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                                                                   Exhibit 10.26



                        TRANSITION AND SERVICES AGREEMENT


        THIS TRANSITION AND SERVICES AGREEMENT (this "Agreement"), is effective
as of July 1, 1998 (the "Effective Date"), by and between STADT SOLUTIONS, LLC,
a Delaware limited liability company ("Company"), PMR CORPORATION, a Delaware
corporation ("PMR") and STADTLANDER DRUG DISTRIBUTION COMPANY, INC., a Delaware
corporation ("Stadtlander"). Together, PMR and Stadtlander are hereinafter
referred to as the "Service Providers" or individually, each a "Service
Provider."

                                    RECITALS

        WHEREAS, Company requires certain support in the conduct of its
business; and

        WHEREAS, PMR and Stadtlander each wish to offer and provide such support
to Company, and Company wishes to accept such support, upon the terms and
conditions set forth herein.

        NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and obligations contained herein, the parties agree as follows:

1.      SCOPE OF AGREEMENT.

        Each Service Provider severally, and not jointly, hereby agrees to
provide or make available certain support and related services to Company
("Services") in accordance with the terms and conditions of this Agreement. Each
Service Provider shall also provide such additional support or services to
Company pursuant to this Agreement as such Service Provider and Company may
mutually agree. The Services shall be performed in the manner, to the extent and
at a time substantially consistent with the manner in which each Service
Provider performs administrative or other services for its own benefit.

2.      SERVICES.

        2.1 TYPES OF SUPPORT SERVICES. Upon Company's request, the Service
Providers shall provide the Services as described below:

               (a) ACCOUNTING SERVICES. Stadtlander shall provide bookkeeping
and accounting services relating to the maintenance of books and records of
Company's financial operations, including, for example, bank balances, loan
balances and cash management services. If requested, Stadtlander shall assist
Company in the gathering and maintenance of records and information to be
provided to Company's independent certified accountants in connection with the
calculation of taxes owed by Company and the preparation of Company's tax
returns. Company agrees that so long as Stadtlander is providing fulfillment and
accounting services under this Agreement, Company's independent certified
accountants shall be Stadtlander's independent certified accountants.



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               (b) GENERAL AND ADMINISTRATIVE SERVICES; USE OF EQUIPMENT AND
FACILITIES. Each Service Provider agrees that it shall provide such other
general and administrative support to Company necessary for or relating to the
proper functioning of Company as a commercial entity, as the parties shall
agree. Such support includes, but is not limited to, general office services,
including use of telephone(s) and other office equipment, and providing
necessary insurance coverage for and access to utilities at the portion of the
facilities provided by the Service Provider and used by Company.

               (c) PAYROLL AND PERSONNEL SERVICES. Each Service Provider agrees
that it shall provide the following payroll and personnel services to Company:
maintenance of employee files, assistance in recruiting, hiring and dismissing
employees, administration of reasonable employee payroll matters and maintenance
of general employee insurance obligations.

               (d) MIS SERVICES. Each Service Provider agrees that it shall
provide reasonable management information services to Company relating to
Services provided to Company hereunder, including coordination of network
services between the Service Provider and Company, and information technology
planning services. A Service Provider may provide additional management
information services as are mutually agreed between the Service Provider and
Company.

               (e)    REIMBURSEMENT SERVICES.

                      (i) Stadtlander shall provide reimbursement services,
including billing, coordination of reimbursement and collection services
relating to the provision of phlebotomy and case management services associated
with the drug Clozaril and any generic equivalents ("Case Management Services").

                      (ii) With respect to each of the states in which
Stadtlander's customers and patients are located immediately prior to the
Effective Date (the "Initial States"), Stadtlander shall provide reimbursement
services, including billing, coordination of reimbursement and collection
services relating to the fulfillment and distribution of pharmaceutical
products.

               (f) FULFILLMENT SERVICES. Stadtlander shall provide to Company
the following services with respect to Company's business: enrollment of
patients and customers, entry of purchase orders, purchasing, receipt of
materials purchased, and delivery of materials received on behalf of Company
directly to Company's customers. Stadtlander agrees that it shall take all
necessary steps to Company's satisfaction to keep any and all accounts, funds,
materials, inventory and any other assets of Company free from claims of
Stadtlander's creditors pursuant to any lien, security interest or any other
encumbrance or claim. In addition, Stadtlander acknowledges and agrees that the
economic value of all discounts, rebates, concessions or other customer
incentives or accommodations relating to Company's customers will inure to the
benefit of Company. Stadtlander further agrees that it will involve Company in
all discussions and negotiations with any pharmaceutical manufacturers relating
to rebates or pricing of Clozaril or its generic alternatives and that it will
use its commercially reasonable efforts to include the Company in any purchasing
agreement entered into with respect to Clozaril or its generic alternatives.



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               (g) CONSULTING SERVICES. PMR shall provide consulting services
relating to its knowledge, experience and expertise in the areas of mental
illness, case management and medical informatics.

        2.2    PERFORMANCE OF SERVICES.

               (a) PERFORMANCE. Each Service Provider shall perform the Services
for which it is obligated above on an ongoing basis during the Term (as defined
in Section 6.1 below), as reasonably required or requested by Company.

               (b) THIRD PARTY PROVISION OF SERVICES. Each Service Provider may,
upon the written consent of Company, provide any of the Services by contracting
with a third party to provide such services. In such event, Company shall
continue to pay such Service Provider directly for the services in accordance
with Section 2.3 of this Agreement.

        2.3    CHARGE FOR SERVICES.

               (a) Company shall pay to each Service Provider such Service
Provider's "Costs" in providing Services, monthly in arrears, within thirty (30)
days of the date the Service Provider's invoice is received by Company. A
Service Provider's "Costs," for purposes of this Agreement, shall include (i)
the Service Provider's direct costs, (ii) directly attributed overhead costs of
dispensing locations, and (iii) the cost of assets purchased for use solely on
behalf of Company. Direct costs and directly attributed overhead costs shall not
include corporate overhead costs or allocations. Schedule B to that certain
Operating Agreement dated as of the date hereof, by and between PMR and
Stadtlander, as it may be amended from time to time (the "Operating Agreement")
contains a list of representative Costs relating to certain Services. In
addition to the Services described herein, Company shall pay a Service Provider
for its costs in providing any other services which are requested by Company and
agreed upon by the Service Provider but which are not otherwise contemplated in
this Agreement, such costs to be agreed to between the Company and the Service
Provider.

               (b) Notwithstanding the foregoing, so long as Stadtlander is
providing purchasing and fulfillment services hereunder, the cost of
pharmaceuticals to be billed to Company by Stadtlander will be the Costs thereof
(as defined above) plus the lower of (i) seventeen percent (17%) of such Costs
or (ii) Stadtlander's actual gross margin from such services (such 17% of Costs
or actual gross margin is hereinafter referred to as the "Gross Margin").
Payments of all amounts representing Gross Margin hereunder shall be due and
payable on the 30th day following the end of each month and shall be payable
only to the extent the Company's net cash flow from operations for such month is
greater than or equal to the Gross Margin payable for such month. If the amount
of Gross Margin payable in any month exceeds the amount of net cash flow from
operations for the month, then payments of such excess Gross Margin shall be
payable with the next monthly payment to the extent such Gross Margin may be
paid in accordance with the net cash flow requirement set forth in the preceding
sentence. All Gross Margin paid to Stadtlander in a fiscal year shall be
credited first against the Net Income Base distribution, and second, against
other amounts or distributions payable to Stadtlander for such fiscal year, to
the extent of the Net Income Base. If the Gross Margin amount paid to
Stadtlander in a fiscal year exceeds the total amounts credited under the



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preceding sentence, then such excess amount shall be rebated to Company in the
form of a reduction of the cost of services charged by Stadtlander to Company.

3.      DUTIES OF COMPANY.

        3.1 MEDICAID PROVIDER NUMBERS AND PHARMACY LICENSES. Company will use
its commercially reasonable efforts to secure Medicaid provider numbers and/or
pharmacy licenses to facilitate its business.

        3.2 COOPERATION. Company shall fully cooperate with the Service
Providers to permit the Service Providers to perform their duties and
obligations under this Agreement in a timely manner. Company shall direct its
officers, managers, employees, and agents ("Representatives") to (i) properly
respond to requests by any Service Provider for information, and (ii) if
requested by a Service Provider, meet with or consult with the Service Provider
regarding any manner related to the Services. Company shall also promptly
provide a Service Provider with copies of any agreements, instruments or
documents in possession of Company as are reasonably requested by such Service
Provider, and promptly provide a Service Provider with any notices or other
communications that Company may receive that may have any effect on the Service
Provider's performance of the Services.

        3.3 ACCURACY OF INFORMATION. Company shall be responsible for the
completeness and accuracy of all information furnished to a Service Provider by
Company and Representatives of Company in connection with the Service Provider's
performance of Services.

4.      LIMITATION OF LIABILITY.

        Company acknowledges that the Service Providers are not in the business
of providing Services and that Services are being provided pursuant to this
Agreement as an accommodation to Company. Company's sole and exclusive remedy
and each Service Provider's sole and exclusive liability for any breach of by
such Service Provider of its obligations under Section 2, and for any damages of
Company suffered or incurred directly or indirectly in connection with the
provision of Services by such Service Provider (whether any claim related to
such damages arises in contract, in tort, by statute or otherwise), shall be the
reperformance by the Service Provider of Services at the Service Provider's
expense. No Service Provider makes any warranty, express or implied, including
any implied warranty of merchantability or fitness for a particular purpose or
as to the performance of the Services furnished hereunder, nor any implied
warranty arising from course of performance, course of dealing or usage of
trade, all of which are hereby expressly disclaimed.

5.      INDEMNITY.

        5.1 INDEMNIFICATION. Each party hereby agrees to save, defend and hold
each other party and its directors, officers, stockholders, members, employees,
and agents harmless from and against any and all claims, suits, actions,
demands, liabilities, expenses and/or loss, including reasonable legal expense
and attorneys' fees (collectively, "Claims") for damage to persons or property
resulting directly or indirectly from its negligence or willful or reckless
misconduct in connection with this Agreement; provided, however, that no party
shall be required to indemnify or hold any party harmless (either directly or
pursuant to any subrogation of rights) for any



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portion of any Claim that is covered and paid for by any applicable insurance
policy or contract maintained by the party seeking indemnification or seeking to
be held harmless and which coverage under such insurance contract is not
invalidated by a waiver of subrogation rights.

        5.2 CONTROL OF DEFENSE. Any entity entitled to indemnification under
this Section 5 shall give notice to the indemnifying party of any Claims that
may be subject to indemnification, promptly after learning of such Claim, and
the indemnifying party shall assume the defense of such Claims with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed by
the indemnifying party with counsel so selected, the indemnifying party will not
be subject to any liability for any settlement of such Claims made by the
indemnified party without its consent (but such consent will not be unreasonably
withheld or delayed), and will not be obligated to pay the fees and expenses of
any separate counsel retained by the indemnified party with respect to such
Claims.

6.      TERM AND TERMINATION.

        6.1 TERM. This Agreement shall begin as of the Effective Date and shall
continue until the earlier of (i) termination of the Operating Agreement, (ii)
termination by unanimous written consent of the parties, or (iii) termination
pursuant to Section 6.2 below.

        6.2 RIGHT TO TERMINATE FOR BREACH. In the event any party shall commit a
material breach of any term or condition of this Agreement, any aggrieved party
may terminate this Agreement upon written notice to the other parties, and such
termination shall be effective unless the breach has been remedied within 60
days from notice thereof.

        6.3 SUSPENSION OF SERVICES. To suspend or terminate all or part of the
Services, either Company or any Service Provider that is obligated to perform
such Services may at any time during the Term deliver to the other party a
90-day prior written notice that any of such services will be suspended or
terminated.

        6.4 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
this Section 6, all further obligation of the parties with respect to such
Services under this Agreement shall terminate; provided, however, that: (a) no
party shall be relieved of any obligation or liability arising from any prior
breach by such party of the provisions of this Agreement; (b) the parties shall,
in all events, remain bound by and continue to be subject to the terms set forth
in Sections 5 and 6; and (c) Company shall remain liable for payment under
Section 2.3 for any Services performed on or prior to the date of termination.

7.      CONFIDENTIALITY, RECORDS.

        7.1    PROPRIETARY INFORMATION.

               (a) All information furnished or disclosed by one party (a
"Disclosing Party") to any other party (a "Receiving Party") in connection with
the negotiation or performance of this Agreement, including but not limited to
trade secrets, cost and pricing information, computer programs, techniques,
designs, drawings, prototypes, formula or test data, data relating to any
research project, work in process, future development, engineering,
manufacturing, marketing, servicing, financing or personnel matter shall be
deemed "Proprietary Information." Provided,



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however, that the term "Proprietary Information" shall not be deemed to include
information which the Receiving Party can demonstrate by competent written
proof: (a) is now, or hereafter becomes, through no act or failure to act on the
part of the Receiving Party, generally known or available to the public; (b) is
known by the Receiving Party at the time of receiving such information, as
evidenced by its records; (c) is hereafter furnished to the Receiving Party by a
third party without restriction on disclosure; or (d) is the subject of a
written permission to disclose by the Disclosing Party.

               (b) For purposes of clarification and subject to the provisions
of the last sentence of Section 7.1(a) (information excluded from the definition
of Proprietary Information), the following are examples of (and do not
constitute an exhaustive list of) Proprietary Information of the Company: all
information relating to clinical practices information, pharmaceutical usage and
outcomes information relating to patients with a serious mental illness who are
customers of Company. All such Proprietary Information shall be property solely
of Company, regardless of the location or system on which such information is
located, and each Service Provider agrees to maintain and provide Company with
unlimited and unrestricted access to such information that is within the control
of such Service Provider.

        7.2 USE AND HANDLING OF PROPRIETARY INFORMATION. The Receiving Party
shall maintain all Proprietary Information in trust and confidence and shall use
at least the same degree of care regarding this information as it uses with
respect to its own Proprietary Information to prevent its unauthorized
disclosure, use or publication. The Receiving Party may use such Proprietary
Information only to the extent required to accomplish the intent of this
Agreement. The Receiving Party shall not use the Proprietary Information for any
purpose or in any manner which would constitute a violation of any laws or
regulations, including without limitation the export control laws of the United
States.

        7.3 OWNERSHIP OF PROPRIETARY INFORMATION. All Proprietary Information
(including all copies thereof) of a party hereto shall at all times remain the
property of such Disclosing Party. No rights or licenses to trademarks,
inventions, copyrights or patents are implied or granted under this Agreement.

        7.4 PERMITTED DISCLOSURE. A party may disclose Proprietary Information
to its professional advisors, and may disclose such information if such
disclosure is in response to a valid order of a court or other governmental body
of the United States or any political subdivision thereof, provided, however,
that the Receiving Party shall first have given notice to the Disclosing Party
and shall have made a reasonable effort to obtain a protective order requiring
that the Proprietary Information so disclosed be used only for the purposes for
which the order was issued; or is otherwise required by law.

        7.5 INJUNCTIVE RELIEF. Each party hereby acknowledges and agrees that in
the event of any breach of this Section 7 of this Agreement by a Receiving
Party, including, without limitation, the actual or threatened disclosure of
Proprietary Information without the prior express written consent of the
Disclosing Party, the Disclosing Party will suffer an irreparable injury, such
that no remedy at law will afford it adequate protection against, or appropriate
compensation for, such injury. Accordingly, in the event of any breach or
threatened breach by a Receiving Party of any provisions of this Section 7, the
Disclosing Party shall, in addition to all



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other remedies available to it, be entitled to injunctive relief in connection
with a breach by Receiving Party under this Agreement.

8.      MISCELLANEOUS.

        8.1 TAXES. Company shall pay any and all direct or indirect taxes
arising out of payments made or due pursuant to this Agreement.

        8.2 GOVERNING LAW. This Agreement shall be governed by and construed
under the internal laws of the State of California.

        8.3 ARBITRATION. The parties agree that they shall submit any disputes
arising under this Agreement to binding arbitration pursuant to Section 14.1 of
the Operating Agreement, which section is incorporated herein by reference.

        8.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Operating
Agreement, and that certain Subscription Agreement dated June 8, 1998, by and
between PMR and Stadtlander including any and all attachments or exhibits hereto
or thereto, constitute the entire, final and exclusive understanding and
agreement between the parties with respect to the subject matter hereof. This
Agreement may be amended, waived, discharged or terminated only by written
agreement of the parties.

        8.5 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

        8.6 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or invalid, this Agreement shall continue in full force and effect
without said provision.

        8.7 FORCE MAJEURE. In the event that a party's performance under this
Agreement, other than Company's obligation to make payments, shall be
interrupted or delayed by the occurrence of any event beyond the reasonable
control of such party, then such party shall be excused from performance during
the period of time when the interruption occurred.

        8.8 CAPTIONS. The captions and heading to Sections of this Agreement
have been inserted for identification and reference purposes only and shall not
be used to construe the meaning or the interpretation of this Agreement.

        8.9 PARTIES IN INTEREST. This Agreement shall inure to the benefit of
and be binding upon each Service Provider, Company and their successors and
assigns.

        8.10 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.



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        IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the respective parties as of the respective dates set forth below.


                                        COMPANY:

                                        STADT SOLUTIONS, LLC
                                        a Delaware limited liability company


                                        By: /s/ Mark Clein
                                            ------------------------------------
                                        Name:  Mark Clein
                                               ---------------------------------
                                        Title: Manager
                                               ---------------------------------

                                        Address:   501 Washington Street
                                                   5th Floor
                                                   San Diego, CA  92103


                                        PMR:

                                        PMR CORPORATION
                                        a Delaware corporation


                                        By: /s/ Mark Clein
                                            ------------------------------------
                                        Name:  Mark Clein
                                               ---------------------------------
                                        Title: C.F.O.
                                               ---------------------------------

                                        Address:   501 Washington Street
                                                   5th Floor
                                                   San Diego, CA  92103


                                        STADTLANDER:

                                        STADTLANDER DRUG DISTRIBUTION
                                        COMPANY, INC.
                                        a Delaware corporation


                                        By: /s/ James J. Sas
                                        Name: James J. Sas
                                        Title:   Chief Financial Officer

                                        Address:   600 Penn Center Boulevard
                                                   Pittsburgh, PA  15235



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