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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

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

For the Quarterly Period Ended September 30, 2002

Commission File Number 0-22081

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

        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 ý    No o

        The number of shares outstanding of registrant's common stock at October 11, 2002:

EPIQ SYSTEMS, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002

CONTENTS

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PART I—FINANCIAL INFORMATION

ITEM 1.    Financial Statements.

EPIQ SYSTEMS, INC.
CONDENSED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Data)
(Unaudited)

See accompanying notes to financial statements.

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EPIQ SYSTEMS, INC.
CONDENSED BALANCE SHEETS
(Dollars in Thousands, Except Share and Per Share Data)

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EPIQ SYSTEMS, INC.
CONDENSED BALANCE SHEETS
(Dollars in Thousands, Except Share and Per Share Data)

See accompanying notes to financial statements.

4

EPIQ SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

See accompanying notes to condensed financial statements.

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EPIQ SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(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.

Comprehensive Income

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

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 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's adoption of this standard as of January 1, 2002 did not have a material effect on its financial position, results of operations and 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. This statement is effective in fiscal years beginning after May 15, 2002.

        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 currently assessing the effects of these newest pronouncements on its financial position, results of operations and cash flows but does not anticipate a material impact.

Reclassification

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

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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, 2001.

        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, 2002 and the results of its operations for the three and nine months then ended and its cash flows for the nine months then ended.

        The results of operations for the periods ended September 30, 2002 are not necessarily indicative of the results to be expected for the entire year.

NOTE 3: 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 common shares and all potentially dilutive common share equivalents outstanding during the period. The computation of earnings per share for the three and nine-months ended September 30, 2002 and 2001 is as follows:

        Options to purchase 103,000, 4,000, 99,000 and 2,000 shares of common stock for the three and nine-month periods ended September 30, 2002 and 2001, respectively, were not included in the computation of diluted earnings per share because the exercise price exceeded the average market price.

NOTE 4: GOODWILL AND INTANGIBLE ASSETS

        In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142 Goodwill and Other Intangible Assets. SFAS No. 142, which was adopted by the Company on 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

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identification of reporting units for purposes of assessing potential future impairments of goodwill. As required by SFAS No. 142, the Company completed its annual impairment test which resulted in no impairment of goodwill being required.

        Goodwill, net of amortization at December 31, 2001, was $17,398,000 for bankruptcy and related services and $3,826,000 for infrastructure software. At September 30, 2002, goodwill, net of amortization was $17,449,000 for bankruptcy and related services. During 2002, goodwill has been adjusted for a return in purchase price on the ROC transaction of $170,000, offset by the addition of $221,000 related to the acquisition of the CPT Group, Inc. Chapter 7 trustee business. Goodwill for infrastructure software remained at $3,826,000.

        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 three and nine-months ended September 30, 2001 adjusted to exclude this amortization expense, net of tax, is as follows:

        Amortization expense related to intangible assets other than goodwill was $133,000 and $65,000 in the three months and $366,000 and $196,000 in the nine months ended September 30, 2002 and 2001, respectively.

NOTE 5: BUSINESS ACQUISITION

        On July 10, 2002, the Company acquired the Chapter 7 trustee business of CPT Group, Inc. in Orange County, California. The purchase price totaled approximately $850,000, including estimated acquisition costs of $50,000. The net purchase price of $800,000 was paid entirely in cash. The purchase price was allocated preliminarily to software of $11,000 and customer contracts of $620,000 subject to finalization of valuation procedures and analysis of costs. 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 $219,000. 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.

        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.

        On October 11, 2001, the Company acquired certain assets from ROC Technologies, Inc., the bankruptcy management software subsidiary of Imperial Bancorp, a subsidiary of Comerica, Inc. ("Comerica"). The acquisition followed Comerica's decision to exit the Chapter 7 trustee business. The

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purchase price totaled approximately $12,058,000, including acquisition costs of $188,000 and assumed liabilities of $40,000. The net purchase price of $12,017,000 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 $9,770,000. In accordance with SFAS No. 142, the goodwill is not being amortized. In accordance with the terms of the purchase agreement, Comerica repaid to the Company $170,000 for assets that were originally listed as part of the assets acquired but were not located during the integration process. The amount represents the estimated fair value of the assets. The payment is treated as a reduction in the amount of goodwill originally allocated from the total purchase price.

        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.

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

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

NOTE 6: 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 (formerly 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 infrastructure software products for the financial services and other markets and provides support for those software products, which has been reported as the second reportable segment.

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

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

NOTE 7: LINES OF CREDIT

        On June 4, 2002, 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 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 (4.75% at September 30, 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. The revolving line of credit matures on June 4, 2003. 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, except that it will mature on February 7, 2003.

        As of December 31, 2001 all of the outstanding borrowings, plus accrued interest, under the equipment financing and working capital lines was repaid. On July 15, 2002, $10,000,000 was borrowed against the lines in anticipation of an asset acquisition. On September 5, 2002, the Company repaid the line of credit in full upon termination of the acquisition agreement. As of September 30, 2002, there were no amounts outstanding under either line of credit.

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ITEM 2.    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 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 its comprehensive, turnkey, back-office computer systems to Chapter 7 trustees without direct charges to the trustee. Under this arrangement:

•

the Company licenses its proprietary software to the trustee and furnishes hardware, conversion services, training and customer support, all at no cost to the trustee;



•

the trustee agrees to deposit with Bank of America the cash proceeds from all asset liquidations in the Chapter 7 cases managed by that trustee; and



•

the Company collects from Bank of America monthly revenues based upon the total deposits in the Chapter 7 bankruptcy portfolio and on the number of trustees.

        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.

        On October 11, 2001, the Company acquired certain assets of ROC Technologies, Inc. ("ROC'), the bankruptcy management software subsidiary of Imperial Bankcorp, 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 relationships 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, the Company's results of operations for the year ended December 31, 2001 included the results of ROC acquisition subsequent to October 11, 2001.

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

Critical Accounting Policies

        The Company considers its accounting policies related to revenue recognition and software capitalization to be critical policies due to the estimation process involved in each.

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

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

        Certain internal software development costs incurred in the creation of computer software products are capitalized once technological feasibility has been established. Prior to the completion of 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

Three Months Ended September 30, 2002 Compared With Three Months Ended September 30, 2001

        Operating revenues of $9,702,000 increased 26.1% or $2,011,000 in the three-month period ended September 30, 2002 compared to $7,691,000 from the same period in the prior year. Bankruptcy and related services revenues, at $9,202,000 in the quarter ended September 30, 2002, increased 26.5%, or $1,933,000 compared to $7,269,000 in the quarter ended September 30, 2001. The increase in bankruptcy and related services revenues was driven primarily by increases in recurring revenues from the Chapter 7 business, including fees generated from trustees gained through acquisition. Revenues received from licensing, marketing and strategic consulting and technology services that the Company provided directly to Bank of America in support of its national marketing arrangement accounted for 24.4% of the bankruptcy and related services revenues for the quarter ended September 30, 2002 compared to 24.7% for the same period in 2001. Infrastructure software revenues for the three-month period ended September 30, 2002 increased $78,000 from the corresponding quarter in 2001 as a result of higher licensing and maintenance revenue.

        Total cost of sales increased 23.4% or $580,000 to $3,051,000 for the quarter ended September 30, 2002 compared to $2,471,000 for the quarter ended September 30, 2001. Total cost of sales as a percentage of operating revenues decreased to 31.4% in the third quarter 2002 compared to 32.1% in the third quarter 2001. Cost of products and services increased 17.9% or $275,000 to $1,805,000 in the quarter ended September 30, 2002 compared to $1,530,000 for the corresponding period in 2001. Cost of products and services, as a percentage of revenues, was 18.6% in the third quarter of 2002 compared to 19.8% in the third quarter of 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 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. In the quarter ended September 30, 2002, depreciation and amortization increased 32.4%

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or $305,000 to $1,246,000 compared to $941,000 for the same period in 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 of DataExpress products after the quarter ended September 30, 2001.

        Operating expenses increased 14.6% or $466,000 to $3,637,000 for the quarter ended September 30, 2002 compared to $3,171,000 for the same period in the prior year. Operating expenses, as a percentage of operating revenues were 37.4% and 41.2% for the quarter ended September 30, 2002 and 2001, respectively. The increase in operating expenses was the result of higher depreciation of $67,000 due to the expansion of the Company's headquarters facility, and $570,000 related to the investigation of potential and completed acquisitions, partially offset by the reduction of goodwill amortization of approximately $272,000 as compared to the three-month period ended September 30, 2001. Goodwill is no longer being amortized due to the adoption of SFAS No. 142 on January 1, 2002. General and administrative expenses for the third quarter were up slightly year over year primarily due to the expansion associated with the ROC acquisition and increased liability insurance costs.

        The Company had net interest income of $62,000 and $297,000 for the three-month period ended September 30, 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 the acquisition of Trumbull Bankruptcy Services. The amount was repaid in full on September 5, 2002 after the Company announced it had terminated the agreement.

        The Company had an effective tax rate of 37.8% for the quarter ended September 30, 2002 compared to 36.3% for the third quarter 2001. The prior year included a year-to-date adjustment for tax credits available to the Company.

        Third quarter net income as a percentage of operating revenues is at 19.7% in 2002 compared to 19.4% in 2001. The reduction of amortization expense for goodwill due to the adoption of SFAS No. 142 was offset by a decrease in net interest income for the three-month period ended September 30, 2002.

Nine Months Ended September 30, 2002 Compared With Nine Months Ended September 30, 2001

        Operating revenues increased 26.8% or $5,884,000 to $27,774,000 in the nine-month period ended September 30, 2002 compared to $21,890,000 for the same period in the prior year. This growth is attributable to increased revenues primarily generated by bankruptcy and related services as well as a small increase in revenues for infrastructure software. The bankruptcy and related services revenue, at $26,332,000 for nine-months ended September 30, 2002, increased 28.6%, or $5,857,000 compared to $20,475,000 in 2001. The increase in bankruptcy and related services revenues was driven primarily by increases in recurring revenues from the Chapter 7 business including fees generated from trustees gained through acquisition plus an increase in Chapter 13 revenues. Year to date, revenues received from licensing, marketing and strategic consulting and technology services that the Company provided directly to Bank of America in support of its national marketing arrangement accounted for 10.2% of the bankruptcy and related services revenues in 2002 compared to 16.7% in 2001. Infrastructure software revenues for the nine-month period ended September 30, 2002 increased $27,000 from the corresponding period in 2001 due to higher licensing and maintenance revenue.

        Total cost of sales increased 21.5% or $1,588,000 to $8,962,000 in the nine-month period ended September 30, 2002 compared to $7,374,000 in the prior year. Total cost of sales, as a percentage of operating revenues, were 32.2% and 33.6% for the nine months ended September 30, 2002 and 2001, respectively. Year to date cost of products and services for bankruptcy and related services increased

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18.4% or $735,000 to $4,715,000 in 2002 compared to $3,980,000 in 2001. Infrastructure software cost of products and services declined $41,000 year over year. For the nine months ended September 30, bankruptcy and related services cost of products and services, as a percentage of bankruptcy and related services revenues, was 17.9% in 2002 compared to 19.4% in 2001. The decrease as a percentage of revenue was due mainly to the increase in the number of trustees and deposits from which revenues are generated. These bankruptcy-related fees provided increases in revenue without significant increases in the cost of products and services resulting in a positive impact on gross profit. Depreciation and amortization increased 33.4% or $894,000 to $3,566,000 in the nine-month period ended September 30, 2002, compared to $2,672,000 in the same period of 2001 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 of DataExpress products.

        Operating expenses increased 9.1% or $835,000 to $10,007,000 in the nine-month period ended September 30, 2002 compared to $9,172,000 in the corresponding period in 2001. Operating expenses, as a percentage of operating revenues, were 36.0% year to date 2002 compared to 41.9% year to date 2001. The increase in operating expenses was the result of an increase of $776,000 in general and administrative expenses, higher depreciation of $137,000 due to the expansion of the Company's headquarters facility, and $570,000 related to the investigation of potential and completed acquisitions, partially offset by the reduction of goodwill amortization of approximately $817,000 as compared to the nine-month period ended September 30, 2001. Goodwill is no longer being amortized due to the adoption of SFAS No. 142 on January 1, 2002. General and administrative expenses have increased 9.8% over the prior year primarily due to the expansion associated with the ROC acquisition, increased liability insurance costs and employee related costs.

        The Company had net interest income of $272,000 and $508,000 in the nine-month periods ended September 30, 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 the acquisition of Trumbull Bankruptcy Services. The amount was repaid in full on September 5, 2002 after the Company announced it had terminated that agreement.

        The Company's effective tax rate, year to date 2002, is 37.8%, down from 38.7% in the prior year due to the utilization of federal tax credits.

        Year to date net income as a percentage of operating revenues is 20.3% in 2002 compared to 16.4% in 2001. The increase in net income as a percentage of operating revenues was largely due to the reduction of amortization expense for goodwill due to the adoption of SFAS No. 142, partially offset by a decrease in net interest income for the nine-month period ended September 30, 2002.

Liquidity and Capital Resources

        The Company's cash and cash equivalents and short-term investments increased to $27,167,000 as of September 30, 2002 compared to $25,306,000 at December 31, 2001. Cash generated from the net income, depreciation and amortization and reduced taxes 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.

        The Company generated cash of $8,175,000 and $5,316,000 from operations for the nine months ended September 30, 2002 and 2001, respectively. The cash flow generated from operations in the nine months ended September 30, 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

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increased from $4,498,000 at December 31, 2001, to $7,166,000 at September 30, 2002, primarily due to the timing of billings to Bank of America for services supporting the national marketing arrangement. The cash flow generated from operations in the nine months ended September 30, 2001 primarily consisted of revenues generated from net income, depreciation and amortization and reduced taxes, which were offset by an increase in accounts receivable and prepaid expenses and decreases in accounts payable and accrued expenses and deferred revenue and the change in income taxes payable/refundable.

        Net cash used in investing activities for the nine-month period ended September 30, 2002 and 2001 totaled $6,342,000 and $5,506,000, respectively. Use of cash included purchased property and equipment totaling $4,302,000 and $5,276,000 for the nine-month period ended September 30, 2002 and 2001, respectively. Property and equipment purchased in the nine-month periods ended September 30, 2002 and 2001 included the expansion of the Company's headquarters facility completed in the third quarter and the installation of computer equipment at trustee locations for the bankruptcy services products. Net cash used in the acquisition of CPT Group, Inc. totaled $852,000 in 2002.

        The Company incurred software development costs totaling $1,452,000 and $1,498,000 for the nine-months ended September 30, 2002 and September 30, 2001, 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 $28,000 and $19,320,000 for the nine-month period ended September 30, 2002 and 2001, respectively. During the nine month period ended September 30, 2002, proceeds from the exercise of stock options were offset by principal payments on capital lease obligations and debt resulting from previous acquisitions. Net cash from financing activities during the nine-month period ended September 30, 2001 was due to the follow-on offering of common stock that generated net proceeds of $22,735,000 and the exercise of stock options and warrants totaling $551,000 that was partially offset by repayments on the line of credit for $3,575,000 and principal payments on capital lease obligations and debt resulting from previous acquisitions.

        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 the acquisition of the assets of Trumbull Bankruptcy 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 September 30, 2002.

        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.

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.

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        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. 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 Company's total number of Chapter 7 trustees or Chapter 7 deposits, (2) any material changes in the Company's total number of Chapter 13 trustees or material changes in the number of cases processed by these Chapter 13 trustees, (3) changes in the number of bankruptcy filings each year, (4) changes in bankruptcy legislation, (5) the Company's reliance on its national marketing arrangement with Bank of America for Chapter 7 revenue, (6) risks associated with the integration of acquisitions into the Company's existing business operations, (7) the Company's ability to achieve or maintain technological advantages, (8) uncertainties related to the infrastructure software business and the future operations of that business, and (9) other risks detailed from time to time in the Company's filings with the SEC, including the "Risk Factors" discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. In addition, there may be other factors not included in the Company's SEC 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 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 4.    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.

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EPIQ SYSTEMS, INC.
SEPTEMBER 30, 2002 FORM 10-Q

PART II—OTHER INFORMATION

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

(a)

Exhibits.

(b)

Reports on Form 8-K.

        A report on Form 8-K was filed on September 6, 2002 reporting the terminated asset acquisition agreement between the Company and Trumbull Services L.L.C.

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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.

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CERTIFICATIONS

        I, Tom W. Olofson, certify that:

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

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

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

        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:

        (a)    designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

        (b)    evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

        (c)    presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

        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):

        (a)    all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

        (b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

        6.    The registrant's other certifying officers and I have indicated in this quarterly 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.

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CERTIFICATIONS

        I, Elizabeth M. Braham, certify that:

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

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

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

        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:

        (a)    designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

        (b)    evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

        (c)    presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

        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):

        (a)    all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

        (b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

        6.    The registrant's other certifying officers and I have indicated in this quarterly 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.

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QuickLinks

ITEM 1. Financial Statements.

ITEM 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations.
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk.
ITEM 4. Controls and Procedures.

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