-----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, UtzMPe4DSBiNlCygnGjMu0gwAJb3UAqqT8tIosMpHpqI04sPpmWU9dX9HyI+H/yM /ypgjEwXxj7q84YZB2+LOg== 0000936392-96-001191.txt : 19961217 0000936392-96-001191.hdr.sgml : 19961217 ACCESSION NUMBER: 0000936392-96-001191 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19961216 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: 96681208 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, DC 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 October 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 incorporation or organization) Identification 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 December 10, 1996 the Registrant has issued and outstanding 4,964,147 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 October 31, 1996 (Unaudited) and April 30, 1996 1 Condensed Consolidated Statements of Income for the three and six months ended October 31, 1996 and 1995 (Unaudited) 2 Condensed Consolidated Statements of Cash Flows for the six months ended October 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 11 Item 2. Changes in Securities 11 Item 3. Defaults Upon Senior Securities 11 Item 4. Submission of Matters to a Vote of 11 Security Holders Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 3 PMR CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets
October 31 April 30 1996 1996 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 6,591,728 $ 3,917,922 Notes and accounts receivable, net 12,045,691 9,289,895 Prepaid expenses and other current assets 326,903 321,506 Deferred income tax benefits 4,366,096 2,701,000 ------------ ------------ Total current assets 23,330,418 16,230,323 Furniture and office equipment, less accumulated depreciation of $1,029,809 in October 1996 and $869,261 in April 1996 648,434 649,312 Long-term receivables 3,017,531 2,444,055 Other assets 1,672,246 1,858,102 ------------ ------------ $ 28,668,629 $ 21,181,792 ============ ============ Liabilities and stockholders' equity Current liabilities: Accounts payable and other current liabilities $ 1,303,175 $ 1,522,721 Accrued compensation and employee benefits 3,095,363 2,276,809 Advances from case management agencies 912,537 1,012,847 Income taxes payable -- 308,489 Dividends payable 2,503 71,739 Other current liabilities 69,411 127,213 ------------ ------------ Total current liabilities 5,382,989 5,319,818 Deferred rent expense 129,790 149,531 Deferred income taxes 1,336,125 1,101,000 Contract settlement reserve 8,190,020 5,499,020 Commitments Stockholders' equity: Common Stock, $.01 par value, authorized shares - 10,000,000; issued and outstanding shares - 4,959,475 in October 1996; 3,577,917 in April 1996 49,594 35,778 Convertible preferred stock, $.01 par value, authorized shares - 1,000,000 Series C - 700,000 shares at April 30, 1996 -- 7,000 Paid-in capital 11,270,466 8,259,243 Notes receivable from shareholders (24,537) (141,547) Retained earnings 2,334,182 951,949 ------------ ------------ 13,629,705 9,112,423 ------------ ------------ $ 28,668,629 $ 21,181,792 ============ ============
See notes to consolidated condensed financial statements. Page 1 4 PMR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Income
Second Quarter Year-To-Date ------------------ ---------------- Three Months Ended Six Months Ended October 31 October 31 1996 1995 1996 1995 ------------ ----------- ------------ ----------- Management fees & other revenues $ 14,293,499 $ 8,215,153 $ 27,321,582 $14,220,704 Expenses Operating expenses 10,406,525 6,389,904 19,973,293 11,210,983 Marketing, general and administrative 1,623,925 1,079,836 3,316,400 1,883,610 Provision for bad debts 793,570 214,173 1,395,081 411,568 Depreciation and amortization 169,517 151,964 349,759 266,152 Interest - net (53,362) 39,987 (84,530) 47,378 Minority interest in loss of subsidiary -- -- -- 524 ------------ ----------- ------------ ----------- 12,940,175 7,875,864 24,950,003 13,820,215 Income before income taxes 1,353,324 339,289 2,371,579 400,489 Less income tax expense 554,000 139,000 972,000 162,000 ------------ ----------- ------------ ----------- Net income before dividends 799,324 200,289 1,399,579 238,489 Less dividends on: Series C convertible preferred stock -- 33,335 17,342 66,060 ------------ ----------- ------------ ----------- Net income $ 799,324 $ 166,954 $ 1,382,237 $ 172,429 ============ =========== ============ =========== Earnings per common share Primary $ .13 $ .04 $ .25 $ .04 ============ =========== ============ =========== Fully diluted $ .13 $ .04 $ .24 $ .04 ============ =========== ============ =========== Shares used in computing earnings Primary 6,014,363 4,451,395 5,655,060 4,351,283 ============ =========== ============ =========== Fully diluted 6,072,632 4,487,591 5,860,384 4,407,086 ============ =========== ============ ===========
See notes to consolidated condensed financial statements. Page 2 5 PMR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows
Second Quarter -------------------------------------- Six Months Ended October 31 1996 1995 -------------------------------------- OPERATING ACTIVITIES Net income $ 1,382,237 $ 172,429 Adjustments to reconcile net income to -------------------------------------- net cash used by operating activities: Depreciation and amortization 349,759 266,152 Provision for losses on accounts receivable 1,395,081 411,568 Provision for deferred taxes (1,429,971) 162,000 Changes in operating assets and liabilities: Accounts and notes receivable (4,724,353) (2,821,269) Prepaid expenses and other assets (7,137) (1,091,591) Accounts payable and accrued compensation 599,008 605,209 Contract settlement reserve 2,691,000 1,284,821 Other liablities (160,516) 643,567 Income taxes payable (308,489) -- -------------------------------------- NET CASH USED IN OPERATING ACTIVITIES (213,381) (367,114) INVESTING ACTIVITIES Purchases of furniture and equipment (163,025) (52,707) -------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (163,025) (52,707) FINANCING ACTIVITIES Decrease in notes receivable from shareholders 118,750 19,123 Proceeds from exercise of options and warrants 3,018,039 -- Cash dividend paid (86,577) -- -------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 3,050,212 19,123 -------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 2,673,806 $ (400,698) ======================================
See notes to consolidated condensed financial statements Page 3 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) PMR CORPORATION AND SUBSIDIARIES October 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 and six months ended October 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 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Item 2. 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 within the Company's Quarterly Report on Form 10Q for the period ended July 31, 1996. 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 these ends or circumstances after the date they are made or to reflect the occurrence of unanticipated events. 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 CMHCs) 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 Page 5 8 environment. The Company presently operates its Case Management Programs in Nashville and Memphis, Tennessee, and El Dorado, 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 developed and manages an ambulatory detoxification program in Arkansas for public sector (Medicaid and other government funded programs) patients. RESULTS OF OPERATIONS - Quarter Ended October 31, 1996 Compared To Quarter Ended October 31, 1995. Revenues and Net Income. Revenues for the quarter ended October 31, 1996 were $14.3 million, an increase of $6.1 million, or 74.0% as compared to the quarter ended October 31, 1995. Of this increase, $1.6 million, or 26.3%, resulted from the Company's Case Management programs in Tennessee and Arkansas. These programs commenced commercial operations in September, 1995 and July, 1996, respectively, and thus only partly contributed to revenue in the quarter ended October 31, 1995. The remainder of the increase came primarily from the Company's Outpatient Programs which recognized revenue of $10.3 million, an increase of $4.1 million, or 66.7% from the quarter ended October 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 49% as compared to the second 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 begin comparing performance to quarters which reflect the shift to higher acuity patients and the abatement of the Focused Medical Review conducted by a HCFA intermediary (see "Liquidity and Capital Resources"). Revenues from the Company's chemical dependency program increased 86.4% compared to the quarter ended October 31, 1995. The public sector chemical dependency program in Arkansas, which commenced operations in January 1996, contributed 91.5% of this increase. Net income for the quarter ended October 31, 1996 was $799,000, an increase of $632,000, as compared to the quarter ended October 31, 1995. Operating Expenses. Operating expenses for the quarter ended October 31, 1996 were $10.4 million, an increase of $4.0 million, or 62.8% as compared to the quarter ended October 31, 1995. Of this increase, $1.7 million, or 42.9% was attributed to the Case Management Programs in Tennessee and Arkansas, of which only the Tennessee program had commenced commercial operations in the quarter ended October 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 77.8% in the quarter ended October 31, 1995 to 72.8% in the quarter ended October 31, 1996. Page 6 9 Marketing, General and Administrative Expenses. Marketing, general and administrative expenses for the quarter ended October 31, 1996 were $1.6 million, an increase of $544,000, or 50.4% as compared to the quarter ended October 31, 1995. Of this increase, $86,000, or 15.8% was attributed to the Case Management Programs in Tennessee and Arkansas, of which only the Tennessee program had commenced commercial operations in the quarter ended October 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 13.1% in the quarter ended October 31, 1995 to 11.4% in the quarter ended October 31, 1996. Depreciation and Amortization. Depreciation and amortization expenses for the quarter ended October 31, 1996 were $170,000, an increase of $18,000, or 11.6% as compared to the quarter ended October 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. Provision for Bad Debts. Expenses related to the provision for bad debts for the quarter ended October 31, 1996 were $794,000, an increase of $580,000 or 271.0% as compared to the quarter ended October 31, 1995. The increase was due to a combination of a substantial increase in revenues with an increase in the percent used to accrue for the provision of bad debts. As a percentage of revenues, the provision for bad debts increased to 5.6% of revenues from 2.6% of revenues in the prior year quarter. The company has recorded higher reserve provisions for new programs such as case management, where there is not a long history of collections experience upon which to rely. Dividends. There was no dividend expense for the quarter ended October 31, 1996 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." RESULTS OF OPERATIONS - Six Months Ended October 31, 1996 Compared To Six Months Ended October 31, 1995. Revenues and Net Income. Revenues for the six months ended October 31, 1996 were $27.3 million, an increase of $13.1 million, or 92.1% as compared to the six months ended October 31, 1995. Of this increase, $5.2 million, or 39.6%, resulted from the Company's Case Management programs in Tennessee and Arkansas. These programs commenced commercial operations in September, 1995 and July, 1996, respectively, and thus only partly contributed to revenue in the six months ended October 31, 1995. The remainder of the increase came primarily from the Company's Outpatient Programs which recognized revenue of $20.1 Million, an increase of 70.4% from the six months ended October 31, 1995. The growth in the Outpatient Programs Page 7 10 was due to the addition of five new programs combined with "same store" revenue increases of approximately 50% as compared to the first six months 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 begin comparing performance to quarters which reflect the shift to higher acuity patients and the abatement of the Focused Medical Review conducted by a HCFA intermediary (see "Liquidity and Capital Resources"). Revenues from the Company's chemical dependency program increased 64.1% compared to the six months ended October 31, 1995. The public sector chemical dependency program in Arkansas which commenced operations in January 1996 contributed 100.5% of this increase. Net income for the six months ended October 31, 1996 was $1.4 million, an increase of $1.2 million, as compared to the six months ended October 31, 1995. Operating Expenses. Operating expenses for the six months ended October 31, 1996 were $20.0 million, an increase of $8.8 million, or 78.2% as compared to the six months ended October 31, 1995. Of this increase, $4.8 million, or 54.4% was attributed to the Case Management Programs in Tennessee and Arkansas, of which only the Tennessee program had commenced commercial operations in the six months ended October 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 78.8% in the six months ended October 31, 1995 to 73.1% in the six months ended October 31, 1996. Marketing, General and Administrative Expenses. Marketing, general and administrative expenses for the six months ended October 31, 1996 were $3.3 million, an increase of $1.4 million or 76.1% as compared to the six months ended October 31, 1995. Of this increase, $291,000 or 20.3% was attributed to the Case Management Programs in Tennessee and Arkansas, of which only the Tennessee program had commenced commercial operations in the six months ended October 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 Company's recent agreement with Columbia/HCA 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 13.2% in the six months ended October 31, 1995 to 12.1% in the six months ended October 31, 1996. Depreciation and Amortization. Depreciation and amortization expenses for the six months ended October 31, 1996 were $350,000, an increase of $84,000, or 31.5% as compared to the six months ended October 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. Provision for Bad Debts. Expenses related to the provision for bad debts for the six months ended October 31, 1996 were $1.4 million, an increase of $984,000 or 238.9% as compared to Page 8 11 the six months ended October 31, 1995. The increase was due to a combination of a substantial increase in revenues and an increase in the percent used to accrue for the provision of bad debts. As a percentage of revenues, the provision for bad debts increased to 5.1% of revenues from 2.9% of revenues in the prior six month period. The company has recorded higher reserve provisions for new programs such as case management, where there is not a long history of collections experience upon which to rely. Dividends. The dividend expense for the six months ended October 31, 1996 was $17,000, a decrease of $49,000 or 74.2%, as compared to the six months ended October 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 six months ended October 31, 1996, net cash used in operating activities was $213,000. Working capital on hand was $17.9 million, an increase of $7.0 million, or 64.0% as compared to fiscal year end April 30, 1996. Cash on hand at October 31, 1996 was $6.6 million, an increase of $2.7 million, or 68.2% compared to fiscal year end April 30, 1996. The use of cash from operating activities was due to several factors including: an increase in receivables associated with the Company's growth in revenues; an increase in days sales outstanding from 72 at fiscal year end April 30, 1996 to 77 at quarter end October 31, 1996; and tax payments associated with taxable income which substantially exceeds reported income. The difference between accrued tax liabilities and taxes paid is primarily due to the significant amount of reserves for contractual allowances which are not recognized as expenses for tax purposes until written off by the Company. The increase in cash and working capital was due to $3.0 million provided by financing activities (primarily the exercise of certain incentive stock options as well as Class A, Class B and Class C 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 and $1.1 million in September 1996. Effective October 31, 1996, the company extended and expanded its credit line with Sanwa Bank. The credit line has been expanded to a maximum potential of $10.0 million from a previous maximum of $3.0 million. The amended agreement extends the relationship to December 31, 1997. As of October 31, 1996, the Company had no long term debt and had not drawn upon its outstanding line of credit. 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 $10.0 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 Page 9 12 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 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 10 13 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 A. The Company conducted an Annual Meeting of the stockholders on October 17, 1996. B. At the Annual Meeting the following members were re-elected to the Company's Board of Directors:
Nominee Shares Voted in Favor Shares Opposed Abstentions - ------- --------------------- -------------- ----------- Allen Tepper 3,750,787 450 3,755 Charles C. McGettigan 3,750,787 450 3,755 Susan D. Erskine 3,750,787 450 3,755 Richard A. Niglio 3,646,484 450 108,058 Eugene D. Hill, III 3,750,723 450 3,819 Daniel C. Frank 3,750,723 450 3,819
C. At the Annual Meeting, the stockholders voted upon and approved four motions in the following manner: i. As to the consideration and approval of an amendment to the Company's Certificate of Incorporation to provide for the classification of the Board of Directors into three different classes (a "Classified Board"), to establish procedures for filling vacancies on the Board, to provide that directors shall only be removed for cause and by a supermajority vote of stockholders, and requiring Board consent to amend these provisions: 2,646,004 FOR; 130,858 AGAINST; 650 ABSTAIN. ii. As to the consideration and approval of an amendment to the Company's Certificate of Incorporation to require a supermajority vote of stockholders to approve amendments to the Company's Certificate of Incorporation in certain circumstances, as described in the Proxy Statement: 2,643,479 FOR; 132,833 AGAINST; 1,200 ABSTAIN. iii. As to the consideration and approval of an amendment to the Company's Certificate of Incorporation to require a supermajority vote of stockholders to approve amendments to the Company's By-laws: 2,640,679 FOR; 135,933 AGAINST; 900 ABSTAIN. Page 11 14 iv. As to ratifying the appointment of Ernst & Young LLP as independent auditors for the Company: 3,750,492 FOR; 3,700 AGAINST; 800 ABSTAIN. ITEM 5 - OTHER INFORMATION None ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K None Page 12 15 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: December 11, 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 13 EX-27 2 EXHIBIT 27
5 6-MOS APR-30-1997 MAY-01-1996 OCT-31-1996 6,591,728 0 15,230,931 3,185,240 0 23,330,418 648,434 1,029,809 28,668,629 5,382,989 0 0 0 49,594 13,580,111 28,668,629 0 27,321,582 0 19,973,293 349,759 1,395,081 (84,530) 2,371,579 972,000 1,399,579 0 0 0 1,399,579 .25 .24
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