<PAGE> 1
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 January 31, 2000
--------------------------------
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 0-20488
PMR CORPORATION
---------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 23-2491707
- --------------------------------------------------- ---------------------
(State or Other Jurisdiction of Incorporation or (IRS Employer
Organization) Identification No.)
501 Washington Street, 5th Floor San Diego, California 92103
- ------------------------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 619-610-4001
--------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report
Indicate by check [X] 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: Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
At January 31, 2000, PMR Corporation had 7,053,696 shares of common stock
outstanding.
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PMR CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C> <C> <C>
PART I FINANCIAL INFORMATION
Item 1.
Financial Condensed Consolidated Balance
Statements Sheets as of January 31, 2000
(Unaudited) and April 30, 1999 1
Condensed Consolidated Statements
of Operations for the three and
nine month periods ended January
31, 2000 and 1999 (Unaudited) 2
Condensed Consolidated Statements
of Cash Flows for the nine months
ended January 31, 2000 and 1999
(Unaudited) 3
Notes to Condensed Consolidated
Financial Statements (Unaudited) 4
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 8
Item 3. Quantitative and Qualitative
Disclosures about Market Risks 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of
Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of 18
Security Holders
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
EXHIBITS
Exhibit Index 20
Exhibits 2.1 through 2.8 21
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PMR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
2000 1999
------------------- -------------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,801,095 $ 5,248,846
Short-term investments, available for sale 18,669,131 27,509,554
Accounts receivable, net of allowance for uncollectible amounts
of $4,618,312 in 2000 and $7,124,000 in 1999 8,339,088 13,074,624
Prepaid expenses and other current assets 1,786,367 3,973,723
Income taxes receivable 1,954,252 2,212,815
Deferred income tax benefit 4,653,000 4,653,000
Net current assets of discontinued operations - 1,471,048
------------------- -------------------
Total current assets 43,202,933 58,143,610
Furniture and office equipment, net of accumulated depreciation
of $1,681,941 in 2000 and $1,532,000 in 1999 2,278,960 2,413,925
Long-term receivables, net of allowance for uncollectible amounts
of $1,527,602 in 2000 and $4,087,000 in 1999 2,607,789 4,742,329
Deferred income tax benefit 1,206,000 1,206,000
Other assets 866,050 546,621
Net long term assets of discontinued operations - 450,009
------------------- -------------------
Total assets $50,161,732 $67,502,494
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 653,355 $ 1,416,821
Accrued expenses 2,085,388 1,563,927
Accrued compensation and employee benefits 1,840,744 2,083,082
Advances from case management agencies 1,690,819 846,353
------------------- -------------------
Total current liabilities 6,270,306 5,910,183
Note payable 221,369 294,073
Deferred rent expense 47,840 53,438
Contract settlement reserve 5,843,090 6,672,727
Minority interest - 1,921,057
Commitments
Stockholders' equity:
Convertible preferred stock, $.01 par value, authorized shares -
1,000,000; issued & outstanding shares - none in 2000 and 1999 - -
Common Stock, $.01 par value, authorized shares - 19,000,000;
issued and outstanding shares - 7,053,696 in 2000 and
6,988,877 in 1999 78,287 69,889
Additional paid-in capital $49,969,931 48,123,385
Notes receivable from employees and officers ($1,312,250)
Retained earnings (8,227,935) 5,400,242
Treasury stock, 775,000 shares of common stock at January 31,
2000 and 140,000 at April 30, 1999 at cost (2,728,906) (942,500)
------------------- -------------------
Total stockholders' equity 37,779,127 52,651,016
------------------- -------------------
Total liabilities and stockholders' equity $50,161,732 $67,502,494
=================== ===================
</TABLE>
See notes to condensed consolidated financial statements
1
<PAGE> 4
PMR CORPORATION
CONDENSED STATEMENTS OF OPERATION
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31, NINE MONTHS ENDED JANUARY 31,
------------------------------ -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue - psychiatric care $ 9,946,482 $ 13,227,364 $ 35,276,294 $ 41,845,979
------------ ------------ ------------ ------------
Net revenue 9,946,482 13,227,364 35,276,294 41,845,979
Costs and expenses:
Direct operating expenses - psychiatric care 8,684,306 9,091,929 28,203,894 28,707,291
Marketing, general and administrative 2,667,116 2,684,284 7,382,677 7,713,445
Provision for bad debts 3,404,231 1,136,193 4,839,670 2,637,372
Depreciation and amortization 243,672 315,833 767,075 853,872
Acquisition expense - - - 1,774,772
Special charge 347,379 - 1,030,140 (678,292)
Net interest (income) (399,532) (274,862) (1,149,973) (1,265,988)
------------ ------------ ------------ ------------
14,947,172 12,953,377 41,073,483 39,742,472
Income (loss) from continuing operations before income
taxes and cumulative change (5,000,690) 273,987 (5,797,189) 2,103,507
Income tax (benefit) expense (2,050,000) 78,000 (2,377,000) 828,000
------------ ------------ ------------ ------------
Net income (loss) from continuing operations before
cumulative change (2,950,690) 195,987 (3,420,189) 1,275,507
Cumulative change, net of income tax benefit - - - 592,689
------------ ------------ ------------ ------------
Net income (loss) from continuing operations $ (2,950,690) $ 195,987 $ (3,420,189) $ 682,818
Discontinued Operations - Stadt Solutions LLC
Income (loss) from discontinued operations, net of tax (134,203) (18,039) (819,559) 61,882
Gain on the sale of discontinued operations, net of tax 1,211,570 - 1,211,570 -
------------ ------------ ------------ ------------
Net income (loss) $ (1,873,323) $ 177,948 $ (3,028,178) $ 744,700
============ ============ ============ ============
Earnings (loss) per common share before cumulative change:
Basic $ (0.47) $ 0.03 $ (0.53) $ 0.18
------------ ------------ ------------ ------------
Diluted $ (0.47) $ 0.03 $ (0.53) $ 0.17
------------ ------------ ------------ ------------
Earnings (loss) per common share :
Earnings (loss) from continuing operations - Basic $ (0.47) $ 0.03 $ (0.53) $ 0.10
------------ ------------ ------------ ------------
Earnings (loss) from continuing operations - Diluted $ (0.47) $ 0.03 $ (0.53) $ 0.09
------------ ------------ ------------ ------------
Earnings (loss) from discontinued operations - Basic $ (0.02) $ (0.00) $ (0.13) $ 0.01
------------ ------------ ------------ ------------
Earnings (loss) from discontinued operations - Diluted $ (0.02) $ (0.00) $ (0.13) $ 0.01
------------ ------------ ------------ ------------
Gain on disposal of discontinued operations - Basic $ 0.19 $ - $ 0.19 $ -
------------ ------------ ------------ ------------
Gain on disposal of discontinued operations - Diluted $ 0.19 $ - $ 0.19 $ -
------------ ------------ ------------ ------------
Net income - Basic $ (0.30) $ 0.03 $ (0.47) $ 0.11
------------ ------------ ------------ ------------
Net income - Diluted $ (0.30) $ 0.02 $ (0.47) $ 0.10
------------ ------------ ------------ ------------
Shares used in computing earnings (loss) per share:
Basic 6,320,234 6,929,040 6,473,732 6,939,604
============ ============ ============ ============
Diluted 6,320,234 7,305,473 6,473,732 7,347,879
============ ============ ============ ============
Dividend declared per share of common stock
outstanding on January 26, 2000 of 7,053,689 shares $ 1.50 $ - $ 1.50 $ -
------------ ------------ ------------ ------------
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE> 5
PMR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JANUARY 31,
--------------------------------
2000 1999
----------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ($ 3,028,178) $ 744,700
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Write-off of costs related to terminated acquisition - 1,774,772
Special charge (credit) 1,030,140 (678,292)
Depreciation and amortization 864,429 854,867
Provision for bad debts 4,839,670 4,204,199
Cumulative effect of change in accounting principle - 592,689
Income (loss) applicable to minority interest (1,921,057) -
Deferred income taxes 258,563 -
Changes in operating assets and liabilities:
Accounts and notes receivables 8,939,209 (13,770,810)
Prepaid expenses and other assets (403,124) (53,397)
Accounts payable and accrued expenses (1,683,058) (1,323,750)
Accrued compensation and employee benefits (242,339) (289,412)
Advances from case management agencies 844,466 (750,239)
Payable to related party (2,860,444) 2,770,869
Contract settlement reserve (829,636) 851,803
Income taxes receivable/payable - 926,189
Deferred rent expense (5,599) (5,819)
------------ ------------
Net cash provided by (used in) operating activities 5,803,042 (4,151,631)
INVESTING ACTIVITIES
Proceeds from the sale and maturity of short term investments 13,915,425 48,992,381
Purchases of short term investments (5,075,002) (48,469,293)
Purchases of furniture and office equipment (194,266) (808,773)
------------ ------------
Net cash provided by (used in) investing activities 8,646,157 (285,685)
FINANCING ACTIVITIES
Proceeds from sale of common stock 1,854,944 159,778
Notes receivable from employees and officers (1,312,250)
Investment by related party in subsidiary - 2,597,789
Payments on note payable to bank (72,704) (68,792)
Acquisition of treasury stock (1,786,406) (280,000)
Cash dividend paid (10,580,534) -
------------ ------------
Net cash provided by (used in) financing activities (11,896,950) 2,408,775
------------ ------------
Net increase (decrease) in cash 2,552,249 (2,028,541)
Cash at beginning of period 5,248,846 18,522,859
------------ ------------
Cash at end of period $ 7,801,095 $ 16,494,318
============ ============
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE> 6
PMR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
January 31, 2000
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 audited financial statements.
The condensed consolidated balance sheet at April 30, 1999 has been derived from
the audited financial statements at that date but does 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 of the financial position of PMR Corporation ("PMR" or the
"Company") has been included. Operating results for the three and nine months
ended January 31, 2000, are not necessarily indicative of the results that may
be expected for the year ending April 30, 2000. 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, 1999.
4
<PAGE> 7
NOTE B - EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per
Share, requires dual presentation of basic and diluted earnings per share by
entities with complex capital structures. Basic EPS includes no dilution and is
computed by dividing net income (loss) by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
of securities that could share in the earnings of the entity. The Company has
calculated its earnings per share in accordance with SFAS No. 128 for all
periods presented.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Numerator :
Net income (loss) available to common stockholders $(3,028,178) $ 744,700
=========== ===========
Denominator:
Weighted average shares outstanding for basic
earnings per share 6,473,732 6,939,604
----------- -----------
Effects of dilutive securities
Employee stock options and warrants 0 408,275
----------- -----------
Dilutive potential common shares 0 408,275
----------- -----------
Shares used in computing diluted earnings per
common share 6,473,732 7,347,879
=========== ===========
Earnings (loss) per common share, basic $ (0.47) $ 0.11
=========== ===========
Earnings (loss) per common share, diluted $ (0.47) $ 0.10
=========== ===========
</TABLE>
Common stock equivalents of 46,227 shares for the nine months ended January 31,
2000 were excluded from the calculation of diluted earnings per share because of
the anti-dilutive effect related to the net loss for the nine months ended
January 31, 2000.
5
<PAGE> 8
NOTE C - DISCLOSURES ABOUT REPORTABLE SEGMENTS
In accordance with the criteria of SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information, the Company determined that it operates
in two reportable segments: Outpatient Programs and Case Management Programs.
The Company's reportable segments are strategic business units that offer
different services to a variety of inpatient and outpatient recipients.
Activities classified as "Other" in the following schedule relate to primarily
unallocated home office items and activity from the Company's chemical
dependency and other programs. The following schedule excludes results of the
Pharmaceutical Care segment for both periods presented. See Note D for
discussion of discontinued operations.
A summary of segment activity is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31, 2000
-------------------------------------------------------------------
CASE
OUTPATIENT MANAGEMENT
PROGRAMS PROGRAMS OTHER TOTAL
-------- -------- ----- -----
<S> <C> <C> <C> <C>
2000
Revenues $ 23,410,785 $ 10,597,684 $ 1,267,825 $ 35,276,294
Income (loss) before
income taxes, cumulative
change, discontinued
operations and gain on
the disposal of asset 4,365,145 826,210 (10,988,544) (5,797,189)
1999
Revenues $ 32,840,716 $ 7,728,965 $ 1,276,298 $ 41,845,979
Income (loss) before
income taxes, cumulative
change, discontinued
operations and gain on
the disposal of asset 8,194,363 534,550 (6,625,406) 2,103,507
</TABLE>
6
<PAGE> 9
NOTE D - DISCONTINUED OPERATIONS
During the third quarter ended January 31, 2000, the Company sold its interest
in Stadt Solutions LLC ("Stadt Solutions"), a majority owned subsidiary with
Stadt Holdings (formerly Stadtlander). The transaction, which reduced the
Company's membership interest to a nominal level, resulted in cash proceeds of
$3.3 million and a gain of $1.2 million, net of taxes. The operating results of
the discontinued operations are summarized below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31, NINE MONTHS ENDED JANUARY 31,
-------------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenue $ 7,037,787 $ 8,762,090 $ 26,878,254 $ 20,441,648
Income before minority interest and
income tax (benefit) (455,494) (483,987) (2,773,570) 163,882
Minority interest (227,291) (511,948) (1,384,011) -
------------ ------------ ------------ ------------
Income before income tax (benefit) (228,203) 27,961 (1,389,559) 163,882
Income tax expense (benefit) (94,000) 46,000 (570,000) 102,000
------------ ------------ ------------ ------------
Net income $ (134,203) $ (18,039) $ (819,559) $ 61,882
============ ============ ============ ============
</TABLE>
Assets and liabilities of the discontinued operations for Stadt Solutions, LLC
have been eliminated from the condensed consolidated balance sheet as of January
31, 2000.
NOTE E - NOTES RECEIVABLE FROM EMPLOYEES AND OFFICERS
In January 2000, the Company loaned a total of $1.23 million to certain officers
of the Company for the purchase of stock pursuant to stock options. The Company
also made available additional loans in the amount of $451,000 to certain
officers for related tax liabilities. Copies of the supporting promissory notes
and stock pledge agreements are attached in Part II - Other Information, Item 6
- - Exhibits. The loans for purchase of stock are with recourse and the additional
loans for related tax liabilities are without recourse. All loans are secured by
stock under the respective pledge agreements. During the three and nine months
ended January 31, 2000, the Company recognized $142,500 in compensation expense
related to stock options issued to officers with exercise prices below fair
market value.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. Among those factors are those discussed below and
in the Company's Annual Report on Form 10-K for the fiscal year ended April 30,
1999 and the Company's periodic reports and other filings with the Securities
and Exchange Commission. The 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 trends or
circumstances after the date they are made or to reflect the occurrence of
unanticipated events.
OVERVIEW
PMR Corporation ("PMR" or the "Company") is a leading manager of specialized
mental health care programs and disease management services designed to treat
individuals diagnosed with a serious mental illness ("SMI"). PMR manages and
administers the delivery of a broad range of outpatient and community-based
psychiatric services for SMI patients, consisting of a total of 24 Outpatient
Programs, four of which were closed after January 31, 2000, and two Case
Management Programs. PMR operates in approximately twelve states and employs or
contracts with more than 300 mental health professionals and provides services
to approximately 5,000 individuals diagnosed with SMI.
With respect to the Company's Outpatient Programs, based upon the Company's
financial performance and anticipated regulatory changes, the Company is in the
process of restructuring many of its contracts. Eleven contracts were terminated
during the third quarter ended January 31, 2000; and three contracts were
restructured and four contracts were terminated after January 31, 2000. The
Company has not yet determined how many contracts will eventually be
restructured or terminated. To the extent there are program closures, the
Company may incur restructuring charges associated with asset impairment, lease
terminations, and severance costs.
In addition, the Company launched InfoScriber Corporation, a wholly owned
subsidiary in the quarter ended January 31, 2000. The InfoScriber Corporation
has developed a proprietary, web-based, pharmaceutical information and
prescription system that automates medication orders and captures unique
disease-specific information of critical importance to providers, managed care
organizations, and pharmaceutical companies. InfoScriber's patent pending
technology imbeds series of medication queries within an electronic prescribing
system to collect real time data explaining a physician's rationale for
medication orders. Today, the majority of recurring information produced by the
Informatics industry is limited in detailing "what" and "how much" has
transpired and is derived after the fact from claims data. InfoScriber allows
the
8
<PAGE> 11
Company to ascertain not just what is happening in the real world, but "why"
physicians are choosing to use certain therapies and the outcomes of those
therapies.
SOURCES OF REVENUE
Outpatient Programs. Outpatient Programs managed or administered by PMR
are the Company's primary source of revenue. Revenue under these programs is
derived primarily from services provided under three types of agreements: (i)
all-inclusive fee arrangements based on fee-for-service rates (based on units of
service provided) under which the Company is responsible for substantially all
direct program costs; (ii) fee-for-service arrangements under which the provider
maintains responsibility for a large extent of direct program costs; and (iii)
fixed fee arrangements where the Company's fee is a fixed monthly sum and the
provider assumes substantially all program costs. The all-inclusive arrangements
were in effect at 11 of the 24 Outpatient Programs operated during the third
quarter and constituted 34.3% of the Company's psychiatric care revenue for the
three months ended January 31, 2000. These contractual agreements were with
hospitals or Community Mental Health Centers ("CMHCs"), and required the Company
to provide, at its own expense, specific management personnel for each program
site. Patients served by the Outpatient Programs typically are covered by
Medicare.
Revenue under the Outpatient Program is recognized at estimated net
realizable amounts when services are rendered based upon contractual
arrangements with providers. Under certain of the Company's contracts, the
Company is obligated to indemnify the provider for all or some portion of the
Company's fees that may not be deemed reimbursable to the provider by Medicare's
fiscal intermediaries. As of January 31, 2000, the Company had recorded $5.8
million in contract settlement reserves to provide for possible amounts
ultimately owed to its provider customers resulting from disallowance of costs
by Medicare and Medicare cost report settlement adjustments. Such reserves are
classified as non-current liabilities because ultimate determination of
substantially all of the potential contract disallowances are not anticipated to
occur during fiscal 2000.
Case Management Programs. For its Case Management Programs in Tennessee,
the Company receives a monthly case rate fee from the managed care consortium
responsible for managing the Tennessee TennCare Partners State Medical Managed
Care Program ("TennCare") and is responsible for the administration, provision
or arranging for the provision of psychiatric case management services and
related outpatient clinical care for consumers who are eligible to participate
in the TennCare program. Revenue under the TennCare program is recognized in the
period in which the related service is to be provided. These revenues represent
substantially all of the Company's case management revenues. The managed care
consortium has reduced the reimbursement rate at one case management agency with
an immaterial impact to the Company and is negotiating new rates for the other
agency.
9
<PAGE> 12
Sale of Chemical Dependency Programs. The Company completed the sale of
its Chemical Dependency Programs to a private company. The transaction closed in
the third quarter ended January 31, 2000, which resulted in a gain on sale of
$9,700, net of taxes.
Termination of Managed Care Pilot Project in Southern California after
January 31, 2000. In February 2000, the Company terminated its involvement with
the managed care pilot project in Southern California. The cost of termination
was not material and the Company should prospectively benefit from the resulting
discontinuance of periodic operating losses and negative cash flow associated
with the pilot project.
RESULTS OF OPERATIONS - QUARTER ENDED JANUARY 31, 2000 COMPARED TO QUARTER ENDED
JANUARY 31, 1999
Revenue - Psychiatric Care. Revenues from psychiatric care decreased
from $13.2 million for the quarter ended January 31, 1999 to $9.9 million for
the quarter ended January 31, 2000, a decrease of $3.3 million, or 24.8%. The
Outpatient Programs recorded revenues of $5.7 million for the quarter ended
January 31, 2000; a decrease of $4.2 million or 42.3% as compared to the quarter
ended January 31, 1999. Same site revenues within the Outpatient Programs
decreased from $3.7 million for the quarter ended January 31, 1999 to $3.2
million for the quarter ended January 31, 2000, a decrease of 14.7% or $550,000.
Closed sites within the Outpatient Programs accounted for a net revenue decrease
of $5.5 million for the quarter ended January 31, 2000 when compared to the
quarter ended January 31, 1999. The Outpatient Programs operated under an
all-inclusive fee arrangement had operating margins of (0.5)% in the quarter
ended January 31, 2000 as compared to 35.4% in the quarter ended January 31,
1999. The reduction in operating margin was mainly due to operating losses
incurred in the third quarter for programs that were closed during the quarter
ended January 31, 2000. The Company's Case Management Programs recorded revenues
of $3.9 million, an increase of $1.1 million, or 40%, from the quarter ended
January 31, 1999. The increase in revenues was due to an increase in consumers
of 58% as compared to the quarter ended January 31, 1999. Revenue from the
Company's Chemical Dependency Program, which was sold during the third quarter,
and other programs not included as outpatient or case management was $256,000
for the quarter ended January 31, 2000, a decrease of 43.6% from the quarter
ended January 31, 1999.
Direct Operating Expenses - Psychiatric Care. Direct operating expenses
consist of costs incurred at the program sites and costs associated with the
field management responsible for administering the programs. Direct operating
expenses were $8.7 million in the third quarter of fiscal year 2000, compared to
$9.1 million a year ago, a change of 4.5%. As a percentage of psychiatric care
revenues, psychiatric care operating expenses were 87.3% for the quarter ended
January 31, 2000, an increase from 68.7% for the quarter ended January 31, 1999.
The increase in operating expenses as a percentage of psychiatric care revenues
primarily reflects the impact of a decline in psychiatric care revenues from
programs that closed during the quarter ended January 31, 2000 without the
proportionate decrease in operating costs for such programs. Fixed operating
costs were typically incurred until the aforementioned programs were completely
closed.
10
<PAGE> 13
Marketing, General and Administrative. Marketing, general and
administrative expenses, which include $222,000 in severance costs and $186,000
in salaries for terminated staff, were $2.7 million for the quarter ended
January 31, 2000 versus $2.7 million in the quarter ended January 31, 1999. As a
percentage of total revenues, marketing, general and administrative expenses
were 26.8% for the quarter ended January 31, 2000, as compared to 20.3% for the
quarter ended January 31, 1999. The increase in marketing, general and
administrative expenses as a percent of revenue was due primarily to
restructuring costs and lower revenues from closing eleven Outpatient Program
locations during the quarter ended January 31, 2000.
Provision for Bad Debts. Expenses related to the provision for bad debts
increased from $1.1 million for the quarter ended January 31, 1999 to $3.4
million for the quarter ended January 31, 2000, an increase of $2.3 million or
209.1%. The increase was due primarily to $3 million in additional reserves
needed to write down the receivables mostly related to several closed programs.
The Company expects the allowance for uncollectable accounts to fluctuate based
on the amount of claims under review in its Outpatient Programs and the number
of programs that the Company manages. The Company may need to further increase
its provision for bad debts if program closures increase significantly due to
the Company's inability to restructure its contracts.
Depreciation and Amortization. Depreciation and amortization expenses
decreased from $316,000 for the quarter ended January 31, 1999 to $244,000 for
the quarter ended January 31, 2000, a decrease of $72,000, or 22.8%. The
decrease was due primarily to disposal and write-off of assets as a result of
closures of several sites.
Special Charge. In the quarter ended January 31, 2000, the Company
closed eleven Outpatient Program locations that incurred a charge of $59,000 for
lease termination costs, $244,000 for severance costs and $44,000 in the
write-off of various assets. As of January 31, 2000, the accrual for special
charges included in the liabilities section in the consolidated balance sheet
was $929,000.
Net Interest Income. Interest income, net of interest expense,
increased from $275,000 for the quarter ended January 31, 1999 to $400,000 for
the quarter ended January 31, 2000, an increase of $125,000, or 45.4%. The
increase is primarily due to $331,000 in non-recurring interest expense on
income taxes that was netted against $606,000 interest income for the quarter
ended January 31, 1999.
Income (Loss) Before Income Taxes and Cumulative Change. Income from
continuing operations before income taxes and cumulative change decreased from
$274,000 for the quarter ended January 31, 1999 to a loss of $5,001,000 for the
quarter ended January 31, 2000, a decrease of $5.3 million. The decrease is due
primarily to the increase in the provision for bad debt of $2.3 million, the
accrual of expenses associated with closed sites, reduced operating margins from
Outpatient Programs and severance expenses during the quarter ended January 31,
2000.
11
<PAGE> 14
Minority Interest. Minority interest has been eliminated due to the
discontinued operation of Stadt Solutions, LLC.
RESULTS OF OPERATIONS - NINE MONTHS ENDED JANUARY 31, 2000 COMPARED TO NINE
MONTHS ENDED JANUARY 31, 1999
Revenue - Psychiatric Care. Revenues from psychiatric care decreased
from $41.8 million for the nine months ended January 31, 1999 to $35.3 million
for the nine months ended January 31, 2000, a decrease of $6.6 million, or
15.7%. The Outpatient Programs recorded revenues of $23.4 million, a decrease of
$9.4 million or 28.7% as compared to nine months ended January 31 1999. Same
site revenues within the Outpatient Programs decreased by 7.3% or $842,000 as
compared to the nine months ended January 31, 1999. Closed sites within the
Outpatient Programs accounted for a net revenue decrease of $13.5 million for
the nine months ended January 31, 2000 when compared to the nine months ended
January 31, 1999. The Outpatient Programs operated under an all-inclusive fee
arrangement had operating margins of 22.6% in the nine months ended January 31,
2000 as compared to 35.5% in the nine months ended January 31, 1999. The
reduction in operating margin was mainly due to operating losses incurred in the
third quarter for programs that were closed during the quarter ended January 31,
2000. The Company's Case Management Programs recorded revenues of $10.6 million
for the nine months ended January 31, 2000, an increase of $2.9 million, or
37.1%, from the nine months ended January 31, 1999. The increase in revenues was
due to an increase in consumers of 58% as compared to the nine months ended
January 31, 1999. Revenues from the Company's Chemical Dependency Programs,
which were sold during the quarter ended January 31, 2000, and other programs
not included as outpatient or case management was $1.3 million, unchanged from
nine months ended January 31, 1999.
Direct Operating Expenses - Psychiatric Care. Direct operating expenses
consist of costs incurred at the program sites and costs associated with the
field management responsible for administering the programs. Direct operating
expenses decreased from $28.7 million for the nine months ended January 31, 1999
to $28.2 million for the nine months ended January 31, 2000, a decrease of
$500,000, or 1.8%. As a percentage of psychiatric care revenues, psychiatric
care operating expenses were 80.4% for the nine months ended January 31, 2000,
an increase from 68.6% for the nine months ended January 31, 1999. The increase
in operating expenses as a percentage of psychiatric care revenues primarily
reflects the impact of a decline in psychiatric care revenues from programs that
closed during the nine monthes ended January 31, 2000 without the proportionate
decrease in operating costs for such programs. Fixed operating costs were
typically incurred until the aforementioned programs were completely closed.
Marketing, General and Administrative. Marketing, general and
administrative expenses, which include $314,000 in severance costs and $884,000
in salaries for terminated staff, decreased from $7.7 million for the nine
months ended January 31, 1999 to $7.4 million for the nine months ended January
31, 2000, a decrease of $300,000 or 4.3%. As a percentage of total revenues,
marketing, general and administrative expenses were 18.4% for the nine months
ended January 31, 1999, as compared to 20.9% for the nine months ended January
31, 2000. The increase in marketing, general and administrative expenses as a
percent of revenue was due
12
<PAGE> 15
primarily to restructuring costs and reduced revenues from closing nineteen
program locations during the nine months ended January 31, 2000.
Provision for Bad Debts. Expenses related to the provision for bad debts
increased from $2.6 million for the nine months ended January 31, 1999 to $4.8
million for the nine months ended January 31, 2000, an increase of $2.2 million,
or 83.5%. The increase was due primarily to additional reserves to write down
the accounts receivables related to closed programs. As a percentage of
revenues, the provision for bad debts was 6.3% of revenues for the nine months
ended January 31, 1999 as compared to 13.7% for the nine months ended January
31, 2000. The Company expects the allowance for uncollectable amounts to
fluctuate based on the amount of claims under review in its Outpatient Programs
and the number of open programs. The Company may need to further increase its
provision for bad debts if program closures increase significantly due to the
inability to restructure its contracts.
Depreciation and Amortization. Depreciation and amortization expenses
decreased from $854,000 for the nine months ended January 31, 1999 to $767,000
for the nine months ended January 31, 2000,a decrease of $87,000 or 10.2%. The
decrease relates primarily to disposal and write-off of assets as a result of
closures of several program sites.
Special Charge. For the nine months ended January 31, 2000, the Company
closed nineteen outpatient psychiatric program locations and incurred a charge
of approximately $1.0 million. The charge consists primarily of lease
termination costs, severance costs, and write-offs of various fixed assets. In
addition, the Company restructured its administrative support structure
involving the reduction in administrative staff by 26% during the same period.
Severance costs of approximately $296,000 were incurred as a special charge in
connection with the restructuring. As of January 31, 2000, the accrual for
special charges included in the liabilities section in the consolidated balance
sheet was $929,000.
Net Interest Income. Interest income, net of interest expense, decreased
from $1,266,000 for the nine months ended January 31, 1999 to $1,150,000 for the
nine months ended January 31, 2000, a decrease of $116,000, or 9.2%. This
decrease resulted from lower cash, cash equivalents and short-term investment
balances resulting from the purchase of Treasury Stock and the use of cash in
operations in prior quarters.
Income (Loss) Before Income Taxes and Cumulative Change. Income before
income taxes and cumulative change decreased from $2.1 million for the nine
months ended January 31, 1999 to a loss of $5.8 million for the nine months
ended January 31, 2000, a decrease of $7.9 million. The decrease is due
primarily to the increase in the provision for bad debt of $2.2 million, the
accrual of expenses associated with closed sites, reduced operating margins from
Outpatient Programs and severance expenses associated with operations and
administration during the nine months ended January 31, 2000.
Cumulative Change. The cumulative change of $593,000 for the nine months
ended January 31, 1999, represents the effect, net of income tax benefit of
$411,000, of writing off previously capitalized start-up costs. The Company
adopted this change in accounting principle
13
<PAGE> 16
in the first nine months of fiscal 1999 consistent with the requirements of
Accounting Standards Executive Committee's Statement of Position 98-5, Reporting
on Costs of Start-up Activities.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended January 31, 2000, net cash provided by
operating activities was $5.8 million versus $4.2 million in net cash used in
operating activities for the same period in the prior fiscal year. Working
capital as of January 31, 2000 was $37.0 million, a decrease of $15.2 million,
as compared to working capital at April 30, 1999. Cash, cash equivalents and
short-term investments totaled $26.5 million as of January 31, 2000, a decrease
of $6.3 million or 19.2% as compared to April 30, 1999. The decrease is
primarily attributed to the distribution of the $10.6 million dividend during
the quarter ended January 31, 2000.
Cash was provided by operating activities during the nine months ended
January 31, 2000 due to intensified collection of accounts receivable and
receipt of proceeds from the discontinued operations of Stadt Solutions of $3.3
million. The Company experienced a decrease in accounts receivable, net of
allowance for uncollectable amounts, of $4.7 million as compared to the fiscal
year ended April 30, 1999. This decrease is due primarily to the $3.0 million
additional non-cash reserves for uncollectable amounts associated with closed
Outpatient Programs and intensified collection of accounts receivable. Long-term
accounts receivable experienced a net decrease of $2.1 million due primarily to
the payment of amounts due the Company under the long term contractual
provisions of its contracts.
Working capital available to finance fiscal 2000 obligations is expected
to be provided principally from operations, as well as from a $10 million line
of credit from Sanwa Bank. Interest is payable under this line of credit at
either the bank's reference rate or the Eurodollar rate plus 2%. As of January
31, 2000, no balance was outstanding under the line of credit. Working capital
is anticipated to be utilized during fiscal 2000 to continue expansion of the
Company's Case Management Programs, and for the rapid development of InfoScriber
Corporation. The Company also may use working capital and, if necessary, incur
indebtedness in connection with selective acquisitions.
In December 1998, the Board of Directors authorized the Company to
repurchase up to 350,000 shares of its common stock, approximately 5% of the
Company's outstanding common stock. Purchased shares will be used for corporate
purposes including issuance under PMR's stock compensation plans. As of April
30, 1999, the Company repurchased 140,000 shares of its common stock at an
average price of $6.73 per share, or $942,500, in open market transactions. In
May 1999, the Company repurchased additional 200,000 shares of its common stock
at a price of $3.75 per share, or $750,000, in open market transactions. In May
1999, the Board of Directors authorized the repurchase of an additional 5% of
the Company's outstanding common stock. Also, in August 1999, the Board of
Directors authorized that the Company may repurchase up to another 5% of the
Company's outstanding common stock. During the quarter ended October 31, 1999,
the Company repurchased 410,000 shares of its common stock at an average price
of $2.40 per share, or $984,843. During the quarter ended January 31, 2000, the
14
<PAGE> 17
Company repurchased 25,000 shares of its common stock at an average price of
$2.06 per share, or $51,563, in open market transactions. As of January 31,
2000, the Company has repurchased a total of 775,000 shares of common stock. All
shares repurchased are held in treasury.
As of January 31, 2000, the Company has expended $923,000 in InfoScriber
Corporation, of which $510,000 has been capitalized in accordance with FASB
Statement No. 86 Accounting for Software Costs. The capitalized costs are
included with other assets - long term in the consolidated balance sheet.
Amortization of capitalized software will begin in the quarter ended April 30,
2000. The Company anticipates ongoing expenditures to complete and commercialize
this effort, with portions of the expenditures capitalized according to FASB
Statement No. 86.
From time to time, the Company recognizes charges to operations as a
result of particular uncertainties associated with the health care reimbursement
rules as they apply to the Outpatient Programs. During the first nine months of
fiscal 1999 and 2000, a majority of the Company's psychiatric care revenue was
derived from the management of its Outpatient Programs. Since substantially all
of the patients of the Outpatient Programs 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 on whose behalf these programs are managed. Certain of the Company's
contracts with its providers contain warranty obligations that require the
Company to indemnify such providers for the portion of the Company's management
fee disallowed for reimbursement. 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, if and when they
become due, could have a material adverse effect on the Company's short term
liquidity.
The Company maintains significant reserves to cover the potential impact
of two primary uncertainties: (i) 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 a provider's cost report by fiscal
intermediaries; and (ii) the Company may not receive full payment of the
management fees owed to it by a provider during the periodic review of the
provider's claims by the fiscal intermediaries.
The Company has been advised by the Health Care Financing Administration
that certain program-related costs are not allowable for reimbursement. The
Company may be responsible for reimbursement of the amounts previously paid to
the Company that are disallowed pursuant to indemnity 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, there can be no assurance that such reserves will be
adequate. The obligation to pay the amounts estimated within the Company's
financial statements (or such greater amounts as are due), if and when they
become due, could have a material adverse effect upon the Company's business,
financial condition and results of operations.
IMPACT OF INFLATION
15
<PAGE> 18
A substantial portion of the Company's revenue is subject to
reimbursement rates that are regulated by the federal and state governments and
that do not automatically adjust for inflation. As a result, increased operating
costs due to inflation, such as labor and supply costs, without a corresponding
increase in reimbursement rates, may adversely affect the Company's earnings in
the future.
16
<PAGE> 19
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company does not and did not invest in market risk sensitive
instruments in the first nine months of fiscal 2000. The Company had and has no
exposure to market risk with regard to changes in interest rates. The Company
does not and has not used derivative financial instruments for any purposes,
including hedging or mitigating interest rate risk.
17
<PAGE> 20
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
As part of the acquisition of the Company's interest in Stadt
Solutions, the outstanding litigation with Bergen Brunswig Corporation
and related companies was settled and dismissed with prejudice.
Item 2 - Changes in Securities and Use of Proceeds
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
None
18
<PAGE> 21
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.
Dated: March 15, 2000
PMR CORPORATION
BY: /s/ MARK CLEIN
--------------------------------
MARK CLEIN
Chief Executive Officer
(Principal Executive Officer)
BY: /s/ MICHAEL FEORI
---------------------------------
MICHAEL FEORI
Controller
(Principal Accounting Officer)
19
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
- ------ -----------------------
<S> <C>
10.31 Promissory Note between Mark Clein and PMR Corporation in the amount of
$467,500, dated January 19, 2000.
10.32 Promissory Note between Mark Clein and PMR Corporation in the amount of
$257,208, dated January 19, 2000.
10.33 Stock Pledge Agreement between Mark Clein and PMR Corporation dated January
19, 2000.
10.34 Promissory Note between Fred Furman and PMR Corporation in the amount of
$684,750, dated January 19, 2000.
10.35 Promissory Note between Fred Furman and PMR Corporation in the amount of
$193,311, dated January 19, 2000.
10.36 Stock Pledge Agreement between Fred Furman and PMR Corporation dated January
19, 2000.
10.37 Promissory Note between Susan Erskine and PMR Corporation in the amount of
$80,000, dated January 19, 2000.
10.38 Stock Pledge Agreement between Susan Erskine and PMR Corporation dated January
19, 2000
27.1 Financial Data Schedule
</TABLE>
20
<PAGE> 1
EXHIBIT 10.31
PROMISSORY NOTE
$467,500 San Diego, California
January 19, 2000
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of PMR CORPORATION, a Delaware corporation (the "Company"), at
501 Washington Street, 5th Floor, San Diego, CA 92103, or at such other place as
the holder hereof may designate in writing, in lawful money of the United States
of America and in immediately available funds, the principal sum of Four Hundred
Sixty-Seven Thousand Five Hundred Dollars ($467,500) together with interest
accrued from the date hereof on the unpaid principal at the rate of 6.21% per
annum, or the maximum rate permissible by law (which under the laws of the State
of California shall be deemed to be the laws relating to permissible rates of
interest on commercial loans), whichever is less, as follows:
PRINCIPAL REPAYMENT. The outstanding principal amount hereunder shall be
due and payable in full on December 31, 2004; and
INTEREST PAYMENTS. Interest shall be compounded annually and shall be
payable annually in arrears on the thirty-first (31st) day of December
of each year, beginning on December 31, 2000, and shall be calculated on
the basis of a 360-day year for the actual number of days elapsed.
Upon an Event of Default, the Company, at its sole option, shall have
the right to accelerate this Note, in which event the entire principal balance
and all accrued interest shall become immediately due and payable, and
immediately collectible by the Company pursuant to applicable law. "Event of
Default" shall include (a) a failure by the undersigned to pay any of the
principal or accrued interest when due; or (b) if a court of competent
jurisdiction shall enter a decree or order for relief in respect of the
undersigned in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
the undersigned or for any substantial part of his property, and such decree or
order shall remain unstayed and in effect for a period of sixty (60) consecutive
days; or (c) if the undersigned shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in any involuntary
case under any such law, or shall consent to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official for the undersigned or shall make any general assignment for
the benefit of creditors or shall fail generally to pay his or her debts as they
become due or shall take any action in furtherance of any of the foregoing.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal. The
undersigned agrees that any and all cash that may be received as a dividend with
respect to the shares being purchased with the proceeds of this Note shall
immediately be applied toward the payment of amounts outstanding under this
Note.
21
<PAGE> 2
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Company, and is subject to all of the terms and provisions of the
Stock Pledge Agreement of even date herewith between the undersigned and the
Company.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
Signed /s/ MARK P. CLEIN
------------------------------
22
<PAGE> 1
EXHIBIT 10.32
PROMISSORY NOTE
$257,208 San Diego, California
January 19, 2000
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of PMR CORPORATION, a Delaware corporation (the "Company"), at
501 Washington Street, 5th Floor, San Diego, CA 92103, or at such other place as
the holder hereof may designate in writing, in lawful money of the United States
of America and in immediately available funds, the principal sum of Two Hundred
Fifty-Seven Thousand Two Hundred Eight Dollars ($257,208), or if less, the
actual amount advanced by the Company under this Note (which amount shall be
reflected on Exhibit A hereto), together with interest accrued from the date
hereof on the unpaid principal at the rate of 6.21% per annum, or the maximum
rate permissible by law (which under the laws of the State of California shall
be deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less, as follows:
PRINCIPAL REPAYMENT. The outstanding principal amount hereunder shall be
due and payable in full on December 31, 2004; and
INTEREST PAYMENTS. Interest shall be compounded annually and shall be
payable annually in arrears on the thirty-first (31st) day of December
of each year, beginning on December 31, 2000, and shall be calculated on
the basis of a 360-day year for the actual number of days elapsed.
Upon an Event of Default, the Company, at its sole option, shall have
the right to accelerate this Note, in which event the entire principal balance
and all accrued interest shall become immediately due and payable, and
immediately collectible by the Company pursuant to applicable law. "Event of
Default" shall include (a) a failure by the undersigned to pay any of the
principal or accrued interest when due; or (b) if a court of competent
jurisdiction shall enter a decree or order for relief in respect of the
undersigned in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
the undersigned or for any substantial part of his property, and such decree or
order shall remain unstayed and in effect for a period of sixty (60) consecutive
days; or (c) if the undersigned shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in any involuntary
case under any such law, or shall consent to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official for the undersigned or shall make any general assignment for
the benefit of creditors or shall fail generally to pay his or her debts as they
become due or shall take any action in furtherance of any of the foregoing.
23
<PAGE> 2
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Company, and is subject to all of the terms and provisions of the
Stock Pledge Agreement of even date herewith between the undersigned and the
Company. This Note is without recourse to the undersigned, and except for the
pledge of such shares of Common Stock, the undersigned shall not be personally
liable for repayment of any amounts due under this Note.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
Signed /s/ MARK P. CLEIN
------------------------------
24
<PAGE> 3
EXHIBIT A
<TABLE>
<CAPTION>
DATE AMOUNT ADVANCED PRINCIPAL BALANCE
<S> <C> <C>
3/7/2000 $193,756.41 $193,756.41
</TABLE>
25
<PAGE> 1
EXHIBIT 10.33
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("Pledge Agreement") is made by Mark P.
Clein ("Pledgor"), in favor of PMR CORPORATION, a Delaware corporation with its
principal place of business at 501 Washington Street, 5th Floor, San Diego, CA
92103 ("Pledgee").
WHEREAS, Pledgor has concurrently herewith executed that certain
Promissory Note in favor of Pledgee in the amount of $467,500 in payment of the
purchase price for shares of the Common Stock of Pledgee (the "Recourse Note")
and that certain Promissory Note in favor of the Pledgee in the amount of
$257,208 (the "Non-Recourse Note," and together with the Recourse Note, the
"Notes"); and
WHEREAS, Pledgee is willing to accept the Notes from Pledgor, but only
upon the condition, among others, that Pledgor shall have executed and delivered
to Pledgee this Pledge Agreement and the Collateral (as defined below):
NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, Pledgor hereby agrees as
follows:
1. As security for the full, prompt and complete payment and performance
when due (whether by stated maturity, by acceleration or otherwise) of all
indebtedness of Pledgor to Pledgee created under the Notes (all such
indebtedness being the "Liabilities"), together with, without limitation, the
prompt payment of all expenses, including, without limitation, reasonable
attorneys' fees and legal expenses, incidental to the collection of the
Liabilities and the enforcement or protection of Pledgee's lien in and to the
collateral pledged hereunder, Pledgor hereby pledges to Pledgee, and grants to
Pledgee, a first priority security interest in all of the following
(collectively, the "Pledged Collateral"):
(a) 196,398 shares of Common Stock of Pledgee represented by
Certificates numbered _______________ (the "Pledged Shares"), and all dividends,
cash, instruments, and other property or proceeds from time to time received,
receivable, or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares;
(b) all voting trust certificates held by Pledgor evidencing the
right to vote any Pledged Shares subject to any voting trust; and
(c) all additional shares and voting trust certificates from time
to time acquired by Pledgor in any manner (which additional shares shall be
deemed to be part of the Pledged Shares), and the certificates representing such
additional shares, and all dividends, cash, instruments, and other property or
proceeds from time to time received, receivable, or otherwise distributed in
respect of or in exchange for any or all of such shares.
The term "indebtedness" is used herein in its most comprehensive sense
and includes any and all advances, debts, obligations and Liabilities
heretofore, now or hereafter made, incurred or
26
<PAGE> 2
created, whether voluntary or involuntary and whether due or not due, absolute
or contingent, liquidated or unliquidated, determined or undetermined, and
whether recovery upon such indebtedness may be or hereafter becomes
unenforceable.
2. At any time, without notice, and at the expense of Pledgor, Pledgee
in its name or in the name of its nominee or of Pledgor may, but shall not be
obligated to: (1) collect by legal proceedings or otherwise all dividends
(except cash dividends other than liquidating dividends), interest, principal
payments and other sums now or hereafter payable upon or on account of said
Pledged Collateral; (2) enter into any extension, reorganization, deposit,
merger or consolidation agreement, or any agreement in any wise relating to or
affecting the Pledged Collateral, and in connection therewith may deposit or
surrender control of such Pledged Collateral thereunder, accept other property
in exchange for such Pledged Collateral and do and perform such acts and things
as it may deem proper, and any money or property received in exchange for such
Pledged Collateral shall be applied to the indebtedness or thereafter held by it
pursuant to the provisions hereof; (3) insure, process and preserve the Pledged
Collateral; (4) cause the Pledged Collateral to be transferred to its name or to
the name of its nominee; (5) exercise as to such Pledged Collateral all the
rights, powers and remedies of an owner, except that so long as no default
exists under any of the Notes or hereunder Pledgor shall retain all voting
rights as to the Pledged Shares.
3. Pledgor agrees to pay prior to delinquency all taxes, charges, liens
and assessments against the Pledged Collateral, and upon the failure of Pledgor
to do so, Pledgee at its option may pay any of them and shall be the sole judge
of the legality or validity thereof and the amount necessary to discharge the
same.
4. At the option of Pledgee and without necessity of demand or notice,
all or any part of the indebtedness of Pledgor shall immediately become due and
payable irrespective of any agreed maturity, upon the happening of any of the
following events: (1) failure to keep or perform any of the terms or provisions
of this Pledge Agreement; (2) failure to pay any installment of principal or
interest on any of the Notes when due; (3) the levy of any attachment, execution
or other process against the Pledged Collateral; or (4) the insolvency,
commission of an act of bankruptcy, general assignment for the benefit of
creditors, filing of any petition in bankruptcy or for relief under the
provisions of Title 11 of the United States Code of, by, or against Pledgor.
5. In the event of the nonpayment of any indebtedness when due, whether
by acceleration or otherwise, or upon the happening of any of the events
specified in the last preceding section, Pledgee may then, or at any time
thereafter, at its election, apply or set off (other than with respect to the
Non-Recourse Note), collect or sell in one or more sales, or take such steps as
may be necessary to liquidate and reduce to cash in the hands of Pledgee in
whole or in part, with or without any previous demands or demand of performance
or notice or advertisement, the whole or any part of the Pledged Collateral in
such order as Pledgee may elect, and any such sale may be made either at public
or private sale at its place of business or elsewhere, or at any broker's board
or securities exchange, either for cash or upon credit or for future delivery;
provided, however, that if such disposition is at private sale, then the
purchase
27
<PAGE> 3
price of the Pledged Collateral shall be equal to the public market price then
in effect, or, if at the time of sale no public market for the Pledged
Collateral exists, then, in recognition of the fact that the sale of the Pledged
Collateral would have to be registered under the Securities Act of 1933 and that
the expenses of such registration are commercially unreasonable for the type and
amount of collateral pledged hereunder, Pledgee and Pledgor hereby agree that
such private sale shall be at a purchase price mutually agreed to by Pledgee and
Pledgor or, if the parties cannot agree upon a purchase price, then at a
purchase price established by a majority of three independent appraisers
knowledgeable of the value of such collateral, one named by Pledgor within ten
(10) days after written request by the Pledgee to do so, one named by Pledgee
within such 10-day period, and the third named by the two appraisers so
selected, with the appraisal to be rendered by such body within thirty (30) days
of the appointment of the third appraiser. The cost of such appraisal, including
all appraiser's fees, shall be charged against the proceeds of sale as an
expense of such sale. Pledgee may be the purchaser of any or all Pledged
Collateral so sold and hold the same thereafter in its own right free from any
claim of Pledgor or right of redemption. Demands of performance, notices of
sale, advertisements and presence of property at sale are hereby waived, and
Pledgee is hereby authorized to sell hereunder any evidence of debt pledged to
it. Any officer or agent of Pledgee may conduct any sale hereunder.
6. The proceeds of the sale of any of the Pledged Collateral and all
sums received or collected by Pledgee from or on account of such Pledged
Collateral shall be applied by Pledgee to the payment of expenses incurred or
paid by Pledgee in connection with any sale, transfer or delivery of the Pledged
Collateral, to the payment of any other costs, charges, attorneys' fees or
expenses mentioned herein, and to the payment of the indebtedness or any part
hereof, all in such order and manner as Pledgee in its discretion may determine;
provided, however, that with respect to funds applied to repayment of amounts
outstanding under the Notes, the Pledgor shall be entitled to direct which of
the Notes to which such payments are applied. Pledgee shall then pay any balance
to Pledgor.
7. Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the Pledged Collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such Pledged
Collateral so transferred, and the transferee shall be vested with all the
rights and powers of Pledgee hereunder with respect to such Pledged Collateral
so transferred; but with respect to any Pledged Collateral not so transferred
Pledgee shall retain all rights and powers hereby given.
8. Until all indebtedness shall have been paid in full the power of sale
and all other rights, powers and remedies granted to Pledgee hereunder shall
continue to exist and may be exercised by Pledgee at any time and from time to
time irrespective of the fact that the indebtedness or any part thereof may have
become barred by any statute of limitations, or that the personal liability of
Pledgor, if any, may have ceased.
9. Pledgee agrees that so long as no default exists under any of the
Notes or hereunder, the Pledged Shares shall, upon the request of Pledgor, be
released from pledge as the indebtedness is paid. Such releases shall be at the
rate of one share for each Three and 69/100
28
<PAGE> 4
Dollars ($3.69) of principal amount of indebtedness paid. The Pledgor shall be
entitled to direct which of the Notes to which any payments of indebtedness are
applied.
10. Pledgee may at any time deliver the Pledged Collateral or any part
thereof to Pledgor and the receipt of Pledgor shall be a complete and full
acquittance for the Pledged Collateral so delivered, and Pledgee shall
thereafter be discharged from any liability or responsibility therefor.
11. The rights, powers and remedies given to Pledgee by this Pledge
Agreement shall be in addition to all rights, powers and remedies given to
Pledgee by virtue of any statute or rule of law. Any forbearance or failure or
delay by Pledgee in exercising any right, power or remedy hereunder shall not be
deemed to be a waiver of such right, power or remedy, and any single or partial
exercise of any right, power or remedy hereunder shall not preclude the further
exercise thereof; and every right, power and remedy of Pledgee shall continue in
full force and effect until such right, power or remedy is specifically waived
by an instrument in writing executed by Pledgee.
12. If any provision of this Pledge Agreement is held to be
unenforceable for any reason, it shall be adjusted, if possible, rather than
voided in order to achieve the intent of the parties to the extent possible. In
any event, all other provisions of this Pledge Agreement shall be deemed valid
and enforceable to the full extent possible.
13. This Pledge Agreement shall be governed by, and construed in
accordance with, the laws of the State of California as applied to contracts
made and performed entirely within the State of California by residents of such
State.
Dated: 1/19/2000 PLEDGOR
/s/ MARK P. CLEIN
------------------------------------
Mark P. Clein
29
<PAGE> 1
EXHIBIT 10.34
PROMISSORY NOTE
$684,750 San Diego, California
January 19, 2000
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of PMR CORPORATION, a Delaware corporation (the "Company"), at
501 Washington Street, 5th Floor, San Diego, CA 92103, or at such other place as
the holder hereof may designate in writing, in lawful money of the United States
of America and in immediately available funds, the principal sum of Six Hundred
Eight Four Thousand Seven Hundred Fifty Dollars ($684,750) together with
interest accrued from the date hereof on the unpaid principal at the rate of
6.21% per annum, or the maximum rate permissible by law (which under the laws of
the State of California shall be deemed to be the laws relating to permissible
rates of interest on commercial loans), whichever is less, as follows:
PRINCIPAL REPAYMENT. The outstanding principal amount hereunder shall be
due and payable in full on December 31, 2004; and
INTEREST PAYMENTS. Interest shall be compounded annually and shall be
payable annually in arrears on the thirty-first (31st) day of December
of each year, beginning on December 31, 2000, and shall be calculated on
the basis of a 360-day year for the actual number of days elapsed.
Upon an Event of Default, the Company, at its sole option, shall have
the right to accelerate this Note, in which event the entire principal balance
and all accrued interest shall become immediately due and payable, and
immediately collectible by the Company pursuant to applicable law. "Event of
Default" shall include (a) a failure by the undersigned to pay any of the
principal or accrued interest when due; or (b) if a court of competent
jurisdiction shall enter a decree or order for relief in respect of the
undersigned in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
the undersigned or for any substantial part of his property, and such decree or
order shall remain unstayed and in effect for a period of sixty (60) consecutive
days; or (c) if the undersigned shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in any involuntary
case under any such law, or shall consent to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official for the undersigned or shall make any general assignment for
the benefit of creditors or shall fail generally to pay his or her debts as they
become due or shall take any action in furtherance of any of the foregoing.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal. The
undersigned agrees that any and all cash that may be received as a dividend with
respect to the shares being purchased with the proceeds of this Note shall
immediately be applied toward the payment of amounts outstanding under this
Note.
30
<PAGE> 2
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Company, and is subject to all of the terms and provisions of the
Stock Pledge Agreement of even date herewith between the undersigned and the
Company.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
Signed /s/ FRED D. FURMAN
------------------------------
31
<PAGE> 1
EXHIBIT 10.35
PROMISSORY NOTE
$193,311 San Diego, California
January 19, 2000
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of PMR CORPORATION, a Delaware corporation (the "Company"), at
501 Washington Street, 5th Floor, San Diego, CA 92103, or at such other place as
the holder hereof may designate in writing, in lawful money of the United States
of America and in immediately available funds, the principal sum of One Hundred
Ninety-Three Thousand Three Hundred Eleven Dollars ($193,311), or if less, the
actual amount advanced by the Company under this Note (which amount shall be
reflected on Exhibit A hereto), together with interest accrued from the date
hereof on the unpaid principal at the rate of 6.21% per annum, or the maximum
rate permissible by law (which under the laws of the State of California shall
be deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less, as follows:
PRINCIPAL REPAYMENT. The outstanding principal amount hereunder shall be
due and payable in full on December 31, 2004; and
INTEREST PAYMENTS. Interest shall be compounded annually and shall be
payable annually in arrears on the thirty-first (31st) day of December
of each year, beginning on December 31, 2000, and shall be calculated on
the basis of a 360-day year for the actual number of days elapsed.
Upon an Event of Default, the Company, at its sole option, shall have
the right to accelerate this Note, in which event the entire principal balance
and all accrued interest shall become immediately due and payable, and
immediately collectible by the Company pursuant to applicable law. "Event of
Default" shall include (a) a failure by the undersigned to pay any of the
principal or accrued interest when due; or (b) if a court of competent
jurisdiction shall enter a decree or order for relief in respect of the
undersigned in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
the undersigned or for any substantial part of his property, and such decree or
order shall remain unstayed and in effect for a period of sixty (60) consecutive
days; or (c) if the undersigned shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in any involuntary
case under any such law, or shall consent to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official for the undersigned or shall make any general assignment for
the benefit of creditors or shall fail
32
<PAGE> 2
generally to pay his or her debts as they become due or shall take any action in
furtherance of any of the foregoing.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Company, and is subject to all of the terms and provisions of the
Stock Pledge Agreement of even date herewith between the undersigned and the
Company. This Note is without recourse to the undersigned, and except for the
pledge of such shares of Common Stock, the undersigned shall not be personally
liable for repayment of any amounts due under this Note.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
Signed /s/ FRED D. FURMAN
------------------------------
33
<PAGE> 3
EXHIBIT A
<TABLE>
<CAPTION>
DATE AMOUNT ADVANCED PRINCIPAL BALANCE
<S> <C> <C>
3/7/2000 $144,015.63 $144,015.63
</TABLE>
34
<PAGE> 1
EXHIBIT 10.36
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("Pledge Agreement") is made by Fred D.
Furman ("Pledgor"), in favor of PMR CORPORATION, a Delaware corporation with its
principal place of business at 501 Washington Street, 5th Floor, San Diego, CA
92103 ("Pledgee").
WHEREAS, Pledgor has concurrently herewith executed that certain
Promissory Note (the "Note") in favor of Pledgee in the amount of $684,750 in
payment of the purchase price for shares of the Common Stock of Pledgee (the
"Recourse Note") and that certain Promissory Note in favor of the Pledgee in the
amount of $193,311 (the "Non-Recourse Note," and together with the Recourse
Note, the "Notes"); and
WHEREAS, Pledgee is willing to accept the Notes from Pledgor, but only
upon the condition, among others, that Pledgor shall have executed and delivered
to Pledgee this Pledge Agreement and the Collateral (as defined below):
NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, Pledgor hereby agrees as
follows:
1. As security for the full, prompt and complete payment and performance
when due (whether by stated maturity, by acceleration or otherwise) of all
indebtedness of Pledgor to Pledgee created under the Notes (all such
indebtedness being the "Liabilities"), together with, without limitation, the
prompt payment of all expenses, including, without limitation, reasonable
attorneys' fees and legal expenses, incidental to the collection of the
Liabilities and the enforcement or protection of Pledgee's lien in and to the
collateral pledged hereunder, Pledgor hereby pledges to Pledgee, and grants to
Pledgee, a first priority security interest in all of the following
(collectively, the "Pledged Collateral"):
(a) 237,957 shares of Common Stock of Pledgee represented by
Certificates numbered _______________ (the "Pledged Shares"), and all dividends,
cash, instruments, and other property or proceeds from time to time received,
receivable, or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares;
(b) all voting trust certificates held by Pledgor evidencing the
right to vote any Pledged Shares subject to any voting trust; and
(c) all additional shares and voting trust certificates from time
to time acquired by Pledgor in any manner (which additional shares shall be
deemed to be part of the Pledged Shares), and the certificates representing such
additional shares, and all dividends, cash, instruments, and other property or
proceeds from time to time received, receivable, or otherwise distributed in
respect of or in exchange for any or all of such shares.
The term "indebtedness" is used herein in its most comprehensive sense
and includes any and all advances, debts, obligations and Liabilities
heretofore, now or hereafter made, incurred or
35
<PAGE> 2
created, whether voluntary or involuntary and whether due or not due, absolute
or contingent, liquidated or unliquidated, determined or undetermined, and
whether recovery upon such indebtedness may be or hereafter becomes
unenforceable.
2. At any time, without notice, and at the expense of Pledgor, Pledgee
in its name or in the name of its nominee or of Pledgor may, but shall not be
obligated to: (1) collect by legal proceedings or otherwise all dividends
(except cash dividends other than liquidating dividends), interest, principal
payments and other sums now or hereafter payable upon or on account of said
Pledged Collateral; (2) enter into any extension, reorganization, deposit,
merger or consolidation agreement, or any agreement in any wise relating to or
affecting the Pledged Collateral, and in connection therewith may deposit or
surrender control of such Pledged Collateral thereunder, accept other property
in exchange for such Pledged Collateral and do and perform such acts and things
as it may deem proper, and any money or property received in exchange for such
Pledged Collateral shall be applied to the indebtedness or thereafter held by it
pursuant to the provisions hereof; (3) insure, process and preserve the Pledged
Collateral; (4) cause the Pledged Collateral to be transferred to its name or to
the name of its nominee; (5) exercise as to such Pledged Collateral all the
rights, powers and remedies of an owner, except that so long as no default
exists under any of the Notes or hereunder Pledgor shall retain all voting
rights as to the Pledged Shares.
3. Pledgor agrees to pay prior to delinquency all taxes, charges, liens
and assessments against the Pledged Collateral, and upon the failure of Pledgor
to do so, Pledgee at its option may pay any of them and shall be the sole judge
of the legality or validity thereof and the amount necessary to discharge the
same.
4. At the option of Pledgee and without necessity of demand or notice,
all or any part of the indebtedness of Pledgor shall immediately become due and
payable irrespective of any agreed maturity, upon the happening of any of the
following events: (1) failure to keep or perform any of the terms or provisions
of this Pledge Agreement; (2) failure to pay any installment of principal or
interest on any of the Notes when due; (3) the levy of any attachment, execution
or other process against the Pledged Collateral; or (4) the insolvency,
commission of an act of bankruptcy, general assignment for the benefit of
creditors, filing of any petition in bankruptcy or for relief under the
provisions of Title 11 of the United States Code of, by, or against Pledgor.
5. In the event of the nonpayment of any indebtedness when due, whether
by acceleration or otherwise, or upon the happening of any of the events
specified in the last preceding section, Pledgee may then, or at any time
thereafter, at its election, apply or set off (other than with respect to the
Non-Recourse Note), collect or sell in one or more sales, or take such steps as
may be necessary to liquidate and reduce to cash in the hands of Pledgee in
whole or in part, with or without any previous demands or demand of performance
or notice or advertisement, the whole or any part of the Pledged Collateral in
such order as Pledgee may elect, and any such sale may be made either at public
or private sale at its place of business or elsewhere, or at any broker's board
or securities exchange, either for cash or upon credit or for future delivery;
provided, however, that if such disposition is at private sale, then the
purchase
36
<PAGE> 3
price of the Pledged Collateral shall be equal to the public market price then
in effect, or, if at the time of sale no public market for the Pledged
Collateral exists, then, in recognition of the fact that the sale of the Pledged
Collateral would have to be registered under the Securities Act of 1933 and that
the expenses of such registration are commercially unreasonable for the type and
amount of collateral pledged hereunder, Pledgee and Pledgor hereby agree that
such private sale shall be at a purchase price mutually agreed to by Pledgee and
Pledgor or, if the parties cannot agree upon a purchase price, then at a
purchase price established by a majority of three independent appraisers
knowledgeable of the value of such collateral, one named by Pledgor within ten
(10) days after written request by the Pledgee to do so, one named by Pledgee
within such 10-day period, and the third named by the two appraisers so
selected, with the appraisal to be rendered by such body within thirty (30) days
of the appointment of the third appraiser. The cost of such appraisal, including
all appraiser's fees, shall be charged against the proceeds of sale as an
expense of such sale. Pledgee may be the purchaser of any or all Pledged
Collateral so sold and hold the same thereafter in its own right free from any
claim of Pledgor or right of redemption. Demands of performance, notices of
sale, advertisements and presence of property at sale are hereby waived, and
Pledgee is hereby authorized to sell hereunder any evidence of debt pledged to
it. Any officer or agent of Pledgee may conduct any sale hereunder.
6. The proceeds of the sale of any of the Pledged Collateral and all
sums received or collected by Pledgee from or on account of such Pledged
Collateral shall be applied by Pledgee to the payment of expenses incurred or
paid by Pledgee in connection with any sale, transfer or delivery of the Pledged
Collateral, to the payment of any other costs, charges, attorneys' fees or
expenses mentioned herein, and to the payment of the indebtedness or any part
hereof, all in such order and manner as Pledgee in its discretion may determine;
provided, however, that with respect to funds applied to repayment of amounts
outstanding under the Notes, the Pledgor shall be entitled to direct which of
the Notes to which such payments are applied. Pledgee shall then pay any balance
to Pledgor.
7. Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the Pledged Collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such Pledged
Collateral so transferred, and the transferee shall be vested with all the
rights and powers of Pledgee hereunder with respect to such Pledged Collateral
so transferred; but with respect to any Pledged Collateral not so transferred
Pledgee shall retain all rights and powers hereby given.
8. Until all indebtedness shall have been paid in full the power of sale
and all other rights, powers and remedies granted to Pledgee hereunder shall
continue to exist and may be exercised by Pledgee at any time and from time to
time irrespective of the fact that the indebtedness or any part thereof may have
become barred by any statute of limitations, or that the personal liability of
Pledgor, if any, may have ceased.
9. Pledgee agrees that so long as no default exists under any of the
Notes or hereunder, the Pledged Shares shall, upon the request of Pledgor, be
released from pledge as the indebtedness is paid. Such releases shall be at the
rate of one share for each Three and 69/100
37
<PAGE> 4
Dollars ($3.69) of principal amount of indebtedness paid. The Pledgor shall be
entitled to direct which of the Notes to which any payments of indebtedness are
applied.
10. Pledgee may at any time deliver the Pledged Collateral or any part
thereof to Pledgor and the receipt of Pledgor shall be a complete and full
acquittance for the Pledged Collateral so delivered, and Pledgee shall
thereafter be discharged from any liability or responsibility therefor.
11. The rights, powers and remedies given to Pledgee by this Pledge
Agreement shall be in addition to all rights, powers and remedies given to
Pledgee by virtue of any statute or rule of law. Any forbearance or failure or
delay by Pledgee in exercising any right, power or remedy hereunder shall not be
deemed to be a waiver of such right, power or remedy, and any single or partial
exercise of any right, power or remedy hereunder shall not preclude the further
exercise thereof; and every right, power and remedy of Pledgee shall continue in
full force and effect until such right, power or remedy is specifically waived
by an instrument in writing executed by Pledgee.
12. If any provision of this Pledge Agreement is held to be
unenforceable for any reason, it shall be adjusted, if possible, rather than
voided in order to achieve the intent of the parties to the extent possible. In
any event, all other provisions of this Pledge Agreement shall be deemed valid
and enforceable to the full extent possible.
13. This Pledge Agreement shall be governed by, and construed in
accordance with, the laws of the State of California as applied to contracts
made and performed entirely within the State of California by residents of such
State.
Dated: 1/19/2000 PLEDGOR
/s/ FRED D. FURMAN
------------------------------------
Fred D. Furman
38
<PAGE> 1
EXHIBIT 10.37
PROMISSORY NOTE
$80,000 San Diego, California
January 19, 2000
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of PMR CORPORATION, a Delaware corporation (the "Company"), at
501 Washington Street, 5th Floor, San Diego, CA 92103, or at such other place as
the holder hereof may designate in writing, in lawful money of the United States
of America and in immediately available funds, the principal sum of Eighty
Thousand Dollars ($80,000) together with interest accrued from the date hereof
on the unpaid principal at the rate of 6.21% per annum, or the maximum rate
permissible by law (which under the laws of the State of California shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less, as follows:
PRINCIPAL REPAYMENT. The outstanding principal amount hereunder shall be
due and payable in full on December 31, 2004; and
INTEREST PAYMENTS. Interest shall be compounded annually and shall be
payable annually in arrears on the thirty-first (31st) day of December
of each year, beginning on December 31, 2000, and shall be calculated on
the basis of a 360-day year for the actual number of days elapsed.
Upon an Event of Default, the Company, at its sole option, shall have
the right to accelerate this Note, in which event the entire principal balance
and all accrued interest shall become immediately due and payable, and
immediately collectible by the Company pursuant to applicable law. "Event of
Default" shall include (a) a failure by the undersigned to pay any of the
principal or accrued interest when due; or (b) if a court of competent
jurisdiction shall enter a decree or order for relief in respect of the
undersigned in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
the undersigned or for any substantial part of his property, and such decree or
order shall remain unstayed and in effect for a period of sixty (60) consecutive
days; or (c) if the undersigned shall commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in any involuntary
case under any such law, or shall consent to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official for the undersigned or shall make any general assignment for
the benefit of creditors or shall fail generally to pay his or her debts as they
become due or shall take any action in furtherance of any of the foregoing.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal. The
undersigned agrees that any and all cash that may be
39
<PAGE> 2
received as a dividend with respect to the shares being purchased with the
proceeds of this Note shall immediately be applied toward the payment of amounts
outstanding under this Note.
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Company, and is subject to all of the terms and provisions of the
Stock Pledge Agreement of even date herewith between the undersigned and the
Company.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
Signed: /s/ SUSAN D. ERSKINE
-----------------------------
40
<PAGE> 1
EXHIBIT 10.38
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("Pledge Agreement") is made by Susan D.
Erskine ("Pledgor"), in favor of PMR CORPORATION, a Delaware corporation with
its principal place of business at 501 Washington Street, 5th Floor, San Diego,
CA 92103 ("Pledgee").
WHEREAS, Pledgor has concurrently herewith executed that certain
Promissory Note in favor of Pledgee in the amount of $80,000 in payment of the
purchase price for shares of the Common Stock of Pledgee (the "Note"); and
WHEREAS, Pledgee is willing to accept the Note from Pledgor, but only
upon the condition, among others, that Pledgor shall have executed and delivered
to Pledgee this Pledge Agreement and the Collateral (as defined below):
NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, Pledgor hereby agrees as
follows:
1. As security for the full, prompt and complete payment and performance
when due (whether by stated maturity, by acceleration or otherwise) of all
indebtedness of Pledgor to Pledgee created under the Note (all such indebtedness
being the "Liabilities"), together with, without limitation, the prompt payment
of all expenses, including, without limitation, reasonable attorneys' fees and
legal expenses, incidental to the collection of the Liabilities and the
enforcement or protection of Pledgee's lien in and to the collateral pledged
hereunder, Pledgor hereby pledges to Pledgee, and grants to Pledgee, a first
priority security interest in all of the following (collectively, the "Pledged
Collateral"):
(a) 21,681 shares of Common Stock of Pledgee represented by
Certificates numbered _______________ (the "Pledged Shares"), and all dividends,
cash, instruments, and other property or proceeds from time to time received,
receivable, or otherwise distributed in respect of or in exchange for any or all
of the Pledged Shares;
(b) all voting trust certificates held by Pledgor evidencing the
right to vote any Pledged Shares subject to any voting trust; and
(c) all additional shares and voting trust certificates from time
to time acquired by Pledgor in any manner (which additional shares shall be
deemed to be part of the Pledged Shares), and the certificates representing such
additional shares, and all dividends, cash, instruments, and other property or
proceeds from time to time received, receivable, or otherwise distributed in
respect of or in exchange for any or all of such shares.
The term "indebtedness" is used herein in its most comprehensive sense
and includes any and all advances, debts, obligations and Liabilities
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether recovery upon such
indebtedness may be or hereafter becomes unenforceable.
41
<PAGE> 2
2. At any time, without notice, and at the expense of Pledgor, Pledgee
in its name or in the name of its nominee or of Pledgor may, but shall not be
obligated to: (1) collect by legal proceedings or otherwise all dividends
(except cash dividends other than liquidating dividends), interest, principal
payments and other sums now or hereafter payable upon or on account of said
Pledged Collateral; (2) enter into any extension, reorganization, deposit,
merger or consolidation agreement, or any agreement in any wise relating to or
affecting the Pledged Collateral, and in connection therewith may deposit or
surrender control of such Pledged Collateral thereunder, accept other property
in exchange for such Pledged Collateral and do and perform such acts and things
as it may deem proper, and any money or property received in exchange for such
Pledged Collateral shall be applied to the indebtedness or thereafter held by it
pursuant to the provisions hereof; (3) insure, process and preserve the Pledged
Collateral; (4) cause the Pledged Collateral to be transferred to its name or to
the name of its nominee; (5) exercise as to such Pledged Collateral all the
rights, powers and remedies of an owner, except that so long as no default
exists under any of the Notes or hereunder Pledgor shall retain all voting
rights as to the Pledged Shares.
3. Pledgor agrees to pay prior to delinquency all taxes, charges, liens
and assessments against the Pledged Collateral, and upon the failure of Pledgor
to do so, Pledgee at its option may pay any of them and shall be the sole judge
of the legality or validity thereof and the amount necessary to discharge the
same.
4. At the option of Pledgee and without necessity of demand or notice,
all or any part of the indebtedness of Pledgor shall immediately become due and
payable irrespective of any agreed maturity, upon the happening of any of the
following events: (1) failure to keep or perform any of the terms or provisions
of this Pledge Agreement; (2) failure to pay any installment of principal or
interest on any of the Notes when due; (3) the levy of any attachment, execution
or other process against the Pledged Collateral; or (4) the insolvency,
commission of an act of bankruptcy, general assignment for the benefit of
creditors, filing of any petition in bankruptcy or for relief under the
provisions of Title 11 of the United States Code of, by, or against Pledgor.
5. In the event of the nonpayment of any indebtedness when due, whether
by acceleration or otherwise, or upon the happening of any of the events
specified in the last preceding section, Pledgee may then, or at any time
thereafter, at its election, apply or set off, collect or sell in one or more
sales, or take such steps as may be necessary to liquidate and reduce to cash in
the hands of Pledgee in whole or in part, with or without any previous demands
or demand of performance or notice or advertisement, the whole or any part of
the Pledged Collateral in such order as Pledgee may elect, and any such sale may
be made either at public or private sale at its place of business or elsewhere,
or at any broker's board or securities exchange, either for cash or upon credit
or for future delivery; provided, however, that if such disposition is at
private sale, then the purchase price of the Pledged Collateral shall be equal
to the public market price then in effect, or, if at the time of sale no public
market for the Pledged Collateral exists, then, in recognition of the fact that
the sale of the Pledged Collateral would have to be registered under the
Securities Act of 1933 and that the expenses of such registration are
commercially unreasonable for the type and amount of collateral pledged
hereunder, Pledgee and Pledgor hereby agree that such private sale shall be at a
purchase price mutually agreed to by Pledgee and Pledgor or, if the parties
cannot agree upon a purchase price, then at a purchase price
42
<PAGE> 3
established by a majority of three independent appraisers knowledgeable of the
value of such collateral, one named by Pledgor within ten (10) days after
written request by the Pledgee to do so, one named by Pledgee within such 10-day
period, and the third named by the two appraisers so selected, with the
appraisal to be rendered by such body within thirty (30) days of the appointment
of the third appraiser. The cost of such appraisal, including all appraiser's
fees, shall be charged against the proceeds of sale as an expense of such sale.
Pledgee may be the purchaser of any or all Pledged Collateral so sold and hold
the same thereafter in its own right free from any claim of Pledgor or right of
redemption. Demands of performance, notices of sale, advertisements and presence
of property at sale are hereby waived, and Pledgee is hereby authorized to sell
hereunder any evidence of debt pledged to it. Any officer or agent of Pledgee
may conduct any sale hereunder.
6. The proceeds of the sale of any of the Pledged Collateral and all
sums received or collected by Pledgee from or on account of such Pledged
Collateral shall be applied by Pledgee to the payment of expenses incurred or
paid by Pledgee in connection with any sale, transfer or delivery of the Pledged
Collateral, to the payment of any other costs, charges, attorneys' fees or
expenses mentioned herein, and to the payment of the indebtedness or any part
hereof, all in such order and manner as Pledgee in its discretion may determine.
Pledgee shall then pay any balance to Pledgor.
7. Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the Pledged Collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such Pledged
Collateral so transferred, and the transferee shall be vested with all the
rights and powers of Pledgee hereunder with respect to such Pledged Collateral
so transferred; but with respect to any Pledged Collateral not so transferred
Pledgee shall retain all rights and powers hereby given.
8. Until all indebtedness shall have been paid in full the power of sale
and all other rights, powers and remedies granted to Pledgee hereunder shall
continue to exist and may be exercised by Pledgee at any time and from time to
time irrespective of the fact that the indebtedness or any part thereof may have
become barred by any statute of limitations, or that the personal liability of
Pledgor, if any, may have ceased.
9. Pledgee agrees that so long as no default exists under any of the
Notes or hereunder, the Pledged Shares shall, upon the request of Pledgor, be
released from pledge as the indebtedness is paid. Such releases shall be at the
rate of one share for each Three and 69/100 Dollars ($3.69) of principal amount
of indebtedness paid.
10. Pledgee may at any time deliver the Pledged Collateral or any part
thereof to Pledgor and the receipt of Pledgor shall be a complete and full
acquittance for the Pledged Collateral so delivered, and Pledgee shall
thereafter be discharged from any liability or responsibility therefor.
11. The rights, powers and remedies given to Pledgee by this Pledge
Agreement shall be in addition to all rights, powers and remedies given to
Pledgee by virtue of any statute or rule of law. Any forbearance or failure or
delay by Pledgee in exercising any right, power or remedy hereunder shall not be
deemed to be a waiver of such right, power or remedy, and any single or partial
exercise of any right, power or remedy hereunder shall not preclude the further
exercise
43
<PAGE> 4
thereof; and every right, power and remedy of Pledgee shall continue in full
force and effect until such right, power or remedy is specifically waived by an
instrument in writing executed by Pledgee.
12. If any provision of this Pledge Agreement is held to be
unenforceable for any reason, it shall be adjusted, if possible, rather than
voided in order to achieve the intent of the parties to the extent possible. In
any event, all other provisions of this Pledge Agreement shall be deemed valid
and enforceable to the full extent possible.
13. This Pledge Agreement shall be governed by, and construed in
accordance with, the laws of the State of California as applied to contracts
made and performed entirely within the State of California by residents of such
State.
Dated: 1/19/2000 PLEDGOR
/s/ SUSAN D. ERSKINE
------------------------------------
Susan D. Erskine
44
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 7,801,095
<SECURITIES> 18,669,131
<RECEIVABLES> 12,957,400
<ALLOWANCES> 4,618,312
<INVENTORY> 0
<CURRENT-ASSETS> 43,202,933
<PP&E> 3,960,901
<DEPRECIATION> 1,681,941
<TOTAL-ASSETS> 50,161,732
<CURRENT-LIABILITIES> 6,270,306
<BONDS> 0
0
0
<COMMON> 78,287
<OTHER-SE> 37,700,840
<TOTAL-LIABILITY-AND-EQUITY> 50,161,732
<SALES> 0
<TOTAL-REVENUES> 35,276,294
<CGS> 0
<TOTAL-COSTS> 28,203,894
<OTHER-EXPENSES> 767,075
<LOSS-PROVISION> 4,839,670
<INTEREST-EXPENSE> (1,149,973)
<INCOME-PRETAX> (5,797,189)
<INCOME-TAX> (2,377,000)
<INCOME-CONTINUING> (3,420,189)
<DISCONTINUED> 392,011
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,028,178)
<EPS-BASIC> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
