-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SVpTxk0HaOapVBQDY4fbqeLZyQtFIPn7+wdJ2DWnGXueWWXrDEXtDcenTvPGR3ma Q0fi9fgqtj7GTj9inlkfBA== 0000936392-96-000779.txt : 19960917 0000936392-96-000779.hdr.sgml : 19960917 ACCESSION NUMBER: 0000936392-96-000779 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960916 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PMR CORP CENTRAL INDEX KEY: 0000829608 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 232491701 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20488 FILM NUMBER: 96630496 BUSINESS ADDRESS: STREET 1: 3990 OLD TOWN AVE STE 206A CITY: SAN DIEGO STATE: CA ZIP: 92110 BUSINESS PHONE: 6192952227 MAIL ADDRESS: STREET 1: 3990 OLD TOWN AVENUE SUITE 206A CITY: SAN DIEGO STATE: CA ZIP: 92110 FORMER COMPANY: FORMER CONFORMED NAME: ZARON CAPITAL INC DATE OF NAME CHANGE: 19891116 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) ___ OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1996 or ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-20488 PMR CORPORATION (Exact name of registrant as specified in its charter) Delaware 23-2491707 - ---------------------------------------- ---------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 3990 Old Town Avenue, Suite 206A, San Diego, California, 92110 (Address of principal executive offices, including zip code) (619) 295-2227 Registrant's Telephone No., Including Area Code) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. (1) Yes X No ____ (2) Yes X No ____ As of September 10, 1996 the Registrant has issued and outstanding 4,809,709 shares of common stock, par value $.01 per share. 2 PMR CORPORATION INDEX PART I FINANCIAL INFORMATION Page Item 1. Condensed Consolidated Balance Sheets as of July 31, 1996 (Unaudited) and April 30, 1996 1 Condensed Consolidated Statements of Operations for the three months ended July 31, 1996 and 1995 (Unaudited) 2 Condensed Consolidated Statements of Cash Flows for the three months ended July 31, 1996 and 1995 (Unaudited) 3 Notes to Condensed Consolidated Financial Statements (Unaudited) 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 PART II OTHER INFORMATION Item 1. Legal Proceedings 9 Item 2. Changes in Securities 9 Item 3. Defaults Upon Senior Securities 9 Item 4. Submission of Matters to a Vote of 9 Security Holders Item 5. Other Information 9 Item 6. Exhibits and Reports on Form 8-K 11 3 PMR CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets
July 31 April 30 1996 1996 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 5,536,509 $ 3,917,922 Notes and accounts receivable, net 11,589,150 9,289,895 Prepaid expenses and other current assets 324,246 321,506 Deferred income tax benefits 2,701,000 2,701,000 ------------ ------------ Total current assets 20,150,905 16,230,323 Furniture and office equipment, less accumulated depreciation of $945,613 in July 1996 and $869,261 in April 1996 671,419 649,312 Long-term receivables 2,420,987 2,444,055 Other assets 1,807,698 1,858,102 ------------ ------------ $ 25,051,010 $ 21,181,792 ============ ============ Liabilities and stockholders' equity Current liabilities: Accounts payable and other current liabilities $ 1,250,036 $ 1,522,721 Accrued compensation and employee benefits 2,759,917 2,276,809 Advances from case management agencies 1,008,796 1,012,847 Income taxes payable 389,129 308,489 Dividends payable 2,503 71,739 Other current liabilities 95,971 127,213 ------------ ------------ Total current liabilities 5,117,223 5,319,818 Deferred rent expense 138,903 149,531 Deferred income taxes 1,101,000 1,101,000 Contract settlement reserve 6,615,058 5,499,020 Commitments Stockholders' equity: Common Stock, $.01 par value, authorized shares - 10,000,000; issued and outstanding shares - 4,760,643 in July 1996; 3,577,917 in April 1996 47,605 35,778 Convertible preferred stock, $.01 par value, authorized shares - 1,000,000 issued and outstanding shares Series C - none in July 1996 and 700,000 shares in April 1996 -- 7,000 Paid-in capital 10,130,888 8,259,243 Notes receivable from stockholders (23,665) (141,547) Retained earnings 1,534,868 951,949 ------------ ------------ 11,689,696 9,112,423 ------------ ------------ $ 25,051,010 $ 21,181,792 ============ ============
See notes to condensed consolidated financial statements. Page 1 4 PMR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations
First Quarter -------------------------------- Three Months Ended July 31 1996 1995 ------------ ------------ Management fees & other revenues $ 13,028,083 $ 6,005,551 Expenses Operating expenses 9,566,768 4,821,079 Marketing, general and administrative 1,692,475 803,774 Provision for bad debts 601,511 197,395 Depreciation and amortization 180,242 114,188 Interest - net (31,168) 7,391 Minority interest in loss of subsidiary -- 524 ------------ ------------ 12,009,828 5,944,351 Income before income taxes 1,018,255 61,200 Less income tax expense 418,000 23,000 ------------ ------------ Net income before dividends 600,255 38,200 Less dividends on: Series C convertible preferred stock 17,342 32,725 ------------ ------------ Net income $ 582,913 $ 5,475 ============ ============ Earnings per common share Primary $ .12 $ .01 ============ ============ Fully diluted $ .11 $ .01 ============ ============ Shares used in computing earnings Primary 5,102,789 4,252,830 ============ ============ Fully diluted 5,291,050 4,252,830 ============ ============
See notes to condensed consolidated financial statements. Page 2 5 PMR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows
First Quarter --------------------------------------- Three Months Ended July 31 1996 1995 -------------------- --------------- OPERATING ACTIVITIES Net income $600,255 $38,200 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization 180,242 114,188 Provision for losses on accounts receivable 601,511 197,395 Provision for deferred taxes 418,000 23,000 Changes in operating assets and liabilities: Accounts and notes receivable (2,877,698) (447,944) Prepaid expenses and other assets (53,751) 15,072 Accounts payable and accrued compensation 210,423 170,903 Contract settlement reserve 1,116,038 653,611 Other liablities (352,029) 25,595 -------------------- ------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (157,009) 790,020 INVESTING ACTIVITIES Purchases of furniture and equipment (101,804) (19,184) Acquisition of Twin Town minority interest - (185,000) -------------------- ------------- NET CASH USED IN INVESTING ACTIVITIES (101,804) (204,184) FINANCING ACTIVITIES Proceeds from exercise of options and warrants 1,729,375 - Proceeds from sale of common stock and notes receivable from stockholders 265,844 - Payments on note payable to bank (31,242) (51,359) Cash dividend paid (86,577) - -------------------- ------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,877,400 (51,359) -------------------- ------------- NET INCREASE IN CASH AND CASH EQUIVALENTS $1,618,587 $534,477 SUPPLEMENTAL INFORMATION: Taxes paid $380,735 $830,000 Interest paid $129,108 $107,831
See notes to condensed consolidated financial statements. Page 3 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) PMR CORPORATION AND SUBSIDIARIES July 31, 1996 NOTE A - BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For purposes of computing earnings per share, the Series C Preferred Stock is a common stock equivalent and conversion is assumed except when anti-dilutive. Operating results for the three months ended July 31, 1996, are not necessarily indicative of the results that may be expected for the year ending April 30, 1997. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended April 30, 1996. Page 4 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL PMR Corporation (the "Company") is a leader in the development and management of programs and services for individuals who have been diagnosed with a Serious Mental Illness ("SMI"). These diseases, which are often chronic and life long, are primarily schizophrenia and bi-polar disorder (manic depression) and afflict more than one percent (1%) of the U.S. population. The Company's programs have been developed to assist providers of health care services in delivering care and treatment programs which serve as alternatives to more costly inpatient behavioral healthcare for the SMI population. The Company operates three lines of business: acute outpatient psychiatric services ("Outpatient Program"), case management services ("Case Management Program") and chemical dependency services ("Chemical Dependency Program"). The Company's Outpatient Program includes two core programs developed for varying levels of acuity: a partial hospitalization program and a structured outpatient program. It is designed for consumers who require coordinated, intensive, and comprehensive treatment services beyond those typically offered at an outpatient clinical level of care. The Company operates these Outpatient Programs under management contracts with local health care providers ("Providers") such as acute care hospitals and community mental health centers ("CMHCs"). The Case Management Program is an intensive case management service which consists of a proprietary intensive case management model which utilizes detailed protocols for delivering and managing the treatment and care of SMI patients. This program was established to work with community-based providers of mental health care (such as case management agencies and CMHC's) to develop, manage and operate case management and rehabilitation systems designed to serve the SMI population in either a managed care or the more traditional, fee-for-service environment. The Company presently operates its Case Management Programs in Nashville and Memphis, Tennessee, and Little Rock and Russellville, Arkansas. Through a wholly-owned affiliate, the Company is a provider of Chemical Dependency Programs which consist of the treatment of chemical dependency and substance abuse, primarily to patients of managed care organizations in Southern California. The Company has also recently developed and manages an ambulatory detoxification program in Arkansas for public sector (Medicaid and other government funded programs) patients. RESULTS OF OPERATIONS - Quarter Ended July 31, 1996 Compared To Quarter Ended July 31, 1995. Revenues and Net Income. Revenues for the quarter ended July 31, 1996 were $13.0 million, an increase of $7.0 million, or 116.9% as compared to the quarter ended July 31, 1995. Of this Page 5 8 increase, $3.1 million, or 44.2%, resulted from the Company's Case Management programs in Tennessee and Arkansas. These programs commenced commercial operations in September, 1995 and July, 1996 and thus did not contribute revenue in the quarter ended July 31, 1995. The remainder of the increase came substantially from the Company's Outpatient Programs which recorded revenue of $9.2 Million, an increase of 65% from the quarter ended July 31, 1995. The growth in the Outpatient Programs was due to the addition of five new programs combined with "same store" revenue increases of approximately 52% as compared to the first quarter of fiscal year 1996. The same store increases were due to significant growth in both average patient census and net revenue per patient day. The Company expects the rate of same store revenue growth to moderate in future quarters as the Company will no longer be comparing its performance to quarters which were significantly effected by the Focused Medical Review conducted by a HCFA intermediary (see "Liquidity and Capital Resources"). Revenues from the Company's chemical dependency program increased 65% compared to the quarter ended July 31, 1995. The public sector chemical dependency program in Arkansas which commenced operations in January 1996 contributed 93% of this increase. Net income for the quarter ended July 31, 1996 was $583,000, an increase of $577,000, as compared to the quarter ended July 31, 1995. Operating Expenses. Operating expenses for the quarter ended July 31, 1996 were $9.6 million, an increase of $4.7 million, or 98.4% as compared to the quarter ended July 31, 1995. Of this increase, $2.9 million, or 61% was attributed to the Case Management Programs in Tennessee and Arkansas, which had not commenced commercial operations in the quarter ended July 31, 1995. The remainder of the increase in operating expenses was associated with increased costs to support the revenue growth at existing Outpatient Programs and the net increase of five Outpatient Programs as compared to the prior year period. As a percentage of revenues, operating expenses declined from 80.3% in the quarter ended July 31, 1995 to 73.4% in the quarter ended July 31, 1996. Marketing, General and Administrative Expenses. Marketing, general and administrative expenses for the quarter ended July 31, 1996 were $1.7 million, an increase of $888,000, or 110.6% as compared to the quarter ended July 31, 1995. Of this increase, $653,000, or 73.5% was attributed to the Case Management Programs in Tennessee and Arkansas, which had not commenced commercial operations in the quarter ended July 31, 1995. The remainder of the increase in marketing, general and administrative expenses was associated with increased costs to support the revenue growth at existing Outpatient Programs, preparation for potential Outpatient Program growth associated with the Columbia agreement and the net increase of five Outpatient Programs as compared to the prior year period. As a percentage of revenues, marketing, general and administrative expenses declined from 13.4% in the quarter ended July 31, 1995 to 13.0% in the quarter ended July 31, 1996. Depreciation and Amortization. Depreciation and amortization expenses for the quarter ended July 31, 1996 were $180,000, an increase of $66,000, or 57.9% as compared to the quarter ended July 31, 1995. The increase was due to the amortization of covenants not to compete associated with the commencement of case management operations in Tennessee and to increases in capital assets associated with the addition of five sites for new Outpatient Programs. Page 6 9 Provision for Bad Debts. Expenses related to the provision for bad debts for the quarter ended July 31, 1996 were $602,000, an increase of $404,000 or 204.7% as compared to the quarter ended July 31, 1995. The increase was due to a combination of a substantial increase in revenues with a modest increase in the percent accrued for the provision of bad debts. As a percentage of revenues, the provision for bad debts increased to 4.6% of revenues from 3.3% of revenues in the prior year quarter. Dividends. Dividend expense for the quarter ended July 31, 1996 was $17,000, a decrease of $15,000, or 47.0% as compared to the quarter ended July 31,1995. The decrease was due to the conversion in June, 1996, of all shares of the Series C Convertible Preferred Stock into 700,000 shares of common stock. See "Liquidity and Capital Resources." Liquidity and Capital Resources. For the quarter ended July 31, 1996, net cash used in operating activities was $157,000. Working capital on hand was $15.0 million, an increase of $4.1 million, or 37.8% as compared to fiscal year end April 30, 1996. Cash on hand at July 31, 1996 was $5.5 million, an increase of $1.6 million, or 41.3% compared to fiscal year end April 30, 1996. The use of cash from operating activities was due to an increase in receivables associated with the Company's growth in revenues and an increase in days sales outstanding from 72 at fiscal year end April 30, 1996 to 82 at quarter end July 31, 1996. The increase in cash and working capital was due to $1.9 million provided by financing activities (primarily the exercise of certain incentive stock options as well as Class A and Class B Warrants granted in conjunction with the Company's October 1994 issuance of its Series C convertible preferred stock). The exercise of these Warrants provided the Company with net proceeds of $1.3 million in July 1996. The Company also expects that its Class C Warrants, also issued with the Series C Convertible Preferred Stock, will be exercised on or before their redemption scheduled for September 30, 1996. Exercise of the Class C Warrants will yield for the Company additional proceeds of $1,050,000 and will result in the issuance of 175,000 additional shares. As of July 31, 1996, the Company had no long term debt and had not drawn upon its outstanding line of credit of $3.0 million. The Company anticipates using its capital resources for the start-up of several new outpatient programs; initial start-up losses in the Case Management Program in Arkansas and development expenses for new case management and managed care projects. The Company expects funds from operations and its $3.0 million line of credit to be sufficient over the next twelve months to meet its financial obligations. The opening of new Outpatient Programs typically requires $45,000 to $75,000 for office equipment, supplies, lease deposits, and the hiring and training of personnel prior to opening. These programs generally experience operating losses through an average of the first four months of operations. A charge upon the Company's working capital may occur during the year ending April 30, 1997 or thereafter as a result of certain uncertainties associated with the healthcare reimbursement rules Page 7 10 as they apply to the Company's Outpatient Program. During fiscal year 1996, a majority of the Company's revenues were derived from the Company's management of its Outpatient Program. Since substantially all of the patients of the Company's Outpatient Program are eligible for Medicare, collection of a significant component of the Company's management fees is dependent upon reimbursement of claims submitted to fiscal intermediaries by the Hospitals or CMHCs (Providers) on whose behalf these programs are managed. The Company has been advised by HCFA that certain program-related costs are not allowable for reimbursement. The Company may be responsible for reimbursement of the amounts disallowed pursuant to obligations that exist with certain Providers. Although the Company believes that its potential liability to satisfy such requirements has been adequately reserved in its financial statements, the obligation to pay such amounts when and if they become due, could have a material adverse impact on the Company's short term liquidity. Certain factors are, in management's view, likely to lessen the impact of any such effect, including the expectation that, if claims arise, they will arise on a periodic basis over several years; that any disallowance will merely be offset against obligations already owed by the Provider to the Company; and that, in certain instances, funds have already been paid into an escrow account to cover any such eventuality. During the fourth quarter of fiscal year 1994, fiscal intermediaries for providers began a Focused Medical Review of claims for partial hospitalization services throughout the industry. The Company's initial experience with Focused Medical Review was that there were numerous denials of Providers' claims, and the denials had an adverse impact on the Company's cash flow during fiscal year 1995 because Providers delayed payment of the Company's management fees. In fiscal year 1996, effects of the Focused Medical Review substantially abated and the number of denied claims was at an insignificant rate. Although during fiscal year 1997, the number of denied claims is likely to remain at an insignificant rate, there can be no assurances that a Focused Medical Review of claims will not recur at the level previously experienced by the Company. The Company maintains reserves to cover the effect of primarily two uncertainties: 1) that the Company may have an obligation to indemnify certain Providers for some portions of its management fee which may be subject to disallowance upon audit of the Providers' cost reports by fiscal intermediaries; and 2) that the Company may not receive full payment of the management fees owed to it by the Providers during the periodic review of the Providers' claims by the fiscal intermediaries. Page 8 11 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS None ITEM 2 - CHANGES IN SECURITIES None ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5 - OTHER INFORMATION CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. When used in this Quarterly Report on Form 10-Q and in other public statements by the Company and Company officers, the words "may", "will", "expect", "anticipate", "continue", "forecast", "estimate", "project", "intend", and similar expressions are intended to identify forward-looking statements regarding events and financial trends which may affect the Company's future operating results and financial position. Such statements are subject to risks and uncertainties that could cause the Company's actual results and financial position to differ materially. Such factors include, among others: (i) the dependence of the Company's revenues upon third party reimbursement under applicable Medicare and Medicaid programs and guidelines; (ii) the sufficiency of reserves established within the Company's financial statements to cover uncertainties relative to reimbursement issues; (iii) the Company's ability to remain in compliance with numerous federal and state regulations as they pertain to the delivery of mental health care in Medicare and Medicaid covered programs; (iv) the potential impact of healthcare reform proposals intended to control healthcare costs; (v) the Company's ability to maintain or increase its level of revenues through the renewal of existing management contracts and the securing of new management contracts; (vi) the potential adverse effect a decrease in the trading price of Company's Common Stock would have upon future financing efforts; (vii) the Company's ability to obtain additional financing on satisfactory terms and conditions that would permit the continued growth of the Company's programs and operations. (viii) the reliance of the Company upon the continued services of its executive officers and other key personnel; (ix) the Company's ability to remain competitive in national, regional and local markets in an industry which is highly competitive; (x) the Company's ability to manage rapid increases in program size and scope as it continues to pursue an aggressive growth strategy; and (xi) other economic, competitive and governmental factors affecting the Company's overall operations, market, services, and finances. Additional factors are described in the Company's other public reports and registration statements filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date made, and which rely on assumptions that, while reasonable when made, could change significantly based upon future events which are often out of the control of the Company. The Page 9 12 release of forward-looking statements will not impose an obligation upon the Company to maintain or update these statements in the future. The Company shall assume no responsibility to publicly release the results of any revision of forward-looking statements to reflect these ends or circumstances after the date they are made or to reflect the occurrence of unanticipated events. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b)Reports on Form 8-K None Page 10 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: September 13, 1996 PMR CORPORATION BY: Allen Tepper -------------------------------------- ALLEN TEPPER President and Chief Executive Officer (Principal Executive Officer) BY: Mark P. Clein -------------------------------------- MARK P. CLEIN Chief Financial Officer (Principal Financial Officer) Page 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS APR-30-1997 MAY-01-1996 JUL-31-1996 5,536,509 0 14,158,902 2,569,752 0 20,150,905 671,419 945,613 25,051,010 5,117,223 0 0 0 47,605 11,642,091 20,150,905 0 13,028,083 0 9,566,768 180,242 601,511 (31,168) 1,018,255 418,000 600,255 0 0 0 600,225 .12 .11
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