<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, 1999

                                       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

                            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: 16,369,302 shares of common
stock, no par value, as of May 14, 1999.
<PAGE>   2
                           PREFERRED NETWORKS, INC.


                               INDEX TO FORM 10-Q


<TABLE>
<CAPTION>
PART I.               FINANCIAL INFORMATION                                                     PAGE
                                                                                                NUMBER
                                                                                                ------

<S>        <C>        <C>                                                                       <C>
           Item 1.    Financial Statements

                      Condensed Consolidated Balance Sheets, March 31, 1999
                      (Unaudited) and December 31, 1998....................................        3

                      Condensed Consolidated Statements of Operations for the
                      three months ended March 31, 1999 and 1998 respectively
                      (Unaudited) .........................................................        4

                      Condensed Consolidated Statements of Cash Flows for the three
                      months ended March 31, 1999 and 1998 (Unaudited) ....................        5

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

           Item 2.    Management's Discussion and Analysis of Financial Condition
                      and Results of Operations ...........................................        9

           Item 3.    Quantitative and Qualitative Disclosure of Market Risk ..............       14

PART II.              OTHER INFORMATION

           Item 3.    Defaults Upon Senior Securities .....................................       15

           Item 6.    Exhibits and Reports on Form 8-K ....................................       15

                      Signatures ..........................................................       16
</TABLE>



                                       2
<PAGE>   3

                           PREFERRED NETWORKS, INC.


                     CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                           MARCH 31,                 DECEMBER 31,
                                                                                             1999                       1998
                                                                                         ------------               ------------
                                                                                         (UNAUDITED)

<S>                                                                                      <C>                        <C>
                                                   ASSETS
Current assets
   Cash and cash equivalents ...................................................         $  5,421,691               $  6,474,139
   Accounts receivable, net ....................................................            3,259,197                  3,029,334
   Inventory ...................................................................            2,531,829                  2,928,217
   Prepaid expenses and other current assets ...................................              661,112                    417,829
   Current assets of discontinued operations ...................................            2,383,919                  1,809,249
                                                                                         ------------               ------------
      Total current assets .....................................................           14,257,748                 14,658,768

Property and equipment, net ....................................................           19,661,879                 20,447,962
Property and equipment of discontinued operations, net .........................            1,107,363                  1,107,655
Goodwill, net ..................................................................           11,564,829                 11,788,554
Goodwill of discontinued operations, net .......................................              626,245                    639,025
FCC licenses, net ..............................................................            8,664,714                  8,838,444
Other assets, net ..............................................................              679,338                  2,552,135
Other assets of discontinued operations ........................................                  280                         --
                                                                                         ------------               ------------
                                                                                         $ 56,562,396               $ 60,032,543
                                                                                         ============               ============
                             LIABILITIES, REDEEMABLE PREFERRED STOCK,
                                      AND STOCKHOLDERS' EQUITY

Current liabilities
   Accounts payable ............................................................         $  5,654,643               $  4,356,885
   Accrued liabilities .........................................................            1,181,605                  1,060,966
   Accrued compensation ........................................................              409,273                    394,989
   Current portion of notes payable and capital lease obligations ..............           18,702,495                 18,635,308
   Current liabilities of discontinued operations ..............................              635,822                    714,678
                                                                                         ------------               ------------
      Total current liabilities ................................................           26,583,838                 25,162,826

Notes payable and capital lease obligations, less current portion of
    continuing operations ......................................................              178,074                    218,389
Notes payable and capital lease obligations, less current portion of
    discontinued operations ....................................................              132,934                    127,557

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                 15,879,309

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                  8,088,693
                                                                                         ------------               ------------
      Total liabilities and Redeemable Preferred Stock .........................           51,693,489                 49,476,774

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                 61,458,690
   Accretion of  Redeemable Preferred Stock ....................................             (984,420)                  (828,788)
   Accumulated deficit .........................................................          (54,946,944)               (50,074,133)
                                                                                         ------------               ------------
      Total Stockholders' equity ...............................................            4,868,907                 10,555,769
                                                                                         $ 56,562,396               $ 60,032,543
                                                                                         ============               ============
</TABLE>


           See notes to condensed consolidated financial statements.



                                       3
<PAGE>   4
                           PREFERRED NETWORKS, INC.


                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                                 THREE MONTHS ENDED
                                                                                                     MARCH 31,
                                                                                         --------------------------------
                                                                                              1999               1998
                                                                                         ------------        ------------

<S>                                                                                      <C>                 <C>
Revenues
     Network services ...............................................................    $  3,306,154        $  3,263,018
     Product sales ..................................................................       3,845,690           3,894,594
     Other services .................................................................       2,494,267           2,117,801
                                                                                         ------------        ------------
              Total revenues ........................................................       9,646,111           9,275,413

Costs of revenues
     Network services ...............................................................       2,125,048           2,154,372
     Product sales ..................................................................       3,205,649           3,232,300
     Other services .................................................................       2,207,907           1,707,755
                                                                                         ------------        ------------
              Total cost of revenues ................................................       7,538,604           7,094,427
                                                                                         ------------        ------------
Gross margin ........................................................................       2,107,507           2,180,986

Selling, general and administrative expenses ........................................       3,360,735           3,543,850
Depreciation and amortization .......................................................       1,396,095           1,711,760
                                                                                         ------------        ------------
              Operating loss ........................................................      (2,649,323)         (3,074,624)
Interest expense ....................................................................        (488,889)           (326,583)
Interest income .....................................................................          37,161              74,395
                                                                                         ------------        ------------
              Net loss from continuing operations
                  before cumulative effect of change in accounting principle ........      (3,101,051)         (3,326,812)
              Net income from discontinued operations, net of income taxes ..........          60,638               5,049
              Cumulative effect of change in accounting principle ...................      (1,832,398)                 --
                                                                                         ------------        ------------
              Net loss ..............................................................      (4,872,811)         (3,321,763)
                                                                                         ------------        ------------
Accretion of Redeemable Preferred Stock .............................................        (155,642)           (111,894)
Redeemable Preferred Stock dividend requirements ....................................        (675,000)           (420,161)
                                                                                         ------------        ------------
              Net loss attributable to Common Stock .................................    $ (5,703,453)       $ (3,853,818)
                                                                                         ============        ============

Net earnings per Common Share:
    Continuing operations before cumulative effect of change in
       accounting principle .........................................................    $       (.24)       $       (.24)
    Discontinued operations .........................................................             .00                 .00
    Cumulative effect of change in accounting principle .............................            (.11)                 --
                                                                                         ------------        ------------
Net loss per share of Common Stock ..................................................    $       (.35)       $       (.24)
                                                                                         ============        ============

Weighted average number of common shares
   used in calculating net loss per share of Common Stock ...........................      16,265,377          16,179,250
                                                                                         ============        ============

Pro forma net loss assuming the change in
    accounting principle is applied retroactively ...................................    $ (3,040,413)       $ (3,224,811)
                                                                                         ============        ============

Pro forma net loss attributable to Common Stock assuming the change in
    accounting principle is applied retroactively ...................................    $ (3,871,055)       $ (3,756,866)
                                                                                         ============        ============

Pro forma net loss per share ........................................................    $       (.24)       $       (.23)
                                                                                         ============        ============
</TABLE>


           See notes to condensed consolidated financial statements.



                                       4
<PAGE>   5
                           PREFERRED NETWORKS, INC.


                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                              THREE MONTHS ENDED
                                                                                                    MARCH 31,
                                                                                         ------------------------------
                                                                                              1999              1998
                                                                                         ------------      ------------

<S>                                                                                      <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ............................................................................    $ (4,872,811)     $ (3,321,763)
                                                                                                                        
Adjustments to reconcile net loss to net cash used in
operating activities:
   Cumulative effect of change in accounting principle ..............................       1,832,398                --
   Depreciation and amortization ....................................................       1,396,095         1,711,760
   Bad debt expense .................................................................         132,213            62,731
   Stock option and restricted stock grant compensation expense .....................          16,590            16,581
   Changes in operating assets and liabilities:
        Accounts receivable .........................................................        (362,075)          530,361
        Inventory ...................................................................         396,388           505,386
        Prepaid expenses and other assets ...........................................        (232,883)          (96,778)
        Accounts payable ............................................................       1,297,758        (1,072,212)
        Accrued liabilities .........................................................         119,479           (94,023)
        Accrued compensation ........................................................          14,556          (143,887)
                                                                                         ------------      ------------
   Net cash used in operating activities by continuing operations ...................        (262,292)       (1,901,844)
   Net cash used in operating activities by discontinued operations .................        (554,648)          (92,635)
                                                                                         ------------      ------------
   Net cash used in operating activities ............................................        (816,940)       (1,994,479)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment ..............................................................        (181,681)         (369,295)
Purchases of equipment for discontinued operations ..................................         (80,708)          (14,932)
Purchases of other assets and FCC licenses ..........................................              --          (213,633)
                                                                                         ------------      ------------
   Net cash used in investing activities ............................................        (262,389)         (597,860)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings ............................................................         492,136           500,000
Repayments of borrowings ............................................................        (451,277)         (467,705)
Payment of deferred loan costs ......................................................              --          (220,000)
Net proceeds from issuance of Redeemable Preferred Stock ............................              --         6,965,000
Net proceeds from issuance of Common Stock purchase warrants ........................              --           810,000
Issuance of Common Stock upon exercise of stock options .............................              --             8,531
                                                                                         ------------      ------------
   Net cash provided by financing activities of continuing operations ...............          40,868         7,595,826
   Net cash used in financing activities of discontinued operations .................         (13,987)               --
                                                                                         ------------      ------------
   Net cash provided by financing activities ........................................          26,881         7,595,826

Net increase (decrease) in cash and cash equivalents ................................      (1,052,448)        5,003,487
Cash and cash equivalents, beginning of period ......................................       6,474,139         7,379,254
                                                                                         ------------      ------------
Cash and cash equivalents, end of period ............................................    $  5,421,691      $ 12,382,741
                                                                                         ============      ============
</TABLE>


           See notes to condensed consolidated financial statements.



                                       5
<PAGE>   6
                           PREFERRED NETWORKS, INC.


              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1999
                                  (UNAUDITED)



1.   THE COMPANY

     Preferred Networks, Inc. ("PNI" or "the Company"), headquartered in
     metropolitan Atlanta, provides outsourcing solutions to the wireless
     industry which allow companies to offer branded wireless services directly
     to subscribers, while relying on PNI to provide high-quality network,
     technical, and product services. PNI offers its services through its
     Network Services Division, PNI Access Services ("Access"), a provider of
     wholesale paging network service as one of the largest carrier's carriers
     in the U.S., and through its wholly-owned subsidiaries: Preferred
     Technical Services, Inc. ("PTS"), a provider of paging network equipment
     installation, maintenance and engineering services; and EPS Wireless, Inc.
     ("EPS"), a national provider of paging and cellular product repair
     services, sales of new, used and refurbished paging and cellular products
     and inventory management services.

     The Company has formed wholly-owned subsidiaries and limited liability
     companies to execute certain business transactions. All significant
     intercompany activity has been eliminated.

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, 1998, 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. Cash payments made for interest,
     net of capitalized interest, during the three months ended March 31, 1999
     and 1998 were approximately $446,000 and $388,000 respectively. There were
     no significant federal or state income taxes paid or refunded for the
     three months ended March 31, 1999 and 1998.

4.   LOSS PER SHARE

     Net loss per share was computed using the requirements of Statement of
     Financial Accounting Standards No. 128, Earnings per Share, and Staff
     Accounting Bulletin No. 98. Net loss per share-basic was computed by
     dividing net loss attributable to common stock by the weighted average
     number of shares of common stock outstanding during the period excluding
     unvested shares of restricted stock. The denominator for net loss per
     share-diluted also considers the dilutive effect of outstanding stock
     options, warrants, and convertible preferred stock. Due to the Company's
     net loss, the amounts reported for basic and diluted are the same. The
     following securities could potentially dilute basic earnings per share in
     the future and were not included in the computation of diluted net loss
     per share because they would have been antidilutive for the periods
     presented:

<TABLE>
<CAPTION>
                                                      Three months ended
                                                          March 31,
                                                  --------------------------
                                                     1999            1998
                                                  ----------      ----------
               <S>                                <C>             <C>
               Common Stock Options                2,445,168       2,311,955
               Common Stock Warrants              17,322,353      17,322,353
               Unvested Restricted Stock              69,000          85,000
                                                  ----------      ----------
               Total Securities                   19,836,521      19,719,308
                                                  ==========      ==========
</TABLE>



                                       6
<PAGE>   7
                           PREFERRED NETWORKS, INC.



5.   DISCONTINUED OPERATIONS

     On April 19, 1999, the Company reached a definitive agreement to sell
     substantially all of the assets of its wholly-owned subsidiary, PTS. Under
     the terms of the agreement, an affiliate of Saratoga Partners, a New York
     based merchant bank will pay the Company approximately $5 million for PTS,
     subject to various purchase price adjustments. A principal of Saratoga
     Partners serves as a director of the Company. The purchase price to be
     paid is approximately $4 million in cash with the balance of the purchase
     price to be paid in maintenance services on the Company's paging networks.
     The sale is scheduled to close during the second quarter of 1999. There
     are significant conditions that must be satisfied prior to the closing of
     this transaction; therefore, there can be no assurances that the
     transaction will close.

     Revenues for PTS for the three months ended March 31, 1999 and 1998 were
     $1.6 million and $389,000, respectively. Net income of PTS for the three
     months ended March 31, 1999 and 1998 was $61,000 and $5,000, respectively.
     This subsidiary has been presented as a discontinued operation in the
     accompanying financial statements.

6.   ISSUANCE OF CLASS B SENIOR REDEEMABLE PREFERRED STOCK AND COMMON STOCK 
     PURCHASE WARRANTS

     In March 1998, the Company issued 5,333,336 shares of Class B Senior
     Redeemable Preferred Stock (the "Class B Preferred") and warrants to
     purchase up to 5.4 million shares of Common Stock for a total purchase
     price of $8 million. Dividends accrue at the rate of 15% per annum, are
     cumulative and compound annually. The Class B Preferred may be redeemed at
     any time at the option of the Company at a price equal to $1.50 per share
     plus accrued dividends. In addition, if the holders so demand, five years
     from the date of issuance, the Class B Preferred must be redeemed by the
     Company at a price equal to $1.50 per share plus accrued dividends. In the
     event of redemption of the Company's Class A Redeemable Preferred Stock
     (the "Class A Preferred"), the Company must simultaneously redeem the
     Class B Preferred. Each warrant is exercisable for five years following
     the issuance of the Class B Preferred and entitles the holder to purchase
     one share of Common Stock for $1.50 per share subject to possible downward
     adjustment based on any private placement of the Company's Preferred or
     Common Stock for less than $1.50 per share. The Class B Preferred is
     recorded at cost, net of expenses, plus accretion and undeclared
     dividends.

7.   IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In April 1998, the Accounting Standards Executive Committee issued
     Statement of Position 98-5, "Reporting on the Costs of Start-Up
     Activities" ("SOP 98-5"). SOP 98-5 requires entities to charge to expense
     start-up costs, including organizational costs, as incurred. In addition,
     SOP 98-5 requires a write-off of any previously capitalized start-up or
     organization costs, and must be reported as the cumulative effect of a
     change in accounting principle. SOP 98-5 became effective January 1, 1999.
     The Company adopted SOP 98-5 on January 1, 1999 and has written off the
     unamortized balance of its market entry costs of $1.8 million and no
     longer capitalizes such costs.

     Pro forma amounts reflect adjustments to cease capitalization and
     amortization as if SOP 98-5 had been adopted prior to 1998. Additional
     amounts capitalized during the three months ended March 31, 1998 were
     $210,000 and amortization expense was $307,000 for the three months ended
     March 31, 1998.



                                       7
<PAGE>   8
                           PREFERRED NETWORKS, INC.



8.   SEGMENT INFORMATION

In its continuing operations, the Company has two reportable segments organized
by products or services sold: (i) one-way wireless networks, whereby companies
purchase non-branded, wholesale network services from the Company for resale to
their customers (through its PNI Access Services Division) and (ii) pager and
cellular product repair services, product sales and inventory management and
fulfillment (through EPS Wireless, Inc.). The Company's third segment,
Preferred Technical Services, Inc., is reported as discontinued operations.

The Company evaluates performance and allocates resources based on earnings
before interest, depreciation and other non-cash items. The accounting policies
of the reportable segments are the same as those described in the summary of
significant accounting policies. Intersegment sales are recorded with profit,
which is then eliminated upon consolidation.

<TABLE>
<CAPTION>
                                                  PNI ACCESS
                                                 SERVICES AND       EPS
                                                    OTHER*       WIRELESS, INC.   INTERSEGMENT      TOTALS
                                                 ------------   ---------------   ------------   ------------
<S>                                              <C>            <C>               <C>            <C>
QUARTER ENDED MARCH 31, 1999
Revenue .......................................  $  4,949,837   $  4,696,274      $         --   $  9,646,111
Interest expense ..............................       483,750          5,139                --        488,889
Depreciation and amortization expense .........     1,226,284        169,811                --      1,396,095
Segment income (loss) after cumulative
  effect of change in accounting principle.....    (4,812,970)      (131,045)           10,566     (4,933,449)
Segment assets ................................    81,550,459      4,727,141       (33,833,011)    52,444,589

QUARTER ENDED MARCH 31, 1998
Revenue .......................................     4,644,225      4,879,265          (248,077)     9,275,413
Interest expense ..............................       315,162         11,421                --        326,583
Depreciation and amortization expense .........     1,555,014        156,746                --      1,711,760
Segment income (loss) after cumulative
  effect of change in accounting principle.....    (3,463,790)       136,777               201     (3,326,812)
Segment assets ................................    96,167,839      5,959,640       (34,768,200)    67,359,279
</TABLE>


    * "Other" includes overhead expenses primarily in the area of S,G&A
relating to executive management, information services, public reporting and
other similar expenses. The cumulative effect of the change in accounting
principle is reflected in PNI Access Services.



                                       8
<PAGE>   9
                           PREFERRED NETWORKS, 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, 1999 and 1998, respectively, as a percentage of total revenues.


<TABLE>
<CAPTION>
                                                                                   THREE MONTHS ENDED
                                                                                        MARCH 31
                                                                               ------------------------
                                                                                 1999            1998
                                                                               ---------        -------
<S>                                                                            <C>              <C>
Revenues
   Network services ..................................................              34.3%          35.2%
   Product sales .....................................................              39.9           42.0
   Other services ....................................................              25.9           22.8
                                                                               ---------        -------
     Total revenues ..................................................             100.0          100.0

Cost of revenues
   Network services ..................................................              22.0           23.2
   Products sales ....................................................              33.2           34.8
   Other services ....................................................              22.9           18.4
                                                                               ---------        -------
     Total cost of revenues ..........................................              78.2           76.5
                                                                               ---------        -------
Gross margin .........................................................              21.8           23.5

Selling, general and administrative expenses .........................              34.8           38.2
Depreciation and amortization ........................................              14.5           18.5
                                                                               ---------        -------
     Operating loss ..................................................             (27.5)         (33.1)
                                                                               ---------        -------
Interest expense .....................................................              (5.1)          (3.5)
Interest income ......................................................               0.4            0.8
                                                                               ---------        -------
     Net loss from continuing operations before cumulative
          effect of change in accounting principle ...................             (32.1)%        (35.9)%
     Net income from discontinued operations, net of tax .............               0.6%           0.1%
     Cumulative effect of change in accounting principle .............             (19.0)%           --%
                                                                               ---------        -------
     Net loss ........................................................             (50.5)%        (35.8)%
                                                                               =========        =======
     Net loss attributable to Common Stock ...........................             (59.1)%        (41.5)%
                                                                               =========        =======

EBITDA ...............................................................             (13.3)%        (14.7)%
                                                                               =========        =======
</TABLE>

The table below provides information about the Company's units in service on
the Company's networks by customer type.

<TABLE>
<CAPTION>
                                                           MARCH 31, 1999             PERCENTAGE INCREASE IN
                                                       -----------------------        ----------------------
                                                         1999           1998           1999            1998
                                                       -------         -------        ------          ------

<S>                                                    <C>             <C>            <C>             <C>
Units in service
   Reseller units................................      318,685         308,238          -2.4%            1.4%
   Direct Access units...........................      224,811         168,238          13.1%           11.7%
                                                       -------         -------
   Total units in service........................      543,496         476,476          33.5%            4.8%
                                                       =======         =======
</TABLE>



                                       9
<PAGE>   10
                           PREFERRED NETWORKS, INC.



On April 19, 1999, the Company reached a definitive agreement to sell
substantially all of the assets of its wholly-owned subsidiary, PTS. Under the
terms of the agreement, an affiliate of Saratoga Partners, a New York based
merchant bank, will pay the Company approximately $5 million for PTS, subject
to various purchase price adjustments. A principal of Saratoga Partners serves
as a director of the Company. The purchase price to be paid is approximately $4
million in cash with the balance of the purchase price to be paid in
maintenance services on the Company's paging networks. The sale is scheduled to
close during the second quarter of 1999. There are significant conditions that
must be satisfied prior to the closing of this transaction; therefore, there
can be no assurances that the transaction will close.

Revenues for PTS for the three months ended March 31, 1999 and 1998 were $1.6
million and $389,000, respectively. Net income of PTS for the three months
ended March 31, 1999 and 1998 was $61,000 and $5,000, respectively. This
subsidiary has been presented as a discontinued operation in the accompanying
financial statements.

RESULTS OF OPERATIONS

Total revenues increased by $371,000, or 4.0%, to $9.6 million for the three
months ended March 31, 1999 from $9.3 million for the three months ended March
31, 1998.

Revenues from network services increased by $43,000, or 1.3%, to $3.3 million
for the three months ended March 31, 1999 from $3.3 million for the three
months ended March 31, 1998. The Company had 28 markets in service at March 31,
1999. Units in service increased by 67,020, or 14.1%, to 543,496 at March 31,
1999 from 476,476 at March 31, 1998. Airtime revenue per unit decreased by
$0.28 to $2.06 for the three months ended March 31, 1999 from $2.34 for the
three months ended March 31, 1998. This decrease is primarily due to an
increase in units in service from Direct Access customers as a percentage of
total units in service. Units from Direct Access customers increased to 41.4%
of total units at March 31, 1999 from 35.3% at March 31, 1998. The Company
incurs minimal marginal cost in supplying only airtime to its Direct Access
customers and therefore charges these customers substantially less per unit in
service per month than it charges its reseller customers.

Revenues from product sales decreased by $49,000, or 1.3%, to $3.8 million for
the three months ended March 31, 1999 from $3.9 million for the three months
ended March 31, 1998. The decrease in product sales revenue is due to decreased
sales at EPS of new, used and refurbished pager products partially offset by
increased sales of new, used and refurbished cellular products and by increased
sales of new pagers to network customers.

Other services revenues increased by $376,000, or 17.8%, to $2.5 million for
the three months ended March 31, 1999 from $2.1 million for the three months
ended March 31, 1998. The increase for the three months ended March 31, 1999 is
due to increases in cellular repair and refurbishment volume and associated
revenue offset in part by decreases in pager repair and refurbishment volume
and associated revenue at EPS. Management believes the decrease in pager repair
and refurbishment services resulted primarily from consolidation among certain
of EPS's customers, and further believes that this consolidation may result in
increased opportunities for its pager repair and refurbishment services in the
future.

Total costs of revenues increased by $444,000, or 6.3% to $7.5 million for the
three months ended March 31, 1999 from $7.1 million for the three months ended
March 31, 1998.

Cost of network services decreased by $29,000, or 1.4%, to $2.1 million for the
three months ended March 31, 1999 from $2.2 million for the three months ended
March 31, 1998. Cost of network services as a percentage of network services
revenue decreased to 64.3% for the three months ended March 31, 1999, from
66.0% for the three months ended March 31, 1998. As markets generate increased
revenue, the decrease in costs as a percentage of revenue is expected due to
the fixed nature of many of these expenses.

Cost of product sales decreased by $27,000, or 0.8%, to $3.2 million for the
three months ended March 31, 1999 from $3.2 million for the three months ended
March 31, 1998. Cost of product sales as a percentage of product sales revenue
increased to 83.4% for the three months ended March 31, 1999, from 83.0% for
the three months ended March 31, 1998. The decrease in cost of product sales is
due to the decrease in product revenues at EPS and to PNI Access Services'
decreasing cost of new pagers sold to its network customers.

Cost of other services increased by $500,000, or 29.3% to $2.2 million for the
three months ended March 31, 1999 from $1.7 million for the three months ended
March 31, 1998. Cost of other services as a percentage of other services
revenue increased to 88.5% for the three months ended March 31, 1999, from
80.6% for the three months



                                      10
<PAGE>   11
                           PREFERRED NETWORKS, INC.



ended March 31, 1998. The increase in cost of other services is due primarily
to the increased costs associated with the rapid increase in cellular repair
volume at EPS. The Company expected EPS to experience production inefficiencies
associated with a rapid increase in cellular repair volume and expects margins
to improve as volumes achieve more sustained levels.

Selling, general and administrative (SG&A) expenses decreased by $183,000, or
5.2%, to $3.4 million for the three months ended March 31, 1999 from $3.5
million for the three months ended March 31, 1998. SG&A expenses decreased as a
percentage of total revenues to 34.8% for the three months ended March 31, 1999
from 38.2% for the three months ended March 31, 1998. The decrease in SG&A is
due primarily to reduced sales and administrative expenses resulting from the
decreases in product sales revenues at EPS and the reduction of certain
executive personnel expenses at EPS. In addition, because the Company does not
market directly to end-users, it does not incur subscriber-related acquisition
and customer support costs and, accordingly, its SG&A expenses do not increase
in direct proportion to its revenue growth.

Depreciation and amortization decreased by $316,000, or 18.4%, to $1.4 million
for the three months ended March 31, 1999 from $1.7 million for the three
months ended March 31, 1998. Depreciation and amortization decreased as a
percentage of total revenues to 14.5% for the three months ended March 31, 1999
from 18.5% for the three months ended March 31, 1998. The decrease is due
primarily to no amortization of market start-up expenses in 1999 with the
adoption of SOP 98-5.

Interest expense, net of capitalized amounts, increased by $162,000, or 49.7%,
to $489,000 for the three months ended March 31, 1999 from $327,000 for the
three months ended March 31, 1998. The increase in interest expense is
primarily due to no interest being capitalized in 1999 since the Company had no
construction activities during the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998, when $199,000 was
capitalized.

Interest income decreased by $37,000 or 50.0% to $37,000 for the three months
ended March 31, 1999 from $74,000 for the three months ended March 31, 1998.
The decrease in interest income is due to a corresponding decrease in cash and
cash equivalents.

Net loss from continuing operations before cumulative effect of change in
accounting principle for the three months ended March 31, 1999 as compared to
the three months ended March 31, 1998 decreased to $3.1 million from $3.3
million. The decreased losses are due primarily to decreases in SG&A and
decreased depreciation and amortization expense, as described above. The
cumulative effect of change in accounting principle for the three months ended
March 31, 1999 resulting from the write-off of market start-up costs as
required by SOP 98-5 was $1.8 million. The net loss attributable to Common
Stock increased primarily due to the cumulative effect of adopting the new
accounting principle for market entry costs, and higher accretion and dividends
related to the Class A Preferred and the Class B Preferred, issued in June 1997
and March 1998, respectively.

The net loss per share of Common Stock for the three months ended March 31,
1999 increased to $0.35 from $0.24 for the three months ended March 31, 1998.

LIQUIDITY AND CAPITAL RESOURCES

The Company's net cash used in operations was $0.8 million and $2.0 million for
the three months ended March 31, 1999 and 1998, respectively. The primary
reasons for the reduction in net cash used in operations were the decrease in
the net loss from operations before the effect of change in accounting
principle and an increase in accounts payable compared to the prior year
period.

Capital expenditures were $262,000 and $384,000 for the three months ended
March 31, 1999 and 1998, respectively. The Company has funded its expansion in
the past by equity infusions, bank and finance company debt, loans from
stockholders, and vendor and seller financing.

 In March 1998, the Company sold $8.0 million of Class B Preferred with
warrants to one institutional investor and certain of its existing
stockholders. The Class B Preferred accrues cumulative dividends at a rate of
15.0% of its liquidation value, compounded annually. The holders of the Class B
Preferred were issued warrants to purchase 5.4 million shares of Common Stock
at an exercise price of $1.50 per share. No dividends on the Class B Preferred
have been paid as of March 31, 1999.

The Company has a secured credit facility for $12.0 million of vendor financing
bearing interest at the five-year



                                      11
<PAGE>   12
                           PREFERRED NETWORKS, INC.



U.S. Treasury rate plus 6.5% payable in various monthly installments of
principal and interest over 60 months. This credit facility contains various
conditions, financial covenants and restrictions and is secured by paging
equipment. As of March 31, 1999, there was $5.2 million outstanding under this
facility, and no additional amounts were available. Beginning in 1999, the
Company has not made principal payments under this credit facility, which would
allow the lender to declare an event of default. Such unpaid amounts total
approximately $354,000 as of March 31, 1999.

The Company has a secured credit facility for $5.0 million to finance paging
system equipment from a finance company bearing interest between 10% and 11%
payable in various monthly installments of principal and interest over 60
months. This credit facility contains various conditions, financial covenants
and restrictions and is secured by paging equipment. As of March 31, 1999,
there was $3.2 million outstanding under this facility with no additional
availability. All required principal payments have been made in 1999.

As of December 31, 1998, the Company had an $11.0 million credit facility with
a financial institution, of which $7.25 million was used to finance paging
network acquisitions and $3.75 million represents a revolving credit facility
to be used for working capital purposes. The outstanding balance under this
facility bears interest at 1% plus the higher of the Federal Funds Rate for
each day plus 1/2% or prime. Pursuant to an amendment to the credit facility
executed in March 1998, interest only is payable monthly in arrears with the
principal installments beginning in February 1999, with the remaining principal
balance due in July 2000. This amendment to the credit facility also increased
the Company's availability for working capital purposes by $1.75 million,
bringing the total facility to $11.0 million. 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, including but not limited to debt service, and
minimum net worth. The amount outstanding under this facility as of December
31, 1998 and March 31, 1999 was $10.5 million, and $10.8 million, respectively.
At March 31, 1999 there was no additional availability. The amendment also
contained certain revisions to its financial covenants, including but not
limited to a requirement to maintain a minimum cash balance of $4 million at
all times

Beginning in 1999 and continuing through the date of this filing, the Company
was not in compliance with certain of the financial covenants under its senior
credit facility, which would allow the lender to declare a default and
accelerate the maturity of the debt. In addition, beginning in 1999, the
Company has not made principal payments under its equipment vendor credit
facility, which would also allow the lender to declare an event of default.
Such unpaid amounts total approximately $354,000 as of March 31, 1999 and
approximately $473,000 as the date of this filing. In addition, due to
cross-default provisions under each of the senior credit facility and equipment
vendor facility, such noncompliance could trigger an acceleration of all of the
Company's other outstanding debt, excluding its capital lease obligations. As a
result, the debt which totals $18.5 million and $18.6 million at December 31,
1998 and March 31, 1999, respectively, is reported as a current liability in
the accompanying consolidated balance sheet. This matter raises substantial
doubt about the Company's ability to continue as a going concern. As of April
13, 1999, the Company has accepted a non-binding proposal from its senior
lender to amend certain terms and conditions of its senior credit facility. As
currently negotiated, the amendment would require a repayment of $1.75 million
of cash, increase the interest rate, modify the financial covenants and shorten
the maturity date to April 30, 2000. The Company also is in negotiations to
obtain a waiver for the defaults and also is seeking deferral for 1999
principal payments due under its equipment vendor facility. Management believes
that if the proposal is executed by the lender in the form of an amendment to
its senior credit facility and the waiver is obtained with respect to the
vendor facility, the Company will be able to meet its debt covenants in 1999
and all of its debt would revert to monthly payments of principal and interest
which the Company believes it would be able to satisfy in 1999. There are
however, significant conditions that must be satisfied prior to the execution
of each of the amendment and the waiver. If the Company is unsuccessful in
obtaining an amendment of its credit facility or a waiver under its vendor
facility at terms which it currently anticipates are necessary, it may not have
sufficient resources to meet its debt obligations and working capital
requirements in 1999. The Company is presently in negotiations to satisfy these
conditions.

Management believes that the amendment of its senior credit facility, the
consummation of the sale of PTS and the waiver and deferral of unpaid principal
under its equipment vendor facility will occur during the second quarter of
1999, although there can be no assurances that these transactions will be
consummated or that the terms will be as currently desired. Each of these
transactions has significant conditions that must be satisfied by the
consummation of the other transactions.

At March 31, 1999, the Company had $5.4 million invested in short-term
investment grade securities at various interest rates.



                                      12
<PAGE>   13

                           PREFERRED NETWORKS, INC.



The Nasdaq Stock Market, Inc. has delisted the Company's Common Stock from the
NASDAQ National Market effective as of the close of business on March 22, 1999
because the Company failed to comply with the Nasdaq's compliance criteria
regarding minimum net tangible assets, market value of public float, and
minimum bid price. The Company's Common Stock became listed on the OTC Bulletin
Board effective March 23, 1999. The delisting from NASDAQ could adversely
affect the Company's ability to raise additional funds.

The Company operates in the wireless communications industry which has
experienced and continues to experience significant challenges including
competing technologies, shifts in customers' strategies, changes in the FCC
regulatory environment, and limited sources of capital. As a result, the
Company is continually required to address these and other matters, in its
business strategy and operations.

Since its March 1996 initial public offering, the Company has invested $62
million in building its network infrastructure, acquiring FCC licenses and
other paging networks, and acquiring related companies. As a result of this
expansion and the development of the Company's business and the overall
wireless industry, the Company has experienced net losses and negative cash
flows, and future cash flows have been difficult to project.

The Company's projections include significant growth in revenues, from existing
products and services and also from new switching technologies which it has
recently developed, and improved profitability due to greater utilization of
the existing base of assets. The Company's business plan may change, or
unforeseen events may occur, requiring the Company to raise additional funds.
Additionally, the Company may consider selling certain assets. The amounts of
funds required by the Company will depend on many factors, including successful
deployment of the Company's proprietary patent pending switch technology,
"Platform 1(TM)", its sales to customers, and the expected cost savings to the
Company in its own networks.

The outcome of the uncertainties surrounding the Company and the industry are
difficult to predict. These uncertainties could affect the Company's ability to
recover the carrying value of its long-lived assets from its future cash flows
and operations, although management's current projections indicate that such
values will be recovered. Currently, generally accepted accounting principles
require companies to assess future cash flows and record impairment losses on
long-lived assets based on estimates of future cash flows if insufficient to
recover the carrying values. Should the Company's future projections not
materialize, the Company could experience an impairment of its long-lived
assets requiring a charge to its income statement. As of December 31, 1998 and
March 31, 1999, the Company had $45 million and $42 million, respectively, in
net book value of long-lived assets, including property and equipment, FCC
licenses, market entry costs and goodwill.

YEAR 2000 COMPUTER ISSUE

Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, such systems will
recognize the year 2000 as "00." This may cause many computer applications to
fail completely or to create erroneous results unless corrective measures are
taken.

The Company utilizes software and related computer technologies essential to
its operations that will be affected by the Year 2000 issue.

In 1998, the Company designated a cross-functional team with members of its
Information Technology, Engineering, Finance and Administration departments to
evaluate the impact of the Year 2000 problem. Initially, this team organized
and explained each member's role in the process. Second, the team established
an inventory of potential areas where a problem could exist. The inventory
included an assessment of the Company's desktop and server hardware; software
systems; telephone system; billing system; accounting system; paging terminals;
paging transmitters; and other paging network equipment. Third, the team
established a plan and assigned responsibility. According to the established
plan, the Company's mission critical systems will all be Year 2000 compliant by
September 1999. Assessment of mission critical systems and applications has
been substantially completed and most third party vendors who supply these
mission critical systems have been contacted.

The Company intends to bring its mission critical systems into Year 2000
compliance through hardware and software upgrades, software replacement and
internally developed enhanced software. The Company has purchased maintenance
agreements with respect to its desktop and server hardware, software systems
and telephone system.



                                      13
<PAGE>   14
                           PREFERRED NETWORKS, INC.



These maintenance agreements have allowed the Company to upgrade and remedy
where necessary in order to become compliant at minimal additional cost. The
Company's subscriber control system is compliant. During 1998 and 1999, the
Company contracted with a consultant to provide services specifically related
to an upgrade of its accounting software package. These consulting services
consist primarily of programming services and this upgrade is expected to be
completed during the third quarter of 1999. The Company's paging terminals,
transmitters and other paging network equipment are not date sensitive.

The Company has not conducted its assessment of the reasonably likely worst
case scenario of systems failures and their related consequences. It is
expected that the planned testing of systems and the completed testing of
systems will greatly reduce the need for substantial contingency planning.

The Company believes that the cost of modifying its software and related
computer technologies will not exceed $250,000, of which approximately $20,000
was incurred in 1998 and $50,000 was incurred in the first quarter of 1999. The
remainder will be incurred in the second and third quarters of 1999. Costs of
the Year 2000 project are based on current estimates and actual results may
vary from such estimates once plans are fully implemented.

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 and other materials filed or to be filed by the Company
with the Securities and Exchange Commission (as well as information included in
oral statements or other written statements made or to be made by the Company)
contains statements that are or will be forward-looking, such as statements
relating to acquisitions, construction and other business development
activities, future capital expenditures, timing of the Company's need for
additional capital, 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 the Company. These risks and uncertainties include, but
are not limited to, uncertainties affecting the paging and wireless industries
generally, risks relating to the Company's acquisition, construction and other
business development activities, risks relating to technological change in the
paging and wireless industries, risks relating to leverage and debt service
(including availability of financing terms acceptable to the Company), risks
relating to the ability of the Company to obtain additional funds in the form
of debt or equity, risks relating to the availability of transmitters,
terminals, network project management services and network engineering support,
fluctuations in interest rates, and the existence of and changes to federal and
state laws and regulations.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

There have been no significant changes since December 31, 1998. See
Management's Discussion and Analysis.



                                      14
<PAGE>   15
                           PREFERRED NETWORKS, INC.



PART II - OTHER INFORMATION

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES.

Beginning in 1999 and continuing through the date of this filing, the Company
was not in compliance with certain of the financial covenants under its senior
credit facility, which would allow the lender to declare a default and
accelerate the maturity of the debt. In addition, beginning in 1999, the
Company has not made principal payments under its equipment vendor credit
facility, which would allow the lender to declare an event of default. Such
unpaid amounts total approximately $354,000 as of March 31, 1999 and
approximately $473,000 as the date of this filing. In addition, due to
cross-default provisions under each of the senior credit facility and equipment
vendor credit facility, such noncompliance could trigger an acceleration of all
of the Company's other outstanding debt, excluding its capital lease
obligations. As a result, the debt which totals $18.5 million and $18.6 million
at December 31, 1998 and March 31, 1999, respectively, is reported as a current
liability in the accompanying consolidated balance sheet.


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

(a)  Exhibit:

<TABLE>
         <S>       <C>
         10.40     Asset Purchase Agreement, dated as of April 19, 1999, by and
                   among Wireless Services Operating Corporation, Preferred
                   Technical Services, Inc., and Preferred Networks, Inc.

         27        Financial Data Schedule (For SEC use only)
</TABLE>

(b)      Reports on Form 8-K:

         The registrant did not file any reports on Form 8-K during the three
         months ended March 31, 1999.



                                      15
<PAGE>   16

                           PREFERRED NETWORKS, INC.



                                   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.

<TABLE>
<S>                                   <C>
                                      PREFERRED NETWORKS, INC.


Date:  May 17, 1999                   By: /s/ Mark H. Dunaway
                                          --------------------------------------------------------
                                          Mark H. Dunaway
                                          Chief Executive Officer



Date:  May 17, 1999                   By: /s/ Kathryn Loev Putnam
                                          --------------------------------------------------------
                                          Kathryn Loev Putnam
                                          Senior Vice President and Chief Financial Officer
                                          (Principal Financial Officer and
                                          Principal Accounting Officer)

</TABLE>




                                      16