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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C. 20549

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Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2001

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 Number)

501 Kansas Avenue, Kansas City, Kansas 66105-1300(Address of principal executive office)

913-621-9500(Registrant's telephone number)

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

The
number of shares outstanding of registrant's common stock at September 30, 2001:

Class

OutstandingCommon Stock, $.01 par value

9,511,112


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EPIQ SYSTEMS, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001

CONTENTS

|                             |  |                                                                                                  |  | Page
|---------------------------- |  | ------------------------------------------------------------------------------------------------ |  | ----
|PART IFINANCIAL INFORMATION |  |                                                                                                 
|Item 1.                      |  | Financial Statements                                                                             |  |     
|                             |  | Statements of Income
Three months and nine months ended September 30, 2001 and 2000 (Unaudited) |  | 2   
|                             |  | Balance Sheets
September 30, 2001 (Unaudited) and December 31, 2000                             |  | 3   
|                             |  | Statements of Cash Flows
Nine months ended September 30, 2001 and 2000 (Unaudited)              |  | 5   
|                             |  | Notes to Financial Statements (Unaudited)                                                        |  | 6   
|Item 2.                      |  | Management's Discussion and Analysis of Financial Condition and Results of Operations            |  | 12  
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                                       |  | 17  
|PART IIOTHER INFORMATION    |  |                                                                                                 
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                                 |  | 18  
|Signatures                   |  | 19                                                                                              

1

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PART IFINANCIAL INFORMATION

ITEM 1.Financial Statements.

EPIQ SYSTEMS, INC.

STATEMENTS OF INCOME

(In Thousands, Except Per Share Data)

(Unaudited)

|                                            |                                               | Three Months Ended
September 30, |       | Nine Months Ended
September 30, |  
|------------------------------------------- | --------------------------------------------- | -------------------------------- | ----- | ------------------------------- | -
|
|OPERATING REVENUES                          |                                               | $                                | 7,691 |                                 | $
|                                            |                                               |                                  |       |                                 |  
|COST OF SALES:                              |                                               |                                  |       |                                 |  
|                                            | Cost of products and services                 |                                  |       | 1,530                           |  
|                                            | Depreciation and amortization                 |                                  |       | 941                             |  
|                                            |                                               |                                  |       |                                 |  
|                                            |                                               |                                  | 2,471 |                                 |  
|                                            |                                               |                                  |       |                                 |  
|GROSS PROFIT                                |                                               |                                  | 5,220 |                                 |  
|                                            |                                               |                                  |       |                                 |  
|OPERATING EXPENSES:                         |                                               |                                  |       |                                 |  
|                                            | General and administrative                    |                                  |       | 2,719                           |  
|                                            | Depreciation                                  |                                  |       | 114                             |  
|                                            | Amortization-goodwill/intangibles             |                                  |       | 338                             |  
|                                            | Acquisition related                           |                                  |       |                                |  
|                                            | Purchased in-process research and development |                                  |       |                                |  
|                                            |                                               |                                  |       |                                 |  
|                                            |                                               |                                  | 3,171 |                                 |  
|                                            |                                               |                                  |       |                                 |  
|INCOME FROM OPERATIONS                      |                                               |                                  | 2,049 |                                 |  
|                                            |                                               |                                  |       |                                 |  
|INTEREST INCOME (EXPENSE):                  |                                               |                                  |       |                                 |  
|                                            | Interest income                               |                                  |       | 322                             |  
|                                            | Interest expense                              |                                  |       | (25                             | )
|                                            |                                               |                                  |       |                                 |  
|                                            |                                               |                                  | 297   |                                 |  
|                                            |                                               |                                  |       |                                 |  
|INCOME BEFORE INCOME TAXES                  |                                               |                                  | 2,346 |                                 |  
|PROVISION FOR INCOME TAXES                  |                                               |                                  | 853   |                                 |  
|                                            |                                               |                                  |       |                                 |  
|NET INCOME                                  |                                               | $                                | 1,493 |                                 | $
|                                            |                                               |                                  |       |                                 |  
|NET INCOME PER SHARE INFORMATION:           |                                               |                                  |       |                                 |  
|                                            | Basic                                         |                                  | $     | 0.16                            |  
|                                            |                                               |                                  |       |                                 |  
|                                            | Diluted                                       |                                  | $     | 0.15                            |  
|                                            |                                               |                                  |       |                                 |  
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: |                                               |                                  |       |                                 |  
|                                            | Basic                                         |                                  |       | 9,510                           |  
|                                            | Diluted                                       |                                  |       | 9,921                           |  

See
Notes to Financial Statements.

2

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EPIQ SYSTEMS, INC.

BALANCE SHEETS

(In Thousands, Except Share and Per Share Data)

|                                |                                                                                               | September 30, 2001                |        | December 31, 2000
|------------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------- | ------ | -----------------
|
|ASSETS:                         |                                                                                               |                                   |        |                  
|CURRENT ASSETS:                 |                                                                                               |                                   |        |                  
|                                | Cash and cash equivalents                                                                     |                                   | $      | 34,258           
|                                | Short-term investments                                                                        |                                   |        |                 
|                                | Accounts receivable, trade, less allowance for doubtful accounts of $31 and $31, respectively |                                   |        | 5,450            
|                                | Prepaid expenses and other                                                                    |                                   |        | 567              
|                                | Deferred income taxes                                                                         |                                   |        | 177              
|                                |                                                                                               |                                   |        |                  
|                                |                                                                                               | Total Current Assets              |        |                  
|                                |                                                                                               |                                   |        |                  
|PROPERTY AND EQUIPMENT:         |                                                                                               |                                   |        |                  
|                                | Land                                                                                          |                                   |        | 192              
|                                | Building                                                                                      |                                   |        | 1,642            
|                                | Furniture and fixtures                                                                        |                                   |        | 996              
|                                | Computer equipment                                                                            |                                   |        | 10,752           
|                                | Office equipment                                                                              |                                   |        | 398              
|                                | Building improvements                                                                         |                                   |        | 1,090            
|                                | Transportation equipment                                                                      |                                   |        | 1,648            
|                                |                                                                                               |                                   |        |                  
|                                |                                                                                               |                                   | 16,718 |                  
|                                | Less accumulated depreciation and amortization                                                |                                   |        | 6,967            
|                                |                                                                                               |                                   |        |                  
|                                |                                                                                               | Total Property and Equipment, net |        |                  
|                                |                                                                                               |                                   |        |                  
|SOFTWARE DEVELOPMENT COSTS, Net |                                                                                               |                                   | 3,651  |                  
|                                |                                                                                               |                                   |        |                  
|OTHER ASSETS:                   |                                                                                               |                                   |        |                  
|                                | Goodwill, net of accumulated amortization of $1,884 and $1,067, respectively                  |                                   |        | 11,557           
|                                | Other intangibles, net of accumulated amortization of $438 and $241, respectively             |                                   |        | 2,113            
|                                | Other                                                                                         |                                   |        | 50               
|                                |                                                                                               |                                   |        |                  
|                                |                                                                                               | Total Other Assets, net           |        |                  
|                                |                                                                                               |                                   |        |                  
|                                |                                                                                               | $                                 | 67,574 |                  
|                                |                                                                                               |                                   |        |                  

See
Notes to Financial Statements.

3

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EPIQ SYSTEMS, INC.

BALANCE SHEETS

(In Thousands, Except Share and Per Share Data)

|                                                  |                                                                                                                                                                                                                                              | September 30, 2001         |        | December 31, 2000
|------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------ | -----------------
|
|LIABILITIES AND STOCKHOLDERS' EQUITY:             |                                                                                                                                                                                                                                              |                            |        |                  
|CURRENT LIABILITIES:                              |                                                                                                                                                                                                                                              |                            |        |                  
|                                                  | Short-term borrowings                                                                                                                                                                                                                        |                            | $      |                 
|                                                  | Accounts payable                                                                                                                                                                                                                             |                            |        | 647              
|                                                  | Accrued expenses                                                                                                                                                                                                                             |                            |        | 1,016            
|                                                  | Income taxes payable                                                                                                                                                                                                                         |                            |        | 568              
|                                                  | Deferred revenue                                                                                                                                                                                                                             |                            |        | 716              
|                                                  | Current portion of deferred acquisition price                                                                                                                                                                                                |                            |        | 222              
|                                                  | Current maturities of long-term obligations                                                                                                                                                                                                  |                            |        | 105              
|                                                  |                                                                                                                                                                                                                                              |                            |        |                  
|                                                  |                                                                                                                                                                                                                                              | Total Current Liabilities  |        |                  
|                                                  |                                                                                                                                                                                                                                              |                            |        |                  
|DEFERRED REVENUE                                  |                                                                                                                                                                                                                                              |                            | 114    |                  
|LONG-TERM OBLIGATIONS (less current portion)      |                                                                                                                                                                                                                                              |                            | 187    |                  
|DEFERRED ACQUISITION PRICE (less current portion) |                                                                                                                                                                                                                                              |                            | 431    |                  
|DEFERRED INCOME TAXES                             |                                                                                                                                                                                                                                              |                            | 776    |                  
|                                                  |                                                                                                                                                                                                                                              |                            |        |                  
|                                                  |                                                                                                                                                                                                                                              | Total Liabilities          |        |                  
|                                                  |                                                                                                                                                                                                                                              |                            |        |                  
|STOCKHOLDERS' EQUITY:                             |                                                                                                                                                                                                                                              |                            |        |                  
|                                                  | Preferred stock, $1 par value; 2,000,000 shares authorized; none issued and outstanding                                                                                                                                                      |                            |        |                 
|                                                  | Common stock, $.01 par value; authorized50,000,000 shares at September 30, 2001 and 20,000,000 shares at December 31, 2000; issued and outstanding9,511,112 and 8,374,452 shares at September 30,
2001 and December 31, 2000, respectively |                            |        | 95               
|                                                  | Additional paid-in capital                                                                                                                                                                                                                   |                            |        | 53,803           
|                                                  | Retained earnings                                                                                                                                                                                                                            |                            |        | 8,894            
|                                                  |                                                                                                                                                                                                                                              |                            |        |                  
|                                                  |                                                                                                                                                                                                                                              | Total Stockholders' Equity |        |                  
|                                                  |                                                                                                                                                                                                                                              |                            |        |                  
|                                                  |                                                                                                                                                                                                                                              | $                          | 67,574 |                  
|                                                  |                                                                                                                                                                                                                                              |                            |        |                  

See
Notes to Financial Statements.

4

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EPIQ SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

|                                               |                                                                                        | Nine Months Ended September 30,                        |                                   
|---------------------------------------------- | -------------------------------------------------------------------------------------- | ------------------------------------------------------ | ----------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:          |                                                                                        |                                                        |                                   
|                                               | Net income                                                                             |                                                        | $                                 
|                                               | Adjustments to reconcile net income to net cash from operating activities:             |                                                        |                                   
|                                               |                                                                                        | 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 or sale of equipment                  |                                   
|                                               |                                                                                        | Accretion of discount on purchase agreement obligation |                                   
|                                               | Changes in operating assets and liabilities, net of effects from business acquisition: |                                                        |                                   
|                                               |                                                                                        | Accounts receivable                                    |                                   
|                                               |                                                                                        | Prepaid expenses and other assets                      |                                   
|                                               |                                                                                        | Accounts payable and accrued expenses                  |                                   
|                                               |                                                                                        | Deferred revenue                                       |                                   
|                                               |                                                                                        | Income taxes payable                                   |                                   
|                                               |                                                                                        |                                                        |                                   
|                                               |                                                                                        |                                                        | Net cash from operating activities
|                                               |                                                                                        |                                                        |                                   
|CASH FLOWS FROM INVESTING ACTIVITIES:          |                                                                                        |                                                        |                                   
|                                               | Purchase of property and equipment                                                     |                                                        |                                   
|                                               | Software development costs                                                             |                                                        |                                   
|                                               | Cash paid for acquisition of business, net of cash acquired                            |                                                        |                                   
|                                               | Proceeds from sale of property and equipment                                           |                                                        |                                   
|                                               | Proceeds from sale of investments, net                                                 |                                                        |                                   
|                                               |                                                                                        |                                                        |                                   
|                                               |                                                                                        |                                                        | Net cash from investing activities
|                                               |                                                                                        |                                                        |                                   
|CASH FLOWS FROM FINANCING ACTIVITIES:          |                                                                                        |                                                        |                                   
|                                               | Net (repayments of) proceeds from borrowings on line-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                                   |                                                        |                                   
|                                               |                                                                                        |                                                        |                                   
|                                               |                                                                                        |                                                        | Net cash from financing activities
|                                               |                                                                                        |                                                        |                                   
|NET INCREASE IN CASH AND CASH EQUIVALENTS      |                                                                                        |                                                        | 19,130                            
|                                               |                                                                                        |                                                        |                                   
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |                                                                                        |                                                        | 15,128                            
|                                               |                                                                                        |                                                        |                                   
|CASH AND CASH EQUIVALENTS, END OF PERIOD       |                                                                                        | $                                                      | 34,258                            
|                                               |                                                                                        |                                                        |                                   

See
Notes to Financial Statements.

5

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(Unaudited)

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

Nature of Operations

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

Common Stock Split

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 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 split.

Comprehensive Income

The Company has no additional components of other comprehensive income, therefore comprehensive income equals net income.

Recent Accounting Pronouncements

Statement of Financial Accounting Standards ("SFAS") No. 133,Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 137 and SFAS No. 138, requires, among other things, that all derivatives be recognized in the balance sheets as either assets or liabilities
and measured at fair value. The corresponding derivative gains and losses should be reported based upon the hedge relationship. If such a relationship exists, changes in the fair value of derivatives
that are not designated as hedges or that do not meet the hedge accounting criteria in SFAS No. 133 are required to be reported in income. As the Company does not hold any derivatives or embedded
derivatives, as defined by the statements, the adoption of the statement on January 1, 2001, did not result in a transition adjustment.

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

6

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

In
October 2001, the FASB issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144
modifies the financial accounting and reporting for long-lived assets to be disposed of by sale and it broadens the presentation of discontinued operations to include more disposal transactions. The
Company expects to implement SFAS No. 144 in the fiscal year beginning January 1, 2002, and is currently assessing its effect on the Company's financial position, results of operations and cash
flows.

Reclassification

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

NOTE 2: INTERIM FINANCIAL STATEMENTS

The accompanying financial statements have been prepared in accordance with the instructions to Form 10-Q of the SEC and in accordance with accounting
principles generally accepted in the United States of America ("GAAP") applicable to interim financial statements, and do not include all of the information and footnotes required by GAAP for complete
financial statements. The financial statements should be read in conjunction with the Company's audited financial statements and accompanying notes which are included in its Form 10-K for the year
ended December 31, 2000.

In
the opinion of management of the Company, the accompanying financial statements reflect all adjustments necessary (consisting solely of normal recurring adjustments) to present
fairly the financial position of the Company as of September 30, 2001 and the results of its operations and its cash flows for the three months and nine months then ended.

The
results of operations for the period ended September 30, 2001 are not necessarily indicative of the results to be expected for the entire year.

NOTE 3: STOCKHOLDERS' EQUITY

On June 29, 2001, the Company completed a follow-on offering of 1,025,000 shares of common stock and received net proceeds, after underwriter's discount
and offering expenses, of $22,735,000. An additional 475,000 shares of common stock were offered by selling shareholders from which the Company did not receive any of the proceeds.

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

NOTE 4: NET INCOME PER SHARE

Basic net income per share is computed based on the weighted average number of common shares outstanding during each period. Diluted net income per share is
computed using the weighted average

7

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common shares and all potentially dilutive common share equivalents outstanding during the period. The computation of net income per share for all periods presented is as follows:

|                                                                       |         | Three months ended
September 30, |       | Nine months ended
September 30,
|---------------------------------------------------------------------- | ------- | -------------------------------- | ----- | -------------------------------
|
|
|Net Income                                                             |         | $                                | 1,493 |                                
|                                                                       |         |                                  |       |                                
|Weighted average common shares outstanding                             |         |                                  | 9,510 |                                
|Weighted average common share equivalents (stock options and warrants) |         |                                  | 411   |                                
|                                                                       |         |                                  |       |                                
|Weighted average diluted common shares outstanding                     |         |                                  | 9,921 |                                
|                                                                       |         |                                  |       |                                
|Net Income per share:                                                  |         |                                  |       |                                
|                                                                       | Basic   |                                  | $     | 0.16                           
|                                                                       |         |                                  |       |                                
|                                                                       | Diluted |                                  | $     | 0.15                           
|                                                                       |         |                                  |       |                                

For
the three months ended September 30, 2001 the Company had 4,000 options outstanding which were anti-dilutive and, therefore, not considered in the diluted earnings per
share calculation above. For the three months ended September 30, 2000 the Company had no options outstanding which were anti-dilutive.

For
the nine months ended September 30, 2001 and 2000 the Company had 2,000 and 58,500 options outstanding, respectively, which were anti-dilutive and, therefore, not
considered in the diluted earnings per share calculation above.

NOTE 5: ADDITIONAL CASH FLOW INFORMATION

Additional Cash Information

|                  |  | Three Months Ended
September 30, |     | Nine Months Ended
September 30,
|----------------- |  | -------------------------------- | --- | -------------------------------
|
|
|Interest paid     |  | $                                | 25  |                                
|Income taxes paid |  |                                  | 103 |                                

8

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Noncash Investing and Financing Activities

The Company acquired substantially all business assets of PHiTECH in March 2000(see Note 6). In
conjunction with the acquisition, cash flow information for the nine months ended September 30, 2000 is as follows:

(In Thousands)Fair value of assets acquired

$
7,109Deferred obligation incurred in purchase transaction


(797
)Liabilities assumed


(974
)Cash paid for acquisition


5,338Cash acquired


4Cash paid for acquisition, net of cash acquired

$
5,334


NOTE 6: BUSINESS ACQUISITION

On March 17, 2000, the Company acquired substantially all of the business assets of PHiTECH, a California corporation, that provided 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 acquisition was accounted for using the purchase method of accounting with the operating results of PHiTECH included in the Company's statements of income since the date of acquisition.

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), $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, beginning 13 months after the date of acquisition and is presented as deferred acquisition price on the balance sheets. The first installment payment was made in
April 2001. The purchase price was allocated to net tangible assets of $322,000, software of $362,000, a non-compete agreement of $50,000, and $364,000 was allocated to purchased in-process
research and development ("IPRD") and treated as a charge to earnings reducing after tax income for the first quarter 2000 by $217,000 or $0.03 per share on a diluted basis. The purchased IPRD related
to PHiTECH's new, next-generation Java-based product, which was completed and released in the second quarter of 2001. The remainder of the
purchase price, $6,011,000, was allocated as follows: $650,000 to trade names, $700,000 to customer contracts and $4,661,000 to goodwill, which are being amortized on a straight-line basis over 10
years.

Unaudited
pro forma operations assuming the purchase was made at the beginning of the period presented are shown below:

Nine Months Ended
September 30, 2000(In Thousands, except per share data)Operating Revenues

$
17,141Net Income


1,285Net Income Per Share:Basic

$
0.18Diluted

$
0.18


9

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

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

NOTE 7: SEGMENT REPORTING

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

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

|                         |                                 | Three Months Ended September 30, |       | Nine Months Ended September 30,
|------------------------ | ------------------------------- | -------------------------------- | ----- | -------------------------------
|
|
|Operating revenues:      |                                 |                                  |       |                                
|                         | Bankruptcy and related services |                                  | $     | 7,269                          
|                         | Financial services              |                                  |       | 422                            
|                         |                                 |                                  |       |                                
|Total operating revenues |                                 |                                  | 7,691 |                                
|                         |                                 |                                  |       |                                
|Cost of sales:           |                                 |                                  |       |                                
|                         | Cost of products and services:  |                                  |       |                                
|                         |                                 | Bankruptcy and related services  |       |                                
|                         |                                 | Financial services               |       |                                
|                         | Depreciation and amortization:  |                                  |       |                                
|                         |                                 | Bankruptcy and related services  |       |                                
|                         |                                 | Financial services               |       |                                
|                         |                                 |                                  |       |                                
|Total cost of sales      |                                 |                                  | 2,471 |                                
|                         |                                 |                                  |       |                                
|Gross profit:            |                                 |                                  |       |                                
|                         | Bankruptcy and related services |                                  |       | 5,099                          
|                         | Financial services              |                                  |       | 121                            
|                         |                                 |                                  |       |                                
|Total gross profit       |                                 | $                                | 5,220 |                                
|                         |                                 |                                  |       |                                

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

10

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NOTE 8: LINES OF CREDIT

The Company has lines of credit for equipment financing and for working capital allowing for borrowings up to $2,500,000 and $5,000,000, respectively.

As
of January 2, 2001, all of the outstanding borrowings, plus accrued interest, under both lines was repaid. Both lines of credit were renewed on June 20, 2001 to
expire on June 20, 2002, unless renewed. The working capital line of credit of $3,500,000 was modified to $5,000,000 on August 24, 2001. There were no borrowings outstanding under these
lines of credit at September 30, 2001.

NOTE 9: PURCHASES OF PROPERTY AND EQUIPMENT

In May 2001, the Company purchased its corporate headquarters building from a partnership, in which an officer/director is a 50% partner, for a cash
purchase price of $1,750,000. In August 2001, the Company purchased a fractional ownership in a business aircraft for $1,625,000.

NOTE 10: SUBSEQUENT EVENTS

On October 11, 2001, the Company acquired certain assets and assumed certain obligations from ROC Technologies, Inc., the bankruptcy management software
subsidiary of Imperial Bank. Imperial Bank is a subsidiary of Comerica Incorporated ("Comerica"). The acquisition follows Comerica's decision to exit the Chapter 7 trustee business. The purchase price
(prior to direct acquisition costs) of $12,000,000 was paid by the Company from its existing cash and investments. The acquisition will be accounted for using the purchase method of accounting and the
purchase price will be allocated to the assets acquired and liabilities assumed based upon their estimated fair market values in the 4th quarter of 2001 for inclusion in the financial
statements at year end.

On
November 6, 2001, the Company announced that its Board of Directors had approved a 3 for 2 stock split, effected in the form of a 50% stock dividend, payable
November 30, 2001 to holders of record as of November 16, 2001. The Company will pay cash to shareholders in lieu of fractional shares. The shares presented in the balance sheets as of
September 30, 2001 and December 31, 2000, and the number of shares used in the computation of net income per share in the statements of income for the three and nine months ended
September 30, 2001 and 2000, were based on the number of shares outstanding before giving effect to the stock split. On a pro forma basis, giving effect to the stock split, weighted average
common shares outstanding and net income per share would have been as follows:

|                                                      |         | Three Months Ended
September 30, |   | Nine Months Ended
September 30,
|----------------------------------------------------- | ------- | -------------------------------- | - | -------------------------------
|
|
|Pro forma net income per share:                       |         |                                  |   |                                
|                                                      | Basic   |                                  | $ | .10                            
|                                                      | Diluted |                                  | $ | .10                            
|Pro forma weighted average common shares outstanding: |         |                                  |   |                                
|                                                      | Basic   |                                  |   | 14,265                         
|                                                      | Diluted |                                  |   | 14,882                         

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ITEM 2.Management Discussion and Analysis of Financial Condition and Results of Operations.

Overview

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



Because
of this arrangement, the Company has a recurring revenue stream from its Chapter 7 operations. The Company also derives Chapter 7 revenues from conversions, upgrades and
customized software provided to Chapter 7 trustees, as well as from customized software, technology services and marketing and strategic consulting services that the Company provides directly to Bank
of America in support of its national marketing arrangement.

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

For
its financial services segment, the Company markets itsDataXpressproduct line utilizing a traditional server-based license,
maintenance and professional services pricing model. Various optional features are available for additional fees.

Three Months Ended September 30, 2001 Compared With Three Months Ended September 30, 2000

Operating revenues increased 26.2% or $1,597,000 to $7,691,000 in the three-month period ended September 30, 2001 compared to $6,094,000 in the
three-month period ended September 30, 2000. The growth in operating revenues was attributable to increased revenues generated by bankruptcy and related services, which was partially offset by
a decrease in revenues for financial services. The bankruptcy and related services revenues increased 54.2%, or $2,556,000 to $7,269,000 in the three-month period ended September 30, 2001
compared to $4,713,000 in the three-month period ended September 30, 2000. The increase in bankruptcy and related services revenues was primarily a result of increases in monthly revenues from
the Chapter 7 business, marketing and strategic consulting fees and software enhancement fees plus an increase in Chapter 13 revenues. Revenues received from customized software, technology services
and marketing and strategic consulting services that the Company provided directly to Bank of America in support of its national marketing arrangement accounted for 24.7% of the bankruptcy and related
services revenues for the three-month period ended September 30, 2001 compared to 25.5% of the bankruptcy and related services revenues for the three-month period ended September 30,
2000. These projects and the related revenues vary from quarter to quarter. Financial services revenues for the three-month period ended September 30, 2001, declined $959,000 or 69.4% to
$422,000 compared to the three-month period ended September 30, 2000. This

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decrease in financial services revenues was a result of decreased sales generated from theDataXpressproduct acquired in March 2000.

Total
cost of sales increased 2.2% or $53,000 to $2,471,000 in the three-month period ended September 30, 2001 compared to $2,418,000 in the three-month period ended
September 30, 2000. Total cost of sales as a percentage of operating revenues decreased to 32.1% in the three-month period ended September 30, 2001 compared to 39.7% in the three-month
period ended September 30, 2000. Cost of products and services for bankruptcy and related services increased 4.2% or $54,000 to $1,351,000 in the three-month period ended September 30,
2001 compared to $1,297,000 in the three-month period ended September 30, 2000. A $131,000 decrease in the cost of products and services for the financial services segment offset the increase
in the cost of products and services for the bankruptcy and related services segment which led to a decrease in the total cost of products and services for the three-month period ended
September 30, 2001 compared to the three-month period ended September 30, 2000. Bankruptcy and related services cost of products and services as a percentage of bankruptcy and related
services revenues was 18.6% in the three-month period ended September 30,
2001 compared to 27.5% in the three-month period ended September 30, 2000. The decrease in cost as a percentage of revenues was largely attributable to the increase in higher margin operating
revenues from software enhancements, technology services and marketing and strategic consulting services in the three-month period ended September 30, 2001 as compared to the three-month period
ended September 30, 2000. Depreciation and amortization increased 16.0% or $130,000 to $941,000 in the three-month period ended September 30, 2001 compared to $811,000 in the three-month
period ended September 30, 2000, primarily due to the purchase of additional computer equipment and to a lesser extent an increase in software amortization.

Operating
expenses increased 27.2% or $678,000 to $3,171,000 for the three-month period ended September 30, 2001 compared to $2,493,000 for the three-month period ended
September 30, 2000. Operating expenses as a percentage of operating revenues were 41.2% for the three-month period ended September 30, 2001 compared to 40.9% in the three-month period
ended September 30, 2000. The increase in operating expenses for the three-month period ended September 30, 2001 was due to an increase in general and administrative infrastructure
necessary to support a higher level of revenues, including additional sales and marketing expenses related to the PHiTECH acquisition in 2000. The increase in general and administrative expenses for
the three-month period ended September 30, 2001 was primarily due to increases in compensation expense, related to both additional personnel and salary and benefit increases, and professional
services. Depreciation expense increased 56.2% or $41,000 to $114,000 in the three-month period ended September 30, 2001 compared to $73,000 in the three-month period ended September 30,
2000. The increase in depreciation was primarily due to the building improvements made in Kansas City and San Francisco to support the increased business and the purchase of the Company's headquarters
in May 2001 for $1,750,000.

The
Company had net interest income of $297,000 in the three-month period ended September 30, 2001 compared to net interest expense of $82,000 in the three-month period ended
September 30, 2000. This change resulted from the investment of the net proceeds received from a private placement of 1,350,000 shares of common stock on December 29, 2000 and the
follow-on offering of 1,025,000 shares of common stock on June 29, 2001. The increase was also due to a decrease in interest expense as result of the repayment of the Company's $3,500,000 line
of credit, which was used to finance a portion of the PHiTECH acquisition cost in 2000 and was repaid with a portion of the proceeds from the private placement of common stock.

The
Company's effective tax rate was 36.4% for the three-month period ended September 30, 2001, compared to 38.5% for the three-month period ended September 30, 2000.
The decrease in the effective tax rate was due to the Company taking available tax credits in the three-month period ended September 30, 2001.

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Net income as a percentage of operating revenues increased to 19.4% in the three-month period ended September 30, 2001 from 11.1% in the three-month period ended
September 30, 2000. The increase in net income as a percentage of operating revenues was due in part to the improved gross and operating
margins as well as an increase in interest income and a reduction in interest expense for the three month-period ended September 30, 2001.

Nine Months Ended September 30, 2001 Compared With Nine Months Ended September 30, 2000

Operating revenues increased 29.9% or $5,043,000 to $21,890,000 in the nine-month period ended September 30, 2001 compared to $16,847,000 in the
nine-month period ended September 30, 2000. The growth in operating revenues was attributable to revenues generated by bankruptcy and related services and was partially offset by a decrease in
revenues generated from financial services associated with our March 17, 2000 acquisition of PHiTECH. The bankruptcy and related services revenues increased 39.8% or $5,826,000 to $20,475,000
in the nine-month period ended September 30, 2001 compared to $14,649,000 in the nine-month period ended September 30, 2000. The increase in bankruptcy and related services revenues was
primarily due to completing a more extensive Trustee Case Management System ("TCMS") upgrade, increases in monthly revenues from the Chapter 7 business, software enhancements and marketing and
strategic consulting for the nine months ended September 30, 2001. Revenues received from customized software, technology services and marketing and strategic consulting services that the
Company provided directly to Bank of America in support of its national marketing arrangement accounted for 16.7% of the bankruptcy and related services revenues for the nine-month period ended
September 30, 2001 compared to 16.1% of the bankruptcy and related services revenues for the nine-month period September 30, 2000. The decrease in revenues of $783,000 or 35.6% to
$1,415,000 in financial services for the nine-month period ended September 30, 2001 as compared to revenues of $2,198,000 for the nine-month period ended September 30, 2000, was the
result of decreased sales generated from theDataXpressproduct acquired in March 2000.

Total
cost of sales increased 12.2% or $799,000 to $7,374,000 in the nine-month period ended September 30, 2001 compared to $6,575,000 in the nine-month period ended
September 30, 2000. Total cost of sales as a percentage of operating revenues decreased to 33.7% in the nine-month period ended September 30, 2001 compared to 39.0% in the nine-month
period ended September 30, 2000. Cost of products and services for bankruptcy and related services increased 9.8% or $355,000 to $3,980,000 in the nine-month period ended September 30,
2001 compared to $3,625,000 in the nine-month period ended September 30, 2000. The financial services segment contributed $38,000 to the increase in the total cost of products and services for
the nine-month period ended September 30, 2001. Bankruptcy and related services cost of products and services, as a percentage of bankruptcy and related services revenues, was 19.4% in the
nine-month period ended September 30, 2001 compared to 24.8% in the nine-month period ended September 30, 2000. The decrease in cost as a percentage of revenues was largely attributable
to the increase in operating revenues from upgrade revenue and marketing and strategic consulting fees that provide a higher profit margin. Depreciation and amortization increased 17.9% or $406,000 to
$2,672,000 in the nine-month period ended September 30, 2001, compared to $2,266,000 in the nine-month period ended September 30, 2000, primarily due to the purchase of additional
computer equipment and to a lesser extent an increase in software amortization.

Operating
expenses increased 18.0% or $1,402,000 to $9,172,000 in the nine-month period ended September 30, 2001 compared to $7,770,000 in the nine-month period ended
September 30, 2000. Operating expenses as a percentage of operating revenues were 41.9% in the nine-month period ended September 30, 2001 compared to 46.1% in the nine-month period ended
September 30, 2000. The increase in operating expenses for the nine-month period ended September 30, 2001 was due to a 32.9
% or $1,944,000 increase in general and administrative expenses over the comparable period in 2000. The increase in general and administrative expenses for the nine-month period ended
September 30, 2001 was due primarily to increases in compensation expense, related to both additional personnel and

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salary and benefit increases and legal and accounting costs for additional SEC filings. The additional personnel and salary and benefit expenses were primarily attributable to the increases in the
general and administrative infrastructure necessary to support a higher level of revenues, including additional sales and marketing personnel to support the financial services segment. This increase
in general and administrative expenses was partially offset by the absence of any acquisition related expenses or charges for purchased in-process research and development in the nine-month period
ended September 30, 2001. Included in operating expenses in 2000 were acquisition related expenses of $364,000 and a charge for purchased in-process research and development of $436,000, which
together represented 10.3% of the operating expenses for the nine-month period ended September 30, 2000.

The
purchased in-process research and development related to PHiTECH's new, next-generation Java-based product, 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 that was established in July 2000. Since technological feasibility was
established, the Company has capitalized approximately $739,000 in expenditures as software development costs. For the nine-month period ended September 30, 2001, the Company incurred
approximately $396,000 in additional costs until the program was released in April 2001. The Company does plan to continue to enhance the software and expects to access additional markets with
this new technology.

The
Company had net interest income of $508,000 in the nine-month period ended September 30, 2001 compared to net interest expense of $121,000 in the nine-month period ended
September 30, 2000. This change resulted from the investment of the net proceeds received from a private placement of 1,350,000 shares of common stock on December 29, 2000 and the
follow-on offering of 1,025,000 shares of common stock on June 29, 2001. The increase was also due to a decrease in interest expense as result of the repayment of the Company's $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.

Net
income as a percentage of operating revenues increased to 16.4% in the nine-month period ended September 30, 2001 from 8.6% in the nine-month period ended
September 30, 2000. The increase in net income as a percentage of operating revenues was due to the improved gross margins as well as the reduction in acquisition related charges and the
purchased in-process research and development, which occurred in the nine-month period ended September 30, 2000.

Liquidity and Capital Resources

The Company's cash and cash equivalents and short-term investments increased to $34,258,000 as of September 30, 2001 compared to $16,378,000 as of
December 31, 2000. This increase was mainly attributable to the completion of the follow-on offering of 1,025,000 shares of common stock on June 29, 2001 for net proceeds of $22,735,000
which was partially offset by the repayment of the outstanding line-of-credit of $3,575,000 in January 2001.

The
Company generated cash of $5,316,000 and $1,539,000 from operations for the nine months ended September 30, 2001 and 2000, respectively. The cash flow generated from
operations in the nine months ended September 30, 2001, primarily consisted of net income plus depreciation and amortization and the increase in income taxes payable offset in part by the
increase in accounts receivable and decreases in accounts payable and accrued expenses and deferred revenue. The cash flow generated from operations in the nine months ended September 30, 2000,
consisted of net income plus depreciation and amortization less an increase in accounts receivable and a decrease in deferred revenue.

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The Company invested cash in property and equipment totaling $5,276,000 and $2,436,000 for the nine-month periods ended September 30, 2001 and 2000, respectively. These
investments included purchases of the Company's headquarters building on May 17, 2001 for $1,750,000, a fractional ownership in a business aircraft on August 1, 2001 for $1,625,000 and
purchases of computer equipment for the Company's Chapter 7 product during the nine-month periods ended September 30, 2001 and 2000. On October 11, 2001, the Company paid $12,000,000
from its existing cash and investments for certain assets and assumed certain obligations from ROC Technologies, Inc., the bankruptcy management software subsidiary of Imperial Bank, a subsidiary of
Comerica Incorporated.

The
Company incurred software development costs totaling $1,498,000 and $630,000 for the nine-months ended September 30, 2001 and 2000, respectively. Internal software costs
incurred after technological feasibility has been established are capitalized. 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.
Additionally, the Company anticipates future investments in software development will be at or above levels in previous periods.

The
Company generated net cash from financing activities of $19,320,000 during the nine-month period ended September 30, 2001, which was an increase of $15,750,000 from
$3,570,000 generated during the nine-month period ended September 30, 2000. The increase was primarily due to the follow-on offering of common stock in June 2001 which generated net
proceeds of $22,735,000 and the exercise of stock options and warrants totaling $551,000 which were offset by repayments on the line of credit for $3,575,000.

The
Company maintains a $5,000,000 working capital line of credit and a $2,500,000 line of credit to finance certain computer equipment purchases. No amounts were outstanding on
either line of credit at September 30, 2001. Any outstanding principal on the working capital line is due upon demand, and if no demand is made, then upon expiration. Each borrowing on the
equipment line of credit is due over a 36-month period from the date of the borrowing. Both lines of credit were renewed on June 20, 2001 to expire on June 20, 2002. The working capital
line of credit was modified to $5,000,000 from $3,500,000 on August 24, 2001.

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

Forward-Looking Statements

In this report, the Company makes statements that plan for or anticipate the future. These forward-looking statements include statements about the Company's
future business plans and strategies, and other statements that are not historical in nature. These forward-looking statements are based on the Company's current expectations.

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 below are a variety of factors that could cause actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's forward-looking statements. These factors include, but are not limited to, (1) any material changes in the total
number of Chapter 7 trustees or Chapter 7 deposits served by the Company, (2) any material changes in the number of Chapter 13 trustees or material changes in the number of cases processed by
Chapter 13 trustees of the Company, (3) changes

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in the number of bankruptcy filings each year, (4) changes in bankruptcy legislation, (5) the Company's reliance on its marketing arrangement with Bank of America for Chapter 7 revenue,
(6) the Company's ability to achieve or maintain technological advantages, (7) uncertainties related to the financial services business and the future operations of that business, and
(8) other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission, including the "Risk Factors" discussed in its Annual Report on Form 10-K for the
year ended December 31, 2000. In addition, there may be other factors not included in the Company's Securities and Exchange Commission filings that may cause actual results to differ materially
from any forward-looking statements. The Company undertakes
no obligations to update any forward-looking statements contained herein to reflect future events or developments.

ITEM 3.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 short-term investments. 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 our business, financial position, results of operations and cash flows.

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EPIQ SYSTEMS, INC.
SEPTEMBER 30, 2001 FORM 10-Q

PART IIOTHER INFORMATION

ITEM 6.Exhibits and Reports on Form 8-K.





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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|                        | EPIQ Systems, Inc.                                                                                                  
|----------------------- | --------------------------------------------------------------------------------------------------------------------
|Date: November 13, 2001 | /s/TOM W. OLOFSONTom W. Olofson
Chairman of the Board
Chief Executive Officer Director
(Principal Executive Officer)
|Date: November 13, 2001 | /s/MICHAEL A. RIDERMichael A. Rider
Controller
(Principal Accounting Officer)                                       

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