<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

   
                                    FORM 10-Q/A
(Mark One)

[X]     AMENDMENT TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934
    

For the quarterly period ended                July 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 of                       (I.R.S. Employer
Incorporation or Organization)                       Identification No.)

501 Washington Street, 5th Floor San Diego, California                 92103
------------------------------------------------------                 -----
(Address of Principal Executive Offices)                             (Zip Code)

Registrant's Telephone Number, Including Area Code           619-610-4001
                                                   ----------------------------

   
      ______________________________________________________________________
      Former Name, Former Address and Former Fiscal Year, 
      if Changed Since Last Report
    

         Indicate by check [X] whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

         At August 31, 1998, PMR Corporation had 6,970,630 shares of common
stock outstanding.


<PAGE>   2
                                 PMR CORPORATION

                                      INDEX


<TABLE>
<CAPTION>
PART I                                             FINANCIAL INFORMATION                             Page
------                                             ---------------------                             ----
<S>               <C>                  <C>                                                           <C>
                  Item 1. 
                  Financial
                  Statements           Condensed Consolidated Balance Sheets as of
                                       July 31, 1998 (Unaudited) and April 30, 1998                     1

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

                                       Condensed Consolidated Statements of Cash
                                       Flows for the three months ended July 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   Disclosures
                                       about Market Risks                                              11

PART II           OTHER INFORMATION

                  Item 1.              Legal Proceedings                                               12

                  Item 2.              Changes in Securities and Use of Proceeds                       12

                  Item 3.              Defaults Upon Senior Securities                                 12

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

                  Item 5.              Other Information                                               12

                  Item 6.              Exhibits and Reports on Form 8-K                                12
</TABLE>


<PAGE>   3
                         PART I - FINANCIAL INFORMATION

ITEM 1.                       FINANCIAL STATEMENTS

                                 PMR CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS


   
<TABLE>
<CAPTION>
                                                                                       JULY 31,             APRIL 30,
                                                                                         1998                 1998
                                                                                     -------------        -------------
                                                                                      (UNAUDITED)           (RESTATED)
                                                                                       (RESTATED)          
<S>                                                                                  <C>                  <C>          
ASSETS
Current assets:
   Cash and cash equivalents                                                         $  15,602,411        $  18,522,859
   Short-term investments, available-for-sale                                           22,403,282           20,257,045
   Accounts receivable, net of allowance for uncollectible amounts
      of $9,449,065 in 1999 and $9,081,610 in 1998                                      20,159,955           16,655,759
   Prepaid expenses and other current assets                                             1,356,942            1,192,144
   Deferred income tax benefit                                                           4,149,099            4,136,000
                                                                                     -------------        -------------
Total current assets                                                                    63,671,689           60,763,807

Furniture and office equipment, net of accumulated depreciation
   of $1,115,410 in 1999 and $1,727,040 in 1998                                          2,824,511            3,492,449
Long-term receivables                                                                    3,767,318            2,976,918
Deferred income tax benefit                                                              2,080,000            2,080,000
Other assets                                                                             1,293,280            1,135,880
                                                                                     -------------        -------------
Total assets                                                                         $  73,636,798        $  70,449,054
                                                                                     =============        =============

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
   Accounts payable                                                                  $     436,250        $     469,462
   Accrued expenses                                                                      2,333,626            2,974,400
   Accrued compensation and employee benefits                                            2,057,353            2,178,693
   Advances from case management agencies                                                1,780,725            1,686,477
   Income taxes payable                                                                  1,604,822            1,304,353
   Payable to related party                                                              2,677,539                   --
                                                                                     -------------        -------------
Total current liabilities                                                               10,890,315            8,613,385

Note payable                                                                               368,250              392,024
Deferred rent expense                                                                       91,323               87,566
Contract settlement reserve                                                              7,650,926            7,479,993
Minority interest                                                                          239,294                   --

Commitments

Stockholders' equity:
   Common Stock, $.01 par value, authorized shares - 10,000,000; issued and
        outstanding shares - 6,958,121 in 1999 and
        6,949,650 in 1998                                                                   69,580               69,496
   Additional paid-in capital                                                           48,002,003           47,959,557
   Retained earnings                                                                     6,325,107            5,847,033
                                                                                     -------------        -------------
Total stockholders' equity                                                              54,396,690           53,876,086
                                                                                     -------------        -------------
Total liabilities and stockholders' equity                                           $  73,636,798        $  70,449,054
                                                                                     =============        =============
</TABLE>
    

            See notes to condensed consolidated financial statements.


                                       1


<PAGE>   4
                                 PMR CORPORATION
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                      THREE MONTHS ENDED JULY 31,
                                                                  ------------------------------------
                                                                      1998                    1997
                                                                  -------------          -------------
<S>                                                               <C>                    <C>          
Revenue - psychiatric care                                        $  14,821,057          $  16,176,780
Revenue - pharmaceutical care                                         3,029,965                     --
                                                                  -------------          -------------
     Total revenue                                                   17,851,022             16,176,780

Expenses:
     Cost of sales of pharmaceutical products                         2,275,119                     --
     Direct operating expenses - psychiatric care                    10,093,180             11,626,432
     Direct operating expenses - pharmaceutical care                    409,503                     --
     Marketing, general and administrative                            2,567,341              2,114,652
     Provision for bad debts                                            716,439                663,530
     Depreciation and amortization                                      239,194                215,615
     Interest (income) expense                                         (508,811)               (88,748)
                                                                  -------------          -------------
                                                                     15,791,965             14,531,481

     Income before minority interest, income tax expense
           and cumulative change                                      2,059,057              1,645,299
     Minority interest                                                  239,294                     --
                                                                  -------------          -------------
     Income before income taxes and cumulative change                 1,819,763              1,645,299
     Income tax expense                                                 749,000                674,574
                                                                  -------------          -------------
     Net income before cumulative change                              1,070,763                970,725

     Cumulative change, net of income tax benefit                       592,689                     --
                                                                  -------------          -------------
     Net income                                                   $     478,074          $     970,725
                                                                  =============          =============


     Earnings per common share before cumulative change
           Basic                                                  $        0.15          $        0.19
                                                                  =============          =============
           Diluted                                                $        0.15          $        0.17
                                                                  =============          =============

     Earnings per common share
           Basic                                                  $        0.07          $        0.19
                                                                  =============          =============
           Diluted                                                $        0.07          $        0.17
                                                                  =============          =============


     Shares used in computing earnings per share
           Basic                                                      6,953,225              5,052,736
                                                                  =============          =============
           Diluted                                                    7,320,778              5,773,918
                                                                  =============          =============
</TABLE>


            See notes to condensed consolidated financial statements.


                                       2


<PAGE>   5
                                 PMR CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED JULY 31,
                                                                     ------------------------------------
                                                                         1998                   1997
                                                                     -------------          -------------
<S>                                                                  <C>                    <C>          
OPERATING ACTIVITIES
Net income                                                           $     478,074          $     970,726
Adjustments to reconcile net income to net cash provided by
     (used in) operating activities:
     Depreciation and amortization                                         239,194                215,615
     Provision for bad debts                                               716,439                663,530
     Cumulative effect of change in accounting principle                   592,689                     --
     Income applicable to minority interest                                239,294                     --
     Deferred income taxes                                                 (13,099)                    --
     Changes in operating assets and liabilities:
           Accounts and notes receivables                               (5,011,035)            (3,517,119)
           Prepaid expenses and other assets                              (403,285)                70,556
           Accounts payable and accrued expenses                          (673,986)              (538,200)
           Accrued compensation and employee benefits                     (121,340)                92,338
           Advances from case management agencies                           94,247               (283,035)
           Payable to related party                                      2,677,539                     --
           Contract settlement reserve                                     170,933                867,675
           Income taxes payable                                            712,338                588,067
           Deferred rent expense                                             3,757                 16,127
                                                                     -------------          -------------
Net cash used in operating activities                                     (298,241)              (853,720)

INVESTING ACTIVITIES
Purchases of short-term investments, available-for-sale                 (2,146,237)                    --
Purchases of furniture and office equipment                               (494,726)              (693,571)
                                                                     -------------          -------------
Net cash used in investing activities                                   (2,640,963)              (693,571)

FINANCING ACTIVITIES
Proceeds from sale of common stock                                          42,530                118,683
Payments on note payable                                                   (23,774)                    --
                                                                     -------------          -------------
Net cash provided by financing activities                                   18,756                118,683
                                                                     -------------          -------------

Net decrease in cash & cash equivalents                                 (2,920,448)            (1,428,608)
Cash at beginning of period                                             18,522,859             10,048,203
                                                                     -------------          -------------
Cash at end of period                                                $  15,602,411          $   8,619,595
                                                                     =============          =============
</TABLE>


            See notes to condensed consolidated financial statements.


                                       3


<PAGE>   6
                                 PMR CORPORATION

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

                                  July 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, 1998 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 months ended July 31, 1998, are not
necessarily indicative of the results that may be expected for the year ending
April 30, 1999. For further information, refer to the financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K/A for the
year ended April 30, 1998.
    

NOTE B - RECLASSIFICATION

Certain 1998 amounts have been reclassified to conform to the 1999 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, 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.

   
NOTE D - RESTATEMENT

As of April 30, 1998, the Company recorded an accrual for special charges 
related to contract losses under certain contracts with Scripps Health. The 
Company determined that its estimate of special charges related to contract 
losses was overaccrued as of April 30, 1998 because all information available to
the Company was not used in determining the original estimate. The Company has 
restated its previously issued financial statements as of April 30, 1998 and 
July 31, 1998 to eliminate this overaccrual.

The restatement had the effect of reducing previously reported accrued expenses 
as of July 31, 1998 by $560,000 to $2,333,626, increasing income taxes payable 
by approximately $230,000 to $1,604,822, and increasing retained earnings by 
approximately $330,000 to $6,325,107. There was no impact to net income related 
to the restatement for the quarter ended July 31, 1998.

For the April 30, 1998 balance sheet, the restatement reduced previously 
reported accrued expenses by $560,000 to $2,974,400, increased income taxes 
payable by approximately $230,000 to $1,304,353, and increasing retained 
earnings by approximately $330,000 to $5,847,053.
    


                                       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 10-K/A for the fiscal year ended April
30, 1998 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 the delivery of a broad range of outpatient and community-based
psychiatric services for SMI patients, consisting of 37 Outpatient Programs, one
Case Management Program and four Chemical Dependency Programs. In July 1998, the
Company formed a new company called Stadt Solutions, LLC ("Stadt Solutions")
which is jointly owned by PMR and Stadtlander Drug Distribution Co., Inc.
("Stadtlander"). Stadt Solutions offers a specialty pharmacy program for
individuals with SMI, initially serving approximately 6,000 individuals through
13 pharmacies in 13 states. PMR, with Stadt Solutions, operates in approximately
23 states and employs or contracts with more than 400 mental health and
pharmaceutical industry professionals and provides services to approximately
11,000 individuals diagnosed with SMI. 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 and lower
intensity outpatient services. The Case Management Program provides 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.

SOURCES OF REVENUE

         Outpatient Programs. Outpatient Programs operated 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-


                                       5


<PAGE>   8
   
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 larger
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 31 of the 37
Outpatient Programs operated during fiscal 1999 and constituted 68.2% of the
Company's psychiatric care revenue for the three months ended July 31, 1998.
Typical contractual agreements with these providers, primarily acute care
hospitals or Community Mental Health Centers ("CMHCs"), require the Company to
provide, at its own expense, specific management personnel for each program
site. Patients served by the Outpatient Programs typically are covered by
Medicare.
    

         Revenue under the Outpatient Program is recognized at estimated net
realizable amounts when services are rendered based upon contractual
arrangements with providers. Under certain of the Company's contracts, the
Company is obligated to indemnify the provider for all or some portion of the
Company's management fees that may not be deemed reimbursable to the provider by
Medicare's fiscal intermediaries. As of July 31, 1998, the Company had recorded
$7.7 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 1999.

         Case Management Program. For its Case Management Program in Tennessee,
the Company receives a monthly case rate payment from the managed care
consortiums responsible for managing the Tennessee TennCare Partners State
Medical Managed Care Program ("TennCare") program and is responsible for
planning, coordinating and managing psychiatric case management services for its
consumers who are eligible to participate in the TennCare program. The Company
also is responsible for providing a portion of the related outpatient clinical
care under certain of the agreements. Revenues under the TennCare program are
recognized in the period in which the related service is to be provided. These
revenues represent substantially all of the Company's case management revenues.
The urgent care program receives interim payments which are adjusted based on
inpatient utilization statistics which are compared to a baseline. Revenues are
recognized based on the quarterly calculation of the statistical trends.

         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.

   
         Pharmaceutical. In June 1998, the Company and Stadtlander entered into
a subscription agreement to form Stadt Solutions, a Delaware limited liability
company. Stadt Solutions offers specialty pharmaceutical services to individuals
with SMI and also offers site management and clinical information services to
pharmaceutical companies, health care providers and public sector purchasers.
Ownership of Stadt Solutions is held 50.1% by PMR and 49.9% by Stadtlander.
Stadtlander is entitled to receive a priority distribution of income
approximately equivalent to the operating income Stadtlander expected to be
generated by Stadtlander's base of approximately 6,000 clients existing at the
time of the subscription agreement. The incremental 
    


                                       6


<PAGE>   9
operating income in excess of this base, if any, will be distributed equally
between the Company and Stadtlander.

         The venture commenced business with operations serving clients through
13 pharmacies in 13 states offering services to approximately 6,000 clients.
These individuals are presently receiving the drug clozaril, an anti-psychotic
for schizophrenia, as well as 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.


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

   
         Revenue -Psychiatric Care. Revenues from psychiatric care for the
quarter ended July 31, 1998 were $14.8 million, a decrease of $1.4 million, or
8.4%, as compared to the quarter ended July 31, 1997. The Outpatient Programs
recorded revenues of $12.3 million, an increase of $769,000, or 6.7%, from the
quarter ended July 31, 1997. The growth in the Outpatient Programs was the
result of the addition of seven new programs versus the year ago quarter. The 
Outpatient Programs operated under an all-inclusive fee arrangement had 
operating margins of 37.3% in the quarter ended July 31, 1998 as compared to 
40.7% in the quarter ended July 31, 1997. The Company's Case Management Programs
recorded revenues of $2.1 million, a decrease of $1.8 million, or 46.3%, from
the quarter ended July 31, 1997. The decrease in revenues was due to the
restructuring of the Company's relationship with a Memphis, Tennessee case
management agency and the termination of two Case Management Programs in
Arkansas which generated no revenues in the first quarter of fiscal 1999 as
compared to $1.8 million in revenues for the first quarter of fiscal 1998.
Revenues from the Company's Chemical Dependency Programs were $472,000, a
decrease of 40% from the quarter ended July 31, 1997. The decrease in revenues
was associated with the Company's termination of two Chemical Dependency
Programs which generated no revenue in the first quarter of fiscal 1999 as well
as a seasonal drop in census which was not experienced in the quarter ended July
31, 1997.
    

         Revenue - Pharmaceutical Care. Revenues of $3.0 million from
pharmaceutical care represents sales of pharmaceutical products to approximately
6,000 individuals with SMI through 13 Stadt Solutions pharmacies since its
formation in July 1998.

         Cost of Sales of Pharmaceutical Products. Cost of sales of
pharmaceutical products of $2.3 million represent the cost of providing such
products by Stadt Solutions since its formation in July 1998.

   
         Direct Operating Expenses -Psychiatric Care. Direct operating expenses
of psychiatric care consist of costs incurred at the program sites and costs
associated with the field management responsible for administering the programs.
Direct operating expenses for the quarter ended July 31, 1998 were $10.1
million, a decrease of $1.5 million, or 13.2%, as compared to the quarter ended
July 31, 1997. As a percentage of psychiatric care revenues, operating expenses
were 68.1%, down from 71.9% for the quarter ended July 31, 1997. The overall
decrease in direct operating expenses and the improvement in the operating
expense ratio was primarily due to the restructuring of the Company's
relationship with Case Management, Inc., a Memphis, Tennessee case management 
    


                                       7


<PAGE>   10
   
agency, and the termination of the Arkansas Case Management Programs which
generated no expenses in the first quarter of fiscal 1999 as compared to $1.5
million in expenses for the first quarter of fiscal 1998.
    

         Direct Operating Expenses - Pharmaceutical Care. Direct operating
expenses of pharmaceutical care of $410,000 consist of the operating costs
incurred at the 13 Stadt Solutions pharmacies and related billing costs since
the formation of Stadt Solutions in July 1998.

         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
July 31, 1998, were $2.6 million, an increase of $453,000 or 21.4%, as compared
to the quarter ended July 31, 1997. The increase was related to investment in
the home offices to support existing and anticipated programs, including the
Stadt Solutions venture and a managed care initiative in Southern California. As
a percentage of psychiatric care revenues, marketing, general and administrative
expenses were 17.3% in the quarter ended July 31, 1998, as compared to 13.1% for
the quarter ended July 31, 1997.

         Provision for Bad Debts. Expenses related to the provision for bad
debts for the quarter ended July 31, 1998, were $716,000, an increase of
$53,000, or 8.0% as compared to the quarter ended July 31, 1997. The increase
was due to additional reserve against revenue from sales of pharmaceutical
products. As a percentage of revenues, the provision for bad debts remained
essentially unchanged at approximately 4.0% of revenues. 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 July 31, 1998, were $239,000, an increase of $24,000, or
10.9%, as compared to the quarter ended July 31, 1997. The increase was due to
additional capital expenditures associated with new Outpatient Programs and
increased capital expenditures for information systems.

         Net Interest Income. Interest income increased from $89,000 for the
quarter ended July 31, 1997 to $509,000 for the quarter ended July 31, 1998, an
increase of $420,000, or 473.3%. This increase resulted from higher cash and
cash equivalent and short-term investment balances resulting from the completion
of the Company's follow-on common stock offering in October 1997.

         Income Before Minority Interest, Income Taxes and Cumulative Change.
Income before minority interest, income taxes and cumulative change increased
from $1.6 million for the quarter ended July 31, 1997 to $2.1 million for the
quarter ended July 31, 1998, an increase of $414,000 or 25.2%. Income before
minority interest, income taxes and cumulative change as a percentage of revenue
increased from 10.2% to 11.5% over this period of time.

   
         Minority Interest. Minority interest of $239,000 represents a
distribution of the operating profits of Stadt Solutions in its entirety to
Stadtlander.
    


                                       8


<PAGE>   11
\         Cumulative Change. The cumulative change of $593,000 represents the
effect, net of income tax benefit of $412,000, of writing off previously
capitalized start-up costs. The Company adopted this change in accounting
principle in the first quarter 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.

   
         Restatement. As of April 30, 1998, the Company recorded an accrual for
special charges related to contract losses under certain contracts with Scripps
Health. The Company determined that its estimate of special charges related to
contract losses was overaccrued as of April 30, 1998 because all information
available to the Company was not used in determining the original estimate. The
Company has restated its previously issued financial statements as of April 30,
1998 and July 31, 1998 to eliminate this overaccrual. There was no impact to net
income related to the restatement for the quarter ended July 31, 1998.
    

LIQUIDITY AND CAPITAL RESOURCES

   
         For the three months ended July 31, 1998, net cash used in operating
activities was $298,000. Working capital at July 31, 1998 was $52.8 million, an
increase of $631,000, or 1.2%, as compared to working capital at April 30, 1998.
Cash and cash equivalents and short-term investments at July 31, 1998 were $38.0
million, a decrease of $774,000, or 2.0% as compared to April 30, 1998.
    

         The use of cash for operating activities during the three months ended
July 31, 1998 was due to delayed collections of accounts receivable. Accounts
receivable growth was a result of significant revenue increases combined with an
increase in days revenue outstanding to 104 at July 31, 1998 (versus 88 at April
30, 1998). The increase in days revenue outstanding was due to focused reviews
of claims by fiscal intermediaries at several Outpatient Programs, and the
restructuring and termination of Case Management Programs which have
historically experienced quicker payment cycles than the Outpatient Programs.
The other significant use of cash was leasehold improvements associated with
recently opened sites and investment in information technology.

         Working capital available to finance fiscal 1999 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 rate of either the bank's reference rate or the Eurodollar rate plus
2%. As of July 31, 1998 no balance was outstanding under the line of credit.
Working capital is anticipated to be utilized during fiscal 1999, to continue
expansion of the Company's Outpatient and Case Management Programs, for
expansion of Stadt Solutions and its site management and clinical information
business, and for the development of a risk based managed care project. The
Company also anticipates using working capital and, if necessary, incurring
indebtedness in connection with, selective acquisitions.

         On July 30, 1998, the Company entered into a definitive merger
agreement to acquire Behavioral Healthcare Corporation ("BHC") for approximately
$209 million in total consideration, including $94.4 million in cash and cash
equivalents, 2.6 million shares of the Company's Common Stock and the assumption
of net debt of approximately $90 million. The Company anticipates financing this
acquisition through the use of existing cash resources and additional external
debt financing sources including bank and private high yield bond financing.
Consummation of the transaction is subject to various conditions, including
approval of the stockholders of BHC and the Company.

         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 


                                       9


<PAGE>   12
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 as part of the formation of Stadt Solutions. The Company also is 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 1999.

         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 three months of
fiscal 1998 and 1999, 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 component of the Company's management fees is dependent upon
reimbursement of claims submitted to fiscal intermediaries by the hospitals or
CMHCSs 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 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 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


                                       10


<PAGE>   13
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.

         The Company has completed a thorough review of its material computer
applications and has identified and scheduled necessary corrections for its
computer applications. Corrections are currently being made and are expected to
be substantially implemented by the third quarter of fiscal 1999. The Company
expects that the total cost associated with these revisions will not be
material. These costs will be primarily incurred during fiscal 1999 and be
charged to expense as incurred. For externally maintained systems, the Company
has begun working with vendors to ensure that each system is currently year 2000
compliant or will be made year 2000 compliant in early 1999. The cost to be
incurred by the Company related to externally maintained systems is expected to
be minimal. The Company believes that by completing its planned corrections to
its computer applications, the year 2000 issue with respect to the Company's
systems can be mitigated. However, if such corrections cannot be completed on a
timely basis, 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 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 not completed this review and it is unknown
whether computer applications of contract providers and Medicare and other
payors will be year 2000 compliant. The Company has not determined 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. However, 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.

ITEM 3.           Quantitative and Qualitative Disclosures about Market Risk
         Not Applicable.


                                       11


<PAGE>   14
PART II - OTHER INFORMATION

ITEM 1 - Legal Proceedings
   

         The Company's arbitration and disputes with the case management agency
in Memphis, Tennessee previously disclosed by the Company in its Annual Report
on Form 10-K/A for the year ended April 30, 1998, have been settled, and the
Company has entered into a new service agreement with the case management
agency.
    

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


<TABLE>
<CAPTION>
         Exhibit
         Number
         ------
<S>               <C>
         10.1     Agreement and Plan Merger dated as of July 30, 1998, by and
                  between PMR Corporation and Behavioral Healthcare Corporation.
                  (Incorporated by reference from Exhibit 99.1 to Report on Form
                  8-K filed on August 4, 1998.)

         27.1     Financial Statements
</TABLE>


     (b) Reports on Form 8-K

         During the first quarter of fiscal 1999, the Company filed the
following reports on Form 8-K:

         1.   Report on Form 8-K dated May 12, 1998, and filed on or about May
              13, 1998, announcing the Company's plan to take a special charge
              and preliminary estimates of fourth quarter results.


                                       12


<PAGE>   15
         2.   Report on Form 8-K dated June 9, 1998 and filed on or about June
              11, 1998 announcing a preliminary resolution of the provider-based
              challenge and a proposed joint venture with Stadlander Drug
              Distribution Co., Inc.

         3.   Report on Form 8-K dated July 30, 1998 and filed on or about
              August 4, 1998 announcing the execution of a definitive merger
              agreement (the "Merger Agreement") between the Company and
              Behavioral Healthcare Corporation.


                                       13


<PAGE>   16
                                   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 17, 1998
    
                                        PMR CORPORATION


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


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


                                       14