<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           January 31, 1998
                               -------------------------------------------

                                       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                (I.R.S. Employer Identification No.)
of 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 Address:3990 Old Town Avenue, Suite 206A San Diego, California 92110
       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 ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

        Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court                                   Yes           No
                                                          ---------    ---------

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

        At January 31, 1998, PMR Corporation had 6,928,386 shares of common
stock.


<PAGE>   2


                                 PMR CORPORATION

                                      INDEX


PART I                         FINANCIAL INFORMATION                      Page

      Item 1.           Condensed Consolidated Balance
                        Sheets as of January 31, 1998
                        (Unaudited) and April 30, 1997                      1

                        Condensed Consolidated Statements
                        of Income for the three and nine
                        month periods ended January 31,
                        1998 and 1997 (Unaudited)                           2

                        Condensed Consolidated Statements
                        of Cash Flows for the nine months
                        ended January 31, 1998 and 1997
                        (Unaudited)                                         3

                        Notes to Condensed Consolidated
                        Financial Statements (Unaudited)                    4

      Item 2.           Management's Discussion and
                        Analysis of Financial Condition and
                        Results of Operations                               5

      Item 3            Quantitative and Qualitative                       11
                        Disclosures about Market Risks

PART II        OTHER INFORMATION

      Item 1.           Legal Proceedings                                  12

      Item 2.           Changes in Securities and Use of                   12
                        Proceeds

      Item 3.           Defaults Upon Senior Securities                    12

      Item 4.           Submission of Matters to a Vote of                 12
                        Security Holders

      Item 5.           Other Information                                  12

      Item 6.           Exhibits and Reports on Form 8-K                   12



<PAGE>   3

                         PART I - FINANCIAL INFORMATION

ITEM 1.                      FINANCIAL STATEMENTS


                                 PMR CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                JANUARY 31,       APRIL 30,
                                                                                   1998             1997
                                                                                -----------     -----------
                                                                                (UNAUDITED)
<S>                                                                             <C>             <C>        
                                ASSETS

Current assets:
   Cash and cash equivalents                                                    $40,219,174     $10,048,203
   Accounts receivable, net                                                      16,406,606      11,268,962
   Prepaid expenses and other current assets                                      1,067,523         572,136
   Deferred income tax benefits                                                   5,000,473       6,069,000
                                                                                -----------     -----------
Total current assets                                                             62,693,776      27,958,301

Furniture and office equipment, net of accumulated depreciation of
   $1,508,908 at January 31, 1998 and $1,175,980 at April 30, 1997                3,009,579       1,263,743
Long-term receivables                                                             3,877,158       2,360,872
Other assets                                                                      1,230,377       1,501,622
                                                                                -----------     -----------
Total assets                                                                    $70,810,890     $33,084,538
                                                                                ===========     ===========

               LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable and other current liabilities                               $   848,566     $ 1,735,658
   Accrued compensation and employee benefits                                     2,192,691       2,951,867
   Advances from case management agencies                                         1,122,157         926,712
   Income taxes payable                                                           2,399,590       1,703,000
                                                                                -----------     -----------
Total current liabilities                                                         6,563,004       7,317,237

Note payable                                                                        415,088            --
Deferred rent expense                                                               135,609          92,822
Deferred income taxes                                                               635,000         635,000
Contract settlement reserve                                                       9,329,302       8,791,928

Stockholders' equity:
   Common Stock, $.01 par value, authorized shares - 10,000,000; issued and
        outstanding shares - 6,928,386 at January 31,1998 and
        5,033,507 at April 30, 1997                                                  69,283          50,334
   Paid-in capital                                                               46,145,175      12,138,569
   Retained earnings                                                              7,518,429       4,058,648
                                                                                -----------     -----------
   Total stockholders' equity                                                    53,732,887      16,247,551
                                                                                -----------     -----------
   Total liabilities and stockholders' equity                                   $70,810,890     $33,084,538
                                                                                ===========     ===========
</TABLE>



            See notes to condensed consolidated financial statements.



                                       1
<PAGE>   4

                                 PMR CORPORATION

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED                   NINE MONTHS ENDED
                                                             JANUARY 31,                         JANUARY 31,
                                                    ------------------------------      -----------------------------
                                                        1998              1997              1998              1997
                                                    ------------      ------------      ------------      ------------
<S>                                                 <C>               <C>               <C>               <C>         
Revenue                                             $ 16,522,304      $ 14,190,480      $ 50,259,598      $ 41,512,062
Expenses:
    Operating expenses                                11,541,613        10,498,303        35,518,340        30,756,743
    Marketing, general and administrative              2,188,307         1,309,661         6,618,429         4,340,914
    Provision for bad debts                              769,725           851,617         2,191,486         2,246,698
    Depreciation and amortization                        293,372           167,271           764,641           517,030
    Interest - Net                                      (521,536)          (45,492)         (698,079)         (130,022)
                                                    ------------      ------------      ------------      ------------
                                                      14,271,481        12,781,360        44,394,817        37,731,363
                                                    ------------      ------------      ------------      ------------

    Income before income taxes                         2,250,823         1,409,120         5,864,781         3,780,699
    Income tax expense                                   923,279           578,000         2,405,000         1,550,000
                                                    ------------      ------------      ------------      ------------
    Net income                                         1,327,544           831,120         3,459,781         2,230,699
    Less dividends on:
       Series C convertible preferred stock                 --                --                --              17,342
                                                    ------------      ------------      ------------      ------------
    Net income for common stock                     $  1,327,544      $    831,120      $  3,459,781      $  2,213,357
                                                    ============      ============      ============      ============

    Earnings per common share
       Basic                                        $       0.19      $       0.17      $       0.60      $       0.48
                                                    ============      ============      ============      ============
       Diluted                                      $       0.18      $       0.14      $       0.54      $       0.40
                                                    ============      ============      ============      ============

    Shares used in computing earnings per share
       Basic                                           6,919,204         4,960,361         5,765,758         4,644,762
                                                    ============      ============      ============      ============
       Diluted                                         7,544,509         5,818,032         6,453,494         5,607,760
                                                    ============      ============      ============      ============
</TABLE>



            See notes to condensed consolidated financial statements.



                                       2
<PAGE>   5

                                 PMR CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                               NINE MONTHS ENDED
                                                                  JANUARY 31,
                                                        ------------      ------------
                                                            1998               1997
                                                        ------------      ------------
<S>                                                     <C>               <C>         
OPERATING ACTIVITIES
Net income                                              $  3,459,781      $  2,230,699
Adjustments to reconcile net income to net cash
     (used in) provided by operating activities:
     Depreciation and amortization                           764,641           517,030
     Provision for losses on accounts receivable           2,191,486         2,246,698
     Provision for deferred taxes                          1,068,527        (2,271,719)
     Changes in operating assets and liabilities:
         Receivables                                      (8,845,416)       (5,271,192)
         Prepaid expenses and other current assets          (495,387)          (36,150)
         Advances from case management agencies              195,445          (333,380)
         Accounts payable and accrued compensation        (1,734,577)          265,139
         Contract settlement reserve                         537,374         3,662,462
         Deferred rent expense                                42,787            79,443
         Income taxes payable                                696,591          (308,489)
                                                        ------------      ------------
Net cash (used in) provided by operating activities       (2,118,748)          780,541

INVESTING ACTIVITIES
Purchases of furniture and equipment                      (2,239,233)         (433,714)
                                                        ------------      ------------
Net cash used in investing activities                     (2,239,233)         (433,714)

FINANCING ACTIVITIES
Decrease in notes receivable from stockholders                  --             141,547
Proceeds from note payable to bank                           517,396              --
Payments on note payable to bank                             (13,999)             --
Proceeds from sale of common stock, net of expenses       33,127,791              --
Proceeds from exercise of options and warrants               897,764         3,024,804
Cash dividend paid                                              --             (89,082)
                                                        ------------      ------------
Net cash provided by financing activities                 34,528,952         3,077,269
                                                        ------------      ------------

Net increase in cash & cash equivalents                   30,170,971         3,424,096
Cash at beginning of period                               10,048,203         3,917,923
                                                        ------------      ------------
Cash at end of period                                   $ 40,219,174      $  7,342,019
                                                        ============      ============
</TABLE>



            See notes to condensed consolidated financial statements.


                                       3



<PAGE>   6

                                 PMR CORPORATION

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

                                January 31, 1998

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 balance sheet at April 30, 1997 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 the Company have been included. Operating results for
the nine months ended January 31, 1998, are not necessarily indicative of the
results that may be expected for the year ending April 30, 1998. 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, 1997.

NOTE B - RECLASSIFICATION

Certain 1997 amounts have been reclassified to conform to the 1998 presentation.

NOTE C - EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board issued SFAS 128,
"Earnings per Share," which supersedes APB Opinion No. 15. SFAS 128 replaces the
presentation of primary earnings per share (EPS) with "Basic EPS" which includes
no dilution and is based on weighted-average common shares outstanding for the
period. Companies with complex capital structures, including PMR Corporation,
will also be required to present "Diluted EPS" that reflects the potential
dilution of securities such as employee stock options and warrants to purchase
common stock. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997. On February 3, 1998, the SEC issued Staff
Accounting Bulletin (SAB) No. 98 which revised the previous instructions for
determining the dilutive effects in earnings per share computations of common
stock and common stock equivalents issued at prices below the IPO price prior to
the effectiveness of the IPO. The Company has properly adopted the provisions of
SFAS 128 and SAB 98 for all periods presented.



                                       4
<PAGE>   7

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 10K for the fiscal year ended April 30,
1997, the Company's Prospectus dated October 21, 1997, 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 designed to treat individuals diagnosed
with a serious mental illness ("SMI"), primarily schizophrenia and bi-polar
disorder (i.e., manic-depressive illness). PMR manages the delivery of a broad
range of outpatient and community-based psychiatric services for SMI patients,
consisting of 44 intensive outpatient programs and one crisis service (the
"Outpatient Programs"), four case management programs (the "Case Management
Programs") and seven chemical dependency and substance abuse programs (the
"Chemical Dependency Programs"). Through its various programs, PMR employs or
contracts with more than 400 mental health professionals and currently provides
services to approximately 8,300 patients. The Company currently offers its
services in thirteen states, comprised of Arizona, Arkansas, California,
Colorado, Hawaii, Illinois, Indiana, Kentucky, Michigan, Ohio, Tennessee, Texas
and Washington. PMR believes it is the only private sector company focused on
providing an integrated mental health disease management model to the SMI
population.

PMR's Outpatient Programs serve as a comprehensive alternative to inpatient
hospitalization and include partial hospitalization, crisis response and lower
intensity outpatient services. The Case Management Programs provide an
intensive, individualized primary care service which consists of a proprietary
case management model utilizing clinical protocols for delivering care to SMI
patients. The Company also provides Chemical Dependency Programs to patients
affiliated with managed care organizations and government-funded programs.
Recently, PMR began development of a site management and clinical information
initiative. The Company believes that its access to a large SMI patient base
provides it with a unique opportunity to collect, process and analyze clinical
and pharmacoeconomic data on schizophrenia and bi-polar disorder. The Company
has entered into strategic agreements with United HealthCare Corporation and its



                                       5
<PAGE>   8

Applied HealthCare Informatics division (January 1997), and InSite Clinical
Trials, LLC. (December 1997), to assist in developing this initiative. This
initiative recorded its first revenues in the quarter ended January 31, 1998.

RESULTS OF OPERATIONS - QUARTER ENDED JANUARY 31, 1998 COMPARED TO QUARTER ENDED
JANUARY 31, 1997

        Revenues. Revenues for the quarter ended January 31, 1998 were $16.5
million, an increase of $2.3 million, or 16.4%, as compared to the quarter
ended January 31, 1997. The Company's Outpatient Programs recorded revenues of
$12.3 million, an increase of $2.6 million, or 26.2%, from the quarter ended
January 31, 1997. The growth in the Outpatient Programs was the result of the
addition of fourteen new programs, representing 28% of total programs under
management and an increase in "same site" net revenues of 3.6% versus the year
ago quarter. The Company's Case Management Programs in Tennessee and Arkansas
recorded revenues of $3.6 million, a decrease of 5.6% from the quarter ended
January 31, 1997. The decrease in revenues was due to a decrease in case rates
from Tennessee Behavioral Health ("TBH"), one of the two behavioral health
organizations which contract with the Company to provide case management
services. This decrease in case rates primarily affected the results of the
Memphis, Tennessee case management agency due to this agency's high proportion
of TBH insured clients. Revenues at the Company's Chemical Dependency Programs
were $661,000, a decrease of 14.8% from the quarter ended January 31, 1997. The
decrease in revenues was primarily associated with a seasonal drop in census
which was not experienced in the quarter ended January 31, 1997.

        Operating Expenses. Operating expenses consist of costs incurred at the
program sites and costs associated with the field management responsible for
administering the programs. Operating expenses for the quarter ended January 31,
1998 were $11.5 million, an increase of $1.0 million, or 9.9%, as compared to
the quarter ended January 31, 1997. As a percentage of revenues, operating
expenses were 69.9%, down from 74.0% for the quarter ended January 31, 1997. The
improvement in the operating expense ratio was due to a reduction in certain
operating expenses in both the Outpatient Programs and the Case Management
Programs.

        Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses consist of corporate overhead expenses and regional
administrative, development and clinical expenses which are not direct program
expenses. Marketing, general and administrative expenses for the quarter ended
January 31, 1998, were $2.2 million, an increase of $879,000, or 67.1%, as
compared to the quarter ended January 31, 1997. The increase was related to
investment in both the regional and home offices to support existing and
anticipated programs. As a percentage of revenues, marketing, general and
administrative expenses were 13.2% in the quarter ended January 31, 1998, as
compared to 9.2% for the quarter ended January 31, 1997.

        Provision for Bad Debts. Expenses related to the provision for bad debts
for the quarter ended January 31, 1998, were $770,000, a decrease of $82,000, or
9.6% as compared to the quarter ended January 31, 1997. The decrease was due to
substantial increases in revenue offset by a reduction in the accrual rate for
bad debts. As a percent of revenues, the provision for bad



                                       6
<PAGE>   9

debts decreased to 4.7% of revenues from 6.0% of revenues in the prior year
quarter. However, both the amount of the provision for bad debts, as well as its
amount as a percentage of revenue, had increased in the two sequentially
preceding quarters due to the increases in claims under review and the
uncertainty associated with the Tenncare program. The Company expects this
accrual to fluctuate based on the amount of claims under review in its
Outpatient Programs and the number of programs which the Company operates which
serve a significant indigent population.

        Depreciation and Amortization. Depreciation and amortization expenses
for the quarter ended January 31, 1998, were $293,000, an increase of $126,000,
or 75.4%, as compared to the quarter ended January 31, 1997. The increase was
due primarily to capital equipment, leasehold improvements and start-up costs
associated with the addition of fourteen new Programs during fiscal year 1998 as
well as fixed assets associated with the Company's new home office.

        Net Interest Income. Interest income increased from $45,000 for the
three months ended January 31, 1997 to $522,000 for the three months ended
January 31, 1998, an increase of $476,000, or 1,046.4%. This increase resulted
from higher cash and cash equivalent balances resulting from the completion of
the Company's follow on common stock offering in October 1997.

        Income Before Income Taxes. Income before income taxes increased from
$1.4 million for the three months ended January 31, 1997 to $2.3 million for the
three months ended January 31, 1998, an increase of $842,000 or 59.7%. Income
before income taxes as a percentage of revenue increased from 9.9% to 13.6% over
this period of time.

RESULTS OF OPERATIONS - NINE MONTHS ENDED JANUARY 31, 1998 COMPARED TO NINE
MONTHS ENDED JANUARY 31, 1997

        Revenues. Revenues for the nine months ended January 31, 1998 were $50.3
million, an increase of $8.7 million, or 21.1%, as compared to the nine months
ended January 31, 1997. The Company's Outpatient Programs recorded revenues of
$36.3 million, an increase of $6.9 million, or 23.5%, from the nine months ended
January 31, 1997. The growth in the Outpatient Programs was the result of the
addition of fourteen new programs versus the year ago period and increases in
"same site" net revenues of 7.3%. The remainder of the increase in revenues came
from the Company's Case Management Programs in Tennessee and Arkansas, which
recorded revenues of $11.7 million, an increase of $1.8 million or 17.9%, from
the nine months ended January 31, 1997. The growth in revenues was primarily due
to an increase in lives under management in Tennessee which was offset in part
by a decrease in case rates from TBH in the quarter ended January 31, 1998.
Revenues at the Company's Chemical Dependency Programs were $2.2 million, an
increase of 2.7% from the nine months ended January 31, 1997.

        Operating Expenses. Operating expenses for the nine months ended January
31, 1998 were $35.5 million, an increase of $4.8 million, or 15.5%, as compared
to the nine months ended January 31, 1997. As a percentage of revenues,
operating expenses were 70.7%, down from 74.1% for the nine months ended January
31, 1997. The improvement in the operating expense



                                       7
<PAGE>   10

ratio was due to reductions in certain expenses as well as operating leverage
realized as a result of revenue growth in the Outpatient and Case Management
Programs which was spread across existing fixed and semi-variable cost
structures.

        Marketing, General and Administrative Expenses. Marketing, general and
administrative expenses for the nine months ended January 31, 1998, were $6.6
million, an increase of $2.3 million, or 52.5%, as compared to the nine months
ended January 31, 1997. The increase was due to investment in both the regional
and home offices to support existing and anticipated programs. As a percentage
of revenues, marketing, general and administrative expenses were 13.2% for the
nine months ended January 31, 1998, as compared to 10.5% for the nine months
ended January 31, 1997.

        Provision for Bad Debts. Expenses related to the provision for bad debts
for the nine months ended January 31, 1998, were $2.2 million, a decrease of
$55,000, or 2.5%, as compared to the nine months ended January 31, 1997. The
decrease was due to substantial increases in revenue offset by a reduction in
the accrual rate for bad debts. The reduced accrual rate was due to a better
than anticipated collection experience in the Case Management Program. As a
percent of revenues, the provision for bad debts decreased to 4.4% of revenues
from 5.4% of revenues in the prior year nine month period. However, the Company
expects this accrual to fluctuate based on the amount of claims under review in
its Outpatient Programs and the number of programs which the Company operates
which serve a significant indigent population.

        Depreciation and Amortization. Depreciation and amortization expenses
for the nine months ended January 31, 1998, were $765,000, an increase of
$248,000, or 47.9%, as compared to the nine months ended January 31, 1997. The
increase was due primarily to capital equipment, leasehold improvements and
start-up costs associated with the addition of fourteen new Programs during
fiscal year 1998 as well as fixed assets associated with the Company's new home
office.

        Net Interest Income. Interest income increased from $130,000 for the
nine months ended January 31, 1997 to $698,000 for the nine months ended January
31, 1998, an increase of $568,000, or 436.9%. This increase resulted from higher
cash and cash equivalent balances.

        Income Before Income Taxes. Income before income taxes increased from
$3.8 million for the nine months ended January 31, 1997 to $5.9 million for the
nine months ended January 31, 1998, an increase of $2.1 million or 55.1%. Income
before income taxes as a percentage of revenue increased from 9.1% to 11.7% over
this period of time.


LIQUIDITY AND CAPITAL RESOURCES

        For the nine months ended January 31, 1998, net cash used in operating
activities was $2.1 million. Working capital at January 31, 1998 was $56.1
million, an increase of $35.5 million, or 171.9%, as compared to working capital
at April 30, 1997. Cash and cash equivalents at January 31, 1998 were $40.2
million, an increase of $30.2 million, or 300.3%, as compared to



                                       8
<PAGE>   11

April 30, 1997. The increase in working capital and cash was due to the
completion of a follow-on public offering of shares of common stock of the
Company during October 1997, which resulted in net proceeds of $33.1 million.

        The negative cash flow from operating activities during the nine months
ended January 31, 1998 was due to growth in net income offset by growth in
accounts receivables. Accounts receivable growth was a result of significant
revenue increases combined with an increase in days revenue outstanding to 91
(versus 67 at April 30, 1997). The increase in days revenue outstanding was due
to focused reviews of claims by fiscal intermediaries, and reduced revenue from
the preceding quarter in the Case Management Program which has historically
experienced quicker payment cycles than the Outpatient Programs. The other
significant use of cash was the purchase of fixed assets associated with
recently opened sites and investment in information technology.

        During fiscal 1998, working capital is expected to be realized
principally from operations, as well as from a $10 million line of credit from
Sanwa Bank which became effective November 1, 1996. Interest is payable under
this line of credit at a rate of either the Bank's reference rate or the
Eurodollar rate plus two percent. As of January 31, 1998 no balance was
outstanding under the line of credit. Working capital is anticipated to be
utilized during fiscal 1998, to continue expansion of the Company's Outpatient
and Case Management Programs, for the development of the site management and
clinical information business, and for the development of a risk based managed
care project under the recently passed Provider Sponsored Organization
legislation. The Company also anticipates using working capital on selective
acquisitions. The Company has signed a non-binding letter of intent to acquire
the provider division of American Psych Systems. If completed, this acquisition
is anticipated to require the use of approximately $4.5-$5.0 million in cash.
Consummation of the acquisition is subject to various conditions, including
satisfactory completion of due diligence and the negotiation and execution of a
definitive acquisition agreement.

        The opening of a new Outpatient Program site typically requires $45,000
to $150,000 for office equipment, supplies, lease deposits, leasehold
improvements and the hiring and training of personnel prior to opening. These
programs generally experience operating losses through an average of the first
four months of operation. The Company expects to provide cash for the start up
of the site management and clinical information business, however, in amounts
that are not yet certain due to the early stage of the program's development.
The Company is also in the process of refining the specifications for the
purchase and development of a new care management information system which will
be a state of the art data collection and repository system for the Company's
clinical information. The Company anticipates investing approximately $1,000,000
in this system during fiscal 1998.

        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 Program. During fiscal 1997 and fiscal
1998, a substantial majority of the Company's revenue was derived from the
management of the Outpatient Programs. Since substantially all of the patients
of the Outpatient Programs are eligible for Medicare, collection of a
significant



                                       9
<PAGE>   12

component of the Company's management fees is dependent upon reimbursement of
claims submitted to fiscal intermediaries by the hospitals or Community Mental
Health Centers on whose behalf these programs are managed. Under the Company's
contracts with its providers, the Company may be responsible to indemnify
providers for the portion of the Company's management fee disallowed for
reimbursement pursuant to warranty obligations that exist with certain
providers. Although the Company believes that its potential liability to satisfy
such requirements has been adequately reserved in its financial statements, the
obligation to pay such amounts, 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 the 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
("HCFA") 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 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.

RECENT EVENTS

        The Company has been informed that its largest customer, which
represents approximately 14% of the Company's revenues, has received a letter
from an official of Region IX of HCFA, informing the customer that the
customer's partial hospitalization programs managed by PMR can no longer be
considered "provider-based" for Medicare reimbursement purposes. The letter
states that the "provider-based" status for the customer's programs will be
removed March 1, 1998. Based on its understanding of HCFA's "provider-based"
policy, the Company believes that Region IX's determination is incorrect. The
Company's largest customer is engaged in discussions with HCFA Region IX to
clarify the contract modifications necessary to maintain provider based
designation for the Company's programs. Further the Company anticipates that
HCFA's Central Office will review Region IX's determination. To the extent
necessary to conform to HCFA's definition of "provider-based" status, the
Company intends to make reasonable changes within its control to its contract
and operations, so that the programs it manages meet HCFA's definition of
"provider-based." In addition, the Company is investigating



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an alternative basis for its customer to receive Medicare reimbursement for
services to the extent that the programs managed by PMR are not deemed to be
"provider-based".

        The extent of any impact on profitability will be determined by the
nature of any contract restructuring with the provider and HCFA's concurrence
with such restructuring with regard to the "provider-based" designation. In the
event that the "provider-based" determination is not re-established for this
customer's programs or such programs are not otherwise eligible for
reimbursement, or if the required contract modifications result in a material
reduction to revenue or net income, or if similar determinations are made to
other programs managed by the Company, there would be a material adverse effect
on the Company's revenue and net income.

        The Company is engaged in disputes with a case management agency, Case
Management Inc. ("CMI"), and TBH, a behavioral health organization in Tennessee.
With regard to CMI the dispute focuses on the relationship between the parties
and various financial issues. There have been several discussions with CMI
regarding a restructuring of the relationship but no issues have been resolved
at this time. CMI has filed a lawsuit against the Company arising out of these
disputes seeking damages and injunctive relief. CMI's request for injunctive
relief was denied and the case is being referred to a special master for
arbitration. The Company believes that the lawsuit is without merit and will
have no material impact on the Company's results of operations or financial
condition. In subsequent reporting periods, the changes that result from any
restructuring of the relationship with CMI may include a significant reduction
in reported revenue for case management services in Memphis, Tennessee, but are
not expected to have a material impact on operating earnings. CMI presently
provides case management services to approximately 2,500 seriously mentally ill
individuals in the Memphis area under a long term management agreement with a
subsidiary of the Company. For the nine months ended January 31, 1998, revenues
related to the Memphis market were approximately $4.6 million. With respect to
TBH, TBH disputes certain payments made to the Company for case management
services provided by the case management agencies. TBH has made a claim, based
on a sample audit, for approximately $4.2 million relating to payments made to
the Company for case management services. The Company believes that the claim is
without merit and is in the process of discussing the issue with TBH. The matter
may be referred to arbitration if the parties do not resolve the dispute.

Item 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
        Not Applicable.



                                       11
<PAGE>   14

                           PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

        As previously announced in a press release, the Company has been
informed that the outpatient program that it formerly managed in Dallas, Texas
is subject to a civil investigation being conducted by the U.S. Department of
Health and Human Services' Office of Inspector General and the U.S. Attorney's
office in Dallas, Texas (collectively the "Agencies"). The investigation is a
result of a HCFA review of partial hospitalization services rendered to 63
patients at this location. The Dallas program was operational from January 1996
to February 6, 1998.

        A representative of the Agencies has indicated that the investigation is
civil in nature and focuses on eligibility of patients for partial
hospitalization services. The eligibility determinations for participation at
the Dallas program were made by board certified or board eligible psychiatrists.
The Company is cooperating fully with the Agencies and, to date, no formal
complaint or demand has been made by the Agencies.

        Due to the preliminary nature of the investigation, the Company is
unable to predict the ultimate outcome of the investigation, or the material
impact, if any, on the Company's business, financial condition or results of
operations.

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

        None

    (b) Reports on Form 8-K

        None



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<PAGE>   15

                                   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 6, 1998
                                               PMR CORPORATION


                                               BY:   Allen Tepper
                                                  ------------------------------
                                                   ALLEN TEPPER
                                                   Chief Executive Officer
                                                   (Principal Executive Officer)


                                               BY:    Mark P. Clein
                                                  ------------------------------
                                                   MARK P. CLEIN
                                                   Chief Financial Officer
                                                   (Principal Financial Officer)



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