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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, 2002

Commission File Number 0-22081

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

|Missouri                                                       |  | 48-1056429                       
|-------------------------------------------------------------- |  | ---------------------------------
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (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 ý    No o

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.    o

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 7, 2003, was
approximately $265,000,000.

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act).    Yes ý    No o

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 the last business day of the
registrant's most recently completed second fiscal quarter was approximately $200,000,000.

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
2003 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 17,609,655 shares of common stock of the registrant outstanding as of March 7, 2003.

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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.
|ITEM 14.
|PART IV 
|ITEM 15.

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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 the"Risk Factors"section of this report. 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. is a national provider of technology-based products and services to law firms and attorneys who work in the federal bankruptcy system
and to companies that have filed for bankruptcy reorganization. Customers implement our solutions to administer bankruptcy cases of all sizes and configurations. Our products automate various
administrative tasks pertaining to bankruptcy claims, assets, financial records and other data associated with liquidations and reorganizations. Our services assist customers to organize and manage
their databases of case information, to prepare notices and mailings, and to fulfill their additional responsibilities. By implementing an EPIQ Systems bankruptcy management solution, our customers
have a single environment in which to administer their cases. In addition to our bankruptcy management business, our infrastructure software division develops file transfer software used by companies
in various industries.

Our
bankruptcy solutions include offerings for each of Chapters 7, 11 and 13. Chapter 7 is a liquidation model of bankruptcy that accounted for approximately 70% of all
filings, as measured by the number of new cases filed in 2002. Chapter 11 is a corporate reorganization that accounted for approximately 1% of all filings in 2002. Chapter 13 is a
personal reorganization that accounted for approximately 29% of all filings in 2002.

Our
primary offering for Chapter 7 isTCMS, a package of computer hardware, support services and a proprietary software product
designed to manage asset liquidations, creditor distributions, and government reporting. The application of Chapter 7 bankruptcy regulations has the practical effect of discouraging trustee
customers from incurring direct administrative costs for computer system expenses. As a result, 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 trustee customers agree to deposit the cash proceeds from liquidations of debtors' assets with Bank of America. Under this arrangement:



We
also derive monthly revenue based on the number of customers using our products as well as non-recurring revenue from database conversions, software upgrades, technology management
services and strategic consulting services.

Our
primary offering for Chapter 11 is a packaged solution of professional services and our proprietary technology platform which is used by companies in Chapter 11 and
their counsel. Our services include claims reconciliation, noticing, balloting, and technology consulting. Our Chapter 11 technology platform provides web-enabled access to case
information and manages the database from which services are provided. In Chapter 11, we collect a monthly recurring fee from our customers based on the number of claims in each case, and we
bill for our professional services on a time and materials basis or a fixed-fee basis.

Our
primary offering for Chapter 13 isCasePower, a proprietary software package designed to manage debtor payments, creditor
distributions and government reporting. We also provide certain services in Chapter 13 trustees to support case administration, such as noticing, document input, and bank account
reconciliation. We collect monthly recurring revenue from Chapter 13 customers based on the size of their caseloads and the volume of notices generated.

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Our
primary offering for the infrastructure software market isDataExpress,a software product line that automates the exchange of data
files between our customers and their business partners.DataExpressserves customers in a variety of industries, including financial services,
insurance and retail. We license this product on a named-server basis, and we charge additional fees for annual software maintenance and for professional services provided on a time and materials
basis.

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
principal executive office is located at 501 Kansas Avenue, Kansas City, Kansas 66105. The telephone number at that address is (913) 621-9500, and
our website address is www.epiqsystems.com.

TCMS andCasePower are our registered trademarks. We have filed
a trademark application forDataExpress, which is pending with the U.S. Patent and Trademark Office.

Recent Developments

CPT Acquisition.On July 10, 2002, we acquired the Chapter 7 business of CPT Group, Inc. for $852,000.
CPT Group was located in the Central District of California, an area characterized by some of the nation's largest Chapter 7 bankruptcy caseloads.

Private Placement.On November 7, 2002, we completed a private placement of 2,000,000 newly issued shares of our
common stock, raising approximately $28,140,000 in net proceeds. The shares are registered for resale, from time to time, by the holders pursuant to a registration statement declared effective on
February 5, 2003.

BSI Acquisition.On January 31, 2003, we acquired 100% of the membership interests in Bankruptcy Services LLC ("BSI"),
through a new wholly owned subsidiary, EPIQ Systems Acquisition, Inc., for an aggregate purchase price (prior to direct acquisition costs) of $66,000,000, consisting of $49,500,000 in cash and
1,054,230 shares of restricted common stock. BSI provides technology-based case management, consulting and administration services for Chapter 11 cases.

Industries

Bankruptcy Industry

Bankruptcy is 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 2002 government fiscal year (ended September 30, 2002), the Administrative Office of the U.S. Courts reported approximately 1.55 million new bankruptcy filings, an
all-time high.

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



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The
participants in a bankruptcy proceeding include the debtor, the creditors, and the bankruptcy judge. In Chapter 7 and Chapter 13, each case will also have a
professional bankruptcy trustee. The trustee acts as an intermediary between the debtor and creditors and is responsible for administering the bankruptcy case. The end-user customers of
our Chapter 7 and 13 bankruptcy products and services aretrustees, not individual debtors or creditors. For Chapter 11 bankruptcy
products and services, the Company's customers are the debtor companies that file a plan of reorganization.

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. 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 for the
Executive Office for United States Trustees and the bankruptcy court. Trustees typically are attorneys or certified public accountants who manage an entire caseload of bankruptcy cases simultaneously.
A trustee will usually specialize in either Chapter 7 or Chapter 13.

Infrastructure Software Industry

Companies with complex technology and business requirements often must share data files among their internal divisions, customers and outside business partners. A
category of infrastructure software has emerged in the information technology industry to fulfill this business requirement. Companies implement this type of software to integrate legacy and web
systems, to manage payment files, and to exchange other types of business data.

Products and Services

Chapter 7 Product and Services.Our primary offering for Chapter 7 is TCMS, a
package of computer hardware, support services and a proprietary software product designed to manage asset liquidations, creditor distributions,
and government reporting. In the first quarter of 2003, we released TCMS version 8.0, the eighth major annual upgrade to this product.

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



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We
have a recurring revenue model in Chapter 7 that is derived through a national marketing program with Bank of America. We provide TCMSto end-user bankruptcy trustee customers at no charge. Our
customers agree to deposit the cash proceeds from liquidations of debtors'
assets with Bank of America, and we collect from Bank of America monthly revenues that include a percentage of the total funds on deposit. We also derive monthly revenue based on the number of
customers using our products as well as non-recurring revenue from database conversions, software upgrades, technology management services and strategic consulting services. To support our
marketing arrangement, we also provide periodic technology services directly to Bank of America.

In
addition toTCMS, we continue to support certain Chapter 7 products which we gained from prior strategic acquisitions, including DCI Ch/7,Eagle TrustandCPT. These products
fulfill business requirements similar to those performed by TCMS.

In
addition to our marketing arrangement with Bank of America, we support certain other banking arrangements gained in acquisitions, but we focus on developing new business through the
Bank of America relationship.

Chapter 11 Products and Services.Our primary offering for Chapter 11 is a packaged solution of professional
services and our proprietary technology platform, which is used by companies in Chapter 11
and their counsel. Our services include claims reconciliation, noticing, balloting and technology consulting.

Our
Chapter 11 technology platform provides web-enabled access to case information and manages the database from which services are provided. This platform is
installed and hosted at an EPIQ Systems facility, and customers may access various features of the system over the internet.

In
Chapter 11, we collect a monthly recurring fee from our customers based on the number of claims in each case, and we bill for our professional services on a time and materials
basis or a fixed-fee basis.

Chapter 13 Products and Services.Our primary offering for Chapter 13 is CasePower, a proprietary software package designed to manage debtor payments, creditor distributions and government reporting. In the first quarter of
2003, we released version 5.0 ofCasePower.

CasePoweroperates in the Windows® operating system and is supported by an Oracle® database. CasePoweris installed in a trustee customer's office and is
provided as a package of products and services that include a combination of the following
options:



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We
collect monthly recurring revenue from Chapter 13 customers based on the size of their caseloads and the volume of notices generated.

In
addition toCasePower, we also support one other Chapter 13 product gained from a prior strategic acquisition, Trust Service & Information System. This product fulfills business requirements similar to those provided by CasePower.

Infrastructure Products and Services.Our primary offering for the infrastructure software market is DataExpress,a software product line that automates the exchange of data files between our customers and their business partners. DataExpressserves customers in a variety of industries,
including financial services, insurance and retail.

DataExpressis available for the Windows,® Unix® and Compaq Non-Stop® operating systems.
For Windows® and Unix,® options are available to support Oracle® and Microsoft SQL Server® databases. Customers license the core functionality of DataExpressand may choose from a
variety of optional modules that extend the system's capabilities.

The
core functionality ofDataExpressincludes system security, task scheduling, system monitoring and data warehousing. Optional modules
allow the system to support various communications protocols. A communications protocol allows computers to exchange information in a prescribed fashion. The names of certain communications protocols
which we support include: FTP, Async (x-modem, y-modem, z-modem and KERMIT®), and Bisync®.

Our
services for this product include technical support, systems management, installation and training, and customer-specific enhancements.

We
license ourDataExpressproduct on a named-server basis, with additional fees for annual software maintenance and for professional
services, which are provided on a time and materials basis.

Customers

Bankruptcy Industry

Our customers are legal professionals who serve the federal bankruptcy system and companies that file for bankruptcy reorganization.

Chapter 7 and 13 Customers.The end-user customers of our Chapter 7 and 13 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. 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 for the Executive Office for United States Trustees and for the bankruptcy court. Trustees typically are attorneys
or certified public accountants who manage an entire caseload of bankruptcy cases simultaneously. A trustee will usually specialize in either Chapter 7 or Chapter 13.

To
support our Chapter 7 marketing arrangement with Bank of America, we periodically provide various technology services directly to Bank of America.

Chapter 11 Customers.For Chapter 11 bankruptcy products and services, the Company's customers are the debtors
filing a plan of reorganization. While these companies are the end-customer, law firms representing these companies are the conduit through which we and our competitors gain access to the
debtor companies prior to their filing for bankruptcy. The debtors' counsel frequently use our services and products directly on their clients' behalf, and we have developed relationships with the
bankruptcy departments at various law firms throughout the United States.

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Infrastructure Software Industry

Our infrastructure software customers are business that must frequently exchange data files with their business partners or customers. While our DataExpressproduct is designed to support customers in a variety of industries, most of our customers today are in the financial services, insurance,
and retail industries. Representative customers include Automatic Data Processing, Global Payments, Payless ShoeSource, Inc. and Visa USA.

Sales and Marketing

Bankruptcy Industry

We market our bankruptcy products and services directly to bankruptcy trustees, Chapter 11 debtors and law firms through on-site sales calls by
our internal sales department and, in the case of Chapter 7, by supporting representatives of Bank of America. Our end user customers (Chapter 7 trustees, Chapter 11 debtors, and
Chapter 13 trustees) make independent decisions regarding the technology provider they select. We focus on attracting and retaining customers based on the quality of our service execution and
the features and benefits of our technology products.

The
sales cycle for Chapter 7 customers can vary widely but is typically several months. Chapter 11 debtors typically select a technology provider shortly prior to filing
for bankruptcy. The sales cycle in Chapter 13 can exceed one year.

The
Executive Office for United States Trustees in Washington, D.C. periodically publishes a directory of all current bankruptcy trustees that we use as our prospect list for Chapters 7
and 13. Our sales representatives attend various bankruptcy trade shows annually. We conduct direct mail campaigns and advertise in trade journals.

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. We are responsible 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 efforts and are responsible for administering the banking services provided to trustee customers. The structure of the marketing arrangement assists Bank of America to build its deposit base
in this market.

As
a result of the banking relationships associated with the prior strategic acquisitions, we continue to support a number of trustee relationships through other banks.

Infrastructure Software Industry

We target infrastructure software customers through a dedicated direct sales force and participation in key industry trade shows. We also develop alliances with
computer systems providers to complement our direct sales efforts.

Competition

Bankruptcy Industry

There are approximately 1,700 Chapter 7 trustees, of whom approximately 1,200 actively accept new cases. There are approximately 180 Chapter 13 trustees. There
are several competitors all competing for sales from this finite group of customers including J.P. Morgan Chase Bank and other regional competitors.

In
the Chapter 11 market, there are a variety of companies competing for the finite number of corporate reorganizations filed each year. Our competitors include Donlin Recano &
Co., BMC Corp.,

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Poorman-Douglas, and Trumbull Bankruptcy Services and others. Additionally, certain law firms, accounting firms, management consultancies, turnaround specialists and crisis management firms offer
certain products and services that compete with our own.

Infrastructure Software Industry

There are many technology companies in the infrastructure software industry, many of whom have product lines with a file transfer functionality. Direct
competitors who specialize in file transfer include: Sterling Commerce, Momentum Systems, Valicert and BCE Emergis.

Government Regulation

Our products and services are not directly regulated by the government. Our bankruptcy trustee customers and Chapter 11 debtors are, however, subject to
significant regulation. Bankruptcy trustees and Chapter 11 debtors 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 the bankruptcy industry and establishes
administrative rules governing our clients' 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.

Employees

As of the date of this report, we employ approximately 170 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. Listed below are the risks associated with an investment in our common stock that could cause
actual results to differ from those expressed or implied.

A significant reduction in the amount of Chapter 7 liquidated asset proceeds on deposit by our Chapter 7 bankruptcy trustee customers or in the number of pending bankruptcy
cases would cause our revenues and profits to drop significantly.

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 Chapter 7 liquidated asset proceeds on deposit by our bankruptcy trustee customers or the number of pending bankruptcy cases could cause our bankruptcy and related services
segment revenues and our profits to drop significantly.

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We have historically lacked product and business diversification. If we are unable to expand our primary business, our future revenues and earnings may not grow and could
decline.

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 infrastructure software market through the purchase of PHiTECH, Inc. The bankruptcy and related services segment of our
business represented 95% of our operating revenues in 2002. In 2003, we entered the Chapter 11 industry with our acquisition of Bankruptcy Services, LLC. If we are unable to maintain and grow the
operating revenues from the bankruptcy and related services segment of our business, our future revenues and earnings may not grow and could decline. Our lack of product and business diversification
could inhibit the opportunities for growth of our business, revenues and profits.

Bankruptcy reform legislation could decrease the amount of Chapter 7 liquidated asset proceeds on deposit by our Chapter 7 trustee customers or the number of bankruptcy
filings, which could cause a reduction in our revenues and profits.

Bankruptcy reform legislation has been introduced in Congress in each of the last few years, but has not been passed. We believe proposed legislation will be
reintroduced annually and will eventually pass and be signed by the President. The recently 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. For example, new legislation could force certain debtors to file bankruptcy under Chapter 13 instead of Chapter 7, thereby causing
the debtor to file a plan of reorganization to repay creditors over time, rather than liquidating the debtor's assets. While this legislation, if passed, could affect the number of bankruptcy
filings, we do not think the recent proposals would materially affect the aggregate Chapter 7 deposits held by our trustee customers in the foreseeable future. Even if
there is a resultant drop in the amount of Chapter 7 deposits held by our trustee customers, there may be a corresponding increase in the number of Chapter 13 cases managed by our trustee customers.

Substantially all of our Chapter 7 revenues are collected through our relationship with Bank of America, and if our national marketing arrangement with Bank of America for our
Chapter 7 business were terminated or materially changed, our revenues and earnings could suffer.

The application of Chapter 7 bankruptcy regulations discourages Chapter 7 trustees from incurring direct administrative costs for computer system expenses. As a
result, we provide our products and services to Chapter 7 trustee customers at no direct charge. We have a national marketing arrangement with Bank of America, in which most of our Chapter 7 trustee
customers agree to deposit the cash proceeds from liquidations of debtors' assets with Bank of America. Under this arrangement:



We
promote our Chapter 7 product exclusively through our national marketing arrangement with Bank of America, which has been in place since November 1993. Substantially all of our
Chapter 7 revenues are collected through our relationship with Bank of America. Our agreement with Bank of America has no fixed expiration date, and both Bank of America and we may terminate the
agreement at any time upon six months notice to the other. Termination of or a material change to our agreement with Bank of America could cause our revenues and earnings to suffer, until and unless
we could establish a replacement marketing arrangement or arrangements with another bank or banks and could

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transfer the Chapter 7 liquidated asset proceeds on deposit with Bank of America to the new bank or banks. 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 competing businesses in November 1999 and October 2001. We may not be able to establish another marketing arrangement or
arrangements with terms comparable to those we have with Bank of America or at all.

If our national marketing arrangement with Bank of America were terminated, we probably would not provide special products and services to Bank of America and would lose a
significant percentage of our revenues and profits.

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 14.6% and 18.5% of our total bankruptcy and related services segment revenues in 2002 and 2001,
respectively. We expect to continue to provide these types of products and services to Bank of America in the future so long as our national marketing arrangement with Bank of America is in place. It
is not likely, however, that we would continue to provide these types of products and services to Bank of America if our Chapter 7 national marketing arrangement were terminated by Bank of America or
us.

The bankruptcy trustee market consists of a finite group of Chapter 7 and Chapter 13 trustees, and the loss of even a limited number of our trustee customers could result in a
loss of revenues and profits.

There are approximately 1,700 Chapter 7 trustees, of whom approximately 1,200 actively accept new cases. There are approximately 180 Chapter 13 trustees. Because
the number of bankruptcy trustees does not typically increase significantly, we can only increase our Chapter 7 and Chapter 13 trustee business through:



Accordingly,
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
no single bankruptcy trustee customer exceeded 5% of our revenues in 2002 or 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 result in a loss of revenue and profits.

Our quarterly results may fluctuate in the future. If they do, our operating results may not meet the expectations of securities analysts or investors. This could cause a
material drop in the market price of our common stock.

Our quarterly results in the future may fluctuate more than they have in the past. If they do, our quarterly revenues and operating results may be increasingly
difficult to forecast. It is possible that our future quarterly results of operations from time to time will not meet the expectations of securities analysts or investors. This could cause a material
drop in the market price of our common stock. Our quarterly results may fluctuate for a number of reasons.

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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 five 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 infrastructure software segment discussed below, is complex, and the timing of the recognition of revenue from these customized products and services can be unpredictable.

Third,
our new BSI subsidiary that we acquired in January 2003, is expected to have substantially more volatility in revenues and earnings than our traditional bankruptcy products
and services. The initiation or termination of a major new Chapter 11 engagement can directly affect revenues and earnings of BSI for a particular quarter, and the levels of services required for an
ongoing Chapter 11 engagement can fluctuate quarter to quarter during the one or more years that the debtor is in Chapter 11 reorganization.

Fourth,
our infrastructure software segment has greater quarterly fluctuations in revenues and earnings than our bankruptcy and related services segment. The quarterly results for our
infrastructure software segment are affected by one or more of the following additional factors:



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:



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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.

If Chapter 11 cases on which we are retained convert to Chapter 7, we may not be paid for the products and services we have provided.

In Chapter 11, we provide services directly to the debtor, and we are paid directly by the debtor. If a debtor's Chapter 11 case converts to a Chapter 7
liquidation for any reason, we might not be paid for products and services previously provided, and we would most likely lose all future revenue from the case. The conversion of even one major Chapter
11 case to Chapter 7 could have a material adverse effect on our results of operations.

If the bankruptcy court reduces or eliminates our fees in major Chapter 11 cases, our results of operations could be impaired.

In Chapter 11, the bankruptcy court may reduce or eliminate fees paid for administrative services, such as those we provide. If the court reduced or eliminated
fees due to us in a major Chapter 11 case, our results of operations could be materially affected.

Because our primary competitor in the Chapter 7 and 13 bankruptcy trustee markets is JPMorgan Chase Bank, we may lack the financial and marketing resources needed to capture
increased market share.

There are several companies in the bankruptcy trustee market competing to sell to a finite group of trustee customers. Our primary competitor in both Chapter 7
and Chapter 13, and our only Chapter 7 and 13 competitor larger than us, is JPMorgan Chase Bank, which has substantially greater financial and marketing resources than do we. As a substantially larger
competitor, JPMorgan Chase Bank could choose to commit substantially greater resources to sales, marketing and promotional efforts in order to take trustee customers away from us. Moreover, other
firms with resources significantly greater than ours may choose to 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.

The infrastructure software market we serve is highly competitive, and we may lack the financial and marketing resources needed to effectively compete against larger entities
like Sterling Commerce.

Direct competition in the infrastructure software market includes file transfer solutions developed by in-house information technology departments and
commercial file transfer products offered by Sterling Commerce and others. It will be difficult for us to make sales to potential customers that choose to develop internally their own file transfer
solutions rather than use a commercial product. Moreover, a number of our competitors, have substantially greater financial and marketing resources than do we.

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If we are unable to develop new technologies and respond to market changes, we could lose existing customers and fail to attract new business.

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:



We
may not be able to incorporate future technological advances into our business, and future advances in technology may not be beneficial to, or compatible with our business. In
addition, keeping abreast of technological advances in our business may require substantial expenditures and lead-time. We may not be successful in using new technologies, adapting our
solutions to emerging industry standards or developing, introducing and marketing software products or enhancements, and we may 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, we could lose existing customers and fail to attract new business.

Our new releases and products may have undetected errors, which could cause litigation claims against us or damage to our reputation.

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. Likewise, the software products we acquire
in business acquisitions, including our recent BSI acquisition, have a greater risk of undetected errors or "bugs".

We
have not experienced any material errors or "bugs" in the various upgrades of ourTCMS, CasePowerandDataExpresssoftware products that we have released in recent years. Errors may be found
in our software products in the future. Those "bugs" or errors, or difficulties in installing and maintaining our new software and releases or difficulties training customers and their staffs on the
utilization of new products and releases, may result in a delay or loss of revenue, diversion of development resources, damage to our reputation, increased service costs, increased expense for
litigation and impaired market acceptance of our products.

Security problems with or product liability claims arising from our software products could cause increased expense for litigation, increased service costs and damage to our
reputation.

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. Our software products or the data communications they manage may not be impervious to
break-ins or disruptive problems caused by Internet or other users. Break-ins or problems could result in a diversion

12

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of development resources, damage to our reputation, increased service costs or impaired market acceptance of our products, impairing the continued success of our business. Additionally, we could be
exposed to potential liability for break-ins, product defects or other reasons. Defending these liability claims could result in increased expenses for litigation and a significant
diversion of our management's attention.

Our intellectual property is not protected through patents or formal copyright registration. We thus do not have the full benefit of patent or copyright laws to prevent others
from replicating our software.

Historically, we have not protected our intellectual property rights through patents or formal copyright registration. We may not be able to protect our trade
secrets or prevent others from independently developing substantially equivalent proprietary information and techniques or from otherwise gaining access to our trade secrets. In addition, foreign
intellectual property laws may not protect our intellectual property rights. Moreover, 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. Litigation of this nature could result in substantial expense for us and diversion of
management and other resources, which could result in a loss of revenue and profits.

Our failure to develop and maintain products and services that assist our customers in complying with significant government regulation could result in decreased demand for our
products and services.

Our products and services are not directly regulated by the government. Our bankruptcy trustee customers are, however, 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. Future regulation may 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 cause us to lose existing customers and
fail to attract new customers.

The integration of acquired businesses is time consuming for us, may distract our management from our core business and can be expensive, all of which could reduce or eliminate
our expected profits.

On January 31, 2003, we completed the acquisition of BSI for $66,000,000 in cash and stock. In the last four years, we acquired four other businesses at a
combined cost in excess of $30,000,000. 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 to the operations and the expected
revenues or profits of the acquired business. In addition, the integration of acquired businesses is time consuming, may distract our management from our core business and can be expensive, all of
which could reduce or eliminate the expected profits of the acquired business and the expected profits of our existing business.

Some
of the risks that may affect our ability to integrate or realize any anticipated benefits from companies we acquire include those associated with:



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Our
recently completed BSI acquisition will involve a number of risks included in the list above, including particularly the challenges of managing a business that is not located in the
Kansas City area, managing the challenges of the Chapter 11 business, which differ significantly from our traditional Chapter 7 and 13 products and services, and conforming BSI's standards, processes
and procedures to our practices.

The
BSI acquisition will significantly increase the amount of intangible assets on our books, and the amortization of certain BSI intangibles will directly and materially affect our
financial position and results of operations, beginning with the quarter ending March 31, 2003. Any amortization of intangible assets associated with future acquisitions or impairment of
goodwill or intangible assets associated with past or future acquisitions could likewise materially affect our financial position and results of operations.

The use of our common stock to fund acquisitions could dilute existing shares.

We intend to consider further opportunities to acquire companies, assets or product lines that complement or expand our business. 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, existing shareholders' investments could be diluted. On January 31, 2003, we issued 1,054,230 shares of common stock in partial consideration of our acquisition of BSI.

We may not be able to continue to manage our rapid growth effectively. If we fail to do so, we could increase revenues without a corresponding increase in earnings.

We have experienced significant growth in revenues 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, including growth through our recent acquisition
of BSI, will require us to continue to invest in our operational, financial and information systems, and to attract, retain, motivate and manage our employees effectively. We may not be able to manage
any future growth effectively.

We depend upon our key personnel, and we may not be able to retain them or to attract, assimilate and retain new, highly qualified employees in the future.

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. 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, other than

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employment agreements with two key BSI executives. 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 substantially impair the continuing success of our
business.

We do not pay cash dividends on our common stock, and our common stock may not appreciate in value or even maintain the price at which you purchased your shares.

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 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. Our common stock may not 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, without shareholder approval, 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 49,000-square-foot Company-owned facility in Kansas City, Kansas. In support of our Chapter 7
business, the Company leases approximately 1,200 square feet of office space in Los Angeles, California, expiring on December 31, 2003. The Company also leases
approximately 5,000 square feet of office space in San Francisco, California through November 30, 2007 in support of our infrastructure software business. The Company leases approximately
16,000 square feet of office space in New York, New York, expiring August 31, 2013 in support of our recent Chapter 11 business acquisition.

ITEM 3.    LEGAL PROCEEDINGS

We occasionally become involved in litigation arising in the normal course of business. There is no currently pending or, to the knowledge of management,
threatened litigation against the Company.

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

No matters were submitted in the fourth quarter of 2002 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." 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 50% stock dividends paid on February 23, 2001 and November 30, 2001,
for the calendar quarters of 2002 and 2001 as reported by Nasdaq:

2002

2001High

Low

High

LowFirst Quarter

$
21.480

$
13.370

$
13.670

$
7.390Second Quarter


17.720


11.950


24.930


12.080Third Quarter


21.300


13.550


17.370


9.930Fourth Quarter


19.600


13.910


26.040


16.000


Holders

As of February 11, 2003, there were approximately 131 owners of record of our common stock and approximately 4,650 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.

Recent Sales of Unregistered Securities

On November 7, 2002, we completed a $30,000,000 private placement of 2,000,000 newly issued shares of its common stock with various institutional or
sophisticated investors at a purchase price of $15.00 per share. A.G. Edwards & Sons, Inc. acted as the placement agent for the offering. Net proceeds from the private placement of
approximately $28,140,000, after $1,860,000 in expenses, including the placement agent's fee, were used for working capital purposes, including paying a portion of the costs of acquiring BSI. We
issued the common stock in reliance on the exemption from registration under Rule 506 of Regulation D under the Securities Act of 1933, as amended.

On
January 31, 2003, we issued 1,054,230 shares of restricted common stock to four individual owners of BSI as payment of a portion of the BSI purchase price. We issued the common
stock in reliance on the exemption from registration in Section 4(2) of the Securities Act of 1933, as amended.

Equity Compensation Plan Information

The following table sets forth as of December 31, 2002 (a) the number of securities to be issued upon exercise of outstanding options, warrants and
rights, (b) the weighted average exercise price of

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outstanding options, warrants and rights and (c) the number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in
column (a)).

|                                                           |  | (a)       |  | (b) |      | (c)
|---------------------------------------------------------- |  | --------- |  | --- | ---- | ---
|
|Equity compensation plans approved by security holders     |  | 1,744,000 |  | $   | 6.87 |    
|Equity compensation plans not approved by security holders |  | 0         |  |     | 0    |    
|Total                                                      |  | 1,744,000 |  |     |      |    

The
Company's 1995 Stock Option Plan is the Company's only equity compensation plan or arrangement for purposes of the foregoing table.

ITEM 6.    SELECTED FINANCIAL DATA

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

In
May 1998, we completed a follow-on offering of 2,250,000 shares of common stock and received net proceeds of $10,841,311. 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 14 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 14 of Notes to Financial Statements.

In
December 2000, we completed a private placement of 2,025,000 shares of common stock and received net proceeds of $12,543,000.

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In
June 2001, we completed a follow-on offering of 1,537,500 shares of common stock and received net proceeds of $22,735,000.

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 14 of Notes to Financial Statements.

On
July 10, 2002, we acquired the Chapter 7 trustee business of CPT Group, Inc. for $852,000. The acquisition has been accounted for using the purchase method of
accounting with the operating results of CPT Group included in our statement of income since the date of acquisition. See Note 14 of Notes to Financial Statements.

On
November 7, 2002, we completed a private placement of 2,000,000 shares of common stock and received net proceeds of $28,140,000.

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

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

Overview

The Company develops, markets and licenses proprietary software solutions for workflow management and data communications infrastructure for the bankruptcy
trustee market and the financial services market. The Company's specialized products streamline its customers' internal business operations and external communications and enable them to minimize
operating costs through automation. In combination with its software products, the Company also provides a high level of coordinated support, including network integration,
post-installation support and industry-specific value-added services.

For
the bankruptcy trustee market, the Company provides Chapter 7 and Chapter 13 trustees comprehensive, turnkey, back-office systems that manage their entire
caseloads. The Company'sTCMSandCasePowersoftware 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, EPIQ's bankruptcy trustee models generate ongoing monthly revenues from each customer.

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, the Company provides its products and services to trustee customers without direct charge. The Company has a national marketing arrangement with Bank of America, in which trustee customers
agree to deposit the cash proceeds from liquidations of debtors' assets with Bank of America. Under this arrangement:



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Revenues
are also derived from conversions and software upgrades provided to trustees, as well as from customized software, technology services and marketing and strategic consulting
services that the Company provides directly to Bank of America in support of their national marketing arrangement.

On
July 10, 2002, the Company acquired the Chapter 7 trustee business of CPT Group, Inc. in Orange County, California. The acquisition was accounted for using the
purchase method of accounting, and as such; results of operations for the year ended December 31, 2002 include the results of the CPT acquisition subsequent to July 10, 2002.

On
October 11, 2001, the Company 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 the Company's 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, results of operations for the year ended December 31, 2001 include the results of the ROC acquisition
subsequent to October 11, 2001.

For
its Chapter 13 business, in addition to an initial implementation fee, the Company collects monthly revenues directly from each trustee based on the number of cases in the
trustee's database and the number of printed documents generated for the trustee.

For
the infrastructure software market, the Company'sDataExpressproduct 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. The Company's
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 customers. TheDataExpress product line includes modules for data transmission,
system monitoring, data reformatting and security that are designed for large companies with complex requirements.

On
March 17, 2000, the Company acquired the assets of PHiTECH, Inc. and began providing infrastructure software and services through the DataExpressproducts. From the Company's inception until
the date of this acquisition, all 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, the results of operations for the year ended December 31, 2000 include the
results of the infrastructure software segment after March 17, 2000.

Critical Accounting Policies

The Company considers its accounting policies related to revenue recognition and software capitalization to be critical policies in understanding the Company's
historical and future performance.

The
Company recognizes revenue from the two reportable segments of its business: bankruptcy and related services, and infrastructure software. Within the bankruptcy and related services
segment, the Company's revenues are derived from bankruptcy case management fees and bankruptcy professional services. The Company has agreements with each of its bankruptcy trustee customers
obligating it to deliver software product and services each month. The fees paid are contingent upon the month-to-month delivery of the product and services and is based on a
formula, as defined by the contract, on either the number of trustees and cash balances in a trustee's bank account or on the number of cases in a trustee's portfolio. The formula based fees earned
each month become fixed and

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determinable on a monthly basis as a result of all contractually required products and services being delivered by the Company. Professional services revenues are recognized as the services are
provided.

For
its infrastructure software business, the Company recognizes revenues for software licensing following delivery and acceptance by the customer. Revenues are deferred for the fair
value of professional services and maintenance fees. Deferred consulting revenue is recognized as services are provided and maintenance fees are collected and recognized as revenue on a
straight-line basis over the life of the maintenance contract, which is typically one year. Revenues on multiple-elements are allocated based on the actual amount the Company charges when
that element is sold separately.

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 detailed 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. Management periodically reevaluates its previous estimated future revenue for each product and the remaining estimated economic life of the product.

Results of Operations

Year Ended December 31, 2002 compared to Year Ended December 31, 2001

Operating revenues of $38,276,000 increased 27.1% or $8,164,000 in the year ended December 31, 2002 compared to $30,112,000 from the prior year. Bankruptcy
and related services revenues, at $36,256,000 for the year ended December 31, 2002, increased 28.8%, or $8,107,000 compared to $28,149,000 for 2001. The Company's case management fees are
generated from itsTCMS, CasePowerand similar software related products and services and from an upgrade fee the Company receives from Bank of America
when it completes a major upgrade of theTCMSproduct and the upgrade is delivered to every trustee that has a contract with that bank. For the
Company'sTCMSand similar software related products and services, revenues are based on formulas of the number of trustees and the monthly level of
trustee's deposit with a financial institution, generally with Bank of America. For the Company'sCasePowerand similar software related products and
services, monthly revenues are based on a formula of the number of cases in the trustee's database at month-end. Bankruptcy case management fees were up 36.2% or $7,305,000 to $27,459,000
due to strong growth in both the value of bankruptcy estate deposits at banks with a contractual relationship with the Company as well as the number of trustee customers. Bankruptcy professional
services revenue, which includes fees derived from other non-routine bankruptcy services to trustees, fees for processing, noticing and mailing services, and fees from providing billable
services directly to Bank of America to assist with bank activities that pertain directly to the bank's support of bankruptcy trustee relationships, grew 10.0% or $802,000 to $8,797,000 from 2001.
Most of this growth was from increased fees from Bank of America for marketing and strategic consulting and technology services, which accounted for 14.6% of the bankruptcy and related services
revenue for 2002 compared to 18.5% for 2001. Infrastructure software revenues for the year ended December 31, 2002 increased $57,000, or 3%, from 2001 as a result of higher licensing and
maintenance revenue.

Total
cost of sales increased 20.5% or $2,069,000 to $12,139,000 for the year ended December 31, 2002 compared to $10,070,000 for the year ended December 31, 2001. Total
cost of sales as a percentage of operating revenues decreased to 31.7% for 2002 compared to 33.4% for 2001. Cost of products and services increased 15.0% or $951,000 to $7,295,000 for the year ended
December 31, 2002 compared to $6,344,000 for 2001. Cost of products and services, as a percentage of revenues, was 19.1% in 2002 compared to 21.1% in 2001. The decrease in the cost of products
and services as a percentage of revenue was largely attributable to the increase in the number of trustees and deposits

20

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from which revenues are generated. These bankruptcy-related fees provided increases in revenue without significant increases in the cost of products and services, thus providing a positive impact on
gross profit. For the year-ended December 31, 2002, depreciation and amortization increased 30.0% or $1,118,000 to $4,844,000 compared to $3,726,000 for the prior year. This
increase was due to the purchase of computer equipment as new trustees were added, an increase in the recurring replacement of existing equipment and an increase in software amortization from the
infrastructure software segment due to the completion of the latest releases ofDataExpressproducts.

Operating
expenses increased 4.8% or $614,000 to $13,325,000 for the year-ended December 31, 2002 compared to $12,711,000 for the prior year. Operating expenses, as a
percentage of operating revenues were 34.8% and 42.2% for the year-ended December 31, 2002 and 2001, respectively. The increase in operating expenses was primarily due to a 10.5%
increase in general and administrative expenses. Infrastructure expenses increased to support a higher level of revenues, including personnel expenses, increased liability insurance and higher
depreciation due to the expansion of the Company's headquarters facility. Acquisition related expenses consisting of legal, accounting and valuation services, travel and executive bonuses increased
$222,000 in 2002 due to the investigation of potential and completed acquisitions. Amortization of goodwill and intangible assets was down $904,000. Goodwill is no longer being amortized due to the
adoption of SFAS No. 142 on January 1, 2002.

The
Company had net interest income of $434,000 and $647,000 for the year-ended December 31, 2002 and 2001, respectively. The prior year included investment income on
the net proceeds received from a follow-on offering of 1,025,000 shares of common stock on June 29, 2001. The current year includes higher interest expense as the result of the
Company drawing $10,000,000 on its line of credit during the third quarter in anticipation of completing a business acquisition. The amount was repaid in full on September 5, 2002 after the
Company announced it had terminated the acquisition agreement.

The
Company had an effective tax rate of 37.8% for the year-ended December 31, 2002 compared to 38.1% for 2001.

Net
income as a percentage of operating revenues was 21.5% in 2002 compared to 16.4% in 2001. The increase in net income as a percentage of operating revenues was largely due to the
increase of operating revenues and the reduction of amortization expense for goodwill due to the adoption of SFAS No. 142, partially offset by increased general and administrative expenses and
a decrease in net interest income for the year-ended December 31, 2002.

Year Ended December 31, 2001 compared to the 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, partially offset by a decrease in revenues from infrastructure software and other. 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 2000. Bankruptcy case management fees were up 59.0% or $7,480,000 to $20,154,000 due to an increase in
the total number of trustees due to additional new customer growth in bankruptcy trustees and the October 11, 2001 acquisition of ROC. Bankruptcy professional services revenue grew 10.6% or
$763,000 to $7,995,000 from 2001. Most of this growth was from increased fees from Bank of America for marketing and strategic consulting and technology services, accounting for 18.5% of the
bankruptcy and related services revenue for 2001 compared to 20.5% for 2000. The decrease in revenues of $1,388,000 or 41.4% to $1,963,000 in infrastructure software and other for 2001 as compared to
revenues of $3,351,000 for 2000 were the result of decreased sales generated from theDataExpressproduct after 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

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39.2% in the prior year. 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 without significant increases in the cost of products and services. Infrastructure software and other 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 infrastructure software and
other 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 the prior year. 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 the prior year. 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 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 consisted of legal, accounting and valuation services, travel and executive bonuses
related to the investigation of potential and completed acquisitions, including the ROC Technologies acquisition in October 2001.

The
acquired in-process research and development charge related to PHiTECH's new, Java-based product,DataExpress 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. The Company 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 through December 2001, a total of approximately $739,000 has been
capitalized in expenditures as software development costs. During 2001, the Company 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.

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.

The
Company 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

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---

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 the
$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.

The
Company's 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.

Liquidity and Capital Resources

The Company's cash and cash equivalents and short-term investments increased to $59,827,000 as of December 31, 2002 compared to $25,306,000 at
December 31, 2001. Cash generated from net income, depreciation and amortization, reduced taxes and net proceeds from the November 2002 private placement of the Company's common stock
was partially offset by cash used to purchase property and equipment, capitalized software development costs, the acquisition of assets from CPT Group, Inc. and increased accounts receivable
and prepaid expenses and decreased accounts payable and accrued expenses.

The
Company generated cash from operations of $13,783,000, $10,784,000 and $3,795,000 for the years ended December 31, 2002, 2001 and 2000, respectively. The cash flow generated
from operations in 2002 consisted primarily of cash generated from net income, depreciation and amortization and reduced taxes, which were partially offset by an increase in accounts receivable and
prepaid expenses and decreases in accounts payable and accrued expenses. Accounts receivable increased from $4,498,000 at December 31, 2001, to $5,647,000 at December 31, 2002, due to
increased sales. Gross accounts receivable as a percent of revenue remained essentially unchanged at 14.8% in 2002 compared to 15.0% in 2001. The cash flow generated from operations in 2001 primarily
consisted of cash generated from net income plus depreciation and amortization, offset in part by an increase in accounts receivable and prepaid expenses and other assets. Also contributing to cash
from operations in 2001 was the decrease in deferred revenues in 2001 was smaller than the decrease in 2000. Deferred revenues decreased in 2000 due to the completion of services related to the 1999
DCI acquisition for various technology and integration services for Bank of America. As of December 31, 2002 and 2001, 77% of accounts receivable was from Bank of America.

Net
cash used in investing activities for the year ended December 31, 2002, 2001 and 2000 totaled $7,470,000, $21,461,000 and $5,356,000, respectively. Use of cash included
purchased property and equipment totaling $4,938,000, $7,287,000 and $3,054,000 for the three years and included the installation of computer equipment at trustee locations for the bankruptcy services
products and for 2002 and 2001, the expansion of the Company's headquarters facility completed in the third quarter of 2002,the purchase of land for the Company's headquarters facility and fractional
ownership in two business aircraft in 2001. Net cash used in the acquisition of CPT Group, Inc, ROC and PHiTECH totaled $852,000, $12,188,000 and $5,334,000 in 2002, 2001 and 2000, respectively. The
Company received a settlement of contingencies from the ROC acquisition in 2002 totaling $170,000. Also included in the cash used for investing activities were capitalized software development costs
of $1,955,000, $2,022,000 and $980,000 in 2001, 2000 and 1999, respectively.

23

---



The Company incurred software development costs totaling $1,955,000, $2,022,000 and $980,000 for the years ended December 31, 2002, 2001 and 2000 respectively. Internal software
costs incurred in the creation of computer software products are capitalized as soon as technological feasibility has been established. Prior to the completion of a detailed program design,
development costs are expensed. Capitalized costs are amortized based on current and future revenue for each product with an annual minimum equal to straight-line amortization over the
remaining estimated economic life of the product, not to exceed five years. The Company anticipates future investments in software development will be at or above levels in previous periods.

Net
cash generated from financing activities totaled $28,208,000, $19,605,000 and $16,296,000 for the years ended December 31, 2002, 2001 and 2000, respectively. Net cash
generated from financing activities in 2002 was primarily due to the private placement of the Company's common stock in November 2002, which generated net proceeds of $28,140,000. In 2001, the
Company generated net proceeds of $22,735,000 from the follow-on offering of common stock in June 2001, which was partially offset by repayments on outstanding lines of credit
during the year. In 2000, a private placement of common stock generated net proceeds of $12,543,000 in December and cash from borrowings on the Company's line of credit totaled $3,575,000.

The
Company replaced its lines of credit for equipment financing and working capital allowing for borrowings up to $2,500,000 and $5,000,000, respectively with a $10,000,000 revolving
line of credit for working capital. During the third quarter 2002 the Company entered into an additional $5,000,000 line of credit for working capital purposes. On July 15, 2002, $10,000,000
was borrowed in anticipation of an acquisition of the assets of a company providing Chapter 11 bankruptcy products and services. On September 5, 2002, the Company repaid that line of credit in
full upon termination of the acquisition agreement. No amounts were outstanding under either line of credit at December 31, 2002. The two lines of credit expire on June 4, 2003. The
Company anticipates no difficulties in renewing these lines of credit on substantially similar terms.

On
January 31, 2003, the Company, through its wholly owned subsidiary, EPIQ Systems Acquisition Inc., acquired 100% of the membership interests of Bankruptcy Services LLC
(BSI), a provider of technology-based case management, consulting and administrative services for Chapter 11 cases. The purchase price totaled $66,000,000, before acquisition costs, consisting of
$49,500,000 in cash and 1,054,230 shares of restricted common stock. The Company has paid $45,500,000 of the cash portion of the purchase price and will pay the $4,000,000 balance of the purchase
price to the sellers over the next five years. The acquisition will be accounted for using the purchase method of accounting with the operating results included in the Company's statement of income
from the date of acquisition.

The
Company believes that the funds generated from operations plus amounts available under its lines of credit will be sufficient to finance the Company's currently anticipated working
capital and property and equipment expenditures for the foreseeable future.

24

---

Contractual Obligations

The following table sets forth a summary of certain contractual obligations of the Company, as of December 31, 2002. See Notes 5 and 6 of the Notes to
Financial Statements for additional information relating to the long-term debt, capital lease obligations and operating leases of the Company.

|                          |  | Payments Due By Period
|------------------------- |  | ----------------------
|
|
|Long-term debt            |  | $                     
|Capital lease obligations |  |                       
|Operating leases          |  |                       
|                          |  |                       
|Total                     |  | $                     
|                          |  |                       

The
Company has no off-balance sheet commitments or arrangements.

Recent Accounting Pronouncements

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 adopt SFAS No. 143 in the fiscal year beginning January 1, 2003 and does not anticipate a material effect on the Company's financial position, results of operations or
cash flows.

In
April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Correctionsprincipally to eliminate an inconsistency between the required accounting for sale-leaseback transaction and the required accounting for
certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability under changed conditions. This statement is effective in fiscal years beginning after May 15, 2002. The Company
is assessing the effects of this pronouncement on its financial position, results of operations and cash flows but does not anticipate a material impact, if any.

In
June 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated With Exit or Disposal Activities. This SFAS
modifies the timing and measurement of the recognition of costs associated with an exit or disposal activity. The statement is effective for exit or disposal activities initiated after
December 31, 2002. The Company is assessing the effects of this pronouncement on its financial position, results of operations and cash flows but does not anticipate a material impact, if any.

In
December 2002, the FASB issued SFAS No. 148,Accounting for Stock-Based CompensationTransition and Disclosurean
amendment of FASB Statement No. 123, Accounting for Stock-Based Compensation,to provide alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The statement is effective for fiscal years and interim
periods ending after December 15, 2002.

In
November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the existing disclosure requirements for most guarantees. FIN 45 requires that at the time a company issues certain guarantees, the company

25

---

must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial
statements. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. FIN 45's
disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002 and are applicable to all guarantees issued by the guarantor subject
to FIN 45's scope, including guarantees issued prior to the issuance of FIN 45. The adoption of FIN 45 is not anticipated to have a material impact on the Company's financial position or results of
operations.

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. The Company is currently exposed to credit risk on credit extended to customers
and interest risk on capital lease obligations and the line of credit borrowings, the deferred acquisition price note and cash equivalents. The Company actively monitors these risks through a variety
of controlled procedures involving senior management. The Company does 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, the Company believes the risk associated with these instruments will not have a material adverse affect on its business, financial position,
results of operations and cash flows.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our financial statements appear following Item 15 of this Report.

Supplementary DataQuarterly Financial Information

The following table sets forth quarterly unaudited financial data for the quarters of fiscal years 2002 and 2001. Net income per share-diluted has been restated
for all quarters presented to reflect the two 3-for-2 stock splits effected as 50% stock dividends paid on February 23, 2001 and November 30, 2001.

Quarters1st

2nd

3rd

4th(In Thousands, Except Per Share Data)Fiscal Year 2002Operating revenues

$
8,996

$
9,076

$
9,702

$
10,502Gross profit


6,072


6,089


6,651


7,325Net income


1,853


1,876


1,912


2,592Net income per sharediluted


0.12


0.13


0.13


0.16Fiscal 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


0.09


In
June 2001, the Company 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, the Company acquired substantially all of the business assets of ROC Technologies. The acquisition has been accounted for using the purchase method of
accounting with the

26

---

operating results of ROC Technologies included in the statement of income since the date of acquisition. See Note 14 of Notes to Financial Statements.

On
November 7, 2002, the Company completed a private placement of 2,000,000 shares of common stock and received gross proceeds of $30,000,000.

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

None.

27

---



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, 2002.

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, 2002.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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, 2002.

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, 2002.

ITEM 14.    CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial Officer, based on their evaluation within 90 days prior to the date of this report of the
Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-14(c)), have concluded that the Company's disclosure controls and procedures are adequate and effective for
purposes of Rule 13a-14(c) in timely alerting them to material information relating to the Company required to be included in the Company's filings with the SEC under the Securities Exchange
Act of 1934.

There
were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.

PART IV

ITEM 15.    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-25
of this Report:



(c)Reports on Form 8-K

A report on Form 8-K was filed on November 15, 2002, reporting the completion of a private placement of 2,000,000 shares of the
Company's common stock.

28

---



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 20, 2003 |  | 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 the dates indicated.

|Signature                  |  | Name and Title                                                                           |  | Date          
|-------------------------- |  | ---------------------------------------------------------------------------------------- |  | --------------
|                           |  |                                                                                          |  |               
|/s/TOM W. OLOFSON          |  | Tom W. Olofson
Chairman of the Board, Chief Executive Officer and Director               |  | March 20, 2003
|/s/CHRISTOPHER E. OLOFSON  |  | Christopher E. Olofson
President, Chief Operating Officer and Director                   |  | March 20, 2003
|/s/ELIZABETH M. BRAHAM     |  | Elizabeth M. Braham
Vice President, Chief Financial Officer(Principal Financial Officer) |  | March 20, 2003
|/s/MICHAEL A. RIDER        |  | Michael A. Rider
Controller, Chief Accounting Officer(Principal Accounting Officer)      |  | March 20, 2003
|/s/ROBERT C. LEVY          |  | Robert C. Levy
Director                                                                  |  | March 20, 2003
|/s/W. BRYAN SATTERLEE      |  | W. Bryan Satterlee
Director                                                              |  | March 20, 2003
|/s/EDWARD M. CONNOLLY, JR. |  | Edward M. Connolly, Jr.
Director                                                         |  | March 20, 2003
|/s/JAMES A. BYRNES         |  | James A. Byrnes
Director                                                                 |  | March 20, 2003

29

---



CERTIFICATIONS

I, Tom W. Olofson, certify that:

1.    I
have reviewed this annual report on Form 10-K of EPIQ Systems, Inc.;

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

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

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):



6.    The
registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

|Date: March 20, 2003                                                          |  |  | 
|----------------------------------------------------------------------------- |  |  | 
|/s/TOM W. OLOFSONTom W. Olofson
Chairman of the Board
Chief Executive Officer |  |  | 

30

---



CERTIFICATIONS

I, Elizabeth M. Braham, certify that:

1.    I
have reviewed this annual report on Form 10-K of EPIQ Systems, Inc.;

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

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

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):



6.    The
registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

|Date: March 20, 2003                                                              |  |  | 
|--------------------------------------------------------------------------------- |  |  | 
|/s/ELIZABETH M. BRAHAMElizabeth M. Braham
Vice President, Chief Financial Officer |  |  | 

31

---

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, 2002 and 2001, and the related statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period ended December 31, 2002. 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.

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, 2002 and 2001, and the
results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States
of America.

As
discussed in Note 4 to the financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial
Accounting Standards No. 142.

/s/
Deloitte & Touche LLP
Kansas City, Missouri
March 11, 2003

F-1

---

EPIQ SYSTEMS, INC.

BALANCE SHEETS

(Dollars in Thousands, Except Share and Per Share Data)

|                                                  |                                                                                                                                                     | December 31,
2002          |         | December 31,
2001
|------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | -----------------
|ASSETS                                            |                                                                                                                                                     |                            |         |                  
|CURRENT ASSETS:                                   |                                                                                                                                                     |                            |         |                  
|                                                  | Cash and cash equivalents                                                                                                                           |                            | $       | 59,827           
|                                                  | Accounts receivable, trade, less allowance for doubtful accounts of $31 and $31, respectively                                                       |                            |         | 5,647            
|                                                  | Prepaid expenses and other                                                                                                                          |                            |         | 962              
|                                                  | Deferred income taxes                                                                                                                               |                            |         |                 
|                                                  |                                                                                                                                                     |                            |         |                  
|                                                  |                                                                                                                                                     | Total Current Assets       |         |                  
|PROPERTY AND EQUIPMENT, net                       |                                                                                                                                                     |                            | 11,886  |                  
|SOFTWARE DEVELOPMENT COSTS, net                   |                                                                                                                                                     |                            | 4,336   |                  
|OTHER ASSETS:                                     |                                                                                                                                                     |                            |         |                  
|                                                  | Goodwill                                                                                                                                            |                            |         | 21,275           
|                                                  | Other intangibles, net of accumulated amortization of $1,051 and $553, respectively                                                                 |                            |         | 4,019            
|                                                  | Other                                                                                                                                               |                            |         | 85               
|                                                  |                                                                                                                                                     |                            |         |                  
|                                                  |                                                                                                                                                     | Total Other Assets, net    |         |                  
|                                                  |                                                                                                                                                     |                            |         |                  
|Total Assets                                      |                                                                                                                                                     | $                          | 108,037 |                  
|                                                  |                                                                                                                                                     |                            |         |                  
|LIABILITIES AND STOCKHOLDERS' EQUITY              |                                                                                                                                                     |                            |         |                  
|CURRENT LIABILITES:                               |                                                                                                                                                     |                            |         |                  
|                                                  | Accounts payable                                                                                                                                    |                            | $       | 1,076            
|                                                  | Accrued expenses                                                                                                                                    |                            |         | 663              
|                                                  | Income taxes payable                                                                                                                                |                            |         | 290              
|                                                  | Deferred revenue                                                                                                                                    |                            |         | 868              
|                                                  | Deferred income tax                                                                                                                                 |                            |         | 106              
|                                                  | Current portion of deferred acquisition price                                                                                                       |                            |         | 241              
|                                                  | Current maturities of long-term obligations                                                                                                         |                            |         | 97               
|                                                  |                                                                                                                                                     |                            |         |                  
|                                                  |                                                                                                                                                     | Total Current Liabilities  |         |                  
|DEFERRED REVENUE                                  |                                                                                                                                                     |                            | 52      |                  
|LONG-TERM OBLIGATIONS (less current portion)      |                                                                                                                                                     |                            | 66      |                  
|DEFERRED ACQUISITION PRICE (less current portion) |                                                                                                                                                     |                            | 223     |                  
|DEFERRED INCOME TAXES                             |                                                                                                                                                     |                            | 1,980   |                  
|                                                  |                                                                                                                                                     |                            |         |                  
|                                                  |                                                                                                                                                     | Total Liabilities          |         |                  
|STOCKHOLDERS' EQUITY:                             |                                                                                                                                                     |                            |         |                  
|                                                  | Preferred stock$1 par value; 2,000,000 shares authorized; none issued and outstanding                                                              |                            |         |                 
|                                                  | Common stock$0.01 par value; authorized 50,000,000 shares; issued and outstanding 16,538,287 and 14,389,929 shares at 2002 and 2001, respectively |                            |         | 165              
|                                                  | Additional paid-in capital                                                                                                                          |                            |         | 83,730           
|                                                  | Retained earnings                                                                                                                                   |                            |         | 18,480           
|                                                  |                                                                                                                                                     |                            |         |                  
|                                                  |                                                                                                                                                     | Total Stockholders' Equity |         |                  
|                                                  |                                                                                                                                                     |                            |         |                  
|Total Liabilities and Stockholders' Equity        |                                                                                                                                                     | $                          | 108,037 |                  
|                                                  |                                                                                                                                                     |                            |         |                  

See accompanying notes to financial statements.

F-2

---

EPIQ SYSTEMS, INC.

STATEMENTS OF INCOME

(In Thousands, Except Per Share Data)

|                                            |                                               | Years Ended December 31,      |       
|------------------------------------------- | --------------------------------------------- | ----------------------------- | ------
|
|OPERATING REVENUES:                         |                                               |                               |       
|                                            | Bankruptcy case management fees               |                               | $     
|                                            | Bankruptcy professional services              |                               |       
|                                            | Infrastructure software and other             |                               |       
|                                            |                                               |                               |       
|                                            |                                               | Total Operating Revenues      |       
|                                            |                                               |                               |       
|COST OF SALES:                              |                                               |                               |       
|                                            | Cost of products and services                 |                               |       
|                                            | Depreciation and amortization                 |                               |       
|                                            |                                               |                               |       
|                                            |                                               | Total Cost of Sales           |       
|                                            |                                               |                               |       
|GROSS PROFIT                                |                                               |                               | 26,137
|                                            |                                               |                               |       
|OPERATING EXPENSES:                         |                                               |                               |       
|                                            | General and administrative                    |                               |       
|                                            | Depreciation                                  |                               |       
|                                            | Amortization-goodwill/intangibles             |                               |       
|                                            | Acquisition related                           |                               |       
|                                            | Purchased in-process research and development |                               |       
|                                            |                                               |                               |       
|                                            |                                               | Total Operating Expenses      |       
|                                            |                                               |                               |       
|INCOME FROM OPERATIONS                      |                                               |                               | 12,812
|                                            |                                               |                               |       
|INTEREST INCOME (EXPENSE):                  |                                               |                               |       
|                                            | Interest income                               |                               |       
|                                            | Interest expense                              |                               |       
|                                            |                                               |                               |       
|                                            |                                               | Net Interest Income (Expense) |       
|                                            |                                               |                               |       
|INCOME BEFORE INCOME TAXES                  |                                               |                               | 13,246
|PROVISION FOR INCOME TAXES                  |                                               |                               | 5,013 
|                                            |                                               |                               |       
|NET INCOME                                  |                                               | $                             | 8,233 
|                                            |                                               |                               |       
|NET INCOME PER SHARE INFORMATION:           |                                               |                               |       
|                                            | Basic                                         |                               | $     
|                                            |                                               |                               |       
|                                            | Diluted                                       |                               | $     
|                                            |                                               |                               |       
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |                                               |                               |       
|                                            | Basic                                         |                               |       
|                                            |                                               |                               |       
|                                            | Diluted                                       |                               |       
|                                            |                                               |                               |       

See
accompanying notes to financial statements.

F-3

---

EPIQ SYSTEMS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(In Thousands)

|                                                                                                               |                                                     | Years Ended December 31, |        
|-------------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------ | -------
|
|PREFERRED SHARES (2,000,000 authorized as of December 31, 2002, 2001 and 2000):                                |                                                     |                          |       
|                                                                                                               |                                                     |                          |        
|COMMON SHARES (50,000,000 authorized as of December 31, 2002 and 2001 and 20,000,000 as of December 31, 2000): |                                                     |                          |        
|                                                                                                               | 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                                          |                          |        
|                                                                                                               | Cash paid in lieu of fractional shares              |                          |        
|                                                                                                               |                                                     |                          |        
|                                                                                                               |                                                     | Balance, end of year     |        
|                                                                                                               |                                                     |                          |        
|TOTAL STOCKHOLDERS' EQUITYl                                                                                    |                                                     | $                        | 102,375
|                                                                                                               |                                                     |                          |        

See
accompanying notes to financial statements.

F-4

---

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                                                              |                                                                    |                                      
|                                             | Settlement of contingencies from previous acquisition                                   |                                                                    |                                      
|                                             | Cash paid for acquisition of business, net of cash acquired                             |                                                                    |                                      
|                                             | Net sales of short-term investments                                                     |                                                                    |                                      
|                                             |                                                                                         |                                                                    |                                      
|                                             |                                                                                         |                                                                    | Net cash used in 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 paid in lieu of fractional shares                                                  |                                                                    |                                      
|                                             |                                                                                         |                                                                    |                                      
|                                             |                                                                                         |                                                                    | Net cash from financing activities   
|                                             |                                                                                         |                                                                    |                                      
|NET INCREASE IN CASH AND CASH EQUIVALENTS    |                                                                                         |                                                                    | 34,521                               
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |                                                                                         |                                                                    | 25,306                               
|                                             |                                                                                         |                                                                    |                                      
|CASH AND CASH EQUIVALENTS, END OF YEAR       |                                                                                         | $                                                                  | 59,827                               
|                                             |                                                                                         |                                                                    |                                      

See
accompanying notes to financial statements.

F-5

---



EPIQ SYSTEMS, INC.        NOTES TO FINANCIAL STATEMENTS        DECEMBER 31, 2002, 2001 AND 2000

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. A high level of coordinated support including network integration, post-installation support and value added services accompanies the products.

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.

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. Amortization of software costs is included in cost of sales in the Statements of Income.

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
CPT Group, Inc., ROC Technologies, Inc., PHiTECH, Inc. and DCI Chapter 7 Solutions, Inc. 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
Company reviews its goodwill on an annual basis at July 31 and between annual tests if events or changes in circumstances have indicated that the assets might be impaired. In
accordance with SFAS No. 142, goodwill is not being amortized.

F-6

---

The
Company reviews its other intangibles for impairment whenever events or changes in circumstances have indicated that the carrying amount of its assets might not be recoverable.
Amortization of intangible assets is reflected in the Statements of Income in operating expenses.

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 has adopted the disclosure provisions of SFAS No. 148,Accounting for Stock-Based CompensationTransition
and Disclosure, an amendment of FASB Statement No. 123. The Statement requires prominent disclosures in both annual and interim financial statements regarding the method
of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company accounts for stock compensation awards under the intrinsic method of Accounting
Principles Board Opinion No. 25 (see Note 12). Opinion No. 25 requires compensation cost to be recognized based on the excess, if any, between the quoted market price at the date
of grant and the amount an employee must pay to acquire stock. Options awarded under the Company's plan are granted with an exercise price equal to the fair market value on the date of the grant. Had
the compensation cost been determined based on the fair value at the grant dates using SFAS No. 123, the Company's December 31, 2002, 2001 and 2000 net income and net income per share
would have been reduced to the following pro forma amounts:

2002

2001

2000(In Thousands, Except Per Share Data)Net income, as reported

$
8,233

$
4,942

$
2,132Deduct: Total stock-based employee compensation expense determined under fair value based method for all options, net of tax


(2,258
)

(829
)

(415
)Net income, pro forma

$
5,975

$
4,113

$
1,717Net income per shareBasic
As reported

$
..56

$
..37

$
..20Pro forma

$
.40

$
.30

$
.17Net income per shareDiluted
As reported

$
..54

$
..35

$
..20Pro forma

$
.39

$
.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-7

---

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:

2002

2001

2000Expected life (years)

6.19

6.49

6.75Volatility

53%

79%

67%Risk-free interest rate

3.2%4.4%

1.9%6.7%

5.9%6.4%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.

Revenue Recognition

Bankruptcy Case Management Fees

For the Company's case management component of the bankruptcy business, fully integrated turnkey, back-office systems are provided to its bankruptcy
trustee customers. These comprehensive solutions enable trustees to manage virtually every aspect of their caseloads and to satisfy the reporting requirements to the Department of Justice, Bankruptcy
Court, debtors, creditors and others in accordance with the federal bankruptcy rules and local jurisdiction bankruptcy court requirements. The Company's most significant bankruptcy products are TCMSfor
Chapter 7 andCasePowerfor Chapter 13.

These
turnkey systems include both non-exclusive, non-transferable software licenses as well as continuing "help desk" technical support, on-going
training and periodic modifications to the software to reflect any changes in the reporting rules and regulations by the Department of Justice or a specific Bankruptcy Court jurisdiction. The Company
has agreements with each of its bankruptcy trustee customers, which typically can be terminated with 30 days written notice.

The
Company promotes its Chapter 7TCMSsoftware related products and services through a national marketing arrangement with Bank
of America. Substantially all of the Company's Chapter 7 revenues are collected through its relationship with Bank of America. The agreement with Bank of America has no fixed expiration date
and either party may terminate the arrangement at any time upon six months notice to the other. The Company has other Chapter 7 banking relationships involving similar software related products
that either predate its relationship with Bank of America or were acquired as part of an acquisition of competing businesses.

Revenues
for Chapter 7 trustees include monthly fees collected by the Company through marketing agreements with various banks. For Chapter 7 trustees, the Company
(1) provides software related products and back-office support to each trustee at no direct charge; (2) the trustee maintains bankruptcy estate deposit accounts at banks with
a contractual relationship with the Company; and (3) the Company collects revenue for each trustee client through these banks. Revenues are recognized after the software related product is
installed and deposits are transferred, and are based on the number of trustees and level of trustee's deposit with that institution. For Chapter 13 trustees, monthly

F-8

---

revenues are based on the number of cases in the trustee's database at month-end. In the case of both Chapter 7 and 13, each month the Company is obligated to deliver the software
product and services as defined in the contract. The fees paid for the various components is contingent upon the month-to-month delivery of the product and services and is
based on a formula, as defined by the contract, on either the number of trustees and cash balances in a trustee's bank account or on the number of cases in a trustee's portfolio. The formula based
fees earned each month become fixed and determinable on a monthly basis as a result of all contractually required products and services being delivered by the Company.

The
Company receives an upgrade fee from Bank of America when it completes a major upgrade of theTCMSproduct, and the upgrade is
delivered to every trustee that has a contract with Bank of America. A major upgrade typically consists of a combination of new technology and competitive enhancements that are designed to better
serve the needs of the trustee. Revenue is collected through the Bank of America marketing arrangement and is recognized upon delivery of the upgrade to the trustees.

Bankruptcy Professional Services

Professional services revenue include fees derived from other non-routine bankruptcy services to trustees, as well as fees for processing and noticing
and mailing services and from providing additional
billable services directly to Bank of America to assist the bank with activities that pertain directly to the bank's support of bankruptcy trustee relationships. Revenues are recognized as the
services are provided.

Infrastructure Software and Other

For the infrastructure software business, the Company provides theDataExpressproduct line that enables corporate
customers to format and securely route data over the Internet and private networks. TheDataExpressproduct line is sold with a traditional server
license, maintenance and professional services pricing model. Various optional modules are available for additional licensing fees. Revenues derived from infrastructure software include license fees,
consulting services and post contract customer support.

Infrastructure
software license revenue is supported by a signed agreement between the Company and each customer. The Company recognizes revenues for licenses following delivery and
acceptance by the customer. Delivery, as defined by the licensing agreement, constitutes receiving the license keys or opening the envelope containing the software media. Acceptance occurs either at
delivery or at a later date negotiated by the customer and defined in the software agreement executed by both parties prior to any products being delivered.

The
Company defers revenue for the fair value of professional services and maintenance fees for its infrastructure software business. Deferred consulting revenue is recognized as
services are provided and maintenance fees are collected and recognized as revenue on a straight-line basis over the life of the maintenance contract, which is typically one year. Revenues
on multiple-elements are allocated based on the actual amount the Company charges when that element is sold separately.

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, 2002, 2001 and 2000.

F-9

---

Net Income Per Share

Basic net income per share is computed using 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, to 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 15). 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.

Recent Accounting Pronouncements

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 adopt SFAS No. 143 in the fiscal year beginning January 1, 2003 and does not anticipate a material effect on the Company's financial position, results of operations or
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's adoption of this standard as of January 1, 2002 did not have a material effect on its financial position, results of operations or cash flows.

In
April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections,principally to eliminate an inconsistency between the required accounting for sale-leaseback transaction and the required accounting for
certain lease modifications that have economic effects that are similar to sale-leaseback transactions. The statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability under changed conditions. This statement is effective in fiscal years beginning after May 15, 2002. The Company
is currently assessing the effects of this statement and does not anticipate a material impact, if any, on its financial position, results of operations or cash flows.

In
June 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated With Exit or Disposal Activities. This SFAS
modifies the timing and measurement of the recognition of costs associated with an exit or disposal activity. The statement is effective for exit or disposal activities initiated after

F-10

---

December 31, 2002. The Company is assessing the effects of this pronouncement on its financial position, results of operations and cash flows but does not anticipate a material impact, if any.

In
December 2002, the FASB issued SFAS No. 148,Accounting for Stock-Based CompensationTransition and Disclosurean
amendment of FASB Statement No. 123, Accounting for Stock-Based Compensation,to provide alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The statement is effective for fiscal years and
interim periods ending after December 15, 2002.

In
November 2002, the FASB issued Interpretation No. 45,"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others"("FIN 45"). FIN 45 elaborates on the existing disclosure requirements for most guarantees. FIN 45 requires that at
the time a company issues certain guarantees, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose
that information in its interim and annual financial statements. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002. FIN 45's disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002 and are
applicable to all guarantees issued by the guarantor subject to FIN 45's scope, including guarantees issued prior to the issuance of FIN 45. The adoption of FIN 45 is not
anticipated to have a material impact on the Company's financial position or results of operations.

Reclassification

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

F-11

---

NOTE 2:    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. The classification of
property and equipment, with their estimated useful lives is as follows:

Year Ended December 31,Estimated
Useful Life2002

2001(In Thousands)Land

$
192

$
192Building and improvements


5,186


3,419

530 yearsFurniture and fixtures


1,652


1,001

510 yearsComputer equipment


11,431


10,882

35 yearsOffice equipment


442


398

510 yearsTransportation equipment


2,518


2,518

35 years21,421


18,410Less accumulated depreciation


(9,535
)

(7,473
)Property and equipment, net

$
11,886

$
10,937


The Company reviews its property and equipment for impairment whenever events or changes in circumstances have indicated that the carrying amount of its assets
might not be recoverable.

NOTE 3:    SOFTWARE DEVELOPMENT COSTS

The following is a summary of software development costs capitalized:

Year Ended December 31,2002

2001(In Thousands)Amounts capitalized, beginning of year

$
7,065

$
4,773Development costs capitalized


1,955


2,022Acquisitions


11


270Amounts capitalized, end of year


9,031


7,065Accumulated amortization, end of year


(4,695
)

(2,939
)Net software development costs

$
4,336

$
4,126


Included in the above are development costs relating to products not yet released. Such costs totaled $1,165,000 and $1,328,000 at December 31, 2002 and
2001, respectively.

F-12

---

NOTE 4:    GOODWILL AND INTANGIBLE ASSETS

In June 2001, the FASB issued SFAS No. 142, which was adopted by the Company on January 1, 2002, requiring, 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. As required by SFAS No. 142, the Company completed its transitional impairment test as of January 1, 2002 and its annual
impairment test as of July 31, 2002, which resulted in no impairment of goodwill.

Goodwill,
net of amortization was $17,449,000 and $17,398,000 for bankruptcy and related services as of December 31, 2002 and 2001, respectively. Goodwill, net of amortization for
infrastructure software was $3,826,000.

Goodwill
during 2002 is as follows:

|                                                      |  | Year Ended December 31 2002 |        | Year Ended December 31 2001 |  
|----------------------------------------------------- |  | --------------------------- | ------ | --------------------------- | -
|
|
|Balance as of January 1, 2002                         |  | $                           | 17,398 |                             | $
|Goodwill acquired during the year                     |  |                             | 221    |                             |  
|Settlement of contingencies from previous acquisition |  |                             | (170   | )                           |  
|Amortization of Goodwill during the year              |  |                             |       |                             |  
|Impairment losses                                     |  |                             |       |                             |  
|Goodwill written off related to sale of business unit |  |                             |       |                             |  
|                                                      |  |                             |        |                             |  
|Balance as of December 31, 2002                       |  | $                           | 17,449 |                             | $
|                                                      |  |                             |        |                             |  

F-13

---

In
accordance with SFAS No. 142, adopted January 1, 2002, the Company discontinued the amortization of goodwill. Net income and earnings per share for the years ended
December 31, 2001 and 2000 adjusted to exclude this amortization expense, net of tax, is as follows:

Year Ended
December 31,2001

2000(In Thousands,
Except Per Share Data)Reported net income

$
4,942

$
2,132Goodwill amortization, net of tax


675


710Adjusted net income

$
5,617

$
2,842Basic earnings per share

$
0.37

$
0.20Goodwill amortization, net of tax


0.05


0.07Adjusted basic earnings per share

$
0.42

$
0.27Diluted earnings per share

$
0.35

$
0.20Goodwill amortization, net of tax


0.05


0.07Adjusted diluted earnings per share

$
0.40

$
0.27


Intangible
assets at December 31, 2002 and 2001 consisted of the following:

Year Ended
December 31,2002

2001(In Thousands)Customer contracts

$
4,060

$
3,440Accumulated amortization


(656
)

(305
)Customer contracts, net


3,404


3,135Trade names


710


710Accumulated amortization


(206
)

(121
)Trade names, net


504


589Non-compete agreement


300


300Accumulated amortization


(189
)

(127
)Non-compete agreement, net


111


173Total intangible assets, net

$
4,019

$
3,897


Amortization
expense related to intangible assets other than goodwill was $498,000, $312,000 and $60,000 in the years ended December 31, 2002, 2001 and 2000, respectively.
Amortization expense related to intangible assets other than goodwill (before the effect of the BSI acquisition) is estimated to be $530,000 in 2003 and 2004, $510,000 in 2005 and $450,000 in 2006 and
2007.

F-14

---

NOTE 5:    LINES OF CREDIT AND LONG-TERM OBLIGATIONS

Lines of Credit

The Company has two bank lines of credit totaling $15,000,000. On June 4, 2002, the Company replaced its lines of credit for equipment financing and
working capital allowing for total maximum borrowings up to $2,500,000 and $5,000,000, respectively, with a revolving line of credit for working capital allowing for borrowings up to $10,000,000. The
line of credit accrues variable rate interest, revised daily, equal to the New York Prime Rate as published in the Wall Street Journal (4.25% at December 31, 2002). Borrowings are unsecured,
however, the line contains certain financial covenants pertaining to the maintenance of net worth and net income to interest expense ratios. On August 7, 2002, the Company entered into an
additional $5,000,000 line of credit for working capital purposes. Terms mirror the $10,000,000 line of credit. The revolving lines of credit mature on June 4, 2003. The Company anticipates no
difficulties in renewing these lines of credit on substantially similar terms.

As
of December 31, 2001 no amounts were outstanding under the then existing equipment financing or working capital lines. There were no borrowings outstanding under these lines of
credit at December 31, 2002. The Company was in compliance with all of the financial covenants under the lines of credit as of and for the years ended December 31, 2002 and 2001.

Obligations under Capital Leases

Capital leases are for the use of office equipment. Aggregate annual payments for these obligations at December 31, 2002 are as follows:

(In Thousands)2003

$
1092004


69Future minimum lease payments


178Less amount representing interest


15Present value of future minimum lease payments


163Less current maturities


97Noncurrent portion

$
66


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

As
of December 31, 2002 and 2001 property and equipment include the following assets under capital leases:

2002

2001(In Thousands)Office equipment

$
369

$
385Less accumulated amortization


185


119$
184

$
266


F-15

---

NOTE 6:    OPERATING LEASES

The Company has three non-cancelable operating leases for office space expiring at various times through November 2007. 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 January 2007.

Future
minimum lease payments at December 31, 2002 were as follows:

(In Thousands)2003

$
3852004


3422005


2152006


1802007


143$
1,265


Rental
expense was approximately $425,000, $431,000, and $507,000 for the years ended December 31, 2002, 2001 and 2000, respectively. Included in rental expense was approximately
$0, $69,000, and $162,000 paid to a related party for the years ended December 31, 2002, 2001 and 2000, respectively (See Note 7).

NOTE 7:    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.

NOTE 8:    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 $337,000, $270,000, and $203,000 for the years ended December 31, 2002, 2001, and 2000, respectively.

NOTE 9:    STOCKHOLDERS' EQUITY

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.

F-16

---

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.

On
November 7, 2002, the Company completed a private placement of 2,000,000 shares of its common stock and received net proceeds of approximately $28,140,000, after underwriter's
discount and offering expenses of $1,860,000.

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, expiring 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 remaining warrants
outstanding after the May 2001 transaction.

NOTE 10:    INCOME TAXES

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

2002

2001

2000(In Thousands)Taxes currently payable:Federal

$
2,975

$
2,107

$
1,300States


658


470


280Total


3,633


2,577


1,580Deferred income taxes


1,380


459


(260
)Tax provsion

$
5,013

$
3,036

$
1,320


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:

2002

2001

2000(In Thousands)Computed at the statutory rate (34%)

$
4,504

$
2,713

$
1,174Increase in taxes resulting from:Nondeductible expenses and nontaxable income


51


49


26State income taxes, net of federal tax effect and other


458


274


120Tax provision

$
5,013

$
3,036

$
1,320


F-17

---

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

2002

2001

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

$
12

$
12

$
12Accrued compensated absences


35


168


123Accrued stock options


15


14


13Deferred revenue


32


54


131Intangible assets





314


13894


562


417Deferred tax liabilities:Prepaid expenses


185





Intangible assets


245





Property and equipment and software development costs


1,750


1,268


6642,180


1,268


664$
(2,086
)
$
(706
)
$
(247
)


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

2002

2001(In Thousands)Deferred income taxescurrent

$
(106
)
$
194Deferred income taxeslong-term


(1,980
)

(900
)$
(2,086
)
$
(706
)


F-18

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NOTE 11:    NET INCOME PER SHARE

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

|                               |                                                                 | 2002 |   | 2001  |  | 2000  
|------------------------------ | --------------------------------------------------------------- | ---- | - | ----- |  | ------
|
|
|Basic net income per share:    |                                                                 |      |   |       |  |       
|                               | Income available to common shareholders                         |      | $ | 8,233 |  | 14,775
|                               |                                                                 |      |   |       |  |       
|Effect of dilutive securities: |                                                                 |      |   |       |  |       
|                               | Warrants                                                        |      |   |       |  |       
|                               | Stock options                                                   |      |   |       |  | 534   
|                               |                                                                 |      |   |       |  |       
|Diluted net income per share:  |                                                                 |      |   |       |  |       
|                               | Income available to common shareholders and assumed conversions |      | $ | 8,233 |  | 15,309
|                               |                                                                 |      |   |       |  |       

Options to purchase 99,000, 4,000 and 15,000 shares of common stock as of December 31, 2002, 2001 and 2000, respectively, were
antidilutive and therefore not included in the computation of diluted earnings per share.

NOTE 12:    STOCK OPTIONS

The Company's 1995 Stock Option Plan (the "Plan"), as amended, limits the grant of options to acquire shares of common stock to 3,000,000 shares. 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 vesting schedule
for outstanding options ranges from immediately to five years.

At
December 31, 2002, there were approximately 794,000 options available for future grants.

F-19

---

A
summary of the Company's stock options outstanding as of December 31, 2002, 2001 and 2000 is presented below:

2002

2001

2000Shares

Weighted
Average
Exercise
Price

Shares

Weighted
Average
Exercise
Price

Shares

Weighted
Average
Exercise
Price(In Thousands, Except Price Data)Outstanding, beginning of year

1,293

$
5.88

1,134

$
3.92

1,025

$
3.57Granted

679


15.79

443


9.89

325


4.86Forfeited

(91
)

8.96

(87
)

7.06

(124
)

4.35Exercised

(137
)

3.00

(197
)

3.09

(92
)

2.77Outstanding, end of year

1,744


6.87

1,293


5.88

1,134


3.92


Weighted-average fair value of options granted during the years 2002, 2001 and 2000 were $8.65, $7.23 and $3.36, respectively.

The
following table summarizes information about stock options under the plan outstanding at December 31, 2002:

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

194

5.1 years

$
2.85

185

$
2.80$
4.00 to $  6.00

504

6.7 years


4.75

323


4.69$
7.53 to $12.85

507

8.60 years


10.23

230


10.58$
14.22 to $21.00

539

9.72 years


16.66

53


18.211,744






791


NOTE 13:    SIGNIFICANT CUSTOMER AND CONCENTRATION

The Company promotes its Chapter 7 TCMS software related products and services through a national marketing arrangement with Bank of America. Through this
arrangement 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 Bank of America as a result of these arrangements were approximately
$29,476,000 for 2002, $22,335,000 for 2001, and $14,610,000 for 2000. The increase in each year shown was from increases in the number of trustees and deposits, electronic banking, technology
integration fees, technology management fees and marketing and consulting services. Additionally, Bank of America represented approximately 77% of the Company's accounts receivable balance as of
December 31, 2002 and 2001.

F-20

---

NOTE 14:    BUSINESS ACQUISITIONS

CPT Group, Inc.

On July 10, 2002, the Company acquired the Chapter 7 trustee business of CPT Group, Inc. in Orange County, California. The purchase
price totaled $852,000, including acquisition costs of $52,000. The net purchase price of $800,000 was paid in cash. The purchase price was allocated to software of $11,000 and customer contracts of
$620,000. The software is being amortized on a straight-line basis over 12 months, 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 $221,000. In accordance with SFAS No. 142, the goodwill is not being amortized.

The
acquisition was accounted for using the purchase method of accounting with the operating results included in the Company's Statement of Income since the date of acquisition.

ROC Technologies, Inc.

On October 11, 2001, the Company acquired certain assets from ROC Technologies, Inc., 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.

The
acquisition was accounted for using the purchase method of accounting with the operating results included in the Company's Statement of Income since the date of acquisition.

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 5), $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 and treated as a charge to earnings reducing after tax income for 2000 by $217,000. The acquired in-process research and development 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 that 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. Amortization ceased on January 1, 2002, the date
the Company adopted SFAS No. 142.

F-21

---

The
acquisition was accounted for using the purchase method of accounting with the operating results included in the Company's Statement of Income since the date of acquisition.

The
operating revenues, expenses and net income associated with the Chapter 7 trustee business of CPT Group, Inc. prior to its acquisition were not significant and
therefore are not reflected in the table below. Unaudited pro forma operations assuming the purchase acquisitions were made at the beginning of the year preceding the
ROC Technologies, Inc. and PHiTECH, Inc. acquisitions are as follows:

Year Ended December 31,2001

2000(In Thousands, Except Per Share Data)Operating Revenues

$
31,774

$
25,131Net Income


3,429


330Net Income Per Share:Basic

$
0.25

$
0.03Diluted

$
0.24

$
0.03


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 business and interest expense related to borrowings to finance the PHiTECH acquisition.

NOTE 15:    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 infrastructure software. 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 infrastructure software products for financial services and other markets
and provides support for these software products, which has been reported as the second operating segment.

F-22

---

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

2002

2001

2000(In Thousands)Operating revenues:Bankruptcy and related services

$
36,256

$
28,149

$
19,906Infrastructure software


2,020


1,963


3,351Total operating revenues


38,276


30,112


23,257Cost of sales:Cost of products and services:Bankruptcy and related services


6,363


5,462


4,900Infrastructure software


932


882


1,122Depreciation and amortization:Bankruptcy and related services


3,707


3,286


2,948Infrastructure software


1,137


440


151Total cost of sales


12,139


10,070


9,121Gross profit:Bankruptcy and related services


26,186


19,401


12,058Infrastructure software


(49
)

641


2,078Total gross profit

$
26,137

$
20,042

$
14,136


F-23

---

Year Ended December 31,2002

2001(In Thousands, Except Per Share Data)Accounts Receivable, netBankruptcy and related services

$
5,086

$
4,239Infrastructure software


538


190Other


23


69Total

$
5,647

$
4,498Property and Equipment, netBankruptcy and related services

$
3,074

$
3,548Infrastructure software


210


259Other


8,602


7,130Total

$
11,886

$
10,937Software Development Costs, netBankruptcy and related services

$
1,468

$
1,714Infrastructure software


2,868


2,412Other





Total

$
4,336

$
4,126Goodwill, netBankruptcy and related services

$
17,449

$
17,398Infrastructure software


3,826


3,826Other





Total

$
21,275

$
21,224Other Intangibles, netBankruptcy and related services

$
3,030

$
2,761Infrastructure software


989


1,136Other





Total

$
4,019

$
3,897


The Company has not disclosed any additional asset information 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.

F-24

---

NOTE 16:    ADDITIONAL CASH FLOWS INFORMATION

2002

2001

2000(In Thousands)Additional Cash InformationInterest paid

$
139

$
117

$
291Income taxes paid


3,128


1,837


1,309Noncash Investing and Financing ActivitiesCapital lease obligation incurred for equipment

$


$


$
369


The Company acquired certain business assets of CPT Group, Inc and received a settlement for contingencies on the ROC acquisition in 2002. The
Company acquired certain business assets and assumed certain liabilities of ROC in 2001 and substantially all business assets of PHiTECH in 2000, respectively (see Note 14). In conjunction with
the acquisitions, cash flow information is as follows:

2002
CPT and ROC

2001
ROC

2000
PHiTECH(In Thousands)Fair value of assets acquired

$
852

$
12,228

$
7,109Deferred obligation incurred in purchase transaction








(797
)Settlement of contingencies from ROC acquisition


(170
)




Liabilities assumed





(40
)

(974
)Cash paid for acquisition


682


12,188


5,338Cash acquired








4Cash paid for acquisition, net of cash acquired

$
682

$
12,188

$
5,334


NOTE 17:    SUBSEQUENT EVENT

On January 31, 2003, the Company, through its wholly-owned subsidiary, EPIQ Systems Acquisition Inc., acquired 100% of the membership interests of
Bankruptcy Services LLC ("BSI"), a provider of technology-based case management, consulting and administrative services to Chapter 11 cases. The purchase price totaled $66,000,000,
before acquisition costs, consisting of $49,500,000 in cash and 1,054,230 shares of restricted common stock. In accordance with SFAS No. 142, the goodwill will not be amortized.

The
acquisition will be accounted for using the purchase method of accounting.

*        *        *

F-25

---

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 as of November 7, 2002, among the Company and the Purchasers named therein.(6)                                                                                                                 
|10.5           |  | Purchase and Assumption Agreement dated as of October 10, 2001, among ROC Technologies. Inc., Comerica Holdings Incorporated and the Company.(7)                                                                                   
|10.6           |  | Real Estate Contract between T & J Investment Co. and the Company effective as of April 30, 2001.(8)                                                                                                                               
|10.7           |  | Membership Interest Purchase Agreement dated as of January 31, 2003, among Jay D. Chazanoff, Stephen R. Simms, Ron L. Jacobs and Kathleen Gerber and Bankruptcy Services LLC and EPIQ Systems Acquisition, Inc. and the Company.(9)
|10.8           |  | Employment Agreement dated as of January 31, 2003, between Bankruptcy Services LLC, the Company and Ron Jacobs.(9)                                                                                                                 
|10.9           |  | Employment Agreement dated as of January 31, 2003, between Bankruptcy Services LLC, the Company and Kathleen Gerber.(9)                                                                                                            
|10.10          |  | Stock Option Agreement dated as of January 31, 2003, among the Company, Bankruptcy Services, LLC and Ron Jacobs.(9)                                                                                                                
|10.11          |  | Commercial Loan Agreement dated June 4, 2002, between Gold Bank and the Company for $10,000,000 revolving loan.(10)                                                                                                                
|10.12          |  | Promissory Note dated June 4, 2002, from the Company to Gold Bank.(10)                                                                                                                                                             
|10.13          |  | Commercial Loan Agreement dated August 7, 2002, between Gold Bank and the Company for $5,000,000 revolving loan.(11)                                                                                                               
|10.15          |  | Promissory Note dated August 7, 2002, from the Company to Gold Bank.(11)                                                                                                                                                           
|21.1           |  | List of Subsidiaries.*                                                                                                                                                                                                             
|23.1           |  | Consent of Deloitte & Touche LLP, Independent Auditors'.*                                                                                                                                                                          
|99.1           |  | Certifications of CEO and CFO Pursuant to 18 U.S.C. Section 1350.*                                                                                                                                                                 

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