<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
___ OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996 or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-20488
PMR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-2491707
- ---------------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
3990 Old Town Avenue, Suite 206A, San Diego,
California, 92110 (Address of principal executive
offices, including zip code)
(619) 295-2227
Registrant's Telephone No., Including Area Code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
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 for 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.
(1) Yes X
No ____
(2) Yes X
No ____
As of September 10, 1996 the Registrant has issued and outstanding 4,809,709
shares of common stock, par value $.01 per share.
<PAGE> 2
PMR CORPORATION
INDEX
PART I FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Balance
Sheets as of July 31, 1996
(Unaudited) and April 30, 1996 1
Condensed Consolidated Statements
of Operations for the three months
ended July 31, 1996 and 1995
(Unaudited) 2
Condensed Consolidated Statements
of Cash Flows for the three months
ended July 31, 1996 and 1995
(Unaudited) 3
Notes to Condensed Consolidated
Financial Statements (Unaudited) 4
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 5
PART II OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of 9
Security Holders
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 11
<PAGE> 3
PMR CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
July 31 April 30
1996 1996
------------ ------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 5,536,509 $ 3,917,922
Notes and accounts receivable, net 11,589,150 9,289,895
Prepaid expenses and other current assets 324,246 321,506
Deferred income tax benefits 2,701,000 2,701,000
------------ ------------
Total current assets 20,150,905 16,230,323
Furniture and office equipment, less accumulated
depreciation of $945,613 in July 1996 and $869,261 in April 1996 671,419 649,312
Long-term receivables 2,420,987 2,444,055
Other assets 1,807,698 1,858,102
------------ ------------
$ 25,051,010 $ 21,181,792
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and other current liabilities $ 1,250,036 $ 1,522,721
Accrued compensation and employee benefits 2,759,917 2,276,809
Advances from case management agencies 1,008,796 1,012,847
Income taxes payable 389,129 308,489
Dividends payable 2,503 71,739
Other current liabilities 95,971 127,213
------------ ------------
Total current liabilities 5,117,223 5,319,818
Deferred rent expense 138,903 149,531
Deferred income taxes 1,101,000 1,101,000
Contract settlement reserve 6,615,058 5,499,020
Commitments
Stockholders' equity:
Common Stock, $.01 par value, authorized shares - 10,000,000; issued and
outstanding shares - 4,760,643
in July 1996; 3,577,917 in April 1996 47,605 35,778
Convertible preferred stock, $.01 par value,
authorized shares - 1,000,000 issued and outstanding shares
Series C - none in July 1996 and 700,000 shares in April 1996 -- 7,000
Paid-in capital 10,130,888 8,259,243
Notes receivable from stockholders (23,665) (141,547)
Retained earnings 1,534,868 951,949
------------ ------------
11,689,696 9,112,423
------------ ------------
$ 25,051,010 $ 21,181,792
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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PMR CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
First Quarter
--------------------------------
Three Months Ended
July 31
1996 1995
------------ ------------
<S> <C> <C>
Management fees & other revenues $ 13,028,083 $ 6,005,551
Expenses
Operating expenses 9,566,768 4,821,079
Marketing, general and administrative 1,692,475 803,774
Provision for bad debts 601,511 197,395
Depreciation and amortization 180,242 114,188
Interest - net (31,168) 7,391
Minority interest in loss of subsidiary -- 524
------------ ------------
12,009,828 5,944,351
Income before income taxes 1,018,255 61,200
Less income tax expense 418,000 23,000
------------ ------------
Net income before dividends 600,255 38,200
Less dividends on:
Series C convertible preferred stock 17,342 32,725
------------ ------------
Net income $ 582,913 $ 5,475
============ ============
Earnings per common share
Primary $ .12 $ .01
============ ============
Fully diluted $ .11 $ .01
============ ============
Shares used in computing earnings
Primary 5,102,789 4,252,830
============ ============
Fully diluted 5,291,050 4,252,830
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
PMR CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
First Quarter
---------------------------------------
Three Months Ended
July 31
1996 1995
-------------------- ---------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $600,255 $38,200
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 180,242 114,188
Provision for losses on accounts receivable 601,511 197,395
Provision for deferred taxes 418,000 23,000
Changes in operating assets and liabilities:
Accounts and notes receivable (2,877,698) (447,944)
Prepaid expenses and other assets (53,751) 15,072
Accounts payable and accrued compensation 210,423 170,903
Contract settlement reserve 1,116,038 653,611
Other liablities (352,029) 25,595
-------------------- -------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (157,009) 790,020
INVESTING ACTIVITIES
Purchases of furniture and equipment (101,804) (19,184)
Acquisition of Twin Town minority interest - (185,000)
-------------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (101,804) (204,184)
FINANCING ACTIVITIES
Proceeds from exercise of options and warrants 1,729,375 -
Proceeds from sale of common stock and
notes receivable from stockholders 265,844 -
Payments on note payable to bank (31,242) (51,359)
Cash dividend paid (86,577) -
-------------------- -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,877,400 (51,359)
-------------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS $1,618,587 $534,477
SUPPLEMENTAL INFORMATION:
Taxes paid $380,735 $830,000
Interest paid $129,108 $107,831
</TABLE>
See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PMR CORPORATION AND SUBSIDIARIES
July 31, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. For
purposes of computing earnings per share, the Series C Preferred Stock is a
common stock equivalent and conversion is assumed except when anti-dilutive.
Operating results for the three months ended July 31, 1996, are not necessarily
indicative of the results that may be expected for the year ending April 30,
1997. For further information, refer to the financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
April 30, 1996.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
PMR Corporation (the "Company") is a leader in the development and management
of programs and services for individuals who have been diagnosed with a Serious
Mental Illness ("SMI"). These diseases, which are often chronic and life long,
are primarily schizophrenia and bi-polar disorder (manic depression) and afflict
more than one percent (1%) of the U.S. population. The Company's programs have
been developed to assist providers of health care services in delivering care
and treatment programs which serve as alternatives to more costly inpatient
behavioral healthcare for the SMI population.
The Company operates three lines of business: acute outpatient psychiatric
services ("Outpatient Program"), case management services ("Case Management
Program") and chemical dependency services ("Chemical Dependency Program").
The Company's Outpatient Program includes two core programs developed for
varying levels of acuity: a partial hospitalization program and a structured
outpatient program. It is designed for consumers who require coordinated,
intensive, and comprehensive treatment services beyond those typically offered
at an outpatient clinical level of care. The Company operates these Outpatient
Programs under management contracts with local health care providers
("Providers") such as acute care hospitals and community mental health centers
("CMHCs").
The Case Management Program is an intensive case management service which
consists of a proprietary intensive case management model which utilizes
detailed protocols for delivering and managing the treatment and care of SMI
patients. This program was established to work with community-based providers of
mental health care (such as case management agencies and CMHC's) to develop,
manage and operate case management and rehabilitation systems designed to serve
the SMI population in either a managed care or the more traditional,
fee-for-service environment. The Company presently operates its Case Management
Programs in Nashville and Memphis, Tennessee, and Little Rock and Russellville,
Arkansas.
Through a wholly-owned affiliate, the Company is a provider of Chemical
Dependency Programs which consist of the treatment of chemical dependency and
substance abuse, primarily to patients of managed care organizations in Southern
California. The Company has also recently developed and manages an ambulatory
detoxification program in Arkansas for public sector (Medicaid and other
government funded programs) patients.
RESULTS OF OPERATIONS - Quarter Ended July 31, 1996 Compared To Quarter Ended
July 31, 1995.
Revenues and Net Income. Revenues for the quarter ended July 31, 1996 were $13.0
million, an increase of $7.0 million, or 116.9% as compared to the quarter ended
July 31, 1995. Of this
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increase, $3.1 million, or 44.2%, resulted from the Company's Case Management
programs in Tennessee and Arkansas. These programs commenced commercial
operations in September, 1995 and July, 1996 and thus did not contribute revenue
in the quarter ended July 31, 1995. The remainder of the increase came
substantially from the Company's Outpatient Programs which recorded revenue of
$9.2 Million, an increase of 65% from the quarter ended July 31, 1995. The
growth in the Outpatient Programs was due to the addition of five new programs
combined with "same store" revenue increases of approximately 52% as compared to
the first quarter of fiscal year 1996. The same store increases were due to
significant growth in both average patient census and net revenue per patient
day. The Company expects the rate of same store revenue growth to moderate in
future quarters as the Company will no longer be comparing its performance to
quarters which were significantly effected by the Focused Medical Review
conducted by a HCFA intermediary (see "Liquidity and Capital Resources").
Revenues from the Company's chemical dependency program increased 65% compared
to the quarter ended July 31, 1995. The public sector chemical dependency
program in Arkansas which commenced operations in January 1996 contributed 93%
of this increase. Net income for the quarter ended July 31, 1996 was $583,000,
an increase of $577,000, as compared to the quarter ended July 31, 1995.
Operating Expenses. Operating expenses for the quarter ended July 31, 1996 were
$9.6 million, an increase of $4.7 million, or 98.4% as compared to the quarter
ended July 31, 1995. Of this increase, $2.9 million, or 61% was attributed to
the Case Management Programs in Tennessee and Arkansas, which had not commenced
commercial operations in the quarter ended July 31, 1995. The remainder of the
increase in operating expenses was associated with increased costs to support
the revenue growth at existing Outpatient Programs and the net increase of five
Outpatient Programs as compared to the prior year period. As a percentage of
revenues, operating expenses declined from 80.3% in the quarter ended July 31,
1995 to 73.4% in the quarter ended July 31, 1996.
Marketing, General and Administrative Expenses.
Marketing, general and administrative expenses for the quarter ended July 31,
1996 were $1.7 million, an increase of $888,000, or 110.6% as compared to the
quarter ended July 31, 1995. Of this increase, $653,000, or 73.5% was attributed
to the Case Management Programs in Tennessee and Arkansas, which had not
commenced commercial operations in the quarter ended July 31, 1995. The
remainder of the increase in marketing, general and administrative expenses was
associated with increased costs to support the revenue growth at existing
Outpatient Programs, preparation for potential Outpatient Program growth
associated with the Columbia agreement and the net increase of five Outpatient
Programs as compared to the prior year period. As a percentage of revenues,
marketing, general and administrative expenses declined from 13.4% in the
quarter ended July 31, 1995 to 13.0% in the quarter ended July 31, 1996.
Depreciation and Amortization. Depreciation and amortization expenses for the
quarter ended July 31, 1996 were $180,000, an increase of $66,000, or 57.9% as
compared to the quarter ended July 31, 1995. The increase was due to the
amortization of covenants not to compete associated with the commencement of
case management operations in Tennessee and to increases in capital assets
associated with the addition of five sites for new Outpatient Programs.
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Provision for Bad Debts. Expenses related to the provision for bad debts for the
quarter ended July 31, 1996 were $602,000, an increase of $404,000 or 204.7% as
compared to the quarter ended July 31, 1995. The increase was due to a
combination of a substantial increase in revenues with a modest increase in the
percent accrued for the provision of bad debts. As a percentage of revenues, the
provision for bad debts increased to 4.6% of revenues from 3.3% of revenues in
the prior year quarter.
Dividends. Dividend expense for the quarter ended July 31, 1996 was $17,000, a
decrease of $15,000, or 47.0% as compared to the quarter ended July 31,1995. The
decrease was due to the conversion in June, 1996, of all shares of the Series C
Convertible Preferred Stock into 700,000 shares of common stock. See "Liquidity
and Capital Resources."
Liquidity and Capital Resources.
For the quarter ended July 31, 1996, net cash used in operating activities was
$157,000. Working capital on hand was $15.0 million, an increase of $4.1
million, or 37.8% as compared to fiscal year end April 30, 1996. Cash on hand at
July 31, 1996 was $5.5 million, an increase of $1.6 million, or 41.3% compared
to fiscal year end April 30, 1996.
The use of cash from operating activities was due to an increase in receivables
associated with the Company's growth in revenues and an increase in days sales
outstanding from 72 at fiscal year end April 30, 1996 to 82 at quarter end July
31, 1996. The increase in cash and working capital was due to $1.9 million
provided by financing activities (primarily the exercise of certain incentive
stock options as well as Class A and Class B Warrants granted in conjunction
with the Company's October 1994 issuance of its Series C convertible preferred
stock). The exercise of these Warrants provided the Company with net proceeds of
$1.3 million in July 1996. The Company also expects that its Class C Warrants,
also issued with the Series C Convertible Preferred Stock, will be exercised on
or before their redemption scheduled for September 30, 1996. Exercise of the
Class C Warrants will yield for the Company additional proceeds of $1,050,000
and will result in the issuance of 175,000 additional shares.
As of July 31, 1996, the Company had no long term debt and had not drawn upon
its outstanding line of credit of $3.0 million.
The Company anticipates using its capital resources for the start-up of several
new outpatient programs; initial start-up losses in the Case Management Program
in Arkansas and development expenses for new case management and managed care
projects. The Company expects funds from operations and its $3.0 million line of
credit to be sufficient over the next twelve months to meet its financial
obligations. The opening of new Outpatient Programs typically requires $45,000
to $75,000 for office equipment, supplies, lease deposits, and the hiring and
training of personnel prior to opening. These programs generally experience
operating losses through an average of the first four months of operations.
A charge upon the Company's working capital may occur during the year ending
April 30, 1997 or thereafter as a result of certain uncertainties associated
with the healthcare reimbursement rules
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as they apply to the Company's Outpatient Program. During fiscal year 1996, a
majority of the Company's revenues were derived from the Company's management of
its Outpatient Program. Since substantially all of the patients of the Company's
Outpatient Program are eligible for Medicare, collection of a significant
component of the Company's management fees is dependent upon reimbursement of
claims submitted to fiscal intermediaries by the Hospitals or CMHCs (Providers)
on whose behalf these programs are managed.
The Company has been advised by HCFA that certain program-related costs are not
allowable for reimbursement. The Company may be responsible for reimbursement of
the amounts disallowed pursuant to obligations that exist with certain
Providers. Although the Company believes that its potential liability to satisfy
such requirements has been adequately reserved in its financial statements, the
obligation to pay such amounts when and if they become due, could have a
material adverse impact on the Company's short term liquidity. Certain factors
are, in management's view, likely to lessen the impact of any such effect,
including the expectation that, if claims arise, they will arise on a periodic
basis over several years; that any disallowance will merely be offset against
obligations already owed by the Provider to the Company; and that, in certain
instances, funds have already been paid into an escrow account to cover any such
eventuality.
During the fourth quarter of fiscal year 1994, fiscal intermediaries for
providers began a Focused Medical Review of claims for partial hospitalization
services throughout the industry. The Company's initial experience with Focused
Medical Review was that there were numerous denials of Providers' claims, and
the denials had an adverse impact on the Company's cash flow during fiscal year
1995 because Providers delayed payment of the Company's management fees.
In fiscal year 1996, effects of the Focused Medical Review substantially
abated and the number of denied claims was at an insignificant rate. Although
during fiscal year 1997, the number of denied claims is likely to remain at an
insignificant rate, there can be no assurances that a Focused Medical Review of
claims will not recur at the level previously experienced by the Company.
The Company maintains reserves to cover the effect of primarily two
uncertainties: 1) that the Company may have an obligation to indemnify certain
Providers for some portions of its management fee which may be subject to
disallowance upon audit of the Providers' cost reports by fiscal intermediaries;
and 2) that the Company may not receive full payment of the management fees owed
to it by the Providers during the periodic review of the Providers' claims by
the fiscal intermediaries.
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
When used in this Quarterly Report on Form 10-Q and in other public
statements by the Company and Company officers, the words "may", "will",
"expect", "anticipate", "continue", "forecast", "estimate", "project", "intend",
and similar expressions are intended to identify forward-looking statements
regarding events and financial trends which may affect the Company's future
operating results and financial position. Such statements are subject to risks
and uncertainties that could cause the Company's actual results and financial
position to differ materially. Such factors include, among others: (i) the
dependence of the Company's revenues upon third party reimbursement under
applicable Medicare and Medicaid programs and guidelines; (ii) the sufficiency
of reserves established within the Company's financial statements to cover
uncertainties relative to reimbursement issues; (iii) the Company's ability to
remain in compliance with numerous federal and state regulations as they pertain
to the delivery of mental health care in Medicare and Medicaid covered programs;
(iv) the potential impact of healthcare reform proposals intended to control
healthcare costs; (v) the Company's ability to maintain or increase its level of
revenues through the renewal of existing management contracts and the securing
of new management contracts; (vi) the potential adverse effect a decrease in the
trading price of Company's Common Stock would have upon future financing
efforts; (vii) the Company's ability to obtain additional financing on
satisfactory terms and conditions that would permit the continued growth of the
Company's programs and operations. (viii) the reliance of the Company upon the
continued services of its executive officers and other key personnel; (ix) the
Company's ability to remain competitive in national, regional and local markets
in an industry which is highly competitive; (x) the Company's ability to manage
rapid increases in program size and scope as it continues to pursue an
aggressive growth strategy; and (xi) other economic, competitive and
governmental factors affecting the Company's overall operations, market,
services, and finances. Additional factors are described in the Company's other
public reports and registration statements filed with the Securities and
Exchange Commission. Readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date made, and which rely
on assumptions that, while reasonable when made, could change significantly
based upon future events which are often out of the control of the Company. The
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release of forward-looking statements will not impose an obligation upon the
Company to maintain or update these statements in the future. The Company shall
assume no responsibility to publicly release the results of any revision of
forward-looking statements to reflect these ends or circumstances after the date
they are made or to reflect the occurrence of unanticipated events.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b)Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: September 13, 1996
PMR CORPORATION
BY: Allen Tepper
--------------------------------------
ALLEN TEPPER
President and Chief Executive Officer
(Principal Executive Officer)
BY: Mark P. Clein
--------------------------------------
MARK P. CLEIN
Chief Financial Officer
(Principal Financial Officer)
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 5,536,509
<SECURITIES> 0
<RECEIVABLES> 14,158,902
<ALLOWANCES> 2,569,752
<INVENTORY> 0
<CURRENT-ASSETS> 20,150,905
<PP&E> 671,419
<DEPRECIATION> 945,613
<TOTAL-ASSETS> 25,051,010
<CURRENT-LIABILITIES> 5,117,223
<BONDS> 0
0
0
<COMMON> 47,605
<OTHER-SE> 11,642,091
<TOTAL-LIABILITY-AND-EQUITY> 20,150,905
<SALES> 0
<TOTAL-REVENUES> 13,028,083
<CGS> 0
<TOTAL-COSTS> 9,566,768
<OTHER-EXPENSES> 180,242
<LOSS-PROVISION> 601,511
<INTEREST-EXPENSE> (31,168)
<INCOME-PRETAX> 1,018,255
<INCOME-TAX> 418,000
<INCOME-CONTINUING> 600,255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 600,225
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
</TABLE>
