,
both state and federal; all documentation relating to individual authority to do
business in various states throughout the United States; the Call Validation
System; the Company's Carrier Identification Code; all Section 214 authority
granted by the FCC; and the Print Barter Agreement. The purchase did not include
the Company's accounts receivable for traffic prior to February 1, 1997.
NOTE B - SUMMARY OF EFFECT OF DISPOSITION OF ASSETS
Cash and Cash Equivalents
Total cash received on sale was $341,000.
Prepaid Expensed
The Company was party to a printing barter agreement which called for
the exchange of $100,000 of long distance service for $100,000 of printing
services. As long distance services were being provided by the Company, a
prepaid expense was booked. The total amount of the prepaid expense associated
with this agreement at December 31, 1996 was $34,641. The full barter agreement
was transferred as part of the sale.
Property and Equipment
The Company's Call Validation and Billing System was developed to
enhance Customer Service and facilitate monthly billing and collection. The
divestiture of the customer base eliminated the need for such a system and it
was sold in the transaction.
Other Assets - State Certifications
The sale of the long distance segment eliminates the need for the
Company to maintain its nationwide Public Utility Commission filings and rights
to do business.
F-3
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Accounts Payable
The Company negotiated a $250,000 full and final settlement of all
amounts due through January 31, 1997 with its underlying carrier, MCI. At
December 31, 1996 $365,835 was the amount outstanding for transmission services.
Accrued Operating & Vacation Expenses
Monthly maintenance fees due Brite for November 1996 through January
1997 were $9,000 or $3,000 per month. These fees were deducted from the proceeds
of the sale.
Notes Payable
As of December 31, 1996, the Company had a note outstanding of $222,154
with Brite. $143,000 of the sale proceeds were applied against this note and a
new note with interest dated January 31, 1997 was executed for $84,831 payable
in eleven equal installments beginning March 1, 1997.
Accumulated Deficit
Gain on sale of assets realized was $588,367. The settlement with MCI
created a gain to the Company of $115,835 through December 31, 1996 for total
reduction of accumulated deficit of $704,202.
F-4
