<PAGE>   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 October 31, 1999

                                       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                (IRS Employer Identification No.)
Incorporation or Organization)

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 November 30, 1999, PMR Corporation had 6,213,877 shares of common stock
outstanding.


<PAGE>   2
                                 PMR CORPORATION

                                      INDEX


<TABLE>
<CAPTION>
PART I                          FINANCIAL INFORMATION                Page
<S>         <C>                                                      <C>
            Item 1.
            Financial      Condensed Consolidated Balance
            Statements     Sheets as of  October 31, 1999
                           (Unaudited) and April 30, 1999              1

                           Condensed Consolidated
                           Statements of Operations for
                           the three and six month
                           periods ended October 31, 1999              2
                           and 1998 (Unaudited)

                           Condensed Consolidated
                           Statements of Cash Flows for
                           the six months ended October
                           31, 1999 and 1998 (Unaudited)               3

                           Notes to Condensed
                           Consolidated Financial                      4
                           Statements (Unaudited)

            Item 2.        Management's Discussion and
                           Analysis of Financial
                           Condition and Results of                    7
                           Operations

            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              18
                           of Proceeds
            Item 3.        Defaults Upon Senior Securities            18
            Item 4.        Submission of Matters to a                 18
                           Vote of Security Holders
            Item 5.        Other Information                          18
            Item 6.        Exhibits and Reports on Form 8-K           18
</TABLE>



<PAGE>   3
                         PART I - FINANCIAL INFORMATION
Item 1.                        FINANCIAL STATEMENTS

                                 PMR CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                             OCTOBER 31,           APRIL 30,
                                                                                1999                 1999
                                                                            ------------         ------------
<S>                                                                         <C>                  <C>
ASSETS                                                                       (UNAUDITED)           (AUDITED)
Current assets:
    Cash and cash equivalents                                               $  8,700,730         $  5,441,012
    Short-term investments, available for sale                                23,947,764           27,509,554
    Accounts receivable, net of allowance for uncollectible amounts
      of $15,213,636 in 2000 and $10,664,000 in 1999                          19,727,828           20,002,894
    Prepaid expenses and other current assets                                  1,808,688            1,787,859
    Income taxes receivable                                                      652,252            2,212,815
    Deferred income tax benefit                                                4,653,000            4,653,000
                                                                            ------------         ------------
Total current assets                                                          59,490,262           61,607,134

Furniture and office equipment, net of accumulated depreciation                3,581,337            2,863,934
      of $1,913,333 in 2000 and $1,532,000 in 1999
Long-term receivables, net of allowance for uncollectible amounts              4,353,244            4,742,329
      of $3,527,602 in 2000 and $4,087,000 in 1999
Deferred income tax benefit                                                    1,206,000            1,206,000
Other assets                                                                     602,773              546,621
                                                                            ------------         ------------
Total assets                                                                $ 69,233,616         $ 70,966,018
                                                                            ============         ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                        $  1,490,761         $  1,539,327
    Accrued expenses                                                           1,915,886            1,852,335
    Accrued compensation and employee benefits                                 1,958,573            2,083,082
    Advances from case management agencies                                     1,007,204              846,353
    Payable to related party                                                   4,780,569            3,052,610
                                                                            ------------         ------------
Total current liabilities                                                     11,152,993            9,373,707

Note payable                                                                     246,091              294,073
Deferred rent expense                                                             49,706               53,438
Contract settlement reserve                                                    7,259,172            6,672,727
Minority interest                                                                764,337            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 - 6,238,878 in 2000 and
       6,988,878 in 1999                                                          69,889               69,889
    Additional paid-in capital                                                48,123,385           48,123,385
    Retained earnings                                                          4,245,387            5,400,242
    Treasury stock, 750,000 shares of common stock at cost                    (2,677,344)            (942,500)
                                                                            ------------         ------------
Total stockholders' equity                                                    49,761,317           52,651,016
                                                                            ------------         ------------
Total liabilities and stockholders' equity                                  $ 69,233,616         $ 70,966,018
                                                                            ============         ============
</TABLE>



See notes to condensed consolidated financial statements



                                       1
<PAGE>   4

                                 PMR CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                Three Months ended October 31,     Six Months ended October 31,
                                                                -----------------------------     -----------------------------
                                                                    1999             1998             1999             1998
                                                                ------------     ------------     ------------     ------------
<S>                                                             <C>              <C>              <C>              <C>
Revenue - psychiatric care                                      $ 12,505,848     $ 13,797,558     $ 25,329,812     $ 28,618,615
Revenue - pharmaceutical                                          10,240,842        8,619,593       19,840,467       11,649,558
                                                                ------------     ------------     ------------     ------------
     Total revenue                                                22,746,690       22,417,151       45,170,279       40,268,173

  Costs and expenses:
    Direct operating expenses - psychiatric care                   9,541,131        9,473,247       19,519,588       19,566,427
    Cost of sales - pharmaceuticals                                7,317,639        6,747,636       14,549,049        9,022,755
    Direct operating expenses - pharmaceuticals                    1,474,306        1,210,144        2,653,862        1,619,647
    Marketing, general and administrative                          3,303,523        2,461,820        6,889,809        5,029,161
    Provision for bad debts                                        2,254,811        1,192,475        4,132,255        1,908,914
    Depreciation and amortization                                    337,378          299,333          616,906          538,527
    Acquisition expense                                                   --        1,774,772               --        1,774,772
    Special charge (credit)                                         (133,813)        (678,292)         682,761         (678,292)
    Net interest (income)                                           (382,244)        (482,315)        (759,376)        (991,126)
                                                                ------------     ------------     ------------     ------------
                                                                  23,712,731       21,998,820       48,284,854       37,790,785
  Income (loss) before minority interest, income taxes
      and cumulative change                                         (966,041)         418,331       (3,114,575)       2,477,388
  Minority interest                                                 (686,976)         272,654       (1,156,720)         511,948
                                                                ------------     ------------     ------------     ------------
  Income (loss) before income taxes and cumulative change           (279,065)         145,677       (1,957,855)       1,965,440
  Income tax (benefit) expense                                      (115,000)          57,000         (803,000)         806,000
                                                                ------------     ------------     ------------     ------------
  Net income (loss) before cumulative change                        (164,065)          88,677       (1,154,855)       1,159,440

  Cumulative change, net of income tax benefit                            --               --               --          592,689
                                                                ------------     ------------     ------------     ------------
  Net income (loss)                                             $   (164,065)    $     88,677     $ (1,154,855)    $    566,751
                                                                ============     ============     ============     ============

  Earnings (loss) per common share before cumulative change:
       Basic                                                    $      (0.03)    $       0.01     $      (0.18)    $       0.17
                                                                ============     ============     ============     ============
       Diluted                                                  $      (0.03)    $       0.01            (0.18)            0.16
                                                                ============     ============     ============     ============

  Earnings (loss) per common share:
       Basic                                                    $      (0.03)    $       0.01     $      (0.18)    $       0.08
                                                                ============     ============     ============     ============
       Diluted                                                  $      (0.03)    $       0.01            (0.18)            0.08
                                                                ============     ============     ============     ============

  Shares used in computing earnings (loss) per share:
       Basic                                                       6,433,606        6,936,548        6,433,606        6,944,886
                                                                ============     ============     ============     ============
       Diluted                                                     6,433,606        7,243,812        6,433,606        7,316,077
                                                                ============     ============     ============     ============
</TABLE>



See notes to condensed consolidated financial statements



                                       2
<PAGE>   5
                                 PMR CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                  SIX MONTHS ENDED OCTOBER 31,
                                                                     1999             1998
                                                                 ------------     ------------
<S>                                                              <C>              <C>
OPERATING ACTIVITIES
Net Income (Loss)                                                $ (1,154,855)    $    566,751
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                                                 682,761         (678,292)
       Depreciation and amortization                                  616,906          538,527
       Provision for bad debts                                      4,132,255        1,908,914
       Cumulative effect of change in accounting principle                 --          592,689
       Income (loss) applicable to minority interest               (1,156,720)         511,948
       Deferred income taxes                                        1,560,563               --
       Changes in operating assets and liabilities:
               Accounts and notes receivables                      (3,468,104)     (11,035,612)
               Prepaid expenses and other assets                     (135,440)         152,763
               Accounts payable and accrued expenses                 (667,776)      (1,359,301)
               Accrued compensation and employee benefits            (124,509)        (253,784)
               Advances from case management agencies                 160,851         (169,405)
               Payable to related party                             1,727,959        6,836,088
               Contract settlement reserve                            586,446          283,817
               Income taxes receivable/payable                             --          604,207
               Deferred rent expense                                   (3,732)          (1,393)
                                                                 ------------     ------------
Net cash provided by operating activities                           2,756,605          272,689

INVESTING ACTIVITIES
Proceeds from the sale and maturity of short term investments       6,799,666       46,475,547
Purchases of short term investments                                (3,237,877)     (35,561,782)
Purchases of furniture and office equipment                        (1,275,849)        (689,341)
                                                                 ------------     ------------
Net cash provided by investing activities                           2,285,940       10,224,424

FINANCING ACTIVITIES
Proceeds from sale of common stock                                         --          255,551
Payments on note payable to bank                                      (47,982)         (47,337)
Acquisition of treasury stock                                      (1,734,844)              --
                                                                 ------------     ------------
Net cash provided (used in) by financing activities                (1,782,826)         208,214
                                                                 ------------     ------------

Net increase in cash                                                3,259,718       10,705,327
Cash at beginning of period                                         5,441,012       18,522,859
                                                                 ------------     ------------
Cash at end of period                                            $  8,700,730     $ 29,228,186
                                                                 ============     ============
</TABLE>



See notes to condensed consolidated financial statements



                                       3
<PAGE>   6
                                 PMR CORPORATION

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

                                October 31, 1999

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") have been included. Operating results for the three and six months
ended October 31, 1999, 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
<PAGE>   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:


<TABLE>
<CAPTION>
                                                           Six Months Ended
                                                              October 31,
                                                      ---------------------------
                                                         1999            1998
                                                      -----------     -----------
<S>                                                   <C>             <C>
Numerator
Net income (loss) available to common stockholders    $(1,154,855)    $   566,751
                                                      ===========     ===========

Denominator:
Weighted average shares outstanding for basic
  earnings per share                                    6,433,606       6,944,886
                                                      -----------     -----------
Effects of dilutive securities
  Employee stock options and warrants                           0         371,191
                                                      -----------     -----------
Dilutive potential common shares                                0         371,191
Shares used in computing diluted earnings per
  common share                                          6,433,606       7,316,077
                                                      ===========     ===========

Earnings (loss) per common share, basic               $     (0.18)    $      0.08
                                                      ===========     ===========
Earnings (loss) per common share, diluted             $     (0.18)    $      0.08
                                                      ===========     ===========
</TABLE>


Common stock equivalents of 2,636 shares for the six months ended October 31,
1999 were excluded from the calculation of diluted earnings per share because of
the anti-dilutive effect related to the net loss for the six months ended
October 31, 1999.



                                       5
<PAGE>   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 three reportable segments: Outpatient Programs, Case Management Programs and
Pharmaceutical Care. 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.

A summary of segment activity is as follows:

<TABLE>
<CAPTION>
                                                          Six Months Ended
                                                             October 31,
                               ------------------------------------------------------------------------------
                                                  Case
                                 Outpatient     Management    Pharmaceutical
                                  Programs       Programs          Care             Other           Total
                               ------------    ------------   --------------    ------------     ------------
<S>                            <C>             <C>             <C>              <C>              <C>
1999
Revenues                       $ 17,666,720    $  6,651,255    $ 19,840,467     $  1,011,837     $ 45,170,279
Income (loss) before income
taxes and cumulative
change                            3,671,877         444,841      (1,161,356)      (4,913,217)      (1,957,855)

1998
Revenues                       $ 22,886,589    $  4,909,578    $ 11,649,558     $    822,448     $ 40,268,173
Income (loss) before income
taxes and cumulative
change                            5,582,232         294,258               0       (3,911,050)       1,965,440
</TABLE>



                                       6
<PAGE>   9
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 37 Outpatient
Programs, two Case Management Programs and four Chemical Dependency Programs.
Stadt Solutions, LLC ("Stadt Solutions"), the Company's majority owned
subsidiary with Stadt Holdings (formerly Stadtlander Drug Distribution Co.,
Inc.) ("Stadtlander"), offers a specialty pharmacy program for individuals with
SMI, which presently serves approximately 8,000 individuals through sixteen
pharmacies in fifteen states. Stadt Solutions received the Company's clinical
research and information business upon formation. PMR, including Stadt
Solutions, operates in approximately twenty-five states and employs or contracts
with more than 400 mental health and pharmaceutical professionals and provides
services to approximately 11,000 individuals diagnosed with SMI.

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
are in effect at 32 of the 37 Outpatient Programs operated during the second
quarter and constituted 62.5% of the Company's psychiatric care revenue for the
three months ended October 31, 1999. These contractual agreements are with
hospitals or Community Mental Health Centers ("CMHCs"), and require the Company
to provide, at its own expense, specific management personnel for each program
site. Patients served by the



                                       7
<PAGE>   10

Outpatient Programs typically are covered by Medicare. In light of the Company's
recent financial performance and anticipated regulatory changes, the Company is
in the process of restructuring its contracts. The Company cannot determine how
many of the contracts will be successfully restructured. Those contracts that
are not restructured will be candidates for sale or termination. To the extent
there are program closures, the Company may incur restructuring charges
associated with asset impairment, lease terminations and severance charges.

      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 October 31, 1999, the Company had recorded $7.3
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 is 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 consortiums
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. Revenues are
recognized based on the quarterly calculation of the statistical trends.

      Pharmaceuticals. Through Stadt Solutions, the Company offers specialty
pharmaceutical services to individuals with SMI. Stadt Solutions also offers
site management and clinical information services to pharmaceutical companies,
health care providers and public sector purchasers. Stadt Solutions serves
clients through a variety of pharmacies offering anti-psychotic or other
medications for individuals with schizophrenia or other serious mental illnesses
as well as offering blood monitoring services. Stadt Solutions will seek to
offer patients expanded services, including dispensing of all of the
pharmaceuticals needed by these individuals and providing disease management
services to improve compliance and education for the patient, the physician and
family members. Stadt Solutions records pharmaceutical revenue when the product
is sold to customers at pharmacies, net of any estimated contractual allowances.

      Chemical Dependency Programs. In Southern California, the Company
contracts primarily with managed care companies and commercial insurers to
provide its outpatient chemical dependency services. The contracts are
structured as fee-for-service or case rate reimbursement and revenue is
recognized in the period in which the related service is delivered. The Company
is negotiating to sell its Chemical Dependency Programs to a private company.
The parties have agreed on a letter of intent, which establishes the economic
terms of a transaction. The transaction is expected to close in the third
quarter ended January 31, 2000. No assurance can be given that the transaction
will be consummated.



                                       8
<PAGE>   11

RESULTS OF OPERATIONS - QUARTER ENDED OCTOBER 31, 1999 COMPARED TO QUARTER
ENDED OCTOBER 31, 1998

      Revenue - Psychiatric Care. Revenues from psychiatric care decreased from
$13.8 million for the quarter ended October 31, 1998 to $12.5 million for the
quarter ended October 31, 1999, a decrease of $1.3 million, or 9.4%. The
Outpatient Programs recorded revenues of $8.4 million for the quarter ended
October 31, 1999; a decrease of $2.2 million or 20.8% as compared to quarter
ended October 31, 1998. Same site revenues decreased from $7.1 million for the
quarter ended October 31, 1998 to $6.3 million for the quarter ended October 31,
1999, a decrease of 11.7% or $827,000. Closed sites accounted for a net revenue
decrease of $1.4 million for the quarter ended October 31, 1999 when compared to
the quarter ended October 31, 1998. The Outpatient Programs operated under an
all-inclusive fee arrangement had operating margins of 32.4% in the quarter
ended October 31, 1999 as compared to 38.9% in the quarter ended October 31,
1998. The primary reason for the reduction in operating margin was an increase
in operating expenses as a percentage of psychiatric care revenue from 68.7% for
the quarter ended October 31, 1998, to 76.3% for the quarter ended October 31,
1999. The Company's Case Management Programs recorded revenues of $3.6 million,
an increase of $750,000, or 26.7%, from the quarter ended October 31, 1998. The
increase in revenues was due to an increase in consumers of 50.3% as compared to
the quarter ended October 31, 1998. Revenue from the Company's Chemical
Dependency and other programs not included as outpatient or case management was
$526,000 for the quarter ended October 31, 1999, an increase of 50.0% from the
quarter ended October 31, 1998.

      Revenue - Pharmaceuticals. Revenues from Pharmaceuticals increased from
$8.6 million for the quarter ended October 31, 1998 to $10.2 million for the
quarter ended October 31, 1999, an increase of $1.6 million, or 18.8%. New
facilities accounted for $1.1 million of increased revenue for the quarter ended
October 31, 1999 as compared to the quarter ended October 31, 1998. Same site
revenue increased by $487,000 in the quarter ended October 31, 1999 as compared
to the quarter ended October 31, 1998.

      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 unchanged at $9.5 million for the quarter ended October 31, 1998
and 1999, respectively. As a percentage of psychiatric care revenues,
psychiatric care operating expenses were 76.3%, an increase from 68.7% for the
quarter ended October 31, 1998. The increase in operating expenses as a
percentage of psychiatric care revenues reflects the allocation of operational
costs over fewer program sites and lower revenues.

      Cost of Sales - Pharmaceuticals. Cost of sales of Pharmaceutical products
increased from $6.7 million for quarter ended October 31, 1998 to $7.3 million
for the quarter ended October 31, 1999, a increase of 8.4% or $570,000. The
costs represent 78.3% and 71.5% of Pharmaceutical revenue for the quarters ended
October 31, 1998 and 1999 respectively. The increase in the cost of sales is
primarily the result of the addition of new facilities.



                                       9
<PAGE>   12

      Direct Operating Expenses - Pharmaceuticals. Direct operating expenses of
Pharmaceuticals increased from $1.2 million for quarter ended October 31, 1998
to $1.5 million for the quarter ended October 31, 1999, an increase of $264,000
or 21.8%. The expenses represent 14.0% and 14.4% of Pharmaceutical revenue for
the quarters ended October 31, 1998 and 1999, respectively. The increase in the
direct operating expenses is primarily the result of the addition of new
facilities.

      Marketing, General and Administrative. Marketing, general and
administrative expenses increased from $2.5 million for the quarter ended
October 31, 1998 to $3.3 million for the quarter ended October 31, 1999, an
increase of $842,000 or 34.2%. The change consists of an increase for Stadt
Solutions related to investments in infrastructure and support staff partially
offset by a decrease in marketing, general and administrative expenses related
to psychiatric care, case management and other programs. Pharmaceutical
marketing, general and administrative expenses increased by $1.3 million for the
quarter ended October 31, 1999 as compared to the quarter ended October 31,
1998, while non-pharmaceutical expenses decreased by $448,000 for the quarter
ended October 31, 1999 as compared to the quarter ended October 31, 1998. As a
percentage of total revenues, marketing, general and administrative expenses
were 11.0% for the quarter ended October 31, 1998, as compared to 14.5% for
quarter ended October 31, 1999. The increase in marketing, general and
administrative expenses as a percent of revenue was due primarily to investments
in infrastructure and support staff for Pharmaceutical operations.

      Provision for Bad Debts. Expenses related to the provision for bad debts
increased from $1.2 million for the quarter ended October 31, 1998 to $2.3
million for the quarter ended October 31, 1999, an increase of $1.1 million, or
89.1%. The increase was due to reserves against increased revenue from sales of
the Pharmaceutical products segment and to a higher provision rate for bad debt
associated with a less than expected collection experience in Pharmaceutical
products. As a percentage of revenues, the provision for bad debts was 5.3% of
revenues for the quarter ended October 31, 1998 as compared to 9.9% for the
quarter ended October 31, 1999. The Company expects the allowance for
uncollectable accounts to fluctuate based on the amount of claims under review
in its Outpatient Programs, the number of programs that the Company manages and
its experience with Pharmaceutical products. 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
increased from $299,000 for the quarter ended October 31, 1998 to $337,000 for
the quarter ended October 31, 1999, an increase of $38,000, or 12.7%. The
increase was due to additional capital expenditures associated primarily with
Pharmaceutical operations.

      Special Charge (Credit). In the quarter ended October 31, 1999, the
Company closed two Outpatient Program locations, incurring a charge of $16,000
for lease termination costs. The Company also recognized a special charge credit
in the amount of $150,000 associated with the receipt of funds related to a
terminated agreement with a case management agency. As of October 31, 1999, the
accrual for special charges included in the liabilities section in the
consolidated balance sheet was $792,000.



                                       10
<PAGE>   13

       Net Interest Income. Interest income, net of interest expense, decreased
from $482,000 for the quarter ended October 31, 1998 to $382,000 for the quarter
ended October 31, 1999, a decrease of $100,000, or 20.7%. 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 Minority Interest, Income Taxes and Cumulative
Change. Income before minority interest, income taxes and cumulative change
decreased from $418,000 for the quarter ended October 31 1998 to a loss of
$966,000 for the quarter ended October 31, 1999, a decrease of $1.4 million.

      Minority Interest. Minority interest decreased from an operating gain of
$272,000 for the quarter ended October 31, 1998 to an operating loss of $687,000
for the quarter ended October 31, 1999, a decrease of $959,000. Minority
interest represents the allocation of the operating gains or losses of Stadt
Solutions during the quarter to the minority shareholder as required by the
Stadt Solutions Operating Agreement.

RESULTS OF OPERATIONS - SIX MONTHS ENDED OCTOBER 31, 1999 COMPARED TO SIX
MONTHS ENDED OCTOBER 31, 1998

      Revenue - Psychiatric Care. Revenues from psychiatric care decreased from
$28.6 million for the six months ended October 31, 1998 to $25.3 million for the
six months ended October 31, 1999, a decrease of $3.3 million, or 11.5%. The
Outpatient Programs recorded revenues of $17.7 million, a decrease of $5.2
million or 22.8% as compared to six months ended October 31, 1998. Same site
revenues decreased by 8.6% or $1.2 million as compared to the six months ended
October 31, 1998. Closed sites accounted for a net revenue decrease of $3.8
million for the six months ended October 31, 1999 when compared to the six
months ended October 31, 1998. A decrease of revenues of $575,000 for the six
months ended October 31, 1999, as compared to the six months ended October 31,
1998, related to a revision of estimated contractual settlement with a certain
provider. The Outpatient Programs operated under an all-inclusive fee
arrangement had operating margins of 32.3% in the six months ended October 31,
1999 as compared to 38.0% in the six months ended October 31, 1998. The primary
reason for this reduction in operating margin was an increase in operating
expenses as a percentage of psychiatric care revenue from 68.4% for the six
months ended October 31, 1998, to 77.1% for the six months ended October 31,
1999. The Company's Case Management Programs recorded revenues of $6.7 million
for the six months ended October 31, 1999, an increase of $1.7 million, or
35.5%, from the six months ended October 31, 1998. The increase in revenues was
due to an increase in consumers of 50.1% as compared to the six months ended
October 31, 1998. Revenue from the Company's Chemical Dependency and other
programs not included as outpatient or case management was $1.0 million, an
increase of 23.0% from the six months ended October 31, 1998.

      Revenue - Pharmaceuticals. Revenues from Pharmaceuticals increased from
$11.6 million for the six months ended October 31, 1998 to $19.8 million for the
six months ended October 31, 1999, an increase of $8.2 million, or 70.3%. The
revenues for the six months ended October 31, 1998 included four months versus
six months for the six months ended October 31, 1999.




                                       11
<PAGE>   14

      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 $19.6 million for the six months ended October 31, 1998
to $19.5 million for the six months ended October 31, 1999, a decrease of
$47,000, or 0.2%. As a percentage of psychiatric care revenues, psychiatric care
operating expenses were 77.1% for the six months ended October 31, 1999, an
increase from 68.4% for the six months ended October 31, 1998. The increase in
operating expenses as a percentage of psychiatric care revenues related to the
$575,000 reduction in Outpatient Programs revenue from an adjustment to the
contractual settlement during the six months ended October 31, 1999 and the
closing of nine program sites during the six months ended October 31, 1999.

      Cost of Sales - Pharmaceuticals. Cost of sales of Pharmaceutical products
increased from $9.0 million for six months ended October 31, 1998 to $14.5
million for the six months ended October 31, 1999, an increase of 61.2%. The
costs represent 77.5% and 73.3% of Pharmaceutical revenue for the quarters ended
October 31, 1998 and 1999 respectively. The cost of sales for the six months
ended October 31, 1998 included four months versus six months for the six months
ended October 31, 1999.

      Direct Operating Expenses - Pharmaceuticals. Direct operating expenses of
Pharmaceuticals increased from $1.6 million for six months ended October 31,
1998 to $2.6 million for the six months ended October 31, 1999, an increase of
$1.0 million or 63.9%. The expenses represent 13.9% and 13.4% of Pharmaceutical
revenue for six months ended October 31, 1998 and 1999, respectively. Direct
operating expenses for the six months ended October 31, 1998 included four
months versus six months for the six months ended October 31, 1999.

      Marketing, General and Administrative. Marketing, general and
administrative expenses increased from $5.0 million for the six months ended
October 31, 1998 to $6.9 million for the six months ended October 31, 1999, an
increase of $1.9 million or 37.0%. The change consists of an increase for Stadt
Solutions related to investments in infrastructure and support staff partially
offset by a decrease in marketing, general and administrative expenses related
to psychiatric care, case management and other programs. Pharmaceutical
marketing, general and administrative expenses increased by $2.2 million, while
non-pharmaceutical expenses decreased by $363,000 for the quarter ended October
31, 1999. As a percentage of total revenues, marketing, general and
administrative expenses were 12.5% for the six months ended October 31, 1998, as
compared to 15.3% for six months ended October 31, 1999. The increase in
marketing, general and administrative expenses as a percent of revenue was due
primarily to investments in infrastructure and support staff for Pharmaceutical
operations.

      Provision for Bad Debts. Expenses related to the provision for bad debts
increased from $1.9 million for the six months ended October 31, 1998 to $4.1
million for the six months ended October 31, 1999, an increase of $2.2 million,
or 116.5%. The increase was due entirely to reserves against revenue from sales
of the new product segment Pharmaceutical products. As a percentage of revenues,
the provision for bad debts was 4.7% of revenues for the six months ended
October 31, 1998 as compared to 9.1% for the six months ended October 31, 1999.
The Company expects the allowance for uncollectable amounts to fluctuate based
on the amount of claims under review in its Outpatient Programs, the number of
programs that the Company manages and its experience with Pharmaceutical
products. The Company may need to further



                                       12
<PAGE>   15

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
increased from $539,000 for the six months ended October 31, 1998 to $616,900
for the six months ended October 31, 1999, an increase of $78,000, or 14.6%. The
increase was due to additional capital expenditures associated primarily with
Pharmaceutical operations.

      Special Charge. For the six months ended October 31, 1999, the Company
closed nine outpatient psychiatric program locations, incurring a charge of
approximately $683,000. The charge consists of lease termination costs,
operating losses and write-offs of various fixed assets. In addition, the
Company has restructured certain departments Company-wide involving the
reduction in force of approximately 19 employees. Severance costs of
approximately $296,000 were incurred as a special charge in connection with the
restructuring. As of October 31, 1999, the accrual for special charges included
in the liabilities section in the consolidated balance sheet was $792,000.

      Net Interest Income. Interest income, net of interest expense, decreased
from $991,000 for the six months ended October 31, 1998 to $759,000 for the six
months ended October 31, 1999, a decrease of $232,000, or 23.4%. 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 Minority Interest, Income Taxes and Cumulative
Change. Income before minority interest, income taxes and cumulative change
decreased from $2.5 million for the six months ended October 31 1998 to a loss
of $3.1 million for the six months ended October 31, 1999, a decrease of $5.6
million.

      Minority Interest. Minority interest decreased from an operating gain of
$512,000 for the six months ended October 31, 1998 to an operating loss of $1.2
million for the six months ended October 31, 1999, a decrease of $1.7 million.
Minority interest represents the allocation of the operating gains or losses of
Stadt Solutions during the six months to the minority shareholder as required by
the Stadt Solutions Operating Agreement.

      Cumulative Change. The cumulative change of $593,000 for the six months
ended October 31, 1998, 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 in the first six 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 six months ended October 31, 1999, net cash provided in operating
activities was $2.8 million. Working capital as of October 31, 1999 was $48.3
million, a decrease of $3.9



                                       13
<PAGE>   16

million, as compared to working capital at April 30, 1999. Cash, cash
equivalents and short-term investments totaled $32.6 million as of October 31,
1999, a decrease of $302,072 or 0.9% as compared to April 30, 1999.

      Cash was provided by operating activities during the six months ended
October 31, 1999 due to intensified collection of accounts receivable and
receipt of a tax refund of $2.2 million from the IRS. The Company experienced
growth in accounts receivable due to an increase in days revenue outstanding
from 76 at April 30, 1999 to 92 as of October 31, 1999. The increase in days
revenue outstanding was primarily due to focused review of claims by fiscal
intermediaries at several outpatient programs.

      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 October
31, 1999, 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 development of a risk based
coordinated care project. 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 90,000 shares of its common stock at an
average price of $5.81 per share, or $523,750, in open market transactions. In
May 1999, the Company repurchased an 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. During the quarter ended October
31, 1999, the Company repurchased 410,000 shares of its common stock at an
average price of $2.33 per share, or $984,844, in open market transactions. As
of October 31, 1999, the Company has repurchased 700,000 shares of common stock.
All shares repurchased are held in treasury.

      The Company began a research and development effort in August 1999 related
to work done in connection with the case management and coordinated care
projects. The Company is seeking to develop and commercialize software for the
electronic prescribing of medications for the SMI population. The Company
intends to initially target community mental health organizations with this
software product. As of October 31, 1999, the Company has expended $256,000 in
this effort of which $140,000 has been capitalized in accordance with FASB
Statement No. 86 Accounting for Software Costs. 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 six 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



                                       14
<PAGE>   17
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. Certain factors are, in management's view, likely to
lessen the impact of any such effect, including the expectation that, if claims
arise, they will arise on a periodic basis over several years and that any
disallowance will merely be offset against obligations already owed by the
provider to the Company.

      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 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

      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.

IMPACT OF YEAR 2000 COMPUTER ISSUES

      The year 2000 issue is the result of computer applications being written
using two digits rather than four to define the applicable year. The Company's
computer applications (and computer applications used by any of the Company's
customers, vendors, payors or other business partners) may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations causing disruption of operations.



                                       15
<PAGE>   18

      The Company has completed a thorough review of its material computer
applications and has identified and scheduled necessary corrections for its
computer applications. All known corrections have been accomplished as of
quarter ended October 31, 1999. The total cost associated with these revisions
was not material. These costs were primarily incurred during fiscal 1999 and
charged to expense as incurred. For externally maintained systems, the Company
has worked with vendors to ensure that each system is currently year 2000
compliant. The Company will continue to work with vendors in the event new areas
are identified regarding year 2000 computer issues. The cost to be incurred by
the Company related to externally maintained systems has been minimal to date.
The Company believes that it has, to the best of its knowledge, completed its
planned corrections to its computer applications for the year 2000 issue.
However, if such corrections have not been adequately completed, the year 2000
issue could have a material adverse impact on the Company's business, financial
condition and results of operations. Because of the many uncertainties
associated with year 2000 compliance issues, and because the Company's
assessment is necessarily based on information from third party vendors and
suppliers, there can be no assurance that the Company's assessment is correct or
as to the materiality, worst case scenario or effect of any failure of such
assessment to be correct.

      The Company has initiated a program to determine whether the computer
applications of its significant payors and contract providers will be upgraded
in a timely manner. The Company has completed this review, but it is still
unknown whether computer applications of contract providers and Medicare and
other payors will be year 2000 compliant. The Company has not been able to
determine the extent to which any disruption in the billing practices of
providers or the payment practices of Medicare or other payors caused by the
year 2000 issues will affect the Company's operations. Any such disruption in
the billing or reimbursement process could have a substantial adverse impact on
Medicare or Medicaid payments to providers and, in turn, payments to the
Company. Any such disruption could have a material adverse effect upon the
Company's business, financial condition and results of operations. The Company
has not established a contingency plan in the event of any such disruption or
worst case scenario.

      Stadt Solutions has completed a review and assessment of its applications
and systems and has completed all required remediation. The cost incurred by
Stadt Solutions related to such remediation, and the extent of such remediation,
has been minimal to date. Stadt Solutions believes that it has, to the best of
its knowledge, completed its planned corrections to its computer applications
for the year 2000 issue. However, if such corrections have not been completed,
adequately the year 2000 issue could have a material adverse impact on Stadt
Solutions' business, financial condition and results of operations. Because of
the many uncertainties associated with year 2000 compliance issues, including
uncertainties or disruption in the payment practices of Medicaid or other
payors, and because Stadt Solutions' assessment is necessarily based on
information from third party vendors and suppliers and Stadtlander, there can be
no assurance that the Company's assessment is correct or as to the materiality,
worst case scenario or effect of any failure of such assessment to be correct.
Stadt Solutions has not established a contingency plan in the event of any such
disruption or worst case scenario.




                                       16
<PAGE>   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 six 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
<PAGE>   20
PART II - OTHER INFORMATION

Item 1 - Legal Proceedings
      None

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

      On October 21, 1999, the Company held its Annual Meeting of Stockholders
where Allen Tepper, Charles McGettigan and Mark Clein were re-elected as
directors of the Company. The following directors continued in office after the
meeting: Susan Erskine, Daniel Frank, Richard Niglio and Eugene Hill. In
addition, the Company's stockholders ratified the selection of Ernst & Young LLP
as the Company's auditors for the fiscal year ending April 30, 2000. The
re-election of each of Allen Tepper, Charles McGettigan and Mark Clein was
approved with 4,930,491.56, 4,940,491.56 and 4,940,491.56, respectively, in
favor; 0, 0, and 0, respectively, against; and 19,663, 9,663 and 9,663,
respectively, abstentions. The ratification of the selection of the auditors was
approved with 4,943,225.56 in favor, 6,400 votes against, and 529 abstentions.

Item 5 - Other Information
      None

Item 6 - Exhibits and Reports on Form 8-K
      None



                                       18
<PAGE>   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: December 14, 1999
                                       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