##### 



United States Securities and Exchange Commission
 Washington, D.C. 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 COMMISSION FILE NUMBER 000-23195
 TIER TECHNOLOGIES, INC.
 DELAWARE
    
    94-3145844(STATE OF INCORPORATION)
    
    (I.R.S. ID)
 10780 PARKRIDGE BOULEVARD4 th FLOOR, RESTON, VA 20191
 (571) 382-1000
 NONE
 $0.01 PAR VALUE COMMON STOCK
 o þ
 o þ
 o þ
 þ
  o þ o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TIER TECHNOLOGIES, INC.
FORM 10-K
TABLE OF CONTENTS
 PART I
    
    
    2Item 1Business
    
    
    2Item 1ARisk Factors
    
    
    5Item 1BUnresolved Staff Comments
    
    
    10Item 2Properties
    
    
    10Item 3Legal Proceedings
    
    
    11Item 4Submission of Matters to a Vote of Security Holders
    
    
    11PART II
    
    
    12Item 5Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    12Item 6Selected Financial Data
    
    
    13Item 7Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 7AQuantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 8Financial Statements and Supplementary Data
    
    
    27Report of Independent Registered Accounting Firm
    
    
    28Consolidated Balance Sheets
    
    
    32Consolidated Statements of Operations
    
    
    33Consolidated Statements of Shareholders Equity
    
    
    34Consolidated Statements of Comprehensive Income (Loss)
    
    
    35Consolidated Statements of Cash Flows
    
    
    36Consolidated Supplemental Cash Flow Information
    
    
    37Note 1Organizational Overview
    
    
    38Note 2Summary of Significant Accounting Policies
    
    
    38Note 3Earnings (Loss) per Share
    
    
    43Note 4Customer Concentration and Risk
    
    
    44Note 5Investments
    
    
    45Note 6Property, Equipment and Software
    
    
    46Note 7Goodwill and Other Intangible Assets
    
    
    46Note 8Contingencies and Commitments
    
    
    48Note 9Shareholders Equity
    
    
    50Note 10Related Party Transactions
    
    
    51Note 11Segment Information
    
    
    52Note 12Income Taxes
    
    
    52Note 13Restructuring
    
    
    53Note 14Discontinued Operations
    
    
    54Note 15Subsequent Events
    
    
    54Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    60Item 9aControls and Procedures
    
    
    60Item 9bOther Information
    
    
    63PART III
    
    
    64Item 10Directors and Executive Officers of the Registrant
    
    
    64Item 11Executive Compensation
    
    
    66Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    71Item 13Certain Relationships and Related Transactions
    
    
    72Item 14Principal Accounting Fees and Services
    
    
    73Item 15Exhibits, Financial Statement Schedules
    
    
    74SIGNATURES
    
    
    78
 i




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##### 



Special Note About Forward-Looking Statements
 Private Securities Litigation Reform Act of
1995, Section 27A of the Securities Exchange Act of 1933 Section 21E of the Securities Exchange
Act of 1934 Risk Factors
 
 GENERAL
   SEGMENT INFORMATION
  2




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##### 



Electronic Payment Processing, or EPP.
    Government Business Process Outsourcing, or GBPO.
 U.S. Personal Responsibility and Work Opportunity Reconciliation Act of 1996
 U.S. Personal Responsibility and Work Opportunity Reconciliation Act of 1996
 3




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##### 



Packaged Software and System Integration, or PSSI.
 
    
    Financial Management Systemsdevelops, implements and supports financial
management and purchasing systems for state and local governments;
    
    Public Pension Administration Systemsprovides services to support the
design, development and implementation of pension applications for state, county
and city governments;
    
    Unemployment Insurance Systemsprovides software application integration
services to state governments that are reforming unemployment insurance systems;
    
    Electronic Government Systemsprovides systems integration services for
creating government Web portals;
    
    Voice and Systems Automationprovides call center interactive voice
response systems and support services, including customization, installation and
maintenance; and
    
    State Systems Integrationprovides information technology development,
integration and maintenance support projects, primarily for the State of Missouri.
  SALES AND MARKETING
    4




---



##### 



COMPETITION
   INTELLECTUAL PROPERTY RIGHTS
   AVAILABLE INFORMATION
 www.Tier.com
   5




---



##### 



If we fail to regain our listing status on the Nasdaq, the value of our stock may continue to be
depressed, we may have difficulties attracting and retaining customers and employees and our Company may be susceptible to takeover attempts.
 We have incurred losses in the past and we cannot ensure that we will be profitable.
 Our revenues and operating margins may decline and may be difficult to forecast, which could result
in a decline in our stock price.
 
    
    economic conditions in the marketplace;
    
    our customers budgets and demand for our services;
    
    seasonality of business;
    
    timing of service and product implementations;
    
    unplanned increase in costs;
    
    delay in completion of projects;
    
    intense competition;
    
    variability of software license revenues; and
    
    integration and costs of acquisitions.
  We rely on small numbers of projects, customers and target markets for significant portions of our
revenues and our cash flow may decline significantly if we are unable to retain or replace these
projects or clients.
 6




---



##### 



Our markets are highly competitive. If we do not compete effectively, we could face price
reductions, reduced profitability and loss of market share.
 Changes in accounting standards could change our reported results significantly.
 Material weaknesses in our internal controls over financial reporting may result in adverse impact
on our business. Control Procedures
 Changes in laws and government and regulatory compliance requirements may result in additional
compliance costs and may have an adverse effect on our reported earnings.
 The revenues provided by our EPP segment from electronic payment processing may fluctuate and the
ability to maintain profitability is uncertain.
 7




---



##### 



Our ability to grow depends largely on our ability to attract, integrate and retain qualified
personnel.
 We depend on third parties for our products and services. Failure by these third parties to
perform their obligations satisfactorily could hurt our reputation, operating results and
competitiveness.
 Our fixed-price and transaction-based contracts require accurate estimates of resources and
transaction volumes and failure to estimate these factors accurately could cause us to lose money
on these contracts.
 Our revenues are highly dependent on government funding and the loss or decline of existing or
future government funding could cause our revenues and cash flows to decline.
 Our business is subject to increasing performance requirements, which could result in reduced
revenues and increased liability.
 8




---



##### 



If we are not able to obtain adequate or affordable insurance coverage or bonds, we could face
significant liability claims and increased premium costs and our ability to compete for business
could be compromised.
 We could suffer material losses if our operations fail to perform effectively.
 Unauthorized data access and other security breaches could have an adverse impact on our
business and our reputation
 Our business may be harmed by claims, lawsuits or investigations which could result in
adverse outcomes.
   9




---



##### 



If we are not able to protect our intellectual property we could suffer serious harm to our
business.
 We may be subject to infringement claims of third parties, resulting in increased costs and loss of
business.
 Our markets are changing rapidly and if we are not able to continue to adapt to changing
conditions, we may lose market share and be unable to compete effectively.
 We may not be successful in identifying acquisition candidates and, if we undertake acquisitions,
they could be expensive, increase our costs or liabilities or disrupt our business.
     10




---



##### 



11




---



##### 



Year ended September 30,2005
    
    2004High
    
    Low
    
    High
    
    LowFirst quarter
    
    $
    10.00
    
    
    $
    7.98
    
    
    $
    10.75
    
    
    $
    6.83Second quarter
    
    
    9.73
    
    
    
    6.45
    
    
    
    11.69
    
    
    
    7.70Third quarter
    
    
    9.82
    
    
    
    6.85
    
    
    
    12.05
    
    
    
    8.55Fourth quarter
    
    
    9.67
    
    
    
    7.51
    
    
    
    10.10
    
    
    
    7.36
  SECURITIES
  Equity Compensation Plan InformationNumber of securities to be issued
    
    
    
    Number of securities remainingupon exercise of outstanding
    
    Weighted-average exercise
    
    available for future issuance underoptions, warrants and rights
    
    price of outstanding options,
    
    equity compensation plansPlan category
    

(in
thousands)
    
    warrants and rights
    

(in
thousands)Equity compensation
plans approved by security
holders
    
    
    2,968
    
    
    $
    10.34
    
    
    
    901Equity compensation plans not
approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,968
    
    
    $
    10.34
    
    
    
    901
  12




---



##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
 Fiscal years ended September 30,(in thousands, except per share data)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Revenues
    
    $
    150,601
    
    
    $
    127,777
    
    
    $
    115,577
    
    
    $
    84,433
    
    
    $
    54,493Cost and expenses:Direct costs
    
    
    103,814
    
    
    
    84,399
    
    
    
    89,657
    
    
    
    52,847
    
    
    
    32,150General and administrative
    
    
    28,958
    
    
    
    28,233
    
    
    
    23,606
    
    
    
    14,508
    
    
    
    13,975Selling and marketing
    
    
    11,339
    
    
    
    7,441
    
    
    
    5,581
    
    
    
    3,853
    
    
    
    2,889Depreciation and amortization
    
    
    6,065
    
    
    
    5,109
    
    
    
    5,423
    
    
    
    3,764
    
    
    
    3,051Restructuring charges
    
    
    46
    
    
    
    3,493
    
    
    
    414
    
    
    
    
    
    
    
    Total costs and expenses
    
    
    150,222
    
    
    
    128,675
    
    
    
    124,681
    
    
    
    74,972
    
    
    
    52,065Income (loss) before discontinued and other income (loss)
    
    
    379
    
    
    
    (898
    )
    
    
    (9,104
    )
    
    
    9,461
    
    
    
    2,428Other income (loss):Interest income, net
    
    
    1,543
    
    
    
    835
    
    
    
    904
    
    
    
    1,262
    
    
    
    718Realized loss on impairment of investments
    
    
    (501
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity in net loss of unconsolidated affiliate
    
    
    (168
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total other income
    
    
    874
    
    
    
    835
    
    
    
    904
    
    
    
    1,262
    
    
    
    718Income before income taxes & discontinued operations
    
    
    1,253
    
    
    
    (63
    )
    
    
    (8,200
    )
    
    
    10,723
    
    
    
    3,146Income tax provision (benefit)
    
    
    127
    
    
    
    
    
    
    
    (2,764
    )
    
    
    4,010
    
    
    
    1,608Net income
(loss) from continuing operations
    
    $
    1,126
    
    
    $
    (63
    )
    
    $
    (5,436
    )
    
    $
    6,713
    
    
    $
    1,538Total assets
    
    $
    176,742
    
    
    $
    171,980
    
    
    $
    161,374
    
    
    $
    197,975
    
    
    $
    99,191Long-term obligations, less current portion
    
    $
    
    
    
    $
    89
    
    
    $
    195
    
    
    $
    288
    
    
    $
    7,707Earnings (loss) per share from continuing operations:Basic
    
    $
    0.06
    
    
    $
    
    
    
    $
    (0.29
    )
    
    $
    0.39
    
    
    $
    0.12Diluted
    
    $
    0.06
    
    
    $
    
    
    
    $
    (0.29
    )
    
    $
    0.39
    
    
    $
    0.11Number of shares used in calculating earnings (loss)
per share from continuing operations:Basic
    
    
    19,470
    
    
    
    18,987
    
    
    
    18,782
    
    
    
    17,225
    
    
    
    12,687Diluted
    
    
    19,593
    
    
    
    18,987
    
    
    
    18,782
    
    
    
    17,225
    
    
    
    13,455
 13




---



##### 



Our Managements Discussion and Analysis of Financial Condition and Results of Operations
includes forward-looking statements. We have based these forward-looking statements on our current
plans, expectations and beliefs about future events. In light of the risks, uncertainties and
assumptions discussed under Item 1ARisk Factors of this Annual Report on Form 10-K and other
factors discussed in this section, there are risks that our actual experience will differ
materially from the expectations and beliefs reflected in the forward-looking statements in this
section and throughout this report. For more information regarding what constitutes a
forward-looking statement refer to Item 1ARisk Factors.
 OVERVIEW
     14




---



##### 



RECENT EVENTS
  Fiscal 2005 Filing Delay Announced
 Stockholder Rights Plan.
 Audit Committee Investigation.
 Delisting by Nasdaq
 Management Changes
 SEC Subpoena.
 15




---



##### 



RESULTS OF OPERATIONS
  VarianceYear ended September 30,
    
    2005 vs. 2004
    
    2004 vs. 2003(in thousands, except percentages)
    
    2005
    
    2004
    
    2003
    
    $ Amount
    
    %
    
    $ Amount
    
    %Revenues
    
    $
    150,601
    
    
    $
    127,777
    
    
    $
    115,577
    
    
    $
    22,824
    
    
    
    18
    %
    
    $
    12,200
    
    
    
    11
    %Costs and expenses
    
    
    150,222
    
    
    
    128,675
    
    
    
    124,681
    
    
    
    21,547
    
    
    
    17
    %
    
    
    3,994
    
    
    
    3
    %Income (loss) before other income,
incomes taxes and discontinued
operations
    
    
    379
    
    
    
    (898
    )
    
    
    (9,104
    )
    
    
    1,277
    
    
    
    *
    
    
    
    8,206
    
    
    
    90
    %Other income
    
    
    874
    
    
    
    835
    
    
    
    904
    
    
    
    39
    
    
    
    5
    %
    
    
    (69
    )
    
    
    (8
    )%Income (loss) before income taxes and
discontinued operations
    
    
    1,253
    
    
    
    (63
    )
    
    
    (8,200
    )
    
    
    1,316
    
    
    
    *
    
    
    
    8,137
    
    
    
    99
    %Provision (benefit) for income taxes
    
    
    127
    
    
    
    
    
    
    
    (2,764
    )
    
    
    127
    
    
    
    *
    
    
    
    2,764
    
    
    
    100
    %Income (loss) from continuing operations
    
    
    1,126
    
    
    
    (63
    )
    
    
    (5,436
    )
    
    
    1,189
    
    
    
    *
    
    
    
    5,373
    
    
    
    99
    %Loss from discontinued operations, net
of income taxes
    
    
    
    
    
    
    (1,440
    )
    
    
    (19,246
    )
    
    
    1,440
    
    
    
    *
    
    
    
    17,806
    
    
    
    93
    %Net income (loss)
    
    $
    1,126
    
    
    $
    (1,503
    )
    
    $
    (24,682
    )
    
    $
    2,629
    
    
    
    *
    
    
    $
    23,179
    
    
    
    94
    %*Not meaningful
 Revenues
   VarianceYear ended September 30,
    
    2005 vs. 2004
    
    2004 vs. 2003(in thousands, except percentages)
    
    2005
    
    2004
    
    2003
    
    $ Amount
    
    %
    
    $ Amount
    
    %Revenues, by segment:GBPO
    
    $
    45,771
    
    
    $
    45,205
    
    
    $
    48,465
    
    
    $
    566
    
    
    
    1
    %
    
    $
    (3,260
    )
    
    
    (7
    )%PSSI(1)
    
    
    48,378
    
    
    
    41,903
    
    
    
    30,107
    
    
    
    6,475
    
    
    
    15
    %
    
    
    11,796
    
    
    
    39
    %EPP
    
    
    56,452
    
    
    
    40,669
    
    
    
    37,005
    
    
    
    15,783
    
    
    
    39
    %
    
    
    3,664
    
    
    
    10
    %Total
    
    $
    150,601
    
    
    $
    127,777
    
    
    $
    115,577
    
    
    $
    22,824
    
    
    
    18
    %
    
    $
    12,200
    
    
    
    11
    %(1)Fiscal
year 2005 excludes $5.1 million of revenues that are eliminated
during the consolidation of our accounting results.
 Government Business Processing Segment.
 16




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##### 



Packaged Software and Systems Integration Segment
  Electronic Payment Processing Segment
  17




---



##### 



Costs and Expenses
  VarianceYear ended September 30,
    
    2005 vs. 2004
    
    2004 vs. 2003(in thousands, except percentages)
    
    2005
    
    2004
    
    2003
    
    $ Amount
    
    %
    
    $ Amount
    
    %Costs and expenses:Direct costs
    
    $
    103,814
    
    
    $
    84,399
    
    
    $
    89,657
    
    
    $
    19,415
    
    
    
    23
    %
    
    $
    (5,258
    )
    
    
    (6
    )%General and administrative
    
    
    28,958
    
    
    
    28,233
    
    
    
    23,606
    
    
    
    725
    
    
    
    3
    %
    
    
    4,627
    
    
    
    20
    %Selling and marketing
    
    
    11,339
    
    
    
    7,441
    
    
    
    5,581
    
    
    
    3,898
    
    
    
    52
    %
    
    
    1,860
    
    
    
    33
    %Depreciation and amortization
    
    
    6,065
    
    
    
    5,109
    
    
    
    5,423
    
    
    
    956
    
    
    
    19
    %
    
    
    (314
    )
    
    
    (6
    )%Restructuring charges
    
    
    46
    
    
    
    3,493
    
    
    
    414
    
    
    
    (3,447
    )
    
    
    (99
    )%
    
    
    3,079
    
    
    
    *Total costs and expenses
    
    $
    150,222
    
    
    $
    128,675
    
    
    $
    124,681
    
    
    $
    21,547
    
    
    
    17
    %
    
    $
    3,994
    
    
    
    3
    %*Not meaningful
 Direct costs
 General and administrative
  Selling and marketing.
 18




---



##### 



Depreciation and amortization
 Restructuring
 VarianceYear ended September 30,
    
    2005 vs. 2004
    
    2004 vs. 20032005
    
    2004
    
    2003
    
    $ Amount
    
    %
    
    $ Amount
    
    %Restructuring charges:Asset impairment charges
    
    $
    
    
    
    $
    571
    
    
    $
    91
    
    
    $
    (571
    )
    
    
    (100
    )%
    
    $
    480
    
    
    
    *Severance costs from restructuring
    
    
    31
    
    
    
    1,846
    
    
    
    280
    
    
    
    (1,815
    )
    
    
    (98
    )%
    
    
    1,566
    
    
    
    *Office closure costs from restructuring
    
    
    15
    
    
    
    1,076
    
    
    
    43
    
    
    
    (1,061
    )
    
    
    (99
    )%
    
    
    1,033
    
    
    
    *Total
    
    $
    46
    
    
    $
    3,493
    
    
    $
    414
    
    
    $
    (3,447
    )
    
    
    (99
    )%
    
    $
    3,079
    
    
    
    **  Not meaningful
  Other Income (Loss)
 Equity in net loss of unconsolidated affiliate.
 Loss on sale of investments.
 Provision (benefit) for Income Taxes
   19




---



##### 



Discontinued Operations
  LIQUIDITY AND CAPITAL RESOURCES
  Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others
  Net Cash from Continuing OperationsOperating Activities
 20




---



##### 



Net Cash from Continuing OperationsInvesting Activities .
   Net Cash from Continuing OperationsFinancing Activities .
  Net Cash from Discontinued Operations.
 21




---



##### 



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Revenue Recognition.
 
    
    Transaction-based contractsrevenues are recognized based on fees
charged on a per-transaction basis or fees charged as a percentage of dollars
processed;
    
    Fixed-price contractsrevenues are recognized either on a percentage-of-completion
basis or when our customers accept the services we provide;
    
    Time and materials contractsrevenues are recognized when we perform
services and incur expenses;
    
    Delivery-based contractsrevenues are recognized when we have delivered
and the customer has accepted the product or service;
    
    Software maintenance contractsrevenues are on a straight-line basis
over the contract term, which is typically one year; and
    
    Software licensesrevenues are recognized for perpetual software
licenses upon delivery when the fees are fixed and determinable, collection is
probable and specific objective evidence exists to determine the value of any
undeliverable elements of the arrangement. Revenues for software licenses with a
fixed term are recognized on a straight-line period over the term of the license
period.
  22




---



##### 



Collectibility of Receivables.
 Goodwill and Other Intangible Assets. Goodwill and Other Intangible Assets
 Investments Accounting for Certain Investments in Debt and Equity Securities Accounting for Noncurrent Marketable Equity Securities
 Contingencies Accounting for Contingencies,
 Income Taxes. Accounting for Income Taxes,
 Discontinued Operations. Accounting
for the Impairment and Disposal of Long Lived Assets
 23




---



##### 



RECENT ACCOUNTING STANDARDS
 SFAS 123RShare-Based Payment. Share-Based Payment . Accounting for Stock Issued to Employees Share-Based Payment
 SFAS 151Inventory Costs. Inventory Costs
 SFAS 153Exchanges of Nonmonetary Assets. Exchanges of Nonmonetary Assets
 SFAS 154Accounting Changes and Error Corrections. Accounting Changes and Error Corrections ,
 SFAS 157Fair Value Measurements. Fair Value Measurements
 FIN 47Accounting for Conditional Asset Retirement Obligations. Accounting for Conditional Asset Retirement Obligations
 24




---



##### 



Accounting for Asset Retirement Obligations
 FIN 48Accounting for Uncertainty in Income Taxes. Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 FSP 46R-6Determining the
Variability to be Considered in Applying FASB Interpretation No. 46(R). Determining the Variability to Be Considered in Applying
FASB Interpretation No. 46(R) Consolidation of Variable Interest Entities.
 FSP 115-1 and 124-1Impairment of Investments. The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments
 SAB 108Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements
 25




---



##### 



Off-Balance Sheet Arrangement and Contractual Obligations
 Indemnification Agreements
  Employment Agreements
 Subsequent Events
 Contractual Obligations
  Due afterDue in
    
    Due after
    
    3 years1 year
    
    1 year through
    
    through(in thousands)
    
    Total
    
    or less
    
    3 years
    
    5 years| | | |Capital leases (equipment)
    
    $
    149
    
    
    $
    93
    
    
    $
    54
    
    
    $
    2Operating lease obligations:Facilities leases
    
    
    11,863
    
    
    
    3,414
    
    
    
    7,613
    
    
    
    836Equipment leases
    
    
    215
    
    
    
    80
    
    
    
    131
    
    
    
    4Purchase obligations(1)Subcontractor

    
    
    952
    
    
    
    952
    
    
    
    
    
    
    
    Purchase order
    
    
    115
    
    
    
    115
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    13,294
    
    
    $
    4,654
    
    
    $
    7,798
    
    
    $
    842
 (1)
    
    Obligations that are legally binding agreements whereby we agree to purchase
products or services with a specific minimum quantity defined at a fixed, minimum or variable price over a
specified period of time are defined as purchase obligations.   26




---



##### 



ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Reports of Independent Registered Public Accounting Firms
    
    
    28Consolidated Balance Sheets
    
    
    32Consolidated Statements of Operations
    
    
    33Consolidated Statements of Shareholders Equity
    
    
    34Consolidated Statements of Comprehensive Income (Loss)
    
    
    35Consolidated Statements of Cash Flows
    
    
    36Notes to Consolidated Financial Statements
    
    
    38Schedule IIValuation and Qualifying Accounts
    
    
    59
 27




---



##### 



REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
 
    Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) Internal ControlIntegrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
 /s/ McGladrey & Pullen, LLPAlexandria, Virginia
October 23, 2006
 28




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
        29




---



##### 



Internal ControlIntegrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
 /s/ McGladrey & Pullen, LLPAlexandria, Virginia
October 23, 2006
 30




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  /s/ PricewaterhouseCoopers, LLPSan Jose, California
  31




---



##### 



TIER TECHNOLOGIES, INC.
 CONSOLIDATED BALANCE SHEETS
 September 30,(in thousands)
    
    2005
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    27,843
    
    
    $
    28,495Investments in marketable securities
    
    
    36,493
    
    
    
    37,212Accounts receivable, net
    
    
    19,449
    
    
    
    17,086Unbilled receivables
    
    
    3,094
    
    
    
    4,101Prepaid expenses and other current assets
    
    
    3,680
    
    
    
    4,337Total current assets
    
    
    90,559
    
    
    
    91,231Property, equipment and software, net
    
    
    13,501
    
    
    
    7,213Long-term accounts receivable
    
    
    1,560
    
    
    
    Goodwill
    
    
    37,567
    
    
    
    37,527Other intangible assets, net
    
    
    26,147
    
    
    
    30,771Restricted investments
    
    
    3,335
    
    
    
    3,329Investment in unconsolidated affiliate
    
    
    3,590
    
    
    
    Other assets
    
    
    483
    
    
    
    1,909Total assets
    
    $
    176,742
    
    
    $
    171,980LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,902
    
    
    $
    2,624Income taxes payable
    
    
    7,113
    
    
    
    7,007Accrued compensation liabilities
    
    
    5,139
    
    
    
    4,820Accrued subcontractor expense
    
    
    3,226
    
    
    
    2,457Other accrued liabilities
    
    
    7,738
    
    
    
    7,433Deferred income
    
    
    7,795
    
    
    
    5,269Other current liabilities
    
    
    98
    
    
    
    901Total current liabilities
    
    
    33,011
    
    
    
    30,511Other liabilities
    
    
    2,192
    
    
    
    1,775Total liabilities
    
    
    35,203
    
    
    
    32,286Commitments and contingencies (Note 8)Shareholders equity:Preferred stock, no par value; authorized shares: 4,579;
no shares issued and outstanding
    
    
    
    
    
    
    Common stock and paid-in capitalShares authorized: 44,260 and 43,480;
shares issued: 20,374 and 20,324; and shares outstanding: 19,490 and 19,440
    
    
    182,066
    
    
    
    181,479Treasury stockat cost, 884 shares
    
    
    (8,684
    )
    
    
    (8,684
    )Notes receivable from related parties
    
    
    (3,998
    )
    
    
    (4,113
    )Accumulated other comprehensive loss
    
    
    (111
    )
    
    
    (128
    )Accumulated deficit
    
    
    (27,734
    )
    
    
    (28,860
    )Total shareholders equity
    
    
    141,539
    
    
    
    139,694Total liabilities and shareholders equity
    
    $
    176,742
    
    
    $
    171,980
 See Notes to Consolidated Financial Statements
 32




---



##### 



TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 Year ended September 30,(in thousands, except per share data)
    
    2005
    
    2004
    
    2003Revenues
    
    $
    150,601
    
    
    $
    127,777
    
    
    $
    115,577Costs and expenses:Direct costs
    
    
    103,814
    
    
    
    84,399
    
    
    
    89,657General and administrative
    
    
    28,958
    
    
    
    28,233
    
    
    
    23,606Selling and marketing
    
    
    11,339
    
    
    
    7,441
    
    
    
    5,581Depreciation and amortization
    
    
    6,065
    
    
    
    5,109
    
    
    
    5,423Restructuring charges
    
    
    46
    
    
    
    3,493
    
    
    
    414Total costs and expenses
    
    
    150,222
    
    
    
    128,675
    
    
    
    124,681Income (loss) before other income, income taxes and loss from discontinued operations
    
    
    379
    
    
    
    (898
    )
    
    
    (9,104
    )Other income (loss):Interest income, net
    
    
    1,543
    
    
    
    835
    
    
    
    904Loss on sale of investments
    
    
    (501
    )
    
    
    
    
    
    
    Equity in net loss of unconsolidated affiliate
    
    
    (168
    )
    
    
    
    
    
    
    Total other income
    
    
    874
    
    
    
    835
    
    
    
    904Income (loss) from continuing operations before income taxes
    
    
    1,253
    
    
    
    (63
    )
    
    
    (8,200
    )Income tax provision (benefit)
    
    
    127
    
    
    
    
    
    
    
    (2,764
    )Income (loss) from continuing operations
    
    
    1,126
    
    
    
    (63
    )
    
    
    (5,436
    )Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    (1,440
    )
    
    
    (19,246
    )Net income (loss)
    
    $
    1,126
    
    
    $
    (1,503
    )
    
    $
    (24,682
    )Earnings (loss) per shareBasic:From continuing operations
    
    $
    0.06
    
    
    $
    
    
    
    $
    (0.29
    )From discontinued operations
    
    $
    
    
    
    $
    (0.08
    )
    
    $
    (1.02
    )Earnings (loss) per shareBasic
    
    $
    0.06
    
    
    $
    (0.08
    )
    
    $
    (1.31
    )Earnings (loss) per shareDiluted:From continuing operations
    
    $
    0.06
    
    
    $
    
    
    
    $
    (0.29
    )From discontinued operations
    
    $
    
    
    
    $
    (0.08
    )
    
    $
    (1.02
    )Earnings (loss) per shareDiluted
    
    $
    0.06
    
    
    $
    (0.08
    )
    
    $
    (1.31
    )Weighted-average shares used in computing:Basic earnings (loss) per share
    
    
    19,470
    
    
    
    18,987
    
    
    
    18,782Diluted earnings (loss) per share
    
    
    19,593
    
    
    
    18,987
    
    
    
    18,782
 See Notes to Consolidated Financial Statements
 33




---



##### 



TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 Common stockClass A
    
    Class B
    
    $0.01 par value
    
    Treasury stock
    
    
    
    
    
    Accumulated other
    
    
    
    
    
    TotalPaid in
    
    
    
    
    
    
    
    
    
    Notes receivable
    
    comprehensive (loss)
    
    Accumulated
    
    shareholders'(in thousands)
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    capital
    
    Shares
    
    Amount
    
    from shareholders
    
    income
    
    deficit
    
    equityBalance at September 30, 2002
    
    
    880
    
    
    $
    930
    
    
    
    18,444
    
    
    $
    170,861
    
    
    
    
    
    
    $
    
    
    
    $
    202
    
    
    
    (316
    )
    
    $
    (2,019
    )
    
    $
    (3,733
    )
    
    $
    (126
    )
    
    $
    (2,675
    )
    
    $
    163,440Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,682
    )
    
    
    (24,682
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    182
    
    
    
    1,218
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,218Issuance of Class B common stock
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    417
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    417Repurchase of Class B common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (568
    )
    
    
    (6,665
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,665
    )Notes and interest receivable from
related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    201
    
    
    
    
    
    
    
    
    
    
    
    (175
    )
    
    
    
    
    
    
    
    
    
    
    26Unrealized loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66
    )
    
    
    
    
    
    
    (66
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    
    
    
    
    (29
    )Balance at September 30, 2003
    
    
    880
    
    
    
    930
    
    
    
    18,662
    
    
    
    172,496
    
    
    
    
    
    
    
    
    
    
    
    403
    
    
    
    (884
    )
    
    
    (8,684
    )
    
    
    (3,908
    )
    
    
    (221
    )
    
    
    (27,357
    )
    
    
    133,659Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,503
    )
    
    
    (1,503
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    350
    
    
    
    2,196
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,196Issuance of Class B common stock
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    199Conversion of Class A common stock
into
Class B common stock
    
    
    (880
    )
    
    
    (930
    )
    
    
    880
    
    
    
    930
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of Class B common stock in
business combinations
    
    
    
    
    
    
    
    
    
    
    402
    
    
    
    4,447
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,447Stock option revision charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    552
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    552Notes and interest receivable from
related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256
    
    
    
    
    
    
    
    
    
    
    
    (205
    )
    
    
    
    
    
    
    
    
    
    
    51Unrealized loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (176
    )
    
    
    
    
    
    
    (176
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    269
    
    
    
    
    
    
    
    269Balance at September 30, 2004
    
    
    
    
    
    
    
    
    
    
    20,324
    
    
    
    180,820
    
    
    
    
    
    
    
    
    
    
    
    659
    
    
    
    (884
    )
    
    
    (8,684
    )
    
    
    (4,113
    )
    
    
    (128
    )
    
    
    (28,860
    )
    
    
    139,694Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,126
    
    
    
    1,126Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    54
    
    
    
    1
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60Issuance of Class B common stock
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    242
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    242Issuance of Class B common stock in
business combinations
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79Conversion of Class B common stock
to $0.01 par value common stock
    
    
    
    
    
    
    
    
    
    
    (20,373
    )
    
    
    (181,195
    )
    
    
    20,373
    
    
    
    204
    
    
    
    180,991
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Notes and interest receivable from
related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    206
    
    
    
    
    
    
    
    
    
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    321Unrealized gain on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89
    
    
    
    
    
    
    
    89Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (72
    )
    
    
    
    
    
    
    (72
    )Balance at September 30, 2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    20,374
    
    
    $
    204
    
    
    $
    181,862
    
    
    
    (884
    )
    
    $
    (8,684
    )
    
    $
    (3,998
    )
    
    $
    (111
    )
    
    $
    (27,734
    )
    
    $
    141,539
 See Notes to Consolidated Financial Statements
 34




---



##### 



TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 Year ended September 30,(in thousands)
    
    2005
    
    2004
    
    2003Net income (loss)
    
    $
    1,126
    
    
    $
    (1,503
    )
    
    $
    (24,682
    )Other comprehensive income (loss), net of taxes:Investments in marketable securities:Unrealized gain (loss)
    
    
    19
    
    
    
    (176
    )
    
    
    (66
    )Less impact of realized losses (transferred out of
AOCI and included in net income (loss))
    
    
    70
    
    
    
    
    
    
    
    Net change from available-for sale securities
    
    
    89
    
    
    
    (176
    )
    
    
    (66
    )Foreign currency translation (loss) gain
    
    
    (72
    )
    
    
    269
    
    
    
    (29
    )Other comprehensive income
    
    
    17
    
    
    
    93
    
    
    
    (95
    )Comprehensive income (loss)
    
    $
    1,143
    
    
    $
    (1,410
    )
    
    $
    (24,777
    )
 See Notes to Consolidated Financial Statements
 35




---



##### 



TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year ended September 30,(in thousands)
    
    2005
    
    2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    1,126
    
    
    $
    (1,503
    )
    
    $
    (24,682
    )Less: Loss from discontinued operations, net
    
    
    
    
    
    
    (1,440
    )
    
    
    (19,246
    )Income (loss) from continuing operations, net
    
    
    1,126
    
    
    
    (63
    )
    
    
    (5,436
    )Non-cash items included in net income (loss) from continuing operations:Depreciation and amortization
    
    
    8,992
    
    
    
    7,139
    
    
    
    7,631Write-down of unbilled receivables
    
    
    
    
    
    
    
    
    
    
    12,936Goodwill and other assets impairment charge
    
    
    662
    
    
    
    571
    
    
    
    91Stock options revision charge
    
    
    
    
    
    
    552
    
    
    
    Provision for doubtful accounts
    
    
    602
    
    
    
    388
    
    
    
    703Deferred income taxes
    
    
    
    
    
    
    25
    
    
    
    (2,325
    )Equity in net loss of unconsolidated affiliate
    
    
    168
    
    
    
    
    
    
    
    Interest on, and losses from forgiveness of, notes from related parties
    
    
    (90
    )
    
    
    2
    
    
    
    (8
    )Net effect of changes in assets and liabilities:Accounts receivable
    
    
    (3,518
    )
    
    
    9,015
    
    
    
    (9,713
    )Prepaid expenses and other assets
    
    
    2,083
    
    
    
    (485
    )
    
    
    658Accounts payable and accrued liabilities
    
    
    441
    
    
    
    (1,926
    )
    
    
    466Income taxes payable
    
    
    106
    
    
    
    9,382
    
    
    
    (4,131
    )Deferred income
    
    
    2,526
    
    
    
    780
    
    
    
    139Cash provided by operating activities from continuing operations
    
    
    13,098
    
    
    
    25,380
    
    
    
    1,011Cash used in operating activities from discontinued operations
    
    
    (386
    )
    
    
    (1,531
    )
    
    
    (18,874
    )Net cash provided by (used in) operating activities
    
    
    12,712
    
    
    
    23,849
    
    
    
    (17,863
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of marketable securities
    
    
    (75,702
    )
    
    
    (26,639
    )
    
    
    (35,103
    )Sales of marketable securities
    
    
    34,293
    
    
    
    
    
    
    
    5,989Maturities of marketable securities
    
    
    38,376
    
    
    
    32,931
    
    
    
    9,144Restricted investments
    
    
    3,328
    
    
    
    4,403
    
    
    
    223Business combinations, net of cash acquired
    
    
    (4,135
    )
    
    
    (15,639
    )
    
    
    294Repayments on notes and accrued interest from related parties
    
    
    411
    
    
    
    
    
    
    
    15Purchase of equipment and software
    
    
    (10,027
    )
    
    
    (3,429
    )
    
    
    (1,655
    )Other investing activities
    
    
    (64
    )
    
    
    (241
    )
    
    
    (34
    )Cash used in investing activities from continuing operations
    
    
    (13,520
    )
    
    
    (8,614
    )
    
    
    (21,127
    )Cash provided by investing activities from discontinued operations
    
    
    
    
    
    
    1,913
    
    
    
    17,841Net cash used in investing activities
    
    
    (13,520
    )
    
    
    (6,701
    )
    
    
    (3,286
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings under bank line of credit
    
    
    
    
    
    
    2,200
    
    
    
    Repayments under bank line of credit
    
    
    
    
    
    
    (2,200
    )
    
    
    Repurchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (6,665
    )Net proceeds from issuance of Class B common stock
    
    
    302
    
    
    
    2,395
    
    
    
    1,635Capital lease obligations and other financing arrangements
    
    
    (86
    )
    
    
    (149
    )
    
    
    (482
    )Net cash provided by (used in) financing activities from continuing operations
    
    
    216
    
    
    
    2,246
    
    
    
    (5,512
    )Effect of exchange rate changes on cash from continuing operations
    
    
    (60
    )
    
    
    
    
    
    
    (59
    )Effect of exchange rate changes on cash from discontinued operations
    
    
    
    
    
    
    230
    
    
    
    Net (decrease) increase in cash and cash equivalents
    
    
    (652
    )
    
    
    19,624
    
    
    
    (26,720
    )Cash and cash equivalents at beginning of period
    
    
    28,495
    
    
    
    8,871
    
    
    
    35,591Cash and cash equivalents at end of period
    
    $
    27,843
    
    
    $
    28,495
    
    
    $
    8,871
 36




---



##### 



TIER TECHNOLOGIES, INC.
CONSOLIDATED SUPPLEMENTAL CASH FLOW INFORMATION
 Year ended September 30,(in thousands)
    
    2005
    
    2004
    
    2003Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    23
    
    
    $
    99
    
    
    $
    55Income taxes paid (refunded), net
    
    $
    34
    
    
    $
    (9,573
    )
    
    $
    2,988Supplemental disclosures of non-cash investing and financing activities:Equipment acquired under capital lease obligations and other financing arrangements
    
    $
    40
    
    
    $
    
    
    
    $
    68Conversion of Class A common stock to Class B common stock
    
    $
    
    
    
    $
    930
    
    
    $
    Class B common stock issued in business combination and acquisition
    
    $
    79
    
    
    $
    4,447
    
    
    $
    
 See Notes to Consolidated Financial Statements
 37




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1ORGANIZATIONAL OVERVIEW
  
    
    Government Business Process Outsourcing, or GBPOfocuses on child support
payment processing, child support financial institution data match services, health and
human services consulting, call center operations, electronic funds disbursement and other
related systems integration services;
    
    Packaged Software and Systems Integration, or PSSIprovides software and systems
implementation services through practice areas in financial management systems, public
pension administration systems, unemployment insurance administration systems, electronic
government services, computer telephony and call centers and systems integration services
for the State of Missouri; and
    
    Electronic Payment Processing, or EPPprovides electronic payment processing
options, including payment of taxes, fees and other obligations owed to government
entities, educational institutions and other public sector clients.
  
    
    Official Payments Corporation, or OPCprovides proprietary telephone and
Internet systems for electronic payment options to federal, state, and municipal government
agencies, educational institutions and other public sector clients; and
    
    EPOS Corporation, or EPOSprovides interactive communications and transaction
processing technologies to federal, state and municipal government agencies, educational
institutions and other public sector clients.
  NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation.
 Principles of Consolidation.
 Use of Estimates.
 38




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Foreign Currencies. in
Other comprehensive income
 Cash and Cash Equivalents.
  Revenue Recognition and Credit Risk.
       Allowance for Doubtful Accounts. Direct costs Revenues
 39




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Fair Value of Financial Instruments.
 Investments in Marketable Securities. Restricted investments Restricted investments or Cash and cash equivalents Investments in marketable securities Loss on sale and impairment of investments
 Advertising Expense.
 Property, Equipment and Software.
  Goodwill.
 Intangible Assets.
 Earnings (Loss) Per Share.
 Stock-Based Compensation. Accounting for Stock Issued to Employees Accounting
for Stock-Based Compensation Accounting for Stock-Based
Compensation- Transition and DisclosureAn Amendment of FASB Statement No. 123.
 40




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Year ended September 30,(in thousands, except per share data)
    
    2005
    
    2004
    
    2003Net income (loss) as reported
    
    $
    1,126
    
    
    $
    (1,503
    )
    
    $
    (24,682
    )Add: Stock-based compensation expense included in reported net loss,
net of related tax effects
    
    
    
    
    
    
    552
    
    
    
    Less: Total stock-based compensation expense, determined
under fair value-based method for all awards, net of taxes
    
    
    2,527
    
    
    
    2,440
    
    
    
    3,530Net loss, pro forma
    
    $
    (1,401
    )
    
    $
    (3,391
    )
    
    $
    (28,212
    )Earnings (loss) per basic and diluted share:As reported
    
    $
    0.06
    
    
    $
    (0.08
    )
    
    $
    (1.31
    )Pro forma
    
    $
    (0.07
    )
    
    $
    (0.18
    )
    
    $
    (1.50
    )
  Year ended September 30,2005
    
    2004
    
    2003Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    38.7%-62.8
    %
    
    
    47.0%-70.8
    %
    
    
    59.0%-71.9
    %Risk-free interest rate
    
    
    3.63%-4.18
    %
    
    
    2.46%-4.88
    %
    
    
    1.66%-3.55
    %Expected life of the option
    
    
    0.7 to 5 years
    
    
    
    1 to 7 years
    
    
    
    1.5 to 6 years
 Share Based Payment Share-Based Payment
 Income Taxes. Accounting for Income Taxes
 Comprehensive Income (Loss).
 Guarantees.
 RECENT ACCOUNTING PRONOUNCEMENTS
 SFAS 123RShare-Based Payment. Share-Based Payment . Accounting for Stock
Issued to Employees
 41




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Share-Based Payment
 SFAS 151Inventory Costs Inventory Costs
 SFAS 153Exchanges of Nonmonetary Assets Exchanges of Nonmonetary Assets
 SFAS 154Accounting Changes and Error Corrections. Accounting Changes and Error Corrections
  SFAS 157Fair Value Measurements. Fair Value Measurements
 FIN 47Accounting for Conditional Asset Retirement Obligations. Accounting for Conditional Retirement Obligations Accounting for Asset Retirement Obligations.
 FIN 48Accounting for Uncertainty in Income Taxes Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 FSP 46R-6Determining the Variability to be Considered in Applying FASB Interpretation No.
46(R). Determining the Variability to Be Considered
in Applying FASB Interpretation No. 46(R)
 42




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Consolidation of Variable Interest Entities.
 FSP 115-1 and 124-1Impairment of Investments. The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments
 SAB 108Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements,
 NOTE 3EARNINGS (LOSS) PER SHARE
  Year ended September 30,(in thousands, except per share data)
    
    2005
    
    2004
    
    2003Numerator:Net income (loss) from:Continuing operations, net of income taxes
    
    $
    1,126
    
    
    $
    (63
    )
    
    $
    (5,436
    )Discontinued operations, net of income taxes
    
    
    
    
    
    
    (1,440
    )
    
    
    (19,246
    )Net income (loss)
    
    $
    1,126
    
    
    $
    (1,503
    )
    
    $
    (24,682
    )Denominator:Weighted-average common shares outstanding
    
    
    19,470
    
    
    
    18,987
    
    
    
    18,782Effects of dilutive common stock options
    
    
    123
    
    
    
    
    
    
    
    Adjusted weighted-average shares
    
    
    19,593
    
    
    
    18,987
    
    
    
    18,782Earnings (loss) per shareBasicFrom continuing operations
    
    $
    0.06
    
    
    $
    
    
    
    $
    (0.29
    )From discontinued operations
    
    $
    
    
    
    $
    (0.08
    )
    
    $
    (1.02
    )Earnings (loss) per shareBasic
    
    $
    0.06
    
    
    $
    (0.08
    )
    
    $
    (1.31
    )Earnings (loss) per shareDilutedFrom continuing operations
    
    $
    0.06
    
    
    $
    
    
    
    $
    (0.29
    )From discontinued operations
    
    $
    
    
    
    $
    (0.08
    )
    
    $
    (1.02
    )Earnings (loss) per shareDiluted
    
    $
    0.06
    
    
    $
    (0.08
    )
    
    $
    (1.31
    )
 43




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Year ended September 30,(in thousands, except per share amounts)
    
    2005
    
    2004
    
    2003Weighted-average options excluded from
computation of diluted earnings (loss) per
share
    
    
    1,893
    
    
    
    1,233
    
    
    
    1,516Range of exercise prices per share:High
    
    $
    20.70
    
    
    $
    20.70
    
    
    $
    20.70Low
    
    $
    8.53
    
    
    $
    9.97
    
    
    $
    12.04
  NOTE 4CUSTOMER CONCENTRATION AND RISK
   Accounts receivable, net. Accounts receivable, net
 
    
    Customer receivablesreceivables from our clients;
    
    Mispost receivablesreceivables from individuals to whom our payment processing centers
made incorrect payments; and
    
    Not Sufficient Funds, or NSF, receivablesreceivables from individuals who paid their
child support payment with a check that had insufficient funds.
 Accounts receivable, net
 Year ended September 30,(in thousands)
    
    2005
    
    2004Accounts receivable from:Customers
    
    $
    18,017
    
    
    $
    15,156Recipients of misposted payments
    
    
    1,843
    
    
    
    2,730Payers of NSF child support
    
    
    743
    
    
    
    828Total accounts receivable
    
    
    20,603
    
    
    
    18,714Allowance for uncollectible accounts receivable:Customer
    
    
    (632
    )
    
    
    (679
    )Mispost
    
    
    (1,375
    )
    
    
    (1,895
    )NSF
    
    
    (632
    )
    
    
    (357
    )Total accounts receivable allowance
    
    
    (2,639
    )
    
    
    (2,931
    )Short-term retainers receivable from customers
    
    
    3,045
    
    
    
    1,303Long-term accounts receivable
    
    
    (1,560
    )
    
    
    Accounts receivable, net
    
    $
    19,449
    
    
    $
    17,086
 44




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Long-term
accounts receivable
 Accounts receivable, net Other assets
 Unbilled Receivables. Unbilled receivables
 NOTE 5INVESTMENTS
 Accounting for Certain Investments in Debt and Equity Securities, Restricted investments
 Statement of Cash Flows Restricted investments Cash and cash equivalents Investments in marketable securities
  September 30, 2005
    
    September 30, 2004Amortized
    
    Unrealized
    
    Estimated
    
    Amortized
    
    Unrealized
    
    Estimated(in thousands)
    
    cost
    
    loss
    
    fair value
    
    cost
    
    loss
    
    fair valueCash equivalents:Money market
    
    $
    11,272
    
    
    $
    
    
    
    $
    11,272
    
    
    $
    15,465
    
    
    $
    
    
    
    $
    15,465Municipal bonds/notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,199
    
    
    
    (4
    )
    
    
    5,195Total investments included in
cash and cash equivalents
    
    
    11,272
    
    
    
    
    
    
    
    11,272
    
    
    
    20,664
    
    
    
    (4
    )
    
    
    20,660Investments in marketable securities:Debt securitiesU.S. government sponsored enterprise
obligations
    
    
    1,629
    
    
    
    (7
    )
    
    
    1,622
    
    
    
    7,899
    
    
    
    (40
    )
    
    
    7,859Other (Primarily state and local bonds/notes)
    
    
    30,888
    
    
    
    (13
    )
    
    
    30,875
    
    
    
    20,618
    
    
    
    (30
    )
    
    
    20,588Mutual funds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,235
    
    
    
    (70
    )
    
    
    5,165Commercial paper
    
    
    2,996
    
    
    
    
    
    
    
    2,996
    
    
    
    
    
    
    
    
    
    
    
    Equity securities
    
    
    1,000
    
    
    
    
    
    
    
    1,000
    
    
    
    3,600
    
    
    
    
    
    
    
    3,600Total marketable securities
    
    
    36,513
    
    
    
    (20
    )
    
    
    36,493
    
    
    
    37,352
    
    
    
    (140
    )
    
    
    37,212Restricted investments:U.S. government sponsored enterprise obligations
    
    
    3,370
    
    
    
    (35
    )
    
    
    3,335
    
    
    
    3,307
    
    
    
    
    
    
    
    3,307Certificate of deposit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    22Total restricted investments
    
    
    3,370
    
    
    
    (35
    )
    
    
    3,335
    
    
    
    3,329
    
    
    
    
    
    
    
    3,329Total investments
    
    $
    51,155
    
    
    $
    (55
    )
    
    $
    51,100
    
    
    $
    61,345
    
    
    $
    (144
    )
    
    $
    61,201
 45




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (in thousands)
    
    Fair valueWithin one year
    
    $
    5,647Greater than ten years
    
    
    26,850Total
    
    $
    32,497
  Loss on sale of investments
 NOTE 6PROPERTY, EQUIPMENT AND SOFTWARE
  September 30,(in thousands)
    
    2005
    
    2004Software
    
    $
    15,857
    
    
    $
    14,558Computer equipment
    
    
    9,658
    
    
    
    8,757Furniture and equipment
    
    
    7,023
    
    
    
    3,642Land and building
    
    
    2,452
    
    
    
    2,452Leasehold improvements
    
    
    2,234
    
    
    
    1,007Total property, equipment and software, gross
    
    
    37,224
    
    
    
    30,416Less: Accumulated depreciation and amortization
    
    
    (23,723
    )
    
    
    (23,203
    )Total property, equipment and software, net
    
    $
    13,501
    
    
    $
    7,213
   NOTE 7GOODWILL AND OTHER INTANGIBLE ASSETS
  Operating segment(in thousands)
    
    GBPO
    
    PSSI
    
    EPP
    
    TotalBalance at September 30, 2003
    
    $
    5,284
    
    
    $
    9,721
    
    
    $
    14,323
    
    
    $
    29,328Acquisition of EPOS
    
    
    
    
    
    
    8,199
    
    
    
    
    
    
    
    8,199Balance at September 30, 2004
    
    
    5,284
    
    
    
    17,920
    
    
    
    14,323
    
    
    
    37,527Post acquisition adjustmentEPOS
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    40Balance at September 30, 2005
    
    $
    5,284
    
    
    $
    17,960
    
    
    $
    14,323
    
    
    $
    37,567
 46




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Goodwill and Other Intangible
Assets
  September 30, 2005
    
    September 30, 2004Amortization
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    
    
    
    Accumulated(in thousands)
    
    period
    
    Gross
    
    amortization
    
    Net
    
    Gross
    
    amortization
    
    NetClient relationships
    
    10 years
    
    $
    28,749
    
    
    $
    (8,301
    )
    
    $
    20,448
    
    
    $
    28,640
    
    
    $
    (5,429
    )
    
    $
    23,211Technology & research and development
    
    3-10 years
    
    
    5,029
    
    
    
    (1,870
    )
    
    
    3,159
    
    
    
    4,920
    
    
    
    (812
    )
    
    
    4,108Trademarks
    
    7-10 years
    
    
    3,214
    
    
    
    (1,019
    )
    
    
    2,195
    
    
    
    3,214
    
    
    
    (697
    )
    
    
    2,517Backlog and acquired contracts
    
    1 years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,175
    
    
    
    (738
    )
    
    
    437Non-compete agreements
    
    2-3 years
    
    
    615
    
    
    
    (270
    )
    
    
    345
    
    
    
    560
    
    
    
    (62
    )
    
    
    498Other intangible assets, net
    
    
    
    
    
    $
    37,607
    
    
    $
    (11,460
    )
    
    $
    26,147
    
    
    $
    38,509
    
    
    $
    (7,738
    )
    
    $
    30,771
   Future(in thousands)
    
    expenseYears ending September 30,
2006
    
    $
    4,2672007
    
    
    4,1842008
    
    
    4,0532009
    
    
    3,7752010
    
    
    3,204Thereafter
    
    
    6,664Total future amortization expense
    
    $
    26,147
 ACQUISITIONS
  Estimated(in thousands)
    
    Amount
    
    useful lifeClient relationships
    
    $
    4,240
    
    
    10 yearsTechnology
    
    
    4,150
    
    
    5 yearsBacklog and acquired contracts
    
    
    600
    
    
    1 yearNon-compete agreement
    
    
    560
    
    
    3 yearsTechnology & research and development
    
    
    30
    
    
    7 yearsTotal
    
    $
    9,580
   47




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Upon purchase at(in thousands)
    
    June 1, 2004Accounts receivable
    
    $
    1,514Prepaid expenses and other current assets
    
    
    989Property, equipment and software
    
    
    2,413Other assets
    
    
    37Deferred income tax asset
    
    
    25Accounts payable and accrued expenses
    
    
    (1,473
    )Deferred revenue
    
    
    (1,190
    )Other long-term liability
    
    
    (9
    )Other acquired intangible assets
    
    
    9,580Goodwill
    
    
    8,199Total consideration
    
    $
    20,085
  Year ended(in thousands, except per share data)
    
    September 30, 2004Net revenues
    
    $
    143,405Net loss
    
    $
    (1,481
    )Basic and diluted loss per share
    
    $
    (0.08
    )Shares used in computing basic and diluted loss per share
    
    
    18,987
   NOTE 8CONTINGENCIES AND COMMITMENTS
 Legal Issues
  Bank Lines of Credit
  48




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Subsequent Events
 Letters of Credit
 Restricted investments
 Credit Risk
  Operating and Capital Lease Obligations
  Operating
    
    Capital(in thousands)
    
    leases
    
    leases(1)
    
    TotalYear ending September 30,2006
    
    $
    3,494
    
    
    $
    93
    
    
    $
    3,5872007
    
    
    3,089
    
    
    
    20
    
    
    
    3,1092008
    
    
    2,828
    
    
    
    18
    
    
    
    2,8462009
    
    
    1,827
    
    
    
    16
    
    
    
    1,8432010
    
    
    840
    
    
    
    2
    
    
    
    842Total minimum lease payments
    
    $
    12,078
    
    
    $
    149
    
    
    $
    12,227
 (1)
    
    The amounts due in fiscal year 2006 are included in other current liabilities.
  Guarantees
 Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
 Performance Bonds
  49




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Employment Agreements
  NOTE 9SHAREHOLDERS EQUITY
  Common Stock Repurchase Program
 Treasury stock
 Equity Incentive Plan
 1996 Equity Incentive Plan Amended and Restated 2004 Stock Incentive Plan
  Number of shares
    
    Weighted average(in thousands)
    
    exercise priceOptions outstanding at September 30, 2002
    
    
    2,541
    
    
    $
    10.61Options granted
    
    
    664
    
    
    $
    15.24Options cancelled
    
    
    (306
    )
    
    $
    13.44Options exercised
    
    
    (182
    )
    
    $
    6.70Options outstanding at September 30, 2003
    
    
    2,717
    
    
    $
    11.68Options granted
    
    
    782
    
    
    $
    8.29Options cancelled
    
    
    (702
    )
    
    $
    12.95Options exercised
    
    
    (350
    )
    
    $
    6.28Options outstanding at September 30, 2004
    
    
    2,447
    
    
    $
    11.00Options granted
    
    
    913
    
    
    $
    8.56Options cancelled
    
    
    (382
    )
    
    $
    10.44Options exercised
    
    
    (10
    )
    
    $
    5.72Options outstanding at September 30, 2005
    
    
    2,968
    
    
    $
    10.34
 50




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Options outstanding
    
    
    
    
    
    
    Options exercisableNumber
    
    
    Weighted average
    
    
    
    
    
    
    NumberRange of exercise prices
    
    
    outstanding
    
    
    remaining
    
    
    Weighted average
    
    
    exercisable
    
    
    Weighted averageLow
    
    
    High
    
    
    (in thousands)
    
    
    contractual life
    
    
    exercise price
    
    
    (in thousands)
    
    
    exercise price$
    3.25
    
    
    $
    6.50
    
    
    
    327
    
    
    4.12 years
    
    $
    5.81
    
    
    
    327
    
    
    $
    5.81$
    6.81
    
    
    $
    7.78
    
    
    
    226
    
    
    5.11 years
    
    $
    7.15
    
    
    
    194
    
    
    $
    7.18$
    7.81
    
    
    $
    7.81
    
    
    
    455
    
    
    8.17 years
    
    $
    7.81
    
    
    
    91
    
    
    $
    7.81$
    7.85
    
    
    $
    8.53
    
    
    
    359
    
    
    7.94 years
    
    $
    8.21
    
    
    
    240
    
    
    $
    8.39$
    8.60
    
    
    $
    8.60
    
    
    
    345
    
    
    9.08 years
    
    $
    8.60
    
    
    
    
    
    
    $
    $
    8.62
    
    
    $
    10.43
    
    
    
    300
    
    
    5.69 years
    
    $
    9.02
    
    
    
    178
    
    
    $
    8.99$
    10.88
    
    
    $
    14.82
    
    
    
    301
    
    
    5.45 years
    
    $
    12.94
    
    
    
    299
    
    
    $
    12.95$
    15.19
    
    
    $
    16.90
    
    
    
    395
    
    
    5.02 years
    
    $
    16.24
    
    
    
    280
    
    
    $
    16.01$
    17.00
    
    
    $
    19.56
    
    
    
    250
    
    
    5.94 years
    
    $
    18.01
    
    
    
    220
    
    
    $
    18.04$
    20.70
    
    
    $
    20.70
    
    
    
    10
    
    
    6.26 years
    
    $
    20.70
    
    
    
    6
    
    
    $
    20.70$
    3.25
    
    
    $
    20.70
    
    
    
    2,968
    
    
    6.43 years
    
    $
    10.34
    
    
    
    1,835
    
    
    $
    10.93
 Employee Stock Purchase Plan
 Employee Stock Purchase Plan ,
 NOTE 10RELATED PARTY TRANSACTIONS
 Notes Receivable and Accrued Interest Receivable
    Notes receivable form related
parties Common stock and paid-in-capital
 Other Related Party Transactions
  51




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 11SEGMENT INFORMATION
  (in thousands)
    
    GBPO
    
    PSSI
    
    EPP*
    
    Eliminations
    
    TotalYear ended September 30, 2005:Revenues
    
    $
    45,771
    
    
    $
    53,451
    
    
    $
    56,452
    
    
    $
    (5,073
    )
    
    $
    150,601Direct costs
    
    $
    32,293
    
    
    $
    33,271
    
    
    $
    42,199
    
    
    $
    (3,949
    )
    
    $
    103,814Year ended September 30, 2004:Revenues
    
    $
    45,205
    
    
    $
    41,903
    
    
    $
    40,669
    
    
    $
    
    
    
    $
    127,777Direct costs
    
    $
    28,774
    
    
    $
    27,538
    
    
    $
    28,448
    
    
    $
    (361
    )
    
    $
    84,399Year ended September 30, 2003Revenues
    
    $
    48,465
    
    
    $
    30,107
    
    
    $
    37,005
    
    
    $
    
    
    
    $
    115,577Direct costs
    
    $
    29,939
    
    
    $
    33,033
    
    
    $
    26,685
    
    
    $
    
    
    
    $
    89,657
 
 *
    
    During fiscal years 2005, 2004, and 2003, the revenues from one customer produced 36.4%, 38.5% and 48.2%,
respectively, of the total revenues reported for the EPP segment.  NOTE 12INCOME TAXES
  September 30,(in thousands)
    
    2005
    
    2004Deferred tax liabilities:Intangibles
    
    $
    3,685
    
    
    $
    6,246Internally developed software
    
    
    1,190
    
    
    
    552Other deferred tax liabilities
    
    
    597
    
    
    
    267Total deferred tax liabilities
    
    
    5,472
    
    
    
    7,065Deferred tax assets:Accrued expenses
    
    
    2,808
    
    
    
    2,930Deferred income
    
    
    4
    
    
    
    41Depreciation
    
    
    842
    
    
    
    233Accounts receivable allowance
    
    
    203
    
    
    
    456Investment in subsidiaries
    
    
    101
    
    
    
    Other deferred tax assets
    
    
    596
    
    
    
    Net operating loss carry forward
    
    
    26,063
    
    
    
    25,520Foreign tax credit carry forward
    
    
    608
    
    
    
    584Valuation allowance
    
    
    (25,753
    )
    
    
    (22,699
    )Total deferred tax assets
    
    $
    5,472
    
    
    
    7,065Net deferred tax assets (liabilities)
    
    $
    
    
    
    $
    
   52




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Year ended September 30,(in thousands)
    
    2005
    
    2004
    
    2003Current income tax provision (benefit):Federal
    
    $
    37
    
    
    $
    
    
    
    $
    (2,496
    )State
    
    
    90
    
    
    
    
    
    
    
    (268
    )Foreign
    
    
    
    
    
    
    
    
    
    
    Deferred income tax provision (benefit):Federal
    
    
    
    
    
    
    
    
    
    
    State
    
    
    
    
    
    
    
    
    
    
    Total provision (benefit) for income taxes
    
    $
    127
    
    
    $
    
    
    
    $
    (2,764
    )
  Year ended September 30,2005
    
    2004
    
    2003U.S statutory federal tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State taxes, net of federal tax benefit
    
    
    12.6
    %
    
    
    (111.0
    )%
    
    
    3.9
    %Tax exempt interest income
    
    
    (4.6
    )%
    
    
    307.8
    %
    
    
    0.7
    %Tax effect of foreign operations
    
    
    11.8
    %
    
    
    
    
    
    
    Meals and entertainment
    
    
    7.5
    %
    
    
    (145.6
    )%
    
    
    (1.1
    )%Valuation allowance
    
    
    (59.3
    )%
    
    
    (71.0
    )%
    
    
    (3.7
    )%Keyman life insurance
    
    
    
    
    
    
    (11.1
    )%
    
    
    (0.1
    )%Other
    
    
    8.1
    %
    
    
    (3.1
    )%
    
    
    Effective tax rate
    
    
    10.1
    %
    
    
    
    
    
    
    33.7
    %
 NOTE 13RESTRUCTURING
 Restructuring charges Loss from discontinued operations
 Restructuring charges
  Year ended September 30,(in thousands)
    
    2005
    
    2004
    
    2003Goodwill, intangible & intangible asset impairment
    
    $
    
    
    
    $
    571
    
    
    $
    91Office closure (net of sublease income)
    
    
    15
    
    
    
    1,076
    
    
    
    43Severance
    
    
    31
    
    
    
    1,846
    
    
    
    280Total restructuring charges
    
    $
    46
    
    
    $
    3,493
    
    
    $
    414
 53




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Discontinued Operations
 Facilities(in thousands)
    
    Severance
    
    closures
    
    TotalBalance at September 30, 2003
    
    $
    1,133
    
    
    $
    190
    
    
    $
    1,323Additions
    
    
    986
    
    
    
    1,357
    
    
    
    2,343Cash payments
    
    
    (1,016
    )
    
    
    (731
    )
    
    
    (1,747
    )Balance at September 30, 2004
    
    
    1,103
    
    
    
    816
    
    
    
    1,919Additions
    
    
    18
    
    
    
    
    
    
    
    18Cash payments
    
    
    (791
    )
    
    
    (206
    )
    
    
    (997
    )Balance at September 30, 2005
    
    $
    330
    
    
    $
    610
    
    
    $
    940
 Other liabilities Other accrued liabilities
 NOTE 14DISCONTINUED OPERATIONS
  Years ended September 30,(in thousands)
    
    2004
    
    2003Revenue
    
    $
    1,780
    
    
    $
    11,185Loss from discontinued operations:Before income taxes
    
    
    (1,440
    )
    
    
    (19,784
    )Less income taxes
    
    
    
    
    
    
    (538
    )Loss from discontinued operation, net of income taxes
    
    $
    (1,440
    )
    
    $
    (19,246
    )
 Other current liabilities
 NOTE 15SUBSEQUENT EVENTS
 Audit Committee Investigation and the Restatement of Historical Financial Statements
    54




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      Related Party Agreements
 CPAS.
 James R. Weaver.
 Employment Agreements
   55




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Bank Line of Credit
   System Outage
 
 56




---



##### 



SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
  2005 Fiscal Quarters
    
    2004 Fiscal QuartersThird
    
    Second
    
    First
    
    Fourth
    
    Third
    
    Second
    
    First(In thousands, except per share data)
    
    Fourth
    
    (Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)Consolidated Statement of Operations data:Revenues
    
    $
    34,114
    
    
    $
    49,331
    
    
    $
    35,396
    
    
    $
    31,760
    
    
    $
    31,218
    
    
    $
    40,058
    
    
    $
    29,793
    
    
    $
    26,708Costs and expenses:Direct costs
    
    
    23,499
    
    
    
    35,505
    
    
    
    22,888
    
    
    
    21,922
    
    
    
    18,323
    
    
    
    28,702
    
    
    
    19,406
    
    
    
    17,968General and administrative
    
    
    8,568
    
    
    
    7,209
    
    
    
    6,639
    
    
    
    6,542
    
    
    
    9,687
    
    
    
    6,557
    
    
    
    6,032
    
    
    
    5,957Selling and marketing
    
    
    2,821
    
    
    
    3,161
    
    
    
    2,689
    
    
    
    2,668
    
    
    
    2,250
    
    
    
    2,103
    
    
    
    1,756
    
    
    
    1,332Depreciation and amortization
    
    
    1,447
    
    
    
    1,502
    
    
    
    1,568
    
    
    
    1,548
    
    
    
    1,579
    
    
    
    1,204
    
    
    
    1,151
    
    
    
    1,175Restructuring charges
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (431
    )
    
    
    1,847
    
    
    
    5
    
    
    
    2,072(Loss) income from continuing operations
    
    
    (2,267
    )
    
    
    1,954
    
    
    
    1,612
    
    
    
    (920
    )
    
    
    (190
    )
    
    
    (355
    )
    
    
    1,443
    
    
    
    (1,796
    )Total other (loss) income
    
    
    692
    
    
    
    (250
    )
    
    
    232
    
    
    
    200
    
    
    
    194
    
    
    
    224
    
    
    
    215
    
    
    
    202(Loss) income from continuing operations,
net of income taxes
    
    
    (1,575
    )
    
    
    1,704
    
    
    
    1,844
    
    
    
    (720
    )
    
    
    4
    
    
    
    (131
    )
    
    
    1,658
    
    
    
    (1,594
    )(Benefit) provision for income taxes
    
    
    (115
    )
    
    
    203
    
    
    
    39
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Loss) income from continuing operations,
net of income taxes
    
    
    (1,460
    )
    
    
    1,501
    
    
    
    1,805
    
    
    
    (720
    )
    
    
    4
    
    
    
    (131
    )
    
    
    1,658
    
    
    
    (1,594
    )(Loss) income from discontinued operations,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    (17
    )
    
    
    164
    
    
    
    (1,565
    )Total net (loss) income
    
    $
    (1,460
    )
    
    $
    1,501
    
    
    $
    1,805
    
    
    $
    (720
    )
    
    $
    (18
    )
    
    $
    (148
    )
    
    $
    1,822
    
    
    $
    (3,159
    )Average shares issued and outstanding:Basic
    
    
    19,490
    
    
    
    19,477
    
    
    
    19,464
    
    
    
    19,447
    
    
    
    19,396
    
    
    
    19,030
    
    
    
    18,808
    
    
    
    18,702Diluted
    
    
    19,490
    
    
    
    19,578
    
    
    
    19,539
    
    
    
    19,447
    
    
    
    19,396
    
    
    
    19,030
    
    
    
    19,217
    
    
    
    18,702Performance ratios:Return on average assets
    
    
    (0.83
    )%
    
    
    0.85
    %
    
    
    1.04
    %
    
    
    (0.42
    )%
    
    
    (0.01
    )%
    
    
    (0.09
    )%
    
    
    1.13
    %
    
    
    (1.96
    )%Return on average shareholders equity
    
    
    (1.03
    )%
    
    
    1.06
    %
    
    
    1.29
    %
    
    
    (0.52
    )%
    
    
    (0.01
    )%
    
    
    (0.11
    )%
    
    
    1.37
    %
    
    
    (2.38
    )%Total ending equity to total ending assets
    
    
    80.08
    %
    
    
    80.98
    %
    
    
    80.02
    %
    
    
    80.52
    %
    
    
    81.23
    %
    
    
    80.41
    %
    
    
    82.79
    %
    
    
    81.65
    %Total average equity to total average assets
    
    
    80.53
    %
    
    
    80.50
    %
    
    
    80.26
    %
    
    
    80.87
    %
    
    
    80.82
    %
    
    
    81.56
    %
    
    
    82.22
    %
    
    
    82.24
    %Per common of common stock data:Earnings:Basic
    
    $
    (0.07
    )
    
    $
    0.08
    
    
    $
    0.09
    
    
    $
    (0.04
    )
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    0.10
    
    
    $
    (0.17
    )Diluted
    
    $
    (0.07
    )
    
    $
    0.08
    
    
    $
    0.09
    
    
    $
    (0.04
    )
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    0.10
    
    
    $
    (0.17
    )Book value
    
    $
    7.26
    
    
    $
    7.29
    
    
    $
    7.21
    
    
    $
    7.15
    
    
    $
    7.13
    
    
    $
    7.13
    
    
    $
    6.96
    
    
    $
    7.02Average balance sheet data:Total assets
    
    $
    176,439
    
    
    $
    176,037
    
    
    $
    174,316
    
    
    $
    172,337
    
    
    $
    172,443
    
    
    $
    167,224
    
    
    $
    161,185
    
    
    $
    161,101Total liabilities
    
    $
    34,352
    
    
    $
    34,330
    
    
    $
    34,403
    
    
    $
    32,967
    
    
    $
    33,076
    
    
    $
    30,832
    
    
    $
    28,657
    
    
    $
    28,616Total shareholders equity
    
    $
    142,087
    
    
    $
    141,707
    
    
    $
    139,913
    
    
    $
    139,370
    
    
    $
    139,367
    
    
    $
    136,392
    
    
    $
    132,528
    
    
    $
    132,485Market price per share of common stock:High
    
    $
    9.67
    
    
    $
    9.82
    
    
    $
    9.73
    
    
    $
    10.00
    
    
    $
    10.10
    
    
    $
    12.05
    
    
    $
    11.69
    
    
    $
    10.75Low
    
    $
    7.51
    
    
    $
    6.85
    
    
    $
    6.45
    
    
    $
    7.98
    
    
    $
    7.36
    
    
    $
    8.55
    
    
    $
    7.70
    
    
    $
    6.83
 57




---



##### 



Three months endedSept. 30,
    
    June 30,
    
    Mar. 31,
    
    Dec. 31,
    
    Sept. 30,
    
    June 30,
    
    Mar. 31,
    
    Dec. 31,(In thousands, except per share data)
    
    2005
    
    2005
    
    2005
    
    2004
    
    2004
    
    2004
    
    2004
    
    2003Consolidated Statement of Operations data:Revenues
    
    $
    
    
    
    $
    (318
    )
    
    $
    119
    
    
    $
    81
    
    
    $
    183
    
    
    $
    (675
    )
    
    $
    134
    
    
    $
    198Costs and expenses:Direct costs
    
    
    
    
    
    
    (16
    )
    
    
    (173
    )
    
    
    39
    
    
    
    165
    
    
    
    590
    
    
    
    7
    
    
    
    General and administrative
    
    
    
    
    
    
    (236
    )
    
    
    (232
    )
    
    
    (338
    )
    
    
    456
    
    
    
    (394
    )
    
    
    (261
    )
    
    
    473Selling and marketing
    
    
    
    
    
    
    
    
    
    
    (324
    )
    
    
    89
    
    
    
    225
    
    
    
    100
    
    
    
    
    
    
    
    (45
    )Depreciation and amortization
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )
    
    
    (2
    )
    
    
    
    
    
    
    44
    
    
    
    44
    
    
    
    44Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Loss) income from continuing operations
    
    
    
    
    
    
    (64
    )
    
    
    850
    
    
    
    293
    
    
    
    (663
    )
    
    
    (1,015
    )
    
    
    344
    
    
    
    (274
    )Total other (loss) income
    
    
    
    
    
    
    (125
    )
    
    
    (135
    )
    
    
    (79
    )
    
    
    (80
    )
    
    
    (81
    )
    
    
    (78
    )
    
    
    (75
    )(Loss) income from continuing
operations before income taxes
    
    
    
    
    
    
    (189
    )
    
    
    715
    
    
    
    214
    
    
    
    (743
    )
    
    
    (1,096
    )
    
    
    266
    
    
    
    (349
    )Provision (benefit) for income taxes
    
    
    
    
    
    
    31
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    (35
    )
    
    
    (35
    )
    
    
    (35
    )(Loss) income from continuing
operations, net of income taxes
    
    
    
    
    
    
    (220
    )
    
    
    696
    
    
    
    214
    
    
    
    (743
    )
    
    
    (1,061
    )
    
    
    301
    
    
    
    (314
    )(Loss) income from discontinued
operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) income
    
    $
    
    
    
    $
    (220
    )
    
    $
    696
    
    
    $
    214
    
    
    $
    (743
    )
    
    $
    (1,061
    )
    
    $
    301
    
    
    $
    (314
    )Income (loss) from continuing
operations, net of income taxesPer basic share
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    0.04
    
    
    $
    0.01
    
    
    $
    (0.04
    )
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    (0.02
    )Per diluted share
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    0.04
    
    
    $
    0.01
    
    
    $
    (0.04
    )
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    (0.02
    )Income (loss) from discontinued
operations, net of income taxes:Per basic share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Per diluted share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Net income (loss):Per basic share
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    0.04
    
    
    $
    0.01
    
    
    $
    (0.04
    )
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    (0.02
    )Per diluted share
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    0.04
    
    
    $
    0.01
    
    
    $
    (0.04
    )
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    (0.02
    )Shares used in computing:Basic net income (loss) per share
    
    
    
    
    
    
    19,477
    
    
    
    19,464
    
    
    
    19,447
    
    
    
    19,396
    
    
    
    19,030
    
    
    
    18,808
    
    
    
    18,702Diluted net income (loss) per share
    
    
    
    
    
    
    19,578
    
    
    
    19,539
    
    
    
    19,447
    
    
    
    19,396
    
    
    
    19,030
    
    
    
    19,217
    
    
    
    18,702
 58




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##### 



SCHEDULE II
Valuation and Qualifying Accounts
 Balance at
    
    
    
    
    
    
    
    
    
    Balance atbeginning of
    
    Additions/
    
    
    
    
    
    end of(in thousands)
    
    period
    
    (reductions)
    
    Write-offs
    
    periodYear ended September 30, 2005:Allowance for doubtful receivables
    
    $
    679
    
    
    $
    345
    
    
    $
    (392
    )
    
    $
    632Allowance for NSF and mispost receivables
    
    
    2,252
    
    
    
    256
    
    
    
    (501
    )
    
    
    2,007Deferred tax asset valuation allowance
    
    
    22,699
    
    
    
    3,055
    
    
    
    
    
    
    
    25,754Inventory allowance
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    75Year ended September 30, 2004:Allowance for doubtful accounts receivables
    
    
    843
    
    
    
    150
    
    
    
    (314
    )
    
    
    679Allowance for NSF and mispost receivables
    
    
    1,659
    
    
    
    1,057
    
    
    
    (464
    )
    
    
    2,252Deferred tax asset valuation allowance
    
    
    23,787
    
    
    
    (1,088
    )
    
    
    
    
    
    
    22,699Inventory allowance
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    75Year ended September 30, 2003:Allowance for doubtful accounts receivables
    
    
    650
    
    
    
    1,074
    
    
    
    (881
    )
    
    
    843Allowance for NSF and mispost receivables
    
    
    864
    
    
    
    826
    
    
    
    (31
    )
    
    
    1,659Deferred tax asset valuation allowance
    
    
    14,363
    
    
    
    9,424
    
    
    
    
    
    
    
    23,787
 59




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##### 



ITEM 9CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  ITEM 9ACONTROLS AND PROCEDURES
 Managements Report on Internal Control over Financial Reporting
  
    
    pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the companys assets;
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principals generally
accepted in the United States,
    
    provide reasonable assurance that receipts and expenditures are being made only in
accordance with authorizations of the companys management and directors; and
    
    provide reasonable assurance regarding the prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a material
affect on the financial statements.
   Internal Control-Integrated Framework
  60




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##### 



Identification of Material Weaknesses and Reportable Conditions
    
    
    We did not maintain an effective control environment under the criteria established
under the COSO frameworkSpecifically, we did not set an effective tone for promoting
ethical behavior and did not maintain controls adequate to prevent or detect instances of
intentional override or intervention of our controls by certain former members of senior
management. This lack of an effective control environment resulted in certain transactions
not being properly accounted for in our Consolidated Financial Statements and contributed
to the need to restate certain of our previously issued financial statements. The
combination of these matters resulted in the following additional material weaknesses.
 °
    
    We did not maintain effective accounting and disclosure controls over one
of our payment processing centersWe did not reconcile three accounts in our general
ledger (cash, accounts receivable, and accounts payable) with information maintained
at one of our payment processing centers. This deficiency was limited to three
accounts at a single payment processing center.°
    
    We did not maintain effective internal control over the processes used to
estimate and record the allowance for uncollectible accounts receivableAt certain
payment processing centers, we must fund insufficiently funded checks that we
receive from noncustodial parents, as well as payments that we inadvertently make to
the incorrect party. As such, we recognize a receivable that represents the amount
that we could recoup from the applicable party. We determined that the judgmental
process used to establish the allowance for uncollectible accounts receivable for
these specific types of accounts had been overridden by management in a manner that
resulted in material misstatements of our financial statements.°
    
    We did not maintain effective internal control over the recognition of
revenue for fixed-price contracts that are accounted for using the
percentage-of-completion methodWe did not reflect all appropriate forecast or
actual costs in the calculations used as the basis for recognizing revenues,
including the separate accounting for each portion of the contracts that had
separate vendor-specific objective evidence of fair value.°
    
    We did not maintain effective internal control over related-party
notesWe did not have adequate controls to ensure that the principal and interest on
related-party notes, which were entered into prior to the effective date of the
Sarbanes-Oxley Act of 2002, were calculated and recorded correctly. In addition, we
did not have the technical accounting expertise to ensure that the notes and
interest thereon were categorized correctly on our Consolidated Financial
Statements.°
    
    We did not maintain effective controls over our accounting for accrued
liabilitiesWe did not review and adjust our accrued liability accounts on a timely
basis. In addition, our then-current management overrode a control to accrue for
sales commissions that were probable of payout.
 61




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##### 



Changes in Internal Control
   
    
    The Board of Directors appointed a new Chairman and Chief Executive Officer during the
third quarter of fiscal 2006 and appointed a new Chief Financial Officer and a new
Controller during the third quarter of fiscal 2005. The Board believes that each of these
individuals possesses strong technical accounting and management skills necessary to
establish an appropriate internal control environment;
    
    We established and communicated an atmosphere of zero-tolerance for improper behavior;
    
    We established and documented processes to: (i) identify and determine the appropriate
accounting for unusual, judgmental, and complex transactions; (ii) monitor new and evolving
accounting standards; (iii) document all such reviews and analyses, as well as changes in
accounting policy; and (iv) review significant accounting issues with the appropriate
levels of management and the Audit Committee of the Board of Directors and the Disclosure
Committee;
    
    We increased the formality and rigor around the operation of key accounting and
financial disclosure controls, including the:
 °
    
    documentation and testing of key financial accounting controls;°
    
    implementation of written procedures to ensure the timely completion of account reconciliations;°
    
    implementation of appropriate written policies and procedures over our
accounting estimates and accrued liabilities;°
    
    implementation of written policies and procedures over the practices used
to record notes receivable and related interest receivable;°
    
    implementation of written policies and procedures to calculate and review
the revenues recognized using percentage of completion models;°
    
    implementation of written procedures to document managements review and
approval of transactions; and°
    
    implementation of appropriate written requirements for preparing and
maintaining appropriate support for accounting transactions.
   
    
    we will automate certain controls that are currently performed manually;
    
    we will complete our written documentation of all key financial procedures; and
    
    we will consolidate and simplify our back office operations.
 62




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##### 



Evaluation of Disclosure Controls and Procedures
 .
 ITEM 9BOTHER INFORMATION
  63




---



##### 



ITEM 10DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 Executive Officers
  Date electedName, age and position with the Registrant
    
    or appointedJames R. Weaver, Age 48
Chairman of the Board, Chief Executive Officer and
President(d)
    
    January 2004Chief Executive Officer, Chief Operating Officer and President
    
    August 2003Chief Operating Officer
    
    November 2002President and Chief Operating Officer
    
    January 2002President (US Operations)
    
    August 2000David E. Fountain, Age 45(a)
Senior Vice President, Chief Financial Officer and Treasurer
    
    May 2005Michael A. Lawler, Age 42(b)
Senior Vice President (Electronic Payment Processing)
    
    June 2004Todd F. Vucovich, Age 41
Senior Vice President (Packaged Software and Systems Integration)
    
    November 2004Vice President (Quality Assurance and Resource Management)
    
    September 2000Stephen V. Wade, Age 44
Senior Vice President (Strategy and Business Development)
    
    October 2003Vice President (Business Development and Sales)
    
    June 1999Deanne M. Tully, Age 47
Vice President, General Counsel and Corporate Secretary
    
    July 2003Vice President, General Counsel(c)
    
    February 2001
 
 (a)
    
    Mr. Fountain served as Chief Financial Officer and Treasurer of National Processing Inc., a provider of payment processing
services, from 1999 to October 2004.(b)
    
    Mr. Lawler served as EPOS Corporation President and Chairman from 1991 and became Senior Vice President at Tier upon the acquisition
of EPOS.(c)
    
    Ms. Tully was Senior Counsel at Dillingham Construction Holdings, Inc. from 1996 to February 2001.(d)
    
    For additional information, see the subheading titled Recent Eventsin Item 7Managements Discussion and Analysis of Financial
Condition and Results of Operationsand Note 15Subsequent Eventsto our Consolidated Financial Statements. Directors
  Name
    
    Age
    
    Position held with company
    
    Length of serviceCharles W. Berger(1) (3)
    
    
    52
    
    
    Director
    
    4 yearsSamuel Cabot III(1) (2) (3)
    
    
    65
    
    
    Director
    
    9 yearsMorgan P. Guenther(3)
    
    
    52
    
    
    Director
    
    6 yearsRonald L. Rossetti
    
    
    63
    
    
    Chief Executive Officer and Chairman of the Board, Director
    
    10 yearsT. Michael Scott(1) (2)
    
    
    47
    
    
    Director
    
    2 yearsBruce R. Spector(2)
    
    
    53
    
    
    Director
    
    1 year
 
 (1)
    
    Current member of the Compensation Committee(2)
    
    Current member of the Governance and Nominating Committee(3)
    
    Current member of the Audit Committee  64




---



##### 



Audit Committee
  Code of Ethics and Business Code of Conduct
  Section 16(a) Beneficial Ownership Reporting Compliance
   65




---



##### 



ITEM 11EXECUTIVE COMPENSATION
 Compensation of Directors
      66




---



##### 



Compensation of Executive Officers
  Long-termAnnual compensation
    
    compensationNumber of sharesSalary
    
    Bonus
    
    underlying options
    
    All otherName and principal position
    
    Fiscal year
    
    ($)
    
    ($)
    
    granted
    
    compensation ($)James R. Weaver(1)
    
    
    2005
    
    
    $
    550,000
    
    
    $
    
    
    
    
    184,723
    
    
    $
    75,000
    (4)President and Chief Executive
    
    
    2004
    
    
    
    500,000
    
    
    
    
    
    
    
    325,000
    
    
    
    Officer, Chairman of the Board
    
    
    2003
    
    
    
    447,877
    
    
    
    
    
    
    
    37,892
    
    
    
    Michael A. Lawler(2)
    
    
    2005
    
    
    
    214,542
    
    
    
    40,430
    
    
    
    50,000
    
    
    
    Senior Vice President,
    
    
    2004
    
    
    
    68,833
    
    
    
    
    
    
    
    
    
    
    
    Electronic Payment Processing
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deanne M. Tully
    
    
    2005
    
    
    
    212,535
    
    
    
    
    
    
    
    10,000
    
    
    
    Vice President, General
    
    
    2004
    
    
    
    202,962
    
    
    
    90,000
    
    
    
    10,000
    
    
    
    23,667
    (5)Counsel, Corporate Secretary
    
    
    2003
    
    
    
    185,694
    
    
    
    
    
    
    
    
    
    
    
    Todd F. Vucovich
    
    
    2005
    
    
    
    213,095
    
    
    
    
    
    
    
    92,000
    
    
    
    Senior Vice President, Packaged
    
    
    2004
    
    
    
    154,916
    
    
    
    
    
    
    
    5,000
    
    
    
    Software and Systems
Integration
    
    
    2003
    
    
    
    150,054
    
    
    
    
    
    
    
    
    
    
    
    Stephen V. Wade
    
    
    2005
    
    
    
    205,192
    
    
    
    22,954
    
    
    
    50,000
    
    
    
    16,124
    (6)Senior Vice President, Strategy and
    
    
    2004
    
    
    
    181,725
    
    
    
    
    
    
    
    50,000
    
    
    
    119,050
    (7)Business Development
    
    
    2003
    
    
    
    123,450
    
    
    
    
    
    
    
    
    
    
    
    68,322
    (6)Jeffrey A. McCandless(3)
    
    
    2005
    
    
    
    183,470
    
    
    
    
    
    
    
    83,681
    
    
    
    83,333Senior Vice President, Chief
    
    
    2004
    
    
    
    253,257
    
    
    
    
    
    
    
    75,000
    
    
    
    5,383
    (5)Financial Officer
    
    
    2003
    
    
    
    49,230
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Mr. Weaver was terminated effective May 31, 2006. Concurrently, Mr. Ronald Rossetti was appointed to serve as Chief Executive Officer and
Chairman of the Board.(2)
    
    Mr. Lawler joined Tier with the acquisition of EPOS in June 2004.(3)
    
    Mr. McCandless employment with Tier was terminated effective May 2005.(4)
    
    Represents $75,000 loan forgiveness.(5)
    
    Represents relocation and other travel expenses.(6)
    
    Represents sales commissions earned.(7)
    
    Represents $72,108 of relocation expenses and $46,942 sales commission earned. 67




---



##### 



Stock Option Grants
  Individual grantsNumber of shares
    
    Percent of total
    
    
    
    
    
    
    
    
    
    Grant dateunderlying options
    
    options granted to
    
    Exercise price
    
    Expiration
    
    present valueName
    
    granted (#)(1)
    
    employees
    
    ($/sh)
    
    date
    
    ($)(2)James R. Weaver(3)
    
    
    150,000
    
    
    
    20.6
    %
    
    $
    8.60
    
    
    
    10/31/14
    
    
    $
    722,520James R. Weaver(3)
    
    
    34,723
    
    
    
    4.8
    %
    
    
    8.82
    
    
    
    10/25/14
    
    
    
    171,535Jeffrey A. McCandless(4)
    
    
    25,000
    
    
    
    3.4
    %
    
    
    9.77
    
    
    
    10/07/14
    
    
    
    136,803Jeffrey A. McCandless(4)
    
    
    8,681
    
    
    
    1.2
    %
    
    
    8.82
    
    
    
    10/25/14
    
    
    
    42,885Jeffrey A. McCandless(4)
    
    
    50,000
    
    
    
    6.9
    %
    
    
    8.60
    
    
    
    10/31/14
    
    
    
    240,840Michael A. Lawler
    
    
    50,000
    
    
    
    6.9
    %
    
    
    8.60
    
    
    
    10/31/14
    
    
    
    240,840Deanne M. Tully
    
    
    10,000
    
    
    
    1.4
    %
    
    
    8.60
    
    
    
    10/31/14
    
    
    
    48,168Todd F. Vucovich
    
    
    10,000
    
    
    
    1.4
    %
    
    
    8.60
    
    
    
    10/31/14
    
    
    
    48,168Todd F. Vucovich(5)
    
    
    82,000
    
    
    
    11.2
    %
    
    
    8.75
    
    
    
    10/01/05
    
    
    
    104,197Stephen V. Wade
    
    
    50,000
    
    
    
    6.9
    %
    
    
    8.60
    
    
    
    10/31/14
    
    
    
    240,840
 (1)
    
    All options were issued under the 1996 Equity Incentive Plan. Under that plan, options vest at 20% over five years beginning with the first
anniversary of award and expire in ten years, absent of termination due to cause, disability, retirement or death.(2)
    
    The grant date present value of the options is calculated using the Black-Scholes model with the following assumptions: risk-free interest rate -
3.630%; expected volatility  62.81%; expected dividend yield  0.00%; and expected option life  5 years, for all options except the 82,000 shares issued to Mr.
Vucovich which are: risk-free interest rate  4.180%; expected volatility  38.88%; expected dividend yield  0.00%; and expected option life  8 months.(3)
    
    All of Mr. Weavers options were cancelled on June 30, 2006, which was 30 days after his termination.(4)
    
    All of Mr. McCandless options were cancelled on June 16, 2005, which was 30 days after his termination.(5)
    
    The 82,000 options issued to Mr. Vucovich were dependent upon his relocation to Northern Virginia, by October 1, 2005. Mr. Vucovich did not relocate
to Northern Virginia, thus, these options expired on October 1, 2005.  Aggregated Option Exercises
  Number of securities underlying
    
    Value of unexercised in-the-moneyShares acquired
    
    Value
    
    unexercised options at fiscal year end (#)
    
    options at fiscal year end ($)(1)Name
    
    on exercise (#)
    
    realized ($)
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableJames R. Weaver
    
    
    
    
    
    
    
    
    
    
    453,039
    
    
    
    440,000
    
    
    $
    533,187
    
    
    $
    163,800Jeffrey A. McCandless
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Michael A. Lawler
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    Deanne M. Tully
    
    
    
    
    
    
    
    
    
    
    11,000
    
    
    
    22,000
    
    
    
    1,260
    
    
    
    5,040Todd F. Vucovich
    
    
    
    
    
    
    
    
    
    
    9,001
    
    
    
    96,000
    
    
    
    12,969
    
    
    
    2,520Stephen V. Wade
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    90,000
    
    
    
    12,953
    
    
    
    25,200
 (1)
    
    The value of unexercised in-the-money options is calculated based on the fair market value of $0.01 par value common
stock on September 30, 2005 of $8.44 per share. Amount reflected is based on such fair market value minus the aggregate exercise price
and does not necessarily reflect that the optionee sold such stock. Employment and Severance Agreements
   68




---



##### 



69




---



##### 



Compensation Committee Interlocks and Insider Participation
  70




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##### 



ITEM 12SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 Beneficial Ownership
  Number of shares
    
    Percentage ofName
    
    of common stock
    
    common stock(9)Heartland Advisors, Inc.(2)
    
    
    2,883,730
    
    
    
    14.8
    %Dimensional Fund Advisors, Inc(3)
    
    
    1,790,620
    
    
    
    9.2Kennedy Capital Management, Inc.(4)
    
    
    1,438,750
    
    
    
    7.4James L. Bildner(5)
    
    
    1,361,661
    
    
    
    7.0Jeffrey A. McCandless(6)
    
    
    7,280
    
    
    
    *Donald R. Fairbairn(7)
    
    
    3,000
    
    
    
    *James R. Weaver(8)
    
    
    2,000
    
    
    
    *Ronald L. Rossetti(1)
    
    
    435,024
    
    
    
    2.2Michael A. Lawler(1)
    
    
    221,704
    
    
    
    1.1Samuel Cabot III(1)
    
    
    179,810
    
    
    
    *Stephen V. Wade(1)
    
    
    145,000
    
    
    
    *David E. Fountain(1)
    
    
    115,000
    
    
    
    *Morgan P. Guenther(1)
    
    
    111,000
    
    
    
    *Charles W. Berger(1)
    
    
    100,000
    
    
    
    *Deanne M. Tully(1)
    
    
    40,000
    
    
    
    *Todd F. Vucovich(1)
    
    
    23,002
    
    
    
    *T. Michael Scott(1)
    
    
    84,000
    
    
    
    *Bruce R. Spector(1)
    
    
    63,333
    
    
    
    *All directors and executive officers as a group (11 persons)
    
    
    1,517,873
    
    
    
    7.8
    %
 *
    
    Represents beneficial ownership of less than 1%.(1)
    
    Address: Tier Technologies, Inc., 10780 Parkridge Blvd, Suite 400, Reston, Virginia 20191(2)
    
    Address: 789 N. Water Street, Milwaukee, Wisconsin 53202(3)
    
    Address: 1299 Ocean Avenue, Santa Monica, California 90401(4)
    
    Address: 10829 Olive Boulevard, St. Louis, Missouri 63141(5)
    
    Address: 5 Boardman Avenue, Manchester, Massachusetts 10944(6)
    
    Address: PO Box 3571, Reston, Virginia 20195(7)
    
    Address: 124 Brittany Lane, Pittsford, New York 14534(8)
    
    Address: 3102 Wheatlands Farms Court. Oakton, Virginia 22124(9)
    
    Includes shares issuable upon the exercise of outstanding stock options that were exercisable on October 5, 2006 or
became exercisable on or prior to December 5, 2006 as follows: Beneficial Owner
    
    Number of SharesRonald L. Rossetti
    
    
    435,000Samuel Cabot III
    
    
    135,000Morgan P. Guenther
    
    
    70,000Charles W. Berger
    
    
    60,000Stephen V. Wade
    
    
    55,000T. Michael Scott
    
    
    40,000Bruce R. Spector
    
    
    23,333Deanne M. Tully
    
    
    22,000Michael A. Lawler
    
    
    20,000Todd F. Vucovich
    
    
    15,001David E. Fountain
    
    
    15,000
 Equity Compensation Plan Information.
 Number of securitiesNumber of securities to
    
    
    
    
    
    available for futurebe issued upon
    
    Weighted-average
    
    issuance under equityexercise of outstanding
    
    exercise price of
    
    compensation plansoptions, warrants and
    
    outstanding options,
    
    (excluding securitiesrights
    
    warrants and rights
    
    reflected in column (a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity compensation plans approved by security holders
    
    
    2,968,379
    
    
    $
    10.34
    
    
    
    900,500Equity compensation plans not approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,968,379
    
    
    $
    10.34
    
    
    
    900,500
 71




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##### 



ITEM 13CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
       72




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##### 



ITEM 14PRINCIPAL ACCOUNTING FEES AND SERVICES
 Fees
  (in thousands)
    
    2005
    
    2004Audit fees(1)McGladrey & Pullen, LLP
    
    $
    388
    
    
    $
    PricewaterhouseCoopers, LLP
    
    
    478
    
    
    
    172Total audit fees
    
    
    866
    
    
    
    172Audit related fees(2)McGladrey & Pullen, LLP
    
    
    320
    
    
    
    PricewaterhouseCoopers, LLP
    
    
    25
    
    
    
    9Total audit related fees
    
    
    345
    
    
    
    9Tax fees
    
    
    
    
    
    
    All other fees(3)McGladrey & Pullen, LLP
    
    
    
    
    
    
    Pricewaterhouse Coopers, LLP
    
    
    669
    
    
    
    107Total all other fees
    
    
    669
    
    
    
    107Total
    
    $
    1,880
    
    
    $
    288
 (1)
    
    Represents fees for professional services provided in connection with the audit of our annual financial
statements, review of our quarterly financial statements and advice on accounting manners directly related to the audit and
audit services provided in connection with other statutory and regulatory filings. McGladrey & Pullen LLP performed the
audit of Tier beginning with fiscal year 2005. PricewaterhouseCoopers LLP performed the audit of Tier for fiscal years prior
to 2005.(2)
    
    Represents fees associated with our compliance with Section 404 of the Sarbanes-Oxley Act of 2002.(3)
    
    Represents fees for professional services provided to us not otherwise listed above as audit or audit related
fees, including advice and consultation regarding (i) certain acquisitions by us, (ii) revenue contracts and other client
transactions, and (iii) other SEC compliance matters. Pre-Approval Policies and Procedures
 de minimus
 73




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ITEM 15EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (1)
    
    Financial Statements  The financial statements are set forth under Item 8 of this Annual
Report on Form 10-K. See Index to Financial Statementson page 27.(2)
    
    Financial Statement Schedules  Schedule IIValuation and Qualifying Accounts is set forth
under Item 8 of this Annual Report on Form 10-K on page 59. All other schedules have been
omitted because they were either not required or not applicable or because the information is
otherwise included.(3)
    
    Exhibits
 Exhibitnumber
    
    Exhibit description3.1
    
    Restated Certificate of Incorporation(1)3.2
    
    Amended and Restated Bylaws(1)4.1
    
    Form of common stock certificate(1)4.2
    
    See Exhibits 3.1 and 3.2 for provisions of the Restated Certificate of Incorporation and Amended and Restated
Bylaws of the Registrant defining rights of the holders of common stock of the Registrant10.1
    
    Amended and Restated 1996 Equity Incentive Plan, dated January 28, 1999(2)*10.2
    
    Form of Incentive Stock Option Agreement under the Registrants Amended and Restated 1996 Equity Incentive
Plan(3)*10.3
    
    Form of Nonstatutory Stock Option Agreement under the Registrants Amended and Restated 1996 Equity Incentive
Plan(3)*10.4
    
    Amended and Restated 2004 Stock Incentive Plan(4)*10.5
    
    Form of Incentive Stock Option Agreement under the Registrants Amended and Restated 2004 Stock Incentive
Plan(4)*10.6
    
    Form of Nonstatutory Stock Option Agreement under the Registrants Amended and Restated 2004 Stock Incentive
Plan(4)*10.7
    
    Form of Restricted Stock Agreement under the Registrants Amended and Restated 2004 Stock Incentive
Plan(4)*10.8
    
    Form of California Indemnification Agreement(5)10.9
    
    Form of Delaware Indemnification Agreement for officers10.10
    
    Form of Delaware Indemnification Agreement for directors10.11
    
    Tier Corporation 401(k) Plan, Summary Plan Description(6)*10.12
    
    Incentive Compensation Plan, as amended(7)*10.13
    
    Management Incentive Plan(8)*10.14
    
    Full Recourse Promissory Note by and between the Registrant and James L. Bildner, dated as of January 2,
1997(6)10.15
    
    Full Recourse Promissory Note by and between the Registrant and James L. Bildner, dated as of May 31,
1997(6)10.16
    
    Full Recourse Promissory Note by and between the Registrant and James L. Bildner, dated as of July 15,
1997(6)10.17
    
    Amended and Restated Full Recourse Secured Promissory Note, dated as of April 1, 1998, by and between the
Registrant and James L. Bildner(9)10.18
    
    Amended and Restated Full Recourse Secured Promissory Note, dated as of April 1, 1998, by and between the
Registrant and James L. Bildner(9)
 74




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##### 



Exhibitnumber
    
    Exhibit description10.19
    
    Amended and Restated Pledge Agreement, dated as of June 30, 1999, by and between the Registrant and James L.
Bildner(10)10.20
    
    Second Amendment and Restated Pledge Agreement, dated as of June 30, 1999, by and between the Registrant and
James L. Bildner(10)10.21
    
    Third Amendment and Restated Pledge Agreement, dated as of June 30, 1999, by and between the Registrant and
James L. Bildner(10)10.22
    
    Full Recourse Promissory Note by and between the Registrant and James L. Bildner, dated as of March 27, 2000.
(Assignment of the Note by and between the Registrant and William G. Barton, previously filed as Exhibit 10.17
to Form S-1)(11)10.23
    
    Full Recourse Promissory Note by and between the Registrant and James L. Bildner, dated as of March 27, 2000.
(Assignment of the Note by and between the Registrant and William G. Barton, previously filed as Exhibit 10.18
to Form S-1)(11)10.24
    
    Full Recourse Promissory Note by and between the Registrant and James L. Bildner, dated as of March 27, 2000.
(Assignment of the Note by and between the Registrant and William G. Barton, previously filed as Exhibit 10.19
to Form S-1)(11))10.25
    
    Pledge Agreement by and between the Registrant and James L. Bildner, dated as of March 27, 2000(11)10.26
    
    Termination Agreement dated October 14, 2003, by and between Tier and James L. Bildner(12)*10.27
    
    Pledge Agreement between Tier and James L. Bildner, dated April 1, 2004(13)10.28
    
    First Amendment, dated June 14, 2004, to the Pledge Agreement between Tier and James L. Bildner, dated March
27, 2000(13)10.29
    
    First Amendment, dated June 14, 2004, to the Second Amended and Restated Pledge Agreement between Tier and
James L. Bildner, dated June 30, 1999(13)10.30
    
    First Amendment, dated June 14, 2004, to the Third Amended and Restated Pledge Agreement between Tier and James
L. Bildner, dated June 30, 1999(13)10.31
    
    Cross-Collateralization Agreement dated December 13, 2004, by and between the Registrant and James L.
Bildner(14)10.32
    
    Severance and Change in Control Benefits Agreement by and between the Registrant and James Weaver, dated
September 1, 2001(15)*10.33
    
    Executive Employment Agreement, dated November 9, 2004, by and between Registrant and James
Weaver(3)*10.34
    
    Credit and Security Agreement as of January 29, 2003, by and between the Registrant, Official Payments
Corporation and City National Bank(16)10.35
    
    Amendment dated January 24, 2005, to the Credit and Security Agreement dated January 29, 2003, by and between
the Registrant, Official Payments Corporation and City National Bank(17)10.36
    
    Third Amendment, dated June 28, 2005, to the Credit and Security Agreement dated January 29, 2003, by and
between the Registrant, Official Payments Corporation and City National Bank(4)10.37
    
    Letter Agreement, dated June 28, 2005, by and between Registrant and City National Bank(4)10.38
    
    Employment Agreement dated May 28, 2004, by and between EPOS Corporation and Michael A. Lawler(18)*10.39
    
    Supplemental Indemnity Agreement by and between Registrant and Bruce R. Spector, dated September 2,
2004(14)10.40
    
    Summary of Board Compensation(19)*10.41
    
    Offer Letter by and between Registrant and David Fountain, dated May 2, 2005(20)*10.42
    
    Executive Incentive Metrics for Chief Executive Officer and Chief Financial Officer for fiscal year ended
September 30, 2005(20)*
 75




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##### 



Exhibitnumber
    
    Exhibit description10.43
    
    Senior Vice President  Human Resources Compensation Summary(20)*10.44
    
    Separation Agreement and Release between Registrant and Jeffrey McCandless, dated March 9, 2005.(21)*10.45
    
    Employment Agreement dated July 2, 2003 by and between Tier and Mr. Jeffrey A. McCandless (22)*10.46
    
    Employment Agreement dated July 1, 2004 between Tier and Ms. Deanne M. Tully*10.47
    
    Executive Severance and Change in Control Benefits Agreement*10.48
    
    Third Amendment to Credit and Security Agreement with City National Bank, dated June 28, 2005(23)10.49
    
    Shareholder Rights Plan and Rights Agreement, dated January 10, 2006(24)10.50
    
    Assumption Agreement between Tier Technologies, Inc., Official Payments Corporation and EPOS Corporation, dated
January 6, 2006(25)10.51
    
    Board approval of two one-time bonuses to David E. Fountain, dated February 21, 2006.(26)*10.52
    
    Amended and Restated Credit and Security Agreement between Tier Technologies, Inc. and City National
Bank(27)10.53
    
    Form of Employment Security Agreements between Tier Technologies, Inc., and Steven Beckerman, Todd Vucovich,
Steven Wade, Michael Lawler, and Thomas Jack William, and Matthew Genz, dated March 28, 2006.(28)*10.54
    
    Management Incentive Plan for Steven Beckerman, Todd Vucovich, Steven Wade, Michael Lawler and Deanne Tully,
dated March 28, 2006.(28)*10.55
    
    Separation Agreement between Tier Technologies, Inc., and James R. Weaver, dated May 31, 2006(29)*10.56
    
    Employment Agreement between Tier Technologies, Inc., and Ronald Rossetti, dated July 26, 2006.(30)*10.57
    
    Discretionary Incentive Compensation Plan, dated August 22, 2005(31)*10.58
    
    Option Grants awarded to David E. Fountain, Steven M. Beckerman, Michael Lawler, Deanne Tully, Stephen Wade,
Charles Berger, Samuel Cabot, Morgan Guenther, T. Michael Scott Bruce Spector, and fifteen other employees,
dated August 24, 2006(32)*21.1
    
    Subsidiaries of the Registrant31.1
    
    Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the
Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the
Securities Exchange Act of 1934, as amended.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Management contract or compensatory plan required to be filed as an exhibit to this report.(1)
    
    Filed as an exhibit to Form 8-K, filed on July 19, 2005, and incorporated herein by reference(2)
    
    Filed as an exhibit to Form 10-Q, filed May 11, 2001, and incorporated herein by reference(3)
    
    Filed as an exhibit to Form 8-K, filed November 12, 2004, and incorporated herein by reference(4)
    
    Filed as an exhibit to Form 8-K, filed July 5, 2005 and incorporated herein by reference(5)
    
    Filed as an exhibit to Form 10-K, filed December 21, 1998 and incorporated herein by reference(6)
    
    Filed as an exhibit to Form S-1 (No. 333-37661), filed on October 10, 1997, and incorporated herein by reference(7)
    
    Filed as an exhibit to Form 8-K, filed on May 5, 2005, and incorporated herein by reference(8)
    
    Filed as an exhibit to Form 8-K, filed on May 27, 2005, and incorporated herein by reference(9)
    
    Filed as an exhibit to Form S-1/A (No. 333-52065), filed on May 7, 1998, and incorporated herein by reference(10)
    
    Filed as an exhibit to Form 10-Q, filed August 16, 1999, and incorporated herein by reference 76




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##### 



(11)
    
    Filed as an exhibit to Form 10-Q, filed May 15, 2000, and incorporated herein by reference(12)
    
    Filed as an exhibit to Form 10-Q, filed February 13, 2004, and incorporated herein by reference(13)
    
    Filed as an exhibit to Form 10-Q, filed August 15, 2004, and incorporated herein by reference(14)
    
    Filed as an exhibit to Form 8-K filed December 15, 2004, and incorporated herein by reference(15)
    
    Filed as an exhibit to Form 10-K, filed November 29, 2001, and incorporated herein by reference(16)
    
    Filed as an exhibit to Form 10-Q, filed May 12, 2003, and incorporated herein by reference(17)
    
    Filed as an exhibit to Form 10-Q, filed February 9, 2005, and incorporated herein by reference(18)
    
    Filed as an exhibit to Form 10-K filed December 28 2004, and incorporated herein by reference(19)
    
    Filed as an exhibit to Form 10-Q, filed February 9, 2005, and incorporated herein by reference(20)
    
    Filed as an exhibit to Form 10-Q, filed May 6, 2005, and incorporated herein by reference(21)
    
    Filed as an exhibit to Form 8-K, filed March 14, 2005, and incorporated herein by reference(22)
    
    Filed as an exhibit to Form 10-Q, filed May 11, 2004, and incorporated herein by reference(23)
    
    Filed as an exhibit to Form 8-K, filed July 5, 2005, and incorporated herein by reference(24)
    
    Filed as an exhibit to Form 8-K, filed January 11, 2006, and incorporated herein by reference(25)
    
    Filed as an exhibit to Form 8-K, filed January 11, 2006, and incorporated herein by reference(26)
    
    Filed as an exhibit to Form 8-K, filed February 22, 2006, and incorporated herein by reference(27)
    
    Filed as an exhibit to Form 8-K, filed March 9, 2006, and incorporated herein by reference(28)
    
    Filed as an exhibit to Form 8-K, filed April 3, 2006, and incorporated herein by reference(29)
    
    Filed as an exhibit to Form 8-K, filed June 1, 2006, and incorporated herein by reference(30)
    
    Filed as an exhibit to Form 8-K, filed August 1, 2006, and incorporated herein by reference(31)
    
    Filed as an exhibit to Form 8-K, filed August 25, 2006, and incorporated herein by reference(32)
    
    Filed as an exhibit to Form 8-K, filed August 29, 2006, and incorporated herein by reference 77




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##### 



SIGNATURES
  Tier Technologies, Inc.Dated: October 19, 2006By:
    /s/ RONALD L. ROSSETTIRonald L. RossettiChief Executive Officer POWER OF ATTORNEY
   Signature
    
    Title
    
    Date/s/ RONALD L. ROSSETTI
    
    Chief Executive Officer and Chairman of the
    
    October 19, 2006Ronald L. Rossetti
    
    Board
(principal executive officer)/s/ DAVID E. FOUNTAIN
    
    Chief Financial Officer(principal financial
    
    October 19, 2006David E. Fountain
    
    officer and principal accounting officer)/s/ CHARLES W. BERGERCharles W. Berger
    
    Director
    
    October 19, 2006/s/ SAMUEL CABOT IIISamuel Cabot III
    
    Director
    
    October 19, 2006/s/ MORGAN P. GUENTHERMorgan P. Guenther
    
    Director
    
    October 19, 2006/s/ T. MICHAEL SCOTTT. Michael Scott
    
    Director
    
    October 19, 2006/s/ BRUCE R. SPECTORBruce R. Spector
    
    Director
    
    October 19, 2006
 78