<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                    FORM 10-Q

(Mark One)
[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended: March 31, 2001

                                       OR

[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

         For the transition period from________________to_____________________

                         Commission File Number: 0-27658

                             PNI TECHNOLOGIES, INC.
                       (formerly 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)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.

                                   Yes [ X ] No [  ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 16,520,417 shares of common
stock, no par value, as of May 15, 2001.


<PAGE>   2

                             PNI TECHNOLOGIES, INC.

                               INDEX TO FORM 10-Q



<TABLE>
<CAPTION>
 PART I.                 FINANCIAL INFORMATION                                                   PAGE
                                                                                                 NUMBER
                                                                                               -----------
<S>           <C>                                                                              <C>
              Item 1.    Financial Statements


                         Condensed Consolidated Balance Sheets for March 31, 2001
                         (Unaudited) and December 31, 2000........................................    3


                         Condensed Consolidated Statements of Operations for the
                         three months ended March 31, 2001 and 2000 (Unaudited)...................    4


                         Condensed Consolidated Statements of Cash Flows for the three
                         months ended March 31, 2001 and 2000 (Unaudited).........................    5


                         Notes to Condensed Consolidated Financial Statements (Unaudited).........    6

              Item 2.    Management's Discussion and Analysis of Financial Condition
                         and Results of Operations................................................    7


              Item 3.    Quantitative and Qualitative Disclosure of Market Risk...................   12



PART II.                 OTHER INFORMATION

              Item 3.    Defaults Upon Senior Securities..........................................   12

              Item 6.    Exhibits and Reports on Form 8-K.........................................   12


                         Signatures...............................................................   13
</TABLE>




<PAGE>   3
                             PNI TECHNOLOGIES, INC.


                      CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

                                                                                               MARCH 31,             DECEMBER 31,
                                                                                                  2001                   2000
                                                                                              ------------           ------------
                                                                                              (UNAUDITED)
                                             ASSETS
<S>                                                                                           <C>                    <C>
Current assets
   Cash and cash equivalents .......................................................          $    939,258           $  1,912,625
   Accounts receivable, net ........................................................             1,564,697              1,562,409
   Inventory .......................................................................             1,259,961              1,285,051
   Prepaid expenses and other current assets .......................................               195,631                140,468
                                                                                              ------------           ------------
     Total current assets ..........................................................             3,959,547              4,900,553

Property and equipment, net ........................................................            10,425,418             11,422,545
Goodwill net .......................................................................             6,147,767              6,314,652
FCC licenses, net ..................................................................             7,314,297              7,454,935
Other assets, net ..................................................................               173,101                180,306
                                                                                              ------------           ------------
                                                                                                28,020,130             30,272,991
                                                                                              ============           ============

                                  LIABILITIES, REDEEMABLE PREFERRED STOCK,
                                         AND STOCKHOLDERS' EQUITY
Current liabilities
   Accounts payable ................................................................             2,369,706              1,912,829
   Accrued liabilities .............................................................             1,322,928              1,237,585
   Accrued compensation ............................................................                60,263                143,286
   Current portion of notes payable and capital lease obligations ..................             5,217,653              5,283,151
                                                                                              ------------           ------------
     Total current liabilities .....................................................             8,970,550              8,576,851

Notes payable and capital lease obligations, less current portion ..................               141,355                152,951
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 $5,677,185 and
   $5,308,333 of undeclared dividends in 2001 and 2000, respectively) ..............            20,200,331             19,725,682


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 $4,230,155 and
   $3,829,079 of undeclared dividends in 2001 and 2000, respectively) ..............            11,822,292             11,371,349
                                                                                              ------------           ------------
     Total liabilities and Redeemable Preferred Stock ..............................            32,163,978             39,826,833

Stockholders' equity
   Common Stock, no par value, 100,000,000 shares authorized in 2001 and 2000;
     16,520,417 issued and outstanding in 2001
     and 2000, respectively ........................................................            55,139,978             55,905,980
   Accretion of Redeemable Preferred Stock .........................................            (2,229,553)            (2,073,912)
   Accumulated deficit .............................................................           (66,024,823)           (63,385,910)
                                                                                              ------------           ------------
     Total Stockholders' equity ....................................................           (13,114,398)            (9,553,842)
                                                                                              ------------           ------------
                                                                                              $ 28,020,130           $ 30,272,991
                                                                                              ============           ============

</TABLE>

            See notes to condensed consolidated financial statements.


                                       3
<PAGE>   4


                             PNI TECHNOLOGIES, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                                      THREE MONTHS ENDED
                                                                                                           MARCH 31,
                                                                                             -----------------------------------
                                                                                                 2001                   2000
                                                                                             ------------           ------------
<S>                                                                                           <C>                   <C>
Revenues
     Network services ..............................................................          $  2,148,678           $  2,936,601
     Pager sales ...................................................................               481,074                818,835
     Networking products ...........................................................                35,472                 69,491
     Other services ................................................................                42,556                 37,756
                                                                                              ------------           ------------
              Total revenues .......................................................             2,707,780              3,862,683

Costs of revenues
     Network services ..............................................................             1,785,801              1,979,020
     Pager sales ...................................................................               471,658                719,622
     Networking products ...........................................................               171,795                 97,458
     Other services ................................................................                 2,342                  1,119
                                                                                              ------------           ------------
              Total costs of revenues ..............................................             2,431,596              2,797,219
                                                                                              ------------           ------------
Gross margin .......................................................................               276,184              1,065,464

Selling, general and administrative expenses .......................................             1,452,807              1,601,948
Depreciation and amortization ......................................................             1,311,861              1,299,903
                                                                                              ------------           ------------
              Operating loss .......................................................            (2,488,484)            (1,836,387)
Interest expense ...................................................................              (153,624)              (163,172)
Interest income ....................................................................                 3,195                 26,017
                                                                                              ------------           ------------
              Net loss .............................................................            (2,638,913)            (1,973,542)

Accretion of Redeemable Preferred Stock ............................................              (155,641)              (155,631)
Redeemable Preferred Stock dividend requirements ...................................              (769,950)              (724,728)
                                                                                              ------------           ------------
              Net loss attributable to Common Stock ................................          $ (3,564,504)          $ (2,853,901)
                                                                                              ============           ============
Net loss per share of Common Stock .................................................          $      (0.22)          $      (0.17)

Weighted average number of common shares used in calculating net loss per
     share of Common Stock .........................................................            16,520,417             16,401,418
</TABLE>

            See notes to condensed consolidated financial statements.


                                       4
<PAGE>   5

                             PNI TECHNOLOGIES, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                                                   THREE MONTHS ENDED
                                                                                                          MARCH 31,
                                                                                              -----------------------------------
                                                                                                 2001                    2000
                                                                                              ------------           ------------
<S>                                                                                           <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net loss ..........................................................................          $ (2,638,913)          $ (1,973,542)
 Adjustments to reconcile net loss to net cash used in
    operating activities:
    Depreciation and amortization ..................................................             1,311,861              1,299,903
    Maintenance services from sale of PTS ..........................................                    --                249,999
    Bad debt expense ...............................................................               104,511                109,355
    Stock option and restricted stock grant compensation expense ...................                 3,949                 16,582
    Changes in operating assets and liabilities:
         Accounts receivable .......................................................              (106,799)              (261,623)
         Inventory .................................................................                25,090                (80,906)
         Prepaid expenses and other assets .........................................               (55,163)               (28,524)
         Accounts payable ..........................................................               456,877               (203,195)
         Accrued liabilities .......................................................                85,337                (20,804)
         Accrued compensation ......................................................               (83,023)               (44,850)
                                                                                              ------------           ------------
    Net cash used in operating activities ..........................................              (896,273)              (937,605)

 CASH FLOWS FROM INVESTING ACTIVITIES ..............................................                    --
 Purchases of equipment ............................................................                    --                (98,793)
 Purchases of other assets and FCC licenses ........................................                    --                     --
                                                                                              ------------           ------------
    Net cash used by investing activities ..........................................                    --                (98,793)

 CASH FLOWS FROM FINANCING ACTIVITIES
 Proceeds from borrowings ..........................................................                    --                450,000
 Repayments of borrowings ..........................................................               (77,094)              (228,598)
 Issuance of Common Stock upon exercise of stock options ...........................                    --                290,746
                                                                                              ------------           ------------
    Net cash provided (used) by financing activities ...............................               (77,094)               512,148

 Net increase (decrease) in cash and cash equivalents ..............................              (973,367)              (524,250)
 Cash and cash equivalents, beginning of period ....................................             1,912,625              5,489,898
                                                                                              ------------           ------------
 Cash and cash equivalents, end of period ..........................................          $    939,258           $  4,965,648
                                                                                              ============           ============

</TABLE>


            See notes to condensed consolidated financial statements.

                                       5
<PAGE>   6
                             PNI TECHNOLOGIES, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                   (UNAUDITED)


1.       THE COMPANY

         PNI Technologies, Inc., formerly known as Preferred Networks, Inc.
         ("PNI" or the "Company"), commenced operations in 1991 as a carrier's
         carrier of one-way paging networks, whereby the Company's customers
         purchase and resell the Company's network services to their
         subscribers. During 1999, the Company completed development of its
         intelligent, high-speed switching technology. The Company shipped its
         first beta units in 1999 and in early 2000, began shipments to
         customers of its first networking products. With the introduction of
         its networking products, the Company is evolving into a developer and
         supplier of advanced communications hardware and software products.
         However, the Company is at an early stage of development of its
         networking products business and substantially all of its revenues and
         costs continue to be derived from its network services business. The
         Company changed its name effective August 2000.

2.       BASIS FOR PRESENTATION
         The interim condensed consolidated financial information contained
         herein has been prepared by the Company, without audit, pursuant to the
         rules and regulations of the Securities and Exchange Commission ("SEC")
         and includes in the opinion of management, all adjustments, which are
         of a normal recurring nature necessary for a fair presentation of the
         financial position, results of operations and cash flows for the
         periods presented. Certain information and footnote disclosures
         normally included in financial statements prepared in accordance with
         generally accepted accounting principles ("GAAP") have been condensed
         or omitted pursuant to such rules and regulations. The Company
         believes, however, that its disclosures are adequate to make the
         information presented not misleading. These financial statements and
         related notes should be read in conjunction with the financial
         statements and notes as of December 31, 2000, included in the Company's
         Annual Report on Form 10-K (File No. 0-27658). Results of operations
         for the periods presented herein are not necessarily indicative of
         results to be expected for the full year or any other interim period.

3.       SUPPLEMENTAL CASH FLOW INFORMATION
         Cash and cash equivalents include investments in money market
         instruments, which are carried at fair market value. There were no
         significant federal or state income taxes paid or refunded for the
         three months ended March 31, 2001 and 2000.

6.       SEGMENT INFORMATION
         The Company operates its business as one reportable segment.


                                       6
<PAGE>   7
                             PNI TECHNOLOGIES, INC.


ITEM  2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS.

OVERVIEW

In this section, the Company makes reference to "EBITDA" which represents
earnings before interest expense, interest income, taxes, depreciation and
amortization. EBITDA is a financial measure commonly used in the
telecommunications industry and should not be construed as an alternative to
operating income (as determined in accordance with generally accepted accounting
principles ("GAAP")), as an alternative to cash flows from operating activities
(as determined in accordance with GAAP), or as a measure of liquidity. The table
below provides the components of the Company's consolidated statements of
operations and EBITDA for each of the three months ended March 31, 2001 and
2000, respectively, as a percentage of total revenues.

<TABLE>
<CAPTION>

                                                                                                      THREE MONTHS ENDED
                                                                                                            MARCH 31,
                                                                                              -----------------------------------
                                                                                                  2001                   2000
                                                                                              ------------           ------------
<S>                                                                                           <C>                    <C>
Revenues
   Network services ................................................................                  79.4%                76.0 %
   Pager sales .....................................................................                  17.8                   21.2
   Networking products .............................................................                   1.3                    1.8
   Other services ..................................................................                   1.5                    1.0
                                                                                              ------------           ------------
     Total revenues ................................................................                 100.0                  100.0
Cost of revenues
   Network services ................................................................                  66.0                   51.2
   Pager sales .....................................................................                  17.4                   18.6
   Networking products .............................................................                   6.3                    2.5
   Other services ..................................................................                   0.1                    0.0
                                                                                              ------------           ------------
     Total cost of revenues ........................................................                  89.8                   72.3
                                                                                              ------------           ------------
Gross margin .......................................................................                  10.2                   27.7
Selling, general and administrative expenses .......................................                  53.7                   41.5
Depreciation and amortization ......................................................                  48.4                   33.7
                                                                                              ------------           ------------
     Operating loss ................................................................                 (91.9)                 (47.5)
Interest expense ...................................................................                  (5.7)                  (4.2)
Interest income ....................................................................                   0.1                    0.6
Net loss ...........................................................................                 (97.5)%                (51.1)%
EBITDA .............................................................................                 (43.5)%                (13.8)%
                                                                                              ============           ============

</TABLE>


RESULTS OF OPERATIONS

Revenues

         Total revenues were $2.7 million for the three months ended March 31,
2001 compared to $3.9 million for the three months ended March 31, 2000. The
decrease in total revenues compared to the prior year period was due to lower
revenues from network services.

         Revenues from network services were $2.1 million for the three months
ended March 31, 2001 compared to $2.9 million for the three months ended March
31, 2000. PNI's airtime revenues have been affected by industry trends of
increased competition for reseller service units, declining service unit net
additions and declining average revenue per unit ("ARPU"). The Company's airtime
revenues were also affected by its limited working capital available for pager
purchases, because its customers typically rely on the Company for pager supply
in order to add service units to the Company's networks. Due to these factors,
PNI experienced a decline in total units in service to 381,537 at March 31,
2001, compared to 495,476 at March 31, 2000. In addition, total average revenue
per unit ("ARPU") declined to $1.83 for the three months ended March 31, 2001,
compared to $1.94 in the prior year period. PNI has undertaken certain marketing
initiatives to address these competitive pressures; however, no assurances can
be given that these marketing initiatives will lead to increased airtime
revenues in the future, and the trend toward decreasing network services
revenues may continue.


                                       7
<PAGE>   8
                             PNI TECHNOLOGIES, INC.


         Revenues from pager sales were $481,000 for the three months ended
March 31, 2001 compared to $819,000 for the three months ended March 31, 2000.
PNI's pager sales were affected by its limited working capital available for
pager purchases, as discussed above.

         PNI is in the early stages of development of its networking products
business. PNI began commercial shipments of its first networking product, the
iTerminal(TM) desktop messaging terminal, in early 2000, and has subsequently
introduced additional products, including its Platform1(R) intelligent,
high-speed, modular switch. PNI generated $35,000 of revenues from sales of
networking products for the three months ended March 31, 2001 compared to
$69,000 for the three months ended March 31, 2000. PNI's limited development
personnel have inhibited its ability to complete multiple customer orders. Due
to the early stages of commercial sales of PNI's networking products and PNI's
limited working capital, there can be no assurance that the Company will not
experience further delays or that PNI's networking products will achieve
significant sales volumes.

Cost of Revenues

         Cost of network services were $1.8 million for the three months ended
March 31, 2001 compared to $2.0 million for the three months ended March 31,
2000. The decrease in cost of network services is due to continued initiatives
to reduce operating costs.

         Cost of pager sales were $472,000 for the three months ended March 31,
2001 compared to $720,000 for the three months ended March 31, 2000, due
primarily to the Company's limited pager supply and related decrease in pager
revenue.

         Cost of networking products were $172,000 for the three months ended
March 31, 2001 compared to $97,000 for the three months ended March 31, 2000.
The majority of the cost of networking products in both periods resulted from an
allocation of S,G&A expenses that are associated with the delivery of commercial
products. Due to the early stages of commercial sales of PNI's networking
products and its attempts to build its networking products business, this
expense allocation exceeded the networking products revenues for both periods.

Overhead

         S,G&A expense was $1.5 million for the three months ended March 31,
2001 compared to $1.6 million for the three months ended March 31, 2000.
Depreciation and amortization expense was $1.3 million for the three months
ended March 31, 2001 and 2000, respectively. Interest expense was $154,000 for
the three months ended March 31, 2001 compared to $163,000 for the three months
ended March 31, 2000.

         Net loss was $2.6 million for the three months ended March 31, 2001
compared to $2.0 million for the three months ended March 31, 2000. The net loss
attributable to Common Stock for the three months ended March 31, 2001 was $3.6
million compared to $2.9 million for the three months ended March 31, 2000. The
increase in net loss is due to decreases in gross profit due to lower revenues.


Liquidity and Capital Resources

Summary of 2000 and 2001 Events

         At March 31, 2000, PNI had $939,000 in cash, $1.6 million in net
accounts receivable, $2.4 million in accounts payable and $1.3 million in
accrued liabilities. An aggregate of $5.4 million in principal plus accrued
interest was outstanding under PNI's credit facilities with its lenders as of
March 31, 2001. PNI's net cash used in continuing operations for the three month
period ended March 31, 2001 was $896,000, compared to $938,000 in 2000.

         During the first quarter of 2001, PNI continued in its efforts to
develop its networking products business, and to that end incurred expenses in
the development and promotion of this business that it would not have incurred


                                       8
<PAGE>   9
                             PNI TECHNOLOGIES, INC.


solely as a provider of network services. PNI has not yet achieved significant
sales of its networking products, and its costs attributable to this business
have exceeded its revenues. PNI's principal revenue source remains its network
services business, which continues its trend toward lower per-user and aggregate
revenues. PNI has undertaken certain marketing initiatives to address
competitive pressures in its network services business, although no assurances
can be given that this will lead to increased airtime revenues in the future,
and the trend toward decreasing network services revenues may continue.

         The networking products business is an early-stage business operating
in a new and rapidly evolving market. PNI's limited operating history with
respect to this business makes an evaluation of its business and prospects very
difficult. Since introducing its first product in 2000 and through the three
months ended March 31, 2001, PNI derived only $337,000 in total revenues from
the sale of networking products. While PNI believes that this low sales volume
is attributable in part to PNI's limited resources to exploit its networking
products business, it may also be an indication of limited demand for these
products. The risks and difficulties that the networking products business will
continue to encounter as an early stage business include, but are not limited
to, limited funding from PNI, a competitive business environment, the validity
of certain patent and intellectual property rights protecting this technology,
other competing products offered by third party manufacturers, and the overall
economic state of the telecommunications industry. There can be no assurances
that PNI will be successful in the sale of networking products.

         PNI has three primary lenders, as further discussed in the "Capital
Resources" section below. At March 31, 2001, PNI had $1.9 million outstanding
under a senior credit facility that is secured by substantially all of the
assets of PNI and is to be used for working capital purposes. The amount
outstanding under this facility was due on March 31, 2001. PNI notified this
lender of its intent to delay this payment and of its efforts to complete a
strategic transaction (as further discussed in the "Capital Resources" section
below) that would enable it to retire this obligation. In May 2001, this lender
agreed to forbear its rights relating to the defaults during the period in which
PNI hopes to consummate the strategic transaction. Beginning in February 2001,
PNI ceased to make principal and interest payments to its two other primary
lenders, although these payments were due under the applicable loan agreements.
These loans are secured by the majority of PNI's paging network assets. As of
the date that PNI ceased to make payments to these institutions, the aggregate
outstanding balance totaled $3.3 million, of which $1 million was due and
payable on March 31, 2001. Thereafter, PNI is required to make regular principal
payments to these lenders in the aggregate average monthly amount of $180,000
(in addition to monthly interest payments) for the remainder of 2001. PNI
notified these lenders of its intent to delay these payments and of its efforts
to complete a strategic transaction that would enable it to retire these
obligations, although neither lender has amended its loan agreement with PNI.
These lenders presently are able to declare all the principal and accrued
interest owed to them currently due. In such event, PNI would be required to
explore a variety of alternatives, including selling or licensing various
assets, or seeking protection under the U.S. Bankruptcy Code.

Capital Resources

         PNI continues to experience an erosion of its revenues from traditional
one-way paging, which is the core of PNI's network services business and its
principal revenue source. This decline in networking services revenue is
indicative of the trends experienced by other one-way paging carriers. PNI
expects to continue to experience significant net losses and negative cash
flows. At the same time, PNI has been unable to borrow additional amounts from
its existing lenders, or to obtain access to other sources of debt or equity
capital, in amounts sufficient to fund current operations. As a result, PNI
expects that cash generated from operations, plus its existing cash resources,
will not permit PNI to continue as a going concern beyond the second quarter of
2001 without a significant change in its business, debt restructuring and/or
completion of a strategic transaction.

         During 1999, the Company repaid in full its senior credit facility that
was used to finance paging network acquisitions. At December 31, 1999, the
Company had established a $2.0 million revolving credit facility with this
financial institution to be used for working capital purposes. The outstanding
balance under this facility bears interest at 2% plus the prime rate. The amount
outstanding under this facility as of March 31, 2001 was $1.9 million, which was
due on March 31, 2001. PNI notified this lender of its intent to delay this
payment and of its efforts to complete a strategic transaction (as further
described below) that would enable it to retire this obligation. In May 2001,
this lender agreed to forbear its rights relating to this and certain other
defaults during the period in


                                       9
<PAGE>   10
                             PNI TECHNOLOGIES, INC.


which PNI hopes to consummate the strategic transaction. Borrowings under this
facility are secured by substantially all the assets of the Company. This credit
facility contains various conditions, financial covenants and restrictions
related to a variety of issues.

         PNI has purchased certain of its paging network equipment under a
vendor financing facility bearing interest at the rate of 12.57%. This credit
facility was established in 1996 and this lender has since amended certain terms
and conditions. This credit facility contains various conditions, financial
covenants and restrictions and is secured by paging equipment. In connection
with PNI's sale of its subsidiary EPS Wireless, Inc. in December 1999, this
lender amended this facility with respect to the outstanding balance to suspend
principal payments until March 31, 2001 (although PNI was still obligated to pay
interest). A principal payment of $1 million was due March 31, 2001, following
which PNI is obligated to make monthly principal payments of approximately
$124,000 until December 2001. As of March 31, 2001, there was $1.9 million
outstanding under this facility with no additional availability. PNI ceased to
make interest payments to this lender in February 2001 and did not make the
payment due on March 31, 2001, both of which constitute events of default. PNI
notified this lender of its intent to delay these payments and of its efforts to
complete a strategic transaction (as further described below) that would enable
it to retire this obligation, although this lender has not amended its loan
agreement with PNI. This lender presently is able to declare the principal and
all accrued interest currently due, which would have a material adverse effect
on the Company.

         The Company has purchased certain of its paging network equipment under
a secured credit facility from a finance company bearing interest at a rate of
10.0%. This credit facility was established in 1996 and this lender has since
amended certain terms and conditions. This credit facility contains various
conditions, financial covenants and restrictions and is secured by paging
equipment. In connection with the sale of its subsidiary Preferred Technical
Services, Inc., in May 1999, this lender amended this facility with respect to
the outstanding balance to suspend principal payments until May 2000 (although
the Company was still obligated to pay interest). In May 2000, a principal
payment of $613,000 was due and paid, following which monthly principal payments
of approximately $56,000 are due until February 2003. As of March 31, 2001,
there was $1.4 million outstanding under this facility with no additional
availability. PNI ceased to make principal and interest payments to this lender
in February 2001, both of which constitute events of default. PNI notified this
lender of its intent to delay these payments and of its efforts to complete a
strategic transaction (as further described below) that would enable it to
retire this obligation, although this lender has not amended its loan agreement
with PNI. This lender presently is able to declare the principal and all accrued
interest currently due, which would have a material adverse effect on the
Company.

         Because of the reduction in cash flow and concurrent failure to meet
the debt obligations discussed above, certain of PNI's principal lenders could
exercise their rights to accelerate such debt. In certain circumstances, the
holders of PNI's Class A Redeemable Preferred Stock and the Class B Senior
Redeemable Preferred Stock also may accelerate the debt associated with those
classes of Preferred Stock. In either event, PNI would be unable to satisfy
those obligations.

         In addition to the above-described issues related to PNI's
indebtedness, PNI's current financial situation could impact operations in a
number of other ways, some, but not all, of which are described here. PNI
continues to operate at a loss, and does not expect continuing operations to
generate sufficient cash to meet its continuing obligations. PNI's current
financial condition may adversely affect its ability to obtain supplies and
services from vendors on acceptable terms, to maintain relationships with its
existing vendors (in particular, its relationships with suppliers responsible
for keeping PNI's networks operational), and to retain and attract employees and
customers. These factors could, in turn, aggravate the condition PNI presently
is experiencing by further reducing revenues and operating cash flow.

         PNI is seeking to restructure its existing indebtedness either in
connection with a strategic transaction or on a stand-alone basis. PNI cannot
predict the terms on which its indebtedness will be restructured or whether any
restructuring will retain any value for the holders of its preferred and common
stock. Further, PNI may not be able to restructure its existing indebtedness on
terms acceptable to creditors. PNI may have to seek protection under the U.S.
Bankruptcy Code, which will subject many transactions to court approval and
result in additional costs associated with the bankruptcy process, including
professional fees and other costs of administration. If a bankruptcy filing is
made, PNI may not be able to propose or have confirmed a plan of reorganization
acceptable to


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<PAGE>   11
                             PNI TECHNOLOGIES, INC.


creditors, or, in the case of a chapter 11 filing, to emerge from chapter 11
bankruptcy. Because of the expense associated with a bankruptcy proceeding and
the need to have some resources available to fund the bankruptcy process at the
time of filing, PNI will continue to consider such a filing an option which
could be exercised by PNI at any time.

         If PNI was required to satisfy its obligations to its lenders, became
insolvent or was liquidated, and PNI's lenders proceeded against PNI's assets to
satisfy those obligations, the value of its assets might not be sufficient to
satisfy those obligations. This condition could be exacerbated by the fact that
some of PNI's assets are intangible assets, primarily FCC licenses, goodwill and
subscriber lists. At March 31, 2001, PNI's total assets were approximately $28
million, of which net intangible assets were approximately $14 million. The
value of these intangible assets in the context of a liquidation or sale of
business may be less than indicated in PNI's financial statements as a result of
a variety of factors, including changes in technology, regulation, and available
financing or competitive pressures. There can be no assurance that the value of
PNI's assets is, or will be, sufficient to repay its debt obligations. Even if
PNI is able to satisfy its debt obligations, this could exhaust most, if not
all, of PNI's assets. In such a situation, there would be little, if any,
surplus remaining for distribution to the holders of PNI's preferred and common
stock.

         Currently, PNI is in negotiations with a third party with respect to a
merger transaction that, if concluded, is expected to enable PNI to retire its
debt obligations and to access additional working capital for growth. The
parties to the potential transaction hope to execute a merger agreement during
the second quarter of 2001, although there can be no assurance that the
transaction will be consummated. PNI continues to explore a variety of financing
and restructuring alternatives, including selling or licensing various assets
and restructuring or reorganizing its outstanding debt and/or its business. PNI
has thus far not consummated a financing or restructuring, or a reorganization
or other strategic transaction that would enable it to satisfy its lenders and
other creditors and continue to fund its business. There can be no assurance
that such a transaction will be consummated on terms acceptable to PNI, if at
all, before PNI's available resources are consumed.


Forward-Looking Statements

         The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Quarterly Report on Form 10-Q, the Company's Annual Report on Form 10-K, and
other materials filed or to be filed by PNI with the Securities and Exchange
Commission (as well as information included in oral statements or other written
statements made or to be made by PNI) contains statements that are or will be
forward-looking, such as statements relating to future sales activity or
financial performance, marketing efforts and their possible results, financing
and restructuring alternatives and their possible results, the possibility of
any reorganization, acquisition or other strategic transaction, future capital
expenditures, financing sources and availability and the effects of laws and
regulations (including FCC regulations) and competition. Such forward-looking
information involves important risks and uncertainties that could significantly
affect anticipated results in the future and, accordingly, such results may
differ from those expressed in any forward-looking statements made by or on
behalf of PNI. These risks and uncertainties include, but are not limited to,
uncertainties affecting the wireless industries generally; risks relating to
PNI's expansion and other business development activities; risks related to the
deployment and feasibility of PNI's new networking technologies and products;
risks relating to technological change in the wireless industries; risks
associated with PNI's efforts to commercialize and market successfully its
networking products, such as the Platform1(R) and iTerminal(TM) products; the
relatively unproven nature of PNI's networking products, which represent a new
product line for PNI; challenges to PNI's technologies (such as challenges to
the validity of patents on PNI's switching technology); risks relating to the
ability of PNI to obtain additional funds in the form of debt or equity
(including availability of financing terms acceptable to PNI); fluctuations in
interest rates; and the existence of and changes to federal and state laws and
regulations. In particular, statements relating to the competitive position and
performance of PNI's current and future networking products and their expected
performance in the marketplace are forward-looking statements that are subject
to risks and uncertainties. PNI operates in a highly competitive marketplace and
new product developments by competitors can occur at any time, thereby
diminishing the attractiveness of PNI's products.


                                       11

<PAGE>   12
                             PNI TECHNOLOGIES, INC.


ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

         There have been no significant changes since December 31, 2000. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations.


                                     PART II

ITEM 3.       DEFAULTS UPON SENIOR SECURITIES

         The Company has $1.9 million outstanding under a revolving credit
facility with a financial institution to be used for working capital purposes,
which was due on March 31, 2001. PNI did not make this payment on March 31,
2001, which constitutes an event of default. In May 2001, this lender agreed to
forbear its rights relating to this and certain other defaults until October 15,
2001, provided the Company makes a principal payment of $500,000 by June 15,
2001 (as further described above).

         The Company has purchased certain of its paging network equipment under
a vendor financing facility that had $1.9 million outstanding as of March 31,
2001. A principal payment of approximately $1 million was due on March 31, 2001,
following which PNI is obligated to make monthly principal payments of
approximately $124,000 until December 2001. PNI ceased to make interest payments
to this lender beginning in February 2001 and did not make the payment due on
March 31, 2001, both of which constitute events of default. A total of $1.1
million in scheduled principal payments and $83,000 of accrued interest was due
and unpaid to this lender as of this filing date. This lender presently is able
to declare all principal and accrued interest currently due, which would have a
material adverse effect on the Company.

         The Company has purchased certain of its paging network equipment under
a secured credit facility that had $1.4 million outstanding as of March 31,
2001. The Company is presently obligated to make monthly principal payments of
approximately $56,000 until February 2003. PNI ceased to make principal and
interest payments to this lender beginning in February 2001, both of which
constitute events of default. A total of $220,000 in scheduled principal
payments and $46,000 of accrued interest was due and unpaid to this lender as of
this filing date. This lender presently is able to declare all principal and
accrued interest currently due, which would have a material adverse effect on
the Company.


ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K.

(a)      Exhibits:


         10.4     Forbearance Agreement dated as of May 17, 2001 by and among
                  PNI Systems, LLC, the Registrant, and Bank of America, N.A.

(b)      Reports on Form 8-K:

         There were no reports filed on Form 8-K for the three months ended
         March 31, 2001.


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<PAGE>   13


                                   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 thereunto duly authorized.

                        PNI TECHNOLOGIES, INC.


Date:  May 18, 2001     By: /s/ Mark H. Dunaway
                            -------------------------------------------------
                            Mark H. Dunaway
                            Chief Executive Officer



Date:  May 18, 2001     By: /s/ Kathryn Loev Putnam
                            -------------------------------------------------
                            Kathryn Loev Putnam
                            Senior Vice President and Chief Financial Officer
                            (Principal Financial Officer and
                            Principal Accounting Officer)

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