UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

Quarterly Report Under Section 13 or 15(d)

of the Securities Exchange Act of 1934

x For the Quarterly Period Ended September 30, 2008

o Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 0-22081

EPIQ SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Missouri		48-1056429
(State or other jurisdiction of		(IRS Employer Identification Number)
incorporation or organization)

501 Kansas Avenue, Kansas City, Kansas 66105-1300

(Address of principal executive office)

913-621-9500

(Registrant’s telephone number)

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o

Accelerated Filer x

Non-Accelerated Filer o

Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes o No x

The number of shares outstanding of registrant’s common stock at October 20, 2008:

Class		Outstanding
Common Stock, $.01 par value		35,545,178

Table of Contents

PART I - - FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements.

EPIQ SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007

REVENUE:
Case management services	$	33,576		$	26,536		$	98,300		$	71,069
Case management bundled products and services	4,488			6,728			14,242			20,139
Document management services	13,768			5,921			40,129			21,242
Operating revenue before reimbursed direct costs	51,832			39,185			152,671			112,450
Operating revenue from reimbursed direct costs	7,051			5,662			20,065			17,730
Total Revenue	58,883			44,847			172,736			130,180

OPERATING EXPENSES:
Direct costs of services (exclusive of depreciation and amortization shown separately below)	19,526			9,355			62,791			30,101
Direct cost of bundled products and services (exclusive of depreciation and amortization shown separately below)	910			998			2,765			2,782
Reimbursed direct costs	6,986			5,593			19,988			17,625
General and administrative	17,865			16,208			51,165			44,383
Depreciation and software and leasehold amortization	4,273			3,272			11,836			9,071
Amortization of identifiable intangible assets	2,271			2,352			6,874			7,228
Other operating expense (income)	1			565			(1,511		)	565
Total Operating Expenses	51,832			38,343			153,908			111,755

INCOME FROM OPERATIONS	7,051			6,504			18,828			18,425

EXPENSE (INCOME) RELATED TO FINANCING:
Interest income	(39		)	(10		)	(219		)	(42		)
Interest expense	406			2,168			1,338			10,615
Net Expenses Related to Financing	367			2,158			1,119			10,573

INCOME BEFORE INCOME TAXES	6,684			4,346			17,709			7,852

PROVISION FOR INCOME TAXES	2,690			1,922			7,904			3,485

NET INCOME	$	3,994		$	2,424		$	9,805		$	4,367

NET INCOME PER SHARE INFORMATION:
Basic	$	.11		$	.08		$	.28		$	.15
Diluted	$	.10		$	.07		$	.26		$	.14

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic	35,512			30,185			35,409			29,770
Diluted	41,120			36,704			41,368			31,803

See accompanying notes to condensed consolidated financial statements.

Table of Contents

EPIQ SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Data)

(Unaudited)

	September 30, 2008			December 31, 2007

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	6,816		$	13,415
Trade accounts receivable, less allowance for doubtful accounts of $1,926 and $1,437, respectively	52,464			33,925
Prepaid expenses	4,917			2,888
Other current assets	1,093			4,571
Total Current Assets	65,290			54,799

LONG-TERM ASSETS:
Property, equipment and leasehold improvements, net	37,551			32,403
Software development costs, net	10,746			9,808
Goodwill	265,258			260,684
Identifiable intangible assets	29,470			34,310
Other	1,241			790
Total Long-term Assets	344,266			337,995
Total Assets	$	409,556		$	392,794

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	10,754		$	7,401
Accrued compensation	4,903			7,430
Deposits	1,596			1,618
Deferred revenue	5,283			1,234
Other accrued expenses	3,049			2,389
Current maturities of long-term obligations	3,023			3,326
Total Current Liabilities	28,608			23,398

LONG-TERM LIABILITIES:
Deferred income taxes	20,085			19,390
Other long-term liabilities	8,119			8,058
Long-term obligations (excluding current maturities)	55,793			58,266
Total Long-term Liabilities	83,997			85,714

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY:
Common stock - $0.01 par value; 100,000,000 shares authorized; issued and outstanding –35,535,296 and 35,276,569 shares at September 30, 2008 and December 31, 2007, respectively	355			353
Additional paid-in capital	236,437			231,984
Accumulated other comprehensive (loss) income	(987		)	4
Retained earnings	61,146			51,341
Total Stockholders’ Equity	296,951			283,682
Total Liabilities and Stockholders’ Equity	$	409,556		$	392,794

See accompanying notes to condensed consolidated financial statements.

Table of Contents

EPIQ SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(In Thousands)

(Unaudited)

	September 30, 2008

COMMON SHARES (100,000 authorized):
Shares, beginning of year	35,277
Shares issued upon exercise of options	258

Shares, end of period	35,535

COMMON STOCK – PAR VALUE $0.01 PER SHARE:
Balance, beginning of year	$	353
Proceeds from exercise of options	2

Balance, end of period	355

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of year	231,984
Proceeds from exercise of options	1,727
Share-based income tax benefit	287
Share-based compensation expense	2,439

Balance, end of period	236,437

ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME:
Balance, beginning of year	4
Foreign currency translation adjustment	(991		)

Balance, end of period	(987		)

RETAINED EARNINGS:
Balance, beginning of year	51,341
Net income	9,805

Balance, end of period	61,146

TOTAL STOCKHOLDERS’ EQUITY	$	296,951

See accompanying notes to condensed consolidated financial statements.

Table of Contents

EPIQ SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

	Nine Months Ended September 30,
	2008			2007

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	9,805		$	4,367
Adjustments to reconcile net income to net cash from operating activities:
Share-based compensation expense	2,439			1,809
Expense (benefit) for deferred income taxes	358			(1,778		)
Depreciation and software and leasehold amortization	11,836			9,071
Change in valuation of embedded option and convertible debt	(1,208		)	2,190
Amortization of identifiable intangible assets	6,874			7,228
Other	990			1,376
Changes in operating assets and liabilities, net of effects from business acquisition:
Trade accounts receivable	(19,289		)	(2,818		)
Prepaid expenses and other assets	1,134			(1,815		)
Accounts payable and other liabilities	4,730			424
Excess tax benefit related to share-based compensation	(120		)	(594		)
Income taxes	519			3,976
Net cash provided by operating activities	18,068			23,436

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment, and leasehold improvements	(12,873		)	(12,160		)
Software development costs	(4,625		)	(3,467		)
Cash paid for business acquisition, net of cash acquired	(4,762		)	250
Other	30			29
Net cash used in investing activities	(22,230		)	(15,348		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolver	3,000			39,000
Payments on revolver	(3,000		)	(40,000		)
Principal payments under long-term debt	(3,389		)	(18,834		)
Excess tax benefit related to share-based compensation	120			594
Proceeds from exercise of share options	1,729			8,732
Debt issuance costs	(795		)	—
Net cash used in financing activities	(2,335		)	(10,508		)

Effect of exchange rate changes on cash	(102		)	—

NET DECREASE IN CASH AND CASH EQUIVALENTS	(6,599		)	(2,420		)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	13,415			5,274
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	6,816		$	2,854

See accompanying notes to condensed consolidated financial statements.

Table of Contents

EPIQ SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Epiq Systems, Inc. (“Epiq”) and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

Nature of Operations

We are a provider of integrated technology solutions for the legal profession. Our solutions streamline the administration of bankruptcy, litigation, financial transactions and regulatory compliance matters. We offer innovative technology solutions for electronic discovery, document review, legal notification, claims administration and controlled disbursement of funds. Our clients include law firms, corporate legal departments, bankruptcy trustees and other professional advisors who require innovative technology, responsive service and deep subject-matter expertise.

Comprehensive Income

Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, establishes requirements for reporting and displaying comprehensive income and its components. Our accumulated other comprehensive (loss) income is included as a separate component of stockholders’ equity on our condensed consolidated balance sheets. Other comprehensive income is discussed in note 6 of the condensed financial statements.

Revenue Recognition

We have agreements with clients pursuant to which we deliver various services each month.

Significant sources of revenue include:

· Fees contingent upon the month-to-month delivery of case management services defined by client contracts, such as claims processing, claims reconciliation, professional services, call center support, and conversion of data into an organized, searchable electronic database. The amount we earn varies based primarily on the size and complexity of the engagement;

· Hosting fees based on the amount of data stored;

· Deposit-based fees from financial institutions, primarily based on a percentage of total liquidated assets placed on deposit at that financial institution by our bankruptcy trustee clients, to whom we provide, at no charge, software licenses, limited hardware and hardware maintenance, and postcontract customer support (PCS) services;

· Legal noticing services to parties of interest in bankruptcy and class action matters, including direct notification and media campaign and advertising management in which we coordinate notification through various media outlets, such as print, radio and television, to potential parties of interest for a particular client engagement; and

· Reimbursement for costs incurred, primarily related to postage on mailing services.

Non-Software Arrangements

Services related to electronic discovery and settlement administration are billed based on volume and are evaluated pursuant to Emerging Issues Task Force (EITF) 00-21, Revenue Arrangements with Multiple Deliverables. For these contractual

Table of Contents

arrangements, we have identified each deliverable service element. Based on our evaluation of each element, we have determined that each element delivered has standalone value to our customers because we or other vendors sell such services separately from any other services/deliverables. We have also obtained objective and reliable evidence of the fair value of each element based either on the price we charge when we sell an element on a standalone basis or based on third-party evidence of fair value of such similar services. Lastly, our arrangements do not include general rights of return. Accordingly, each of the service elements in our multiple element case and document management arrangements qualifies as a separate unit of accounting under EITF 00-21. We allocate revenue to the various units of accounting in our arrangements based on the fair value of each unit of accounting, which is generally consistent with the stated prices in our arrangements. As we have evidence of an arrangement, revenue for each separate unit of accounting is recognized each period in accordance with Staff Accounting Bulletin Topic 13, Revenue Recognition (SAB Topic 13). Revenue is recognized as the services are rendered, our fee becomes fixed and determinable, and collectability is reasonably assured. Payments received in advance of satisfaction of the related revenue recognition criteria are recognized as a customer deposit until all revenue recognition criteria have been satisfied.

Software Arrangements

For our Chapter 7 bankruptcy trustee arrangements, we provide our trustee clients with a software license, hardware lease, hardware maintenance, and postcontract customer support (PCS) services, all at no charge to the trustee. The trustees place their liquidated estate deposits with a financial institution with which we have an arrangement. We earn contingent monthly fees from the financial institutions based on the dollar level of average monthly deposits held by the trustees with that financial institution, from the financial institution related to the software license, hardware lease, hardware maintenance, and PCS. We account for the software license and PCS elements in accordance with Statement of Position 97-2, Software Revenue Recognition (SOP 97-2). Since we have not established vendor specific objective evidence (VSOE) of the fair value of the software license, we do not recognize any revenue on delivery of the software. The software element is deferred and included with the remaining undelivered element, which is PCS services. This revenue, when recognized, is included as a component of case management services revenue. Revenue related to PCS is entirely contingent on the placement of liquidated estate deposits by the trustee with the financial institution. Accordingly, we recognize this contingent usage based revenue consistent with the guidance provided by the American Institute of Certified Public Accountants’ Technical Practice Aid (TPA) 5100.76, Fair Value in Multiple-Element Arrangements That Include Contingent Usage-Based Fees and Software Revenue Recognition as the fee becomes fixed or determinable at the time actual usage occurs and collectibility is probable. This occurs monthly as a result of the computation, billing and collection of monthly deposit fees contractually agreed to. At that time, we have also satisfied the other revenue recognition criteria contained in SOP 97-2 since we have persuasive evidence that an arrangement exists, services have been rendered, the price is fixed and determinable, and collectability is reasonably assured.

We also provide our trustee clients with certain hardware, such as desktop computers, monitors, and printers, and hardware maintenance. We retain ownership of all hardware provided and, based on guidance provided in EITF 01-8, Determining Whether an Arrangement Contains a Lease, we account for this hardware as a lease. As the hardware maintenance arrangement is an executory contract similar to an operating lease, we use guidance related to contingent rentals in operating lease arrangements for hardware maintenance as well as for the hardware lease. Since the payments under all of our arrangements are contingent upon the level of trustee deposits and the delivery of upgrades and other services and there remain important uncertainties regarding the amount of unreimbursable costs yet to be incurred by us, we account for the hardware lease as an operating lease in accordance with SFAS 13, Accounting for Leases. Therefore, all lease payments, based on the estimated fair value of hardware provided, were accounted for as contingent rentals under EITF Issue No. 98-9, Accounting for Contingent Rent and SAB Topic 13, which requires that we recognize rental income when the changes in the factor on which the contingent lease payment is based actually occur. This occurs at the end of each period as we achieve our target when deposits are held at the depository financial institution as, at that time, evidence of an arrangement exists, delivery has occurred, the amount has become fixed and determinable, and collection is reasonably assured. This revenue, which is less than ten percent of our total revenue, is included in our condensed consolidated statements of income as a component of “case management services” revenue.

Table of Contents

Reimbursements

We have revenue related to the reimbursement of certain costs, primarily postage. Consistent with guidance provided by EITF No. 01-14, Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred, reimbursed postage and other reimbursable direct costs are recorded gross in the consolidated statements of income as “Operating revenue from reimbursed direct costs” and as “Reimbursed direct costs”, respectively.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The adoption of SFAS 157 as of January 1, 2008 did not have a material impact on our financial position, results of operations, or cash flows. In February 2008, FASB issued Staff Position 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 (FSP 157-1). FSP 157-1 excludes from the scope of SFAS 157 accounting pronouncements that address fair value measurements for purposes of lease classification or measurement. This scope exception does not apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value, regardless of whether those assets and liabilities are related to leases. FSP 157-1 was effective upon the initial adoption of SFAS 157. Adoption of FSP 157-1 as of January 1, 2008 did not have a material impact on our financial position, results of operations, or cash flows. In February 2008, FASB issued Staff Position 157-2, Effective Date of FASB Statement No. 157, (FSP 157-2) which, as of February 12, 2008, indefinitely delayed the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Management is still evaluating the impact, if any, that the adoption of FSP 157-2 will have on our financial position, results of operations, or cash flows.

In December 2007, FASB issued Statement of Financial Accounting Standards No. 141(R), Business Combinations (SFAS 141(R)). SFAS 141(R) establishes guidelines for the recognition and measurement of assets, liabilities and equity in business combinations. SFAS 141(R) is effective for financial statements issued for fiscal years beginning after December 15, 2008. Management is still evaluating the impact, if any, that the adoption of SFAS 141(R) will have on our financial position, results of operations, or cash flows.

In December 2007, FASB issued Statement of Financial Accounting Standards No, 160, Noncontrolling Interest In Consolidated Financial Statements, (SFAS 160). SFAS 160 changes the way in which noncontrolling interests in subsidiaries are measured and classified on the balance sheet. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Management anticipates that the adoption of SFAS 160 will not have a material effect on our financial position, results of operations, or cash flows.

In March 2008, FASB issued Statement of Financial Accounting Standards No. 161, Disclosures About Instruments and Hedging Activities – amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. SFAS 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008. As SFAS 161 relates only to disclosure, management anticipates that the adoption of SFAS 161 will not have a material effect on our financial position, results of operations, or cash flows.

In May, 2008, FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. SFAS 162 is effective 60 days following the SEC’s approval of the PCAOB’s amendments to U.S. Auditing Standards (AU) Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. Management is still evaluating the impact, if any, that the adoption of SFAS 162 will have on our financial position, results of operations, or cash flows.

Table of Contents

NOTE 3: GOODWILL AND INTANGIBLE ASSETS

Identifiable intangible assets subject to amortization as of September 30, 2008 and December 31, 2007 consisted of the following (in thousands):

	September 30, 2008				December 31, 2007
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Customer contracts	$	40,249	$	21,190	$	39,287	$	17,863
Trade names	745		745		745		745
Non-compete agreements	28,558		18,147		27,526		14,640
	$	69,552	$	40,082	$	67,558	$	33,248

Aggregate amortization expense related to identifiable intangible assets was $2.3 million and $2.4 million for the three month periods ended September 30, 2008 and 2007, respectively and was $6.9 million and $7.2 million for the nine month periods ended September 30, 2008 and 2007, respectively. Amortization expense related to identifiable intangible assets for 2008 and the following five years is estimated as follows (in thousands):

Year Ending December 31,	Estimated Amortization Expense
2008	$	9,118
2009	7,709
2010	6,764
2011	4,832
2012	4,652
2013	3,070
	$	36,145

As of September 30, 2008 and December 31, 2007, goodwill had a carrying value of $265.3 million and $260.7 million, respectively. The $4.6 million increase in goodwill results from the acquisition, in April 2008, of an electronic discovery business in the United Kingdom, partially offset by a reversal of a FIN 48 tax liability as certain federal and state tax returns were closed under the statute of limitations. Goodwill by segment is disclosed in note 9 of the condensed consolidated financial statements.

Table of Contents

NOTE 4: DERIVATIVES

A portion of our bankruptcy trustee revenue is subject to variability based on fluctuations in short-term interest rates. During 2007, in order to limit our economic exposure to market fluctuations in interest rates we purchased one month LIBOR based interest rate floor options with a total notional amount of $800 million and initial contractual maturity of three years. We accounted for this transaction pursuant to the guidance contained in Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted (SFAS 133). SFAS 133 requires that all derivative instruments be recorded on the balance sheet at fair value. As the interest rate floor options were not designated as an accounting hedge, changes in the fair value of the derivatives were recorded each period in current earnings. For the year ended December 31, 2007, the change in the fair value of the interest rate floor options was recognized as an unrealized gain of $1.1 million and was included as a component of other operating income. During February 2008, we sold the interest rate floor options and realized a $3.5 million gain. The $2.4 million difference between the realized gain of $3.5 million and the previously recognized gain of $1.1 million is included as a component of other operating income on the accompanying condensed consolidated statements of income. We currently do not hold any interest rate floor options, other derivatives, or auction rate securities.

NOTE 5: INDEBTEDNESS

The following is a summary of indebtedness outstanding (in thousands):

	September 30,		December 31,
	2008		2007
Senior revolving loan	$	—	$	—
Contingent convertible subordinated debt, including embedded option	52,750		53,958
Other	6,066		7,634
Total indebtedness	$	58,816	$	61,592

Credit Facilities

As of September 30, 2008, our credit facility, with KeyBank National Association as administrative agent, consisted of a $100.0 million senior revolving loan. There were no amounts due under the senior revolving loan as of September 30, 2008.

During July 2008, we amended and restated our credit facility with a new credit facility. The amended and restated credit facility, with KeyBank National Association as administrative agent, consists of a $100.0 million senior revolving loan. The facility matures in July 2011. During the term of the credit facility, we have the right, subject to compliance with our covenants, to increase the senior revolving loan to $175.0 million. The amended credit facility is secured by liens on our real property and a significant portion of our personal property. Interest on the amended credit facility is generally based on a spread, not to exceed 325 basis points, over the LIBOR rate. Our amended credit facility contains financial covenants related to earnings before interest, provision for income taxes, depreciation, amortization and other adjustments as defined in the agreements (EBITDA) and total debt. In addition, our credit facility also contains financial covenants related to senior debt, fixed charges, and working capital. As of September 30, 2008, we were in compliance with all financial covenants.

Contingent Convertible Subordinated Notes

During June 2004, we issued $50.0 million of contingent convertible subordinated notes with a fixed 4% per annum interest rate and an original maturity of June 15, 2007. The holders of the notes had the right to extend the maturity date by up to three years. In April 2007, the holders exercised this right and the notes’ maturity date was extended to June 15, 2010. If we change our capital structure (for example, through a stock dividend or stock split) while the notes are outstanding, the conversion price will be adjusted on a consistent basis and, accordingly, the number of shares of common stock we would issue on conversion will be adjusted. The notes are convertible into 4.3 million shares of our common stock at a price of

Table of Contents

NOTE 7: SHARE-BASED COMPENSATION

During June 2004, our 2004 Equity Incentive Plan was approved by our shareholders and replaced our 1995 Stock Option Plan, as amended (the “1995 Plan”). During June 2006, an amendment to the 2004 Equity Incentive Plan was approved by our shareholders. The 2004 Equity Incentive Plan, as amended, (the “2004 Plan”) limits the combined grant of options to acquire shares of common stock, stock appreciation rights, and restricted stock under the 2004 Plan to 7,500,000 shares. Any grant under the 2004 Plan that expires or terminates unexercised, becomes unexercisable or is forfeited will be available for future grants unless, in the case of options granted, related stock appreciation rights are exercised. At September 30, 2008, there were approximately 1,701,000 shares of common stock available for future equity-related grants under the 2004 Plan. Although various forms of equity instruments may be issued, to date we have issued only incentive share options and nonqualified share options under this Plan. These share options, which have a contractual term of 10 years, are issued with an exercise price equal to the grant date closing market price of our common stock. The vesting periods range from immediate to 5 years. Share options which vest over 5 years generally vest either 20% per year over the first five anniversaries of the grant date or 25% per year on the second through fifth anniversaries of the grant date. Shares vesting over a shorter period will generally vest 100% as of the designated vesting date. We issue new shares to satisfy share option exercises. We do not anticipate that we will repurchase shares on the open market during the next year for the purpose of satisfying share option exercises.

Following is information related to exercisable share options and share options expected to vest as of September 30, 2008 (shares and aggregate intrinsic value in thousands):

	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value

Options exercisable	5,452	$	10.27	5.85	$	19,491
Options vested and expected to vest	7,450	$	11.24	6.51	$	21,184

The aggregate intrinsic value was calculated using the difference between the September 30, 2008 market price and the grant price for only those awards that have a grant price that is less than the September 30, 2008 market price.

The weighted average grant-date fair value of options granted during the three months ended September 30, 2008 and 2007 were $4.76 and $6.64, respectively. The total intrinsic value of options exercised during the three months ended September 30, 2008 and 2007 were $0.1 million and $0.7 million, respectively. During the three months ended September 30, 2008 and 2007, we received cash for payment of the grant price of exercised options of approximately $0.4 million and $0.5 million, respectively, and we anticipate we will realize a tax benefit related to these exercised options of approximately $0.4 million and less than $0.3 million, respectively.

During the three months ended September 30, 2008 and 2007, we recognized share-based compensation expense, which is a non-cash charge, of approximately $1.0 million and $0.8 million, respectively, of which $0.2 million and $0.2 million, respectively, is included under the caption “Direct costs of services” and $0.8 million and $0.6 million, respectively, is included under the caption “General and administrative” on the accompanying condensed consolidated statements of income. During the three months ended September 30, 2008 and 2007, we recognized a net tax benefit of approximately $0.4 million and $0.3 million, respectively, related to aggregate share-based compensation expense recognized during the same period.

The weighted average grant-date fair value of options granted during the nine months ended September 30, 2008 and 2007 were $5.82 and $5.35, respectively. The total intrinsic value of options exercised during the nine months ended September 30, 2008 and 2007 were $2.3 million and $6.2 million, respectively. During the nine months ended September 30, 2008 and 2007, we received cash for payment of the grant price of exercised options of approximately $1.7 million and $8.7 million, respectively, and we anticipate we will realize a tax benefit related to these exercised options of approximately $0.9 million

Table of Contents

NOTE 8: NET INCOME PER SHARE

Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income per share is computed by dividing net income available to common shareholders, increased by the amount of interest expense, net of tax, related to outstanding convertible debt, by the weighted average number of outstanding common shares and incremental shares that may be issued in future periods related to outstanding share options and convertible debt, if dilutive. When calculating incremental shares related to outstanding share options, we apply the treasury stock method. The treasury stock method assumes that proceeds, consisting of the amount the employee must pay on exercise, compensation cost attributed to future services and not yet recognized, and excess tax benefits that would be credited to additional paid-in capital on exercise of the share options, are used to repurchase outstanding shares at the average market price for the period. The treasury stock method is applied only to share grants for which the effect is dilutive.

The computations of basic and diluted net income per share are as follows (in thousands, except per share data):

	Three Months Ended September 30,
	2008					2007
	Net Income		Weighted Average Shares Outstanding	Per Share Amount		Net Income		Weighted Average Shares Outstanding	Per Share Amount

Basic net income per share	$	3,994	35,512	$	.11	$	2,424	30,185	$	.08

Effect of dilutive securities:
Share options			1,322					2,233
Convertible debt	305		4,286			305		4,286

Diluted net income per share	$	4,299	41,120	$	.10	$	2,729	36,704	$	.07

For the three month periods ended September 30, 2008 and 2007, weighted-average outstanding share options totaling approximately 2.9 million and 0.6 million shares of common stock, respectively, were antidilutive and therefore not included in the computation of diluted earnings per share.

	Nine Months Ended September 30,
	2008					2007
	Net Income		Weighted Average Shares Outstanding	Per Share Amount		Net Income		Weighted Average Shares Outstanding	Per Share Amount

Basic net income per share	$	9,805	35,409	$	.28	$	4,367	29,770	$	.15

Effect of dilutive securities:
Share options			1,673					2,033
Convertible debt	908		4,286			—		—

Diluted net income per share	$	10,713	41,368	$	.26	$	4,367	31,803	$	.14

For the nine month periods ended September 30, 2008 and 2007, weighted-average outstanding share options totaling approximately 1.8 million and 1.3 million shares of common stock were antidilutive and, therefore, not included in the computation of diluted earnings per share. For the nine months ended September 30, 2007, we did not assume conversion of the contingent convertible subordinated convertible notes as the effect would have been antidilutive.

Table of Contents

NOTE 9: SEGMENT REPORTING

In the first quarter of 2008, we revised the structure of our reporting segments to reflect a change in the nature of the financial information provided to our chief operating decision makers resulting from a change in the structure of our internal organization. The segment measure of profit for the three and nine months ended September 30, 2007 has been restated in accordance with our new organization structure, including the changes in certain internal financial reporting information. We have three reporting segments: (i) electronic discovery, (ii) bankruptcy, and (iii) settlement administration. Our electronic discovery business provides processing and search and review services to corporations and the litigation department of law firms. Produced documents are made available primarily through a hosted environment, and our DocuMatrix™ software allows for efficient plaintiff and defendant counsel review and data requests. Our bankruptcy segment provides solutions that address the needs of trustees to administer bankruptcy proceedings and of debtor corporations that file a plan of reorganization. Our settlement administration segment provides managed services including legal notification, claims administration and controlled disbursement.

Each segment’s performance is assessed based on earnings before interest, taxes, depreciation and amortization, other operating income, and share-based compensation expense. In management’s evaluation of performance, certain costs, such as compensation for administrative staff and executive management, are not allocated by segment and, accordingly, the following reporting segment results do not include such unallocated costs. Intersegment revenues are not considered material to the segment reporting information. Assets reported within a segment are those assets that can be identified to a segment and primarily consist of trade receivables, property, equipment and leasehold improvements, software, identifiable intangible assets and goodwill. Cash, tax-related assets, and certain prepaids and other assets are not allocated to our segments. Although we can and do identify long-lived assets such as property, equipment and leasehold improvements, software, and identifiable intangible assets to reporting segments, we do not allocate the related depreciation and amortization to the segment as management evaluates segment performance exclusive of these non-cash expenses.

Following is a summary of segment information (in thousands):

	Three Months Ended September 30, 2008
	Electronic Discovery		Bankruptcy		Settlement Administration		Total

Revenue:
Operating revenue before reimbursed direct costs	$	15,104	$	13,180	$	23,548	$	51,832
Operating revenue from reimbursed direct costs	30		946		6,075		7,051
Total revenue	15,134		14,126		29,623		58,883

Direct costs, general and administrative costs	8,452		7,435		22,922		38,809
Segment performance measure	$	6,682	$	6,691	$	6,701	$	20,074

Table of Contents

	Three Months Ended September 30, 2007
	Electronic Discovery		Bankruptcy		Settlement Administration		Total

Revenue:
Operating revenue before reimbursed direct costs	$	13,003	$	14,868	$	11,314	$	39,185
Operating revenue from reimbursed direct costs	24		1,083		4,555		5,662
Total revenue	13,027		15,951		15,869		44,847

Direct costs, general and administrative costs	6,916		7,536		11,691		26,143
Segment performance measure	$	6,111	$	8,415	$	4,178	$	18,704

Following is a reconciliation of our segment performance measure to income before income taxes (in thousands):

	Three Months Ended September 30,
	2008			2007

Segment performance measure	$	20,074		$	18,704
Corporate and unallocated expenses	(5,435		)	(5,216		)
Share-based compensation expense	(1,043		)	(795		)
Depreciation and software and leasehold amortization	(4,273		)	(3,272		)
Amortization of intangible assets	(2,271		)	(2,352		)
Other operating expense	(1		)	(565		)
Interest expense, net	(367		)	(2,158		)
Income before income taxes	$	6,684		$	4,346

	Nine Months Ended September 30, 2008
	Electronic Discovery		Bankruptcy		Settlement Administration		Total

Revenue:
Operating revenue before reimbursed direct costs	$	44,619	$	39,043	$	69,009	$	152,671
Operating revenue from reimbursed direct costs	151		2,647		17,267		20,065
Total revenue	44,770		41,690		86,276		172,736

Direct costs, general and administrative costs	23,630		21,561		72,816		118,007
Segment performance measure	$	21,140	$	20,129	$	13,460	$	54,729

Table of Contents

	Nine Months Ended September 30, 2007
	Electronic Discovery		Bankruptcy		Settlement Administration		Total

Revenue:
Operating revenue before reimbursed direct costs	$	35,339	$	45,913	$	31,198	$	112,450
Operating revenue from reimbursed direct costs	49		3,633		14,048		17,730
Total revenue	35,388		49,546		45,246		130,180

Direct costs, general and administrative costs	17,612		22,619		38,035		78,266
Segment performance measure	$	17,776	$	26,927	$	7,211	$	51,914

Following is a reconciliation of our segment performance measure to income before income taxes (in thousands):

	Nine Months Ended September 30,
	2008			2007

Segment performance measure	$	54,729		$	51,914
Corporate and unallocated expenses	(16,263		)	(14,816		)
Share-based compensation expense	(2,439		)	(1,809		)
Depreciation and software and leasehold amortization	(11,836		)	(9,071		)
Amortization of intangible assets	(6,874		)	(7,228		)
Other operating income (expense)	1,511			(565		)
Interest expense, net	(1,119		)	(10,573		)
Income before income taxes	$	17,709		$	7,852

Following are total assets by segment (in thousands):

	September 30, 2008		December 31, 2007
Assets
Electronic Discovery	$	141,877	$	132,030
Bankruptcy	178,484		178,937
Settlement Administration	67,795		52,724
Corporate and unallocated	21,400		29,103
Total consolidated assets	$	409,556	$	392,794

Table of Contents

NOTE 10: SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information is as follows (in thousands):

	Nine Months Ended September 30,
	2008		2007

Cash paid for:
Interest	$	2,250	$	7,937
Income taxes paid, net	7,027		1,253
Non-cash investing and financing transactions:
Capitalized lease obligations incurred	—		2,566
Property, equipment, and leasehold improvements accrued in accounts payable	1,034		768
Obligation incurred in purchase transactions	1,682

NOTE 11: ACQUISITIONS

On April 4, 2008, our wholly-owned subsidiary, Epiq Systems Holding B.V., acquired all the equity of Uberdevelopments Limited and its wholly-owned operating subsidiary, Pinpoint Global Limited (collectively, “Pinpoint”), an electronic discovery business with operations in the United Kingdom. The value of the transaction was $7.1 million, consisting of $4.9 million of cash, $1.7 million of deferred payments and $0.5 million of capitalized transaction costs. Certain revenue targets were satisfied as of September 30, 2008, requiring an additional future payment of £1,000,000 ($1.7 million). The additional payment was recorded as a purchase price adjustment. Additionally, if certain other revenue targets are satisfied prior to the second and third anniversary dates of the agreement, we will be required to make additional payments. The aggregate amount of such payments would be within the range of £160,000 to £400,000 (as of September 30, 2008, approximately $0.3 million to $0.7 million) and will be recorded as compensation expense when the contingency is resolved. The preliminary allocation of the purchase price is as follows: $0.3 million to net assets, $1.1 million to customer contracts, $1.1 million to non-compete agreements, $0.7 million to establish a deferred tax liability related to the acquired intangible assets, and $5.3 million to goodwill. The allocation of the purchase price to the assets and liabilities acquired will be finalized as necessary, up to one year after the acquisition closing date, when information that is known to be available or obtainable is obtained. The purchase price in excess of the value of the acquired identifiable net assets reflects the strategic value we placed on Pinpoint as this acquisition facilitates the expansion of our electronic discovery business in the United Kingdom.

The acquisition was accounted for using the purchase method of accounting with the operating results included in the accompanying condensed consolidated financial statements from the date of acquisition. The operating results of the acquired entities are included within our electronic discovery segment. The pro forma results of the acquired entities for the period January 1, 2008 through the date of acquisition are not material to our consolidated results of operations.

NOTE 12: LEGAL PROCEEDINGS

Purported Derivative Shareholder Complaints

Table of Contents

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

This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements included in this Form 10-Q.

Overview

We have three reporting segments: electronic discovery, bankruptcy, and settlement administration.

Electronic Discovery Segment

Our electronic discovery business provides processing and search and review services to corporations and the litigation departments of law firms. Our eDataMatrix™ software analyzes, filters, deduplicates and produces documents for review. Produced documents are made available primarily through a hosted environment, and our DocuMatrix™ software allows for efficient plaintiff and defendant counsel review and data requests.

Our customers are typically large corporations that use our products and services cooperatively with their legal counsel to manage the electronic discovery process for complex litigation matters.

The substantial increase of electronic documents by businesses has changed the dynamics of how attorneys support discovery in complex litigation matters. According to the 2008 Socha-Gelbmann Electronic Discovery Survey, the 2007 domestic commercial electronic discovery revenues were estimated at $2.8 billion, an approximate 43% increase from 2006. According to this same source, the market is expected to continue to grow at year over year annual rates of 21% for 2008 and 20% for 2009. Due to the complexity of cases, the volume of data that is maintained electronically, and the volume of documents that are produced in all types of litigation, it is anticipated that law firms will become increasingly reliant on electronic evidence management systems to organize and manage the litigation discovery process.

Significant sources of revenue include:

· Fees related to the conversion of data into an organized, searchable electronic database. The amount we earn varies primarily on the size (number of documents) and complexity of the engagement; and

· Hosting fees based on the amount of data stored.

Bankruptcy Segment

Our bankruptcy business provides solutions that address the needs of Chapter 7, Chapter 11, and Chapter 13 bankruptcy trustees to administer bankruptcy proceedings and of debtor corporations that file a plan of reorganization.

· Chapter 7 is a liquidation bankruptcy for individuals or businesses that, as measured by the number of new cases filed in 2007, accounted for approximately 60% of all bankruptcy filings. In a Chapter 7 case, the debtor’s assets are liquidated and the resulting cash proceeds are used by the Chapter 7 bankruptcy trustee to pay creditors. Chapter 7 cases typically last several years.

· Chapter 11 is a reorganization model of bankruptcy for corporations that, as measured by the number of new cases filed in fiscal 2007, accounted for approximately 1% of all bankruptcy filings. Chapter 11 generally allows a company, often referred to as the debtor-in-possession, to continue operating under a plan of reorganization to restructure its business and to modify payment terms of both secured and unsecured obligations. Chapter 11 cases may last several years. Key

Table of Contents

participants include the debtor-in-possession, the debtor’s counsel, the creditors, the creditors’ counsel, and the bankruptcy judge.

· Chapter 13 is a reorganization model of bankruptcy for individuals that, as measured by the number of new cases filed in 2007, accounted for approximately 39% of all bankruptcy filings. In a Chapter 13 case, debtors make periodic cash payments into a reorganization plan and a Chapter 13 bankruptcy trustee uses these cash payments to make monthly distributions to creditors. Chapter 13 cases typically last between three and five years.

Our end-user customers are debtor corporations that file a plan of reorganization and professional bankruptcy trustees. The Executive Office for United States Trustees, a division of the U.S. Department of Justice, appoints all bankruptcy trustees. A United States Trustee is appointed in most federal court districts and generally has responsibility for overseeing the integrity of the bankruptcy system. The bankruptcy trustee’s primary responsibilities include liquidating the debtor’s assets or collecting funds from the debtor, distributing the collected funds to creditors pursuant to the orders of the bankruptcy court and preparing regular status reports for the Executive Office for United States Trustees and for the bankruptcy court. Trustees manage an entire caseload of bankruptcy cases simultaneously.

Significant sources of revenue include:

· Data hosting fees and volume-based fees related to the management of large volumes of electronic data in support of a legal proceeding;

· Case management professional service fees and other support service fees related to the administration of cases, including data conversion, claims processing, claims reconciliation, professional consulting services, and settlement administration;

· Deposit-based fees, earned primarily on a percentage of Chapter 7 total liquidated assets placed on deposit with a designated financial institution by our trustee clients, to whom we provide, at no charge, software licenses, limited hardware and hardware maintenance, and postcontract customer support (PCS) services. The fees we earn based on total liquidated assets placed on deposit by our trustee clients may vary based on fluctuations in short-term interest rates;

· Document management legal noticing services to parties of interest in bankruptcy matters, including direct notification and media campaign and advertising management in which we coordinate notification, primarily through print media outlets, to potential parties of interest for a particular client engagement; and

· Reimbursement for costs incurred, primarily related to postage on mailing services.

Settlement Administration Segment

Our settlement administration segment provides managed services, including legal notification, claims administration and controlled disbursement.

Class action and mass tort refer to litigation in which class representatives bring a lawsuit against a defendant company or other persons on behalf of a large group of similarly affected persons (the class). Mass tort refers to class action cases that are particularly large or prominent. The class action and mass tort marketplace is significant, with estimated annual tort claim costs of approximately $250 billion in 2006, according to an update study issued in 2007 by Towers Perrin. Administrative costs, which include costs, other than defense costs, incurred by either the insurance company or self-insured entity in the administration of claims, comprise approximately 20% of this total. Key participants in this marketplace include law firms that specialize in representing class action and mass tort plaintiffs and other law firms that specialize in representing defendants. Class action and mass tort litigation is often complex and the cases, including administration of any settlement, may last several years.

Our customers are corporations that are administering the settlement or resolution of class action cases. We sell our services directly to those customers and other interested parties, including legal counsel, which often provide access to these customers.

Significant sources of revenue include:

Table of Contents

Results of Operations for the Three Months Ended September 30, 2008 Compared with the Three Months Ended September 30, 2007

Consolidated Results

Revenue

Total revenue of $58.9 million for the three months ended September 30, 2008 increased approximately $14.1 million, or 31%, compared to $44.8 million of revenue for the same period in the prior year. A portion of our total revenue consists of reimbursement for direct costs we incur, such as postage related to document management services. We reflect the operating revenue from these reimbursed direct costs as a separate line item on our accompanying condensed consolidated statements of income. Although operating revenue from reimbursed direct costs may fluctuate significantly from quarter to quarter, these fluctuations have a minimal effect on our income from operations as we realize little or no margin from this revenue. Operating revenue exclusive of operating revenue from reimbursed direct costs, which we refer to as operating revenue before reimbursed direct costs, increased approximately 32% to $51.8 million for the three months ended September 30, 2008 compared to $39.2 million for the same period in the prior year. The increase primarily relates to a $2.1 million increase in electronic discovery operating revenue before reimbursed direct costs combined with a $12.2 million increase in settlement administration operating revenue before reimbursed direct costs, partly offset by a $1.7 million decrease in bankruptcy operating revenue before reimbursed direct costs. Changes by segment are discussed below.

Operating Expenses

Direct costs of services, exclusive of depreciation and amortization, increased by approximately $10.1 million to approximately $19.5 million for the three months ended September 30, 2008 compared with $9.4 million during the same period in the prior year. This increase primarily results from a $6.2 million increase in the cost of outside services, primarily related to telephone, mailing and temporary help services, a $1.9 million increase in legal noticing, and a $0.9 million increase in production supplies. Changes by segment are discussed below.

Direct cost of bundled products and services, exclusive of depreciation and amortization, totaled approximately $0.9 million for the three months ended September 30, 2008 compared with $1.0 million during the same period in the prior year. Changes by segment are discussed below.

Reimbursed direct costs increased by approximately $1.4 million, or 25%, to $7.0 million for the three months ended September 30, 2008 compared with $5.6 million during the same period in the prior year. This increase directly corresponds to the increase in operating revenue from reimbursed direct costs. Changes by segment are discussed below.

General and administrative costs increased approximately 10% to $17.9 million for the three months ended September 30, 2008 compared with $16.2 million for the same period in the prior year. The increase is primarily due to a $0.7 million increase in compensation, commission and benefits expense primarily resulting from expanded staffing to support increased operating revenue, a $0.3 million increase related to travel expense, a $0.6 million increase related to professional services, and a $0.2 million increase in share-based compensation. Changes by segment are discussed below.

Depreciation and software and leasehold amortization costs increased approximately 30% to $4.3 million for the three months ended September 30, 2008 compared with $3.3 million for the same period in the prior year primarily as a result of increased software amortization and hardware depreciation largely related to increased capital expenditures within our electronic discovery segment.

Amortization of identifiable intangible assets, compared with the same period in the prior year, decreased to $2.3 million for the three months ended September 30, 2008 compared with $2.4 million for the same period in the prior year. Certain customer contracts and trade names became fully amortized, which were partly offset by an increase in non-compete amortization resulting from our second quarter acquisition of an electronic discovery business in the United Kingdom.

Other operating expenses, which include the mark-to-market adjustment for purchased interest rate floor options, totaled $0.6 million for the three months ended September 30, 2007. A portion of our bankruptcy trustee pricing is tied to short-term interest rates, and an increase or decrease in the short-term interest rate may result in corresponding changes in bankruptcy

Table of Contents

Electronic Discovery Segment

Electronic discovery operating revenue before reimbursed direct costs increased $2.1 million, or approximately 16%, to $15.1 million for the three months ended September 30, 2008 compared to $13.0 million for the same period in the prior year. This increase is primarily attributable to additional projects from existing clients as well as an expansion of our client base, resulting in an increase in hosting and processing revenue of approximately $2.1 million.

Electronic discovery direct and administrative expenses increased approximately 23% to $8.5 million for the three months ended September 30, 2008 compared with approximately $6.9 million for the same period in the prior year. This increase is primarily a result of a $1.3 million increase in compensation, commission and benefits expense resulting from expanded staffing to support increased operating revenue, and a $0.1 million increase in bad debt expense.

Bankruptcy Segment

Bankruptcy operating revenue before reimbursed direct costs decreased approximately $1.7 million, or 11%, to $13.2 million for the three months ended September 30, 2008 compared to $14.9 million for the same period in the prior year. This decrease is primarily the result of a $2.2 million decrease in our deposit-based fees resulting primarily from a decline in short-term interest rates combined with lower bankruptcy deposits compared to the prior year, a $0.7 million decrease in noticing and claims preference services, partly offset by a $1.0 million increase in professional services. Revenue from our bankruptcy trustee business could continue to be lower with comparable periods in the prior year if short-term interest rates remain at current levels. This effect could be partly mitigated by an increase in bankruptcy filings which could result in an increase in the bankruptcy trustee deposit portfolio. Noticing services depend on the timing of a case and will fluctuate from period to period. The professional services increase results primarily from an increase in Chapter 11 bankruptcy retentions.

Bankruptcy direct and administrative expenses decreased approximately $0.1 million to $7.4 million for the three months ended September 30, 2008 compared with approximately $7.5 million in the same period in the prior year. This decrease is primarily attributable to a $0.3 million decrease in compensation costs, and a $0.1 million decrease in reimbursed expenses, partly offset by a $0.3 million increase in outside production costs and services.

Settlement Administration Segment

Settlement administration operating revenue before reimbursed direct costs increased approximately 108%, to $23.5 million for the three months ended September 30, 2008 compared to $11.3 million for the same period in the prior year. This increase is primarily the result of a $9.2 million increase in call center revenue and direct mailing revenue, primarily related to a large contract, a $3.5 million increase in professional services, and a $2.1 million increase in legal notification revenue, partly offset by a $2.4 million decrease in transaction processing revenue.

Settlement administration direct and administrative expenses, including reimbursed direct costs, increased $11.2 million, or approximately 96%, to $22.9 million for the three months ended September 30, 2008 compared to $11.7 million for the same period in the prior year. This increase is primarily the result of a $7.0 million increase in call center, outside service, and mailing supplies costs to support the large contract referenced above, a $1.9 million increase in the cost of legal noticing that is directly related to the increase in legal noticing revenue, a $1.5 million increase in reimbursable expenses, and a $0.4 million increase in compensation, commission and benefit expense.

Table of Contents

Results of Operations for the Nine Months Ended September 30, 2008 Compared with the Nine Months Ended September 30, 2007

Consolidated Results

Revenue

Total revenue of $172.7 million for the nine months ended September 30, 2008 increased approximately 33% compared to $130.2 million of revenue for the same period in the prior year. A portion of our total revenue consists of reimbursement for direct costs we incur, such as postage related to document management services. We reflect the operating revenue from these reimbursed direct costs as a separate line item on our accompanying condensed consolidated statements of income. Although reimbursed operating revenue may fluctuate significantly from quarter to quarter, these fluctuations have a minimal effect on our income from operations as we realize little or no margin from this revenue. Operating revenue exclusive of operating revenue from reimbursed direct costs, which we refer to as operating revenue before reimbursed direct costs, increased approximately 36% to $152.7 million for the nine months ended September 30, 2008 compared to $112.5 million for the same period in the prior year. The increase primarily relates to a $9.3 million increase in electronic discovery operating revenue before reimbursed direct costs combined with a $37.8 million increase in settlement administration operating revenue before reimbursed direct costs, partly offset by a $6.9 million decrease in bankruptcy operating revenue before reimbursed direct costs. Changes by segment are discussed below.

Operating Expenses

Direct costs of services, exclusive of depreciation and amortization, increased by approximately 109% to $62.8 million for the nine months ended September 30, 2008 compared with $30.1 million during the same period in the prior year. This increase primarily results from a $20.4 million increase in the cost of outside services, primarily related to telephone, mailing and temporary help services, a $6.3 million increase in legal noticing, and a $3.0 million increase in production supplies. Changes by segment are discussed below.

Direct cost of bundled products and services, exclusive of depreciation and amortization, were approximately $2.8 million for both the nine months ended September 30, 2008 and September 30, 2007. Changes by segment are discussed below.

Reimbursed direct costs increased to $20.0 million for the nine months ended September 30, 2008 compared with $17.6 million during the same period in the prior year. This increase directly corresponds to the increase in operating revenue from reimbursed direct costs. Changes by segment are discussed below.

General and administrative costs increased by approximately $6.8 million, or 15%, to $51.2 million for the nine months ended September 30, 2008 compared with $44.4 million for the same period in the prior year. The increase is primarily due to a $1.7 million increase in compensation, commission and benefits expense primarily resulting from expanded staffing, a $1.7 million increase related to travel expense, a $1.5 million increase related to professional services, a $0.8 million increase in bad debt expense, and a $0.5 million increase in share-based compensation. Changes by segment are discussed below.

Depreciation and software and leasehold amortization costs increased approximately $2.7 million, or 30%, to $11.8 million for the nine months ended September 30, 2008 compared with $9.1 million for the same period in the prior year primarily as a result of increased software amortization expense and increased hardware depreciation largely related to our electronic discovery segment.

Amortization of identifiable intangible assets decreased by approximately $0.3 million, or 4%, to $6.9 million for the nine months ended September 30, 2008 compared with $7.2 million for the same period in the prior year, primarily as a result of certain customer contracts and trade names that became fully amortized, partly offset by an increase in non-compete amortization resulting from our second quarter acquisition of an electronic discovery business in the United Kingdom.

Other operating income of $1.5 million includes a $2.4 million gain related to interest rate floor options purchased during 2007, partly offset by $0.9 million of acquisition related expenses consisting of non-capitalized acquisition related expenses for legal services, executive compensation, indirect and general costs, accounting services, and valuation services related to the second quarter acquisition of an electronic discovery business in the United Kingdom. We did not incur any acquisition

Table of Contents

related expenses during the nine months ended September 30, 2007. A portion of our bankruptcy trustee pricing is tied to short-term interest rates, and an increase or decrease in the short-term interest rate may result in corresponding changes in bankruptcy trustee revenue. To mitigate our interest rate risk, during the third quarter of 2007 we purchased, for $1.6 million, LIBOR based interest rate floors with strike prices ranging from 1.75% to 2.75% and a notional value of $800 million. These instruments were not designated as accounting hedges. At the end of each period, we estimate the fair value of these instruments and the change in market value is recognized as a component of other operating income. The adjustment for the year ended December 31, 2007 resulted in the recognition of $1.1 million of income. During the three months ended March 31, 2008, we terminated these interest rate floor options in order to lock in the gain and, as a result, received cash of approximately $5.1 million and recognized an incremental gain during the quarter of $2.4 million. Other operating expense of $0.6 million for the nine months ended September 30, 2007 is a result of the mark-to-market adjustment for purchased interest rate floor options.

Interest Expense

We recognized interest expense of $1.1 million for the nine months ended September 30, 2008 compared with $10.6 million for the same period in the prior year. The $9.5 million decrease is primarily related to a $5.4 million decrease in interest expense related to our credit facility, a $3.2 million decrease in expense related to the value of our subordinated convertible note holders’ option to extend the maturity of the subordinated convertible notes from June 15, 2007 to June 15, 2010, and a $0.5 million decrease in loan fee amortization. The fair value of the option to extend maturity was derived primarily from the estimated future cash flows related to the payment of the 4% interest for an additional three years. Accordingly, during the nine months ended September 30, 2007, the adjustment to the fair value of the option resulted in recognition of $2.0 million of interest expense. During April 2007, the holders of the contingent convertible subordinated notes exercised their right to extend the maturity of the convertible notes. As a result, we will continue to pay interest, at a rate of 4% per annum, during the extension period on any convertible notes that remain outstanding (the holders of the convertible notes may chose at any time to convert some or all of the notes into our common shares — see note 5 of the notes to the condensed consolidated financial statements for additional information regarding this conversion right). We estimated the fair value of the option immediately prior to the note holders’ vote to extend and recorded a final adjustment to the fair value of the option to extend the subordinated convertible notes’ maturity. We are currently amortizing the exercise date fair value of the option as a reduction to interest expense over the term of the extension. During the nine months ended September 30, 2008, we recognized a reduction to interest expense of approximately $1.2 million related to the amortization of the carrying value of the option to extend the maturity term subsequent to the extension date. The $5.4 million decrease in credit facility interest expense results from our repayment and termination of the credit facility term loan and the repayment in full of the credit facility revolving loan during 2007 with the proceeds of a common stock offering in November 2007. The $0.5 million decrease in loan amortization expense is primarily the result of the completion of the amortization of fees related to the contingent convertible subordinated debt and the credit facility term loan during 2007.

Income Taxes

Our income tax expense as a percent of pre-tax income was 44.6% during the nine months ended September 30, 2008 compared with tax expense as a percent of pre-tax income of 44.4% for the same period in the prior year. The increase in our effective tax rate compared with the same period in the prior year is due primarily to recording in 2008 additional uncertain tax positions related to FIN 48 state taxes and to reduced tax benefits realized on the exercise of incentive stock options. Our tax rate is higher than the statutory federal rate of 35% primarily due to state taxes. We have significant operations located in New York City that are subject to state and local tax rates that are higher than the tax rates assessed by other jurisdictions where we operate.

It is reasonably possible that we will recognize approximately $1.0 million of previously unrecognized tax benefits as a result of anticipated lapses in the statute of limitations during 2009 within twelve months of our reporting date. If recognized, the $1.0 million of tax benefits would affect the effective tax rate in 2009.

Net Income

Our net income was approximately $9.8 million for the nine months ended September 30, 2008 compared with net income of approximately $4.4 million for the same period in the prior year. The $5.4 million increase is primarily the result of a $40.2 million increase in operating revenue before reimbursed direct costs, a $9.5 million decrease in net interest expense, and the

Table of Contents

Electronic Discovery Segment

Electronic discovery operating revenue before reimbursed direct costs increased $9.3 million, or approximately 26%, to $44.6 million for the nine months ended September 30, 2008 compared to $35.3 million for the same period in the prior year. This increase is primarily attributable to additional projects from existing clients as well as an expansion of our client base, resulting in an increase in hosting and processing revenue of approximately $9.1 million and a $0.2 million increase in professional services.

Electronic discovery direct and administrative expenses increased approximately 34% to $23.6 million for the nine months ended September 30, 2008 compared with $17.6 million for the same period in the prior year. This increase is primarily a result of a $3.5 million increase in compensation, commission and benefits expense resulting from expanded staffing to support increased operating revenue, a $0.6 million increase in software support costs, a $0.5 million increase in building and equipment lease expense, primarily related to data center expansion, a $0.3 million increase in professional services, a $0.3 million increase in bad debt expense, a $0.2 million increase in promotion expense, and a $0.1 million increase in reimbursed expenses.

Bankruptcy Segment

Bankruptcy operating revenue before reimbursed direct costs decreased 15% to $39.0 million for the nine months ended September 30, 2008 compared to $45.9 million for the same period in the prior year. This decrease is primarily the result of $5.9 million decrease in our bankruptcy trustee deposit-based fees and a $1.7 million decrease in noticing services, partly offset by a $0.9 million increase in professional services. The $5.9 million decrease in bankruptcy trustee deposit fees results primarily from a decline in short-term interest rates combined with lower bankruptcy deposits. Revenue from our bankruptcy trustee business could continue to be lower with comparable periods in the prior year if short-term interest rates do not increase. This effect could be partly mitigated by an increase in bankruptcy trustee revenue as an increase in bankruptcy filings which could result in an increase in the bankruptcy trustee deposit portfolio. Noticing services depend on the timing of a case and will fluctuate from period to period.

Bankruptcy direct and administrative expenses decreased approximately $1.0 million, or approximately 4%, to approximately $21.6 million for the nine months ended September 30, 2008 compared with approximately $22.6 million in the same period in the prior year. This decrease is primarily attributable to a $1.0 million decrease in reimbursed expenses and a $1.0 million decrease in compensation costs, partly offset by a $0.7 million increase in bad debt expense.

Settlement Administration Segment

Settlement administration operating revenue before reimbursed direct costs increased $37.8 million, or approximately 121%, to $69.0 million for the nine months ended September 30, 2008 compared to $31.2 million for the same period in the prior year. This increase is primarily the result of a $29.7 million increase in call center revenue and direct mailing revenue, primarily related to a large contract, a $7.2 million increase in legal notification revenue resulting from several large cases, and a $5.9 million increase in professional services, partly offset by a $3.9 million decrease in transaction processing revenue.

Settlement administration direct and administrative expenses, including reimbursed direct costs, increased approximately $34.8 million, or 92%, to $72.8 million for the nine months ended September 30, 2008 compared to $38.0 million for the same period in the prior year. This increase is primarily the result of a $23.4 million increase in call center, outside service, and mailing supplies costs to support the large contract referenced above, a $6.3 million increase in the cost of legal noticing that is directly related to the increase in legal noticing revenue, a $3.3 million increase in reimbursable expenses, a $0.7 million increase in compensation, commissions and benefits, and a $0.6 million increase in outside services.

Liquidity and Capital Resources

Operating Activities

During the nine months ended September 30, 2008, our operating activities provided net cash of approximately $18.1 million. The primary sources of cash from operating activities was net income of $9.8 million, adjusted for non-cash charges and credits, primarily depreciation and amortization, of $21.3 million, and changes in operating assets and liabilities that

Table of Contents

decreased our operating cash flow by $13.0 million, primarily as a result of an increase in accounts receivable, which is a use of cash, partly offset by increases in accounts payable and income taxes, which represent sources of cash. Trade accounts receivable increased approximately $19.3 million, primarily related to an increase related to a large settlements administration customer. Trade accounts receivable will fluctuate from period to period depending on the timing of sales and collections. Accounts payable and other liabilities increased approximately $4.7 million, primarily related to costs associated with servicing a large settlements administration customer. Accounts payable will fluctuate from period to period depending on the timing of purchases and payments. The effect of income taxes will fluctuate from period to period depending on the accrual related to the current tax expense and the timing of estimated tax payments made or refunds received.

Investing Activities

During the nine months ended September 30, 2008, we used cash of approximately $12.9 million for purchases of property and equipment, primarily computer hardware and purchased software licenses for our electronic discovery business and purchased computer hardware for our bankruptcy trustee business. Enhancements to our existing software and development of new software is essential to our continued growth and, during the nine months ended September 30, 2008, we used cash of approximately $4.6 million to fund internal costs related to development of software for which technological feasibility has been established. We also used cash of $4.8 million to fund the acquisition of an electronic discovery business located in the United Kingdom. We anticipate that cash generated from operations will be adequate to fund our anticipated property, equipment and software spending for the foreseeable future.

Financing Activities

During the nine months ended September 30, 2008, we used cash to pay approximately $2.6 million as a principal reduction on our deferred acquisition notes and $0.8 million in closing costs as part of our amended credit facility. This financing use of cash was partly offset by $1.8 million of net proceeds from stock issued in connection with the exercise of employee stock options. We also recognized a portion of the tax benefit related to the exercise of stock options as a financing source of cash.

As of September 30, 2008, our indebtedness consisted of $52.7 million (including the fair value of the embedded option) from the contingent convertible subordinated notes, which bears interest at 4% based on the $50.0 million principal amount, and approximately $6.1 million of obligations related to capitalized leases and deferred acquisition price. During 2007, the term of our contingent convertible subordinated notes was extended to June 2010. The notes will require use of $50.0 million of cash at the extended maturity date if the note holders do not convert the notes into shares of our common stock. The holders of the contingent convertible subordinated notes have the right to convert at a price of approximately $11.67 per share. If any or all the notes are converted into shares of our common stock prior to the scheduled maturity of those notes, then there will be no cash requirements associated with those converted notes, other than the regular payment of interest earned prior to the conversion date.

As of September 30, 2008, we did not have any borrowings under our $100.0 million senior revolving loan. During the term of the credit facility, we have the right, subject to compliance with our covenants, to increase the senior revolving loan to $175.0 million. Interest on the credit facility is generally based on a spread, not to exceed 325 basis points, over the LIBOR rate. As of September 30, 2008, significant covenants, all as defined within our credit facility agreement, include a leverage ratio not to exceed 3.00 to 1.00, a fixed charge coverage ratio of not less than 1.25 to 1.00, and a current ratio of not less than 1.50 to 1.00. As of September 30, 2008, we were in compliance with all financial covenants.

Covenants contained in our credit facility and in our contingent convertible subordinated notes include limitations to consummate an acquisition should we pursue acquisitions in the future. Pursuant to the terms of our credit facility, we generally cannot incur indebtedness outside the credit facility, with the exceptions of capital leases and subordinated debt, with a limit of $100.0 million of aggregate subordinated debt. Furthermore, for any acquisition we must be able to demonstrate that, on a pro forma basis, we would be in compliance with our covenants during the four quarters prior to the acquisition and bank permission must be obtained for any acquisition for which cash consideration exceeds $80.0 million or total consideration exceeds $125.0 million.

Table of Contents

Off-balance Sheet Arrangements

We generally do not utilize off-balance sheet arrangements in our operations; however, we enter into operating leases in the normal course of business. Our operating lease obligations are disclosed in note 6 of the notes to consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2007.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The adoption of SFAS 157 as of January 1, 2008 did not have a material impact on our financial position, results of operations, or cash flows. In February 2008, FASB issued Staff Position 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 (FSP 157-1). FSP 157-1 excludes from the scope of SFAS 157 accounting pronouncements that address fair value measurements for purposes of lease classification or measurement. This scope exception does not apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value, regardless of whether those assets and liabilities are related to leases. FSP 157-1 was effective upon the initial adoption of SFAS 157. Adoption of FSP 157-1 as of January 1, 2008 did not have a material impact on our financial position, results of operations, or cash flows. In February 2008, FASB issued Staff Position 157-2, Effective Date of FASB Statement No. 157, (FSP 157-2) which, as of February 12, 2008, indefinitely delayed the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Management is still evaluating the impact, if any, that the adoption of FSP 157-2 will have on our financial position, results of operations, or cash flows.

In May, 2008, FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principle (SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principals. SFAS 162 is effective 60 days following the SEC’s approval of the PCAOB’s amendments to U.S. Auditing Standards (AU) Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. Management is still evaluating the impact, if any, that the adoption of SFAS 162 will have on our financial position, results of operations, or cash flows.

In June, 2008, FASB issued Statement of Financial Accounting Standards No. 163, Accounting for Financial Guarantee Insurance Contracts. SFAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. SFAS 163 is effective for

Table of Contents

financial statements issued for fiscal years beginning after December 15, 2008. Management anticipates that the adoption of SFAS 163 will not have a material effect on our financial position, results of operations, or cash flows.

In April 2008, FASB issued FSP FAS142-3, Determination of the Useful Life of Intangible Assets. FSP FAS 142-3 provides guidance on determining the useful life of a recognized intangible asset. FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Management is still evaluating the impact, if any, that the adoption of FSP FAS142-3 will have on our financial position, results of operations, or cash flows.

Forward-Looking Statements

In this report, in other filings with the SEC and in press releases and other public statements by our officers throughout the year, Epiq Systems, Inc. makes or will make statements that plan for or anticipate the future. These forward-looking statements include statements about our future business plans and strategies, and other statements that are not historical in nature. These forward-looking statements are based on our current expectations. In this Quarterly Report on Form 10-Q, we make statements that plan for or anticipate the future. Many of these statements are found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this report.

Forward-looking statements may be identified by words or phrases such as “believe,” “expect,” “anticipate,” “should,” “planned,” “may,” “estimated,” “goal,” “objective” 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 our forward-looking statements. These factors include (1) any material changes in our total number of client engagements and the volume associated with each engagement, (2) any material changes in our client’s deposit portfolio or the services required or selected by our clients in engagements, (3) material changes in the number of bankruptcy filings, class action filings or mass tort actions each year, (4) risks associated with handling of confidential data and compliance with information privacy laws, (5) changes in or the effects of pricing structures and arrangements, (6) risks associated with the integration of acquisitions into our existing business operations, (7) risks associated with our indebtedness, (8) risks associated with the application of complex accounting rules to unique transactions, including the risk that good faith application of those rules and audits of those results may be later reversed by new interpretations of those rules or new views regarding the application of those rules, and (9) other risks detailed from time to time in our SEC filings, including our annual report on Form 10-K. In addition, there may be other factors not included in our SEC filings that may cause actual results to differ materially from any forward-looking statements. We undertake no obligations to update any forward-looking statements contained herein to reflect future events or developments.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

The principal market risks to which we are exposed include interest rates under our senior revolving credit facility, foreign exchange rates giving rise to translation, and fluctuations in short-term interest rates on a portion of our bankruptcy trustee revenue.

Interest on our senior revolving credit facility is generally based on a spread, not to exceed 325 basis points over the LIBOR rate. There were no amounts due under our senior revolving credit facility as of September 30, 2008, thereby we had no market risk exposure.

We have limited operations in London, therefore, a portion of our revenues and expenses are incurred in a currency other than U.S. dollars. We do not utilize hedge instruments to manage the exposures associated with fluctuating currency exchange rates. The company’s operating results are exposed to changes in exchange rates between the U.S. dollar and the British Pound. When the U.S. dollar weakens against foreign currencies, the dollar value of revenues and expenses denominated in foreign currencies increases. When the U.S. dollar strengthens, the opposite situation occurs.

As of December 31, 2007 we had market risk exposure to interest rates as we held interest rate floor options with a notional value of $800 million. During February 2008, we sold the interest rate floor options and realized a $3.5 million gain, thereby eliminating our market risk exposure related to these instruments. We currently do not hold any interest rate floor options or other derivatives.

Table of Contents

PART II - - OTHER INFORMATION.

ITEM 1. Legal Proceedings.

On July 29, 2008, the Alaska Electrical Pension Fund (“AEPF”) filed a putative shareholder derivative action in the U.S. District Court for the District of Kansas (Civil Action No. 08-CV-2344 CM/JPO), alleging on behalf of Epiq Systems that each of our current directors and certain current and former executive officers and directors engaged in misconduct regarding stock option grants. A second shareholder derivative action was filed by Capstone Asset Management Company (“Capstone”) in the U.S. District Court for the District of Kansas on September 9, 2008 (Civil Action No. 08-CV-2418 KHV/JPO), against the company and certain of our current and former officers, employees and directors. In each complaint, the company was named as a nominal defendant. The complaints assert similar claims, including among other things that the company backdated certain stock options from July 1997 through January 2006, and that the individual defendants either participated in the backdating or permitted it to occur, violations of generally accepted accounting principles as a result of the alleged backdating of options, related claims of false and misleading proxy statements and annual reports filed by the company under the Securities Exchange Act of 1934, also as a result of the alleged backdating of options, and various violations of state law, breaches of fiduciary duty of loyalty and insider trading in company stock. AEPF is seeking among other things, unspecified money damages, an accounting for profits obtained from the alleged backdating of options, specified changes in our corporate governance policies, punitive damages and rescission of the allegedly backdated options.

On September 29, 2008, Capstone voluntarily dismissed their complaint, without prejudice. On October 7, 2008, the company and the individual defendants filed a motion to dismiss the AEPF complaint on the following grounds: (i) the plaintiff lacks standing to assert claims regarding any backdating prior to July 31, 2001, i.e., the date on which plaintiff first claims to have acquired company shares, (ii) application of the statutes of limitation that govern plaintiff’s claims reduces plaintiff’s case to a single alleged instance of backdating involving the grant of an option to a single non-defendant employee on January 3, 2006, (iii) the complaint fails to plead sufficient facts to state any plausible claim that the defendants backdated any stock options and thus fails to meet the minimum pleading requirements established under the Private Securities Litigation Reform Act of 1995 or the applicable Federal Rules of Civil Procedure, which failure mandates dismissal of all of plaintiff’s claims, and (iv) the complaint fails to meet the pleading standards that apply to any of its individual federal and state-law claims, which separately mandate dismissal of the entire case.

The court has not ruled yet on our motion to dismiss the AEPF complaint. We believe the claims are without merit and intend to defend against them vigorously. No amounts have been recorded in the accompanying condensed consolidated financial statements associated with this matter.

ITEM 1A. Risk Factors.

There have been no material changes in our Risk Factors from those disclosed in our 2007 Annual Report on Form 10-K.

ITEM 6. Exhibits.

31.1 Certifications of Chief Executive Officer of the Company under Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certifications of Chief Financial Officer of the Company under Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certifications of CEO and CFO pursuant to 18 U.S.C. Section 1350.

			Page

PART I - FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Statements of Income – Three and nine months ended September 30, 2008 and 2007 (Unaudited)		1

	Condensed Consolidated Balance Sheets – September 30, 2008 and December 31, 2007 (Unaudited)		2

	Condensed Consolidated Statement of Changes in Stockholders’ Equity – Nine months ended September 30, 2008 (Unaudited)		3

	Condensed Consolidated Statements of Cash Flows – Nine months ended September 30, 2008 and 2007 (Unaudited)		4

	Notes to Condensed Consolidated Financial Statements (Unaudited)		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		34

Item 4.	Controls and Procedures		35

PART II - OTHER INFORMATION

Item 1.		Legal Proceedings	36

Item 1A.		Risk Factors	36

Item 6.		Exhibits	36

Signatures			37

	September 30, 2008		December 31, 2007
Goodwill
Electronic Discovery	$	80,574	$	76,048
Bankruptcy	151,700		151,700
Settlement Administration	32,984		32,936
Total goodwill	$	265,258	$	260,684

		Epiq Systems, Inc.

Date:	October 30, 2008	/s/ Tom W. Olofson
		Tom W. Olofson
		Chairman of the Board
		Chief Executive Officer
		Director
		(Principal Executive Officer)


Date:	October 30, 2008	/s/ Elizabeth M. Braham
		Elizabeth M. Braham
		Executive Vice President, Chief Financial Officer
		(Principal Financial & Accounting Officer)

/s/ Tom W. Olofson
Tom W. Olofson
Chairman of the Board
Chief Executive Officer