<PAGE>
 
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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                  FORM 10-Q/A
 
                               ----------------
 
(MARK ONE)
 
   [X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
 
                 For the quarterly period ended March 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 CHARTER)
 
                               ----------------
 
                                  CALIFORNIA
        (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
 
                                  94-3145844
            (INTERNAL REVENUE SERVICE EMPLOYER IDENTIFICATION NO.)
 
                        1350 TREAT BOULEVARD, SUITE 250
                        WALNUT CREEK, CALIFORNIA 94596
                                (925) 937-3950
 
                               ----------------
 
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 April 21, 1998, 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 7,732,767.
 
  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
 
<TABLE>
<CAPTION>
                                 PART I -- FINANCIAL INFORMATION
                                                                                         PAGE
                                                                                         ----
 <C>     <S>                                                                             <C>
 Item 1. Condensed Consolidated Financial Statements (unaudited and restated)
         Condensed Consolidated Balance Sheets as of March 31, 1998 and September 30,
          1997.........................................................................    4
         Condensed Consolidated Statements of Income for the three and six months
          ended March 31, 1998 and 1997................................................    5
         Condensed Consolidated Statements of Cash Flows for the six months
          ended March 31, 1998 and 1997................................................    6
         Notes to Condensed Consolidated Financial Statements..........................    7
 Item 2. Management's Discussion and Analysis of Financial Condition and Results
          of Operations (restated).....................................................   10
<CAPTION>
                                  PART II -- OTHER INFORMATION
 <C>     <S>                                                                             <C>
 Item 2. Changes in Securities and Use of Proceeds.....................................   21
 Item 6. Exhibits and Reports on Form 8-K..............................................   22
 Signatures.............................................................................  23
</TABLE>
 
RESTATEMENT OF FINANCIAL STATEMENTS AND CHANGES TO CERTAIN INFORMATION
 
  On October 13, 1998, the Company announced that it would restate its
financial statements for the nine-month fiscal year ended September 30, 1997
and for the two subsequent quarters ended December 31, 1997 and March 31, 1998
to reflect changes in accounting for certain payments made in connection with
two business combinations. This amended filing contains restated financial
information and related disclosures for the year ended September 30, 1997 and
the quarter and six-month period ended March 31, 1998 (See Note 1 to Condensed
Consolidated Financial Statements).
 
  Quarterly financial statement information and related disclosures included
in this amended filing reflect, where appropriate, changes as a result of the
restatements.
 
SAFE HARBOR PROVISION
 
  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 (as defined in the Private
Securities Litigation Reform Act of 1995). 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
 
                                       2
<PAGE>
 
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. 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 hereof
or to reflect the occurrence of unanticipated events.
 
                                       3
<PAGE>
 
                         PART I. FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
                            TIER TECHNOLOGIES, INC.
 
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                      MARCH 31,  SEPTEMBER 30,
                                                         1998        1997
                                                      ---------- -------------
                                                      (RESTATED)  (RESTATED)
<S>                                                   <C>        <C>
                       ASSETS
CURRENT ASSETS:
  Cash and cash equivalents..........................  $ 7,072      $   106
  Short-term investments.............................    8,223          --
  Accounts receivables, net..........................    9,224        5,906
  Income taxes receivable............................      --           820
  Prepaid expenses and other current assets..........      499          286
                                                       -------      -------
    Total current assets.............................   25,018        7,118
Equipment and improvements, net......................    1,274          774
Notes and accrued interest receivable from related
 parties.............................................    1,178        1,012
Deferred financing costs.............................      --           224
Acquired intangibles, net............................    6,405        1,300
Other assets.........................................      635           68
                                                       -------      -------
    Total assets.....................................  $34,510      $10,496
                                                       =======      =======
        LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Borrowing under bank lines of credit...............  $   --       $ 1,232
  Accounts payable...................................    1,403        1,374
  Accrued liabilities................................    1,263          652
  Accrued compensation and related liabilities.......    1,568        1,228
  Income taxes payable...............................      271          --
  Deferred income....................................       81           34
  Notes payable to current and former shareholders...       32           53
  Capital lease obligations due within one year......       33           31
  Deferred income taxes..............................        4          153
                                                       -------      -------
    Total current liabilities........................    4,655        4,757
Borrowings under bank lines of credit, less current
 portion.............................................      --         1,527
Accrued royalties....................................       59           59
Notes payable to current and former shareholders,
 less current portion................................       52           57
Capital lease obligations, less current portion......       76           25
Deferred income taxes................................       41          179
SHAREHOLDERS' EQUITY:
  Convertible preferred stock, no par value..........      --         1,892
  Common stock, no par value.........................   29,544        2,949
  Notes receivable from shareholders.................   (2,159)      (2,253)
  Foreign currency translation adjustment............      (96)         (40)
  Retained earnings..................................    2,338        1,344
                                                       -------      -------
    Total shareholders' equity.......................   29,627        3,892
                                                       -------      -------
    Total liabilities and shareholders' equity.......  $34,510      $10,496
                                                       =======      =======
</TABLE>
 
            See Notes to Condensed Consolidated Financial Statements
 
                                       4
<PAGE>
 
                            TIER TECHNOLOGIES, INC.
 
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                  (UNAUDITED)
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                               SIX MONTHS
                                     THREE MONTHS ENDED           ENDED
                                          MARCH 31,             MARCH 31,
                                    --------------------- ---------------------
                                       1998       1997       1998       1997
                                    ---------- ---------- ---------- ----------
                                    (RESTATED) (RESTATED) (RESTATED) (RESTATED)
<S>                                 <C>        <C>        <C>        <C>
Revenues..........................   $12,672     $6,799    $21,823    $11,206
Cost of revenues..................     8,756      4,729     14,437      7,676
                                     -------     ------    -------    -------
Gross profit......................     3,916      2,070      7,386      3,530
Costs and expenses:
 Selling and marketing............       601        473      1,416        871
 General and administrative.......     1,903      1,207      3,703      2,007
 Compensation charge related to
  business combinations...........       354         50        552         50
 Depreciation and amortization....       219         59        369         83
                                     -------     ------    -------    -------
Income from operations............       839        281      1,346        519
Interest income (interest
 expense), net....................       269        (28)       324        (52)
                                     -------     ------    -------    -------
Income before income taxes........     1,108        253      1,670        467
Provision for income taxes........       449        101        676        186
                                     -------     ------    -------    -------
Net income........................   $   659     $  152    $   994    $   281
                                     =======     ======    =======    =======
Basic net income per share........   $   .07     $  .03    $   .13    $   .06
                                     =======     ======    =======    =======
Shares used in computing basic net
 income per share.................     9,214      4,952      7,643      4,619
                                     =======     ======    =======    =======
Diluted net income per share......   $   .06     $  .03    $   .11    $   .06
                                     =======     ======    =======    =======
Shares used in computing diluted
 net income per share.............    10,493      5,111      8,953      4,793
                                     =======     ======    =======    =======
</TABLE>
 
 
            See Notes to Condensed Consolidated Financial Statements
 
                                       5
<PAGE>
 
                            TIER TECHNOLOGIES, INC.
 
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                            FOR THE SIX MONTHS
                                                                   ENDED
                                                                 MARCH 31,
                                                           ---------------------
                                                              1998       1997
                                                           ---------- ----------
                                                           (RESTATED) (RESTATED)
<S>                                                        <C>        <C>
OPERATING ACTIVITIES
 Net income..............................................   $   994     $  281
 Adjustments to reconcile net income to net cash (used
  in) provided by operating activities:
   Depreciation and amortization.........................       355         82
   Provision for doubtful accounts.......................        50         63
   Deferred income taxes.................................      (288)      (113)
   Changes in operating assets and liabilities:          
     Accounts receivable.................................    (3,369)    (1,962)
     Income taxes receivable.............................       --        (727)
     Prepaid expenses and other current assets...........       (83)      (649)
     Other assets........................................      (534)       (68)
     Accounts payable and accrued liabilities............     1,389      2,049
     Income taxes payable................................     1,092        --
     Deferred income.....................................        47        --
                                                            -------     ------
     Net cash used in operating activities...............      (347)    (1,044)
INVESTING ACTIVITIES
Purchase of equipment and improvements...................      (600)      (171)
Notes and accrued interest receivable from related
 parties.................................................      (167)       --
Business combinations, net of cash acquired..............    (5,015)    (1,167)
Purchases of available-for-sale securities...............    (9,283)       --
Sales of available-for-sale securities...................     1,060        --
Other assets.............................................      (180)       --
                                                            -------     ------
Net cash used in investing activities....................   (14,185)    (1,338)
FINANCING ACTIVITIES
Borrowings under bank lines of credit....................     6,912      1,903
Payments of borrowings on bank lines of credit...........    (9,670)      (134)
Net proceeds from issuance of common stock...............    23,892        --
Repayment by shareholder on note receivable..............        95        --
Deferred financing costs.................................       224        --
Exercise of stock options................................       145        --
Tax benefit of exercise of stock option..................       --         674
Payments on capital lease obligations....................       (18)       (17)
Payments on notes payable to shareholders................       (26)       (20)
                                                            -------     ------
Net cash provided by financing activities................    21,554      2,406
Effect of exchange rate changes on cash..................       (56)       --
                                                            -------     ------
Net increase in cash and cash equivalents................     6,966         24
Cash and cash equivalents at beginning of period.........       106        --
                                                            -------     ------
Cash and cash equivalents at end of period...............   $ 7,072     $   24
                                                            =======     ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid during the year for:
   Interest paid.........................................   $    83     $   65
                                                            =======     ======
   Income taxes paid (refunded), net.....................   $  (127)    $  302
                                                            =======     ======
   Equipment acquired under capital lease obligations....   $    71     $  --
                                                            =======     ======
Common stock issued in exchange for notes receivable.....   $   --      $2,196
                                                            =======     ======
Accrued purchase price and assumed liabilities related to
 business combinations...................................   $   --      $  546
                                                            =======     ======
Conversion of preferred stock into common stock..........   $ 1,892     $  --
                                                            =======     ======
Common stock issued in business combination..............   $   666     $  --
                                                            =======     ======
</TABLE>
 
            See Notes to Condensed Consolidated Financial Statements
 
                                       6
<PAGE>
 
                            TIER TECHNOLOGIES, INC.
 
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
 
NOTE 1 -- RESTATEMENT AND BASIS OF PRESENTATION
 
  The accompanying restated condensed consolidated balance sheets as of March
31, 1998 and September 30, 1997, and the accompanying restated condensed
consolidated statements of income for the three and six months ended March 31,
1998, have been restated to treat as compensation expense certain payments
made in connection with two business combinations that were previously treated
as purchase price. The effect of these restatements is to reduce previously
reported net income for the three and six months ended March 31, 1998 by
$191,000 (or $0.02 per diluted earnings per share) and $297,000 (or $0.03 per
diluted earnings per share), respectively, and to decrease previously reported
shareholders' equity at March 31, 1998 and September 30, 1997 by $568,000 and
$271,000, respectively. These restatements do not affect previously reported
net cash flows and future amortization expenses related to these acquisitions
will be based on the reduced and restated purchase price.
 
  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 S-1
Registration Statement (No. 333-52065) filed on May 7, 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 changed except as noted herein. The consolidated results of
operations for the three months and six months ended March 31, 1998 are not
necessarily indicative of results that may be expected for the fiscal year
ending September 30, 1998 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 and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported results of operation 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 presentation.
 
NOTE 2 -- REVENUE RECOGNITION
 
  The majority of the Company's revenues are 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 materially from management's
estimates. 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
$2,241,322 and $15,843 at March 31, 1998 and March 31, 1997, respectively.
Unbilled receivable for one client accounted for 16% of total accounts
receivables at March 31, 1998.
 
                                       7
<PAGE>
 
                            TIER TECHNOLOGIES, INC.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                  (UNAUDITED)
 
 
  Revenues derived from governmental agencies were $9,783,201 for the six
months ended March 31, 1998. Also during the six months ended March 31, 1998,
the Company recorded $1,887,950 in software sublicense revenue from one
customer.
 
NOTE 3 -- ACQUISITION
 
  On March 1, 1998 the Company acquired certain assets and liabilities of
Sancha Computer Services Pty Limited and Sancha Software Development Pty
Limited (collectively, "Sancha Group"), Australian entities which provided
computer systems consulting services. The cost of the acquisition totaled
$5.2 million of which $4.6 million was paid in cash and the remainder through
the issuance of 51,213 shares of Class B Common Stock. The acquisition was
accounted for as a purchase. Intangible assets in the amount of $5.2 million
are being amortized over a period of 8 to 15 years. A contingent payment
totaling approximately $297,000 will be paid in three equal installments over
May, June and July of 1998 if certain performance targets are met. Additional
contingent payments up to $1.3 million may be paid by May 15, 2000 if certain
performance targets are met. The accompanying condensed consolidated financial
statements include the results of operations of this acquisition for the
period subsequent to the acquisition date. Selected pro forma financial
information that gives effect to the acquisition of Sancha Group and other
businesses was included in the Company's Form 8-K/A, Amendment No. 2, filed
with the Securities and Exchange Commission on October 21, 1998 and is
incorporated by reference herein.
 
NOTE 4 -- INITIAL PUBLIC OFFERING
 
  In December 1997, the Company completed an initial public offering of
3,400,000 shares of its Class B Common Stock at $8.50 per share. Of those
shares, 2,725,000 shares were sold by the Company and 675,000 shares were sold
by certain selling shareholders. In January 1998, the underwriters from the
Company's initial public offering exercised their over-allotment option to
purchase an additional 510,000 shares of Class B Common Stock at the initial
public offering price. Net proceeds to the Company, including the over-
allotment option, were approximately $23.9 million after deducting the
underwriters' discounts, commissions and related issuance costs. As of the
closing date of the offering, all of the Company's Series A Convertible
Preferred Stock outstanding automatically converted into an aggregate of
420,953 shares of Class B Common Stock.
 
                                       8
<PAGE>
 
                            TIER TECHNOLOGIES, INC.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                  (UNAUDITED)
 
 
NOTE 5 -- EARNINGS PER SHARE
 
  The following table sets forth the computation of basic and diluted net
income per share :
 
<TABLE>
<CAPTION>
                                        THREE MONTHS           SIX MONTHS
                                           ENDED:                ENDED:
                                          MARCH 31,             MARCH 31,
                                    --------------------- ---------------------
                                       1998       1997       1998       1997
                                    ---------- ---------- ---------- ----------
                                    (RESTATED) (RESTATED) (RESTATED) (RESTATED)
                                                  (IN THOUSANDS,
                                              EXCEPT PER SHARE DATA)
<S>                                 <C>        <C>        <C>        <C>
NUMERATOR:
  Net income......................   $   659     $  152     $  994     $  281
                                     =======     ======     ======     ======
DENOMINATOR:
  Weighted-average common shares
   outstanding....................     9,214      4,952      7,643      4,619
                                     -------     ------     ------     ------
  Denominator for basic net income
   per share                           9,214      4,952      7,643      4,619
  Effect of dilutive securities:
    Common stock options..........     1,279        159      1,130        174
    Convertible preferred stock...       --         --         180        --
                                     -------     ------     ------     ------
Dilutive common stock
 equivalents......................     1,279        159      1,310        174
                                     -------     ------     ------     ------
Denominator for diluted net income
 per share-
weighted-average shares and common
 stock equivalents................    10,493      5,111      8,953      4,793
                                     =======     ======     ======     ======
BASIC NET INCOME PER SHARE........   $  0.07     $ 0.03     $ 0.13     $ 0.06
                                     =======     ======     ======     ======
DILUTED NET INCOME PER SHARE......   $  0.06     $ 0.03     $ 0.11     $ 0.06
                                     =======     ======     ======     ======
</TABLE>
 
NOTE 6 -- NEW ACCOUNTING PRONOUNCEMENTS
 
  In June 1997, the Financial Accounting Standards Board issued Statement No.
130 "Reporting Comprehensive Income," ("FAS 130"), and Statement No. 131
"Disclosure about Segments of an Enterprise and Related Information" ("FAS
131"). The Company is required to adopt these Statements in fiscal year 1999.
FAS 130 establishes new standards for reporting and displaying comprehensive
income and its components. FAS 131 requires disclosure of certain information
regarding operating segments, products and services, geographic areas of
operation and major customers. Adoption of these Statements is expected to
have no material impact on the Company's consolidated financial position,
results of operations or cash flows.
 
NOTE 7 -- BANK LINE OF CREDIT
 
  On March 31, 1998, the Company entered into a $10 million revolving credit
facility with another bank and simultaneously paid all its outstanding amounts
under the previous credit facility and canceled the previous agreements. This
new facility 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 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 plus 0.5%. Among other provisions, the bank
line of credit requires the Company to maintain certain minimum financial
ratios. As of March 31, 1998, the Company had no outstanding borrowings under
its credit facility.
 
                                       9
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS (RESTATED)
 
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 eleven offices
located in three countries, 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 installed IT
base. The Company's revenues increased from $11.2 million in the six months
ended March 31, 1997 to $21.8 million in the six months ended March 31, 1998.
The Company's workforce has grown from 54 on January 1, 1995, to 231 on
September 30, 1997 and to 338 on March 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. During the nine-
month fiscal year ended September 30, 1997 and the six months ended March 31,
1998, 12.4% and 20.1%, respectively, of the Company's revenues were generated
on a fixed price basis. The Company believes that the percentage of total
revenues attributable to fixed price contracts will continue to be significant
and may continue to grow. The Company's risk management committee monitors all
material projects, focusing primarily on factors such as size of revenue and
credit exposure to the Company, number of resources employed, progress against
defined project milestones, clarity of user expectations and definition of
project scope. Substantially all of Tier's contracts are terminable by the
client following limited notice and without significant penalty to the client.
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. Currently, the Company has
no specific concerns with respect to potential losses or overruns under
existing contracts.
 
  The Company has derived, and believes that it will continue to derive, 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 six months ended
March 31, 1998, the State of Missouri, Unisys Corporation, Equifax Europe (UK)
Ltd., and Humana, Inc. accounted for 20.5%, 19.6%, 11.9% and 11.5% of the
Company's revenues, respectively.
 
  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.
 
  From December 1996 through March 31, 1998, the Company made six acquisitions
for a total purchase price of approximately $7.5 million (as restated) in cash
and shares of Class B common stock, excluding future contingent payments.
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 when the amount
is deemed probable to be made. 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 19.1% and 13.7%, of revenues for the six months ended March 31,
1998 and the fiscal year ended September 30, 1997, respectively. The
 
                                      10
<PAGE>
 
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. The Company does not generally engaged in
hedging transactions, but may do so in the future.
 
RESULTS OF OPERATIONS
 
  The following table sets forth, for the periods indicated, selected
statements of operations data as a percentage of net revenues:
<TABLE>
<CAPTION>
                                        THREE MONTHS           SIX MONTHS
                                       ENDED MARCH 31,       ENDED MARCH 31,
                                    --------------------- ---------------------
                                       1998       1997       1998       1997
                                    ---------- ---------- ---------- ----------
                                    (RESTATED) (RESTATED) (RESTATED) (RESTATED)
<S>                                 <C>        <C>        <C>        <C>
STATEMENT OF EARNINGS DATA:
Revenues...........................   100.0%     100.0%     100.0%     100.0%
Cost of revenues...................    69.1%      69.6%      66.2%      68.5%
                                      -----      -----      -----      -----
Gross profit.......................    30.9%      30.4%      33.8%      31.5%
Costs and expenses:
  Selling and marketing............     4.7%       7.0%       6.5%       7.8%
  General and administrative.......    15.0%      17.7%      17.0%      17.9%
  Compensation charge related to
   business combinations...........     2.8%       0.7%       2.5%       0.4%
  Depreciation and amortization....     1.8%       0.9%       1.6%       0.7%
                                      -----      -----      -----      -----
  Income from operations...........     6.6%       4.1%       6.2%       4.7%
Interest (income) expense, net.....    (2.1%)      0.4%      (1.5%)      0.5%
                                      -----      -----      -----      -----
Income before income taxes.........     8.7%       3.7%       7.7%       4.2%
Provisions for income taxes........     3.5%       1.5%       3.1%       1.7%
                                      -----      -----      -----      -----
Net income.........................     5.2%       2.2%       4.6%       2.5%
                                      =====      =====      =====      =====
</TABLE>
 
THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
 
  Revenues. Revenues increased 86.4% to $12.7 million for the three months
ended March 31, 1998 from $6.8 million in the three months ended March 31,
1997. This increase resulted primarily from internal growth, including an
expanded client base, several significant new contracts and related software
sublicense fees, and from the inclusion of revenue from acquisitions completed
in March and July of 1997. The quarter ended March 31, 1998 also included one
month of revenues from the Sancha acquisition.
 
  Gross Profit. Cost of revenues consists primarily of those costs directly
attributable to providing service to a client, including employees' salaries,
independent contractor costs, employee benefits and travel expenses. Gross
profit increased 89.2% to $3.9 million for the three months ended March 31,
1998 from $2.1 million in the three months ended March 31, 1997. Gross margin
was essentially unchanged at 30.9% for the three months ended March 31, 1998
as compared to 30.5% in the three months ended March 31, 1997. The gross
margin for the most recent quarter increased due to higher margins on certain
large contracts and an increased use of salaried as opposed to hourly
employees, which was offset by software sublicense fees and other start-up
costs incurred in implementing a significant new contract.
 
  Selling and Marketing. Selling and marketing expenses consist primarily of
personnel costs, sales commissions, product literature and advertising and
marketing expenditures. Selling and marketing expenses increased 27.1% to
$601,000 for the three months ended March 31, 1998 from $473,000 in the three
months ended March 31, 1997. As a percentage of revenues, selling and
marketing expenses decreased to 4.7% for the three months ended March 31, 1998
from 7.0% in the three months ended March 31, 1997. The increase in total
expenses was primarily attributable to the addition of sales and
 
                                      11
<PAGE>
 
marketing personnel and increased advertising and marketing efforts and was
partially offset by the use of selling and marketing personnel in direct
project startup expenditures included in cost of revenues.
 
  General and Administrative. General and administrative expenses consist
primarily of personnel costs related to general management functions, human
resources, recruiting, finance, 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
57.7% to $1.9 million for the three months ended March 31, 1998 from $1.2
million in the three months ended March 31, 1997. As a percentage of revenues,
general and administrative expenses decreased to 15.0% for the three months
ended March 31, 1998 from 17.7% in the three months ended March 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.
 
  Compensation Charge Related to Business Combinations (as restated). Business
combination compensation expenses were $354,000, or 2.8% of revenues, for the
quarter ended March 31, 1998, as compared to $50,000, or 0.7% of revenues, for
the quarter ended March 31, 1997. These expenses represent payments made in
connection with business combinations based upon the achievement of certain
performance criteria and the continued employment of key employee/sellers (See
Note 1 to Condensed Consolidated Financial Statements). The increase was
primarily attributable to payments made in connection with the Company's
acquisition of certain assets of Albanycrest Limited and Encore Consulting,
Inc.
 
  Depreciation and Amortization (as restated). 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 271.2% to $219,000 for
the three months ended March 31, 1998 from $59,000 in the three months ended
March 31, 1997. As a percentage of revenues, depreciation and amortization
increased to 1.8% for the three months ended March 31, 1998 from 0.9% in the
three months ended March 31, 1997. The increase in total depreciation and
amortization expense was primarily attributable to the depreciation associated
with increased capital expenditures and the amortization of increased
intangible assets.
 
  Interest Income and Interest Expense, Net. The Company had net interest
income of $269,000 for the three months ended March 31, 1998 compared to a net
interest expense of $28,000 in the three months ended March 31, 1997. This
change was primarily attributable to the Company's repayment of all bank
borrowings under its bank lines of credit and the interest income generated
from its investment of proceeds from the initial public offering.
 
  Provision for Income Taxes (as restated). Provision for income taxes
increased 344.6% to $449,000 for the three months ended March 31, 1998 from
$101,000 in the three months that ended March 31, 1997. The effective tax rate
for the three months ended March 31, 1998 was 40.5%, compared to 39.9% for the
three months ended March 31, 1997.
 
SIX MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
 
  Revenues. Revenues increased 94.7% to $21.8 million for the six months ended
March 31, 1998 from $11.2 million in the six months ended March 31, 1997. This
increase resulted primarily from internal growth, including an expanded client
base, several significant new contracts and related software sublicense fees,
and from the inclusion of revenues from acquisitions completed from December
1996 to July 1997. The period ended March 31, 1998 also included one month of
revenues from the Sancha acquisition completed during the quarter.
 
  Gross Profit. Gross profit increased 109.2% to $7.4 million for the six
months ended March 31, 1998 from $3.5 million in the six months ended March
31, 1997. Gross margin increased to 33.8% for the six months ended March 31,
1998 from 31.5% in the six months ended March 31, 1997. The increase in gross
margin was primarily attributable to higher margins on certain large contracts
and an increased use of salaried as opposed to hourly employees, offset in
part by software sublicense fees and other startup costs incurred in
implementing a significant new contract.
 
                                      12
<PAGE>
 
  Selling and Marketing. Selling and marketing expenses increased 62.6% to
$1.4 million for the six months ended March 31, 1998 from $871,000 in the six
months ended March 31, 1997. As a percentage of revenues, selling and
marketing expenses decreased to 6.5% for the six months ended March 31, 1998
from 7.8% in the six months ended March 31, 1997. The increase in total
selling and marketing expenses was primarily attributable to the addition of
sales and marketing personnel and the Company's increased advertising and
marketing efforts and was partially offset by the use of sales and marketing
personnel in direct project startup expenditures included in cost of revenues.
 
  General and Administrative. General and administrative expenses increased
84.5% to $3.7 million for the six months ended March 31, 1998 from $2.0
million in the six months ended March 31, 1997. As a percentage of revenues,
general and administrative expenses decreased to 17.0% for the six months
ended March 31, 1998 from 17.9% in the six months ended March 31, 1997. The
increase in total general and administrative 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.
 
  Compensation Charge Related to Business Combinations (as restated). Business
combination compensation expenses were $552,000, or 2.5% of revenues, for the
six months ended March 31, 1998 as compared to $50,000, or 0.4% of revenues,
for the six months ended March 31, 1997. The increase was primarily
attributable to payments made in connection with the Company's acquisition of
certain assets of Albanycrest Limited and Encore Consulting, Inc.
 
  Depreciation and Amortization (as restated). Depreciation and amortization
increased 344.6% to $369,000 for the six months ended March 31, 1998 from
$83,000 in the six months ended March 31, 1997. As a percentage of revenues,
depreciation and amortization increased to 1.6% for the six months ended
March 31, 1998 from 0.7% in the six months ended March 31, 1997. The increase
in total depreciation and amortization expenses was primarily attributable to
the depreciation associated with increased capital expenditures and the
amortization of increased intangible assets.
 
  Interest Income and Interest Expense, Net. The Company had net interest
income of $324,000 for the six months ended March 31, 1998 compared to net
interest expense of $52,000 for the six months ended March 31, 1997. This
change was primarily attributable to the Company's repayment of all bank
borrowings under its bank lines of credit and the interest income generated
from its investment of proceeds from the initial public offering.
 
  Provision for Income Taxes (as restated). Provision for income taxes
increased 263.4% to $676,000 for the six months ended March 31, 1998 from
$186,000 in the six months ended March 31, 1997. The effective tax rate for
the six months ended March 31, 1998 was 40.5%, compared to 39.8% for the six
months ended March 31, 1997.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  Prior to its initial public offering, the Company financed its operations
principally through cash flows from operating activities, the private
placement of equity securities and proceeds from borrowings under asset-based
lines of credit. The Company closed its initial public offering of Class B
Common Stock in December 1997 and received net proceeds totaling approximately
$24 million, including proceeds from the exercise of the over-allotment option
in January 1998. To date, the Company has used $3.1 million of the proceeds
from the initial public offering to repay outstanding indebtedness, $5.5
million for business combinations and $600,000 for capital equipment and
leasehold improvements, with the remainder held as cash, cash equivalents and
investments. On May 7, 1998, the Company filed an S-1 Registration Statement
with the Securities and Exchange Commission in connection with a proposed
offering of 3,000,000 shares of Class B Common Stock of which 1,775,000 shares
are being offered by the Company and 1,225,000 shares are being offered by
certain selling shareholders.
 
                                      13
<PAGE>
 
  The Company's principal capital requirement is to fund working capital to
support its growth, including potential future acquisitions. In March 1998,
the Company entered into a $10 million revolving credit facility (the "Credit
Facility"). The Credit Facility 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 base rate or the federal 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 and 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 limited on total liabilities to earnings before
interest, taxes, depreciation and amortization. As of March 31, 1998, there
were no borrowings outstanding under the Credit Facility.
 
  Net cash used in operating activities (as restated) was $347,000 and $1.0
million for the six months ended March 31, 1998 and March 31, 1997,
respectively. Receivables increased as a result of increases in sales volume,
which was partially offset by increased accounts payable and accrued expenses
during the period.
 
  Net cash used in investing activities (as restated) totaled $14.2 million
and $1.3 million for the six months ended March 31, 1998 and March 31, 1997,
respectively. In the six months ended March 31, 1998, the Company made
significant purchases of marketable securities, made an acquisition and
purchased equipment and leasehold improvements. For the six months ended March
31, 1997, these activities consisted primarily of several acquisitions in
addition to the purchase of equipment and leasehold improvements.
 
  Net cash provided by financing activities totaled $21.6 million and $2.4
million for the six months ended March 31, 1998 and March 31, 1997,
respectively. In the six months ended March 31, 1998, the Company completed
its initial public offering of Class B Common Stock raising net proceeds of
$23.9 million and repaid $2.8 million under its line of credit. In the six
months ended March 31, 1997, the Company's financing activities consisted
primarily of increased borrowings of $1.9 million under its former credit
facility.
 
  The Company anticipates that its existing capital resources, including cash
provided by operating activities and available bank borrowings, together with
the anticipated net proceeds from the proposed public offering, 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, together with the
anticipated net proceeds of this offering, 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 Company is in the process of formulating and implementing a program
designed to ensure that all software used in connection with the Company's
services and internal operations systems will manage and manipulate data
involving the transition of dates from 1999 to 2000 without functional or data
abnormality and without inaccurate results related to such dates. The Company
currently anticipates that it will not incur material costs in connection with
such program. While the Company has received assurances thus far from its
service providers that they will be Year 2000 compliant, no assurance can be
given that such compliance will in fact exist by the Year 2000. To the extent
service providers to the Company are not Year 2000 compliant or the Company
discovers issues within its internal systems, such failures could have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
                                      14
<PAGE>
 
FACTORS THAT MAY AFFECT FUTURE RESULTS
 
  Variability of Quarterly Operating Results. The Company's 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 the Company is 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; competitive
pressures on pricing of the Company's 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 the Company's services generated by
strategic partnerships and certain prime contractors; the Company's ability to
increase both the number and size of engagements from existing clients; and
economic conditions in the vertical and geographic markets served by the
Company. Due to the relatively long sales cycles for the Company's 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 the Company's ability to attract, on a timely
basis, and retain skilled personnel. A high percentage of the Company's
operating expenses, particularly personnel and rent, are fixed in advance.
Changes in the number, scope, duration or progress toward completion, of the
Company's projects or in employee utilization rates would cause significant
variations in operating results in any particular quarter. In addition, the
Company typically reaches the annual limitation on its FICA contributions for
many of its 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. Therefore, the Company believes that period-to-period
comparisons of its 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 the Class B Common Stock. Due to the foregoing
factors, among others, the Company's operating results will from time to time
be below the expectations of the analysts and investors.
 
  Concentration of Revenues; Dependence on Large Projects; Risk of
Termination. The Company has derived, and believes that it will continue to
derive, a significant portion of its revenues from a limited number of
clients. For the six months ended March 31, 1998, the State of Missouri,
Unisys Corporation ("Unisys"), Equifax Europe (UK) Ltd. ("Equifax") and Humana
Inc. ("Humana") accounted for 20.5%, 19.6%, 11.9% and 11.5% of the Company's
revenues, respectively. The volume of work performed for specific clients is
likely to vary from year to year, and a major client in one year may not use
the Company's services in a subsequent year. For example, Kaiser Foundation
Health Plan, Inc. ("Kaiser") accounted for 68.1% of the Company's revenues in
1995 but only 9.3% of the Company's revenues in the six months ended March 31,
1998 as significant portions of the Company's engagement have been completed.
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 could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the amount of the Company's services
required by any of its clients can be adversely affected by a number of
factors, including technological developments and the internal budget cycles
of such clients. As a result of the Company's focus in specific vertical
markets, economic and other conditions that affect these industries could lead
to a reduction in capital spending on IT projects, government spending cuts or
general budgetary constraints, any of which would have a material adverse
effect on the Company's business, financial condition and results of
operations.
 
  Need to Attract and Retain Professional Staff. The Company's success will
depend in large part upon its 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 the Company offers. 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, the Company requires that a significant number of its employees
travel to client sites to perform services on its behalf, which may make a
position with the Company less attractive
 
                                      15
<PAGE>
 
to potential employees. There can be no assurance that a sufficient number of
skilled employees will continue to be available to the Company, or that the
Company will be successful in training, retaining and motivating current or
future employees. The Company's inability to attract, retain and train skilled
employees or failure of its employees to achieve expected levels of
performance could impair the Company's ability to adequately manage and staff
its existing projects and to bid for or obtain new projects, which would have
a material adverse effect on the Company's business, financial condition and
results of operations.
 
  Dependence on Key Personnel. The Company's success will depend in large part
upon the continued services of a number of key employees, including its Chief
Executive Officer and Chairman of the Board of Directors, James L. Bildner,
and its President and Chief Technology Officer, William G. Barton. The loss of
the services of either of Messrs. Bildner or Barton or of one or more of the
Company's other key personnel could have a material adverse effect on the
Company's business. Although the Company has entered into employment
agreements with each of Messrs. Bildner and Barton, either of them may
terminate their employment agreement at any time. If one or more of the
Company's key employees resigns from the Company 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 the Company's business, financial condition and results of
operations. In the event of the loss of any such personnel, there can be no
assurance that the Company would be able to prevent the unauthorized
disclosure or use of its technical knowledge, practices or procedures by such
personnel.
 
  Control by Principal Shareholders; Voting Trust. All of the holders of Class
A Common Stock have entered into a voting trust (the "Voting Trust") with
respect to their shares of Class A Common Stock, which represents 68.0% of the
Common Stock voting power at March 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 the Company's equity incentive plans for its employees,
the election of a majority of the Company's directors, proxy contests, mergers
involving the Company, tender offers, open-market purchase programs or other
purchases of Common Stock that could give holders of the Company's 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 concentration of
voting control could have the effect of delaying or preventing a change in
control of the Company and may affect the market price of the Class B Common
Stock. The holders of the Class A Common Stock also hold a number of shares of
Class B Common Stock that will represent 42.0% of the shares of Class B Common
Stock outstanding at March 31, 1998. If such holders vote their shares of
Class B Common Stock as a block, they will likely be able to elect all of the
directors to be elected solely by the holders of the Class B Common Stock. In
addition, as authorized by the California Corporations Code and based upon
provisions in the Company's Amended and Restated Bylaws (the "Bylaws") and the
concentration of voting control, Messrs. Bildner and Barton may take any
action which may be taken at any meeting of shareholders, subject to certain
exceptions related to the election of directors, by written consent without
formally convening a meeting of shareholders. The Company believes that it may
be necessary to increase the authorized number of shares under the Company's
Amended and Restated 1996 Equity Incentive Plan prior to its next annual
meeting and may circulate a resolution to that effect to its control
shareholders for approval during the last quarter of fiscal 1998 or the first
quarter of fiscal 1999. In addition, the Articles and Bylaws currently permit
shareholders to require cumulative voting in connection with the election of
directors, subject to certain requirements; however, the Articles and Bylaws
also provide that cumulative voting will be eliminated effective as of the
first record date for an annual meeting that the Company has equity securities
listed on Nasdaq and has 800 or more holders of its equity securities.
 
  Risks Associated with Rapid Technological Advances. The Company's success
will depend in part on its 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 the Company will be
successful in developing such IT solutions in a timely manner or that if
developed the Company will be
 
                                      16
<PAGE>
 
successful in the marketplace. Delay in developing or failure to develop new
IT solutions would have a material adverse effect on the Company's business,
financial condition and results of operations.
 
  Risks Associated with Possible Acquisitions. A principal component of the
Company's business strategy is to grow by acquiring additional businesses to
expand its presence in new or existing markets. From December 1996 through
March 31, 1998, the Company acquired six businesses. There can be no assurance
that the Company will be able to identify, acquire or profitably manage
additional businesses or to integrate successfully any acquired businesses
into the Company without substantial expense, delay or other operational or
financial problems. Acquisitions may also 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, or other unanticipated events or circumstances, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that any
acquired business will achieve anticipated revenues and operating results. The
failure of the Company to manage its acquisition strategy successfully could
have a material adverse effect on the Company's business, financial condition
and results of operations.
 
  Management of Growth. The Company's growth has placed, and is expected to
continue to place, significant demands on its management, financial, staffing
and other resources. The Company has expanded geographically by opening new
offices domestically and abroad, and intends to open additional offices. The
Company's ability to manage its growth effectively will require it to continue
to develop and improve its operational, financial and other internal systems,
as well as its business development capabilities, and to train, motivate and
manage its employees. In addition, the Company's future success will depend in
large part upon its ability to continue to estimate project parameters
accurately, to maintain employee utilization rates and project quality and to
meet delivery dates, particularly if the average size and number of the
Company's projects continues to increase. If the Company is unable to manage
its growth and projects effectively, such inability would have a material
adverse effect on the quality of the Company's services, its ability to retain
key personnel, and its business, financial condition and results of
operations. There can be no assurance that the Company's rate of growth will
continue or that the Company will be successful in managing any such growth.
 
  Risks Associated with Partnerships; Risk of Termination or
Nonperformance. The Company sometimes performs client engagements in
partnership with third parties. In the government services market, the Company
often joins with other organizations, such as Unisys or BDM International,
Inc., to bid and perform an engagement. In these engagements, the Company is a
subcontractor to the prime contractor of the engagement. In the commercial
services market, the Company sometimes partners with software or technology
providers to jointly bid and perform engagements. In both markets, the Company
often depends on the software, resources and technology of its partners in
order to perform the engagement. There can be no assurance that actions or
failures attributable to the Company's partners or to the prime contractor
will not also negatively affect the Company's 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 would have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
  Project Risks; Liability to Clients; Client Dissatisfaction. Many of the
Company's engagements involve projects which are critical to the operations of
its clients' businesses and provide benefits that may be difficult to
quantify. The failure of the Company, or of the prime contractor on an
engagement in which the Company is a subcontractor, to meet a client's
expectations in the performance of its services could damage the Company's
reputation and adversely affect its ability to attract new business, and could
have a material adverse effect upon its business, financial condition and
results of operations. The Company has undertaken, and may in the future
undertake, projects in which the Company guarantees 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
 
                                      17
<PAGE>
 
reduction in payment to, or payment of damages (as a result of litigation or
otherwise) by, the Company, which could have a material adverse effect upon
its business, financial condition and results of operations. In addition,
unanticipated delays could necessitate the use of more resources than
initially budgeted by the Company for a particular project, which also could
have a material adverse effect upon its business, financial condition and
results of operations. Any failure in a client's system could result in a
claim for substantial damages against the Company, regardless of the Company's
responsibility for such failure. There can be no assurance that the
limitations of liability set forth in the Company's service contracts will be
enforceable or will otherwise protect the Company from liability for damages.
Although the Company maintains general liability insurance coverage, including
coverage for 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 of one or
more claims against the Company that exceed available insurance coverage or
changes in the Company's insurance policies, including premium increases or
the imposition of large deductible or co-insurance requirements, would
adversely affect the Company's business, financial condition and results of
operations.
 
  Reliance on Government Contracts; Risk of Termination. For the nine-month
fiscal year ended September 30, 1997 and the six months ended March 31, 1998,
approximately 45% of the Company's revenues were derived from sales to
government agencies. A significant reduction in government funds available for
agencies or departments to which Tier supplies IT services, either due to
budget cuts or the imposition of budgetary constraints, or a determination by
the particular federal, state or foreign government that funding of such
agencies or departments should be reduced or discontinued, would have a
material adverse effect on the Company's 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 the Company's business, financial condition and
results of operations.
 
  Fixed Price Contracts; Budget Overruns. During the nine-month fiscal year
ended September 30, 1997 and the six months ended March 31, 1998, 12.4% and
20.1%, respectively, of the Company's revenues were generated on a fixed price
basis, rather than on a time and materials basis. The Company believes that
the percentage of total revenues attributable to fixed price contracts will
continue to be significant and may continue to grow. The Company's failure to
estimate accurately the resources required for a fixed price project or its
failure to complete its contractual obligations in a timely manner consistent
with the project plan upon which its fixed price contract is based could have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company may establish prices before
project design specifications are finalized, which could result in a fixed
price that proves to be too low and therefore adversely affects the Company's
business, financial condition and results of operations.
 
  Substantial Competition. The IT services market is highly competitive and is
served by numerous international, national and local firms. Market
participants include systems consulting and integration firms, including
national accounting firms and related entities, the internal information
systems groups of its 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 the Company. In
addition, there are relatively low barriers to entry into the IT services
market, and the Company has faced, and expects to continue to face, additional
competition from new entrants into the IT services market.
 
  The Company believes that the principal competitive factors in the IT
services market include reputation, project management expertise, industry
expertise, speed of development and implementation, technical expertise,
competitive pricing, and the ability to deliver results on a fixed price as
well as a time and materials basis. The Company believes that its ability to
compete also depends in part on a number of
 
                                      18
<PAGE>
 
competitive factors outside its control, including the ability of its 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
its clients to perform the services themselves; and the extent of its
competitors' responsiveness to client needs. There can be no assurance that
the Company will be able to compete effectively on pricing or other
requirements with current and future competitors or that competitive pressures
will not cause the Company's revenues or income to decline or otherwise
materially adversely affect its business, financial condition and results of
operations.
 
  Intellectual Property Rights; Limited Protection; Inability to Resell or
Reuse Rights. The Company relies on a combination of trade secrets,
nondisclosure and other contractual arrangements, and copyright and trademark
laws to protect its intellectual property rights. The Company enters into
confidentiality agreements with its employees, generally requires that its
consultants and clients enter into such agreements and limits access to its
proprietary information. There can be no assurance that the steps taken by the
Company in this regard will be adequate to avoid the loss or misappropriation
of its proprietary information, or that the Company will be able to detect
unauthorized use of such information and take appropriate steps to enforce its
intellectual property rights.
 
  A portion of the Company's 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. The Company also develops 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 the Company 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. 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 the Company's ability to resell or reuse
such software and application frameworks.
 
  Although the Company believes that its 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 the Company in the future, or that
if asserted, any such claim will be successfully defended.
 
  Risks of Conducting International Operations. For the nine-month fiscal year
ended September 30, 1997 and the six months ended March 31, 1998,
international operations accounted for 13.7% and 19.1% of the Company's total
revenues, respectively. The Company believes 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
the Company's sales are to large multinational companies. To meet the needs of
such companies, both domestically and internationally, the Company must
provide worldwide services, either directly or indirectly. As a result, the
Company intends to expand its existing international operations and enter
additional international markets, which will require significant management
attention and financial resources and could adversely affect the Company's
operating margins and earnings. In order to expand international operations,
the Company will need to hire additional personnel and develop relationships
with potential international clients through acquisition or otherwise. To the
extent that the Company is unable to do so on a timely basis, any growth of
the Company in international markets would be limited, and the Company's
business, financial condition and results of operations would be materially
and adversely affected.
 
  The Company's 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. The Company does not generally engage in hedging
transactions, but may do so in the future. There can be no assurance
 
                                      19
<PAGE>
 
that these factors will not have a material adverse effect on the Company's
business, financial condition and results of operations.
 
  Year 2000. Many existing computer programs were designed and developed
without considering the impact of the upcoming change in the century and
consequently used only two digits to identify a year in the date field. If not
corrected, many computer applications could fail or create erroneous results
by or at the Year 2000 (the "Year 2000 Issue"). In connection with providing
IT services to clients, the Company will evaluate existing systems and, to the
extent such systems will become a part of the client's upgraded system, will
correct any Year 2000 Issues, but does not specifically seek Year 2000
projects. Purchasing patterns of clients and potential clients may be affected
by Year 2000 Issues as companies expend significant resources to make existing
systems Year 2000 compliant. These expenditures may result in reduced funds
available to fund migration projects, which could have a material adverse
effect on the Company's business financial condition and results of
operations.
 
  The Company is in the process of formulating and implementing a program
designed to ensure that all software used in connection with the Company's
services and internal operations systems will manage and manipulate data
involving the transition of dates from 1999 to 2000 without functional or data
abnormality and without inaccurate results related to such dates. The Company
currently anticipates that it will not incur material costs in connection with
such program. While the Company has received assurances thus far from its
service providers that they will be Year 2000 compliant, no assurance can be
given that such compliance will in fact exist by the Year 2000. To the extent
service providers to the Company are not Year 2000 compliant or the Company
discovers issues within its internal systems, such failures could have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
  Potential Volatility of Stock Price. A public market for the 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 the Company or its competitors, general conditions in the IT
industry or the industries in which Tier's 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 the Company's business,
financial condition and results of operations. Any adverse determination in
such litigation could also subject the Company to significant liabilities.
There can be no assurance that such litigation will not be instituted in the
future with respect to the Company.
 
  Issuance of Preferred Stock; Potential Adverse Effects to Holders of 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 the
Company's shareholders. The Preferred Stock could be issued with voting,
liquidation, dividend and other rights superior to the rights of the Class B
Common Stock. The potential issuance of Preferred Stock may delay or prevent a
change in control of the Company, 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 the Common Stock.
 
  No Dividends. The Company has never declared or paid cash dividends on its
capital stock and does not anticipate paying any cash dividends in the
foreseeable future.
 
                                      20
<PAGE>
 
                          PART II. OTHER INFORMATION
 
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
 
 C. USE OF PROCEEDS*:
   (IN THOUSANDS)
 
<TABLE>
   <S>                              <C>
   Effective Date of the Company's  December 16, 1997
    Registration Statement:
   Commission File Number:          333-37661
   Date Offering Commenced:         December 16, 1997
   Date Offering Completed:         Upon the sale of all the shares registered
   Names of Managing Underwriters:  Adams, Harkness & Hill, Inc.
                                    NationsBanc Montgomery Securities LLC
   Class of Securities Registered:  Class B Common Stock
   Shares Registered and Sold:        3,910
     Sold by Company (including       3,235
      over-allotment option)
     Sold by Selling Shareholders       675
   Aggregate Price of Offering      $33,235
    Amount Registered and Sold:
     Gross Proceeds to Company      $27,497
     Gross Proceeds to Selling      $ 5,738
      Shareholders
   Underwriter's discounts and
    commissions
    Charged to the Company (2)      $ 1,924
   Other issuance costs (2)
     (net of expenses borne by      $ 1,681
                                    -------
      selling shareholders)
     Total expenses to the Company  $ 3,605
                                    -------
   Net offering proceeds to the     $23,892
                                    =======
    Company
 
   Approximate use of net offering
    proceeds through March 31,
    1998:
     Paydown of Bank Lines of       $ 3,080
      Credit (2)
     Working capital (1)              --
     Capital equipment and          $   600
      leasehold improvements
     Business acquisitions          $ 5,492
                                    -------
                                    $ 9,172
   Temporary investments:
     Cash, cash equivalents and     $14,720
      investments
</TABLE>
--------
*  In connection with the initial public offering, the Company granted the
   underwriters an over-allotment option to purchase 510,000 additional shares
   of the Company's Class B Common Stock at the original initial public
   offering price. The option was exercised in January 1998. The above "Use of
   Proceeds" section reflects the impact of the exercise of the underwriters'
   over-allotment option.
(1) This amount represents a reasonable estimate.
(2) This amount was paid to persons other than those described in Item
    701(f)(4)(v)(A).
 
                                      21
<PAGE>
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
a. Exhibits
 
<TABLE>
<CAPTION>
   EXHIBIT
   NUMBER                              DESCRIPTION
   ------- -------------------------------------------------------------------
   <C>     <S>
   10.1*   Business Purchase Agreement, dated as of February 26, 1998, and
           Amendment, dated March 20, 1998, by and among the Sancha Computer
           Services Pty. Limited, Sancha Software Development Pty. Limited and
           Tier Technologies (Australia) Pty. Limited
   10.2**  Revolving Credit Agreement by and between the Registrant, Tier
           Technologies (United Kingdom) Inc. and BankBoston, N.A.
   10.3**  Agreement for provision of consulting services by and between the
           Registrant and Humana Inc.
   10.4**  Second Amended and Restated Employment Agreement by and between the
           Registrant and James L. Bildner, dated as of February 16, 1998
   10.5**  Second Amended and Restated Employment Agreement by and between the
           Registrant and William G. Barton, as of February 16, 1998
   10.6**  Second Amended and Restated Employment Agreement by and between the
           Registrant and George K. Ross, as of February 16, 1998
   27.1    Financial Data Schedule
</TABLE>
--------
*  Filed as an exhibit to the Registrant's Form 8-K/A dated May 7, 1998, and
   incorporated herein by reference.
** Filed as an exhibit to the Registrant's Registration Statement on Form S-1
   (No. 333-52065) filed on May 7, 1998, and incorporated herein by reference.
 
b. Reports on Form 8-K
 
  (1) Form 8-K, filed March 9, 1998, pursuant to Item 5 related to the
       adoption of Financial Accounting Standards Board Statement No. 128,
       "Earnings per Share," and Securities and Exchange Commission Staff
       Accounting Bulletin No. 98 relating to "Earnings per Share."
 
  (2) Form 8-K, filed March 27, 1998, pursuant to Item 2 related to the
       acquisition of Sancha Computer Services Pty Limited and Sancha Software
       Development Pty 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.
 
Date: October 21, 1998
 
                                                 /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