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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C. 20549

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FORM 10-K

|ý                                           |  | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934    
|------------------------------------------- |  | ----------------------------------------------------------------------------------------
|For the Fiscal Year Ended December 31, 2001
|o                                           |  | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|Commission File Number 0-22081             

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EPIQ SYSTEMS, INC.(Exact name of registrant as specified in its charter)

|Missouri(State or Other Jurisdiction of
Incorporation or Organization) |  | 48-1056429(IRS Employer Identification No.)
|---------------------------------------------------------------------- |  | -------------------------------------------

501 Kansas Avenue, Kansas City, Kansas 66105-1300(Address of Principal Executive Office)

913-621-9500(Registrant's Telephone Number)

(Former
name or former address, if changed since last report.)

Securities
Registered Pursuant to Section 12(b) of the Exchange Act: None

Securities Registered Pursuant to Section 12(g) of the Exchange Act: Common Stock, $.01 Par Value

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Check
whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months and (2) has been subject to such
filing requirements for the past 90 days.    Yes X    No

Check
if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.    [X]

The
aggregate market value of the common stock held by non-affiliates of the registrant (based upon the last reported sale price on the Nasdaq National Market) on March 19, 2002,
was approximately $168,696,090.

Documents
incorporated by reference: The information required by Part III of Form 10-K is incorporated herein by reference to the registrant's definitive Proxy Statement
relating to its 2002 Annual Meeting of Shareholders, which will be filed with the Commission within 120 days after the end of the registrant's fiscal year.

There
were 14,413,023 shares of common stock of the registrant outstanding as of March 19, 2002.

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EPIQ SYSTEMS, INC.  ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

|PART I  
|--------
|ITEM 1. 
|ITEM 2. 
|ITEM 3. 
|ITEM 4. 
|PART II 
|ITEM 5. 
|ITEM 6. 
|ITEM 7. 
|ITEM 7A.
|ITEM 8. 
|ITEM 9. 
|PART III
|ITEM 10.
|ITEM 11.
|ITEM 12.
|ITEM 13.
|PART IV 
|ITEM 14.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

In this report, in other filings with the SEC and in press releases and other public statements by our officers throughout the year, EPIQ Systems, Inc.
makes or will make statements that plan for or anticipate the future. These forward-looking statements include statements about our future business plans and strategies, and other statements that are
not historical in nature. These forward-looking statements are based on our current expectations. Many of these statements are found in the"Business"and"Management's Discussion and Analysis of Financial Conditions and Results of Operations"sections of this report.

Forward-looking
statements may be identified by words or phrases such as "believe," "expect," "anticipate," "should," "planned," "may," "estimated" and "potential." Section 27A of
the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, provide a "safe harbor" for forward-looking statements. In order to comply with the
terms of the safe harbor, and because forward-looking statements involve future risks and uncertainties, listed herein are a variety of factors that could cause actual results and experience to differ
materially from the anticipated results or other expectations expressed in our forward-looking statements. These factors include, but are not limited to, the"Risk
Factors"section of this report. In addition, there may be other factors not included in our SEC filings that may cause actual results to differ materially from any
forward-looking statements. We undertake no obligation to update any forward-looking statements contained herein or in future communications to reflect future events or developments.

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PART I

ITEM 1. BUSINESS

General

EPIQ Systems, Inc. develops, markets and licenses proprietary software solutions for workflow management and data communications infrastructure for the
bankruptcy trustee market and the financial services market. Our specialized products streamline our customers' internal business operations and external communications and enable them to minimize
operating costs through automation. In addition to our software products, we also provide a high level of coordinated support, including network integration, post-installation support and
industry-specific value-added services.

For
the bankruptcy trustee market, we provide Chapter 7 and Chapter 13 trustees comprehensive, turnkey, back-office systems that manage their entire caseloads. Our TCMSandCasePowersoftware products are the cornerstone of the daily operations of a bankruptcy
trustee's office and enable management of virtually every aspect of the trustee's caseload. Unlike traditional software licensing arrangements under which the end-user pays a relatively
significant up-front licensing fee and then more modest support fees over time, our bankruptcy trustee billing models generate ongoing monthly revenues from each customer. For our Chapter
7 business, we provide our products and services to trustee customers at no direct charge. We have a national marketing arrangement with Bank of America, in which a significant number of our trustee
customers agree to deposit the cash proceeds from liquidations of debtors' assets with Bank of America. Each Chapter 7 trustee customer relationship generates recurring revenues, which we collect
through our marketing arrangement and which are based on the total number of trustees and a percentage of the total liquidated asset proceeds on deposit. To support our marketing arrangement, we also
receive revenues from customized software, technology services and marketing and strategic consulting services we provide directly to Bank of America. For our Chapter 13 business, in addition to an
initial implementation fee, we collect monthly revenues directly from each trustee customer based on the number of cases in the trustee's database and the number of printed documents we generate for
the trustee.

For
the financial services market, ourDataXpressproduct line provides cross-platform, software-based communications infrastructure that
enables corporate customers to format and securely route business-critical data over the Internet and private networks, using a variety of communication protocols. Our products automate the electronic
transmission of business data and are designed to deliver the data to the right recipient, at the right time, in the right format and with the appropriate security, while reducing labor and
information technology infrastructure costs to our customers. TheDataXpressproduct line includes a core data transmission and receiving engine, a
real-time communications management console, a powerful data reformatting tool and an advanced suite of security and scheduling functions required for enterprise-class implementations. Our
financial services customers include leading banking and financial services companies such as Bank of America, J.P. Morgan Chase Bank, Fiserv EFT and Visa USA.

We
were incorporated in the State of Missouri on July 15, 1988, when we acquired all of the assets of an unrelated predecessor corporation, including the name, Electronic
Processing, Inc. Our shareholders approved an amendment to our Articles of Incorporation on June 7, 2000, changing our name from Electronic Processing, Inc. to EPIQ
Systems, Inc.

Our
executive office is located at 501 Kansas Avenue, Kansas City, Kansas 66105. The telephone number at that address is (913) 621-9500.

TCMS is our registered trademark. We have filed trademark applications for DataXpressandCasePower, which are
pending with the U.S. Patent and Trademark Office.

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Significant Events in 2001

ROC Technologies, Inc. Acquisition.In 2001, we acquired certain assets of the bankruptcy management software
subsidiary of Imperial Bancorp, a subsidiary of Comerica Inc. ("Comerica"), for $12 million cash, following Comerica's decision to exit the Chapter 7 trustee business. In a separate
transaction, Bank of America entered into an agreement with Comerica to promote the transfer of bankruptcy trustee portfolio funds from Comerica to Bank of America.

By
acquiring Comerica's software unit, we gained accelerated access to significant market share. At the time of the acquisition, ROC Technologies had approximately 100 Chapter 7 trustee
customers, with an
aggregate deposit base of approximately $250 million. While the Chapter 7 trustee customers of ROC Technologies had their primary banking relationship with Imperial/Comerica, certain customers
also maintained Chapter 7 trustee deposits with various other national and regional third-party banks. The total Chapter 7 trustee deposits for ROC Technologies' customers held at Imperial/Comerica
Bank were approximately 50% of their trustee customers' total Chapter 7 trustee deposits. The integration process for this acquisition began in the fourth quarter of 2001 and is progressing on
schedule.

Stock Offering.In June 2001, we completed a successful follow-on offering in which we sold 1,537,500
shares of our common stock, raising $24,600,000 in gross proceeds.

Stock splits.We had two common stock splits in 2001. Our first 3-for-2 stock split, effected in the
form of a 50% stock dividend, was paid on February 23, 2001 to shareholders of record on February 8, 2001. Our second 3-for-2 stock split, also effected in the
form of a 50% stock split, was paid on November 30, 2001 to shareholders of record on November 16, 2001.

Industries

Bankruptcy Industry

Bankruptcy comprises an ever present, integral part of the U.S. economy, and bankruptcy filings in the United States have remained near record levels for the past
several years. For the 2001 government fiscal year (ended September 30, 2001), the Administrative Office of the U.S. Courts reported approximately 1.44 million new bankruptcy filings, a
historically high level. We believe this high level of new filings is partially attributable to the weakened national economy, to proliferation of consumer debt, which has been fueled by the easy
availability of credit, and to an important psychological shift away from the public stigma and negative connotations historically associated with bankruptcy.

There
are five chapters of the U.S. Bankruptcy Code that serve different purposes and require various types of services and information:



The
participants in a bankruptcy proceeding include the debtor, the creditors and a trustee, as well as the presiding judge. The trustee acts as an intermediary between the debtor and
creditors and is

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responsible for administering the bankruptcy case. The end-user customers of our bankruptcy products and services aretrustees, not
individual debtors or creditors.

Bankruptcy
trustees in Chapters 7 and 13 are appointed by the Executive Office for United States Trustees. A United States Trustee is appointed in most federal court districts and
generally has responsibility for overseeing the integrity of the bankruptcy system. Bankruptcy trustees in Chapter 7 and Chapter 13 cases are charged with managing the administrative aspects of
liquidation or reorganization bankruptcies. The trustee's primary responsibilities include liquidating the debtor's assets (Chapter 7) or collecting funds from the debtor (Chapter 13),
distributing the collected funds to creditors pursuant to the orders of the bankruptcy court and preparing regular status reports, including financial updates, for the Executive Office for United
States Trustees and for the bankruptcy court. Trustees typically are attorneys or certified public accountants who manage many different bankruptcy cases simultaneously. We estimate that Chapter 7
trustees typically manage over 100 cases simultaneously and that Chapter 13 trustees typically manage over 1,000 cases simultaneously. It is possible for a given individual trustee to have caseloads
in both Chapter 7 and Chapter 13 bankruptcies, but normally a trustee will specialize in one or the other.

We
estimate that there is approximately $3.0 to $3.5 billion in cash proceeds being administered in Chapter 7 by approximately 1,700 trustees. We also estimate that there were
approximately 700,000 active Chapter 13 cases at the end of 2001 managed by approximately 180 standing Chapter 13 trustees. Because our billing models are related primarily to trustees' deposit
balances in Chapter 7 and to trustees' caseloads in Chapter 13, we regard these factors as important indicators of market size. We believe there will continue to be a significant market for software
products that address the business-critical needs of bankruptcy trustees for the foreseeable future.

Financial Services Industry

Until recently, many financial organizations relied on internally developed communications infrastructure software to serve their data file transmission
management needs. As financial services
institutions become more sophisticated, they are continuing to increase their investments in information technology systems. A combination of numerous factors, including competition and the need to
reduce information technology training requirements and labor costs, is leading financial institutions to focus on their core business and outsource their task-specific needs for
mission-critical integrated solutions that provide them competitive advantages. The Gartner research firm estimates that United States financial institutions will spend as much as $100 billion
per year on technology by 2004. A category of systems infrastructure software has emerged to help companies integrate or share data between their legacy internal systems and current
web-based systems to improve enterprise-wide communications and data management. According to the research firm IDC, financial institutions in North America will increase
spending on systems infrastructure software from $6.3 billion in 2000 to $11.7 billion in 2004, representing a 16.9% compound annual growth rate. We believe we have entered an important
subsegment of this market with ourDataXpresscommunications infrastructure product line.

Products and Services

Bankruptcy Trustee Products and Services

Our bankruptcy products and services includeTCMS(Trustee Case Management System),Eagle
TrustandDCI Ch/7for Chapter 7 andCasePowerfor Chapter 13. We acquired the Eagle Trustsoftware as a result of our acquisition of ROC Technologies in October 2001. We acquired theDCI
Ch/7software as a result of our acquisition of DCI Chapter 7 Solutions, Inc. ("DCI") in November 1999. Additionally, TCMS,Eagle
TrustandDCI Ch/7software can be utilized
to administer Chapter 11 cases, andCasePowercan be utilized to administer Chapter 12 cases. We produce our software applications internally with a
full time staff of professional software developers.

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TCMSassists trustees in managing liquidation bankruptcies, whereby the trustee liquidates the debtor's assets and
disburses the resulting funds to creditors. We will releaseTCMS 7.0in the first quarter of 2002, which incorporates important new case management
functions that we believe add significant value to a trustee's bankruptcy practice. Our release ofTCMS 7.0will represent our seventh consecutive,
on-time annual version upgrade.

TCMSis a package of proprietary, Windows-based software, computer equipment and support services offered to Chapter 7 trustees through
our national marketing arrangement with Bank of America.TCMSprovides easy-to-use tools for asset management, financial record
keeping and claims administration. An electronic banking link developed by us gives users an automated mechanism for entering banking transactions, and our electronic interface with the courts allows
trustees automatically to electronically download claim information into their databases.

TCMSis provided to the end-user trustee customer without direct charge and includes the following products and services:



Our
Chapter 7 revenues are based upon the total funds kept on deposit from the liquidation of debtors' assets, along with additional fees for conversions, upgrades and other services. In
support of our marketing arrangement, we also derive Chapter 7 revenues from fees for customized software solutions, related integration services and marketing and strategic consulting services
directly from Bank of America.

TCMS Features.OurTCMSsoftware serves as the cornerstone for our Chapter 7
trustee customers' operations and most trustees use our system on a daily basis to perform the following tasks:



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We acquiredEagle Trustsoftware as a result of our acquisition of ROC Technologies in October 2001. ROC
Technologies' customers are given the option to remain on this software if they choose. We will continue to maintain and upgrade this product as necessary, ensuring trustee customer satisfaction and
compliance of the product.



We acquired DCI Ch/7 software as a result of our acquisition of DCI from Union Bank in November 1999. We will continue to maintain and upgrade this product
as necessary, ensuring trustee customer compliance and satisfaction with the product.



CasePoweris a proprietary Windows-based application for the comprehensive administration of Chapter 13
reorganization bankruptcies.CasePowerassists Chapter 13 trustees in managing databases that can contain over 10,000 active bankruptcies by managing
debtor payments, monthly creditor distributions, the generation of legal noticing and government reporting. Because Chapter 13 bankruptcy cases typically require 36 to 60 consecutive monthly
distributions, Chapter 13 is considerably more transaction intensive and paperwork intensive than Chapter 7, where a single distribution to each creditor is normally made at the end of the case. Many
of our Chapter 13 trustee customers outsource various activities to us to facilitate the preparation of large volumes of noticing and reporting, including document printing and assembly, check
generation and bank account reconciliation.

CasePower Features.OurCasePowerproduct serves as the cornerstone for our
Chapter 13 trustee customers' operations, and most trustees use our system on a daily basis to perform the following tasks:



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Financial Services Products

OurDataXpressproduct line enables corporate customers to format and securely route data in a fault tolerant
environment over the Internet and private networks using a wide variety of web-based and legacy communications protocols. Our financial services customers use DataXpressto support applications such as
ACH (automated clearinghouse) and payment processing, wire transfer, lockbox and account reconciliation, all
of which entail moving, from one enterprise to another, a high volume of mission-critical data among a variety of constituents, applications and platforms. The DataXpressproduct family includes a core
data transmission and receiving engine, a real-time communications management console, a powerful
data reformatting tool and an advanced suite of security and scheduling functions required for enterprise-class implementations.DataXpress NonStopleverages Compaq NonStop technology, providing high availability, fault-tolerant processing and recovery features to ensure accurate and timely data delivery. Our financial services segment also
provides value-added services including systems integration, consulting and end-user education.

In
the second quarter of 2001, we introducedDataXpress Open Platform,a Java-based product intended to complement the
existingDataXpress NonStopproduct.DataXpress Open Platformis offered both as a library of reusable
software components that can be integrated into third-party systems and as a stand-alone application.

TheDataXpressproduct line is sold with a traditional named server license, maintenance and professional services pricing model. Various
optional modules are available for additional licensing fees.

DataXpress Features.TheDataXpressproduct line centralizes
enterprise-wide data communications and links legacy systems with current technology tools while supporting the mission-critical transmission needs of our customers, including data
security, reformatting and data validation. TheDataXpressproduct line enables our customers to communicate with any system at any time, using
virtually any system configuration. The major capabilities ofDataXpressinclude:



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Customers

Bankruptcy Industry

Our customers in the bankruptcy industry are primarily Chapter 7 and Chapter 13 bankruptcy trustees. Bankruptcy trustees typically are attorneys or certified
public accountants appointed by the Executive Office for United States Trustees. A United States Trustee is appointed for most federal court districts and generally has responsibility for overseeing
the integrity of the bankruptcy system. For Chapter 7 bankruptcy, each region of the country has a rotating panel of trustees. For Chapter 13 bankruptcy, most areas of the country have a single
standing Chapter 13 trustee, who administers all Chapter 13 filings. To support our marketing arrangement, we also provide customized software solutions, technology services and marketing and
strategic consulting services directly to Bank of America. The fees received from Bank of America for these products and services accounted for 18.5% and 20.5% of our total bankruptcy segment revenues
in calendar years 2001 and 2000, respectively.

Financial Services Industry

Our financial services customers include leading banking and financial services companies such as Bank of America, J.P. Morgan Chase Bank, Fiserv EFT and Visa
USA. OurDataXpress Open Platformproduct enables us to expand our marketing efforts to reach new opportunities and customers.

Sales and Marketing

Bankruptcy Industry

Our bankruptcy products and services are marketed directly to trustees through on-site sales calls by our internal sales department and, in the case
of Chapter 7, by supporting representatives of Bank of America. Trustees make their own decisions regarding the software and service providers they use. We believe that the most important factors in
attracting and retaining trustee customers are the quality and features of our software products and the quality of our post-installation support. The typical sales cycle for new Chapter 7
business lasts between two and four months.

The
Executive Office for United States Trustees in Washington, D.C. regularly issues a directory of all current bankruptcy trustees that we use as our prospect list. Additionally, our
sales representatives attend approximately eight bankruptcy trade shows annually. We conduct direct mail campaigns and advertise in trade journals to heighten our exposure and to stimulate sales.

Chapter 7 Marketing Arrangement.Since 1993 we have had a national marketing arrangement with Bank of America for Chapter 7
trustees using ourTCMSproduct, under which we jointly promote products and services to trustees in all 50 states. We hold the primary responsibility
for developing all facets of theTCMSsystem and for driving the national sales and marketing effort. Bank of America personnel provide additional
assistance in our marketing effort and are responsible for administering

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the banking services provided to theTCMStrustee customers. The structure of the marketing arrangement assists Bank of America to build its deposit
base in this market.

We
also continue to support a number of trustee relationships through other banks, including banking relationships associated with our DCI and ROC Technologies acquisitions.

Financial Services Industry

We target financial services customers through a dedicated direct sales force and participation in key industry trade shows. Efforts are underway to develop
alliances with infrastructure and platform-specific computer systems providers with the express purpose of extending sales and lead generation.

Competition

Bankruptcy Industry

We work in an industry with a limited number of Chapter 7 and Chapter 13 trustees. We estimate that there is approximately $3.0 to $3.5 billion of
liquidated debtor assets on deposit by approximately 1,700 Chapter 7 trustees and that there were approximately 700,000 active Chapter 13 cases at the end of 2001 being managed by approximately 180
Chapter 13 trustees. There are several companies in this market all competing for sales from this finite group of customers, and some of our competitors have substantially greater financial and
marketing resources than we do. For our Chapter 7 and 13 products, we compete with J.P. Morgan Chase Bank, as well as other, smaller regional competitors in selected markets.

Financial Services Industry

While a number of competitors exist in the financial services software integration marketplace, we believe our specialized niche within this segment has
historically had a limited number of established competitors. Direct competition includes data file transfer solutions developed by in-house information technology departments and
commercial data file transfer products offered by Sterling Commerce (a business unit of SBC Communications) and others.

Employees

As of the date of this report, we employ approximately 140 full-time employees and believe the relationship with our employees is good.

Risk Factors

This report, other reports to be filed by us with the SEC, press releases made by us and other public statements by our officers, oral and
written, contain or will contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of
1934, as amended, including those relating to the possible or assumed future results of operations and financial condition. Because those statements are subject to a number of uncertainties and risks,
actual results may differ materially from those expressed or implied by the forward-looking statements. Factors that could cause actual results to differ from those expressed or implied include the
following risks associated with an investment in our common stock.

We depend on ongoing bankruptcy filings.

Our bankruptcy and related services segment is highly dependent on the amount of liquidated asset proceeds deposited by bankruptcy trustees and the number of
bankruptcy filings in the United States. Economic fluctuations in the United States affect the number of bankruptcy filings and the dollar volume flowing through the federal bankruptcy system. A
significant reduction in liquidated asset

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proceeds on deposit by bankruptcy trustees or the number of pending bankruptcy cases would have a material adverse effect on our bankruptcy and related services segment and our overall financial
position, results of operations and cash flows.

We have historically lacked product and business diversification.

Prior to 1992, our sole line of business activity was the provision of automation services to Chapter 13 trustees. In 1992 we introduced a Chapter 7 product for
DOS, and in 1996 we introduced our Chapter 7 product line for Windows. The provision of those bankruptcy services constituted our sole business endeavor until March 2000, when we entered the
financial services market through the purchase of PHiTECH, Inc. The financial services segment of our business represented only 6.5% of our operating revenues in 2001.

Bankruptcy reform legislation could adversely affect our business.

Bankruptcy reform legislation has been introduced in Congress in each of the last few years and was again introduced in 2001, but was put on hold as a result of
the September 11th events. We believe the bill will eventually pass and be signed by the President in the next year. The currently proposed bankruptcy legislation could tighten the rules for
debtors filing for certain types of bankruptcy and could make the bankruptcy process more cumbersome for debtors. While this legislation, if passed,
could affect the number of bankruptcy filings, we do not think the current proposals would materially affect the aggregate Chapter 7 deposits held by our trustee customers in the foreseeable future.
There can be no assurance that this bill or any future bankruptcy legislation will not adversely affect us.

We rely on our national marketing arrangement for Chapter 7 revenue.

Current regulation of Chapter 7 bankruptcy trustees has the practical effect of discouraging trustees from incurring direct administrative costs for computer
systems expenses. Accordingly, we generate Chapter 7 revenues through an arrangement in which Chapter 7 trustee customers, in accordance with licensing agreements with us, make deposits of liquidated
asset proceeds with Bank of America (or in a limited number of cases with other depository banks), through which we collect monthly revenues that include a fee based on the total number of trustees
and a percentage of the total trustee funds on deposit. We promote our Chapter 7 product exclusively through a national marketing arrangement with Bank of America that has been in place since
November 1993. Our agreement with Bank of America has no fixed expiration date, but either party has the option to end the agreement upon six months notice. There can be no assurance that this
agreement will not be terminated. Termination of this agreement could have a material adverse effect on our Chapter 7 business and our overall financial condition, results of operations and cash flows
until and unless we can establish a replacement marketing arrangement or arrangements. Substantially all of our Chapter 7 revenues are collected through our relationship with Bank of America. Although
we have other Chapter 7 banking relationships that either predate our relationship with Bank of America or were acquired as part of our acquisition of the DCI Chapter 7 business in
November 1999 and the ROC Technologies Chapter 7 business in October 2001, there can be no assurance that another marketing arrangement or arrangements could be established with terms
comparable to those we have with Bank of America or at all.

To support our national marketing arrangement for Chapter 7 trustees, we provide various products and services to a single customer from which we derive a significant
percentage of our revenues.

To
support our national marketing arrangement for Chapter 7 trustees, we provide customized software solutions, related integration services and marketing and strategic consulting
services to Bank of America. The revenues from these products and projects were 18.5% and 20.5% of our total bankruptcy and related services segment revenues in 2001 and 2000, respectively. Although
we expect

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to continue to provide these types of products and services to Bank of America in the future, there can be no assurance that we will continue to do so. It is likely that we would not continue to
provide these types of products and services to Bank of America if our Chapter 7 national marketing arrangement with Bank of America were terminated by Bank of America or us.

The loss of even a limited number of trustee customers could adversely affect our business.

A
single trustee customer with a large Chapter 7 deposit base or a large Chapter 13 caseload can comprise an important portion of our operating revenues, although sales to none of our
bankruptcy trustee customers exceeded 5% of our revenues in 2001. Our future financial performance will depend on our ability to maintain existing trustee customer accounts and to attract business
from trustees that are currently using a competitor's software product. The loss of even a limited number of trustee customers could have a material adverse effect on our business, financial
condition, results of operations and cash flows.

Our quarterly results may fluctuate in the future.

Our quarterly results in the future may fluctuate more than they have in the past. This may occur for a number of reasons.

First,
our bankruptcy and related services segment will continue to be affected by a number of factors, any one of which could substantially affect our results of operations for a
particular fiscal quarter. Specifically, our quarterly results of operations for this segment and our Company as a whole can vary due to fluctuations in trustees' deposit balances or caseloads,
unanticipated expenses related to software maintenance or customer service, the timing, cancellation or rescheduling of customer orders and the timing and market acceptance of new software versions or
support services.

Second,
within our bankruptcy and related services segment, we have in the last four years provided customized software solutions, related integration services and strategic marketing
and consulting services to Bank of America. The revenues from these products and projects are of a less recurring nature than our more traditional Chapter 7 and Chapter 13 revenues, and our receipt
and recognition of these revenues tend to fluctuate on a quarterly basis. There can be no assurance that we will continue to provide these types of products and services to Bank of America or other
financial institutions in the future or that these types of revenues will not fluctuate significantly from quarter to quarter. Additionally, the recognition of revenue from these types of contracts,
like our financial services segment discussed in the following paragraph, is complex, and the timing of the recognition of revenue from these customized products and services can be unpredictable.

Third,
our financial services segment has a greater likelihood of quarterly fluctuations in revenues and earnings than our bankruptcy and related services segment. The quarterly results
for our financial services segment may be affected by one or more of the following additional factors:



Due
to the foregoing factors, many of which are beyond our control, our quarterly revenues and operating results may be increasingly difficult to forecast in the future. It is possible
that our future

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quarterly results of operations from time to time will not meet the expectations of securities analysts or investors, which could have a material adverse effect on the market price of our common
stock.

Our stock price may be volatile even if our quarterly results do not fluctuate significantly.

If
our quarterly results fluctuate, the market price for our common stock may fluctuate as well, and those fluctuations may be significant. Even if we report stable or increasing
earnings, the market price of our common stock may become more volatile. There are a number of factors, beyond earnings fluctuations, that can affect the market price of our common stock, including
the following:



In
addition, the stock market has experienced significant price and volume fluctuations that have particularly affected the market prices of stocks of technology companies and that have
often been unrelated to the operating performance of particular companies. The market price of our common stock has been volatile and is likely to continue to be volatile.

There are only a limited number of potential trustee customers and the bankruptcy trustee market is highly competitive.

There
are a limited number of Chapter 7 and Chapter 13 trustees that can be served by us. We currently estimate that there is approximately $3.0 to $3.5 billion of liquidated
asset proceeds on deposit being managed by approximately 1,700 Chapter 7 trustees, and that there were approximately 700,000 active Chapter 13 cases at the end of 2001 managed by approximately 180
Chapter 13 trustees. There are several companies in the bankruptcy trustee market competing to sell to this limited group of trustee customers, and some of our competitors have substantially greater
financial and marketing resources than do we. Our largest competitor in both Chapter 7 and Chapter 13 is J.P. Morgan Chase Bank, and we also compete with other regional competitors in selected
markets. Although there are presently a limited number of firms that offer bankruptcy trustee solutions that directly compete with ours, there can be no assurance that other firms with resources
significantly greater than ours will not enter this market. Our future financial performance will depend on our ability to maintain existing trustee customer accounts and to attract business from
trustees who are currently using a competitor's software product.

Because
the number of bankruptcy trustees does not typically increase significantly, we can only increase our Chapter 7 and Chapter 13 trustee business through:



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The financial services software market we serve is highly competitive.

The financial services software market we now serve is highly competitive. Direct competition includes file transfer solutions developed by in-house
information technology departments and commercial file transfer products offered by Sterling Commerce (a business unit of SBC Communications) and others. A number of our competitors, including
Sterling Commerce, have substantially greater financial and marketing resources than do we.

We must be able to develop new technologies and respond to market changes.

We regularly undertake new projects and initiatives in order to meet the changing needs of our customers. In doing so, we invest substantial resources with no
assurance of their ultimate success. We believe our future success will depend, in part, upon our ability to:



There
can be no assurance that future advances in technology will be beneficial to, or compatible with, our business or that we will be able to incorporate those advances into our
business. In addition, keeping abreast of technological advances in our business may require substantial expenditures and lead-time. There can be no assurance that we will be successful in
using new technologies, adapting our solutions to emerging industry standards or developing, introducing and marketing software products or enhancements, or that we will not experience difficulties
that could delay or prevent the successful development, introduction or marketing of these products. If we incur increased costs or are unable, for technical or other reasons, to develop and introduce
new products or enhancements in a timely manner in response to changing market conditions or customer requirements, our business, financial position, results of operations and cash flows could be
materially adversely affected.

Our new releases and products may have undetected errors.

We intend to continue to issue new releases of our software products periodically. Complex software products, such as those we offer, frequently contain
undetected errors or "bugs" when first introduced or as new versions are released that, despite our prior testing, are discovered only after a product has been installed and used by our customers. The
introduction of new products and releases in the future may have a greater risk of undetected errors or "bugs" than our historic software product upgrades.

We
have not experienced any material errors or "bugs" in the various upgrades of ourTCMSand CasePowersoftware products that we have released in recent
years, and the currentDataXpressproducts
do not appear to have experienced any similar problems in the past. There can be no assurance, however, that errors will not be found in our software products in the future or that such errors, or
difficulties in installing and maintaining our new software and releases or training customers and their staffs on the utilization of new products and releases will not result in a delay or loss of
revenue, diversion of development resources, damage to our reputation, increased service costs or impaired market acceptance of our products. Errors and any resulting repercussions could have a
material adverse effect on our business, financial position, results of operations and cash flows.

12

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We may be harmed by security or product liability claims arising from our software products.

We
have included security features in our products that are intended to protect the privacy and integrity of data. Security for our products is a particularly critical aspect of those
products given their use for Internet, private networks and other electronic transfers of highly confidential financial data. There can be no assurance, however, that our software products or the data
communications they manage will not be subject to break-ins or disruptive problems caused by Internet or other users or that break-ins or problems will not result in a delay or
loss of revenue, diversion of development resources, damage to our reputation, increased service costs or impaired market acceptance of our products, any of which could cause a material adverse effect
on our business, financial position, results of operations and cash flows. Additionally, we could be exposed to potential liability for break-ins, product defects or other reasons.
Defending such a liability claim could result in substantial costs to us and a significant diversion of our management's attention and could have a material adverse effect on our business, financial
position, results of operations and cash flows.

Our intellectual property is not protected through patents or formal copyright registration.

Historically,
we have not protected our intellectual property rights through patents or formal copyright registration. We believe, however, that our results of operations will depend
more upon the innovation and technological expertise of our employees than upon those protections. There can be no assurance that we will be able to protect our trade secrets or that others will not
independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets. In addition, there can be no assurance that foreign intellectual
property laws will protect our intellectual property rights. In addition, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against claims of infringements. Such litigation could result in substantial costs to us and diversion of management and other
resources and could have a material adverse effect on our business, financial position, results of operations and cash flows.

Compliance with government regulations is critical for our bankruptcy software.

Although our products and services are not directly regulated by the government, our bankruptcy trustee customers are subject to significant regulation.
Bankruptcy trustees are subject to the United States Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and local rules and procedures
established by bankruptcy courts. The Executive Office for United States Trustees, a division of the United States Department of Justice, oversees bankruptcy trustees and establishes administrative
rules governing trustees' activities. The success of our bankruptcy and related services segment has been, and will continue to be, dependent in part on our ability to develop and maintain products
and provide services that allow trustees to perform their duties within applicable regulatory and judicial rules and procedures. There can be no assurance that future regulation will not limit or
eliminate the ability of trustees to utilize the types of products and services that we currently provide. Our failure to adapt our Chapter 7 and Chapter 13 products and services to changes in the
Bankruptcy Code and applicable rules and procedures could have a material adverse effect on our business, financial position, results of operations and cash flows.

Acquiring businesses creates additional risks and challenges for us.

In the last three years, we acquired three businesses at a combined cost in excess of $28 million. We intend to continue to consider additional
opportunities to acquire other companies, assets or product lines that complement or expand our business. If we are unsuccessful in integrating these companies or product lines with our operations, or
if integration is more difficult than anticipated, we may experience disruptions that could have a material adverse effect on our business, financial

13

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condition, results of operations and cash flows. Some of the risks that may affect our ability to integrate or realize any anticipated benefits from companies we acquire include those associated
with:



We
expect that future acquisitions, if any, could provide for consideration to be paid in cash, shares of our common stock, or a combination of cash and shares. If the consideration for
an acquisition is paid in common stock, this could dilute existing shareholders. Any amortization of a significant amount of intangible assets or potential future impairment of goodwill resulting from
an acquisition could materially affect our business, financial position and results of operations.

Growth creates additional challenges for our management.

We have experienced significant growth since we first publicly offered our common stock in February 1997. A continuing period of significant future growth
could place a significant strain on our management, operations and other resources. Our ability to manage our anticipated future growth will require us to continue to invest in our operational,
financial and information systems, and to attract, retain, motivate and effectively manage our employees. Our inability to manage any future growth effectively could have a material adverse effect on
our business, financial position, results of operations and cash flows.

We depend upon our key personnel.

Our future success will depend in significant part upon the continued service of our senior management and certain of our key technical personnel and our
continuing ability to attract, assimilate and retain highly qualified technical, managerial and sales and marketing personnel. Competition for such personnel is intense, and there can be no assurance
that we can retain our key personnel or that we can attract, assimilate and retain those employees in the future. While we have non-disclosure agreements and non-compete
agreements with substantially all of our employees, we do not have employment agreements with any of our executive officers or other employees. We maintain key-man life insurance policies
on our Chairman and Chief Executive Officer and our President and Chief Operating Officer. The loss of the services of either of these persons or other key personnel or the inability to hire or retain
qualified personnel in the future could have a material adverse effect upon our business, financial position, results of operations and cash flows.

We do not pay cash dividends on our common stock.

We presently do not intend to pay any cash dividends on our common stock. The payment of future dividends is within the discretion of our board of directors and
will depend upon our future earnings, if any, our capital requirements, financial condition and other factors that the board of

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directors may deem relevant. We currently intend to retain all earnings, if any, to invest in our operations. As a result, the success of your investment in our common stock will depend entirely upon
its future appreciation. There is no guarantee that our common stock will appreciate in value or even maintain the price at which you purchased your shares.

Our articles of incorporation contain a provision that could be used by us to discourage or prevent a takeover of our company.

Our
articles of incorporation authorize our board of directors to issue preferred stock in one or more series, without shareholder approval, and to fix the designation, rights and
preferences of each series of preferred stock. Our board of directors could issue a series of preferred stock in a manner designed to prevent or discourage a takeover of our company.

ITEM 2.    PROPERTIES

Our corporate offices are located in a 30,000-square-foot facility in Kansas City, Kansas. In connection with corporate growth and the
development of new products, we are expanding this facility to provide 19,000 square-feet of additional office space. In May 2001, we purchased the building from T & J
Investment Company, which is 50.0% owned by our Chairman and Chief Executive Officer, for a cash purchase price of $1,750,000. The purchase price was based on an independent MAI appraisal of the
building obtained by us in January 2001.

As
part of the PHiTECH acquisition, we assumed the sublease on approximately 4,200 square feet of office space in San Francisco. The sublease terms are through December 1, 2002,
with an option to renew for an additional five-year term.

As
part of the ROC Technologies acquisition, we assumed the lease on an approximately 6,600 square foot office in Houston, Texas which runs through June 30, 2002. We also entered
into a lease in December 2001 for approximately 1,200 square feet of office space in Los Angeles, California, which expires on December 31, 2003.

ITEM 3.    LEGAL PROCEEDINGS

We occasionally become involved in litigation arising in the normal course of business. We do not expect that the results of any currently pending or threatened
litigation will have a material adverse effect on our business, financial position, results of operations or cash flows.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted in the fourth quarter of 2001 to a vote of security holders.

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PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

Market Information

Our common stock is traded on the Nasdaq National Market under the symbol "EPIQ." Trading in the common stock commenced on the Nasdaq SmallCap Market on
February 4, 1997, the date on which we closed the initial public offering of our common stock. On June 2, 1998, the common stock began trading on the Nasdaq National Market. The
following table shows the reported high and low sales prices for the common stock, restated for all periods presented to reflect the two 3-for-2 stock splits effected as a 50%
stock dividend paid on February 23, 2001 and November 30, 2001, for the calendar quarters of 2001 and 2000 as reported by Nasdaq:

2001

2000High

Low

High

LowFirst Quarter

$
13.670

$
7.390

$
6.833

$
4.111Second Quarter


24.930


12.080


5.861


4.000Third Quarter


17.370


9.930


7.333


4.639Fourth Quarter


26.040


16.000


8.889


6.111


Holders

As of March 19, 2002, there were approximately 86 owners of record of our common stock and approximately 4,300 beneficial owners of our common stock.

Dividends

We presently do not expect to declare or pay any cash dividends. We currently intend to retain our earnings for use in the operation and expansion of our
business. The payment of future dividends is within the discretion of our board of directors and will depend upon the future earnings, if any, our capital requirements, financial condition and other
factors that the board of directors may deem relevant.

ITEM 6.    SELECTED FINANCIAL DATA

|                             |               | Fiscal Year Ended December 31,
|---------------------------- | ------------- | ------------------------------
|
|
|INCOME STATEMENT DATA:       |               |                               
|Operating revenues           |               | $                             
|Net income                   |               |                               
|Pro forma net income         |               |                               
|Net income per sharediluted |               |                               
|Pro forma net income per     |               |                               
|                             | sharediluted |                               
|BALANCE SHEET DATA:          |               |                               
|Working capital              |               | $                             
|Total assets                 |               |                               
|Long-term debt               |               |                               
|Stockholders' equity         |               |                               

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Before
February 4, 1997, we were a subchapter "S" corporation and, accordingly, federal and state income taxes were paid at the stockholder level only. Upon completion of a
public offering of 3,600,000 shares of common stock, we changed our income tax status to a C corporation. At the time of becoming a C corporation, we accrued an income tax provision of
$273,000 to record the deferred tax effects of temporary differences between financial statements and tax bases of assets and liabilities. Pro forma earnings information has been provided to reflect
the effects of corporate income taxes on historical earnings, as if we had been subject to income taxes for all periods presented. Pro forma adjustments reflect the provision for corporate income
taxes for 1996 and the elimination of the initial income tax provision for 1997, as discussed above.

In
May 1998, we completed a follow-on offering of 2,250,000 shares of common stock and received gross proceeds of $11,160,000. In June 1998, the underwriter
exercised its over-allotment option associated with the secondary offering by purchasing 316,125 additional shares at a net price of $1,568,000.

On
November 29, 1999, we acquired substantially all of the business assets of DCI. The acquisition has been accounted for using the purchase method of accounting with the
operating results of DCI included in our statements of income since the date of acquisition. See Note 12 of Notes to Financial Statements.

On
March 17, 2000, we acquired substantially all of the business assets of PHiTECH. The acquisition has been accounted for using the purchase method of accounting with the
operating results of PHiTECH included in our statement of income since the date of acquisition. See Note 12 of Notes to Financial Statements.

In
December 2000, we completed a private placement of 2,025,000 shares of common stock and received gross proceeds of $13,500,000.

In
June 2001, we completed a follow-on offering of 1,537,500 shares of common stock and received gross proceeds of $24,600,000.

On
October 11, 2001, we acquired certain assets from ROC Technologies. The acquisition has been accounted for using the purchase method of accounting with the operating results of
ROC Technologies included in our statement of income since the date of acquisition. See Note 12 of Notes to Financial Statements.

All
per share amounts have been adjusted to reflect the two 3-for-2 stock splits effected as a 50% stock dividend paid on February 23, 2001 and
November 30, 2001.

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

Overview

We develop, market and license proprietary software solutions for workflow management and data communications infrastructure for the bankruptcy trustee market and
the financial services market.

The
application of Chapter 7 bankruptcy regulations has the practical effect of discouraging trustees from incurring direct administrative costs for computer systems expenses. As a
result, all nationally marketed Chapter 7 systems are provided to trustees without direct costs to the trustee. We have a national marketing arrangement with Bank of America to provide our
comprehensive, turnkey, back-office computer systems to Chapter 7 trustees without direct charges to the trustee. Under this arrangement:



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Because
of this arrangement, we have a recurring revenue stream from our Chapter 7 operations. We also derive Chapter 7 revenues from conversions, upgrades and customized software
provided to Chapter 7 trustees, as well as from customized software, technology services and marketing and strategic consulting services that we provide directly to Bank of America in support of our
national marketing arrangement.

On
October 11, 2001, we acquired certain assets of ROC Technologies, Inc. ("ROC"), the bankruptcy management software subsidiary of Imperial Bancorp, a subsidiary of
Comerica Inc. ROC provided bankruptcy trustee software to Chapter 7 bankruptcy trustees and was one of our primary competitors in the Chapter 7 trustee software business. ROC had approximately
100 Chapter 7 trustee customers, with an aggregate deposit base of approximately $250 million. While the Chapter 7 trustee customers of ROC had their primary banking relationship with
Imperial/Comerica, certain customers also maintained Chapter 7 trustee deposits with various other national and regional third-party banks. The acquisition was accounted for using the purchase method
of accounting, and as such, our results of operations for the year ended December 31, 2001 include the results of the ROC acquisition subsequent to October 11, 2001.

For
our Chapter 13 business, we typically receive an initial implementation fee from the Chapter 13 trustee. We also receive monthly revenues from each Chapter 13 trustee customer based
on the total number of cases in that trustee's database, the type of equipment installed, the volume of noticing to be outsourced to us, and the level of support service selected by the trustee.

For
our financial services segment, we sell ourDataXpressproduct line utilizing a traditional server-based license, maintenance and
professional services pricing model. Various optional features are available for additional fees.

On
March 17, 2000, we acquired the assets of PHiTECH, Inc. and began providing financial services software and services through theDataXpressproducts. From our inception until the date of the
acquisition, all of our revenues were derived from the bankruptcy and related services segment. The acquisition of PHiTECH
was accounted for using the purchase method of accounting, and as such, our results of operations for the year ended December 31, 2000 include the results of the financial services segment
after March 17, 2000.

Critical Accounting Policies

We consider certain accounting policies related to revenue recognition and software capitalization to be critical policies due to the estimation processes
involved in each.

We
recognize revenue from the two reportable segments of our business: bankruptcy and related services and financial services. Within the bankruptcy and related services segment, our
Chapter 7 bankruptcy software product generates monthly fees from Bank of America and other smaller regional financial institutions. Revenues are recognized after the product is installed and deposits
are transferred based on the number of trustees and the level of trustees' deposits with the financial institution. Revenues for Chapter 13 processing and noticing are recorded monthly at the
completion of the services based on the trustees' month-end caseloads. All other ancillary fees are recognized as the services are provided.

The
financial services revenues and a portion of the bankruptcy and related services revenues are derived from software licensing, consulting services and maintenance fees. Licensing
fees are recorded

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as revenue following delivery, installation and acceptance. Consulting revenue is recognized in the period in which the services are performed and in certain circumstances, based on the nature of the
arrangement, are recognized on the percentage of completion method. Maintenance fees are collected in advance and recognized on a straight-line basis as revenue over the life of the
maintenance contract.

Certain
internal software development costs incurred in the creation of computer software products are capitalized once technological feasibility has been established. Prior to the
completion of a detail program design, development costs are expensed and shown as general and administrative expenses on the statements of income. Capitalized costs are amortized based on the ratio
of current revenue to current and estimated future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the
product, not to exceed five years.

Results of Operations

Year Ended December 31, 2001 compared to Year Ended December 31, 2000

Operating revenues increased 29.5% or $6,855,000 to $30,112,000 in 2001 compared to $23,257,000 in 2000. The growth in operating revenues was attributable to
revenues generated by bankruptcy and related services and was partially offset by a decrease in revenues from financial services associated with the March 17, 2000 acquisition of PHiTECH. The
bankruptcy and related services revenues increased 41.4% or $8,243,000 to $28,149,000 in the year ended December 31, 2001 compared to $19,906,000 in the year ended December 31, 2000. The
increase in bankruptcy and related services revenues was due in part to technology management fees paid based on the total number of trustees, marketing and strategic consulting fees, increases in
upgrade fees and additional new customer growth in bankruptcy trustees. The October 11, 2001 acquisition of ROC also contributed to the revenue increase for the year. The fees from Bank of
America for licensing, marketing and strategic consulting and technology services accounted for 18.5% of the bankruptcy and related services revenues for 2001 compared to 20.5% of the bankruptcy and
related services revenues for 2000. The decrease in revenues of $1,388,000 or 41.4% to $1,963,000 in financial services for 2001 as compared to revenues of $3,351,000 for 2000 were the result of
decreased sales generated from theDataXpressproduct due to the completion of a major consulting contract in 2000.

Total
cost of sales increased 10.4% or $949,000 to $10,070,000 in 2001 compared to $9,121,000 in 2000. Total cost of sales as a percentage of operating revenues decreased to 33.4% in
2001 compared to 39.2% in 2000. Cost of products and services for bankruptcy and related services increased 11.5% or $562,000 to $5,462,000 in 2001 compared to $4,900,000 in 2000. Bankruptcy and
related services cost of products and services, as a percentage of bankruptcy and related services revenues, was 19.4% in 2001 compared to 24.6% in 2000. The decrease in cost as a percentage of
revenues was largely due to the increase in operating revenues from upgrade fees, marketing and strategic consulting fees and technology services that provide a higher profit margin. The financial
services segment showed a decrease in the cost of products and services of $240,000 or 21.4% to $882,000 for 2001 compared to $1,122,000 for 2000, which was mainly attributable to the lower sales
during the year. Profit margin for the financial services segment decreased in 2001 to 32.7% from 62.0% in 2000 due to the completion of a major consulting contract in 2000 which provided higher
profit margins over the life of the contract. Depreciation and amortization increased to 20.2% or $627,000 to $3,726,000 in 2001 compared to $3,099,000 in 2000. The increase is primarily due to the
purchase of additional computer equipment at trustee locations and to a lesser extent an increase in software amortization.

Operating
expenses increased 21.2% or $2,226,000 to $12,711,000 in 2001 compared to $10,485,000 in 2000. Operating expenses as a percentage of operating revenues were 42.2% in 2001
compared to 45.1% in 2000. The increase in operating expenses was due to a 28.1% or $2,314,000 increase in general and administrative expenses from 2000 to 2001. The increase was primarily due to
increases in

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the infrastructure necessary to support a higher level of revenues, including additional sales and marketing expenses, administrative personnel and compensation. Increases also occurred in
depreciation expense and amortization of goodwill/intangibles. The increases were due in part to increases in capital spending, a full year of amortization related to the PHiTECH acquisition and a
partial year of amortization and depreciation related to the ROC acquisition that occurred during 2001. Decreases in acquisition related expenses and purchased in-process research and
development expenses offset the total increases shown in general and administrative expenses. For 2001, acquisition related
expenses totaled $353,000 compared to $414,000 in 2000 and in-process research and development expenses were $364,000 in 2000. The acquisition related expenses and in-process
research and development expenses represented 7.4% of the total operating expenses in 2000 while acquisition related expenses in 2001 represented 2.8% of the total operating expenses. Acquisition
related expenses include costs related to potential acquisitions that were not consummated during the year 2001 and indirect costs related to the completed acquisition of ROC in October 2001.

The
acquired in-process research and development charge related to PHiTECH's new, Java-based product,DataXpress Open
Platform, which was approximately 80% complete at the time of the acquisition in March 2000. At the acquisition date, the technological feasibility of the acquired
technology had not been established and the technology had no alternative uses. We expended additional costs of approximately $64,000 during calendar year 2000 in order to achieve technological
feasibility, which was established in July 2000. Since technological feasibility was established, we have capitalized a total of approximately $739,000 in expenditures as software development
costs. During 2001, we capitalized approximately $396,000 in software development costs until the program was released in April 2001, while the remaining $343,000 was capitalized during 2000.
We plan to continue to enhance the software and expect to access additional markets with this new technology.

The
value assigned to the acquired in-process research and development was estimated using the cost approach. This approach includes estimating a replacement cost based on
the cost expended to recreate the utility of the technology. Estimates were made of the amount of time and effort that would be spent redesigning and reprogramming multiplied by a standardized measure
of software development activity, based on an estimate of the Company's current costs of development.

We
had net interest income of $647,000 in 2001 compared to net interest expense of $199,000 in 2000. The change from expense to income resulted in part from the investment of the net
proceeds received from the private placement of 2,025,000 shares of common stock in December 2000 and the follow-on offering of 1,537,500 shares of common stock in June 2001.
The change was also due to the decrease in interest expense as a result of the repayment of our $3,500,000 line of credit, which was used to finance a portion of the PHiTECH acquisition cost and was
repaid with a portion of the proceeds from the private placement of common stock.

Our
effective tax rate was 38.1% for 2001 compared to 38.2% for 2000.

Net
income as a percentage of operating revenues increased to 16.4% in 2001 from 9.2% in 2000. The increase in net income as a percentage of operating revenues was largely due to the
increase of operating revenues, the decrease of acquisition-related expenses and an increase in net interest income.

Year Ended December 31, 2000 compared to Year Ended December 31, 1999

Operating revenues increased 56.9% or $8,437,000 to $23,257,000 in 2000 compared to $14,820,000 in 1999. The growth in operating revenues was attributable to
revenues generated by bankruptcy and related services and from new revenues generated from financial services associated with our March 17, 2000 acquisition of PHiTECH. The bankruptcy and
related services revenue increased 34.3% or $5,086,000 to $19,906,000 in 2000 compared to $14,820,000 in 1999. The increase in bankruptcy and related services revenue was due in part to the revenues
generated from the growth in new trustee business as a result of our November 1999 DCI acquisition and additional new customer growth as well

20

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as increases in revenues for licensing and marketing and strategic consulting also contributed to the increase. The licensing fees, marketing and strategic consulting fees, electronic banking
services and technology services for Bank of America accounted for 20.5% of the bankruptcy and related services revenues for 2000 compared to 15.2% of the bankruptcy and related services revenues for
1999. Financial services revenues related to theDataXpressproduct contributed $3,351,000 to the total revenue increase for 2000. This increase was a
result of the acquisition of PHiTECH in March 2000.

Total
cost of sales increased 32.3% or $2,227,000 to $9,121,000 in 2000 compared to $6,894,000 in 1999. Total cost of sales as a percentage of operating revenues decreased to 39.2% in
2000 compared to 46.5% in 1999. Cost of sales for bankruptcy and related services increased 13.8% or $954,000 to $7,848,000 in 2000 compared to $6,894,000 in 1999. The financial services segment
contributed $1,273,000 to the increase in the total cost of products and services for 2000. Bankruptcy and related services cost of sales, as a percentage of bankruptcy and related services revenues,
was 39.4% in 2000 compared to 46.5% in 1999. The decrease in this as a percentage of revenue was largely attributable to the increase in operating revenues from licensing fees, marketing and strategic
consulting fees and technology services for Bank of America in 2000 as compared to 1999, as described above. Such fees were at a substantially higher gross margin than our historic bankruptcy
revenues. Depreciation and amortization increased 43.7% or $942,000 to $3,099,000 in 2000 compared to $2,157,000 in 1999, primarily due to the depreciation on additional equipment acquired with the
DCI acquisition, the purchase of computer equipment as new trustees adopted our Chapter 7 product and to a lesser extent equipment acquired with our March 2000 PHiTECH acquisition.

Operating
expenses increased 74.6% or $4,479,000 to $10,485,000 in 2000 compared to $6,006,000 in 1999. Operating expenses, as a percentage of operating revenues, were 45.1% in 2000
compared to 40.5% in 1999. The increase in operating expenses was due to increases in general and administrative infrastructure necessary to support a higher level of revenues, including additional
sales and marketing expenses related to growth of our Chapter 7 product and financial services products, the amortization of goodwill and intangibles, acquisition related expenses and acquired
in-process research and development. Included in operating expenses in 2000 were acquisition related expenses of $414,000 and a charge for acquired in-process research and
development of $364,000; these two charges represent 7.4% of total operating expenses. Included in operating expenses in 1999 were acquisition related expenses of $315,000 and a loss of $230,000 from
the write-off of computer equipment, which represented 34.4% of the operating expense increase in 1999. Acquisition related expenses include costs related to potential acquisitions which
were not consummated and indirect costs related to completed acquisition.

We
had net interest expense of $199,000 in 2000 compared to net interest income of $520,000 in 1999. The change from income to expense resulted in part from a reduction in interest
income for 2000 due to the use of cash to expand the business through the DCI and PHiTECH acquisitions. The change was also due to an increase in interest expense as result of using our $3,500,000
line of credit to finance a portion of the PHiTECH acquisition cost.

Our
effective tax rate was 38.2% for 2000 compared to 38.7% for 1999.

Net
income as a percentage of operating revenues decreased to 9.2% in 2000 from 10.1% in 1999. The decrease in net income as a percentage of operating revenues was largely due to the
amortization of goodwill and intangibles, acquisition related charges, the acquired in-process research and development charge, the decrease in interest income and the increase in interest
expense.

Liquidity and Capital Resources

Our cash and cash equivalents increased to $25,306,000 as of December 31, 2001 compared to $16,378,000 as of December 31, 2000. This increase was
mainly attributable to the completion of the follow-on offering of approximately 1,538,000 shares of common stock on June 29, 2001 for net

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proceeds of $22,735,000. The follow-on offering was partially offset by the repayment of the outstanding lines of credit of $3,575,000 in January 2001 and cash paid for the
acquisition of ROC Technologies, Inc. of $12,187,000 in October 2001.

We
generated cash from operations of $10,784,000, $3,795,000 and $7,301,000 for the years ended December 31, 2001, 2000 and 1999, respectively. The cash flow generated from
operations in 2001 consisted primarily of cash generated from net income plus depreciation and amortization. The cash generated was offset in part by the increase in accounts receivable, prepaid
expenses and other assets, and accounts payable and accrued expenses. The cash flow generated from operations in 2000 primarily consisted of cash generated from net income plus depreciation and
amortization, which were offset in part by the increase in accounts receivable and decrease in deferred revenue. The increase in cash generated from operations from 2000 to 2001 was due to the
increases in net income and depreciation and amortization. Also contributing to the increase in cash generated from operations was the improvement in the collections of outstanding receivables from
2000 to 2001 and the decrease in deferred revenues in 2001 was smaller than the decrease in 2000. The deferred revenues decreased in 2000 due to the completion of services related to the DCI
acquisition in 1999 for various technology and integration services for Bank of America, which were prepaid.

Net
cash used in investing activities for the years ended December 31, 2001, 2000 and 1999 totaled approximately $21,461,000, $5,356,000 and $6,357,000, respectively. Our use of
cash included purchased property and equipment totaling $7,288,000, $3,054,000 and $2,797,000 in 2001, 2000 and 1999, respectively. We purchased land and our headquarters building for $1,750,000 in
May 2001 from a partnership in which our Chairman of the Board and Chief Executive Officer is a partner. Additional property and equipment purchased in 2001 included the fractional ownership in
two business aircraft totaling approximately $2,494,000, approximately $771,000 related to the on-going $1,900,000 expansion of our headquarters facility and the installation of computer
equipment at trustee locations for our Chapter 7 product. Net cash used in the acquisitions of ROC, PHiTECH and DCI totaled $12,188,000 in 2001, $5,334,000 in 2000 and $10,057,000 in 1999,
respectively. Also included in the cash used for investing activities were capitalized software development costs of $2,022,000, $980,000 and $661,000 in 2001, 2000 and 1999, respectively.

Net
cash generated from (used in) financing activities was $19,605,000, $16,296,000 and ($121,000) for the years ended December 31, 2001, 2000 and 1999, respectively. Net cash
generated from financing activities was principally due to the follow-on offering of common stock in June 2001 which generated net proceeds of $22,735,000 which was partially offset
by the repayments on our outstanding lines of credit during the year. The net cash generated from financing activities in 2000 was due to the private placement of common stock, which generated net
proceeds of $12,543,000 in December 2000, and the proceeds from borrowings on our lines of credit. Net cash used in financing activities in 1999 were primarily attributable to the payment of
capital lease obligations.

We
maintain a $5,000,000 working capital line of credit and a $2,500,000 line of credit to finance certain computer equipment purchases. No amounts were outstanding on either line of
credit at December 31, 2001. Any outstanding principal on the working capital line is due upon demand, and if no demand is made, then upon expiration. Each borrowing on the equipment line of
credit is due over a 36-month period from the date of the borrowing. Both lines of credit were renewed on June 20, 2001 to expire on June 20, 2002. We intend to seek renewals
of both credit lines in 2002 and anticipate no problems in obtaining renewals from the bank on similar terms.

We
believe that the cash generated from operations plus amounts available under our lines of credit, will be sufficient to finance our currently anticipated working capital and property
and equipment expenditures for the foreseeable future.

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Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS No. 142,Goodwill and Other Intangible Assets. SFAS
No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. SFAS
No. 142, which is
required to be adopted by January 1, 2002, requires, among other things, the discontinuance of amortization of goodwill and certain other intangible assets. In addition, the statement includes
provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles
out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS No. 142 also requires us to complete a
transitional goodwill impairment test six months from the date of adoption. We are evaluating the impact of the adoption of these statements and have not yet determined the effect of adoption on its
financial position, results of operations and cash flows.

In
August 2001, the FASB issued SFAS No. 143,Accounting for Asset Retirement Obligations. SFAS No. 143 requires the
recognition of a liability if a company has a legal or contractual financial obligation in connection with the retirement of a tangible long-lived asset. We expect to implement SFAS
No. 143 in the fiscal year beginning January 1, 2003, and are currently assessing its effect on our financial position, results of operations and cash flows.

In
October 2001, the FASB issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets.
SFAS No. 144 modifies the financial accounting and reporting for long-lived assets to be disposed of by sale and it broadens the presentation of discontinued operations to include
more disposal transactions. We expect to implement SFAS No. 144 in the fiscal year beginning January 1, 2002. Adoption of this standard will not have a material effect on our financial
position, results or operations and cash flows.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk refers to the risk that a change in the level of one or more market prices, interest rates, indices, volatilities, correlations or other market
factors such as liquidity, will result in losses for a certain financial instrument or group of financial instruments. We are currently exposed to credit risk on credit extended to customers and
interest risk on capital lease obligations, the deferred acquisition price note and cash equivalents. We actively monitor these risks through a variety of controlled procedures involving senior
management. We do not currently use any derivative financial instruments. Based on the controls in place, credit worthiness of the customer base and the relative size of these financial instruments,
we believe the risk associated with these instruments will not have a material adverse affect on our business, financial position, results of operations and cash flows.

23

---

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our financial statements appear following Item 14 of this Report. SeeFinancial Statements.

Supplementary DataQuarterly Financial Information

The following table sets forth quarterly unaudited financial data for the quarters of fiscal years 2001 and 2000. Net income per share-diluted has been restated
for all quarters presented to reflect the two 3-for-2 stock splits effected as a 50% stock dividend paid on February 23, 2001 and November 30, 2001.

Quarters1st

2nd

3rd

4th(In Thousands, Except Per Share Data)Fiscal Year 2001Operating revenues

$
7,134

$
7,065

$
7,691

$
8,222Gross profit


4,718


4,578


5,220


5,526Net income


1,036


1,055


1,493


1,358Net income per sharediluted


0.08


0.08


0.10


0.09Fiscal Year 2000Operating revenues

$
4,988

$
5,765

$
6,094

$
6,410Gross profit


3,071


3,524


3,676


3,865Net income


207


569


677


679Net income per sharediluted


0.02


0.05


0.06


0.07


On
March 17, 2000, we acquired substantially all of the business assets of PHiTECH. The acquisition has been accounted for using the purchase method of accounting with the
operating results of PHiTECH included in our statements of income since the date of acquisition. See Note 12 of Notes to Financial Statements.

In
December 2000, we completed a private placement of 2,025,000 shares of common stock and received gross proceeds of $13,500,000.

In
June 2001, we completed a follow-on offering of approximately 1,537,500 shares of common stock and received gross proceeds of $24,600,000.

On
October 11, 2001, we acquired substantially all of the business assets of ROC Technologies. The acquisition has been accounted for using the purchase method of accounting with
the operating results of ROC Technologies included in our statement of income since the date of acquisition. See Note 12 of Notes to Financial Statements.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

24

---



PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated by reference to our Proxy Statement for our Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within
120 days after the close of the year ended December 31, 2001.

ITEM 11.    EXECUTIVE COMPENSATION

Incorporated by reference to our Proxy Statement for our Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within
120 days after the close of the year ended December 31, 2001.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference to our Proxy Statement for our Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within
120 days after the close of the year ended December 31, 2001.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference to our Proxy Statement for our Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within
120 days after the close of the year ended December 31, 2001.

PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K

(a)Exhibits.Exhibits are listed on the Index to Exhibits at the end of this Report.

(b)Financial Statements.The following financial statements are contained on pages F-1 through F-20
of this Report:



(c)Reports on Form 8-K

A
report on Form 8-K was filed on October 11, 2001, as amended by Form 8-K/A Amendment No. 1 filed December 17, 2001, reporting
the ROC Technologies, Inc. acquisition and filing historical and pro forma financial statements relating to the acquired business.

25

---



SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed by the undersigned, thereunto duly authorized.

|Dated: March 21, 2002 |  | EPIQ SYSTEMS, INC.
|--------------------- |  | ------------------
|                      |  | By:               

In
accordance with the Exchange Act this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 21, 2002.

|Signature                  |  | Name and Title                                                                                      |  | Date          
|-------------------------- |  | --------------------------------------------------------------------------------------------------- |  | --------------
|                           |  |                                                                                                     |  |               
|/s/TOM W. OLOFSON          |  | Tom W. Olofson
Chairman of the Board, Chief Executive Officer and Director                          |  | March 21, 2002
|/s/CHRISTOPHER E. OLOFSON  |  | Christopher E. Olofson
President, Chief Operating Officer and Director                              |  | March 21, 2002
|/s/DENISE C. LYNCH         |  | Denise C. Lynch
Vice President, Chief Financial Officer and Secretary (Principal Financial Officer) |  | March 21, 2002
|/s/MICHAEL A. RIDER        |  | Michael A. Rider
Controller (Principal Accounting Officer)                                          |  | March 21, 2002
|/s/ROBERT C. LEVY          |  | Robert C. Levy
Director                                                                             |  | March 21, 2002
|/s/W. BRYAN SATTERLEE      |  | W. Bryan Satterlee
Director                                                                         |  | March 21, 2002
|/s/EDWARD M. CONNOLLY, JR. |  | Edward M. Connolly, Jr.
Director                                                                    |  | March 21, 2002

26

---



INDEPENDENT AUDITORS' REPORT

Board
of Directors
EPIQ Systems, Inc.
Kansas City, Kansas

We
have audited the accompanying balance sheets of EPIQ Systems, Inc. (the "Company") as of December 31, 2001 and 2000, and the related statements of income, changes in
stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of the Company for the year ended December 31, 1999 were audited by other auditors whose report, dated February 25,
2000, expressed an unqualified opinion on those statements.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such financial statements present fairly, in all material respects, the financial position of EPIQ Systems, Inc. as of December 31, 2001 and 2000, and the
results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Kansas
City, Missouri
February 26, 2002

F-1

---

EPIQ SYSTEMS, INC.        BALANCE SHEETS        (In Thousands)

|                                               |                                                                                               | December 31, 2001                 |        | December 31, 2000
|---------------------------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------- | ------ | -----------------
|ASSETS:                                       
|CURRENT ASSETS:                                |                                                                                               |                                   |        |                  
|                                               | Cash and cash equivalents                                                                     |                                   | $      | 25,306           
|                                               | Accounts receivable, trade, less allowance for doubtful accounts of $31 and $31, respectively |                                   |        | 4,498            
|                                               | Prepaid expenses and other                                                                    |                                   |        | 400              
|                                               | Deferred income taxes                                                                         |                                   |        | 194              
|                                               |                                                                                               |                                   |        |                  
|                                               |                                                                                               | Total Current Assets              |        |                  
|PROPERTY AND EQUIPMENT:                        |                                                                                               |                                   |        |                  
|                                               | Land                                                                                          |                                   |        | 192              
|                                               | Buildings and improvements                                                                    |                                   |        | 3,419            
|                                               | Furniture and fixtures                                                                        |                                   |        | 1,001            
|                                               | Computer equipment                                                                            |                                   |        | 10,882           
|                                               | Office equipment                                                                              |                                   |        | 398              
|                                               | Transportation equipment                                                                      |                                   |        | 2,518            
|                                               |                                                                                               |                                   |        |                  
|                                               |                                                                                               |                                   | 18,410 |                  
|Less accumulated depreciation and amortization |                                                                                               |                                   | 7,473  |                  
|                                               |                                                                                               |                                   |        |                  
|                                               |                                                                                               | Total Property and Equipment, net |        |                  
|SOFTWARE DEVELOPMENT COSTS, net                |                                                                                               |                                   | 4,126  |                  
|OTHER ASSETS:                                  |                                                                                               |                                   |        |                  
|                                               | Goodwill, net of accumulated amortization of $2,157 and $1,067, respectively                  |                                   |        | 21,224           
|                                               | Other intangibles, net of accumulated amortization of $553 and $241, respectively             |                                   |        | 3,897            
|                                               | Other                                                                                         |                                   |        | 66               
|                                               |                                                                                               |                                   |        |                  
|                                               |                                                                                               | Total Other Assets, net           |        |                  
|                                               |                                                                                               |                                   |        |                  
|                                               |                                                                                               | $                                 | 70,648 |                  
|                                               |                                                                                               |                                   |        |                  

See
Notes to Financial Statements.

F-2

---

EPIQ SYSTEMS, INC.        BALANCE SHEETS        (In Thousands, Except Per Share Data)

|                                                  |                                                                                                                                                                                 | December 31, 2001          |        | December 31, 2000
|------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | -----------------
|LIABILITIES AND STOCKHOLDERS' EQUITY:            
|CURRENT LIABILITIES:                              |                                                                                                                                                                                 |                            |        |                  
|                                                  | Short-term borrowings                                                                                                                                                           |                            | $      |                 
|                                                  | Accounts payable                                                                                                                                                                |                            |        | 1,164            
|                                                  | Accrued expenses                                                                                                                                                                |                            |        | 1,402            
|                                                  | Income taxes payable                                                                                                                                                            |                            |        | 222              
|                                                  | Deferred revenue                                                                                                                                                                |                            |        | 783              
|                                                  | Current portion of deferred acquisition price                                                                                                                                   |                            |        | 236              
|                                                  | Current maturities of long-term obligations                                                                                                                                     |                            |        | 103              
|                                                  |                                                                                                                                                                                 |                            |        |                  
|                                                  |                                                                                                                                                                                 | Total Current Liabilities  |        |                  
|DEFERRED REVENUE                                  |                                                                                                                                                                                 |                            | 100    |                  
|LONG-TERM OBLIGATIONS (less current portion)      |                                                                                                                                                                                 |                            | 163    |                  
|DEFERRED ACQUISITION PRICE (less current portion) |                                                                                                                                                                                 |                            | 431    |                  
|DEFERRED INCOME TAXES                             |                                                                                                                                                                                 |                            | 900    |                  
|                                                  |                                                                                                                                                                                 |                            |        |                  
|                                                  |                                                                                                                                                                                 | Total Liabilities          |        |                  
|STOCKHOLDERS' EQUITY:                             |                                                                                                                                                                                 |                            |        |                  
|                                                  | Preferred stock$1 par value; 2,000 shares authorized; none issued and outstanding                                                                                              |                            |        |                 
|                                                  | Common stock$0.01 par value; authorized 50,000 and 20,000 shares at 2001 and 2000, respectively; issued and outstanding14,398 and 8,374 shares at 2001 and 2000, respectively |                            |        | 144              
|Additional paid-in capital                        |                                                                                                                                                                                 |                            | 54,753 |                  
|                                                  | Retained earnings                                                                                                                                                               |                            |        | 10,247           
|                                                  |                                                                                                                                                                                 |                            |        |                  
|                                                  |                                                                                                                                                                                 | Total Stockholders' Equity |        |                  
|                                                  |                                                                                                                                                                                 |                            |        |                  
|                                                  |                                                                                                                                                                                 | $                          | 70,648 |                  
|                                                  |                                                                                                                                                                                 |                            |        |                  

See
Notes to Financial Statements.

F-3

---



EPIQ SYSTEMS, INC.    STATEMENTS OF INCOME    (In Thousands, Except Per Share Data)

|                                            |                                               | Years Ended December 31,      |       
|------------------------------------------- | --------------------------------------------- | ----------------------------- | ------
|
|OPERATING REVENUES                          |                                               | $                             | 30,112
|                                            |                                               |                               |       
|COST OF SALES:                              |                                               |                               |       
|                                            | Cost of products and services                 |                               |       
|                                            | Depreciation and amortization                 |                               |       
|                                            |                                               |                               |       
|                                            |                                               | Total cost of sales           |       
|                                            |                                               |                               |       
|GROSS PROFIT                                |                                               |                               | 20,042
|                                            |                                               |                               |       
|OPERATING EXPENSES:                         |                                               |                               |       
|                                            | General and administrative                    |                               |       
|                                            | Depreciation                                  |                               |       
|                                            | Amortization-goodwill/intangibles             |                               |       
|                                            | Acquisition related                           |                               |       
|                                            | Purchased in-process research and development |                               |       
|                                            | Loss on disposal of computer equipment        |                               |       
|                                            |                                               |                               |       
|                                            |                                               | Total operating expenses      |       
|                                            |                                               |                               |       
|INCOME FROM OPERATIONS                      |                                               |                               | 7,331 
|                                            |                                               |                               |       
|INTEREST INCOME (EXPENSE):                  |                                               |                               |       
|                                            | Interest income                               |                               |       
|                                            | Interest expense                              |                               |       
|                                            |                                               |                               |       
|                                            |                                               | Net interest income (expense) |       
|                                            |                                               |                               |       
|INCOME BEFORE INCOME TAXES                  |                                               |                               | 7,978 
|PROVISION FOR INCOME TAXES                  |                                               |                               | 3,036 
|                                            |                                               |                               |       
|NET INCOME                                  |                                               | $                             | 4,942 
|                                            |                                               |                               |       
|NET INCOME PER SHARE INFORMATION:           |                                               |                               |       
|                                            | Basic                                         |                               | $     
|                                            |                                               |                               |       
|                                            | Diluted                                       |                               | $     
|                                            |                                               |                               |       
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |                                               |                               |       
|                                            | Basic                                         |                               |       
|                                            |                                               |                               |       
|                                            | Diluted                                       |                               |       
|                                            |                                               |                               |       

See
Notes to Financial Statements.

F-4

---

EPIQ SYSTEMS, INC.    STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY    (In Thousands)

|                                                                                                           |                                                     | Years Ended December 31,
|---------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------
|
|PREFERRED SHARES (2,000 authorized as of December 31, 2001, 2000 and 1999, respectively):                  |                                                     |                         
|                                                                                                           |                                                     |                         
|COMMON SHARES (50,000, 20,000 and 10,000 authorized as of December 31, 2001, 2000 and 1999, respectively): |                                                     |                         
|                                                                                                           | Shares, beginning of year                           |                         
|                                                                                                           | Shares issued upon exercise of options and warrants |                         
|                                                                                                           | Shares issued in secondary public offering          |                         
|                                                                                                           | Shares issued in private placement of stock         |                         
|                                                                                                           | Stock split                                         |                         
|                                                                                                           |                                                     |                         
|                                                                                                           |                                                     | Shares, end of year     
|                                                                                                           |                                                     |                         
|COMMON STOCKPAR VALUE $0.01 PER SHARE:                                                                    |                                                     |                         
|Balance, beginning of year                                                                                 |                                                     | $                       
|Shares issued upon exercise of options and warrants                                                        |                                                     |                         
|Net proceeds from secondary public offering                                                                |                                                     |                         
|Net proceeds from private placement of stock                                                               |                                                     |                         
|Stock split                                                                                                |                                                     |                         
|                                                                                                           |                                                     |                         
|                                                                                                           |                                                     | Balance, end of year    
|                                                                                                           |                                                     |                         
|ADDITIONAL PAID-IN CAPITAL:                                                                                |                                                     |                         
|                                                                                                           | Balance, beginning of year                          |                         
|                                                                                                           | Shares issued upon exercise of options and warrants |                         
|                                                                                                           | Tax benefit from exercise of options                |                         
|                                                                                                           | Net proceeds from secondary public offering         |                         
|                                                                                                           | Net proceeds from private placement of stock        |                         
|                                                                                                           | Stock split                                         |                         
|                                                                                                           |                                                     |                         
|                                                                                                           |                                                     | Balance, end of year    
|                                                                                                           |                                                     |                         
|RETAINED EARNINGS:                                                                                         |                                                     |                         
|                                                                                                           | Balance, beginning of year                          |                         
|                                                                                                           | Net income                                          |                         
|                                                                                                           | Dividends paid in lieu of fractional shares         |                         
|                                                                                                           |                                                     |                         
|                                                                                                           |                                                     | Balance, end of year    
|                                                                                                           |                                                     |                         
|TOTAL STOCKHOLDERS' EQUITY                                                                                 |                                                     | $                       
|                                                                                                           |                                                     |                         

See
Notes to Financial Statements.

F-5

---



EPIQ SYSTEMS, INC.    STATEMENTS OF CASH FLOWS    (In Thousands)

|                                             |                                                                                         | Years Ended December 31,                                           |                                   
|-------------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ----------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:        |                                                                                         |                                                                    |                                   
|                                             | Net income                                                                              |                                                                    | $                                 
|                                             | Adjustments to reconcile net income to net cash from operating activities:              |                                                                    |                                   
|                                             |                                                                                         | Provision (benefit) for deferred income taxes                      |                                   
|                                             |                                                                                         | Depreciation and amortization                                      |                                   
|                                             |                                                                                         | Amortization of software development costs                         |                                   
|                                             |                                                                                         | Amortization of goodwill and other intangible assets               |                                   
|                                             |                                                                                         | In-process research and development acquired                       |                                   
|                                             |                                                                                         | Loss on disposal of equipment                                      |                                   
|                                             |                                                                                         | Accretion of discount on deferred acquisition price                |                                   
|                                             | Changes in operating assets and liabilities, net of effects from business acquisitions: |                                                                    |                                   
|                                             |                                                                                         | Accounts receivable                                                |                                   
|                                             |                                                                                         | Prepaid expenses and other assets                                  |                                   
|                                             |                                                                                         | Accounts payable and accrued expenses                              |                                   
|                                             |                                                                                         | Deferred revenue                                                   |                                   
|                                             |                                                                                         | Income taxes, including tax benefit from exercise of stock options |                                   
|                                             |                                                                                         |                                                                    |                                   
|                                             |                                                                                         |                                                                    | Net cash from operating activities
|                                             |                                                                                         |                                                                    |                                   
|CASH FLOWS FROM INVESTING ACTIVITIES:        |                                                                                         |                                                                    |                                   
|                                             | Purchase of property and equipment                                                      |                                                                    |                                   
|                                             | Proceeds from sale of property and equipment                                            |                                                                    |                                   
|                                             | Software development costs                                                              |                                                                    |                                   
|                                             | Cash paid for acquisition of business, net of cash acquired                             |                                                                    |                                   
|                                             | Net sales of short-term investments                                                     |                                                                    |                                   
|                                             |                                                                                         |                                                                    |                                   
|                                             |                                                                                         |                                                                    | Net cash from investing activities
|                                             |                                                                                         |                                                                    |                                   
|CASH FLOWS FROM FINANCING ACTIVITIES:        |                                                                                         |                                                                    |                                   
|                                             | Net (repayments of) proceeds from borrowings on lines of credit                         |                                                                    |                                   
|                                             | Principal payments under capital lease obligations                                      |                                                                    |                                   
|                                             | Payment on deferred acquisition price                                                   |                                                                    |                                   
|                                             | Net proceeds from stock issuance                                                        |                                                                    |                                   
|                                             | Proceeds from exercise of stock options and warrants                                    |                                                                    |                                   
|                                             | Cash dividends paid in lieu of fractional shares                                        |                                                                    |                                   
|                                             |                                                                                         |                                                                    |                                   
|                                             |                                                                                         |                                                                    | Net cash from financing activities
|                                             |                                                                                         |                                                                    |                                   
|NET INCREASE IN CASH AND CASH EQUIVALENTS    |                                                                                         |                                                                    | 8,928                             
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |                                                                                         |                                                                    | 16,378                            
|                                             |                                                                                         |                                                                    |                                   
|CASH AND CASH EQUIVALENTS, END OF YEAR       |                                                                                         | $                                                                  | 25,306                            
|                                             |                                                                                         |                                                                    |                                   

See
Notes to Financial Statements.

F-6

---

EPIQ SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999

NOTE 1:    NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

EPIQ Systems, Inc. (the "Company") develops, markets and licenses proprietary software solutions for workflow management and data communications
infrastructure that serve the bankruptcy trustee market and financial services market. The Company serves a national client base with specialized products that streamline the internal business
operations of its customers. The products are accompanied by a high level of coordinated support including network integration, post-installation support and value added services.

Common Stock Splits

On January 24, 2001, the Company announced that its Board of Directors had approved a 3 for 2 stock split effected as a 50% stock dividend, payable
February 23, 2001, to holders of record as of February 8, 2001. The effect of this stock split was presented in the 2000 Statement of Changes in Stockholders' Equity due to its timing in
relation to the filing of the 2000 financial statements. On November 6, 2001 the Company announced that its Board of Directors had approved a 3 for 2 stock split effected as a 50% stock
dividend, payable November 30, 2001, to holders of record as of November 16, 2001. The Company paid cash to shareholders in lieu of fractional shares. All per share and shares
outstanding data in the statements of income and notes to the financial statements have been retroactively restated to reflect the stock splits.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and in banks and all liquid investments with original maturities of three months or less.

Property and Equipment

Property and equipment is stated at cost and depreciated on a straight-line basis over the estimated useful life of each asset as follows:

Building and improvements

530 yearsFurniture and fixtures

510 yearsComputer equipment

35 yearsOffice equipment

510 yearsTransportation equipment

35 years


Software Development Costs

Certain internal software development costs incurred in the creation of computer software products are capitalized once technological feasibility has been
established. Prior to the completion of a detail program design, development costs are expensed and shown as general and administrative expenses on the statements of income. Capitalized costs are
amortized based on the ratio of current revenue to current and estimated future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining
estimated economic life of the product, not to exceed five years.

F-7

---

Intangible Assets

Intangible assets consist of goodwill, customer contracts, trade names and agreements not to compete which were the result of the business acquisitions of ROC
Technologies, Inc. ("ROC"), PHiTECH, Inc. ("PHiTECH") and DCI Chapter 7 Solutions, Inc. ("DCI"). Customer contracts, trade names and agreements not to compete are being amortized
on a straight-line basis over their estimated economic benefit period, generally from 3 to 14 years.

The
goodwill in the PHiTECH and DCI acquisitions are each being amortized on a straight-line basis over 10 years and 14 years, respectively. The goodwill in the
ROC acquisition follows the guidelines established by Statement of Financial Accounting Standards ("SFAS") No. 142,Goodwill and Other Intangible
Assets, which requires, among other things, that goodwill acquired in a business combination for which the acquisition date is after June 30, 2001, not be amortized.

Impairment of Long-lived Assets

The Company, using its best estimates based on reasonable and supportable assumptions and projections, reviews for impairment long-lived assets and
identifiable intangibles to be held and used whenever events or changes in circumstances indicate that the carrying amount of its assets might not be recoverable.

Income Taxes

The Company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their
reported amounts in the financial statements. A valuation allowance is provided when, in the opinion of management, it is more likely than not that some portion or all of a deferred tax asset will not
be realized.

Stock-Based Compensation

The Company accounts for stock based compensation for employees in accordance with the provisions of Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees,and related Interpretations and makes the pro forma information disclosures in accordance with SFAS
No. 123,Accounting for Stock Based Compensation.

Revenue Recognition

For the Company's Chapter 7 bankruptcy software product, monthly fees are received from a national financial institution and revenues are recognized after the
product is installed and deposits are transferred based on the number of trustees and the level of trustees' deposits with that institution. Revenues for Chapter 13 processing and noticing are
recorded monthly at the completion of the services based on the trustees' month-end caseloads. All other ancillary fees are recognized as the services are provided.

The
financial services revenues and a portion of the bankruptcy and related revenues are derived from software licensing, marketing and consulting services and maintenance fees.
Licensing fees are recorded as revenue following delivery, installation and acceptance. Consulting revenue is recognized in the period in which the services are performed and in certain circumstances,
based on the nature of the arrangement, are recognized on the percentage-of-completion method. Maintenance fees are collected in advance and recognized on a
straight-line basis as revenue over the life of the maintenance contract.

F-8

---

At
the time of the acquisition of the assets of DCI on November 29, 1999, the Company received $4,500,000 from a national financial institution for various technology and general
integration services. The Company has accounted for this payment as a multiple element project with the revenues being recorded as such elements were completed and delivered, primarily using the
percentage-of-completion method. As of December 31, 2000, $346,000 related to this project was included as deferred revenue.

Comprehensive Income

The Company has no components of other comprehensive income, therefore comprehensive income equals net income for each of the three years ended
December 31, 2001, 2000 and 1999.

Net Income Per Share

Basic net income per share was computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted net income per
share reflects the potential dilution of securities by adding other common stock equivalents, including stock options and warrants, in the weighted average number of common shares outstanding for a
period, if dilutive.

Segment Information

In determining the Company's reportable segments under the provisions of SFAS No. 131,Disclosures about Segments of an Enterprise
and Related Information,the Company examines the way it organizes its business internally for making operating decisions and assessing business performance (see
Note 13). Nearly all of the Company's revenues are derived from sources within the United States of America, and all of its long-lived assets are located in the United States of
America.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Derivatives and Hedging Activities

The Company did not hold any derivatives or embedded derivatives, as defined by SFAS No. 133,Accounting for Derivative Instruments
and Hedging Activities, as amended and interpreted by SFAS No. 137 and SFAS No. 138, therefore, the adoption of the statement on January 1, 2001 did not
result in a transition adjustment. Additionally, the Company did not hold any derivatives or embedded derivatives for the year ended December 31, 2001.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141,Business
Combinations, and SFAS No. 142. SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interests method. SFAS No. 142, which is required to be adopted by the Company January 1, 2002, requires, among other things, the
discontinuance of amortization of goodwill and certain other intangible assets. In addition, the statement includes provisions for the reclassification of certain existing recognized intangibles as

F-9

---

goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units
for purposes of assessing potential future impairments of goodwill. SFAS No. 142 also requires the Company to
complete a transitional goodwill impairment test six months from the date of adoption. The Company is evaluating the impact of the adoption of these statements and has not yet determined the effect of
adoption on its financial position, results of operations and cash flows.

In
August 2001, the FASB issued SFAS No. 143,Accounting for Asset Retirement Obligations. SFAS No. 143 requires the
recognition of a liability if a company has a legal or contractual financial obligation in connection with the retirement of a tangible long-lived asset. The Company expects to implement
SFAS No. 143 in the fiscal year beginning January 1, 2003 and is currently assessing its effect on the Company's financial position, results of operations and cash flows.

In
October 2001, the FASB issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets.
SFAS No. 144 modifies the financial accounting and reporting for long-lived assets to be disposed of by sale and it broadens the presentation of discontinued operations to include
more disposal transactions. The Company expects to implement SFAS No. 144 in the fiscal year beginning January 1, 2002. Adoption of this standard will not have a material effect on our
financial position, results of operations and cash flows.

Reclassification

Certain reclassifications have been made to the prior years' financial statements to conform with the current year's financial statement presentation.

NOTE 2:    SOFTWARE DEVELOPMENT COSTS

The following is a summary of software development costs capitalized:

|                                       |  | 2001 |        | 2000 |  
|-------------------------------------- |  | ---- | ------ | ---- | -
|
|Amounts capitalized, beginning of year |  | $    | 4,773  |      | $
|                                       |  |      |        |      |  
|Development costs capitalized          |  |      | 2,022  |      |  
|Acquisitions                           |  |      | 270    |      |  
|                                       |  |      |        |      |  
|Amounts capitalized, end of year       |  |      | 7,065  |      |  
|Accumulated amortization, end of year  |  |      | (2,939 | )    |  
|                                       |  |      |        |      |  
|Net software development costs         |  | $    | 4,126  |      | $
|                                       |  |      |        |      |  

Included
in the above are development costs relating to products not yet released. Such costs totaled $1,328,000 and $1,145,000 at December 31, 2001 and 2000, respectively.

F-10

---

NOTE 3:    LINES OF CREDIT AND LONG-TERM OBLIGATIONS

Lines of Credit

The Company has two lines of credit agreements with a bank. One line of credit is for equipment financing (the "Equipment Line") and allows for maximum available
borrowings of $2,500,000. The other line of credit is for working capital (the "Working Capital Line") and allows for maximum available borrowings of $5,000,000. Each line of credit accrues variable
rate interest, revised daily, equal to the New York Prime Rate as published in theWall Street Journal(4.75% at December 31,
2001).Borrowings under the Equipment Line are secured by computer equipment and are due on demand, or if not demanded, in amounts equal to
1/36th of the outstanding principal balance, with interest payable monthly. Borrowings under the Working Capital Line are unsecured, however, this line contains certain financial
covenants pertaining to the maintenance of certain earnings, net worth and debt to net worth ratios.

On
March 17, 2000, the Company received an advance of $3,500,000 against this line that was utilized to partially fund the PHiTECH acquisition. Borrowings under this line are due
on demand, and if not demanded, upon expiration of the line and interest is payable monthly. As of December 31, 2000, the entire amount remained outstanding under this line. On
October 27, 2000, the Company borrowed approximately $79,000 under the Equipment Line to finance the purchase of computer equipment. As of December 31, 2000, approximately $75,000
remained outstanding. On January 2, 2001, all of the outstanding borrowings, plus accrued interest, under both lines was repaid.

Both
lines of credit were renewed on June 20, 2001 to expire on June 20, 2002.

There
were no borrowings outstanding under these lines of credit at December 31, 2001. The Company was in compliance with all of the financial covenants under the Working Capital
Line as of and for the years ended December 31, 2001 and 2000.

Obligations under Capital Leases

Capital leases are for the use of office equipment for no more than five years, expiring through August 2004. Aggregate annual payments for these
obligations at December 31, 2001 are as follows:

(In Thousands)2002

$
1272003


1092004


69Future minimum lease payments


305Less amount representing interest


39Present value of future minimum lease payments


266Less current maturities


103Noncurrent portion

$
163


For
the above obligations, the carrying value approximates the fair value.

F-11

---

As
of December 31, 2001 and 2000 property and equipment include the following assets under capital leases:

2001

2000(In Thousands)Office equipment

$
385

$
550Less accumulated amortization


119


99$
266

$
451


NOTE 4:    OPERATING LEASES

The Company has three non-cancelable operating leases for office space expiring at various times through December 2003. Each of the leases
requires the Company to pay all executory costs (property taxes, maintenance and insurance). Additionally, the Company has non-cancelable operating leases for various office equipment and
automobiles expiring through June 2006.

Future
minimum lease payments at December 31, 2001 are as follows:

(In Thousands)2002

$
3722003


2162004


1702005


372006


23$
818


Rental
expense was approximately $431,000, $507,000, and $310,000 for the years ended December 31, 2001, 2000 and 1999, respectively. Included in rental expense was approximately
$69,000, $162,000, and $158,000 paid to a related party (see Note 5) for the years ended December 31, 2001, 2000 and 1999, respectively.

NOTE 5:    RELATED PARTY TRANSACTIONS

The Company leased office space for the corporate headquarters building in Kansas City, Kansas from a partnership in which the Chairman of the Board and Chief
Executive Officer of the Company is a partner. The lease expired in February 2001 and became a month to month lease. In May 2001 the Company purchased its corporate headquarters building
and land for a cash purchase price of $1,750,000. The purchase price was based on an independent MAI appraisal of the building obtained by the Company in January 2001.

The
Company recorded receivables from the related party for reimbursement of property taxes of approximately $35,000 as of December 31, 2000. The receivable balance as of
December 31, 2000 was reimbursed during 2001.

F-12

---

NOTE 6:    EMPLOYEE BENEFIT PLANS

Stock Purchase Plan

The Company established an employee stock purchase plan in October 2000. The plan allows for the majority of employees a convenient opportunity to purchase
shares of the Company's stock through payroll deduction. The purchase prices for all employee participants are based on the closing bid price on the last business day of the month.

Defined Contribution Plan

The Company has a defined contribution 401(k) plan covering substantially all employees. The Company matches 60% of the first 10% of employee contributions and
also has the option of making discretionary contributions. Contributions were approximately $270,000, $203,000, and $122,000 for the years ended December 31, 2001, 2000, and 1999, respectively.

NOTE 7:    STOCKHOLDERS' EQUITY

On July 19, 1999, the shareholders approved amending the Articles of Incorporation of the Company by authorizing the issuance of up to 2,000,000 shares of
$1 par value preferred stock.

On
June 7, 2000, the shareholders approved amending the Articles of Incorporation of the Company to increase the number of authorized common shares to 20,000,000 from 10,000,000.

On
December 29, 2000, the Company completed a private placement of 2,025,000 shares of its common stock and received net proceeds of $12,543,000, after underwriter's discount and
offering expenses of $957,000.

On
June 6, 2001, the shareholders approved amending the Articles of Incorporation of the Company to increase the number of authorized common shares to 50,000,000 from 20,000,000.

On
June 29, 2001, the Company completed a follow-on offering of 1,537,500 shares of its common stock and received net proceeds of $22,735,000, after underwriter's
discount and offering expenses of $1,865,000.

In
connection with the initial public offering, the Company issued warrants to purchase 360,000 shares of stock at $1.87 per share to its underwriters which expired at the close of
business on February 3, 2002. At December 31, 2000 warrants to purchase 107,550 shares of stock remained outstanding. In January 2001, 103,670 warrants were exercised for their
exercise price, resulting in the issuance of an additional 103,670 shares of common stock. In April 2001, 2,588 of the remaining warrants were converted in a cashless exercise, resulting in the
issuance of an additional 2,181 shares of common stock. The remaining 1,293 warrants were converted to 1,165 shares of common stock in a cashless exercise in May 2001. There were no warrants
outstanding as of December 31, 2001.

F-13

---

NOTE 8:    INCOME TAXES

The provision (benefit) for income taxes includes the following components:

2001

2000

1999(In Thousands)Taxes currently payable:Federal

$
2,107

$
1,300

$
763States


470


280


164Total


2,577


1,580


927Deferred income taxes


459


(260
)

17$
3,036

$
1,320

$
944


A
reconciliation of the provision for income taxes at the statutory rate to provision for income taxes at the Company's effective rate is shown below:

2001

2000

1999(In Thousands)Computed at the statutory rate (34%)

$
2,713

$
1,174

$
830Increase in taxes resulting from:Nondeductible expenses and nontaxable income


49


26


32State income taxes, net of federal tax effect and other


274


120


82Tax provision

$
3,036

$
1,320

$
944


The
tax effects of temporary differences related to deferred taxes shown on the accompanying balance sheets are as follows:

2001

2000(In Thousands)Deferred tax assets:Allowance for doubtful accounts

$
12

$
12Accrued compensated absences


168


123Accrued stock options


14


13Deferred revenue


54


131Intangible assets


314


138562


417Deferred tax liabilities:Property and equipment and software development costs


1,268


664$
(706
)
$
(247
)


The
above net deferred tax liability is presented on the balance sheets as follows:

2001

2000(In Thousands)Deferred income taxescurrent

$
194

$
279Deferred income taxeslong-term


(900
)

(526
)$
(706
)
$
(247
)


F-14

---

NOTE 9:    NET INCOME PER SHARE

The details of the basic and diluted net income per share calculations are as follows:

|                               |                                                                 | 2001 |   | 2000  |  | 1999  
|------------------------------ | --------------------------------------------------------------- | ---- | - | ----- |  | ------
|
|
|Basic net income per share:    |                                                                 |      |   |       |  |       
|                               | Income available to common shareholders                         |      | $ | 4,942 |  | 13,508
|                               |                                                                 |      |   |       |  |       
|Effect of dilutive securities: |                                                                 |      |   |       |  |       
|                               | Warrants                                                        |      |   |       |  |       
|                               | Stock options                                                   |      |   |       |  | 603   
|                               |                                                                 |      |   |       |  |       
|Diluted net income per share:  |                                                                 |      |   |       |  |       
|                               | Income available to common shareholders and assumed conversions |      | $ | 4,942 |  | 14,111
|                               |                                                                 |      |   |       |  |       

As of December 31, 2001, 2000 and 1999, the Company had approximately 4,000, 15,000, 156,000 options outstanding, respectively, which were
anti-dilutive and, therefore, not considered in the diluted earnings per share calculation above.

NOTE 10:    STOCK OPTIONS

The Company's 1995 Stock Option Plan (the "Plan"), as amended, provides for the maximum number of shares of common stock available under the Plan to 1,800,000.
Under the Plan, the option price may not be less than 85% of the fair market value of the common stock on the date of grant non-qualified stock option and not less than 100% of the fair
market value of the common stock on the date of grant for an incentive stock option ("ISO").

The
Board of Directors administers the Plan and has discretion to determine the term of an option, which may not be exercised more than 10 years after the date of grant. In the
case of an ISO granted to an employee owning more than 10% of the voting stock of the Company, the term may not exceed five years from the date of grant. Options may not be transferred by an optionee
except by will or the laws of descent and distribution and are exercisable during the lifetime of an optionee only by the optionee or the optionee's guardian or legal representatives. Assuming the
option is otherwise still exercisable, options must be exercised within one year after a termination of employment due to death, one year after a termination of employment due to disability, and three
months after any other termination of employment.

The
Board of Directors may require in its discretion that any option granted becomes exercisable only in installments or after some minimum period of time, or both. The options vesting
schedule ranges from immediately to five years.

At
December 31, 2001, there were approximately 182,000 options available for future grants.

F-15

---

A
summary of the Company's stock options outstanding as of December 31, 2001, 2000 and 1999 is presented below:

|                               |  | 2001  |   | 2000 |      | 1999
|------------------------------ |  | ----- | - | ---- | ---- | ----
|
|
|Outstanding, beginning of year |  | 1,134 |   | $    | 3.92 |     
|Granted                        |  | 443   |   |      | 9.89 |     
|Forfeited                      |  | (87   | ) |      | 7.06 |     
|Exercised                      |  | (197  | ) |      | 3.09 |     
|                               |  |       |   |      |      |     
|Outstanding, end of year       |  | 1,293 |   |      | 5.88 |     
|                               |  |       |   |      |      |     

Weighted-average
fair value of options granted during the year 2001, 2000 and 1999 were $7.23, $3.36 and $4.27, respectively.

The
following table summarizes information about stock options under the plan outstanding at December 31, 2001:

Options Outstanding

Options ExercisableRange of
Exercise Prices

Number
Outstanding

Weighted
Average
Remaining
Contractual Life

Weighted
Average
Exercise
Price

Number
Exercisable

Weighted
Average
Exercise
Price(In Thousands, Except Life and Price Data)$1.56 to $3.67

288

4.9 years

$
2.61

234

$
2.67$4.00 to $6.00

592

7.7 years


4.75

276


4.67$7.53 to $12.43

395

9.2 years


9.33

142


9.61$16.07 to $21.00

18

9.8 years


20.18




1,293






652


The
Company accounts for this plan under APB Opinion No. 25, under which only an immaterial amount of compensation cost has been recognized. Had compensation cost been determined
based on the fair value at the grant dates using SFAS No. 123, the Company's December 31, 2001, 2000 and 1999 net income and net income per share would have been reduced to the following
pro forma amounts:

|                             |  |             |  | 2001 |       | 2000 |   | 1999 
|---------------------------- |  | ----------- |  | ---- | ----- | ---- | - | -----
|
|Net income                   |  | As reported |  | $    | 4,942 |      | $ | 2,132
|                             |  | Pro forma   |  | $    | 4,113 |      | $ | 1,717
|Net income per shareBasic   |  | As reported |  | $    | .37   |      | $ | .20  
|                             |  | Pro forma   |  | $    | .30   |      | $ | .17  
|Net income per shareDiluted |  | As reported |  | $    | .35   |      | $ | .20  
|                             |  | Pro forma   |  | $    | .29   |      | $ | .16  

Pro
forma amounts presented here are based on actual earnings and consider only the effects of estimated fair values of stock options.

F-16

---

The
fair value of the above options was estimated at the date of grant using the Black-Scholes option-pricing model with the following key assumptions:

2001

2000

1999Expected life (years)

6.49

6.75

6.75Volatility

79%

67%

237%Risk-free interest rate

1.9%6.7%

5.9%6.4%

5.0%6.7%Dividend yield

0%

0%

0%


The
Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models
do not necessarily provide a reliable single measure of the fair value of its employee stock options.

NOTE 11:    SIGNIFICANT CUSTOMER AND CONCENTRATION

For its Chapter 7 software product, the Company collects revenue from its Chapter 7 trustee clients through a national marketing arrangement with a national
financial institution in which the Company receives revenues based on the number of trustees and the level of trustees' deposits with that institution. The Company also earns revenue from conversions,
upgrades, electronic banking services, technology services and marketing and consulting services. Revenues recognized by the Company from this financial institution as a result of these arrangements
were approximately $22,335,000 for 2001, $14,610,000 for 2000, and $9,317,000 for 1999. The increase in each year shown was from increases in the number of trustees and deposits, electronic banking,
technology integration fees, licensing fees, technology management fees and marketing and consulting services.

Additionally,
that institution represented approximately 77% and 69% of the Company's account receivable balance as of December 31, 2001 and 2000, respectively.

NOTE 12:    BUSINESS ACQUISITIONS

ROC Technologies, Inc.

On October 11, 2001, the Company acquired certain assets from ROC, the bankruptcy management software subsidiary of Imperial Bancorp. Imperial Bancorp is a
subsidiary of Comerica, Inc. ("Comerica"). The acquisition followed Comerica's decision to exit the Chapter 7 trustee business. The purchase price totaled approximately $12,228,000, including
acquisition costs of $188,000 and assumed liabilities of $40,000. The net purchase price of $12,188,000 was paid entirely in cash. The purchase price was allocated to property and equipment of
$118,000, software of $270,000, trade name of $60,000 and customer contracts of $1,840,000. The software and trade name are being amortized on a straight-line basis over 3 years
while the customer contracts are being amortized on a straight-line basis over 10 years. The remainder of the purchase price was allocated to goodwill and totaled $9,940,000. In
accordance with SFAS No. 142, the goodwill is not being amortized and will be tested for impairment upon full implementation of the statement in 2002.

F-17

---

PHiTECH, Inc.

On March 17, 2000, the Company acquired substantially all of the business assets of PHiTECH, a California corporation that provides software-based
solutions that enable corporate customers to route, secure and format business-critical data over the Internet and private networks using a wide variety of web-based and legacy
communications protocols.

The
total value of the transaction was $7,109,000, of which $5,338,000 was paid in cash (partially financed with short-term borrowings under a line of credit, see
Note 3), $797,000 was deferred in the form of a non-interest bearing note with a face value of $1,000,000 discounted using an implied rate of 9% per year and $974,000 represented
assumed liabilities. The note is payable in four annual installments of $250,000, the first of which was paid in April 2001 and the remaining balance is presented as deferred acquisition price
on the balance sheet. The purchase price was allocated to net tangible assets of $323,000, software of $362,000, a non-compete agreement of $50,000, and $364,000 was allocated to acquired
in-process research and development ("IPRD") and treated as a charge to earnings reducing after tax income for 2000 by $217,000. The acquired IPRD related to PHiTECH's
new, next-generation Java-based product, which the Company completed in the first quarter of 2001, and was approximately 80% complete at the time of the acquisition. Of the
remaining $6,011,000 purchase price, $650,000 was allocated to trade names and $700,000 to customer contracts which are being amortized on a straight-line basis over 10 years. The
excess purchase price of $4,661,000 was allocated to goodwill which was being amortized on a straight-line basis over ten years with amortization ceasing on January 1, 2002, the
date the Company will adopt SFAS No. 142.

DCI Chapter 7 Solutions, Inc.

On November 29, 1999, the Company acquired substantially all of the business assets of DCI in a purchase business combination with the operating results of
DCI included in the Company's statements of income since the date of acquisition. The purchase price totaled approximately $10,057,000, and was paid entirely in cash. The purchase price was allocated
to net tangible assets of $107,000, software of $100,000, and a non-compete agreement of $250,000. The remainder of the purchase price was allocated to customer contracts of $900,000 and
goodwill of $8,700,000, which are being amortized on a straight-line basis over 14 years with the goodwill amortization ceasing on January 1, 2002, the date the Company will
adopt SFAS No. 142.

With
the DCI acquisition, the Company acquired a significant amount of computer equipment; with the assimilation of DCI, it was necessary to standardize certain equipment for efficiency
purposes going forward, and the Company, therefore, determined that certain older existing equipment with a net book value of $230,000 should be retired.

The
acquisitions have been accounted for using the purchase method of accounting with the operating results included in the Company's statement of income since the respective date of
acquisition. The Company capitalized direct costs of approximately $188,000, $80,000 and $49,000 in conjunction with the acquisitions of ROC, PHiTECH and DCI, respectively. Costs related to potential
acquisitions which were not consummated and indirect costs related to completed acquisitions are charged to expense as incurred and are reflected as acquisition related expenses on the statements of
income.

F-18

---

Unaudited
pro forma operations assuming the purchase acquisitions were made at the beginning of the year preceding each acquisition are shown below:

Year Ended
December 31, 2001

Year Ended
December 31, 2000

Year Ended
December 31, 1999Operating Revenues

$
31,774

$
25,131

$
18,462Net Income


3,429


330


80Net Income Per Share:Basic

$
0.25

$
0.03

$
0.01Diluted

$
0.24

$
0.03

$
0.01


The
pro forma information is not necessarily indicative of what would have occurred had the acquisitions been completed on those dates, nor is it necessarily indicative of future
operations.

Pro
forma data reflect the difference in amortization expense between the Company and the acquired companies as well as a reduction in interest income based on the utilization of
interest-bearing investments to purchase the acquirees and interest expense related to borrowings to finance the PHiTECH acquisition.

NOTE 13:    SEGMENT REPORTING

The Company has three operating segments in which it allocates resources and assesses performance: Chapter 7 and related bankruptcy services, Chapter 13 services,
and financial services. For Chapter 7 and related bankruptcy services and Chapter 13 services, the Company serves a national client base of bankruptcy trustees and related entities by developing
specialty software products and providing coordinated support (network integration, post-installation support and other value-added services), which facilitate the administrative aspects
of bankruptcy management for court-appointed trustees. The individual bankruptcy segments have similar operating and economic characteristics and have been presented as one aggregated reportable
segment. With the acquisition of PHiTECH in 2000, the
Company also develops specialty software products and provides support for the financial services industry, which has been reported as the second operating segment.

F-19

---

Information
concerning operations in these reportable segments of business is as follows:

2001

2000

1999(In Thousands)Operating revenues:Bankruptcy and related services

$
28,149

$
19,906

$
14,820Financial services


1,963


3,351Total operating revenues


30,112


23,257


14,820Cost of sales:Cost of products and services:Bankruptcy and related services


5,462


4,900


4,737Financial services


882


1,122Depreciation and amortization:Bankruptcy and related services


3,286


2,948


2,157Financial services


440


151Total cost of sales


10,070


9,121


6,894Gross profit:Bankruptcy and related services


19,401


12,058


7,926Financial services


641


2,078Total gross profit

$
20,042

$
14,136

$
7,926


The
Company has not disclosed assets or net income by segment, as the information is not reviewed by the chief operating decision maker, is not produced internally and its preparation is
impracticable.

NOTE 14:    ADDITIONAL CASH FLOWS INFORMATION

2001

2000

1999(In Thousands)Additional Cash InformationInterest paid

$
117

$
291

$
18Income taxes paid


1,837


1,309


1,035Noncash Investing and Financing ActivitiesCapital lease obligation incurred for equipment

$


$
369

$



F-20

---

The
Company acquired certain business assets and assumed certain liabilities of ROC during 2001, and substantially all business assets of PHiTECH and DCI in 2000 and 1999, respectively (see Note 12).
In conjunction with the acquisitions, cash flow information is as follows:

|                                                     |  | 2001
ROC |        | 2000
PHiTECH |   | 1999
DCI |  
|---------------------------------------------------- |  | -------- | ------ | ------------ | - | -------- | -
|
|Fair value of assets acquired                        |  | $        | 12,228 |              | $ | 7,109    |  
|Deferred obligation incurred in purchase transaction |  |          |        |              |   | (797     | )
|Liabilities assumed                                  |  |          | (40    | )            |   | (974     | )
|                                                     |  |          |        |              |   |          |  
|Cash paid for acquisition                            |  |          | 12,188 |              |   | 5,338    |  
|Cash acquired                                        |  |          |        |              |   | 4        |  
|                                                     |  |          |        |              |   |          |  
|Cash paid for acquisition, net of cash acquired      |  | $        | 12,188 |              | $ | 5,334    |  
|                                                     |  |          |        |              |   |          |  

*        *        *

F-21

---

EXHIBIT INDEX

The following exhibits are filed with this Form 10-K or are incorporated herein by reference:

|Exhibit Number |  | Description                                                                                                                                     
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Articles of Incorporation, as amended.(1)                                                                                                       
|3.2            |  | Bylaws, as amended and restated.(2)                                                                                                             
|4.1            |  | Reference is made to exhibits 3.1 and 3.2.                                                                                                      
|10.1           |  | Agreement for Computerized Trustee Case Management System between the Company and NationsBank of Texas, N.A., dated November 22, 1993.(3)       
|10.2           |  | 1995 Stock Option Plan, as amended.(4)                                                                                                          
|10.3           |  | Asset Purchase Agreement dated as of March 3, 2000, between the Company and PHiTECH, Inc.(5)                                                    
|10.4           |  | Securities Purchase Agreement dated December 29, 2000.(6)                                                                                       
|10.5           |  | Modification Agreement dated as of June 20, 2001 between the Company and Gold Bank of Leawood for $3,500,000 Line of Credit.(1)                 
|10.6           |  | Line of Credit dated June 20, 2001 from Gold Bank of Leawood in the amount of $2,500,000.(1)                                                    
|10.7           |  | Purchase and Assumption Agreement dated as of October 10, 2001, among ROC Technologies. Inc., Comerica Holdings Incorporated and the Company.(7)
|10.8           |  | Real Estate Contract between T & J Investment Co. and the Company effective as of April 30, 2001.*                                              
|10.9           |  | Modification Agreement dated as of August 24, 2001 between the Company and Gold Bank of Leawood for $5,000,000 Line of Credit.*                 
|23.1           |  | Consent of Deloitte & Touche LLP, Independent Auditors'.*                                                                                       
|99.1           |  | Audit Report of BKD, LLP (formerly Baird, Kurtz & Dobson).*                                                                                     

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