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UNITED STATES

FORM 10-Q

Commission file number 000-19480

Per-Se Technologies, Inc.

(770) 444-5300

Not Applicable

      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 þ          No o

      Indicate the number of shares of stock outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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PER-SE TECHNOLOGIES, INC.

FORM 10-Q

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PART I: FINANCIAL INFORMATION

Item 1.     Financial Statements

PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

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PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

See notes to consolidated financial statements.

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PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES

See notes to consolidated financial statements.

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PER-SE TECHNOLOGIES, INC. AND SUBSIDIARIES

Note 1 — Basis of Presentation

      The accompanying unaudited condensed consolidated financial statements of Per-Se Technologies, Inc. (the “Company”) are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. For further information, the reader of this Form 10-Q may wish to refer to the audited consolidated financial statements of the Company for the fiscal year ended December 31, 2001, included in the Company’s Annual Report on Form 10-K, filed March 27, 2002 with the Securities and Exchange Commission.

      The unaudited condensed financial information has been prepared in accordance with the Company’s customary accounting policies and practices. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation of results for the interim period, have been included.

      The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates.

      Activity related to the Medaphis Services Corporation (“Hospital Services”) and Impact Innovations Group (“Impact”) businesses, which were sold in 1998 and 1999, respectively, has been presented as discontinued operations for all periods presented.

      On January 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive Income. The Company’s net income/(loss), as presented in the Consolidated Statements of Operations, approximates the Company’s other comprehensive income amount, as defined, for all periods presented.

Note 2 — Earnings (Loss) Per Share

      Basic earnings per share (“EPS”) is calculated by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options and warrants. The following sets forth the computation of basic and diluted earnings (loss) per share for the three-month and nine-month periods ended September 30, 2002 and 2001 (in thousands, except per share data):

(1)	The Company has excluded all stock options and warrants from the diluted loss per common share because such securities are antidilutive for 2001.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

      Options and warrants to purchase 3.7 million and 3.1 million shares of common stock outstanding during the three and nine months ended September 30, 2002, respectively, were excluded from the computation of diluted earnings per share because the exercise prices were greater than the average market price of the common shares, and therefore, the effect would have been antidilutive.

      Options and warrants to purchase 5.6 million and 3.0 million shares of common stock outstanding during the three and nine months ended September 30, 2001, respectively, were excluded from the computation of diluted earnings per share due to their antidilutive effect as a result of the Company’s loss from continuing operations for the period.

Note 3 — Restricted Cash

      At September 30, 2002, restricted cash primarily represents restrictions on the Company’s cash as security for letters of credit.

Note 4 — New Accounting Pronouncements

      In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”). SFAS No. 142 requires goodwill and indefinite lived intangible assets to be reviewed periodically for impairment and no longer amortized. The Company adopted SFAS No. 142 on January 1, 2002. SFAS No. 142 required companies with goodwill and indefinite lived intangible assets to complete an impairment test by June 30, 2002. The Company completed the impairment test of its goodwill and other indefinite lived intangible assets and did not identify an asset impairment as a result of the impairment test. The Company will continue to review its goodwill and other indefinite lived intangible assets annually for impairment as of December 31.

      In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill and indefinite lived intangible assets effective January 1, 2002. For the three months and nine months ended September 30, 2002, the Company had a reduction in amortization expense of approximately $0.4 million and $1.3 million, respectively, related to the adoption of SFAS No. 142. For the three months and nine months ended September 30, 2001, a reconciliation has been provided of previously reported net loss and net loss per share amounts. These amounts exclude the amortization expense recognized related to goodwill and intangible assets that are no longer amortized (in thousands, except per share data):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

      In December 2001, the FASB’s Emerging Issues Task Force (“EITF”) issued EITF 01-14, Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred (“EITF 01-14”). The Company adopted EITF 01-14 on January 1, 2002. EITF 01-14 requires companies that provide services as part of their central ongoing operations to characterize the reimbursement of out-of-pocket expenses related to those services as revenue. In prior year periods, reimbursed out-of-pocket expenses were recorded as a reduction to other operating expenses. In accordance with EITF 01-14, the Company reclassified $0.3 million and $0.9 million of reimbursed out-of-pocket expenses in the Application Software division for the three months and nine months ended September 30, 2001, respectively, from other operating expenses to revenue.

      In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”). SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (“SFAS No. 121”). SFAS No. 144 requires that long-lived assets to be disposed of by sale, including those of discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet been incurred. SFAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The Company adopted the standard on January 1, 2002. There has been no asset impairment as a result of adoption.

      In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (“SFAS No. 145”). SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. In addition, SFAS No. 145 rescinds SFAS No. 44, Accounting for Intangible Assets of Motor Carriers. SFAS No. 145 amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects similar to sale-leaseback transactions. SFAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. SFAS No. 145 is effective for financial statements issued on or after May 15, 2002. The Company adopted SFAS No. 145 effective May 15, 2002, however, SFAS No. 145 did not affect the Company’s Consolidated Statements of Operations.

      In July 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS No. 146”). SFAS No. 146 addresses the financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

to an exit or disposal plan. The effective date of SFAS No. 146 is December 31, 2002 with early application encouraged. The Company will adopt SFAS No. 146 on December 31, 2002, however, management does not believe SFAS No. 146 will have a material effect on the Company’s Consolidated Statements of Operations.

Note 5 — Acquisitions

      On April 27, 2001, the Company acquired all of the assets of Virtual Information Systems, Inc. (“VIS”) for consideration of $7.0 million in cash. The purchase agreement also provided for a purchase price adjustment of up to $1.5 million payable in cash should VIS meet certain financial targets over the twelve months following the date of acquisition. As of December 31, 2001, the Company had recorded the purchase price adjustment of $1.5 million. During the first quarter of 2002, VIS met the financial targets in the purchase agreement and accordingly, on May 10, 2002, the payment for the purchase price adjustment of $1.5 million was made. VIS’s core product, Virtual Processing Systems, is an automated remittance processing solution for hospitals, which ensures accurate and efficient processing of cash collections and payment of denial management codes.

      Additionally, on April 27, 2001, the Company acquired all of the assets of Officemed.com LLC (“OfficeMed”) for consideration of $3.25 million in cash. OfficeMed offers a Web-based application service provider (“ASP”) solution, which gives healthcare and payer organizations the ability to perform secure, realtime benefits inquiries against patients’ insurance plans, ensuring eligibility at the point of care.

      Both the VIS and OfficeMed acquisitions were recorded using the purchase method of accounting and, accordingly, the purchase price was allocated to the assets acquired and the liabilities assumed based on their estimated fair market value at the date of acquisition. Approximately $5.0 million of the combined purchase price was allocated to goodwill and other indefinite-lived assets that are not being amortized. Approximately $5.2 million of the combined purchase price was allocated to finite-lived assets with 5-year lives. The additional $1.5 million VIS purchase price adjustment was allocated to goodwill and is not being amortized. The operating results of VIS and OfficeMed are included in the Company’s Consolidated Statements of Operations from the date of acquisition in the e-Health Solutions division.

Note 6 — Discontinued Operations and Divestitures

      On November 30, 1998, the Company completed the sale of its Hospital Services business segment. In 1999, the Company completed the sale of both divisions of its Impact business segment.

      In January of 1998, SCI Management Corporation (“SCI”) filed a complaint against the commercial division of Impact. The Company paid a total of $5.3 million in settlement of the complaint. The Company paid $3.2 million to SCI in November 1999 and issued a promissory note for the remaining balance of $2.1 million bearing interest at 8.25%, which was paid in October 2000. In May of 2001, the Company received an insurance settlement related to the SCI matter of approximately $3.0 million. The Company continues to pursue claims against a former vendor of this division for damages incurred in the SCI matter.

      For the period ended September 30, 2002, the Company charged $0.7 million through discontinued operations to reflect an agreement resolving an indemnification claim by NCO Group, Inc. (“NCO”), the buyer of the Company’s Hospital Services division. When NCO bought Hospital Services, the Company agreed to indemnify NCO for limited periods of time in the event NCO incurred certain damages related to Hospital Services. NCO incurred such damages in connection with an alleged environmental liability of Hospital Services, and the Company agreed to reimburse NCO for a portion of those damages, in satisfaction of the Company’s indemnification obligation. The Company paid $0.3 million to NCO on September 16, 2002. The Company intends to pay the remaining balance of $0.4 million, plus interest at the then-current prime rate, in equal payments to NCO, on the first and second anniversaries of that date.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

      The limited periods of time for which the Company agreed to indemnify NCO for most types of claims related to Hospital Services have passed without the assertion by NCO of any other significant claims. These limitations do not apply to a small number of other types of potential claims to which statutory limitations apply, such as those involving title to Hospital Services’ shares, taxes, and billing and coding under Medicare and Medicaid; however, management believes that such other types of claims are unlikely to occur.

      During the nine months ended September 30, 2002, the Company also incurred expenses of approximately $0.3 million, which were primarily legal costs, associated with Hospital Services and Impact. Pursuant to SFAS No. 144, the consolidated financial statements of the Company have been presented to reflect the activity associated with Hospital Services and Impact as discontinued operations for all periods presented.

Note 7 — Legal Matters

      The Company is subject to claims, litigation and official billing inquiries in the ordinary course of its business. Within the Company’s industry, federal and state civil and criminal laws govern medical billing and collection activities. These laws provide for various fines, penalties, damages, assessments and sanctions for violations, including possible exclusion from federal and state healthcare programs.

      In February 2002, the Company settled claims for alleged breach of contract arising out of a 1997 contract for billing services provided by the Physician Services division to a former client. The Company and its insurance carrier, certain underwriters at Lloyd’s of London (collectively “Lloyd’s”), each paid the plaintiff $2.0 million in cash in exchange for a release of all claims asserted against the Company. Under the terms of its insurance policy with Lloyd’s, the Company is seeking reimbursement from Lloyd’s for the $2.0 million it paid in this settlement.

      On May 30, 2002, the Company received a letter on behalf of Lloyd’s purporting to rescind various managed healthcare professional liability, or errors and omissions (“E&O”), insurance policies and directors and officers and company reimbursement (“D&O”) insurance policies (collectively the “Policies”) issued to the Company by Lloyd’s. The E&O policies were for the term of December 31, 1998, through June 30, 2002, and the D&O policies were for the term of July 1, 2000, through June 30, 2002. The purported rescission was based on allegations that the Company had failed to advise Lloyd’s about the existence of several lawsuits that were alleged to be related to the risk covered under the policies, including the lawsuit settled in February 2002 in which the Company and Lloyd’s each paid the plaintiff $2.0 million.

      On May 31, 2002, Lloyd’s filed a lawsuit against the Company seeking rescission of the E&O and D&O policies based on the allegations in its letter, dated May 30, 2002, or a declaration that coverage is unavailable for the claim related to the February 2002 settlement under the policies issued by Lloyd’s, and restitution of the $2.0 million paid by Lloyd’s on behalf of the Company in that settlement. This lawsuit is pending in the Circuit Court for Kent County, Michigan.

      On June 5, 2002, the Company filed a lawsuit against Lloyd’s seeking damages for breach of contract and breach of obligations of good faith and fair dealing, including punitive damages. The Company also seeks a declaratory judgment to enforce the E&O and D&O policies according to their terms. This lawsuit is pending in the Superior Court of the State of California for the County of Los Angeles.

      The Company believes that Lloyd’s attempt to rescind the policies is without merit, and the Company is prosecuting the matter vigorously and asserting all appropriate claims against Lloyd’s.

      The Company’s insurance coverage for both the E&O and D&O policies was scheduled to be renewed as of June 30, 2002, and the Company was in the process of actively pursuing new coverage with insurance carriers, including Lloyd’s, when the rescission notice was received from Lloyd’s. Due to the attempted rescission, the Company expedited its insurance proposal process and the Company secured new insurance coverage in mid-June. The Company believes it experienced a significant increase in insurance premiums with

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

its new policies as a result of Lloyd’s actions and is seeking reimbursement for a portion of the increased premium costs and increased deductibles in its lawsuit against Lloyd’s. Until the litigation with Lloyd’s is resolved, the Company will expense the increased insurance premiums and deductibles in the Company’s Consolidated Statements of Operations.

      The Company estimates insurance premium increases related to new insurance coverage and the cost of pursuing litigation against Lloyd’s to be approximately $3 million for the year 2002. For the three and nine months ended September 30, 2002, the Company incurred $1.3 million and $1.8 million, respectively, of these costs and, accordingly, these costs have been reflected as an expense in the Company’s Consolidated Statements of Operations.

      The Company has not received any D&O insurance claims since 1996. The Company did receive E&O insurance claims during the term of the Lloyd’s E&O insurance policies in the ordinary course of business. Over the last five years, the majority of E&O claims received by the Company were resolved with nominal or no settlement.

      Pending the outcome of the litigation with Lloyd’s, the Company will continue to vigorously defend, and will be required to fund the legal costs and any litigation settlements covered by the Lloyd’s E&O policies. The Company expects to recover these costs from Lloyd’s in accordance with the obligations of Lloyd’s under the E&O policies and, as such, has recorded and will record the amounts as non-trade accounts receivable.

      At September 30, 2002, the Company’s Other Current Assets include non-trade accounts receivable of $6.6 million related to the interim funding of legal costs and litigation settlements incurred by the Company in excess of the Lloyd’s E&O policies’ deductible that are expected to be recovered from Lloyd’s. The non-trade accounts receivable includes $3.5 million paid through September 30, 2002, and an additional obligation to be paid of $3.1 million.

      The Company believes that it has meritorious defenses to the Lloyd’s claims and that a favorable outcome is probable. The Company’s insurance is on a “claims-made” basis, which means insurance coverage is in place based on the date the claim is made, not the date(s) the services were provided and/or the products were sold. In the event that the Company is unsuccessful in the litigation with Lloyd’s, certain claims presently pending against the Company would not be covered by the Company’s new E&O insurance. Although the Company believes it will be successful in its litigation with Lloyd’s, if it is not and uninsured claims do exist, such claims, including the non-trade accounts receivable related to the interim funding of legal costs and litigation settlements, could have a material adverse effect on the Company’s financial condition and results of operations. Regardless of the outcome of the litigation with Lloyd’s, the Company’s new insurance coverage will not be affected.

      The Company believes that it has meritorious defenses to the claims and other issues asserted in pending legal matters. There can be no assurance that pending or future claims, government investigations or other legal matters will not have an adverse effect on the Company. Since the Company is often unable to estimate a range of awards or losses, if any, in pending legal matters, amounts thereof have not been reflected in the financial statements unless estimable and probable.

Note 8 — Process Improvement Project

      The Company implemented a process improvement project within the Physician Services division (the “Project”). The Project installed a formalized set of productivity and quality measures, workflow processes and a management operating system in the Physician Services’ major processing centers. The Project focused on productivity improvements that result in both improved client service for the division’s clients as well as improved profitability for the division. The costs associated with the first phase of the Project were incurred during 2001 and consisted primarily of professional fees paid to outside consultants retained exclusively for implementation of the Project.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

      The Company incurred approximately $1.2 million and $3.4 million of expense in the three months and nine months ended September 30, 2001, respectively, during the first phase of the Project, which involved implementation in 12 processing centers. The first phase of the Project was completed in the third quarter of 2001 with all external project costs for this phase incurred as of September 30, 2001. The second phase of the Project, which began in the first quarter of 2002, was completed as of September 30, 2002 with implementation into an additional 15 processing centers. The second phase was implemented with internal resources, and therefore the Company did not incur any external project costs.

Note 9 — Non-Recurring and Other Expenses

      During the first quarter of 2001, the Company recorded a severance expense of approximately $0.6 million associated with former executive management.

Note 10 — Long-Term Debt

      Under the Indenture governing the $175 million of 9 1/2% Senior Notes due 2005 (the “Notes”), the balance of net proceeds, as defined by the Indenture governing the Notes, from the sale of any assets having a fair value in excess of $1.0 million must be invested in the Company’s business within 360 days of receipt of proceeds related to the sale or they become “excess proceeds.” If the aggregate of excess proceeds is greater than $10.0 million, the Company is required to offer to repurchase the Notes at par with such excess proceeds. As of September 30, 2002, the Company did not have excess proceeds (as defined by the Indenture governing the Notes) in excess of $10.0 million.

      The Company entered into a $50 million credit facility (the “Credit Facility”) on April 6, 2001. Availability under the Credit Facility is determined by a borrowing base calculated based on eligible billed accounts receivable of the Company’s Physician Services and e-Health Solutions divisions, as defined in the Credit Facility. The Company has the option of entering into LIBOR based loans or index rate loans, each as defined in the Credit Facility. LIBOR based loans bear interest at LIBOR plus amounts ranging from 1.85% to 2.65% based on the Company’s leverage ratio, as defined in the Credit Facility. Index rate loans bear interest at rates approximating Prime plus amounts ranging from 0.35% to 1.15% based on the Company’s leverage ratio, as defined in the Credit Facility. In addition, the Company pays a quarterly commitment fee on the unused portion of the Credit Facility of 0.375% per annum.

      The Credit Facility contains financial, collateral and other restrictive covenants, including, without limitation, those restricting the incurrence of additional indebtedness, creation of liens, payment of dividends, sales of assets, stock offerings, capital expenditures, cash velocity, maximum days sales outstanding and prepayment of the Notes and those requiring maintenance of minimum EBITDA and minimum fixed charge coverage, each as defined in the Credit Facility. At September 30, 2002, the Company was in compliance with all applicable covenants. The initial term of the Credit Facility is 42 months expiring on October 6, 2004. The Company and the lender can mutually agree to extend this term by 18 months if certain conditions have been met. The Company intends to use the Credit Facility, as needed, for future investments in its operations including capital expenditures, acquisitions and other general corporate purposes. The Company has not incurred any borrowings under the Credit Facility and there were no outstanding borrowings under the Credit Facility as of September 30, 2002.

Note 11 — Income Taxes

      Income tax expense, which was primarily related to state and local income taxes, was $0.2 million for the three months ended September 30, 2002, as compared to income tax expense of $0.1 million for the same period in 2001. As of September 30, 2002, the Company had a net deferred tax asset, which was fully offset by a valuation allowance. Realization of the net deferred tax asset is dependent upon the Company generating sufficient taxable income prior to the expiration of the federal net operating loss carryforwards. The Company

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

will adjust this valuation reserve accordingly if, during future periods, management believes the Company will generate sufficient taxable income to realize the net deferred tax asset.

Note 12 — Segment Reporting

      The Company’s reportable segments are operating units that offer different services and products. Per-Se provides its services and products through its three operating divisions: Physician Services, Application Software and e-Health Solutions.

      The Physician Services division provides business management outsourcing services to the hospital-affiliated physician practice market, physicians in academic settings and other large physician practices. Services include clinical data collection, data input, medical coding, billing, contract management, cash collections and accounts receivable management. These services are designed to assist healthcare providers with the business management functions associated with the delivery of healthcare services, allowing physicians to focus on providing quality patient care. These services also assist physicians in improving cash flows and reducing administrative costs and burdens.

      The Application Software division provides enterprise-wide financial, clinical and administrative software, including patient financial management software, clinical information software and patient and staff scheduling systems, to acute care healthcare organizations. These applications enable healthcare organizations to simultaneously optimize the quality of care while improving profitability and the efficiency of their business operations.

      The e-Health Solutions division provides healthcare providers and payers with connectivity and business intelligence solutions that help reduce administrative costs and enhance revenue cycle management. Solutions include electronic claims processing, referral submissions, eligibility verification and other electronic and paper transaction processing. In addition, e-Health Solutions offers physician practice management software as an ASP to physician practices and offers managed care solutions to payers in ASP, turnkey or outsourced formats.

      The Company evaluates each division’s performance based on segment operating margin. The e-Health Solutions division revenue includes intersegment revenue for services provided to the Physician Services division, which is shown in Eliminations to reconcile to total consolidated revenue. Certain prior year amounts have been reclassified to conform to current year presentation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

      Information concerning the Company’s reportable operating segments is as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)