-----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, JvMGd8CtkHaqkl1JL5vzKW3PUMUNETT7Kd8frcu8R78qxctvWT3kGle3WMjPQYuP nM2e0zZ9iPdnYA1RSV4NdA== 0000936392-95-000159.txt : 19951218 0000936392-95-000159.hdr.sgml : 19951218 ACCESSION NUMBER: 0000936392-95-000159 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951031 FILED AS OF DATE: 19951215 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PMR CORP CENTRAL INDEX KEY: 0000829608 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-OFFICES & CLINICS OF DOCTORS OF MEDICINE [8011] 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: 95602080 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 PMR CORPORATION -- FORM 10-Q ENDING 10/31/95 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 October 31, 1995 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 9, 1995, the Registrant has issued and outstanding 3,443,742 shares of common stock, par value $.01 per share. 2 PMR CORPORATION INDEX PART I FINANCIAL INFORMATION Page Item 1. Consolidated Condensed Balance Sheets as of October 31, 1995 (Unaudited) and April 30, 1995 1 Consolidated Condensed Income and Loss Statements for the three and six months ended October 31, 1995 and 1994 (Unaudited) 2 Consolidated Condensed Statements of Cash Flows for the six months ended October 31, 1995 and 1994 (Unaudited) 3 Notes to Consolidated Condensed 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 10 Item 2. Changes in Securities 10 Item 3. Defaults Upon Senior Securities 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K 10
3 PMR Corporation and Subsidiaries Consolidated Condensed Balance Sheets
October 31 April 30 1995 1995 ----------- ----------- (Unaudited) Assets Current assets: Cash and cash equivalents $981,678 $1,382,376 Notes and accounts receivable, net 11,198,602 8,465,568 Prepaid expenses and other current assets 364,607 289,996 Refundable income tax benefits 817,165 817,165 Deferred income tax benefits 1,217,000 1,217,000 ----------- ----------- Total current assets 14,579,052 12,172,105 Furniture and office equipment, less accumulated depreciation of $740,014 in October 1995 and $579,656 in April 1995 682,560 790,243 Long-term receivables 614,372 937,705 Other assets 2,078,397 910,701 ----------- ----------- $17,954,381 $14,810,754 =========== =========== Liabilities and stockholders' equity Current liabilities: Accounts payable and accrued compensation $2,499,057 $1,909,625 Note payable to bank 1,200,000 1,200,000 Current portion of long term debt 190,633 206,550 ----------- ----------- Total current liabilities 3,889,690 3,316,175 Reserve for contract settlement 4,808,044 3,523,223 Deferred income taxes 620,000 458,000 Other long term liabilities 336,246 451,762 Commitments Stockholders' equity: Common Stock, $.01 par value, authorized shares - 10,000,000; issued and outstanding shares - 3,443,742 in October 1995; 3,338,656 in April 1995. 35,459 33,385 Convertible preferred stock, $.01 par value, authorized shares - 1,000,000 Series C - issued and outstanding - 700,000 shares (aggregate liquidation preference $1,750,000) 7,000 7,000 Paid-in capital 8,111,682 7,050,263 Notes receivable from shareholders (59,742) (62,626) Retained earnings 206,002 33,572 ----------- ----------- 8,300,401 7,061,594 ----------- ----------- $17,954,381 $14,810,754 =========== ===========
See notes to consolidated condensed financial statements. Page 1 4 PMR Corporation and Subsidiaries Consolidated Condensed Income and Loss Statements (Unaudited)
Second Quarter Year-to-Date ---------------------------- -------------------------------- Three Months Ended Six Months Ended October 31 October 31 1995 1994 1995 1994 ---------- ---------- ----------- ----------- Management fees & other revenues $8,215,153 $6,035,452 $14,220,704 $12,154,818 Expenses Operating expenses 6,389,904 5,238,927 11,210,983 10,609,492 Marketing, general and administrative 1,079,836 752,961 1,883,610 1,672,847 Provision for bad debts 214,173 216,274 411,568 441,427 Depreciation and amortization 151,964 100,479 266,152 197,083 Interest - net 39,987 6,880 47,378 (4,134) Minority interest in loss of subsidiary - (33,278) 524 (91,638) ---------- ---------- ----------- ----------- 7,875,864 6,282,243 13,820,215 12,825,077 Income (loss) before income taxes 339,289 (246,791) 400,489 (670,259) Less income tax expense (benefit) 139,000 (96,000) 162,000 (270,000) ---------- ---------- ----------- ----------- Net income (loss) 200,289 (150,791) 238,489 (400,259) Less dividends on: Series C convertible preferred stock 33,335 - 66,060 - ---------- ---------- ----------- ----------- Net income (loss) for common stock $ 166,954 $ (150,791) $ 172,429 $ (400,259) ========== ========== =========== =========== Earnings (loss) per common share Primary $ .04 $ (.05) $ .04 $ (.12) ========== ========== =========== =========== Fully diluted $ .04 $ (.05) $ .04 $ (.12) ========== ========== =========== =========== Shares used in computing earnings Primary 4,451,395 3,343,285 4,351,283 3,345,624 ========== ========== =========== =========== Fully diluted 4,487,591 3,343,285 4,407,086 3,345,624 ========== ========== =========== ===========
See notes to consolidated condensed financial statements. Page 2 5 PMR Corporation and Subsidiaries Consolidated Condensed Statements of Cash Flows (Unaudited)
Second Quarter Six Months Ended October 31 ---------------------------- 1995 1994 ---------- ---------- OPERATING ACTIVITIES Net income (loss) $ 172,429 $ (400,259) Adjustments to reconcile net income (loss) to net cash used by operating activities: Provision for bad debts 411,568 441,427 Depreciation and amortization 266,152 197,083 Provision (benefit) for deferred taxes 162,000 (270,000) Changes in operating assets and liabilities: Accounts receivable (2,821,269) (5,414,496) Other assets (1,091,591) (196,519) Accounts payable and accrued compensation 605,209 (738,967) Reserve for contract settlement 1,284,821 1,388,376 Other liabilities 743,178 (51,032) ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES (267,503) (5,044,387) INVESTING ACTIVITIES Purchases of furniture and equipment (52,707) (86,001) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (52,707) (86,001) FINANCING ACTIVITIES Decrease (increase) in notes receivable 19,123 463,412 Payments on notes payable (99,611) (93,394) Proceeds from notes payable - 541,560 Proceeds from exercise of warrants & options - 116,013 Proceeds from sale of stock - 1,584,372 ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (80,488) 2,611,963 ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS $ (400,698) $(2,518,425) =========== ===========
See notes to consolidated condensed financial statements. Page 3 6 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) PMR CORPORATION AND SUBSIDIARIES October 31, 1995 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. Operating results for the three and six months ended October 31, 1995, are not necessarily indicative of the results that may be expected for the year ending April 30, 1996. 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, 1995. NOTE B - ACQUISITION OF MINORITY INTEREST IN SUBSIDIARY On July 13, 1995, the Company acquired the 49% partnership interest in the Twin Town Outpatient partnership formerly held by a third party by paying $185,000 in cash and 97,087 shares of the Company's Common Stock valued at $550,000. Prior to that date, the Company owned a 51% interest in the partnership which resulted in consolidation for financial statement purposes. NOTE C - CASE MANAGEMENT AGREEMENTS The Company entered into management agreements with two case management agencies in Tennessee, effective September 1 and October 1, 1995, respectively. The Company has agreed to issue 50,000 shares of the Company's Common Stock, valued at $225,000 and $256,250, respectively, to each agency in connection with the agreements. Page 4 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL PMR Corporation (the "Company") is a manager of programs which treat the diseases that comprise Serious and Persistent Mental Illness (SPMI). These diseases are primarily Schizophrenia and Bipolar Disorder (Manic Depression). In addition, the Company manages chemical dependency programs. The Company's programs are outpatient and community based. They focus on limiting hospitalization and returning the mentally disabled back to work, or into other productive activities. The Company manages three distinct types of programs. First, PMR engages in the development and management of psychiatric partial hospitalization programs (Programs). These are intensive outpatient treatment programs designed for SPMI individuals as an alternative to inpatient acute care. These Programs are operated in conjunction with Hospitals or Community Mental Health Centers (CMHCs). Second, the Company manages a complete mental health benefit for the SPMI individuals and has expanded its focus to compete within the managed care segment of the industry. In line with its strategic goals, during the second quarter of fiscal year 1996, the case management division began operating in September in Nashville and a second site was initiated in Memphis in October. Case management for SPMI is continual face to face contacts with patients in the home, community or office. The case manager assists with access to all health care social and daily living services needed to sustain living in the community. It is believed to be the essential service required for SPMI in a managed care environment. Third, the Company, through its subsidiary, Twin Town Outpatient, provides outpatient chemical dependency treatment services from detoxification to rehabilitation and recovery for the principally for the commercial managed care market. RESULTS OF OPERATIONS Second Quarter Operations During the second quarter of fiscal year 1996, the Company earned $167,000 on net revenues of $8.2 million. Comparable figures for the equivalent prior year period reflected a loss of $151,000 on net revenue of $6.0 million. The addition of case management revenues and the improved net revenue per patient and improved margins in the Programs contributed to the improved earnings. The Program's "same store" statistics were: an increase of 9% in patient census, an increase in net revenue of 13%, an increase in operating expenses of 7%, and an increase in gross margin of 26%. Page 5 8 Management Fee Revenue. Net revenues for the quarter were up $2.2 million, or 36% higher than the net revenues in the equivalent prior year period, primarily as the result of revenue from the case management division of approximately $1.6 million. In addition, patient census in the Programs was up 14% from the equivalent prior year period, but net revenue was up 22%, reflecting an improvement in net revenue per patient of 13%. Net revenue for chemical dependency treatment services was up 11% from the equivalent prior year period. Operating expenses. Operating expenses for the quarter of $6.4 million, up $1.2 million, reflected a 22% increase from the equivalent prior year period, also primarily as the result of the case management division's operating expenses of approximately $1.4 million. Program expenses increased 5% from the equivalent prior year period, but decreased 3% on a per patient basis. Marketing, general and administrative expenses. Marketing, general and administrative expenses increased $327,000 or 43%, due to the administrative costs associated with the addition of the case management division. Depreciation and amortization. Depreciation and amortization increased $52,000 or 52% primarily as the result of the amortization of the covenants not to compete associated with the acquisition of all of the other partner's interest in the Twin Town Outpatient subsidiary. Dividends. The Company accrued dividends on its Series C Convertible Preferred Stock at the rate of 7.5% per annum. Six Month Operations For the six months ended October 31, 1995, the Company earned $172,000 on net revenues of $14.2 million. Comparable figures for the equivalent prior year period reflected a loss of $400,000 on net revenue of $12.2 million. The Program's "same store" results were: an increase of 9% in patient census, an increase in net revenue of 13%, an increase in operating expenses of 7%, and an increase in gross margin of 26%. Management Fee Revenue. Net revenues for the six months were 17% higher than the net revenues in the equivalent prior year period, primarily as the result of revenue from the case management division of approximately $1.6 million. In addition, volume in the Programs was up 6% from the equivalent prior year period, but net revenue was up 15%, reflecting an improvement in net revenue per patient of 9%. Net revenue for chemical dependency treatment services was up 14% from the equivalent prior year period. Operating expenses. Operating expenses for the quarter of $11.2 million reflected a 6% increase from the equivalent prior year period, also primarily as the result of operating expenses of the case management division of approximately $1.4 million. Program expenses increased 6% from the equivalent prior year period, but decreased 2% on a per patient basis. Page 6 9 Marketing, general and administrative expenses. Marketing, general and administrative expenses increased $211,000 or 13%, due to the administrative costs associated with addition of the case management division. Depreciation and amortization. Depreciation and amortization increased $69,000 or 35% primarily as the result of the amortization of the covenants not to compete associated with the acquisition of all of the other partner's interest in the Twin Town Outpatient subsidiary. Dividends. The Company accrued dividends on its Series C Convertible Preferred Stock at the rate of 7.5% per annum. LIQUIDITY AND CAPITAL RESOURCES Liquidity and Capital Resources At October 31, 1995, the Company had $981,000 in cash available for working capital purposes, a decrease of approximately $401,000 from the end of the prior year. Borrowings on the line of credit remained unchanged at $1.2 million. Management has received an extension to February 5, 1996, on its $2.0 line of credit and is currently negotiating an increase in the total commitment. The ratio of current assets to current liabilities of 3.7 at the end of the current quarter compares to a ratio of 3.6 at April 30, 1995. The average number of days' revenue in accounts receivable of 123 days at the end of the current quarter has declined from 134 at April 30, 1995 and from 142 at the end of the equivalent prior year period. Working capital is anticipated to be utilized during the year to continue expansion of the Company's partial hospitalization programs which typically require $45,000 to $60,000 for office equipment, supplies, lease deposits, and the hiring and training of personnel prior to opening as well as for the implementation and expansion of other Company programs. New programs generally experience operating losses through an average of the first four months of operation. Approximately $700,000 was used in the second quarter of the current fiscal year to fund the initial operations of the case management division. Additional funding of approximately $225,000 is expected to be used in the third quarter for case management operations, but subsequent operations are expected to be funded from cash collections of the case management division. The Company expects to require additional funds for the expansion or start up of additional case management networks, and Management is exploring new sources of financing for expansion. The Company has been advised by the Health Care Financing Administration (HCFA) that certain Program-related costs are not allowable for reimbursement. Although the Company believes that its management fee is fully reimbursable, there can be no assurances that, upon regulatory or judicial review, the Company's position will be sustained. If the Company's management fee is not fully allowed, the Company may be responsible for reimbursement of the Page 7 10 amounts disallowed, pursuant to warranty obligations that exist with certain Hospital and CMHCs. Even though the Company's financial statements provide a reserve for any such payments, a short-term obligation to provide reimbursement could have a material adverse impact upon the Company's liquidity and capital resources. Management believes, however, that this is unlikely to occur. Certain factors are, in management's view, likely to lessen the impact of any such material adverse 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. The Focused Medical Review of claims for partial hospitalization services conducted by fiscal intermediaries for the Hospitals and CMHCs has substantially abated. To the extent claims for services have been denied in Programs managed by the Company, the great majority of the denied claims have been appealed and the reversal rate has been favorable. The appeals process continues for a significant number of the denied claims. Generally, to the extent that a denied claim is not reversed, the Company is not entitled to a management fee with respect to the denied claim. Management believes that the Company's reserve for contract settlement should be adequate to offset the negative impact of unsuccessful appeals of denied claims. The Company, during the course of its ordinary business operations, from time to time is faced with claims asserted by employees whose employment have been terminated. Presently, one attorney represents two former employees who have filed separate wrongful termination lawsuits against the Company. One of these employees was involuntarily terminated by the Company and the other voluntarily quit. The employee who was involuntarily terminated also filed a complaint against the Company in the United States District Court, Northern District of California, under the federal and state false claims acts alleging the submission of false claims to Medicare. The complaint was filed on August 24, 1994, and was unsealed in June 1995. The United States declined to intervene. The Company requested special counsel to review the assertions regarding false claims. As a result of the Company's internal review and an investigation performed by special counsel, management has concluded that these lawsuits lack merit and will be defended vigorously. Management believes that the resolution of these claims will not have a material adverse effect on the Company's financial position or results of operations, although the Company will be required to incur legal fees and costs in defending these lawsuits. Uncertainty Associated with Health Care Regulations Since approximately 98% of the patients in the Programs administered by the Company are Medicare-eligible persons, much of its revenue is dependent upon Medicare reimbursement rules. Revisions or modifications to Medicare rules and regulations could have a material adverse effect on the Company. The Company and its Hospital and CMHC contracting agencies have quality assurance and utilization review programs to ensure that the Programs are operated in compliance with all Medicare requirements. Management and administrative support services related to patient care have been specifically approved in published Medicare guidelines as a Page 8 11 Medicare-reimbursable expense as long as the costs for such services are reasonable and records are submitted for the purchased services so that the Hospital and CMHC contracting agencies can continue to reassess the effectiveness of such services. In addition, substantially all of the funds paid to the case management agencies that the Company is managing is derived from Federal and State Medicaid funds. In the present period of legislative uncertainty and deficit Federal spending, financing the Medicare and Medicaid programs will continue to be a target for reduced spending and the rules and regulations will continue to be refined and changed. It is impossible to predict what changes will be made and, therefore, one cannot speculate as to the impact of future changes on the Company's contracts or revenues. Management believes it is unlikely that funding will cease for the treatment of psychiatric illness. Further, in view of the continued emphasis on outpatient treatment programs, management believes changes in Medicare or Medicaid regulations will not disqualify its Program conceptually, although modification of its contracts or adjustments in its Programs may be required. Page 9 12 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 18, 1995. b) At the Annual Meeting, the following members were elected to the Company's Board of Directors: Allen Tepper, Susan D. Erskine, Daniel L. Frank, Eugene D. Hill III, Charles C. McGettigan, and Richard A. Niglio. c) At the Annual Meeting, the stockholders voted upon and approved three motions in the following manner: i) As to the election of each director:
Nominee Shares Voted in Favor Shares Opposed Abstentions ------- --------------------- -------------- ----------- Allen Tepper 3,606,926.12 -0- 76,100 Susan D. Erskine 3,606,926.12 -0- 76,100 Daniel L. Frank 3,585,198.12 -0- 97,828 Eugene D. Hill III 3,585,198.12 -0- 97,828 Charles C. McGettigan 3,585,198.12 -0- 97,828 Richard A. Niglio 3,585,198.12 -0- 97,828
ii) To increase the number of shares of Common Stock available for option grant to 2,000,000 from 500,000; 2,546,639.12 FOR; 273,478 AGAINST; 4,451 ABSTAIN. iii) To ratify the selection of Ernst & Young as the Company's Independent Auditor for its fiscal year ending April 30, 1996: 3,524,690.12 FOR; 157,595 AGAINST; 741 ABSTAIN. ITEM 5 - OTHER INFORMATION The management of the Company is not aware of any events required to be reported hereunder. 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: December 13, 1995 PMR CORPORATION BY: Allen Tepper -------------------------------------- ALLEN TEPPER President and Chief Executive Officer (Principal Executive Officer) BY: Susan Yeagley Sullivan -------------------------------------- SUSAN YEAGLEY SULLIVAN Chief Financial Officer (Principal Financial Officer) Page 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS APR-30-1996 OCT-31-1995 981,678 0 11,951,332 752,729 0 14,579,052 1,422,574 740,014 17,954,381 3,889,690 1,432,636 35,459 0 7,000 8,257,942 17,954,381 14,220,704 14,220,704 0 11,210,983 266,152 411,568 47,378 400,489 162,000 238,489 0 0 0 172,429 .04 .04
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