<PAGE>
 
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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
 
                               ----------------
 
                                   FORM 10-Q
 
                               ----------------
 
(Mark One)
   [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
               For the quarterly period ended December 31, 1998
 
                                      OR
 
   [_]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
                               ----------------
 
                       Commission file number 000-23195
 
                            TIER TECHNOLOGIES, INC.
            (Exact name of Registrant as specified in its charter)
 
                               ----------------
 
                                  California
        (State or other jurisdiction of incorporation or organization)
 
                                  94-3145844
                     (I.R.S. Employer Identification No.)
 
                        1350 Treat Boulevard, Suite 250
                        Walnut Creek, California 94596
                   (Address of principal executive offices)
                                  (Zip Code)
 
                                (925) 937-3950
             (Registrant's telephone number, including area code)
 
                               ----------------
 
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.
 
                   (1) Yes [X]  No [_]   (2) Yes [X]  No [_]
 
As of February 5, 1999, the number of shares outstanding of the Registrant's
Class A Common Stock was 1,639,762 and the number of shares outstanding of the
Registrant's Class B Common Stock was 10,442,321.
 
This report contains a total of 23 pages of which this page is number 1.
 
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<PAGE>
 
                            TIER TECHNOLOGIES, INC.
 
                                   FORM 10-Q
 
                               TABLE OF CONTENTS
 
                        Part I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
   <C>     <S>                                                             <C>
   Item 1. Condensed Consolidated Financial Statements (unaudited)
           Condensed Consolidated Balance Sheets as of December 31, 1998
            and September 30, 1998.......................................    3
           Condensed Consolidated Statements of Income for the three
            months ended December 31, 1998 and 1997......................    4
           Condensed Consolidated Statements of Cash Flows for the three
            months ended December 31, 1998 and 1997......................    5
           Notes to Condensed Consolidated Financial Statements..........    6
   Item 2. Management's Discussion and Analysis of Financial Condition
            and Results of Operations....................................   11
   Item 3. Quantitative and Qualitative Disclosures About Market Risk....   21
 
                         Part II -- OTHER INFORMATION
 
   Item 2. Changes in Securities and Use of Proceeds.....................   22
   Item 4. Submission of Matters to a Vote of Security Holders...........   22
   Item 6. Exhibits and Reports on Form 8-K..............................   22
   Signatures.............................................................  23
</TABLE>
 
Safe Harbor Statement
 
  Certain statements contained in this report, including statements regarding
the development of the Company's services, markets and future demand for the
Company's services, and other statements regarding matters that are not
historical facts, are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Certain such forward-looking
statements can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "pro forma," "estimates" or "anticipates" or the negative
thereof, other variations thereof or comparable terminology, or by discussions
of strategy, plans or intentions. Such forward-looking statements include
risks and uncertainties; consequently, actual results may differ materially
from those expressed or implied thereby. Factors that could cause actual
results to differ materially include, but are not limited to, those factors
listed in "Factors that May Affect Future Results" section, as set forth
beginning on page 15 of this report. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
of this report. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements or factors to
reflect events or circumstances after the date of this report or to reflect
the occurrence of unanticipated events.
 
                                       2
<PAGE>
 
                         PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
                            TIER TECHNOLOGIES, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (unaudited)
                                 (in thousands)
 
<TABLE>
<CAPTION>
                                                     December 31, September 30,
                                                         1998         1998
                                                     ------------ -------------
<S>                                                  <C>          <C>
                       ASSETS
Current assets:
  Cash and cash equivalents.........................   $13,128       $22,466
  Restricted cash...................................       735           712
  Short-term investments............................    27,762        16,834
  Accounts receivable, net..........................    18,596        18,335
  Prepaid expenses and other current assets.........     1,597         1,399
                                                       -------       -------
    Total current assets............................    61,818        59,746
Equipment and improvements, net.....................     2,680         2,371
Notes and accrued interest receivable from related
 parties............................................     1,852         1,871
Acquired intangibles, net...........................    14,023         9,794
Other assets........................................       681           721
                                                       -------       -------
    Total assets....................................   $81,054       $74,503
                                                       =======       =======
 
        LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Borrowings under bank line of credit..............   $   557       $   --
  Accounts payable..................................     4,998         3,263
  Accrued liabilities...............................       838           934
  Accrued subcontractor expenses....................     1,764         2,503
  Accrued compensation and related liabilities......     2,650         2,310
  Income taxes payable..............................       589           450
  Deferred income...................................        59           500
  Capital lease obligations due within one year.....       144            67
  Other current liabilities.........................        36            24
                                                       -------       -------
    Total current liabilities.......................    11,635        10,051
Capital lease obligations, less current portion.....       366           163
Other liabilities...................................       249           117
                                                       -------       -------
    Total liabilities...............................    12,250        10,331
                                                       -------       -------
Commitments and contingent liabilities..............
Shareholders' equity:
  Common stock, no par value........................    64,715        62,656
  Notes receivable from shareholders................    (2,020)       (2,159)
  Deferred compensation.............................      (526)         (591)
  Foreign currency translation adjustment...........      (867)       (1,210)
  Retained earnings.................................     7,502         5,476
                                                       -------       -------
    Total shareholders' equity......................    68,804        64,172
                                                       -------       -------
    Total liabilities and shareholders' equity......   $81,054       $74,503
                                                       =======       =======
</TABLE>
 
            See Notes to Condensed Consolidated Financial Statements
 
                                       3
<PAGE>
 
                            TIER TECHNOLOGIES, INC.
 
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                  (unaudited)
                     (in thousands, except per share data)
 
<TABLE>
<CAPTION>
                                                                  Three Months
                                                                     Ended
                                                                  December 31,
                                                                 --------------
                                                                  1998    1997
                                                                 ------- ------
<S>                                                              <C>     <C>
Revenues........................................................ $21,356 $9,150
Cost of revenues................................................  13,156  5,680
                                                                 ------- ------
Gross profit....................................................   8,200  3,470
Costs and expenses:
  Selling and marketing.........................................   1,287    815
  General and administrative....................................   3,459  1,800
  Compensation charge related to business combinations..........      61    198
  Depreciation and amortization.................................     527    150
                                                                 ------- ------
Income from operations..........................................   2,866    507
Interest income (expense), net..................................     456     56
                                                                 ------- ------
Income before income taxes......................................   3,322    563
Provision for income taxes......................................   1,296    228
                                                                 ------- ------
Net income...................................................... $ 2,026 $  335
                                                                 ======= ======
Basic net income per share...................................... $  0.17 $ 0.05
                                                                 ======= ======
Shares used in computing basic net income per share.............  11,881  6,139
                                                                 ======= ======
Diluted net income per share.................................... $  0.16 $ 0.04
                                                                 ======= ======
Shares used in computing diluted net income per share...........  12,816  7,464
                                                                 ======= ======
</TABLE>
 
 
 
            See Notes to Condensed Consolidated Financial Statements
 
                                       4
<PAGE>
 
                            TIER TECHNOLOGIES, INC.
 
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (unaudited)
                                 (in thousands)
 
<TABLE>
<CAPTION>
                                                               Three Months
                                                                  Ended
                                                               December 31,
                                                             -----------------
                                                               1998     1997
                                                             --------  -------
<S>                                                          <C>       <C>
Operating activities:
Net income.................................................  $  2,026  $   335
Adjustments to reconcile net income to net cash provided by
 operating activities:
 Depreciation and amortization.............................       527      143
 Amortization of deferred compensation.....................        65      --
 Provision for doubtful accounts...........................       124      --
 Deferred income taxes.....................................       (90)    (144)
 Tax benefit of stock options exercised....................       201      --
 Forgiveness of notes receivable from employees............       253      --
 Changes in operating assets and liabilities, net of
  effects of acquisitions:
 Accounts receivable.......................................       783     (590)
 Income taxes receivable...................................       --       517
 Prepaid expenses and other current assets.................       (13)      34
 Other assets..............................................       --         9
 Accounts payable and accrued liabilities..................       537      633
 Income taxes payable......................................       139      --
 Deferred income...........................................       (93)     (11)
                                                             --------  -------
Net cash provided by operating activities..................     4,459      926
                                                             --------  -------
 
Investing activities:
Purchases of equipment and improvements....................      (408)    (271)
Notes and accrued interest receivable from related parties.      (262)     (63)
Business combinations, net of cash acquired................    (2,879)     (52)
Purchases of available-for-sale securities.................   (20,049)     --
Sales of available-for-sale securities.....................     4,369      --
Maturities of available-for-sale securities................     4,753      --
Other assets...............................................        41     (179)
                                                             --------  -------
Net cash used in investing activities......................   (14,435)    (565)
                                                             --------  -------
 
Financing activities:
Borrowings under bank lines of credit......................       832    6,911
Payments of borrowings.....................................      (832)  (9,671)
Net proceeds from issuance of common stock.................       --    19,972
Repayment by shareholders on notes receivable..............       138      --
Exercise of stock options..................................       290      144
Employee stock purchase plan...............................       238      --
Payments on capital lease obligations......................       (20)     (10)
Deferred financing costs...................................       --       224
Payments on notes payable to shareholders..................        (6)     (13)
                                                             --------  -------
Net cash provided by financing activities..................       640   17,557
                                                             --------  -------
Effect of exchange rate changes on cash....................        (2)     (26)
                                                             --------  -------
Net (decrease) increase in cash and cash equivalents.......    (9,338)  17,892
Cash and cash equivalents at beginning of period...........    22,466      106
                                                             --------  -------
Cash and cash equivalents at end of period.................  $ 13,128  $17,998
                                                             ========  =======
Supplemental disclosures of cash flow information:
 Cash paid during the quarter for:
 Interest paid.............................................  $     73  $    79
                                                             ========  =======
 Income taxes paid (refunded), net.........................  $  1,052  $  (145)
                                                             ========  =======
Accrued purchase price and assumed liabilities related to
 business combinations.....................................  $  1,931  $   --
                                                             ========  =======
Conversion of preferred stock into common stock............  $    --   $ 1,892
                                                             ========  =======
Common stock issued in business combinations...............  $  1,328  $   --
                                                             ========  =======
</TABLE>
 
            See Notes to Condensed Consolidated Financial Statements
 
                                       5
<PAGE>
 
                            TIER TECHNOLOGIES, INC.
 
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (unaudited)
 
NOTE 1 -- BASIS OF PRESENTATION
 
  The accompanying condensed consolidated financial statements of Tier
Technologies, Inc. ("Tier" or the "Company") include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. In the
opinion of management, the condensed consolidated financial statements reflect
all normal and recurring adjustments which are necessary for a fair
presentation of the Company's financial position, results of operations and
cash flows as of the dates and for the periods presented. The condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Consequently, these statements do not include all the disclosures normally
required by generally accepted accounting principles for annual financial
statements nor those normally made in the Company's Annual Report on Form 10-
K. Accordingly, reference should be made to the Company's Form 10-K filed on
December 21, 1998 and other reports the Company filed with the Securities and
Exchange Commission for additional disclosures, including a summary of the
Company's accounting policies, which have not materially changed. The
consolidated results of operations for the three months ended December 31,
1998 are not necessarily indicative of results that may be expected for the
fiscal year ending September 30, 1999 or any future period, and the Company
makes no representations related thereto.
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities and the results of operations
during the reporting period. Actual results could differ materially from those
estimates.
 
  Certain reclassifications have been made to the prior period's financial
statements to conform to the current year's presentation.
 
NOTE 2 -- REVENUE RECOGNITION
 
  The majority of the Company's revenues are derived from time and material
contracts and are recognized as services are performed. Revenues from fixed
price contracts are recognized using the percentage-of-completion method of
contract accounting based on the ratio of incurred costs to total estimated
costs. Losses on contracts are recognized when they become known and
reasonably estimable. Actual results of contracts may differ from management's
estimates and such differences could be material to the consolidated financial
statements. Most of the Company's contracts are terminable by the client
following limited notice and without significant penalty to the client. The
completion, cancellation or significant reduction in the scope of a large
project would have a material adverse effect on the Company's business,
financial condition and results of operations. Unbilled receivables were
$3,702,000 and $3,444,000 at December 31, 1998 and September 30, 1998,
respectively. An unbilled receivable for one client accounted for 10.1% of
total accounts receivable at December 31, 1998.
 
  Revenues derived from governmental agencies were $5,260,000 and $4,641,000
for the three months ended December 31, 1998 and 1997, respectively.
 
NOTE 3 -- ACQUISITION
 
 Acquisition
 
  Effective November 30, 1998, the Company acquired all the issued and
outstanding capital stock of Midas Computer Software Limited ("Midas"), a
United Kingdom entity which provided data warehouse migration
 
                                       6
<PAGE>
 
                            TIER TECHNOLOGIES, INC.
 
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                  (unaudited)
 
 
NOTE 3 -- ACQUISITION (continued)
 
services to commercial and government entities. The initial cost of the
acquisition totaled approximately $3.8 million, of which approximately $2.4
million was paid in cash and approximately $1.3 million was recorded as a
result of the issuance of the Company's Class B common stock valued at the
effective date at approximately $664,000 with a guaranteed minimum value of
approximately $1.3 million three years from the effective date of the
acquisition. The Midas acquisition was accounted for under the purchase method
of accounting.
 
  The purchase price was allocated as follows:
 
<TABLE>
<CAPTION>
                                                                  (in thousands)
   <S>                                                            <C>
   Cash paid.....................................................    $ 2,428
   Guaranteed value of stock issued..............................      1,328
   Estimated acquisition costs...................................        151
                                                                     -------
                                                                     $ 3,907
                                                                     =======
   Tangible assets...............................................    $ 1,812
   Intangible assets.............................................      3,787
   Liabilities assumed...........................................     (1,692)
                                                                     -------
                                                                     $ 3,907
                                                                     =======
</TABLE>
 
  The liabilities assumed by the Company include, among other liabilities, a
debt obligation for approximately $557,000 which was repaid by the Company
prior to December 31, 1998.
 
  Additional contingent payments of up to approximately $13.0 million (based
on the exchange rate at the time of the agreement of GBP 0.61 to US $1.00),
may be paid in cash and shares of the Company's Class B common stock over a
three-year period based on achieving certain performance targets. Contingent
payments will be accrued when earned and recorded as additional purchase
price. Intangible assets in the amount of $3.7 million are being amortized
over a period of 8 years. The accompanying condensed consolidated financial
statements include the results of operations of this acquisition for the
period subsequent to the acquisition's effective date.
 
 Pro Forma Disclosure of Significant Acquisitions
 
  The following summary, prepared on a pro forma basis, combines the
consolidated results of operations of the Company as if two prior
acquisitions, Sancha Computer Group Pty Limited and Infact Pty Limited as
Trustee of the Infact Unit Trust, and Midas had been purchased by the Company
as of October 1, 1997, after including the impact of certain pro forma
adjustments, such as the unaudited increased amortization expense due to the
recording of intangible assets:
 
<TABLE>
<CAPTION>
                                                                 Three Months
                                                                Ended December
                                                                      31,
                                                                ---------------
                                                                 1998    1997
                                                                ------- -------
                                                                (in thousands)
   <S>                                                          <C>     <C>
   Revenues.................................................... $22,072 $13,478
   Net income..................................................   1,854     590
   Basic net income per share..................................    0.16    0.09
   Diluted net income per share................................    0.14    0.08
</TABLE>
 
  The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire period
presented and are not intended to be a projection of future results.
 
                                       7
<PAGE>
 
                            TIER TECHNOLOGIES, INC.
 
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                  (unaudited)
 
 
NOTE 4 -- BANK LINES OF CREDIT
 
  At December 31, 1998, the Company has a $10 million revolving credit
facility which matures on March 31, 2001. Total borrowings are limited to the
lesser of 85% of eligible accounts receivable or $10 million and are secured
by all of the Company's assets. Interest is charged monthly and is based on,
at the Company's option, the adjusted LIBOR rate plus 2.5% or an alternate
base rate plus 0.5%. The alternate base rate is the greater of the bank's base
rate or the federal funds effective rate. Among other provisions, the credit
facility requires the Company to maintain certain minimum financial ratios. As
of December 31, 1998, the Company was in compliance with all financial ratios
and had outstanding borrowings of $557,000 under its credit facility. As of
September 30, 1998, the Company had no outstanding borrowings.
 
NOTE 5 -- NET INCOME PER SHARE
 
  The following table sets forth the computation of basic and diluted net
income per share:
 
<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                               December 31,
                                                          ----------------------
                                                             1998        1997
                                                          ----------- ----------
                                                          (in thousands, except
                                                             per share data)
   <S>                                                    <C>         <C>
   Numerator:
     Net income.........................................  $     2,026 $      335
                                                          =========== ==========
   Denominator for basic net income per share-weighted
    average common shares outstanding...................       11,881      6,139
   Effects of dilutive securities:
     Common stock options...............................          820        969
     Convertible preferred stock........................          --         356
     Common stock contingently issuable.................          115        --
                                                          ----------- ----------
   Denominator for diluted net income per share-adjusted
    weighted average common shares and assumed
    conversions.........................................       12,816      7,464
                                                          =========== ==========
   Basic net income per share...........................  $      0.17 $     0.05
                                                          =========== ==========
   Diluted net income per share.........................  $      0.16 $     0.04
                                                          =========== ==========
</TABLE>
 
  Options to purchase approximately 1,347,000 shares of Class B common stock
at a price ranging from $13.88 to $17.81 per share were not included in the
computation of diluted net income per share because the options' exercise
prices were greater than the average market price of the shares.
 
NOTE 6 -- COMPREHENSIVE INCOME
 
  Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income"
("FAS 130"). FAS 130 establishes standards for reporting comprehensive income
and its components, including presentation in an annual financial statement
that is displayed with the same prominence as other annual financial
statements. Various components of comprehensive income may, for example,
consist of foreign currency items and unrealized gains and losses on certain
investments classified as available-for-sale.
 
                                       8
<PAGE>
 
                            TIER TECHNOLOGIES, INC.
 
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                  (unaudited)
 
 
NOTE 6 -- COMPREHENSIVE INCOME (continued)
 
  The Company's total comprehensive income was as follows:
 
<TABLE>
<CAPTION>
                                                                       Three
                                                                      Months
                                                                       Ended
                                                                     December
                                                                        31,
                                                                    -----------
                                                                     1998  1997
                                                                    ------ ----
                                                                        (in
                                                                    thousands)
   <S>                                                              <C>    <C>
   Net income...................................................... $2,026 $335
   Currency translation adjustment.................................    343  (26)
                                                                    ------ ----
   Total comprehensive income...................................... $2,369 $309
                                                                    ====== ====
</TABLE>
 
NOTE 7 -- CONTINGENCIES
 
 Contract Dispute
 
  The Company received a notice dated December 17, 1998 that a prime
contractor was exercising its right to terminate one of the Company's
Australian projects alleging a breach of the sub-contract. The Company
believes that the termination is not valid and that it has not breached the
sub-contract. As of December 31, 1998, accounts receivable under the sub-
contract approximated $1.8 million, which amount currently remains unpaid. The
Company and the prime contractor are in discussion regarding a resolution of
this matter. Although the Company's investigation and negotiations with the
prime contractor are ongoing, the Company believes, based on currently
available information, the resolution of this matter will not have a material
adverse effect on its consolidated financial position, results of operations
or cash flows.
 
 Guaranty of Obligation
 
  On December 22, 1998, the Company guaranteed a portion of an obligation of
James L. Bildner, the Company's Chief Executive Officer, with respect to the
California residence of Mr. Bildner (the "Guaranty"). The Company's liability
under the Guaranty is capped at $1,000,000. In connection with the Guaranty,
Mr. Bildner pledged to the Company shares of Tier Technologies, Inc. common
stock owned by him with a fair market value in excess of 110% of the Guaranty
amount and agreed to indemnify the Company for any loss, liability or expense
incurred in connection with the Guaranty.
 
NOTE 8 -- NEW ACCOUNTING PRONOUNCEMENTS
 
  In June 1997, the Financial Accounting Standards Board issued Statement No.
131 "Disclosure about Segments of an Enterprise and Related Information" ("FAS
131"). The Company is required to adopt FAS 131 in the fiscal year 1999 annual
financial statements. FAS 131 requires disclosure of certain information
regarding operating segments, products and services, geographic areas of
operation and major customers. Adoption of FAS 131 is expected to have no
material impact on the Company's consolidated financial position, results of
operations or cash flows.
 
  In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"). The new standard requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives will be
reported in the statement of operations or as a deferred item, depending on
the use of the derivatives and whether they qualify for hedge accounting. The
key criterion for
 
                                       9
<PAGE>
 
                            TIER TECHNOLOGIES, INC.
 
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
                                  (unaudited)
 
 
NOTE 8 -- NEW ACCOUNTING PRONOUNCEMENTS (continued)
 
hedge accounting is that the derivative must be highly effective in achieving
offsetting changes in fair value or cash flows of the hedged items during the
term of the hedge. The Company will adopt FAS 133 in fiscal year 2000 and has
not yet determined the impact, if any, that the adoption of FAS 133 will have
on the consolidated financial statements.
 
NOTE 9 -- SUBSEQUENT EVENTS
 
 Acquisition
 
  Effective January 1, 1999, the Company acquired all the issued and
outstanding capital stock of ADC Consultants Pty Limited ("ADC"), an
Australian entity which provided data management services. The initial cost of
the acquisition totaled approximately $2.3 million in cash. The ADC
acquisition will be accounted for as a purchase. Additional contingent
payments of up to approximately $2.0 million (based on the exchange rate at
the time of the agreement of AUD $1.63 to US $1.00) may be paid in cash and
shares of the Company's Class B common stock over a three year period based on
achieving certain performance targets. Contingent payments will be accrued
when earned and recorded as additional purchase price.
 
 Amended and Restated 1996 Equity Incentive Plan
 
  On January 28, 1999 a majority of the Company's shareholders entitled to
vote thereon approved three amendments to the Company's Amended and Restated
1996 Equity Incentive Plan (the "Plan"). The first amendment increases the
number of shares of Class B common stock authorized and reserved for issuance
under the Plan from 3,989,333 to 5,989,333 shares. The second amendment
increases the maximum number of shares of Class B common stock to be granted
under the Plan to any one person in any single fiscal year from 100,000 to
300,000 shares. The third amendment increases the number of shares of Class B
common stock to be granted automatically to outside directors upon their
initial appointment and upon their re-election thereafter from 5,000 to 10,000
shares.
 
                                      10
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS
 
Overview
 
  Tier provides IT consulting, application development and software
engineering services that facilitate the migration of clients' enterprise-wide
systems and applications to leading edge technologies. Through offices located
in the United States, Australia and the United Kingdom, the Company works
closely with its Fortune 1000, government and other clients to determine,
evaluate and implement an IT strategy that allows it to rapidly adopt, deploy
and transfer emerging technologies while preserving viable elements of the
client's legacy systems. The Company's revenues increased from $9.2 million in
the three months ended December 31, 1997 to $21.4 million in the three months
ended December 31, 1998. The Company's workforce, composed of employees,
independent contractors and subcontractors, has grown from 251 on December 31,
1997, to 510 on December 31, 1998.
 
  The Company's revenues are derived primarily from professional fees billed
to clients on either a time and materials or a fixed price basis. Time and
materials revenues are recognized as services are performed. Fixed price
revenues are recognized using the percentage-of-completion method, based upon
the ratio of costs incurred to total estimated project costs. The percentage
of the Company's revenue generated on a fixed price basis was 9.3% and 23.8%
for the three months ended December 31, 1998 and December 31, 1997,
respectively. Substantially all of Tier's contracts are terminable by the
client following limited notice and without significant penalty to the client.
From time to time, in the regular course of its business, the Company
negotiates the modification, termination, renewal or transition of time and
materials and fixed price contracts that may involve an adjustment to the
scope or nature of the project, billing rates or outstanding receivables. To
date, the Company has generally been able to obtain an adjustment in its fees
following a significant change in the assumptions upon which the original
estimate was made, but there can be no assurance that the Company will be
successful in obtaining adjustments in the future.
 
  The Company has derived a significant portion of its revenues from a small
number of large clients. For many of these clients, the Company performs a
number of different projects pursuant to multiple contracts or purchase
orders. For the three months ended December 31, 1998, Humana Inc. and the
State of Missouri accounted for 47.3% and 15.3% of the Company's revenues,
respectively. The Company anticipates that a substantial portion of its
revenues will continue to be derived from a small number of large clients. The
completion, cancellation or significant reduction in the scope of a large
project would have a material adverse effect on the Company's business,
financial condition and results of operations. A significant portion of the
Company's revenues are derived from sales to government agencies. For the
three months ended December 31, 1998, approximately 24.6% of the Company's
revenues were derived from sales to government agencies.
 
  Personnel and rent expenses represent a significant percentage of the
Company's operating expenses and are relatively fixed in advance of any
particular quarter. Senior executives manage the Company's personnel
utilization rates by carefully monitoring its needs and basing most personnel
increases on specific project requirements. To the extent revenues do not
increase at a rate commensurate with these additional expenses, the Company's
results of operations would be materially and adversely affected. In addition,
to the extent that the Company is unable to hire and retain salaried employees
to staff new or existing client engagements and retains hourly employees or
independent contractors in their place, the Company's business, financial
condition and results of operations would be materially and adversely
affected.
 
  From December 1996 through December 31, 1998, the Company made nine
acquisitions for a total cost of approximately $14.8 million in cash and
shares of Class B common stock, excluding future contingent payments, all of
which were accounted for under the purchase method of accounting. Generally,
contingent payments are recorded as additional purchase price at the time the
payment can be determined beyond a reasonable doubt. If a contingent payment
is based, in part, on a seller's continuing employment with the Company, the
payments are recorded as compensation expense over the vesting period when the
amount is deemed probable to be made.
 
                                      11
<PAGE>
 
These acquisitions helped the Company to expand its operations in the United
States, to establish its operations in Australia and the United Kingdom, to
broaden the Company's client base and technical expertise and to supplement
its human resources. International operations accounted for 25.1% and 19.6% of
revenues for the three months ended December 31, 1998 and December 31, 1997,
respectively. The Company believes that the percentage of total revenues
attributable to international operations will continue to be significant and
may continue to grow. International operations may subject the Company to
foreign currency translation adjustments and transaction gains and losses for
amounts denominated in foreign currencies.
 
Results of Operations
 
  The following table summarizes the Company's operating results as a
percentage of revenues for each of the periods indicated:
 
<TABLE>
<CAPTION>
                                                             Three Months
                                                          Ended December 31,
                                                          --------------------
                                                            1998       1997
                                                          ---------  ---------
   <S>                                                    <C>        <C>
   Revenues..............................................     100.0%     100.0%
   Cost of revenues......................................      61.6%      62.1%
                                                          ---------  ---------
   Gross profit..........................................      38.4%      37.9%
   Costs and expenses:
     Selling and marketing...............................       6.0%       8.9%
     General and administrative..........................      16.2%      19.7%
     Compensation charge related to business
      combinations.......................................       0.3%       2.1%
     Depreciation and amortization.......................       2.5%       1.6%
                                                          ---------  ---------
   Income from operations................................      13.4%       5.6%
   Interest income (expense), net........................       2.1%       0.6%
                                                          ---------  ---------
   Income before income taxes............................      15.5%       6.2%
   Provision for income taxes............................       6.0%       2.5%
                                                          ---------  ---------
   Net income............................................       9.5%       3.7%
                                                          =========  =========
</TABLE>
 
Three Months Ended December 31, 1998 and December 31, 1997
 
  Revenues. Revenues are generated primarily by providing professional
consulting services on client engagements. Revenues increased 133.4% to $21.4
million for the three months ended December 31, 1998 from $9.2 million in the
three months ended December 31, 1997. This increase resulted primarily from
internal growth, including an expanded client base and several significant new
contracts, and from the inclusion of revenue from acquisitions.
 
  Gross Profit. Cost of revenues consists primarily of those costs directly
attributable to providing service to a client, including employee salaries,
independent contractor and subcontractor costs, employee benefits and travel
expenses. Gross profit increased 136.3% to $8.2 million for the three months
ended December 31, 1998 from $3.5 million in the three months ended December
31, 1997. Gross margin increased to 38.4% for the three months ended December
31, 1998 as compared to 37.9% in the three months ended December 31, 1997. The
gross margin for the most recent quarter increased primarily due to higher
margins on certain large contracts.
 
  Selling and Marketing. Selling and marketing expenses consist primarily of
personnel costs, sales commissions, travel costs and product literature.
Selling and marketing expenses increased 57.9% to $1.3 million for the three
months ended December 31, 1998 from $815,000 in the three months ended
December 31, 1997. As a percentage of revenues, selling and marketing expenses
decreased to 6.0% for the three months ended December 31, 1998 from 8.9% in
the three months ended December 31, 1997. The increase in total selling and
marketing expenses was primarily attributable to the addition of sales and
marketing personnel to support the higher revenue base and increased selling
and marketing efforts.
 
                                      12
<PAGE>
 
  General and Administrative. General and administrative expenses consist
primarily of personnel costs related to general management functions, human
resources, recruiting, finance, legal, accounting and information systems, as
well as professional fees related to legal, audit, tax, external financial
reporting and investor relations matters. General and administrative expenses
increased 92.2% to $3.5 million for the three months ended December 31, 1998
from $1.8 million in the three months ended December 31, 1997. As a percentage
of revenues, general and administrative expenses decreased to 16.2% for the
three months ended December 31, 1998 from 19.7% in the three months ended
December 31, 1997. The increase in total expenses was primarily attributable
to building the infrastructure to support, manage and control the Company's
growth and the increased costs of being a public company. The Company expects
general and administrative expenses as a percentage of revenues to stabilize
within a range of current levels as the Company continues to develop
appropriate internal resources to manage its rapid growth and to ensure the
quality delivery of services.
 
  Compensation Charge Related to Business Combinations. Compensation charge
related to business combinations consists primarily of certain contingent
performance payments made in connection with two acquisitions completed in
calendar years 1996 and 1997. Compensation charge related to business
combinations decreased 69.2% to $61,000 for the three months ended December
31, 1998 from $198,000 in the three months ended December 31, 1997. As a
percentage of revenues, compensation charges related to business combinations
decreased to 0.3% for the three months ended December 31, 1998 from 2.1% in
the three months ended December 31, 1997. The decrease in total compensation
charge related to business combinations was attributable to a decrease in
contingent payments earned during the current period by previous owners of the
acquired businesses.
 
  Depreciation and Amortization. Depreciation and amortization consist
primarily of expenses associated with the depreciation of equipment and
improvements and amortization of intangible assets resulting from
acquisitions. Depreciation and amortization increased 251.3% to $527,000 for
the three months ended December 31, 1998 from $150,000 in the three months
ended December 31, 1997. As a percentage of revenues, depreciation and
amortization increased to 2.5% for the three months ended December 31, 1998
from 1.6% in the three months ended December 31, 1997. The increase in total
depreciation and amortization expense was primarily attributable to the
amortization of increased intangible assets from business combinations and the
depreciation associated with increased capital expenditures.
 
  Interest Income and Interest Expense, Net. Net interest income increased
714.3% to $456,000 for the three months ended December 31, 1998 compared to
net interest income of $56,000 in the three months ended December 31, 1997.
This change was primarily attributable to the Company's repayment of nearly
all bank borrowings under its bank lines of credit and the interest income
generated from its investment of proceeds from the initial and secondary
public offerings.
 
  Provision for Income Taxes. The provision for income taxes increased 468.4%
to $1.3 million for the three months ended December 31, 1998 from $228,000 in
the three months ended December 31, 1997. The effective tax rate for the three
months ended December 31, 1998 was 39.0%, compared to 40.5% for the three
months ended December 31, 1997. The reduction in the effective tax rate was
due to the tax benefit from tax-advantaged investments. The Company
anticipates its effective tax rate for the fiscal year ending September 30,
1999 will be 39.0%. The actual rate may vary due to a change in the estimated
amount or geographic mix of the Company's earnings, changes in tax law, the
effect of future acquisitions or a change in the Company's investment in tax-
advantaged securities.
 
Liquidity and Capital Resources
 
  The Company's principal capital requirement is to fund working capital to
support its growth, including potential future acquisitions. The Company
maintains a $10 million revolving credit facility (the "Credit Facility")
which allows the Company to borrow the lesser of the sum of 85% of eligible
accounts receivable or $10 million. The Credit Facility bears interest, at the
Company's option, at the adjusted LIBOR rate plus 2.5% or an alternate base
rate plus 0.5%. The alternate base rate is the greater of the bank's prime
rate or the federal
 
                                      13
<PAGE>
 
funds effective rate plus 0.5%. The Credit Facility is secured by all of the
Company's assets and contains certain restrictive covenants, including
limitations on amounts of loans the Company may extend to officers and
employees, the incurrence of additional debt and a prohibition against the
payment of dividends. The Credit Facility requires the maintenance of certain
financial ratios, including a minimum quarterly net income requirement and a
limit on total liabilities to earnings before interest, taxes, depreciation
and amortization. As of December 31, 1998, there were borrowings of $557,000
outstanding under the Credit Facility.
 
  Net cash provided by operating activities was $4.5 million in the three
months ended December 31, 1998 and $926,000 in the three months ended December
31, 1997. The increase is largely attributable to increased net income and
lower levels of accounts receivable net of the effect of acquisitions.
 
  Net cash used in investing activities was $14.4 million and $565,000 in the
three months ended December 31, 1998 and December 31, 1997, respectively. The
increase in investing activities is primarily attributable to the purchase of
available-for-sale securities and the acquisition of Midas. Capital
expenditures, including equipment acquired under capital lease, were
approximately $408,000 in the three months ended December 31, 1998 and
$271,000 in the three months ended December 31, 1997. The increase in capital
expenditures was primarily due to increased workforce, geographic expansion
and development of the Company's technology infrastructure. The Company
anticipates that it will continue to have significant capital expenditures for
the near term related to, among other things, purchases of technological
equipment in order to create a network to link the Company's global operations
and to support the Company's growth, as well as potential expenditures related
to new office leases and the establishment of the Company's application
development centers.
 
  Net cash provided by financing activities totaled $640,000 in the three
months ended December 31, 1998 and $17.6 million in the three months ended
December 31, 1997. In the three months ended December 31, 1998, the Company
raised approximately $528,000 from the issuance of Class B common stock. In
the three months ended December 31, 1997, the Company raised approximately
$20.0 million in its initial public offering of Class B common stock and made
net payments of $2.8 million under its line of credit.
 
  The Company anticipates that its existing capital resources, including cash
provided by operating activities and available bank borrowings, will be
adequate to fund the Company's operations for at least the next 12 months.
There can be no assurance that changes will not occur that would consume
available capital resources before such time. The Company's capital
requirements depend on numerous factors, including potential acquisitions, the
timing of the receipt of accounts receivable and employee growth. To the
extent that the Company's existing capital resources are insufficient to meet
its capital requirements, the Company will have to raise additional funds.
There can be no assurance that additional funding, if necessary, will be
available on favorable terms, if at all.
 
Year 2000
 
  The "Year 2000 Issue" is typically the result of software being written
using two digits rather than four to define the applicable year. The Company
uses a significant number of computer software programs and operating systems
in its product development, financial business systems, and administrative
functions. To the extent these software applications are unable to
appropriately interpret the upcoming calendar "2000", conversion of such
applications will be necessary.
 
  With respect to determining the preparedness of its internal IT and non-IT
systems, Tier has completed an initial assessment and has begun to identify
areas of exposure and to plan a remediation process. The Company's internal
systems are largely PC-based and a majority were recently acquired or
installed. Tier anticipates that this process and subsequent testing will be
completed in a timely manner during fiscal 1999. The Company has not incurred
material remediation costs to date and cannot currently estimate the cost of
ensuring Year 2000 compliance; however, the Company does not anticipate that
the cost of such process will have a material adverse effect on the Company's
business, result of operations or financial condition.
 
                                      14
<PAGE>
 
  In addition, the Company has made an initial evaluation of the Year 2000
readiness of its key suppliers and other key third parties. The Company will
work with these parties to address the Year 2000 Issue and to obtain
appropriate assurances. To the extent that such parties are materially
adversely affected by the Year 2000 Issue, this could disrupt the Company's
operations. There can be no assurance that the conversion of the Company's
systems will be successful or that the Company's key contractors will have
successful conversion programs, and that such Year 2000 Issue compliance
failures will not have a material adverse effect on the Company's business,
results of operations or financial condition.
 
  As a result of the Company's preliminary assessment, the Company currently
believes that a formal contingency plan to address Year 2000 non-compliance is
unnecessary; however, the Company may develop such a plan if its on-going
assessment indicates areas of significant exposure.
 
Factors That May Affect Future Results
 
  The following factors, among others could cause actual results to differ
materially from those contained in forward-looking statements in this Form 10-
Q. Tier is referred to in this section as "we" or "us".
 
  Potential Adverse Effect on Operating Results from Dependence on Large
Projects, Limited Clients or Certain Market Sectors. The completion,
cancellation or significant reduction in the scope of a large project or a
project with certain clients would have a material adverse effect on our
business, financial condition and results of operations. Most of our contracts
are terminable by the client following limited notice and without significant
penalty to the client. We have derived, and believe that we will continue to
derive, a significant portion of our revenues from a limited number of
clients. For the three months ended December 31, 1998, Humana Inc. and the
State of Missouri accounted for 47.3% and 15.3% of our revenues, respectively.
The volume of work performed for specific clients is likely to vary from
period to period, and a major client in one period may not use our services in
a subsequent period. For example, Kaiser Foundation Health Plan, Inc.
accounted for 68.1% of our revenues in 1995 but only 5.7% of our revenues in
the fiscal year ended September 30, 1998, as significant portions of that
engagement have been completed. In addition, as a result of our focus in
specific vertical markets, economic and other conditions that affect the
companies in these markets could have a material adverse effect on our
business, financial condition and results of operations.
 
  Variability of Quarterly Operating Results. Our revenues and operating
results are subject to significant variation from quarter to quarter due to a
number of factors, including:
 
  .  the number, size and scope of projects in which we are engaged,
 
  .  the contractual terms and degree of completion of such projects,
 
  .  start-up costs including software sublicense fees incurred in connection
     with the initiation of large projects,
 
  .  our ability to staff projects with salaried employees versus hourly
     independent and sub-contractors,
 
  .  competitive pressures on the pricing of our services,
 
  .  any delays incurred in connection with, or early termination of, a
     project,
 
  .  employee utilization rates,
 
  .  the number of billable days in a particular quarter,
 
  .  the adequacy of provisions for losses,
 
  .  the accuracy of estimates of resources required to complete ongoing
     projects,
 
  .  demand for our services generated by strategic partnerships and certain
     prime contractors,
 
  .  our ability to increase both the number and size of engagements from
     existing clients, and
 
  .  economic conditions in the vertical and geographic markets we serve.
 
                                      15
<PAGE>
 
  Due to the relatively long sales cycles for our services in the government
services market, the timing of revenue is difficult to forecast. In addition,
the achievement of anticipated revenues is substantially dependent on our
ability to attract, on a timely basis, and retain skilled personnel. A high
percentage of our operating expenses, particularly personnel and rent, are
fixed in advance. In addition, we typically reach the annual limitation on
FICA contributions for many of our consultants before the end of the calendar
year. As a result, payroll taxes as a component of cost of sales will vary
from quarter to quarter during the fiscal year and will generally be higher at
the beginning of the calendar year. Because of the variability of our
quarterly operating results, we believe that period-to-period comparisons of
our operating results are not necessarily meaningful, should not be relied
upon as indications of future performance and may result in volatility in the
price of our common stock. In addition, our operating results will from time
to time be below the expectations of analysts and investors.
 
  Inability to Attract and Retain Professional Staff Necessary to Existing and
Future Projects. Our inability to attract, retain and train skilled employees
could impair our ability to adequately manage and staff our existing projects
and to bid for or obtain new projects, which would have a material adverse
effect on our business, financial condition and results of operation. In
addition, the failure of our employees to achieve expected levels of
performance could adversely affect our business. Our success depends in large
part upon our ability to attract, retain, train, manage and motivate skilled
employees, particularly project managers and other senior technical personnel.
There is significant competition for employees with the skills required to
perform the services we offer. In particular, qualified project managers and
senior technical and professional staff are in great demand worldwide and
competition for such persons is likely to increase. In addition, we require
that many of our employees travel to client sites to perform services on our
behalf, which may make a position with us less attractive to potential
employees. There can be no assurance that a sufficient number of skilled
employees will continue to be available, or that we will be successful in
training, retaining and motivating current or future employees.
 
  Dependence on Key Personnel. Our success depends in large part upon the
continued services of a number of key employees, including our Chief Executive
Officer and Chairman of the Board of Directors, James L. Bildner, and our
President and Chief Technology Officer, William G. Barton. Although we have
entered into employment agreements with each of Messrs. Bildner and Barton,
either of them may terminate their employment agreements at any time. The loss
of the services of either of Messrs. Bildner or Barton could have a material
adverse effect on our business. In addition, if one or more of our key
employees resigns to join a competitor or to form a competing company, the
loss of such personnel and any resulting loss of existing or potential clients
to any such competitor could have a material adverse effect on our business,
financial condition and results of operations.
 
  Control of Company and Corporate Actions by Principal
Shareholders. Concentration of voting control could have the effect of
delaying or preventing a change in control of us and may affect the market
price of our stock.
 
  .  All of the holders of Class A Common Stock have entered into a Voting
     Trust with respect to their shares of Class A Common Stock, which
     represents 61.1% of the total common stock voting power at December 31,
     1998. All power to vote shares held in the Voting Trust has been vested
     in the Voting Trust's trustees, Messrs. Bildner and Barton. As a result,
     Messrs. Bildner and Barton will be able to control the outcome of all
     corporate actions requiring shareholder approval, including changes in
     our equity incentive plan, the election of a majority of our directors,
     proxy contests, mergers, tender offers, open-market purchase programs or
     other purchases of common stock that could give holders of our Class B
     Common Stock the opportunity to realize a premium over the then-
     prevailing market price for their shares of Class B Common Stock. The
     holders of Class A Common Stock also hold a number of shares of Class B
     Common Stock totaling 18.2% of the Class B Common Stock outstanding at
     December 31, 1998.
 
  .  The California Corporations Code and our Bylaws currently permit
     shareholders to require cumulative voting in connection with the
     election of directors, subject to certain requirements. However, the
 
                                      16
<PAGE>
 
     Articles and Bylaws also provide that cumulative voting will be
     eliminated effective as of the first record date for an annual meeting
     on which we have equity securities listed on Nasdaq and 800 or more
     holders of our equity securities.
 
  .  Holders of an aggregate of 779,762 shares of Class A Common Stock have
     entered into agreements with us that may restrict their ability to
     transfer shares of Class A Common Stock following termination of their
     employment with the Company. Such agreements would effectively delay the
     conversion of such shares of Class A Common Stock and may perpetuate
     control of the Company by the Voting Trust's trustees.
 
  Potential Failure to Identify, Acquire or Integrate New Acquisitions. A
principal component of our business strategy is to expand our presence in new
or existing markets by acquiring additional businesses. From December 1996
through December 31, 1998, we acquired nine businesses. There can be no
assurance that we will be able to identify, acquire or profitably manage
additional businesses or to integrate successfully any acquired businesses
without substantial expense, delay or other operational or financial problems.
Acquisitions involve a number of special risks, including:
 
  .  diversion of management's attention,
 
  .  failure to retain key personnel,
 
  .  amortization of acquired intangible assets,
 
  .  client dissatisfaction or performance problems with an acquired firm,
 
  .  assumption of unknown liabilities, and
 
  .  other unanticipated events or circumstances.
 
  Any of these risks could have a material adverse effect on our business,
financial condition and results of operations.
 
  Inability to Manage Growth. If we are unable to manage our growth
effectively, such inability would have a material adverse effect on the
quality of our services, our ability to retain key personnel, and our
business, financial condition and results of operations. Our growth has
placed, and is expected to continue to place, significant demands on our
management, financial, staffing and other resources. We have expanded
geographically by opening new offices domestically and abroad, and intend to
open additional offices. Our ability to manage growth effectively will require
us to continue to develop and improve our operational, financial and other
internal systems, as well as our business development capabilities, and to
train, motivate and manage our employees. In addition, as the average size and
number of our projects continues to increase, we must be able to manage such
projects effectively. There can be no assurance that our rate of growth will
continue or that we will be successful in managing any such growth.
 
  Dependence on Partnerships with Third Parties in Performing Certain Client
Engagements. We sometimes perform client engagements in partnership with third
parties. In the government services market, we often join with other
organizations to bid and perform an engagement. In these engagements, we are a
subcontractor to the prime contractor of the engagement. In the commercial
services market, we sometimes partner with software or technology providers to
jointly bid and perform engagements. In both markets, we often depend on the
software, resources and technology of our partners in order to perform the
engagement. There can be no assurance that actions or failures attributable to
our partners or to the prime contractor will not also negatively affect our
business, financial condition or results of operations. In addition, the
refusal or inability of a partner to permit continued use of its software,
resources or technology by us, or the discontinuance or termination by the
prime contractor of our services as a subcontractor, would have a material
adverse effect on our business, financial condition and results of operations.
 
  Dependence on Contracts with Government Agencies. For the three months ended
December 31, 1998, approximately 24.6% of our revenues were derived from sales
to government agencies. Such government
 
                                      17
<PAGE>
 
agencies may be subject to budget cuts or budgetary constraints or a reduction
or discontinuation of government funding. A significant reduction in funds
available for government agencies to purchase IT services would have a
material adverse effect on our business, financial condition and results of
operations. In addition, the loss of a major government client, or any
significant reduction or delay in orders by such client, would have a material
adverse effect on our business, financial condition and results of operations.
 
  Failure to Estimate Accurately Resources Required for Fixed Price
Contracts. Our failure to estimate accurately the resources or time required
for a fixed price project could have a material adverse effect on our
business, financial condition and results of operations. During the three
months ended December 31, 1998, 9.3% of our revenues were generated on a fixed
price basis, rather than on a time and materials basis.
 
  Potential Costs or Claims Resulting from Project Performance. Many of our
engagements involve projects that are critical to the operations of our
clients' businesses and provide benefits that may be difficult to quantify.
The failure by us, or of the prime contractor on an engagement in which we are
a subcontractor, to meet a client's expectations in the performance of the
engagement could damage our reputation and adversely affect our ability to
attract new business, and could have a material adverse effect upon our
business, financial condition and results of operations. We have undertaken,
and may in the future undertake, projects in which we guarantee performance
based upon defined operating specifications or guaranteed delivery dates.
Unsatisfactory performance or unanticipated difficulties or delays in
completing such projects may result in client dissatisfaction and a reduction
in payment to, or payment of damages (as a result of litigation or otherwise)
by us, which could have a material adverse effect upon our business, financial
condition and results of operations. In addition, unanticipated delays could
necessitate the use of more resources than we initially budgeted for a
particular project, which also could have a material adverse effect upon our
business, financial condition and results of operations.
 
  Insufficient Insurance Coverage for Potential Claims. Any failure in a
client's system could result in a claim against us for substantial damages,
regardless of our responsibility for such failure. There can be no assurance
that the limitations of liability set forth in our service contracts will be
enforceable or will otherwise protect us from liability for damages. Although
we maintain general liability insurance coverage, including coverage from
errors or omissions, there can be no assurance that such coverage will
continue to be available on reasonable terms, will be available in sufficient
amounts to cover one or more claims or that the insurer will not disclaim
coverage as to any future claim. The successful assertion for one or more
claims against us that exceed available insurance coverage or changes in our
insurance policies, including premium increases or the imposition of large
deductible or co-insurance requirements, would adversely affect our business,
financial condition and results of operations.
 
  Delay or Failure to Develop New IT Solutions. Our success will depend in
part on our ability to develop IT solutions that keep pace with continuing
changes in technology, evolving industry standards and changing client
preferences. There can be no assurance that we will be successful in
developing such IT solutions in a timely manner or that if developed we will
be successful in the marketplace. Delay in developing or failure to develop
new IT solutions would have a material adverse effect on our business,
financial condition and results of operations.
 
  Substantial Competition in the IT Services Market. The IT services market is
highly competitive and is served by numerous international, national and local
firms. There can be no assurance that we will be able to compete effectively
in the market. Market participants include systems consulting and integration
firms, including national accounting firms and related entities, the internal
information systems groups of our prospective clients, professional services
companies, hardware and application software vendors, and divisions of large
integrated technology companies and outsourcing companies. Many of these
competitors have significantly greater financial, technical and marketing
resources, generate greater revenues and have greater name recognition than we
do. In addition, there are relatively low barriers to entry into the IT
services market, and we have faced, and expect to continue to face, additional
competition from new entrants into the IT services market.
 
                                      18
<PAGE>
 
  We believe that the principal competitive factors in the IT services market
include:
 
  .  reputation,
 
  .  project management expertise,
 
  .  industry expertise,
 
  .  speed of development and implementations,
 
  .  technical expertise,
 
  .  competitive pricing, and
 
  .  the ability to deliver results on a fixed price as well as a time and
     materials basis.
 
  We believe that our ability to compete also depends in part on a number of
competitive factors outside our control, including:
 
  .  the ability of our clients or competitors to hire, retain and motivate
     project managers and other senior technical staff,
 
  .  the ownership by competitors of software used by potential clients,
 
  .  the price at which others offer comparable services,
 
  .  the ability of our clients to perform the services themselves, and
 
  .  the extent of our competitors' responsiveness to client needs.
 
  Our inability to compete effectively on these competitive factors would have
a material adverse effect on our business, financial condition and results of
operations.
 
  Inability to Protect Proprietary Intellectual Property. The steps we take to
protect our intellectual property rights may be inadequate to avoid the loss
or misappropriation of such information, or to detect unauthorized use of such
information. We rely on a combination of trade secrets, nondisclosure and
other contractual arrangements, and copyright and trademark laws to protect
our intellectual property rights. We also (1) enter into confidentiality
agreements with our employees, (2) generally require that our consultants and
clients enter into such agreements and (3) limit access to our proprietary
information.
 
  Issues relating to the ownership of, and rights to use, software and
application frameworks can be complicated, and there can be no assurance that
disputes will not arise that affect our ability to resell or reuse such
software and application frameworks. A portion of our business involves the
development of software applications for specific client engagements.
Ownership of such software is the subject of negotiation with each particular
client and is typically assigned to the client. We also develop software
application frameworks, and may retain ownership or marketing rights to these
application frameworks, which may be adapted through further customization for
future client projects. Certain clients have prohibited us from marketing the
software and application frameworks developed for them entirely or for
specified periods of time or to specified third parties, and there can be no
assurance that clients will not demand similar or other restrictions in the
future.
 
  Although we believe that our services and products do not infringe on the
intellectual property rights of others, there can be no assurance that such a
claim will not be asserted against us in the future, or that if asserted, any
such claim will be successfully defended.
 
  Failure to Manage and Expand International Operations. For the three months
ended December 31, 1998, international operations accounted for 25.1% of our
total revenues. We believe that the percentage of total revenues attributable
to international operations will continue to be significant and may continue
to grow. In addition, a significant portion of our sales are to large
multinational companies. To meet the needs of such companies, both
domestically and internationally, we must provide worldwide services, either
directly or
 
                                      19
<PAGE>
 
indirectly. As a result, we intend to expand our existing international
operations and enter additional international markets, which will require
significant management attention and financial resources and could adversely
effect our operating margins and earnings. In order to expand international
operations, we will need to hire additional personnel and develop
relationships with potential international clients through acquisition or
otherwise. To the extent that we are unable to do so on a timely basis, our
growth in international markets would be limited, and our business, financial
condition and results of operations would be materially and adversely
affected.
 
  Our international business operations are subject to a number of risks,
including, but not limited to, difficulties in building and managing foreign
operations, enforcing agreements and collecting receivables through foreign
legal systems, longer payment cycles, fluctuations in the value of foreign
currencies and unexpected regulatory, economic or political changes in foreign
markets. There can be no assurance that these factors will not have a material
adverse effect on our business, financial condition and results of operations.
 
  Potential Year 2000 Non-Compliance. The "Year 2000 Issue" is typically the
result of software being written using two digits rather than four to define
the applicable year. The Company uses a significant number of computer
software programs and operating systems in its product development, financial
business systems and administrative functions. To the extent these software
applications are unable to appropriately interpret the upcoming calendar year
"2000", conversion of such applications will be necessary.
 
  With respect to determining the preparedness of its internal IT and non-IT
systems, Tier has completed an initial assessment and has begun to identify
areas of exposure and to plan a remediation process. The Company's internal
systems are largely PC-based and a majority were recently acquired or
installed. Tier anticipates that this process and subsequent testing will be
completed in a timely manner during fiscal 1999. The Company has not incurred
material remediation costs to date and cannot currently estimate the cost of
ensuring Year 2000 compliance; however, the Company does not anticipate that
the cost of such process will have a material adverse effect on the Company's
business, result of operations or financial condition.
 
  In addition, the Company has made an initial evaluation of the Year 2000
readiness of its key suppliers and other key third parties. The Company will
work with these parties to address the Year 2000 issue and to obtain
appropriate assurances. To the extent that such parties are materially
adversely affected by the Year 2000 Issue, this could disrupt the Company's
operations. There can be no assurance that the conversion of the Company's
systems will be successful or that the Company's key contractors will have
successful conversion programs, and that such Year 2000 Issue compliance
failures will not have a material adverse effect on the Company's business,
results of operations or financial condition.
 
  As a result of the Company's preliminary assessment, the Company currently
believes that a formal contingency plan to address Year 2000 non-compliance is
unnecessary; however, the Company may develop such a plan if its on-going
assessment indicates areas of significant exposure.
 
  Potential Volatility of Stock Price. A public market for our Class B Common
Stock has existed only since the initial public offering of the Class B Common
Stock in December 1997. There can be no assurance that an active public market
will be sustained. The market for securities of early stage companies has been
highly volatile in recent years as a result of factors often unrelated to a
company's operations. Factors such as quarterly variations in operating
results, announcements of technological innovations or new products or
services by us or our competitors, general conditions in the IT industry or
the industries in which our clients compete, changes in earnings estimates by
securities analysts and general economic conditions such as recessions or high
interest rates could contribute to the volatility of the price of the Class B
Common Stock and could cause significant fluctuations. Further, in the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against the
issuing company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on our business, financial condition and results of operations.
Any adverse determination in such litigation could also subject us to
significant liabilities. There can be no assurance that such litigation will
not be instituted in the future against us.
 
                                      20
<PAGE>
 
  Issuance of Preferred Stock May Prevent Change in Control and Adversely
Affect Market Price for Class B Common Stock. The Board of Directors has the
authority to issue preferred stock and to determine the preferences,
limitations and relative rights of shares of preferred stock and to fix the
number of shares constituting any series and the designation of such series,
without any further vote or action by our shareholders. The preferred stock
could be issued with voting, liquidation, dividend and other rights superior
to the rights of our Class B Common Stock. The potential issuance of preferred
stock may delay or prevent a change in control of us, discourage bids for the
Class B Common Stock at a premium over the market price and adversely affect
the market price and the voting and other rights of the holders of our common
stock.
 
  No Current Intention to Declare or Pay Dividends. We have never declared or
paid cash dividends on our capital stock and do not anticipate paying any cash
dividends in the foreseeable future.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
  Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of the Company due to adverse
changes in market prices and rates. The Company is exposed to market risk
because of changes in foreign currency exchange rates as measured against the
U.S. dollar and currencies of the Company's subsidiaries and operations in
Australia and the United Kingdom.
 
  Foreign Currency Exchange Rate Risk. The Company has a wholly owned
subsidiary in Australia and conducts operations in the United Kingdom through
a U.S.-incorporated subsidiary and a United Kingdom subsidiary. Revenues from
these operations are typically denominated in Australian Dollars or British
Pounds, respectively, thereby potentially affecting the Company's financial
position, results of operations and cash flows due to fluctuations in exchange
rates. The Company does not anticipate that near-term changes in exchange
rates will have a material impact on future earnings, fair values or cash
flows of the Company and has not engaged in foreign currency hedging
transactions for the three months ended December 31, 1998. There can be no
assurance that a sudden and significant decline in the value of the Australian
Dollar or British Pound would not have a material adverse effect on the
Company's financial condition and results of operations.
 
                                      21
<PAGE>
 
                          PART II. OTHER INFORMATION
 
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
 
  c. Effective November 30, 1998, in partial consideration for the
     acquisition of all the issued and outstanding capital stock of Midas
     Computer Software Limited ("Midas"), the Company issued 51,074 shares of
     its Class B common stock, valued at approximately $664,000, in an
     unregistered private placement of securities to the former shareholders
     of Midas. The Company filed a Current Report on Form 8-K reporting the
     acquisition on December 17, 1998. The offer and sale of these securities
     were made in reliance on the exemptions from registration under Section
     4(2) and Regulation S of the Securities Act of 1933.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  Effective November 3, 1998, the holders of approximately 65% of the
outstanding voting shares of the Company, acting by written consent in lieu of
a meeting of the shareholders, approved an amendment to increase the number of
shares of Class B common stock authorized for issuance under the Company's
Amended and Restated 1996 Equity Incentive Plan from 2,989,333 shares to
3,989,333 shares. An Information Statement pursuant to Section 14(c) of the
Securities Exchange Act of 1934 was circulated to the Company's shareholders
on or about November 6, 1998, which date was at least 20 days prior to the
effective date of the amendment.
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
  (a) Exhibits.
 
<TABLE>
<CAPTION>
 Exhibit
 Number                                Description
 -------                               -----------
 <C>     <S>
 10.43   Guaranty Agreement by the Registrant in favor of NationsBank, N.A.,
         dated as of December 22, 1998.
 10.44   Indemnification Agreement, dated December 22, 1998, by and between the
         Registrant and James L. and Nancy J. Bildner.
 10.45   Pledge Agreement dated as of December 22, 1998 by and between the
         Registrant and James L. Bildner.
 10.46   Agreement for the sale and purchase of the entire issued share capital
         of Midas Computer Software Limited, dated November 26, 1998 by and
         between Robert William Thompson, Yvonne Jayne Thompson, Dominic Frost,
         Ian Smith and the Other Parties named in Schedule 1 thereto and the
         Registrant, dated November 26, 1998.*
 27.1    Financial Data Schedule
</TABLE>
--------
* Filed as an exhibit to the Registrant's Current Report on Form 8-K, filed on
  December 17, 1998.
 
  (b) Reports on Form 8-K.
 
  Form 8-K/A, filed on October 20, 1998, pursuant to Item 7 attaching
financial statement and pro forma financial information related to the
acquisition of certain assets and liabilities of Infact Pty Limited as trustee
of the Infact Unit Trust.
 
  Form 8-K/A, filed on October 21, 1998, pursuant to Item 7 attaching restated
pro forma financial information related to the acquisition of certain assets
and liabilities of Sancha Computer Group Pty Limited.
 
  Form 8-K, filed on October 23, 1998, pursuant to Item 5 attaching restated
financial statements for the nine-month fiscal year ended September 30, 1997
to reflect changes in the accounting for certain payments made in connection
with two business combinations.
 
  Form 8-K, filed on December 17, 1998, pursuant to Item 2 regarding the
acquisition of the entire issued and
outstanding capital stock of Midas Computer Software Limited.
 
                                      22
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
                                          Tier Technologies, Inc.
 
Dated: February 12, 1999
 
                                                   /s/ James L. Bildner
                                          By: _________________________________
                                                     James L. Bildner
                                              Chairman of the Board and Chief
                                                     Executive Officer
                                                 (Duly Authorized Officer)
 
 
                                                    /s/ George K. Ross
                                          By: _________________________________
                                                      George K. Ross
                                            Executive Vice President and Chief
                                                     Financial Officer
                                               (Principal Financial Officer)
 
                                       23
<PAGE>
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
 Exhibit
 Number                             Description                            Page
 -------                            -----------                            ----
 <C>     <S>                                                               <C>
 10.43   Guaranty Agreement by the Registrant in favor of NationsBank,
         N.A., dated as of December 22, 1998.............................
 10.44   Indemnification Agreement, dated December 22, 1998, by and
         between the Registrant and James L. and Nancy J. Bildner........
 10.45   Pledge Agreement dated as of December 22, 1998 by and between
         the Registrant and James L. Bildner.............................
 27.1    Financial Data Schedule.........................................
</TABLE>