##### Table of Contents



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 July 31, 2002
|                                             |  |                                                                                         
|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

Psychiatric Solutions, Inc.

(Exact Name of Registrant as Specified in Its Charter)


|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 23-2491707                       
|                                                               |  |                                  
|(State or Other Jurisdiction of Incorporation or Organization) |  | (IRS Employer Identification No.)

|                                                     |  |           
|---------------------------------------------------- |  | ----------
|113 Seaboard Lane, Suite C-100, Franklin, Tennessee  |  | 37067     
|                                                    
|(Address of Principal Executive Offices)             |  | (Zip Code)
|                                                     |  |           
|615-463-9338                                        
|                                                     | 
|(Registrants Telephone Number, Including Area Code)

Formerly PMR Corporation, formerly located at 1565 Hotel Circle South, 2nd
Floor, San Diego, California 92108, fiscal yearformerly ended on
April 30.



---

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


Indicate by check mark 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 [   ]

As of July 31,
2002, Psychiatric Solutions, Inc. had 2,420,969 shares of
common stock outstanding (after giving effect to the 1 for 3 stock split).





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TABLE OF CONTENTS



|                                                   |                                                                                               |                                                                  |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- |  |  |  |  |  | 
|Part I  FINANCIAL INFORMATION                    
|                                                   | Item 1. Financial Statements                                                                 
|                                                   |                                                                                               | Condensed Consolidated Balance Sheets                           
|                                                   |                                                                                               | Condensed Consolidated Statements of Operations                 
|                                                   |                                                                                               | Condensed Consolidated Statements of Cash Flows                 
|                                                   |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|                                                   | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                   | Item 3. Quantitative and Qualitative Disclosures about Market Risks                          
|PART II  OTHER INFORMATION                       
|                                                   | Item 1  Legal Proceedings                                                                   
|                                                   | Item 2  Changes in Securities and Use of Proceeds                                           
|                                                   | Item 3  Defaults upon Senior Securities                                                     
|                                                   | Item 4  Submission of Matters to a Vote of Security Holders                                 
|                                                   | Item 5  Other Information                                                                   
|                                                   | Item 6  Exhibits and Reports on Form 8-K                                                    
|SIGNATURES                                        
|Amendment/Company's Restated Certificate of Incorp
|Section 906 Certification of the CEO              
|Section 906 Certification of the CFO              



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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
(solely PMR Corporation operations)

INDEX

|        |  |  |  |         |  |                                                                                       |                   |                                                                                                               |    |  |   |      |  | 
|------- |  |  |  | ------- |  | ------------------------------------------------------------------------------------- | ----------------- | ------------------------------------------------------------------------------------------------------------- | -- |  | - | ---- |  | 
|        |  |  |  |         |  |                                                                                       |                   |                                                                                                               |    |  |   | Page
|        |  |  |  |         |  |                                                                                       |                   |                                                                                                               |    |  |   |     
|PART I  |  |  |  |         |  |                                                                                       |                   | FINANCIAL INFORMATION                                                                                         |    |  |   |     
|        |  |  |  | Item 1. |  | Financial Statements                                                                  |                   |                                                                                                               |    | 
|        |  |  |  |         |  |                                                                                       |                   | Condensed Consolidated Balance Sheets as
of July 31, 2002 (Unaudited) and April
30, 2002                      |    |  | 1 |     
|        |  |  |  |         |  |                                                                                       |                   | Condensed Consolidated Statements of
Operations for the three months ended
July 31, 2002 and 2001 (Unaudited) |    |  | 2 |     
|        |  |  |  |         |  |                                                                                       |                   | Condensed Consolidated Statements of Cash
Flows for the three months ended July
31, 2002 and 2001 (Unaudited) |    |  | 3 |     
|        |  |  |  |         |  |                                                                                       |                   | Notes to Condensed Consolidated Financial
Statements (Unaudited)                                              |    |  | 4 |     
|        |  |  |  | Item 2. |  | Managements Discussion and Analysis of
Financial Condition and Results of
Operations |                   |                                                                                                               | 9  | 
|        |  |  |  | Item 3. |  | Quantitative and Qualitative Disclosures
about Market Risks                           |                   |                                                                                                               | 15 | 
|PART II |  |  |  |         |  |                                                                                       | OTHER INFORMATION |                                                                                                               |    |  |  
|        |  |  |  | Item 1. |  | Legal Proceedings                                                                     |                   |                                                                                                               | 16 | 
|        |  |  |  | Item 2. |  | Changes in Securities and Use of Proceeds                                             |                   |                                                                                                               | 16 | 
|        |  |  |  | Item 3. |  | Defaults Upon Senior Securities                                                       |                   |                                                                                                               | 16 | 
|        |  |  |  | Item 4. |  | Submission of Matters to a Vote of Security
Holders                                   |                   |                                                                                                               | 16 | 
|        |  |  |  | Item 5. |  | Other Information                                                                     |                   |                                                                                                               | 16 | 
|        |  |  |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                      |                   |                                                                                                               | 16 | 





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##### Table of Contents






Part I  FINANCIAL INFORMATION




Item 1. Financial Statements


Psychiatric Solutions, Inc.
(solely PMR Corporation operations)




Condensed Consolidated Balance Sheets


|                                                                                                                                           |                                                                                                                                                          |   |            |             |           |   |            |             |  
|------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | ----------- | --------- | - | ---------- | ----------- | -
|                                                                                                                                           |                                                                                                                                                          |   | July 31,   |             | April 30,
|                                                                                                                                           |                                                                                                                                                          |   | 2002       |             | 2002     
|                                                                                                                                           |                                                                                                                                                          |   |            |             |          
|                                                                                                                                           |                                                                                                                                                          |   | Unaudited  |             |           |   |           
|Assets                                                                                                                                     |                                                                                                                                                          |   |            |             |           |   |            |            
|Current assets:                                                                                                                            |                                                                                                                                                          |   |            |             |           |   |            |            
|                                                                                                                                           | Cash and cash equivalents                                                                                                                                |   | $          | 6,377,625   |           |   | $          | 14,847,153  |  
|                                                                                                                                           | Short-term investments, available for sale                                                                                                               |   |            | 3,565,002   |           |   |            | 7,767,116   |  
|                                                                                                                                           | Accounts receivable, net of allowance for doubtful accounts
of $723,000 at July 31, 2002 and $2,060,000 at April 30, 2002                                |   |            | 628,380     |           |   |            | 909,605     |  
|                                                                                                                                           | Prepaid expenses and other current assets                                                                                                                |   |            | 215,091     |           |   |            | 679,295     |  
|                                                                                                                                           |                                                                                                                                                          |   |            |             |           |   |            |            
|Total current assets                                                                                                                       |                                                                                                                                                          |   | 10,786,098 |             |           |   | 24,203,169 |            
|Furniture and office equipment, net of accumulated depreciation
of $1,035,000 at July 31, 2002 and $1,617,000 at April 30, 2002            |                                                                                                                                                          |   | 263,862    |             |           |   | 163,842    |            
|Long-term accounts and notes receivable, net of allowance for doubtful
accounts of $141,000 at July 31, 2002 and $91,000 at April 30, 2002 |                                                                                                                                                          |   | 355,632    |             |           |   | 407,028    |            
|Other assets                                                                                                                               |                                                                                                                                                          |   | 8,010      |             |           |   | 28,166     |            
|                                                                                                                                           |                                                                                                                                                          |   |            |             |           |   |            |            
|Total assets                                                                                                                               |                                                                                                                                                          | $ | 11,413,602 |             |           | $ | 24,802,205 |            
|                                                                                                                                           |                                                                                                                                                          |   |            |             |           |   |            |            
|Liabilities and stockholders equity                                                                                                       |                                                                                                                                                          |   |            |             |           |   |            |            
|Current liabilities:                                                                                                                       |                                                                                                                                                          |   |            |             |           |   |            |            
|                                                                                                                                           | Accounts payable                                                                                                                                         |   | $          | 143,495     |           |   | $          | 194,038     |  
|                                                                                                                                           | Accrued expenses                                                                                                                                         |   |            | 1,016,501   |           |   |            | 928,438     |  
|                                                                                                                                           | Accrued compensation and employee benefits                                                                                                               |   |            | 2,143,839   |           |   |            | 311,851     |  
|                                                                                                                                           | Advances from case management agencies                                                                                                                   |   |            | 871,568     |           |   |            | 1,944,472   |  
|                                                                                                                                           |                                                                                                                                                          |   |            |             |           |   |            |            
|Total current liabilities                                                                                                                  |                                                                                                                                                          |   | 4,175,403  |             |           |   | 3,378,799  |            
|Contract settlement reserve                                                                                                                |                                                                                                                                                          |   | 1,312,579  |             |           |   | 2,048,597  |            
|Stockholders equity:                                                                                                                      |                                                                                                                                                          |   |            |             |           |   |            |            
|                                                                                                                                           | Common stock, $.01 par value, authorized shares - 19,000,000;
issued and outstanding shares - 2,457,494 at July 31, 2002 and
2,430,005 at April 30, 2002 |   |            | 24,575      |           |   |            | 24,300      |  
|                                                                                                                                           | Additional paid-in capital                                                                                                                               |   |            | 19,280,186  |           |   |            | 31,414,158  |  
|                                                                                                                                           | Notes receivable from employees and officers                                                                                                             |   |            | (220,662    | )         |   |            | (373,017    | )
|                                                                                                                                           | Accumulated other comprehensive income                                                                                                                   |   |            | 31,320      |           |   |            | 31,829      |  
|                                                                                                                                           | Accumulated deficit                                                                                                                                      |   |            | (12,994,292 | )         |   |            | (11,526,954 | )
|                                                                                                                                           | Treasury
stock, common stock at cost - 36,525 shares at July 31, 2002 and at
April 30, 2002                                                              |   |            | (195,507    | )         |   |            | (195,507    | )
|                                                                                                                                           |                                                                                                                                                          |   |            |             |           |   |            |            
|Total stockholders equity                                                                                                                 |                                                                                                                                                          |   | 5,925,620  |             |           |   | 19,374,809 |            
|                                                                                                                                           |                                                                                                                                                          |   |            |             |           |   |            |            
|Total liabilities and stockholders equity                                                                                                 |                                                                                                                                                          | $ | 11,413,602 |             |           | $ | 24,802,205 |            
|                                                                                                                                           |                                                                                                                                                          |   |            |             |           |   |            |            

See notes to condensed consolidated financial statements

1



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##### Table of Contents



Psychiatric Solutions, Inc.
(solely PMR Corporation operations)




Condensed Consolidated Statements of OperationsUnaudited


|                                                                                            |                                               |                |            |                             |           |      |            |           |           |  
|------------------------------------------------------------------------------------------- | --------------------------------------------- | -------------- | ---------- | --------------------------- | --------- | ---- | ---------- | --------- | --------- | -
|                                                                                            |                                               |                |            | Three months ended July 31,
|                                                                                            |                                               |                |            |                            
|                                                                                            |                                               |                |            | 2002                        |           | 2001
|                                                                                            |                                               |                |            |                             |           |     
|Revenues                                                                                    |                                               | $              | 4,970,006  |                             |           | $    | 4,505,291  |          
|                                                                                            |                                               |                |            |                             |           |      |            |          
|Expenses:                                                                                   |                                               |                |            |                             |           |      |            |          
|                                                                                            | Direct operating expenses                     |                |            | 3,929,002                   |           |      |            | 3,847,793 |          
|                                                                                            | Research and development                      |                |            |                            |           |      |            | 196,872   |          
|                                                                                            | Marketing, general and administrative         |                |            | 1,155,326                   |           |      |            | 1,224,477 |          
|                                                                                            | (Recovery of) provision for doubtful accounts |                |            | (33,164                     | )         |      |            | 9,090     |          
|                                                                                            | Depreciation and amortization                 |                |            | 34,348                      |           |      |            | 172,481   |          
|                                                                                            | Special charges                               |                |            | 2,034,174                   |           |      |            | 725,935   |          
|                                                                                            |                                               |                |            |                             |           |      |            |          
|                                                                                            |                                               | Total expenses |            |                             | 7,119,686 |      |            |           | 6,176,648 |  
|                                                                                            |                                               |                |            |                             |           |      |            |          
|Gain on sale of assets                                                                      |                                               |                | 598,103    |                             |           |      |           |          
|Interest expense                                                                            |                                               |                | (1,295     | )                           |           |      | (3,728     | )        
|Interest income                                                                             |                                               |                | 63,039     |                             |           |      | 176,966    |          
|                                                                                            |                                               |                |            |                             |           |      |            |          
|Net loss before income taxes                                                                |                                               |                | (1,489,833 | )                           |           |      | (1,498,119 | )        
|Income tax benefit                                                                          |                                               |                | (22,496    | )                           |           |      |           |          
|                                                                                            |                                               |                |            |                             |           |      |            |          
|Net loss                                                                                    |                                               | $              | (1,467,337 | )                           |           | $    | (1,498,119 | )        
|                                                                                            |                                               |                |            |                             |           |      |            |          
|                                                                                            | Loss per common share                         |                |            |                             |           |      |            |           |          
|                                                                                            |                                               | Basic          |            | $                           | (0.60     | )    |            | $         | (0.62     | )
|                                                                                            |                                               |                |            |                             |           |      |            |          
|                                                                                            |                                               | Diluted        |            | $                           | (0.60     | )    |            | $         | (0.62     | )
|                                                                                            |                                               |                |            |                             |           |      |            |          
|                                                                                            | Shares used in computing loss per share:      |                |            |                             |           |      |            |           |          
|                                                                                            |                                               | Basic          |            |                             | 2,453,792 |      |            |           | 2,412,690 |  
|                                                                                            |                                               |                |            |                             |           |      |            |          
|                                                                                            |                                               | Diluted        |            |                             | 2,453,792 |      |            |           | 2,412,690 |  
|                                                                                            |                                               |                |            |                             |           |      |            |          
|Dividend declared per share of common stock outstanding
of 2,420,969 shares on May 24, 2002 |                                               | $              | 5.10       |                             |           | $    |           |          
|                                                                                            |                                               |                |            |                             |           |      |            |          

See notes to condensed consolidated financial statements

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Psychiatric Solutions, Inc.
(solely PMR Corporation operations)




Condensed Consolidated Statements of Cash FlowsUnaudited


|                                                     |                                                                             |                                              |                                            |             |                             |            |            |            |         |          |  
|---------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------------ | ----------- | --------------------------- | ---------- | ---------- | ---------- | ------- | -------- | -
|                                                     |                                                                             |                                              |                                            |             | Three Months Ended July 31,
|                                                     |                                                                             |                                              |                                            |             | 2002                        |            | 2001      
|                                                     |                                                                             |                                              |                                            |             |                             |            |           
|Operating activities                                 |                                                                             |                                              |                                            |             |                             |            |            |           
|                                                     | Net loss                                                                    |                                              | $                                          | (1,467,337  | )                           |            | $          | (1,498,119 | )      
|                                                     | Adjustments to reconcile net loss to net cash used in
operating activities: |                                              |                                            |             |                             |            |            |            |        
|                                                     |                                                                             | Stock compensation expense                   |                                            |             | 2,000                       |            |            |            | 19,421  |         
|                                                     |                                                                             | Special charge                               |                                            |             | 2,034,174                   |            |            |            | 725,935 |         
|                                                     |                                                                             | Depreciation and amortization                |                                            |             | 34,348                      |            |            |            | 172,481 |         
|                                                     |                                                                             | Provision for doubtful accounts              |                                            |             | (33,164                     | )          |            |            | 9,090   |         
|                                                     |                                                                             | Gain
on sale of assets                       |                                            |             | 598,103                     |            |            |            |        |         
|                                                     |                                                                             | Changes in operating assets and liabilities: |                                            |             |                             |            |            |            |         |         
|                                                     |                                                                             |                                              | Accounts and notes receivable              |             |                             | 394,390    |            |            |         | 906,366  |  
|                                                     |                                                                             |                                              | Prepaid expenses and other assets          |             |                             | 484,359    |            |            |         | 103,238  |  
|                                                     |                                                                             |                                              | Accounts payable and accrued expenses      |             |                             | (82,548    | )          |            |         | (668,894 | )
|                                                     |                                                                             |                                              | Accrued compensation and employee benefits |             |                             | (51,672    | )          |            |         | (78,371  | )
|                                                     |                                                                             |                                              | Advances from case management agencies     |             |                             | (1,672,904 | )          |            |         | 71,224   |  
|                                                     |                                                                             |                                              | Contract settlement reserve                |             |                             | (736,018   | )          |            |         |         |  
|                                                     |                                                                             |                                              | Deferred rent expense                      |             |                             |           |            |            |         | (7,553   | )
|                                                     |                                                                             |                                              |                                            |             |                             |            |            |           
|                                                     | Net cash used in operating activities                                       |                                              |                                            | (496,269    | )                           |            |            | (245,182   | )      
|                                                     |                                                                             |                                              |                                            |             |                             |            |            |           
|Investing activities                                 |                                                                             |                                              |                                            |             |                             |            |            |           
|                                                     | Proceeds from the sale and maturity of short-term investments               |                                              |                                            | 5,861,328   |                             |            |            | 1,915,059  |        
|                                                     | Purchases of short-term investments                                         |                                              |                                            | (1,659,723  | )                           |            |            | (1,346,344 | )      
|                                                     | Purchases of furniture and office equipment, net                            |                                              |                                            | (132,471    | )                           |            |            | (4,327     | )      
|                                                     |                                                                             |                                              |                                            |             |                             |            |            |           
|                                                     | Net cash provided by investing activities                                   |                                              |                                            | 4,069,134   |                             |            |            | 564,388    |        
|                                                     |                                                                             |                                              |                                            |             |                             |            |            |           
|Financing activities                                 |                                                                             |                                              |                                            |             |                             |            |            |           
|                                                     | Proceeds from sale of common stock                                          |                                              |                                            | 211,245     |                             |            |            |           |        
|                                                     | Payments on note payable to bank                                            |                                              |                                            | (30,446     | )                           |            |            | (37,256    | )      
|                                                     | Acquisition of treasury stock                                               |                                              |                                            |            |                             |            |            | (16,347    | )      
|                                                     | Proceeds from payments of notes receivable from employees
and officers      |                                              |                                            | 123,750     |                             |            |            |           |        
|                                                     | Cash dividend paid                                                          |                                              |                                            | (12,346,942 | )                           |            |            |           |        
|                                                     |                                                                             |                                              |                                            |             |                             |            |            |           
|                                                     | Net cash used in financing activities                                       |                                              |                                            | (12,042,393 | )                           |            |            | (53,603    | )      
|                                                     |                                                                             |                                              |                                            |             |                             |            |            |           
|Net (decrease) increase in cash and cash equivalents |                                                                             |                                              | (8,469,528                                 | )           |                             |            | 265,603    |           
|Cash and cash equivalents at beginning of period     |                                                                             |                                              | 14,847,153                                 |             |                             |            | 13,636,122 |           
|                                                     |                                                                             |                                              |                                            |             |                             |            |            |           
|Cash and cash equivalents at end of period           |                                                                             | $                                            | 6,377,625                                  |             |                             | $          | 13,901,725 |           
|                                                     |                                                                             |                                              |                                            |             |                             |            |            |           

See notes to condensed consolidated financial statements

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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
(solely PMR Corporation operations)




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

July 31, 2002

NOTE A  MERGER WITH PSYCHIATRIC SOLUTIONS HOSPITALS, INC.

On August 5, 2002, pursuant to a definitive Merger Agreement dated May 6,
2002 and with respective stockholder and regulatory approvals, PMR Acquisition
Corporation, a newly formed, wholly-owned subsidiary of PMR Corporation, merged
with and into Psychiatric Solutions, Inc., a Delaware corporation whose name,
subsequent to the merger, was changed to Psychiatric Solutions Hospitals, Inc.
(PSH). Concurrently, the name of PMR Corporation was changed to Psychiatric
Solutions, Inc. (PSI or the Company). The surviving corporation in the
merger was PSH, which has become a wholly-owned subsidiary of the Company. In
exchange for their outstanding shares of common stock or preferred stock in
PSH, stockholders of PSH received newly-issued shares of Company common stock.
Options to acquire PSH common stock were converted into options to purchase
shares of Company common stock based on the common stock exchange ratio used in
the merger. Warrants of PSH will enable the holders to exercise these
securities into shares of Company common stock. After giving effect to the
exercise of all outstanding options and warrants of PSH following the merger,
the former PSH stockholders and the Companys pre-merger stockholders received
approximately 72% and 28% of the common stock of the Company, respectively.
The headquarters of the combined company have been relocated to Nashville,
Tennessee. In addition, effective August 6, 2002, the shares of the Company
were approved for listing on the Nasdaq National Market under the ticker symbol
PSYS. The Merger Agreement is on file with the Securities and Exchange
Commission as an exhibit to Amendment No. 1 to the Companys Registration
Statement on Form S-4 filed on July 11, 2002.

Inasmuch as the former PSH stockholders own more than half of the
surviving corporations outstanding common stock pursuant to the merger, PSH is
treated as the acquiring company for accounting purposes. However, the
historical financial information contained herein only relates to PMR
Corporation prior to the merger and excludes any information related to the
business of PSH.

Effective
August 5, 2002, the Company changed its fiscal year end from
April 30 to
December 31. Beginning with the Companys Form 10-Q
for the quarter ended September 30, 2002, the Company will begin
reporting results of the entity surviving the merger, PSH. Because
the merger will be accounted for as a purchase of PMR Corporation by
PSH, operating results reported for prior periods will not include
the results of PMR Corporation prior to the merger.

NOTE B  BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
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 accounting principles generally accepted
in the United States for audited financial statements. The condensed
consolidated balance sheet at April 30, 2002 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the
United States 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 three months ended July 31, 2002 are not
necessarily indicative of the results that may be expected for the full year.
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, 2002.

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##### Table of Contents



In addition, this Quarterly Report on Form 10-Q relates to the quarter
ended July 31, 2002, which ended prior to the completion of the merger
described in Note A. As a result, these financial statements relate only to
the PMR Corporation operations prior to the merger and do not include any of
the financial statements relating to the PSH operations. These financial
statements were prepared by the former Chief Financial Officer of PMR
Corporation and such former Chief Financial Officer and the former Chief
Executive Officer have certified to the Company that: (a) these financial
statements do not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with
respect to the period covered by this Quarterly Report; and (b) to the best of
their knowledge, the financial statements and other financial information
included in this Quarterly Report, fairly present in all material respects the
financial condition, results of operations and cash flows of PMR Corporation as
of, and for, the quarter ended July 31, 2002.

5



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##### Table of Contents



NOTE C  EARNINGS PER SHARE

Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per
Share, requires dual presentation of basic and diluted earnings per share by
entities with complex capital structures. Basic earnings per share includes no
dilution and is computed by dividing net loss by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of securities that could share in the earnings of the
entity. The Company has calculated its earnings per share in accordance with
SFAS No. 128 for all periods presented.

The following table sets forth the computation of basic and diluted earnings
per share:

|                                                                 |                                     |   |                             |   |      |   |            |   | 
|---------------------------------------------------------------- | ----------------------------------- | - | --------------------------- | - | ---- | - | ---------- | - | 
|                                                                 |                                     |   | Three Months Ended July 31,
|                                                                 |                                     |   | (unaudited)                
|                                                                 |                                     |   | 2002                        |   | 2001
|                                                                 |                                     |   |                             |   |     
|Numerator :                                                      |                                     |   |                             |   |      |   |            |  
|Net loss available to common stockholders                        |                                     | $ | (1,467,337                  | ) |      | $ | (1,498,119 | )
|                                                                 |                                     |   |                             |   |      |   |            |  
|Denominator:                                                     |                                     |   |                             |   |      |   |            |  
|Weighted average shares outstanding for basic
earnings per share |                                     |   | 2,453,792                   |   |      |   | 2,412,690  |  
|                                                                 |                                     |   |                             |   |      |   |            |  
|Effects of dilutive securities:                                  |                                     |   |                             |   |      |   |            |  
|                                                                 | Employee stock options and warrants |   |                             |  |      |   |            |  | 
|                                                                 |                                     |   |                             |   |      |   |            |  
|Dilutive potential common shares                                 |                                     |   |                            |   |      |   |           |  
|                                                                 |                                     |   |                             |   |      |   |            |  
|Shares used in computing diluted loss
per common share           |                                     |   | 2,453,792                   |   |      |   | 2,412,690  |  
|                                                                 |                                     |   |                             |   |      |   |            |  
|Loss per common share, basic                                     |                                     | $ | (0.60                       | ) |      | $ | (0.62      | )
|                                                                 |                                     |   |                             |   |      |   |            |  
|Loss per common share, diluted                                   |                                     | $ | (0.60                       | ) |      | $ | (0.62      | )
|                                                                 |                                     |   |                             |   |      |   |            |  

No potential common shares were included in the computation of diluted earnings
per share because the inclusion thereof would have had an antidilutive effect.

6



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NOTE D  DISCLOSURES ABOUT REPORTABLE SEGMENTS

In accordance with the criteria of SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information,the Company determined that,
as of July 31, 2002, it operates in two reportable segments: Health Services
Business and Health Information Business. The Companys reportable segments are
strategic business units that offer different services to a variety of
inpatient and outpatient recipients and healthcare industry participants. The
Health Services Business segment consists of two outpatient programs and two
case management programs. Under the Health Information Business, the Company
has licensed its software application to Conundrum Communications, Inc.
(Conundrum) in exchange for eligibility to receive royalties for a period of
five years. The Company does not anticipate incurring any further costs
associated with the Health Information Business. Activities classified as
Other in the following schedule relate primarily to unallocated home office
items.

A summary of segment activity is as follows:

|                                  |  |                                         |           |             |  |       |            |       |  |   |            |   |  |   |            |  
|--------------------------------- |  | --------------------------------------- | --------- | ----------- |  | ----- | ---------- | ----- |  | - | ---------- | - |  | - | ---------- | -
|                                  |  | Three months ended July 31, (unaudited)
|                                  |  |                                        
|                                  |  | Health                                  |           | Health      |  |       |            |       |  |   |            |  
|                                  |  | Services                                |           | Information |  |       |            |       |  |   |            |  
|                                  |  | Business                                |           | Business    |  | Other |            | Total
|                                  |  |                                         |           |             |  |       |            |      
|2002                              |  |                                         |           |             |  |       |            |       |  |   |            |   |  |   |            |  
|Revenues                          |  | $                                       | 4,939,357 |             |  | $     | 25,649     |       |  | $ | 5,000      |   |  | $ | 4,970,006  |  
|Income (loss) before income taxes |  |                                         | 1,515,876 |             |  |       | 26,337     |       |  |   | (3,032,046 | ) |  |   | (1,489,833 | )
|2001                              |  |                                         |           |             |  |       |            |       |  |   |            |   |  |   |            |  
|Revenues                          |  | $                                       | 4,505,291 |             |  | $     |           |       |  | $ |           |   |  | $ | 4,505,291  |  
|Income (loss) before income taxes |  |                                         | 680,922   |             |  |       | (1,265,297 | )     |  |   | (913,744   | ) |  |   | (1,498,119 | )

NOTE E  REVERSE STOCK SPLIT

In connection with and as a condition to the merger discussed in Note A,
the Companys stockholders approved on August 5, 2002 an amendment to the
Companys charter effecting a 1-for-3 reverse stock split. The reverse stock
split is given effect in this Quarterly Report.

NOTE F  CONTINGENT VALUE RIGHTS

On August 5, 2002, the Company filed a Form 8-K with the Securities and
Exchange Commission announcing the execution of a contingent value rights
(CVR) agreement dated August 2, 2002, by and among the Company, Fred D.
Furman, as Representative, and StockTrans, Inc., as Trustee, and the
establishment of the record date for the CVR as August 2, 2002, each in
anticipation of the merger. Pursuant to the CVR agreement, CVR holders will be
entitled to receive: (i) a cash distribution within 90 days of the effective
time of the merger equal to the amount of PMR Corporations pre-merger cash
and cash equivalents in excess of $5.175

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##### Table of Contents



million as of the effective time of
the merger; and (ii) quarterly cash payments equal to the cash and cash
equivalents collected on certain PMR Corporations pre-merger non-current
accounts receivable relating to discontinued programs during the two-year
period following the effective time of the merger. However, there is no
assurance that any payments will be made with respect to the CVR and the CVR,
therefore, may not have any value.

NOTE G  SPECIAL CHARGES
ACCRUED AT JULY 31, 2002

As a result of the wind-down of the Companys home office in San Diego due
to the merger discussed in Note A, the Company accrued in July 2002 and paid in
August 2002 approximately $1.9 million in severance for twelve terminated home
office personnel.

NOTE H  RECENT ACCOUNTING PRONOUNCEMENTS

In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which establishes one accounting
model to be used for long-lived assets to be disposed of by sale and broadens
the presentation of discontinued operations to include more disposal
transactions. SFAS No. 144 supercedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
and the accounting and reporting provisions of APB Opinion No. 30. SFAS No.
144 is effective for fiscal years beginning after December 15, 2001. The
Company did not have any transaction during the quarter ended
July 31, 2002 that fell within the scope of this accounting
pronouncement.

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|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|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s 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 that may affect the Companys
future operating results and financial position. Forward-looking statements in
this document include discussions regarding (i) future sources of revenue; (ii)
the anticipated amount of expenditures associated with the termination of the
InfoScriber operations and the potential royalties from the licensure of the
InfoScriber application; (iii) forecasted cash flows for fiscal year 2003; (iv)
potential indemnification obligations and uncollectable accounts; (v) the
adequacy of contract settlement reserves; (vi) the ability to successfully
integrate the combined companies pursuant to the merger; and (vii) the
sufficiency of the Companys financial resources. Such statements are subject
to risks and uncertainties that could cause the Companys actual results and
financial position to differ materially. Please carefully review and consider
the various disclosures advising interested parties of factors that affect the
Company, including those discussed below and in the Companys Annual Report on
Form 10-K for the fiscal year ended April 30, 2002, the Companys Form S-4/A
registration statement filed on July 11, 2002, and the Companys other periodic
reports and filings with the Securities and Exchange Commission. The Company
expressly disclaims any obligation or undertaking to release publicly 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

On August 5, 2002, pursuant to a definitive Merger Agreement dated May 6,
2002 and with respective stockholder and regulatory approvals, PMR Acquisition
Corporation, a newly formed, wholly-owned subsidiary of PMR Corporation, merged
with and into Psychiatric Solutions, Inc., a Delaware corporation whose name,
subsequent to the merger, was changed to Psychiatric Solutions Hospitals, Inc.
(PSH). Concurrently, the name of PMR Corporation was changed to Psychiatric
Solutions, Inc. (PSI or the Company). The surviving corporation in the
merger was PSH, which has become a wholly-owned subsidiary of the Company.
The headquarters of the combined company have been relocated to Nashville,
Tennessee. In addition, effective August 6, 2002, the shares of the Company
were approved for listing on the Nasdaq National Market under the ticker
symbol PSYS. The Merger Agreement is on file with the Securities and
Exchange Commission as an exhibit to Amendment No. 1 to the Companys
Registration Statement on Form S-4 filed on July 11, 2002.

Inasmuch as the former PSH stockholders own more than half of the
surviving corporations outstanding common stock pursuant to the merger, PSH is
treated as the acquiring company for accounting purposes. However, the
historical financial information contained herein only relates to PMR
Corporation prior to the merger and excludes any information related to the
business of PSH.

Effective
August 5, 2002, the Company changed its fiscal year end from
April 30 to
December 31. Beginning with the Companys Form 10-Q
for the quarter ended September 30, 2002, the Company will begin
reporting results of the entity surviving the merger, PSH. Because
the merger will be accounted for as a purchase of PMR Corporation by
PSH, operating results reported for prior periods will not include
the results of PMR Corporation prior to the merger.

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In connection with the merger, the Companys stockholders approved on
August 5, 2002 an amendment to the Companys charter effecting a 1-for-3
reverse stock split and the Company executed a Contingent Value Rights (CVR)
agreement dated August 2, 2002, by and among the Company, Fred D. Furman, as
Representative, and StockTrans, Inc., as Trustee. The record date for the CVR
is August 2, 2002. Pursuant to the CVR agreement, CVR holders are entitled to
receive: (i) a cash distribution within 90 days of the effective time of the
merger equal to the amount of PMR Corporations pre-merger cash and cash
equivalents in excess of $5.175 million as of the effective time of the merger;
and (ii) quarterly cash payments equal to the cash and cash equivalents
collected on certain of PMR Corporations pre-merger non-current accounts
receivable relating to discontinued programs during the two-year period
following the effective time of the merger. However, there is no assurance
that any payments will be made with respect to the CVR and the CVR, therefore,
may not have any value.

During the quarter ended July 31, 2002, the Company continued to focus on
maximizing cash flow while preparing for the completion of the merger. The
Company had $1.5 million in net loss during the three months ended July 31,
2002, versus a net loss of $1.5 million for the same period in the prior year.
The operating results for the quarter ended July 31, 2002 included $2.0 million
in special charges primarily related to the wind-down of the Companys home
office in San Diego due to the merger, a $488,000 reduction in contract
settlement reserves due to estimated final settlement in provider cost reports,
and a $598,000 gain on disposal of assets.

Sources of revenue

Outpatient Programs.During the quarter ended July 31, 2002, the Company
continued to manage or administer two outpatient programs with one acute care
hospital. The Company does not intend to continue to devote resources to
develop additional outpatient programs.

Revenues under the outpatient programs are recognized at estimated net
realizable amounts when services are rendered based upon the Companys
contractual arrangement with the hospital. Under the terms of the Companys
current contract, as well as some of the Companys terminated or expired
contracts, the Company is required to indemnify the providers for some or all
of the Companys fees if the fees were disallowed by Medicare or its fiscal
intermediaries, or if the claims associated with the Companys fees for
services rendered to patients were denied. In some instances, the Company is
required to indemnify the hospital for certain of the hospitals direct costs
if the claims associated with the Companys fees for services rendered to
patients were denied. As of July 31, 2002, the Company had recorded $1.3
million in contract settlement reserves to provide for an estimate of 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 long-term liabilities because ultimate determination
of substantially all of the potential contract disallowances, if any, is not
anticipated to occur during the current fiscal year.

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Case Management Programs.For its case management programs in Tennessee,
the Company receives a monthly case rate fee from the managed care consortium
responsible for managing the Tennessee TennCare Partners State Medicaid Managed
Care Program (TennCare). Revenue under the TennCare program is recognized in
the period in which the related service is to be provided and may fluctuate
based on rates set by the managed care consortium as well as level of patient
enrollment.

Results of Operations  Quarter Ended July 31, 2002 Compared to Quarter Ended July 31, 2001

Revenue Revenues increased from $4.5 million for the quarter ended July
31, 2001 to $5.0 million for the quarter ended July 31, 2002, an increase of
$465,000 or 10.3%. The outpatient programs recorded revenues of $748,000 for
the quarter ended July 31, 2002, an increase of approximately $376,000 or
101.2%. This increase was primarily the result of a $488,000 reduction in
contract settlement reserves due to estimated final settlement in provider cost
reports. Revenues from the Companys case management programs was relatively
unchanged at $4.2 million for the quarter ended July 31, 2002 versus $4.1 for
the same period in the prior year.

Direct Operating Expenses Direct operating expenses consist of costs
incurred at the program sites and costs associated with the field management
responsible for administering the programs. Direct operating expenses were
$3.9 million in the first quarter of fiscal year 2003, compared to $3.8 million
a year ago, an increase of 2.1%. As a percentage of revenues, direct operating
expenses decreased to 79.1% for the quarter ended July 31, 2002 from 85.4% for
the quarter ended July 31 2001. The decrease was primarily attributable to the
termination of the InfoScriber operations.

Research and Development The Company stopped incurring research and
development costs with the termination of the InfoScriber operations in July
2001.

Marketing, General and Administrative Marketing, general and
administrative expenses from continuing operations for the quarter ended July
31, 2002 were relatively unchanged at approximately $1.2 million for the
quarter ended July 31, 2002 versus the quarter ended July 31, 2001. As a
percentage of total revenues, marketing, general and administrative expenses
improved from 27.2% for the quarter ended July 31, 2001 to 23.2% for the
quarter ended July 31, 2002. The improvement was primarily due to the
elimination of marketing, general and administrative expenses related to the
terminated InfoScriber operations.

(Recovery of) Provision for Doubtful Accounts During the quarter ended
July 31, 2002, the Company recovered $33,000 in provision for doubtful
accounts. The recovery was primarily due to the collection of previously
reserved accounts receivable relating to closed outpatient programs and a
change in estimate on the collectability of certain other related receivables.

Depreciation and Amortization Depreciation and amortization expenses
decreased from $172,000 for the quarter ended July 31, 2001 to $34,000 for the
quarter ended July 31, 2002, a decrease of $138,000 or (80.1%). The decrease
was primarily due to disposal and write-off of assets as a result of contract
terminations or expirations.

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Special Charge During the quarter ended July 31, 2002, the Company
recorded special charges totaling $2.0 million relating primarily to the
wind-down of the Companys home office in San Diego due to the merger.

Gain on Sale of Assets The gain on sale of assets during the quarter
ended July 31, 2002 was primarily due to the sale of fully depreciated assets.

Net Interest Income Interest income, net of interest expense, decreased
from $173,000 for the quarter ended July 31, 2001 to $62,000 for the quarter
ended July 31, 2002, a decrease of $111,000 or (64.4%). The decrease was
primarily due to lower cash, cash equivalents, and short-term investments at
July 31, 2002 versus July 31, 2001. The reduction in the interest-bearing
assets was primarily a result of cash dividends of approximately $12.3 million
paid in May 2002 and the cash expenditures related to the InfoScriber
operations, offset by positive cash flow from operations.

Income Tax Benefit The Company has received refunds amounting to
approximately $22,000 from various state tax authorities during the quarter
ended July 31, 2002. The Company has treated the entire amount of such refunds
as income tax benefit during the quarter because the Company had previously
recognized a valuation allowance against all of its deferred tax assets. The
valuation allowance was originally established because realization of the
deferred tax assets was uncertain in light of the changes in the Companys core
business and associated business risks.

Net Loss The Companys net loss for the quarter ended July 31, 2002 was
unchanged at $1.5 million versus the same period in the preceding year.

Liquidity and Capital Resources

Working capital at July 31, 2002 was approximately $6.6 million versus
$20.8 million at April 30, 2002, a decrease of $14.2 million. The decrease was
primarily due to the special dividend of approximately $12.3 million paid in
May 2002 and the $2.0 million in special charges relating to the wind-down of
the Companys home office in San Diego. Cash, cash equivalents and short-term
investments totaled $9.9 million at July 31, 2002, a decrease of $12.7 million
versus April 30, 2002.

On May 6, 2002, in connection with the execution of the Merger Agreement,
the Companys Board of Directors declared a cash dividend of $5.10 per share,
payable on May 24, 2002 to the PMR Corporation shareholders of record as of May
17, 2002. Because of the magnitude of the cash dividend in relation to the
value of the Companys stock, rules of the Nasdaq Stock Market required that
the stock trade ex-dividend on the next business day after payment, which was
May 28, 2002. Stockholders who sold their shares before the ex-dividend date
transferred the right to receive the cash dividend to the buyers of the shares.

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The Merger Agreement requires minimum cash at Closing of $5.175 million,
after giving pro forma effect to termination costs, merger transaction related
expenses, and the declaration and payment of cash distributions, if any, to CVR
holders.

In connection with our outpatient programs, we maintain reserves to cover
the potential impact of two significant 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 by a provider during the periodic review of
the providers claims by the fiscal intermediaries.

From time to time, we recognize charges to operations as a result of
particular uncertainties associated with the healthcare reimbursement rules as
they apply to the outpatient programs. Certain of our contracts with providers
contain warranty obligations that require us to indemnify such providers for
the portion of our management fees disallowed for reimbursement by Medicares
fiscal intermediaries. As of July 31, 2002, we had recorded $1.3 million in
contract settlement reserves to provide for such indemnity obligations. These
reserves have been classified as non-current because the ultimate determination
of substantially all potential contract disallowances, if any, is not
anticipated to occur during the current fiscal year. Although we believe that
our potential liability to satisfy such requirements has been adequately
reserved in the financial statements, there can be no assurance that the amount
of fees disallowed will not be greater than the amount of such reserves. Also,
the obligation to pay such amounts, if and when they become due, could have a
material adverse effect on our short-term liquidity. Certain factors are, in
managements view, likely to lessen the impact of any such effect, including
the expectations that (i) if claims arise, they will arise on a periodic basis
over several years and (ii) any disallowance may be offset against obligations
already owed by the provider to us.

In addition, we have been advised by the Centers for Medicare & Medicaid
Services, formerly Health Care Financing Administration, that certain
program-related costs are not allowable for reimbursement. Thus, we may be
responsible for reimbursement of the amounts previously paid to us that are
disallowed pursuant to obligations that exist with certain providers. Although
we believe that the potential liability to satisfy such requirements has been
adequately reserved in the financial statements, there can be no assurance that
such reserves will be adequate. The obligation to pay the amounts so reserved,
if and when they become due, could have a material adverse effect upon our cash
flows and liquidity and, if greater amounts became due, on our business,
financial condition, and results of operations.

Management believes that the Company has the financial resources needed to
meet its business requirements throughout fiscal year 2003.

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.

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Critical Accounting Policies

The Companys consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States.
In preparing its financial statements, the Company is required to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses included in the financial statements. The
Company bases its estimates on historical experience and other information
currently available, the results of which form the basis of the Companys
estimates and assumptions. While the Company believes its estimation processes
are reasonable, actual results could differ from those estimates. The
following represent the estimates that the Company considers most critical to
its operating performance and involve the most subjective and complex
assumptions and assessments.

Allowance for Doubtful Accounts

The Company estimates the allowance for doubtful accounts for receivables
under its management contracts primarily based upon the specific identification
of potential collection issues. The Company continually monitors its accounts
receivable balances and utilizes cash collection data to support its estimates
of the provision for doubtful accounts. The allowance for doubtful accounts is
approximately 53.5% of the accounts receivable balance at July 31, 2002. The
primary collection risk is attributable to claim denials and contract disputes.

Contract Settlement Reserves

Revenue under Outpatient Programs is recognized when services are rendered
based upon contractual arrangements with customers at the estimated net
realizable amounts. Under certain management contracts, the Company is
obligated under warranty provisions to indemnify the customers for all or some
portions of the Companys management fees that may be disallowed as
reimbursable to the providers by Medicares fiscal intermediaries. The Company
has recorded contract settlement reserves to provide for possible amounts
ultimately owed to its customers resulting from disallowance of costs by
Medicare and Medicare cost report settlement adjustments. Disallowance of
costs by Medicare are pertinent only for services rendered through September
30, 2000 inasmuch as the Medicare program converted to the prospective payment
methodology for the reimbursement of outpatient services effective October 1,
2000.

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Item 3.     Quantitative and Qualitative Disclosures about Market Risks

The information included in this Item 3 is considered to constitute
forward-looking statements for purposes of the statutory safe harbor provided
in Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Act of 1934, as amended.

Interest Rate Sensitivity

The Companys financial instruments include an equipment note payable and
investments in debt securities, including U.S. Treasury securities, commercial
paper and certificates of deposit. The equipment note payable, due in November
2002, has an effective interest rate of 8.36% and there was approximately
$42,000 outstanding under this note at July 31, 2002.

At July 31, 2002, the fair market value of the investment in debt
securities was approximately $3.6 million, which includes an unrealized gain of
approximately $31,000. These securities bear interest rates ranging from 1.47%
to 7.63% and are generally short-term and readily marketable.

We do not and have not used derivative financial instruments for any
purpose, including hedging or mitigating interest rate risk, and we believe the
increase in the fair value of our investments in debt securities due to
interest rate sensitivity is temporary in nature. This determination was based
on the marketability of the instruments, our ability to retain our investment
in the instruments, past market movements and reasonably possible, near-term
market movements. Therefore, we do not believe that potential, near-term gains
or losses in future earnings, fair values, or cash flows from changes in
interest rates are likely to be material.

Exchange Rate Sensitivity

We do not currently have financial instruments that are sensitive to
foreign currency exchange rates.

15



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##### Table of Contents






PART II  OTHER INFORMATION




Item 1  Legal Proceedings

From time to time, the Company has been involved in routine litigation
incidental to the conduct of its business. There are currently no material
pending litigation proceedings to which the Company is a party.




Item 2  Changes in Securities and Use of Proceeds

None




Item 3  Defaults upon Senior Securities

None




Item 4  Submission of Matters to a Vote of Security Holders

None




Item 5  Other Information

None




Item 6  Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | See Index to Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (b) |  | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |     |  | On May 6, 2002, the Company filed a Form 8-K announcing the
execution of a definitive merger agreement, providing for the
merger of a wholly-owned subsidiary of PMR Corporation with and
into Psychiatric Solutions, Inc.
The Form 8-K also announced that, in connection with the execution
of the Merger Agreement, the Board of Directors of the Company
declared a cash dividend of $5.10 per share, payable on May 24,
2002 to the PMR Corporation shareholders of record as of May 17,
2002.

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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: September 16, 2002 |  | Psychiatric Solutions, Inc.
|                          |  |                             |  |                         
|                          |  | BY:                         |  | /s/ Joey Jacobs         
|                          |  |                             |  |                         
|                          |  |                             |  | JOEY JACOBS             
|                          |  |                             |  | Chief Executive Officer 
|                          |  |                             |  |                         
|                          |  | BY:                         |  | /s/ Jack Polson         
|                          |  |                             |  |                         
|                          |  |                             |  | JACK POLSON             
|                          |  |                             |  | Chief Accounting Officer

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CERTIFICATION

I, Joey Jacobs, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Psychiatric
Solutions Inc.;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

|                         |  |                                                   
|------------------------ |  | --------------------------------------------------
|Date: September 12, 2002 |  | /s/ Joey JacobsJoey Jacobs
Chief Executive Officer





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CERTIFICATION

I, Jack Polson, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Psychiatric
Solutions Inc.;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

|                         |  |                                                    
|------------------------ |  | ---------------------------------------------------
|Date: September 12, 2002 |  | /s/ Jack PolsonJack Polson
Chief Accounting Officer





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INDEX TO EXHIBITS

|        |  |                                                                                                                                                                                                                                                                                                                                                                                      
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                                                                                                                                                                                                                                                                      
|NUMBER  |  | DESCRIPTION OF EXHIBIT                                                                                                                                                                                                                                                                                                                                                               
|       
|2.1     |  | Agreement and Plan of Merger by and between PMR Corporation, PMR Acquisition
Corporation and Psychiatric Solutions, Inc. dated May 6, 2002, as amended by
Amendment No. 1 dated as of June 10, 2002 and Amendment No. 2 as of July 9,
2002 (included as Annex A to Amendment No. 1 to the Companys Registration
Statement on Form S-4, filed on July 11, 2002 (Reg. No. 333-90372)).
|3.1     |  | The Companys Restated Certificate of Incorporation, filed with the Delaware
Secretary of State on March 9, 1998 (incorporated by reference to Exhibit
3.1 to the Companys Annual Report on Form 10-K for the fiscal year ended
April 30, 1998).                                                                                                                                    
|3.2     |  | Amendment to the Companys Restated Certificate of
Incorporation, filed with the Delaware Secretary of State on
August 5, 2002.                                                                                                                                                                                                                                                      
|3.3     |  | The Companys Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 to the Companys Annual Report on Form 10-K for the fiscal year
ended April 30, 1997).                                                                                                                                                                                                           
|4.1     |  | Contingent Value Rights Agreement dated August 2, 2002 (incorporated by
reference to Exhibit 4.1 to the Companys Current Report on Form 8-K, filed
on August 5, 2002).                                                                                                                                                                                                              
|4.2     |  | Warrant to purchase shares of Common Stock issued by Psychiatric Solutions,
Inc. to the 1818 Mezzanine Fund II L.P. dated June 28, 2002 (incorporated by
reference to Exhibit 10.19 to Amendment No. 1 to the Companys Registration
Statement on Form S-4, filed on July 11, 2002 (Reg. No. 333-90372)).                                                                            
|10.1    |  | Amended and Restated Promissory Note between Mark P. Clein and PMR
Corporation in the amount of $59,554, dated as of May 1, 2002 (incorporated
by reference to Exhibit 10.1 to the Companys Registration Statement on Form
S-4, filed on June 12, 2002 (Reg. No. 333-90372)).                                                                                                       
|10.2    |  | Amended and Restated Promissory Note between Mark P. Clein and PMR
Corporation in the amount of $278,504.82, dated as of May 1, 2002
(incorporated by reference to Exhibit 10.2 to the Companys Registration
Statement on Form S-4, filed on June 12, 2002 (Reg. No. 333-90372)).                                                                                                   

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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|NUMBER  |  | DESCRIPTION OF EXHIBIT                                                                                                                                                                                                                                                                                                                                                                                  
|       
|10.3    |  | Amended and Restated Promissory Note between Fred D. Furman and PMR
Corporation in the amount of $256,623.60, dated as of May 1, 2002
(incorporated by reference to Exhibit 10.3 to the Companys Registration
Statement on Form S-4, filed on June 12, 2002 (Reg. No. 333-90372)).                                                                                                                     
|10.4    |  | Amended and Restated Promissory Note between Fred D. Furman and PMR
Corporation in the amount of $209,317.15, dated as of May 1, 2002
(incorporated by reference to Exhibit 10.4 to the Companys Registration
Statement on Form S-4, filed on June 12, 2002 (Reg. No. 333-90372)).                                                                                                                     
|10.5    |  | Amended and Restated Promissory Note between Susan Erskine and PMR
Corporation in the amount of $20,414, dated as of May 1, 2002 (incorporated
by reference to Exhibit 10.5 to the Companys Registration Statement on Form
S-4, filed on June 12, 2002 (Reg. No. 333-90372)).                                                                                                                          
|10.6    |  | Consulting Agreement between Mark P. Clein and PMR Corporation dated as of
May 10, 2002 (incorporated by reference to Exhibit 10.6 to the Companys
Registration Statement on Form S-4, filed on June 12, 2002 (Reg. No.
333-90372)).                                                                                                                                                                   
|10.7    |  | Amendment to Employment Agreement between Fred D. Furman and PMR Corporation
dated as of May 1, 2002 (incorporated by reference to Exhibit 10.9 to the
Companys Registration Statement on Form S-4, filed on June 12, 2002 (Reg.
No. 333-90372)).                                                                                                                                                      
|10.8    |  | Amendment to Employment Agreement between Susan Erskine and PMR Corporation
dated as of May 1, 2002 (incorporated by reference to Exhibit 10.10 to the
Companys Registration Statement on Form S-4, filed on June 12, 2002 (Reg.
No. 333-90372)).                                                                                                                                                      
|10.9    |  | Employment Agreement between Jack Salberg and Psychiatric Solutions, Inc.
dated as of May 1, 2000 (incorporated by reference to Exhibit 10.12 to the
Companys Registration Statement on Form S-4, filed on June 12, 2002 (Reg.
No. 333-90372)).                                                                                                                                                        
|10.10   |  | Stock Purchase Agreement, dated as of June 20, 2002, is by and among the
shareholders of Aeries Healthcare Corporation, a Delaware corporation and
Psychiatric Solutions, Inc., a Delaware corporation and/or its designated
affiliate (incorporated by reference to Exhibit 10.14 to Amendment No. 1 to
the Companys Registration Statement on Form S-4, filed on July 11, 2002
(Reg. No. 333-90372)).

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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|NUMBER  |  | DESCRIPTION OF EXHIBIT                                                                                                                                                                                                                                                                                                                                                                                    
|       
|10.11   |  | Indemnification Agreement, dated as of June 28, 2002, is by and among the
shareholders of Aeries Healthcare Corporation, a Delaware corporation, and
Psychiatric Solutions, Inc., a Delaware corporation and/or its designated
affiliate (incorporated by reference to Exhibit 10.15 to Amendment No. 1 to
the Companys Registration Statement on Form S-4, filed on July 11, 2002
(Reg. No. 333-90372)).
|10.12   |  | Securities Purchase Agreement between Psychiatric Solutions and The 1818
Mezzanine Fund II, L.P. dated as of June 28, 2002 (incorporated by
reference to Exhibit 10.18 to Amendment No. 1 to the Companys Registration
Statement on Form S-4, filed on July 11, 2002 (Reg. No. 333-90372)).                                                                                                              
|10.13   |  | Second Amendment to Revolving Credit and Term Loan Agreement dated June 28,
2002 by and among Psychiatric Solutions and certain of its related entities,
Capital Source Finance, LLC and the lenders thereunder (incorporated by
reference to Exhibit 10.20 to Amendment No. 1 to the Companys Registration
Statement on Form S-4, filed on July 11, 2002 (Reg. No. 333-90372)).                         
|10.14   |  | Term Note dated June 28, 2002 in the original principal amount of $7,950,000
payable to Capital Source Finance, LLC issued by Psychiatric Solutions and
certain of its related entities. (incorporated by reference to Exhibit 10.21
to Amendment No. 1 to the Companys Registration Statement on Form S-4,
filed on July 11, 2002 (Reg. No. 333-90372)).                                                
|99.1    |  | Former Chief Executive Officer Certification.                                                                                                                                                                                                                                                                                                                                                             
|99.2    |  | Former Chief Financial Officer Certification.                                                                                                                                                                                                                                                                                                                                                             

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