-----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, UHHQUpodYHfIXSHkf81FREnFMUXVkLLtq/pOJbZix1OLeWhqeo/OzFC5nBBlK/LU xbMR992avIJUvm0JvP0bvg== 0001095811-00-000572.txt : 20000317 0001095811-00-000572.hdr.sgml : 20000317 ACCESSION NUMBER: 0001095811-00-000572 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20000131 FILED AS OF DATE: 20000316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PMR CORP CENTRAL INDEX KEY: 0000829608 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 232491707 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20488 FILM NUMBER: 571764 BUSINESS ADDRESS: STREET 1: 501 WASHINGTON ST 5TH FL CITY: SAN DIEGO STATE: CA ZIP: 92103 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 (1-31-00) 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. 2 PMR CORPORATION INDEX
Page ---- 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
3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PMR CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
JANUARY 31, APRIL 30, 2000 1999 ------------------- ------------------- (Unaudited) (Audited) 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 =================== ===================
See notes to condensed consolidated financial statements 1 4 PMR CORPORATION CONDENSED STATEMENTS OF OPERATION (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, NINE MONTHS ENDED JANUARY 31, ------------------------------ ----------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ 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 $ - ------------ ------------ ------------ ------------
See notes to condensed consolidated financial statements 2 5 PMR CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED JANUARY 31, -------------------------------- 2000 1999 ----------------- ------------ 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 ============ ============
See notes to condensed consolidated financial statements 3 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 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:
NINE MONTHS ENDED JANUARY 31, ----------------------------- 2000 1999 ----------- ----------- 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 =========== ===========
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 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:
NINE MONTHS ENDED JANUARY 31, 2000 ------------------------------------------------------------------- CASE OUTPATIENT MANAGEMENT PROGRAMS PROGRAMS OTHER TOTAL -------- -------- ----- ----- 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
6 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:
THREE MONTHS ENDED JANUARY 31, NINE MONTHS ENDED JANUARY 31, -------------------------------- -------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============
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 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 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 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 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 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 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 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 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 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 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 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 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 22 EXHIBIT INDEX
Exhibit Number Description of Exhibits - ------ ----------------------- 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
20 EX-10.31 2 EXHIBIT 10.31 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 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 EX-10.32 3 EXHIBIT 10.32 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 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 3 EXHIBIT A
DATE AMOUNT ADVANCED PRINCIPAL BALANCE 3/7/2000 $193,756.41 $193,756.41
25 EX-10.33 4 EXHIBIT 10.33 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 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 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 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 EX-10.34 5 EXHIBIT 10.34 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 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 EX-10.35 6 EXHIBIT 10.35 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 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 3 EXHIBIT A
DATE AMOUNT ADVANCED PRINCIPAL BALANCE 3/7/2000 $144,015.63 $144,015.63
34 EX-10.36 7 EXHIBIT 10.36 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 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 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 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 EX-10.37 8 EXHIBIT 10.37 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 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 EX-10.38 9 EXHIBIT 10.38 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 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 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 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 EX-27.1 10 FINANCIAL DATA SCHEDULE
5 9-MOS APR-30-2000 MAY-01-1999 JAN-31-2000 7,801,095 18,669,131 12,957,400 4,618,312 0 43,202,933 3,960,901 1,681,941 50,161,732 6,270,306 0 0 0 78,287 37,700,840 50,161,732 0 35,276,294 0 28,203,894 767,075 4,839,670 (1,149,973) (5,797,189) (2,377,000) (3,420,189) 392,011 0 0 (3,028,178) (0.47) (0.47)
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