##### 



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, 2006
 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
  COMMON STOCK, $0.01 PAR VALUE
 o þ
 o þ
 þ o
 o
  o þ o
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TIER TECHNOLOGIES, INC.
FORM 10-K
TABLE OF CONTENTS
 PART I
    
    
    3Item 1Business
    
    
    3Item 1ARisk Factors
    
    
    6Item 1BUnresolved Staff Comments
    
    
    11Item 2Properties
    
    
    11Item 3Legal Proceedings
    
    
    11Item 4Submission of Matters to a Vote of Security Holders
    
    
    11Executive Officers
    
    
    12PART II
    
    
    12Item 5Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    12Item 6Selected Financial Data
    
    
    14Item 7Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 7AQuantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 8Financial Statements and Supplementary Data
    
    
    28Report of Independent Registered Public Accounting Firm
    
    
    30Consolidated Balance Sheets
    
    
    31Consolidated Statements of Operations
    
    
    32Consolidated Statements of Shareholders Equity
    
    
    33Consolidated Statements of Comprehensive (Loss) Income
    
    
    34Consolidated Statements of Cash Flows
    
    
    35Consolidated Supplemental Cash Flow Information
    
    
    36Note 1Organizational Overview
    
    
    37Note 2Summary of Significant Accounting Policies
    
    
    37Note 3(Loss) Earnings per Share
    
    
    41Note 4Customer Concentration and Risk
    
    
    41Note 5Investments
    
    
    42Note 6Property, Equipment and Software
    
    
    43Note 7Goodwill and Other Intangible Assets
    
    
    44Note 8Contingencies and Commitments
    
    
    45Note 9Shareholders Equity
    
    
    48Note 10Share-based Payment
    
    
    49Note 11Related Party Transactions
    
    
    51Note 12Segment Information
    
    
    51Note 13Income Taxes
    
    
    52Note 14Restructuring
    
    
    53Note 15Discontinued Operations
    
    
    54Note 16Subsequent Events
    
    
    54Selected Quarterly Financial data (Unaudited)
    
    
    56Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    58Item 9aControls and Procedures
    
    
    58Item 9bOther Information
    
    
    61PART III
    
    
    61Item 10Directors and Executive Officers of the Registrant
    
    
    61Item 11Executive Compensation
    
    
    61Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    61Item 13Certain Relationships and Related Transactions
    
    
    61Item 14Principal Accounting Fees and Services
    
    
    61PART IV
    
    
    62Item 15Exhibits, Financial Statement Schedules
    
    
    62SIGNATURES
    
    
    66
 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 1ARisk Factors
 
 GENERAL
  SEGMENT INFORMATION
  Segment Information
 Electronic Payment Processing, or EPP.
  3




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##### 



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
 Packaged Software and System Integration, or PSSI.
 
    
    Financial Management Systemsdevelops, implements and supports financial
management and purchasing systems for state and local governments;
 4




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##### 




    
    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;
    
    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
    COMPETITION
   5




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##### 



INTELLECTUAL PROPERTY RIGHTS
   AVAILABLE INFORMATION
 www.Tier.com
   If we fail to regain our listing status on 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 may not be profitable in the future.
 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;
 6




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##### 




    
    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.
 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 significantly change our reported results. Our accounting
policies and methods are fundamental to how we record and report our financial condition and
results of operations.
 Changes in laws and government and regulatory compliance requirements may result in additional
compliance costs and may adversely impact our reported earnings.
 7




---



##### 



The revenues provided by our EPP segment from electronic payment processing may fluctuate and the
ability to maintain profitability is uncertain.
 Our ability to grow depends largely on our ability to attract, integrate and retain qualified
personnel. The success of our business is based largely on our ability to attract and retain
talented and qualified employees and contractors.
 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.
 8




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##### 



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.
 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.
 Unauthorized data access and other security breaches could have an adverse impact on our business
and our reputation. Security breaches or improper access to data in our facilities, computer
networks, or databases, or those of our suppliers, may cause harm to our business and result in
liability and systems interruptions.
 We could suffer material losses if our operations fail to perform effectively. The potential for
operational risk exposure exists throughout our organization.
 Our business may be harmed by claims, lawsuits or investigations which could result in adverse
outcomes. At any given time, we are subject to a variety of claims and lawsuits.
  9




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##### 



If we are not able to protect our intellectual property we could suffer serious harm to our
business. We protect our intellectual property rights through a variety of methods, such as use of
nondisclosure and license agreements, and use of trade secret, copyright and trademark laws.
 We may be subject to infringement claims by third parties, resulting in increased costs and loss of
business.
 Our markets are changing rapidly and if we are not able 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. One of our
strategies is to pursue growth through acquisitions.
 Our business is subject to increasing performance requirements, which could result in reduced
revenues and increased liability.
 10




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##### 



11




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##### 



Date electedName, age and position with the Registrant
    
    or appointedRonald L Rossetti, Age 64(a)
Chairman of the Board, Chief Executive Officer
    
    May 2006Steven M. Beckerman, Age 48(b)
Senior Vice President, Business Process Outsourcing
    
    March 2006David E. Fountain, Age 46(c)
Senior Vice President, Chief Financial Officer and Treasurer
    
    May 2005Michael A. Lawler, Age 43(d)
Senior Vice President (Electronic Payment Processing)
    
    June 2004Deanne M. Tully, Age 48(e)
Vice President, General Counsel and Corporate Secretary
    
    July 2003Vice President, General Counsel
    
    February 2001Stephen V. Wade, Age 45(f)
Senior Vice President (Strategy and Business Development)
    
    October 2003Vice President (Business Development and Sales)
    
    June 1999
 
 (a)
    
    Mr. Rossetti served as President of Riverside Capital Partners, Inc., a venture capital investment firm, since
1997. Since 1997, Mr. Rossetti has also been a general partner in several real estate general partnerships, all commonly controlled
by Riverside Capital Holdings.(b)
    
    Prior to joining Tier, Mr. Beckerman was employed by Certegy Card Service, a company that provides debit, credit and
merchant card processing. From January 2004 to February 2006, Mr. Beckerman served as the Certegys Senior Vice President, Product
Management and from July 2000 to December 2003, Mr. Beckerman served as Certegys Vice President, Sales and Marketing.(c)
    
    Mr. Fountain served as Chief Financial Officer and Treasurer of National Processing Inc., a provider of payment
processing services, from 1999 to October 2004.(d)
    
    Mr. Lawler served as EPOS Corporation President and Chairman from 1991 to June 2004 and became Senior Vice President at
Tier upon the acquisition of EPOS.(e)
    
    Ms. Tully was Senior Counsel at Dillingham Construction Holdings, Inc. from 1996 to February 2001.(f)
    
    Mr. Wade resigned from the Company effective November 27, 2006. 
  12




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##### 



Year ended September 30,2006
    
    2005High
    
    Low
    
    High
    
    LowFirst quarter
    
    $
    8.50
    
    
    $
    6.93
    
    
    $
    10.00
    
    
    $
    7.98Second quarter
    
    $
    8.08
    
    
    $
    7.34
    
    
    $
    9.73
    
    
    $
    6.45Third quarter
    
    $
    8.70
    
    
    $
    5.67
    
    
    $
    9.82
    
    
    $
    6.85Fourth quarter
    
    $
    7.05
    
    
    $
    5.25
    
    
    $
    9.67
    
    
    $
    7.51
  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
    
    
    2,237
    
    
    $
    8.45
    
    
    
    1,869Not approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,237
    
    
    $
    8.45
    
    
    
    1,869
  13




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##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
 Fiscal years ended September 30,(in thousands, except per share data)
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Revenues
    
    $
    168,731
    
    
    $
    150,601
    
    
    $
    127,777
    
    
    $
    115,577
    
    
    $
    84,433Cost and expenses:Direct costs
    
    
    125,845
    
    
    
    103,814
    
    
    
    84,399
    
    
    
    89,657
    
    
    
    52,847General and administrative
    
    
    38,540
    
    
    
    28,958
    
    
    
    28,233
    
    
    
    23,606
    
    
    
    14,508Selling and marketing
    
    
    11,474
    
    
    
    11,339
    
    
    
    7,441
    
    
    
    5,581
    
    
    
    3,853Depreciation and amortization
    
    
    5,257
    
    
    
    6,065
    
    
    
    5,109
    
    
    
    5,423
    
    
    
    3,764Restructuring charges
    
    
    35
    
    
    
    46
    
    
    
    3,493
    
    
    
    414
    
    
    
    Total costs and expenses
    
    
    181,151
    
    
    
    150,222
    
    
    
    128,675
    
    
    
    124,681
    
    
    
    74,972(Loss) income before discontinued and other income (loss)
    
    
    (12,420
    )
    
    
    379
    
    
    
    (898
    )
    
    
    (9,104
    )
    
    
    9,461Other income (loss):Interest income, net
    
    
    2,951
    
    
    
    1,543
    
    
    
    835
    
    
    
    904
    
    
    
    1,262Realized loss on impairment of investments
    
    
    
    
    
    
    (501
    )
    
    
    
    
    
    
    
    
    
    
    Equity in net income (loss) of unconsolidated affiliate
    
    
    445
    
    
    
    (168
    )
    
    
    
    
    
    
    
    
    
    
    Other income
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total other income
    
    
    3,470
    
    
    
    874
    
    
    
    835
    
    
    
    904
    
    
    
    1,262(Loss) income before income taxes & discontinued operations
    
    
    (8,950
    )
    
    
    1,253
    
    
    
    (63
    )
    
    
    (8,200
    )
    
    
    10,723Income tax provision (benefit)
    
    
    501
    
    
    
    127
    
    
    
    
    
    
    
    (2,764
    )
    
    
    4,010Net (loss) income from continuing operations
    
    $
    (9,451
    )
    
    $
    1,126
    
    
    $
    (63
    )
    
    $
    (5,436
    )
    
    $
    6,713Total assets
    
    $
    169,549
    
    
    $
    176,742
    
    
    $
    171,980
    
    
    $
    161,374
    
    
    $
    197,975Long-term obligations, less current portion
    
    $
    
    
    
    $
    
    
    
    $
    89
    
    
    $
    195
    
    
    $
    288Earnings (loss) per share from continuing operations:Basic
    
    $
    (0.48
    )
    
    $
    0.06
    
    
    $
    
    
    
    $
    (0.29
    )
    
    $
    0.39Diluted
    
    $
    (0.48
    )
    
    $
    0.06
    
    
    $
    
    
    
    $
    (0.29
    )
    
    $
    0.39Number of shares used in calculating earnings (loss)
per share from continuing operations:Basic
    
    
    19,495
    
    
    
    19,470
    
    
    
    18,987
    
    
    
    18,782
    
    
    
    17,225Diluted
    
    
    19,495
    
    
    
    19,593
    
    
    
    18,987
    
    
    
    18,782
    
    
    
    17,225
 14




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##### 



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 Special Note About Forward-Looking Statements on page 3.
 OVERVIEW
     RECENT EVENTS
  15




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##### 



Fiscal 2005 Filing Delay Announced.
 Stockholder Rights Plan .
 Audit Committee Investigation.
 Delisting by Nasdaq
 Management Changes.
 SEC Subpoena
 Claim.
 16




---



##### 



RESULTS OF OPERATIONS
  VarianceYear ended September 30,
    
    
    2006 vs. 2005
    
    
    2005 vs. 2004(in thousands, except percentages)
    
    2006
    
    
    2005
    
    
    2004
    
    
    $ Amount
    
    
    %
    
    
    $ Amount
    
    
    %Revenues
    
    $
    168,731
    
    
    $
    150,601
    
    
    $
    127,777
    
    
    $
    18,130
    
    
    
    12
    %
    
    $
    22,824
    
    
    
    18
    %Costs and expenses
    
    
    181,151
    
    
    
    150,222
    
    
    
    128,675
    
    
    
    30,929
    
    
    
    21
    %
    
    
    21,547
    
    
    
    17
    %(Loss) income before other income,
incomes taxes and discontinued
operations
    
    
    (12,420
    )
    
    
    379
    
    
    
    (898
    )
    
    
    (12,799
    )
    
    
    *
    
    
    
    1,277
    
    
    
    *Other income
    
    
    3,470
    
    
    
    874
    
    
    
    835
    
    
    
    2,596
    
    
    
    *
    
    
    
    39
    
    
    
    5
    %(Loss) income before income taxes and
discontinued operations
    
    
    (8,950
    )
    
    
    1,253
    
    
    
    (63
    )
    
    
    (10,203
    )
    
    
    *
    
    
    
    1,316
    
    
    
    *Provision for income taxes
    
    
    501
    
    
    
    127
    
    
    
    
    
    
    
    374
    
    
    
    *
    
    
    
    127
    
    
    
    *(Loss) income from continuing operations
    
    
    (9,451
    )
    
    
    1,126
    
    
    
    (63
    )
    
    
    (10,577
    )
    
    
    *
    
    
    
    1,189
    
    
    
    *Loss from discontinued operations, net of
income taxes
    
    
    
    
    
    
    
    
    
    
    (1,440
    )
    
    
    
    
    
    
    *
    
    
    
    1,440
    
    
    
    *       -Net (loss) income
    
    $
    (9,451
    )
    
    $
    1,126
    
    
    $
    (1,503
    )
    
    $
    (10,577
    )
    
    
    *
    
    
    $
    2,629
    
    
    
    *
 
 *
    
    Not meaningful Revenues
    VarianceYear ended September 30,
    
    
    2006 vs. 2005
    
    
    2005 vs. 2004(in thousands, except percentages)
    
    2006
    
    
    2005
    
    
    2004
    
    
    $ Amount
    
    
    %
    
    
    $ Amount
    
    
    %Revenues, by segment:EPP
    
    $
    78,427
    
    
    $
    56,452
    
    
    $
    40,669
    
    
    
    21,975
    
    
    
    39
    %
    
    $
    15,783
    
    
    
    39
    %GBPO
    
    
    45,478
    
    
    
    45,771
    
    
    
    45,205
    
    
    
    (293
    )
    
    
    (1
    )%
    
    
    566
    
    
    
    1
    %PSSI(1)
    
    
    44,826
    
    
    
    48,378
    
    
    
    41,903
    
    
    
    (3,552
    )
    
    
    (7
    )%
    
    
    6,475
    
    
    
    15
    %Total
    
    $
    168,731
    
    
    $
    150,601
    
    
    $
    127,777
    
    
    $
    18,130
    
    
    
    12
    %
    
    $
    22,824
    
    
    
    18
    %
 
 (1)
    
    Fiscal 2005 excludes $5.1 million of PSSI segment revenues that were eliminated during the consolidation of our accounting results. Electronic Payment Processing Segment
  17




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##### 



Government Business Processing Segment.
  Packaged Software and Systems Integration Segment
  18




---



##### 



Costs and Expenses
  VarianceYear ended September 30,
    
    
    2006 vs. 2005
    
    
    2005 vs. 2004(in thousands, except percentages)
    
    2006
    
    
    2005
    
    
    2004
    
    
    $ Amount
    
    
    %
    
    
    $ Amount
    
    
    %Costs and expenses:Direct costs
    
    $
    125,845
    
    
    $
    103,814
    
    
    $
    84,399
    
    
    $
    22,031
    
    
    
    21
    %
    
    $
    19,415
    
    
    
    23
    %General and administrative
    
    
    38,540
    
    
    
    28,958
    
    
    
    28,233
    
    
    
    9,582
    
    
    
    33
    %
    
    
    725
    
    
    
    3
    %Selling and marketing
    
    
    11,474
    
    
    
    11,339
    
    
    
    7,441
    
    
    
    135
    
    
    
    1
    %
    
    
    3,898
    
    
    
    52
    %Depreciation and amortization
    
    
    5,257
    
    
    
    6,065
    
    
    
    5,109
    
    
    
    (808
    )
    
    
    (13
    )%
    
    
    956
    
    
    
    19
    %Restructuring charges
    
    
    35
    
    
    
    46
    
    
    
    3,493
    
    
    
    (11
    )
    
    
    (24
    )%
    
    
    (3,447
    )
    
    
    (99
    )%Total costs and expenses
    
    $
    181,151
    
    
    $
    150,222
    
    
    $
    128,675
    
    
    $
    30,929
    
    
    
    (21
    )%
    
    $
    21,547
    
    
    
    17
    %
 Direct costs 
 Direct costs
 General and administrative .
 Share-Based Payments
  19




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##### 



Selling and marketing .
 Depreciation and amortization .
 Restructuring charges.
 VarianceYear ended September 30,
    
    
    2006 vs. 2005
    
    
    2005 vs. 20042006
    
    
    2005
    
    
    2004
    
    
    $ Amount
    
    
    %
    
    
    $ Amount
    
    
    %Restructuring charges:Asset impairment charges
    
    $
    
    
    
    $
    
    
    
    $
    571
    
    
    $
    
    
    
    
    
    
    
    $
    (571
    )
    
    
    (100
    )%Severance costs
    
    
    3
    
    
    
    31
    
    
    
    1,846
    
    
    
    (28
    )
    
    
    (90
    )%
    
    
    (1,815
    )
    
    
    (98
    )%Office closure costs
(net of sublease
income)
    
    
    32
    
    
    
    15
    
    
    
    1,076
    
    
    
    17
    
    
    
    113
    %
    
    
    (1,061
    )
    
    
    (99
    )%Total
    
    $
    35
    
    
    $
    46
    
    
    $
    3,493
    
    
    $
    (11
    )
    
    
    (24
    )%
    
    $
    (3,447
    )
    
    
    (99
    )%
  Other Income (Loss)
 Equity in net income (loss) of unconsolidated affiliate.
 Loss on sale of investments.
 20




---



##### 



Income Tax Provision
  Discontinued Operations
  LIQUIDITY AND CAPITAL RESOURCES
   Net Cash from Continuing OperationsOperating Activities
  21




---



##### 



Net Cash from Continuing OperationsInvesting Activities.
    Net Cash from Continuing OperationsFinancing Activities.
    22




---



##### 



Net Cash from Discontinued Operations.
 Discontinued
Operations
  Summary of Significant Accounting
Policies
 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 recognized 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.
  23




---



##### 



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
 24




---



##### 



Share-Based Compensation. Share-Based
Payment, Share-Based Payment
 RECENT ACCOUNTING STANDARDS
 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 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.
 25




---



##### 



OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
 Indemnification Agreements
 Articles
of Incorporation or Bylaws
 Employment Agreements
  Employment and Security Agreements
 Separation Agreement and
Release
  Changes to 401(k) Plan
  26




---



##### 



Contractual Obligations
  Due in
    
    Due after
    
    Due after1 year
    
    1 year through
    
    3 years through(in thousands)
    
    Total
    
    or less
    
    3 years
    
    5 yearsCapital leases (equipment)
    
    $
    124
    
    
    $
    42
    
    
    $
    81
    
    
    $
    1Operating lease obligations:Facilities leases
    
    
    9,360
    
    
    
    3,398
    
    
    
    5,962
    
    
    
    Equipment leases
    
    
    138
    
    
    
    60
    
    
    
    78
    
    
    
    Purchase obligationsSubcontractor
    
    
    2,826
    
    
    
    1,866
    
    
    
    960
    
    
    
    Purchase order
    
    
    76
    
    
    
    76
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    12,524
    
    
    $
    5,442
    
    
    $
    7,081
    
    
    $
    1
   27




---



##### 



ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Reports of Independent Registered Public Accounting Firms
    
    
    29Consolidated Balance Sheets
    
    
    31Consolidated Statements of Operations
    
    
    32Consolidated Statements of Shareholders Equity
    
    
    33Consolidated Statements of Comprehensive (Loss) Income
    
    
    34Consolidated Statements of Cash Flows
    
    
    35Notes to Consolidated Financial Statements
    
    
    37Schedule IIValuation and Qualifying Accounts
    
    
    57
 28




---



##### 



/s/ McGladrey & Pullen, LLPAlexandria, VirginiaDecember 13, 2006
 29




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
  /s/ PricewaterhouseCoopers, LLPSan Jose, CaliforniaDecember 27, 2004, except for the restatement described in Note 1 to the consolidated financial
statements (not presented herein), as to which the date is October 23, 2006.
 30




---



##### 



TIER TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
 September 30,(in thousands)
    
    2006
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    18,486
    
    
    $
    27,843Investments in marketable securities
    
    
    36,950
    
    
    
    36,493Accounts receivable, net
    
    
    15,035
    
    
    
    19,449Unbilled receivables
    
    
    2,918
    
    
    
    3,094Prepaid expenses and other current assets
    
    
    3,067
    
    
    
    3,680Total current assets
    
    
    76,456
    
    
    
    90,559Property, equipment and software, net
    
    
    13,466
    
    
    
    13,501Long-term accounts receivable
    
    
    
    
    
    
    1,560Goodwill
    
    
    37,567
    
    
    
    37,567Other intangible assets, net
    
    
    21,879
    
    
    
    26,147Restricted investments
    
    
    12,287
    
    
    
    3,335Investment in unconsolidated affiliate
    
    
    3,978
    
    
    
    3,590Other assets
    
    
    3,916
    
    
    
    483Total assets
    
    $
    169,549
    
    
    $
    176,742LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    871
    
    
    $
    1,902Income taxes payable
    
    
    7,288
    
    
    
    7,113Accrued compensation liabilities
    
    
    5,325
    
    
    
    5,139Accrued subcontractor expense
    
    
    2,360
    
    
    
    3,226Other accrued liabilities
    
    
    11,823
    
    
    
    7,836Deferred income
    
    
    5,750
    
    
    
    7,795Total current liabilities
    
    
    33,417
    
    
    
    33,011Other liabilities
    
    
    1,922
    
    
    
    2,192Total liabilities
    
    
    35,339
    
    
    
    35,203Commitments 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;
shares issued: 20,383 and 20,374; and shares outstanding: 19,499 and 19,490
    
    
    184,387
    
    
    
    182,066Treasury stockat cost, 884 shares
    
    
    (8,684
    )
    
    
    (8,684
    )Notes receivable from related parties
    
    
    (4,275
    )
    
    
    (3,998
    )Accumulated other comprehensive loss
    
    
    (33
    )
    
    
    (111
    )Accumulated deficit
    
    
    (37,185
    )
    
    
    (27,734
    )Total shareholders equity
    
    
    134,210
    
    
    
    141,539Total liabilities and shareholders equity
    
    $
    169,549
    
    
    $
    176,742
 See Notes to Consolidated Financial Statements
 31




---



##### 



TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 Year ended September 30,(in thousands, except per share data)
    
    2006
    
    2005
    
    2004Revenues
    
    $
    168,731
    
    
    $
    150,601
    
    
    $
    127,777Costs and expenses:Direct costs
    
    
    125,845
    
    
    
    103,814
    
    
    
    84,399General and administrative
    
    
    38,540
    
    
    
    28,958
    
    
    
    28,233Selling and marketing
    
    
    11,474
    
    
    
    11,339
    
    
    
    7,441Depreciation and amortization
    
    
    5,257
    
    
    
    6,065
    
    
    
    5,109Restructuring charges
    
    
    35
    
    
    
    46
    
    
    
    3,493Total costs and expenses
    
    
    181,151
    
    
    
    150,222
    
    
    
    128,675(Loss) income before other income, income taxes and loss
from discontinued operations
    
    
    (12,420
    )
    
    
    379
    
    
    
    (898
    )Other income (loss):Interest income, net
    
    
    2,951
    
    
    
    1,543
    
    
    
    835Loss on sale of investments
    
    
    
    
    
    
    (501
    )
    
    
    Equity in net income (loss) of unconsolidated affiliate
    
    
    445
    
    
    
    (168
    )
    
    
    Other income
    
    
    74
    
    
    
    
    
    
    
    Total other income
    
    
    3,470
    
    
    
    874
    
    
    
    835(Loss) income from continuing operations before income taxes
    
    
    (8,950
    )
    
    
    1,253
    
    
    
    (63
    )Income tax provision
    
    
    501
    
    
    
    127
    
    
    
    (Loss) income from continuing operations
    
    
    (9,451
    )
    
    
    1,126
    
    
    
    (63
    )Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    (1,440
    )Net (loss) income
    
    $
    (9,451
    )
    
    $
    1,126
    
    
    $
    (1,503
    )(Loss) earnings per shareBasic:From continuing operations
    
    $
    (0.48
    )
    
    $
    0.06
    
    
    $
    From discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    (0.08
    )(Loss) earnings per shareBasic
    
    $
    (0.48
    )
    
    $
    0.06
    
    
    $
    (0.08
    )(Loss) earnings per shareDiluted:From continuing operations
    
    $
    (0.48
    )
    
    $
    0.06
    
    
    $
    From discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    (0.08
    )(Loss) earnings per shareDiluted
    
    $
    (0.48
    )
    
    $
    0.06
    
    
    $
    (0.08
    )Weighted-average shares used in computing:Basic (loss) earnings per share
    
    
    19,495
    
    
    
    19,470
    
    
    
    18,987Diluted
(loss) earnings per share
    
    
    19,495
    
    
    
    19,593
    
    
    
    18,987
 See Notes to Consolidated Financial Statements
 32




---



##### 



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, 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
    )
    
    
    141,539Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,451
    )
    
    
    (9,451
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    69
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69Interest receivable from related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    277
    
    
    
    
    
    
    
    
    
    
    
    (277
    )
    
    
    
    
    
    
    
    
    
    
    Share-based payment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,975
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,975Unrealized gain on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    53Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    25Balance at September 30, 2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    20,383
    
    
    $
    204
    
    
    $
    184,183
    
    
    
    (884
    )
    
    $
    (8,684
    )
    
    $
    (4,275
    )
    
    $
    (33
    )
    
    $
    (37,185
    )
    
    $
    134,210
 See Notes to Consolidated Financial Statements
 33




---



##### 



TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
 Year ended September 30,(in thousands)
    
    2006
    
    2005
    
    2004Net (loss) income
    
    $
    (9,451
    )
    
    $
    1,126
    
    
    $
    (1,503
    )Other comprehensive (loss) income, net of taxes:Investments in marketable securities:Unrealized gain (loss)
    
    
    53
    
    
    
    19
    
    
    
    (176
    )Less impact of realized losses (transferred
out of accumulated other comprehensive
income and included in net income)
    
    
    
    
    
    
    70
    
    
    
    Net change from marketable securities
    
    
    53
    
    
    
    89
    
    
    
    (176
    )Foreign currency translation gain (loss)
    
    
    25
    
    
    
    (72
    )
    
    
    269Other comprehensive income
    
    
    78
    
    
    
    17
    
    
    
    93Comprehensive (loss) income
    
    $
    (9,373
    )
    
    $
    1,143
    
    
    $
    (1,410
    )
 See Notes to Consolidated Financial Statements
 34




---



##### 



TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year ended September 30,(in thousands)
    
    2006
    
    2005
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (9,451
    )
    
    $
    1,126
    
    
    $
    (1,503
    )Less: Loss from discontinued operations, net
    
    
    
    
    
    
    
    
    
    
    (1,440
    )(Loss) income from continuing operations, net
    
    
    (9,451
    )
    
    
    1,126
    
    
    
    (63
    )Non-cash items included in net (loss) income from continuing operations:Depreciation and amortization
    
    
    8,998
    
    
    
    8,992
    
    
    
    7,139Loss on retirement of equipment and software
    
    
    324
    
    
    
    662
    
    
    
    571Stock options revision charge
    
    
    
    
    
    
    
    
    
    
    552Stock-based compensation
    
    
    1,975
    
    
    
    
    
    
    
    Provision for doubtful accounts
    
    
    1,020
    
    
    
    602
    
    
    
    388Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    25Equity in net (income) loss of unconsolidated affiliate
    
    
    (445
    )
    
    
    168
    
    
    
    Accrued forward loss on contract
    
    
    679
    
    
    
    (214
    )
    
    
    531Net effect of changes in assets and liabilities:Accounts receivable
    
    
    5,130
    
    
    
    (3,518
    )
    
    
    9,015Prepaid expenses and other assets
    
    
    (2,819
    )
    
    
    2,083
    
    
    
    (485
    )Accounts payable and accrued liabilities
    
    
    1,329
    
    
    
    565
    
    
    
    (2,455
    )Income taxes payable
    
    
    175
    
    
    
    106
    
    
    
    9,382Deferred income
    
    
    (2,045
    )
    
    
    2,526
    
    
    
    780Cash provided by operating activities from continuing operations
    
    
    4,870
    
    
    
    13,098
    
    
    
    25,380Cash used in operating activities from discontinued operations
    
    
    (21
    )
    
    
    (386
    )
    
    
    (1,531
    )Net cash provided by operating activities
    
    
    4,849
    
    
    
    12,712
    
    
    
    23,849CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of marketable securities
    
    
    (45,950
    )
    
    
    (75,702
    )
    
    
    (26,639
    )Sales and maturities of marketable securities
    
    
    44,278
    
    
    
    72,669
    
    
    
    32,931Restricted investments
    
    
    (7,685
    )
    
    
    3,328
    
    
    
    4,403Business combinations, net of cash acquired
    
    
    
    
    
    
    (4,135
    )
    
    
    (15,639
    )Repayments on notes and accrued interest from related parties
    
    
    
    
    
    
    411
    
    
    
    Purchase of equipment and software
    
    
    (4,849
    )
    
    
    (10,027
    )
    
    
    (3,429
    )Other investing activities
    
    
    
    
    
    
    (64
    )
    
    
    (241
    )Cash used in investing activities from continuing operations
    
    
    (14,206
    )
    
    
    (13,520
    )
    
    
    (8,614
    )Cash provided by investing activities from discontinued operations
    
    
    
    
    
    
    
    
    
    
    1,913Net cash used in investing activities
    
    
    (14,206
    )
    
    
    (13,520
    )
    
    
    (6,701
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings under bank line of credit
    
    
    
    
    
    
    
    
    
    
    2,200Repayments under bank line of credit
    
    
    
    
    
    
    
    
    
    
    (2,200
    )Net proceeds from issuance of common stock
    
    
    69
    
    
    
    302
    
    
    
    2,395Capital lease obligations and other financing arrangements
    
    
    (86
    )
    
    
    (86
    )
    
    
    (149
    )Net cash (used in) provided by financing activities from continuing operations
    
    
    (17
    )
    
    
    216
    
    
    
    2,246Effect of exchange rate changes on cash from continuing operations
    
    
    17
    
    
    
    (60
    )
    
    
    Effect of exchange rate changes on cash from discontinued operations
    
    
    
    
    
    
    
    
    
    
    230Net (decrease) increase in cash and cash equivalents
    
    
    (9,357
    )
    
    
    (652
    )
    
    
    19,624Cash and cash equivalents at beginning of period
    
    
    27,843
    
    
    
    28,495
    
    
    
    8,871Cash and cash equivalents at end of period
    
    $
    18,486
    
    
    $
    27,843
    
    
    $
    28,495
 35




---



##### 



TIER TECHNOLOGIES, INC.
CONSOLIDATED SUPPLEMENTAL CASH FLOW INFORMATION
 Year ended September 30,(in thousands)
    
    2006
    
    2005
    
    2004Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    13
    
    
    $
    23
    
    
    $
    99Income taxes paid (refunded), net
    
    $
    248
    
    
    $
    34
    
    
    $
    (9,573
    )Supplemental schedule of non-cash investing and financing activities:Equipment acquired under capital lease obligations and other financing arrangements
    
    $
    64
    
    
    $
    40
    
    
    $
    Conversion of Class A common stock to Class B common stock
    
    $
    
    
    
    $
    
    
    
    $
    930Class B common stock issued in business combination and acquisition
    
    $
    
    
    
    $
    79
    
    
    $
    4,447Interest accrued on shareholder notes
    
    $
    277
    
    
    $
    206
    
    
    $
    256
 See Notes to Consolidated Financial Statements
 36




---



##### 



NOTE 1ORGANIZATIONAL OVERVIEW
  
    
    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;
    
    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; and
    
    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.
  
    
    Official Payments Corporation, or OPCprovides proprietary telephone and
Internet systems, as well as transaction processing and settlement 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.
 37




---



##### 



Foreign Currencies. ther comprehensive income
 Cash and Cash Equivalents.
  Revenue Recognition and Credit Risk.
       Revenues Direct costs
 Allowance for Doubtful Accounts.
 38




---



##### 



General and administrative Revenues
 Fair Value of Financial Instruments.
 Investments in Marketable Securities. Restricted investments Restricted investments Cash and cash equivalents Investments in marketable securities Other comprehensive income Loss on sale and impairment of investments
 Advertising Expense.
 Property, Equipment and Software.
  Goodwill.
 Intangible Assets.
 (Loss) Earnings Per Share.
 Share-Based Payment. Share-Based Payment 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
 39




---



##### 



Income Taxes. Accounting for Income Taxes
 Comprehensive (Loss) Income.
 Guarantees.
 RECENT ACCOUNTING PRONOUNCEMENTS
 SFAS 154Accounting Changes and Error Corrections. Accounting Changes and Error Corrections
 SFAS 157Fair Value Measurements. Fair Value Measurements
 FIN 48Accounting for Uncertainty in Income Taxes Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 40




---



##### 



NOTE 3(LOSS) EARNINGS PER SHARE
  Year ended September 30,(in thousands, except per share data)
    
    2006
    
    2005
    
    2004Numerator:Net (loss) income from:Continuing operations, net of income taxes
    
    $
    (9,451
    )
    
    $
    1,126
    
    
    $
    (63
    )Discontinued operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    (1,440
    )Net (loss) income
    
    $
    (9,451
    )
    
    $
    1,126
    
    
    $
    (1,503
    )Denominator:Weighted-average common shares outstanding
    
    
    19,495
    
    
    
    19,470
    
    
    
    18,987Effects of dilutive common stock options
    
    
    
    
    
    
    123
    
    
    
    Adjusted weighted-average shares
    
    
    19,495
    
    
    
    19,593
    
    
    
    18,987(Loss) earnings per basic and diluted shareFrom continuing operations
    
    $
    (0.48
    )
    
    $
    0.06
    
    
    $
    From discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    (0.08
    )(Loss) earnings per basic and diluted share
    
    $
    (0.48
    )
    
    $
    0.06
    
    
    $
    (0.08
    )
  Year ended September 30,(in thousands, except per share amounts)
    
    2006
    
    2005
    
    2004Weighted-average options excluded from
computation of diluted (loss) earnings per
share
    
    
    2,022
    
    
    
    1,893
    
    
    
    1,233Range of exercise prices per share:High
    
    $
    20.70
    
    
    $
    20.70
    
    
    $
    20.70Low
    
    $
    5.91
    
    
    $
    8.53
    
    
    $
    9.97
  NOTE 4CUSTOMER CONCENTRATION AND RISK
   Accounts receivable, net. Accounts receivable, net
 
    
    Customer receivablesreceivables from our customers;
    
    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.
 41




---



##### 



Accounts receivable, net
 Year ended September 30,(in thousands)
    
    2006
    
    2005Accounts receivable from:Customers
    
    $
    14,719
    
    
    $
    18,017Recipients of misposted payments
    
    
    1,445
    
    
    
    1,843Payers of NSF child support
    
    
    769
    
    
    
    743Total accounts receivable
    
    
    16,933
    
    
    
    20,603Allowance for uncollectible accounts receivable:Customer
    
    
    (1,037
    )
    
    
    (632
    )Mispost
    
    
    (1,171
    )
    
    
    (1,375
    )NSF
    
    
    (751
    )
    
    
    (632
    )Total accounts receivable allowance
    
    
    (2,959
    )
    
    
    (2,639
    )Short-term retainers receivable from customers
    
    
    1,061
    
    
    
    3,045Less: Long-term accounts receivable
    
    
    
    
    
    
    (1,560
    )Accounts receivable, net
    
    $
    15,035
    
    
    $
    19,449
 Long-term accounts receivable Accounts receivable, net
 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
 42




---



##### 



September 30, 2006
    
    September 30, 2005Amortized
    
    Unrealized
    
    Estimated
    
    Amortized
    
    Unrealized
    
    Estimated(in thousands)
    
    cost
    
    loss
    
    fair value
    
    cost
    
    loss
    
    fair valueCash equivalents:Money market
    
    $
    4,616
    
    
    $
    
    
    
    $
    4,616
    
    
    $
    11,272
    
    
    $
    
    
    
    $
    11,272Total investments included in
cash and cash equivalents
    
    
    4,616
    
    
    
    
    
    
    
    4,616
    
    
    
    11,272
    
    
    
    
    
    
    
    11,272Investments in marketable securities:Debt securitiesU.S. government sponsored enterprise
obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,629
    
    
    
    (7
    )
    
    
    1,622Other (Primarily state and local bonds/notes)
    
    
    36,950
    
    
    
    
    
    
    
    36,950
    
    
    
    30,888
    
    
    
    (13
    )
    
    
    30,875Commercial paper
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,996
    
    
    
    
    
    
    
    2,996Equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    1,000Total marketable securities
    
    
    36,950
    
    
    
    
    
    
    
    36,950
    
    
    
    36,513
    
    
    
    (20
    )
    
    
    36,493Restricted investments:U.S. government sponsored enterprise obligations
    
    
    3,348
    
    
    
    (2
    )
    
    
    3,346
    
    
    
    3,370
    
    
    
    (35
    )
    
    
    3,335Certificate of deposit
    
    
    8,941
    
    
    
    
    
    
    
    8,941
    
    
    
    
    
    
    
    
    
    
    
    Total restricted investments
    
    
    12,289
    
    
    
    (2
    )
    
    
    12,287
    
    
    
    3,370
    
    
    
    (35
    )
    
    
    3,335Total investments
    
    $
    53,855
    
    
    $
    (2
    )
    
    $
    53,853
    
    
    $
    51,155
    
    
    $
    (55
    )
    
    $
    51,100
   Loss on sale of investments
 NOTE 6PROPERTY, EQUIPMENT AND SOFTWARE
  September 30,(in thousands)
    
    2006
    
    2005Software
    
    $
    10,459
    
    
    $
    15,857Computer equipment
    
    
    8,961
    
    
    
    9,658Furniture and equipment
    
    
    5,788
    
    
    
    7,023Land and building
    
    
    2,452
    
    
    
    2,452Leasehold improvements
    
    
    2,120
    
    
    
    2,234Total property, equipment and software, gross
    
    
    29,780
    
    
    
    37,224Less: Accumulated depreciation and amortization
    
    
    (16,314
    )
    
    
    (23,723
    )Total property, equipment and software, net
    
    $
    13,466
    
    
    $
    13,501
  43




---



##### 



Direct costs
  NOTE 7GOODWILL AND OTHER INTANGIBLE ASSETS
  Operating segment(in thousands)
    
    GBPO
    
    PSSI
    
    EPP
    
    TotalBalance at September 30, 2004
    
    $
    5,284
    
    
    $
    17,920
    
    
    $
    14,323
    
    
    $
    37,527Post acquisition adjustmentEPOS(1)
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    40Balance at September 30, 2005
    
    $
    5,284
    
    
    $
    17,960
    
    
    $
    14,323
    
    
    $
    37,567Balance at September 30, 2006
    
    $
    5,284
    
    
    $
    17,960
    
    
    $
    14,323
    
    
    $
    37,567
 (1)
    
    During fiscal 2005, our PSSI segment recorded $40,000 of adjustments associated with the fiscal 2004 acquisition of EPOS.
 Goodwill and
Other Intangible Assets
 Other intangible assets, net
 September 30, 2006
    
    September 30, 2005Amortization
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    
    
    
    Accumulated(in thousands)
    
    period
    
    Gross
    
    amortization
    
    Net
    
    Gross
    
    amortization
    
    NetClient relationships
    
    10 years
    
    $
    28,749
    
    
    $
    (11,176
    )
    
    $
    17,573
    
    
    $
    28,749
    
    
    $
    (8,301
    )
    
    $
    20,448Technology
    
    3-10 years
    
    
    4,289
    
    
    
    (1,986
    )
    
    
    2,303
    
    
    
    5,029
    
    
    
    (1,870
    )
    
    
    3,159Trademarks
    
    7-10 years
    
    
    3,214
    
    
    
    (1,342
    )
    
    
    1,872
    
    
    
    3,214
    
    
    
    (1,019
    )
    
    
    2,195Non-compete agreements
    
    2-3 years
    
    
    615
    
    
    
    (484
    )
    
    
    131
    
    
    
    615
    
    
    
    (270
    )
    
    
    345Other intangible assets, net
    
    
    
    
    
    $
    36,867
    
    
    $
    (14,988
    )
    
    $
    21,879
    
    
    $
    37,607
    
    
    $
    (11,460
    )
    
    $
    26,147
   Future(in thousands)
    
    expenseYears ending September 30,2007
    
    $
    4,1832008
    
    
    4,0532009
    
    
    3,7752010
    
    
    3,2042011
    
    
    3,198Thereafter
    
    
    3,466Total future amortization expense
    
    $
    21,879
 44




---



##### 



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
    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 purchase price paid
    
    $
    20,085
   NOTE 8CONTINGENCIES AND COMMITMENTS
 LEGAL ISSUES
  45




---



##### 



Note 16Subsequent Events
 BANK LINES OF CREDIT
  Amended and Restated Credit and Security Agreement
 OTHER LETTERS OF CREDIT
 Restricted investments
 CREDIT RISK
 de minimis
 OPERATING AND CAPITAL LEASE OBLIGATIONS
  Operating
    
    Capital(in thousands)
    
    leases
    
    leases(1)
    
    TotalYear ending September 30,2007
    
    $
    3,458
    
    
    $
    42
    
    
    $
    3,5002008
    
    
    3,130
    
    
    
    39
    
    
    
    3,1692009
    
    
    2,020
    
    
    
    30
    
    
    
    2,0502010
    
    
    890
    
    
    
    12
    
    
    
    9022011
    
    
    
    
    
    
    1
    
    
    
    1Total minimum lease payments
    
    $
    9,498
    
    
    $
    124
    
    
    $
    9,622
 (1)
    
    The amounts due in fiscal year 2007 are included in Other current liabilities on our
Consolidated Balance Sheets.
  46




---



##### 



GUARANTEES
 Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others
 PERFORMANCE BONDS
 Direct Costs
 EMPLOYMENT AGREEMENTS
  Separation Agreement and Release
 Employment and Security Agreements
 Note 16Subsequent Events
 INDEMNIFICATION AGREEMENTS
 Articles of Incorporation or Bylaws
 47




---



##### 



FORWARD LOSSES
 Other accrued liabilities Direct costs
 NOTE 9SHAREHOLDERS EQUITY
  COMMON STOCK REPURCHASE PROGRAM
 Treasury stock
 STOCKHOLDERS
RIGHTS AGREEMENT
 Rights Agreement Series A Junior Participating Preferred Stock
 EQUITY INCENTIVE PLAN
 1996 Equity Incentive Plan Amended and Restated 2004 Stock Incentive Plan
 48




---



##### 



Number of shares
    
    Weighted-average(in thousands)
    
    exercise priceOptions 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
    
    
    $
    10.34Options granted
    
    
    988
    
    
    $
    6.14Options cancelled
    
    
    (1,710
    )
    
    $
    7.07Options exercised
    
    
    (9
    )
    
    $
    10.41Options outstanding at September 30, 2006
    
    
    2,237
    
    
    $
    8.45
   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
    
    
    $
    5.25
    
    
    
    31
    
    
    0.70 years
    
    $
    4.59
    
    
    
    31
    
    
    $
    4.59$
    5.50
    
    
    $
    5.50
    
    
    
    322
    
    
    9.40 years
    
    $
    5.50
    
    
    
    247
    
    
    $
    5.50$
    5.88
    
    
    $
    5.91
    
    
    
    13
    
    
    7.23 years
    
    $
    5.90
    
    
    
    5
    
    
    $
    5.88$
    5.95
    
    
    $
    5.95
    
    
    
    547
    
    
    9.90 years
    
    $
    5.95
    
    
    
    
    
    
    $
    $
    6.00
    
    
    $
    7.81
    
    
    
    323
    
    
    5.63 years
    
    $
    7.28
    
    
    
    211
    
    
    $
    7.16$
    7.85
    
    
    $
    8.30
    
    
    
    243
    
    
    8.55 years
    
    $
    8.08
    
    
    
    156
    
    
    $
    8.20$
    8.47
    
    
    $
    8.62
    
    
    
    263
    
    
    7.98 years
    
    $
    8.59
    
    
    
    106
    
    
    $
    8.61$
    8.63
    
    
    $
    16.00
    
    
    
    226
    
    
    7.39 years
    
    $
    10.56
    
    
    
    121
    
    
    $
    11.84$
    16.04
    
    
    $
    19.56
    
    
    
    259
    
    
    5.19 years
    
    $
    17.35
    
    
    
    191
    
    
    $
    17.51$
    20.70
    
    
    $
    20.70
    
    
    
    10
    
    
    5.26 years
    
    $
    20.70
    
    
    
    8
    
    
    $
    20.70$
    3.25
    
    
    $
    20.70
    
    
    
    2,237
    
    
    7.88 years
    
    $
    8.45
    
    
    
    1,076
    
    
    $
    9.46
 EMPLOYEE STOCK PURCHASE PLAN
 ,
 NOTE 10SHARE-BASED PAYMENT
 Amended and Restated
2004 Stock Incentive Plan
 Share-Based Payment, a
revision of FASB Statement No. 123Accounting for Stock-Based Compensation
 49




---



##### 



Accounting for Stock-Based Compensation
 Fiscal year ended September 30,(in thousands, except per share data)
    
    2005
    
    2004Net income (loss)
    
    $
    1,126
    
    
    $
    (1,503
    )Add: Stock-based compensation expense
included in reported net loss, net of
related tax effects
    
    
    
    
    
    
    552Less: Total stock-based compensation
expense, determined under fair value-based
method for all awards, net of tax effect
    
    
    2,527
    
    
    
    2,440Net loss, pro forma
    
    $
    (1,401
    )
    
    $
    (3,391
    )Earnings (loss) per basic and diluted share:As reported
    
    $
    0.06
    
    
    $
    (0.08
    )Pro forma
    
    $
    (0.07
    )
    
    $
    (0.18
    )
  September 30,2006
    
    2005
    
    2004Weighted-average assumptions used in Black-Scholes Model:Expected period that options will be outstanding (in years)
    
    
    5.00
    
    
    
    4.55
    
    
    
    5.68Interest rate (based on 3-year U.S. Treasury Yields at time of grant)
    
    
    4.87
    %
    
    
    3.76
    %
    
    
    3.54
    %Volatility
    
    
    48.21
    %
    
    
    54.63
    %
    
    
    69.88
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    Weighted-average fair value of options granted
    
    $
    2.95
    
    
    $
    4.11
    
    
    $
    5.21Weighted-average intrinsic value of options exercised (in thousands)
    
    $
    7
    
    
    $
    33
    
    
    $
    955
   Weighted-averageShares
    
    Exercise
    
    Remaining
    
    Aggregate(in thousands, except per share data)
    
    under option
    
    price
    
    contractual term
    
    intrinsic valueOptions outstanding at October 1, 2005
    
    
    2,968
    
    
    $
    10.34Granted
    
    
    988
    
    
    
    6.14Exercised
    
    
    (9
    )
    
    
    7.07Forfeitures or expirations
    
    
    (1,710
    )
    
    
    10.41Options outstanding at September 30, 2006
    
    
    2,237
    
    
    $
    8.45
    
    
    7.88 years
    
    $
    971Options exercisable at September 30, 2006
    
    
    1,076
    
    
    $
    9.46
    
    
    6.59 years
    
    $
    402
  50




---



##### 



NOTE 11RELATED PARTY TRANSACTIONS
 NOTES AND INTEREST RECEIVABLE
    Notes receivable from related
parties Common stock and paid-in-capital
 OTHER RELATED-PARTY TRANSACTIONS
   NOTE 12SEGMENT INFORMATION
  51




---



##### 



(in thousands)
    
    EPP(1)
    
    GBPO(2)
    
    PSSI(3)
    
    Eliminations
    
    TotalYear ended September 30, 2006:Revenues
    
    $
    78,427
    
    
    $
    45,478
    
    
    $
    44,826
    
    
    $
    
    
    
    $
    168,731Direct costs
    
    $
    59,966
    
    
    $
    36,491
    
    
    $
    29,883
    
    
    $
    (495
    )
    
    $
    125,845Year ended September 30, 2005:Revenues
    
    $
    56,452
    
    
    $
    45,771
    
    
    $
    53,451
    
    
    $
    (5,073
    )
    
    $
    150,601Direct costs
    
    $
    42,199
    
    
    $
    32,293
    
    
    $
    33,271
    
    
    $
    (3,949
    )
    
    $
    103,814Year ended September 30, 2004:Revenues
    
    $
    40,669
    
    
    $
    45,205
    
    
    $
    41,903
    
    
    $
    
    
    
    $
    127,777Direct costs
    
    $
    28,448
    
    
    $
    28,774
    
    
    $
    27,538
    
    
    $
    (361
    )
    
    $
    84,399
 
 (1)
    
    During fiscal 2006, 2005 and 2004, the revenues from one customer represented 39.7%, 36.4% and 38.5%, respectively, of EPP
revenues.(2)
    
    During fiscal 2006 and 2005, the revenues from one customer represented 37.8% and 21.0%, respectively, of the revenues from the GBPO
segment. During fiscal 2006, 2005 and 2004, another customer produced 16.7%, 16.2% and 16.0%, respectively, of GBPO revenues. During fiscal 2004,
three other customers each contributed over 10% of GBPO revenues.(3)
    
    During fiscal 2006, 2005 and 2004, the revenues from one customer represented 25.3%, 24.8% and 29.7%, respectively, of PSSI revenues.
During fiscal 2006 another customer produced 13.8% of the PSSI revenues. During fiscal 2004 another customer provided 18.7% of PSSI revenues.  NOTE 13INCOME TAXES
  September 30,(in thousands)
    
    2006
    
    2005Deferred tax liabilities:Intangibles
    
    $
    2,992
    
    
    $
    3,685Internally developed software
    
    
    1,650
    
    
    
    1,190Other deferred tax liabilities
    
    
    569
    
    
    
    597Investment in subsidiary
    
    
    105
    
    
    
    Total deferred tax liabilities
    
    
    5,316
    
    
    
    5,472Deferred tax assets:Accrued expenses
    
    
    3,309
    
    
    
    2,808Deferred income
    
    
    6
    
    
    
    4Depreciation
    
    
    526
    
    
    
    842Accounts receivable allowance
    
    
    313
    
    
    
    203Investment in subsidiaries
    
    
    
    
    
    
    101Other deferred tax assets
    
    
    924
    
    
    
    596Net operating loss carryforward
    
    
    27,669
    
    
    
    26,063Foreign tax credit carryforward
    
    
    566
    
    
    
    608Valuation allowance
    
    
    (27,997
    )
    
    
    (25,753
    )Total deferred tax assets
    
    
    5,316
    
    
    $
    5,472Net deferred tax assets (liabilities)
    
    $
    
    
    
    $
    
   52




---



##### 



Year ended September 30,(in thousands)
    
    2006
    
    2005
    
    2004Current income tax provision:Federal
    
    $
    456
    
    
    $
    37
    
    
    $
    State
    
    
    45
    
    
    
    90
    
    
    
    Total provision for income taxes
    
    $
    501
    
    
    $
    127
    
    
    $
    
   Year ended September 30,2006
    
    2005
    
    2004U.S statutory federal tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State taxes, net of federal tax benefit
    
    
    3.5
    %
    
    
    12.6
    %
    
    
    (111.0
    )%Tax exempt interest income
    
    
    0.3
    %
    
    
    (4.6
    )%
    
    
    307.8
    %Tax effect of foreign operations
    
    
    
    
    
    
    11.8
    %
    
    
    Meals and entertainment
    
    
    (1.5
    )%
    
    
    7.5
    %
    
    
    (145.6
    )%Valuation allowance
    
    
    (32.1
    )%
    
    
    (59.3
    )%
    
    
    (71.0
    )%Keyman life insurance
    
    
    
    
    
    
    
    
    
    
    (11.1
    )%Stock-based compensation
    
    
    (4.2
    )%
    
    
    
    
    
    
    Other
    
    
    (5.6
    )%
    
    
    8.1
    %
    
    
    (3.1
    )%Effective tax rate
    
    
    (5.6
    )%
    
    
    10.1
    %
    
    
    
 NOTE 14RESTRUCTURING
 Restructuring charges Loss from discontinued operations
 Restructuring charges
  Year ended September 30,(in thousands)
    
    2006
    
    2005
    
    2004Asset impairment charges
    
    $
    
    
    
    $
    
    
    
    $
    571Office closure costs (net of sublease income)
    
    
    32
    
    
    
    15
    
    
    
    1,076Severance costs
    
    
    3
    
    
    
    31
    
    
    
    1,846Total restructuring charges
    
    $
    35
    
    
    $
    46
    
    
    $
    3,493
 53




---



##### 



Discontinued Operations
 Facilities(in thousands)
    
    Severance
    
    closures
    
    TotalBalance at September 30, 2004
    
    $
    1,103
    
    
    $
    816
    
    
    $
    1,919Additions
    
    
    18
    
    
    
    
    
    
    
    18Cash payments
    
    
    (791
    )
    
    
    (206
    )
    
    
    (997
    )Balance at September 30, 2005
    
    $
    330
    
    
    $
    610
    
    
    $
    940Additions
    
    
    
    
    
    
    
    
    
    
    Cash payments
    
    
    (330
    )
    
    
    (209
    )
    
    
    (539
    )Balance at September 30, 2006
    
    $
    
    
    
    $
    401
    
    
    $
    401
 Other current liabilities Other accrued liabilities
 NOTE 15DISCONTINUED OPERATIONS
 Other
current liabilities
 NOTE 16SUBSEQUENT EVENTS
 REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
  Report name
    
    Period covered by report
    
    Date filedAnnual Report on Form 10-K/A (Amendment 3)
    
    Fiscal year ended September 30, 2004
    
    October 25, 2006Annual Report on Form 10-K
    
    Fiscal year ended September 30, 2005
    
    October 27, 2006Quarterly Report on Form 10-Q/A
    
    Quarter ended December 31, 2005
    
    November 13, 2006Quarterly Report on Form 10-Q
    
    Quarter ended March 31, 2006
    
    November 14, 2006Quarterly Report on Form 10-Q
    
    Quarter ended June 30, 2006
    
    November 22, 2006
 CLAIMS
  SYSTEM OUTAGE
  54




---



##### 



CHANGES TO 401(k) PLAN
  MATERIAL CONTRACTS
   55




---



##### 



SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
  2006 fiscal quarters
    
    2005 fiscal quarters(In thousands, except per share data)
    
    Fourth
    
    Third
    
    Second
    
    First
    
    Fourth
    
    Third
    
    Second
    
    FirstConsolidated statement of operations data:Revenues
    
    $
    35,106
    
    
    $
    56,269
    
    
    $
    37,474
    
    
    $
    39,882
    
    
    $
    34,114
    
    
    $
    49,331
    
    
    $
    35,396
    
    
    $
    31,760Costs and expenses:Direct costs
    
    
    25,220
    
    
    
    42,033
    
    
    
    30,696
    
    
    
    27,896
    
    
    
    23,499
    
    
    
    35,505
    
    
    
    22,888
    
    
    
    21,922General and administrative
    
    
    11,010
    
    
    
    11,748
    
    
    
    8,859
    
    
    
    6,923
    
    
    
    8,568
    
    
    
    7,209
    
    
    
    6,639
    
    
    
    6,542Selling and marketing
    
    
    2,531
    
    
    
    3,623
    
    
    
    2,740
    
    
    
    2,580
    
    
    
    2,821
    
    
    
    3,161
    
    
    
    2,689
    
    
    
    2,668Depreciation and amortization
    
    
    1,307
    
    
    
    1,306
    
    
    
    1,325
    
    
    
    1,319
    
    
    
    1,447
    
    
    
    1,502
    
    
    
    1,568
    
    
    
    1,548Restructuring and other charges
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    (Loss) income from operations
    
    
    (4,997
    )
    
    
    (2,441
    )
    
    
    (6,146
    )
    
    
    1,164
    
    
    
    (2,267
    )
    
    
    1,954
    
    
    
    1,612
    
    
    
    (920
    )Total other income (loss)
    
    
    781
    
    
    
    894
    
    
    
    1,145
    
    
    
    650
    
    
    
    692
    
    
    
    (250
    )
    
    
    232
    
    
    
    200(Loss) income from operations, net of
income taxes
    
    
    (4,216
    )
    
    
    (1,547
    )
    
    
    (5,001
    )
    
    
    1,814
    
    
    
    (1,575
    )
    
    
    1,704
    
    
    
    1,844
    
    
    
    (720
    )Income tax provision (benefit)
    
    
    456
    
    
    
    40
    
    
    
    
    
    
    
    5
    
    
    
    (115
    )
    
    
    203
    
    
    
    39
    
    
    
    Net (loss) income
    
    $
    (4,672
    )
    
    $
    (1,587
    )
    
    $
    (5,001
    )
    
    $
    1,809
    
    
    $
    (1,460
    )
    
    $
    1,501
    
    
    $
    1,805
    
    
    $
    (720
    )Average shares issued and outstanding:Basic
    
    
    19,499
    
    
    
    19,499
    
    
    
    19,493
    
    
    
    19,490
    
    
    
    19,490
    
    
    
    19,477
    
    
    
    19,464
    
    
    
    19,447Diluted
    
    
    19,499
    
    
    
    19,499
    
    
    
    19,493
    
    
    
    19,627
    
    
    
    19,490
    
    
    
    19,578
    
    
    
    19,539
    
    
    
    19,447Performance ratios:Return on average assets
    
    
    (2.72
    )%
    
    
    (0.91
    )%
    
    
    (2.82
    )%
    
    
    1.01
    %
    
    
    (0.83
    )%
    
    
    0.85
    %
    
    
    1.04
    %
    
    
    (0.42
    )%Return on average shareholders equity
    
    
    (3.43
    )%
    
    
    (1.14
    )%
    
    
    (3.53
    )%
    
    
    1.27
    %
    
    
    (1.03
    )%
    
    
    1.06
    %
    
    
    1.29
    %
    
    
    (0.52
    )%Total ending equity to total ending assets
    
    
    79.16
    %
    
    
    79.45
    %
    
    
    79.64
    %
    
    
    79.71
    %
    
    
    80.08
    %
    
    
    80.98
    %
    
    
    80.02
    %
    
    
    80.52
    %Total average equity to total average assets
    
    
    79.30
    %
    
    
    79.55
    %
    
    
    79.68
    %
    
    
    79.89
    %
    
    
    80.53
    %
    
    
    80.50
    %
    
    
    80.26
    %
    
    
    80.87
    %Per share of common stock data:Earnings:Basic(1)
    
    $
    (0.24
    )
    
    $
    (0.08
    )
    
    $
    (0.26
    )
    
    $
    0.09
    
    
    $
    (0.07
    )
    
    $
    0.08
    
    
    $
    0.09
    
    
    $
    (0.04
    )Diluted(1)
    
    $
    (0.24
    )
    
    $
    (0.08
    )
    
    $
    (0.26
    )
    
    $
    0.09
    
    
    $
    (0.07
    )
    
    $
    0.08
    
    
    $
    0.09
    
    
    $
    (0.04
    )Book value
    
    $
    6.88
    
    
    $
    7.08
    
    
    $
    7.14
    
    
    $
    7.33
    
    
    $
    7.26
    
    
    $
    7.29
    
    
    $
    7.21
    
    
    $
    7.15Average balance sheet data:Total assets
    
    $
    171,659
    
    
    $
    174,269
    
    
    $
    177,573
    
    
    $
    178,560
    
    
    $
    176,439
    
    
    $
    176,037
    
    
    $
    174,316
    
    
    $
    172,337Total liabilities
    
    $
    35,528
    
    
    $
    35,646
    
    
    $
    36,089
    
    
    $
    35,903
    
    
    $
    34,352
    
    
    $
    34,330
    
    
    $
    34,403
    
    
    $
    32,967Total shareholders equity
    
    $
    136,131
    
    
    $
    138,623
    
    
    $
    141,484
    
    
    $
    142,657
    
    
    $
    142,087
    
    
    $
    141,707
    
    
    $
    139,913
    
    
    $
    139,370Market price per share of common stock:High
    
    $
    7.05
    
    
    $
    8.70
    
    
    $
    8.08
    
    
    $
    8.50
    
    
    $
    9.67
    
    
    $
    9.82
    
    
    $
    9.73
    
    
    $
    10.00Low
    
    $
    5.25
    
    
    $
    5.67
    
    
    $
    7.34
    
    
    $
    6.93
    
    
    $
    7.51
    
    
    $
    6.85
    
    
    $
    6.45
    
    
    $
    7.98
 
 (1)
    
    The sum of quarterly per share amounts may not equal annual per share amounts as the quarterly calculations are based on varying numbers of shares of common
stock. 56




---



##### 



SCHEDULE II
Valuation and Qualifying Accounts
 Balance at
    
    
    
    
    
    
    
    
    
    Balance atbeginning of
    
    Additions/
    
    
    
    
    
    end of(in thousands)
    
    period
    
    (reductions)
    
    Write-offs
    
    periodYear ended September 30, 2006:Allowance for doubtful receivables
    
    $
    632
    
    
    $
    809
    
    
    $
    (404
    )
    
    $
    1,037Allowance for NSF and mispost receivables
    
    
    2,007
    
    
    
    211
    
    
    
    (296
    )
    
    
    1,922Deferred tax asset valuation allowance
    
    
    25,754
    
    
    
    2,243
    
    
    
    
    
    
    
    27,997Inventory allowance
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    75Year 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
    
    
    
    
    
    
    
    75
 57




---



##### 



ITEM 9CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  ITEM 9ACONTROLS AND PROCEDURES
 EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
  MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  o
    
    pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the company;o
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; ando
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a material effect
on the financial statements.
  Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework
   58




---



##### 



ATTESTATION REPORT OF THE INDEPENDENT REGISTERED PUBLIC 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, VirginiaDecember 13, 2006
 59




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IDENTIFICATION OF MATERIAL WEAKNESSES AND REPORTABLE CONDITIONS
   
    
    We did not maintain effective control over the recognition of revenues and forward
losses for certain contractsWe determined that our process for forecasting total project
costs and revenues was not effective. These forecasts are a factor in determining the
timing of certain revenues and determining whether a project may result in a loss. In
addition, we determined that our process for recording the impact of these forecast
adjustments was not timely; and
    
    We did not maintain effective control over the recognition of expenses under SFAS
123RShare-Based Payments-We did not have effective controls in place to ensure that
complex share-based compensation transactions were recorded correctly.
  CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
  
    
    accurate reporting of notes receivable and related interest receivable;
    
    accurate calculation and review of the revenues recognized using percentage-of-completion models; and
    
    preparation and maintenance of 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.
  60




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ITEM 9BOTHER INFORMATION
  ITEM 10DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 Election of
Directors Board and Committee Meetings
 Section 16(a) Beneficial
Ownership Reporting Compliance .
 Code of Ethics Code of Ethics
 ITEM 11EXECUTIVE COMPENSATION
 Compensation of Executive
Officers
 ITEM 12SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 Equity Compensation Plan
Information Beneficial Ownership
 ITEM 13CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 Certain Relationships and Related Transactions
 ITEM 14PRINCIPAL ACCOUNTING FEES AND SERVICES
 Principal Accounting Fees and Services
 61




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ITEM 15EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a)
    
    The following documents are filed as part of the report:
 (1)
    
    Financial Statements  The financial statements are set forth under Item 8 of this
Annual Report on Form 10-K. See Financial Statements and Supplementary Dataon page 28.(2)
    
    Financial Statement Schedules  Schedule IIValuation and Qualifying Accountsis
set forth under Item 8 of this Annual Report on Form 10-K on page 57. 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)3.3
    
    Certificate of Designations of Series A Junior Participating Preferred Stock(2)3.4
    
    Amendment to the Companys Amended and Restated Bylaws(2)4.1
    
    Form of common stock certificate(1)4.2
    
    See Exhibits 3.1, 3.2, 3.3 and 3.4 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 Registrant4.3
    
    Rights Agreement, dated as of January 10, 2006, by and between Tier Technologies, Inc. and American Stock Transfer & Trust
Company, as Rights Agent(2)4.4
    
    Form of Rights Certificate(2)10.1
    
    Amended and Restated 1996 Equity Incentive Plan, dated January 28, 1999(3)*10.2
    
    Form of Incentive Stock Option Agreement under the Registrants Amended and Restated 1996 Equity Incentive Plan(4)*10.3
    
    Form of Nonstatutory Stock Option Agreement under the Registrants Amended and Restated 1996 Equity Incentive
Plan(4)*10.4
    
    Amended and Restated 2004 Stock Incentive Plan(5)*10.5
    
    Form of Incentive Stock Option Agreement under the Registrants Amended and Restated 2004 Stock Incentive Plan(5)*10.6
    
    Form of Nonstatutory Stock Option Agreement under the Registrants Amended and Restated 2004 Stock Incentive
Plan(5)*10.7
    
    Form of Restricted Stock Agreement under the Registrants Amended and Restated 2004 Stock Incentive Plan(5)*10.8
    
    Form of California Indemnification Agreement(6)10.9
    
    Form of Delaware Indemnification Agreement for officers(7)*10.10
    
    Form of Delaware Indemnification Agreement for directors(7)*10.11
    
    Tier Corporation 401(k) Plan, Summary Plan Description(8)*10.12
    
    Incentive Compensation Plan, as amended(8)*10.13
    
    Management Incentive Plan(10)*10.14
    
    Full Recourse Promissory Note by and between the Registrant and James L. Bildner, dated as of January 2, 1997(8)10.15
    
    Full Recourse Promissory Note by and between the Registrant and James L. Bildner, dated as of May 31, 1997(8)10.16
    
    Full Recourse Promissory Note by and between the Registrant and James L. Bildner, dated as of July 15, 1997(8)
 62




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##### 



Exhibitnumber
    
    Exhibit description10.17
    
    Amended and Restated Full Recourse Secured Promissory Note, dated as of April 1, 1998, by and between the Registrant and
James L. Bildner(11)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(11)10.19
    
    Amended and Restated Pledge Agreement, dated as of June 30, 1999, by and between the Registrant and James L.
Bildner(12)10.20
    
    Second Amendment and Restated Pledge Agreement, dated as of June 30, 1999, by and between the Registrant and James L.
Bildner(12)10.21
    
    Third Amendment and Restated Pledge Agreement, dated as of June 30, 1999, by and between the Registrant and James L.
Bildner(12)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)(13)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)(13)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)(13)10.25
    
    Pledge Agreement by and between the Registrant and James L. Bildner, dated as of March 27, 2000(13)10.26
    
    Termination Agreement dated October 14, 2003, by and between Tier and James L. Bildner(14)*10.27
    
    Pledge Agreement between Tier and James L. Bildner, dated April 1, 2004(15)10.28
    
    First Amendment, dated June 14, 2004, to the Pledge Agreement between Tier and James L. Bildner, dated March 27,
2000(15)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(15)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(15)10.31
    
    Cross-Collateralization Agreement dated December 13, 2004, by and between the Registrant and James L. Bildner(16)10.32
    
    Severance and Change in Control Benefits Agreement by and between the Registrant and James Weaver, dated September 1,
2001(17)*10.33
    
    Executive Employment Agreement, dated November 9, 2004, by and between Registrant and James R. Weaver(4)*10.34
    
    Credit and Security Agreement as of January 29, 2003, by and between the Registrant, Official Payments Corporation and City
National Bank(18)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(19)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(5)10.37
    
    Letter Agreement, dated June 28, 2005, by and between Registrant and City National Bank(5)10.38
    
    Employment Agreement dated May 28, 2004, by and between EPOS Corporation and Michael A. Lawler(20)*10.39
    
    Supplemental Indemnity Agreement by and between Registrant and Bruce R. Spector, dated September 2, 2004(16)*10.40
    
    Summary of Board Compensation(21)*10.41
    
    Offer Letter by and between Registrant and David Fountain, dated May 2, 2005(22)*
 63




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##### 



Exhibitnumber
    
    Exhibit description10.42
    
    Executive Incentive Metrics for Chief Executive Officer and Chief Financial Officer for fiscal year ended September 30,
2005(22)*10.43
    
    Senior Vice President  Human Resources Compensation Summary(22)*10.44
    
    Separation Agreement and Release between Registrant and Jeffrey McCandless, dated March 9, 2005(23)*10.45
    
    Employment Agreement dated July 2, 2003 by and between Tier and Mr. Jeffrey A. McCandless(24)*10.46
    
    Employment Agreement dated July 1, 2004 between Tier and Ms. Deanne M. Tully(7)*10.47
    
    Executive Severance and Change in Control Benefits Agreement(7)*10.48
    
    Third Amendment to Credit and Security Agreement with City National Bank, dated June 28, 2005(25)10.49
    
    Shareholder Rights Plan and Rights Agreement, dated January 10, 2006(26)10.50
    
    Assumption Agreement between Tier Technologies, Inc., Official Payments Corporation and EPOS Corporation, dated January 6,
2006(27)10.51
    
    Security Agreement as of January 6, 2006 by and between the Registrant, Official Payments Corporation, EPOS Corporation and
City National Bank(27)10.52
    
    Board approval of two one-time bonuses to David E. Fountain, dated February 21, 2006(28)*10.53
    
    Amended and Restated Credit and Security Agreement between the Registrant, Official Payments Corporation, EPOS Corporation
and City National Bank(29)10.54
    
    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(30)*10.55
    
    Management Incentive Plan for Steven Beckerman, Todd Vucovich, Steven Wade, Michael Lawler and Deanne Tully, dated March 28,
2006(30)*10.56
    
    Separation Agreement between Tier Technologies, Inc., and James R. Weaver, dated May 31, 2006(31)*10.57
    
    Employment Agreement between Tier Technologies, Inc., and Ronald L. Rossetti, dated July 26, 2006(32)*10.58
    
    Non-Statutory Stock Option Agreement between Tier and Ronald L. Rossetti, dated July 26, 2006(32)*10.59
    
    Discretionary Incentive Compensation Plan, dated August 22, 2006(33)*10.60
    
    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(34)*10.61
    
    Employment Agreement between Tier and David E. Fountain, dated December 11, 2006*21.1
    
    Subsidiaries of the Registrant23.1
    
    Consent of McGladrey & Pullen,
LLP, Independent Registered Public Accounting Firm23.2
    
    Consent of PricewaterhouseCoopers,
LLP, Independent Registered Public Accounting Firm31.1
    
    Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange
Act of 193431.2
    
    Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange
Act of 193432.1
    
    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 200232.2
    
    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
 64




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##### 



*
    
    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 January 11, 2006, and incorporated herein by reference(3)
    
    Filed as an exhibit to Form 10-Q, filed May 11, 2001, and incorporated herein by reference(4)
    
    Filed as an exhibit to Form 8-K, filed November 12, 2004, and incorporated herein by reference(5)
    
    Filed as an exhibit to Form 8-K, filed July 5, 2005 and incorporated herein by reference(6)
    
    Filed as an exhibit to Form 10-K, filed December 21, 1998, and incorporated herein by reference(7)
    
    Filed as an exhibit to Form 10-K, filed October 27, 2006, and incorporated herein by reference(8)
    
    Filed as an exhibit to Form S-1 (No. 333-37661), filed on October 10, 1997, and incorporated herein by reference(9)
    
    Filed as an exhibit to Form 8-K, filed on May 5, 2005, and incorporated herein by reference(10)
    
    Filed as an exhibit to Form 8-K, filed on May 27, 2005, and incorporated herein by reference(11)
    
    Filed as an exhibit to Form S-1/A (No. 333-52065), filed on May 7, 1998, and incorporated herein by reference(12)
    
    Filed as an exhibit to Form 10-Q, filed August 16, 1999, and incorporated herein by reference(13)
    
    Filed as an exhibit to Form 10-Q, filed May 15, 2000, and incorporated herein by reference(14)
    
    Filed as an exhibit to Form 10-Q, filed February 13, 2004, and incorporated herein by reference(15)
    
    Filed as an exhibit to Form 10-Q, filed August 15, 2004, and incorporated herein by reference(16)
    
    Filed as an exhibit to Form 8-K filed December 15, 2004, and incorporated herein by reference(17)
    
    Filed as an exhibit to Form 10-K, filed November 29, 2001, and incorporated herein by reference(18)
    
    Filed as an exhibit to Form 10-Q, filed May 12, 2003, 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-K filed December 28 2004, and incorporated herein by reference(21)
    
    Filed as an exhibit to Form 10-Q, filed February 9, 2005, and incorporated herein by reference(22).
    
    Filed as an exhibit to Form 10-Q, filed May 6, 2005, and incorporated herein by reference(23)
    
    Filed as an exhibit to Form 8-K, filed March 14, 2005, and incorporated herein by reference(24)
    
    Filed as an exhibit to Form 10-Q, filed May 11, 2004, and incorporated herein by reference(25)
    
    Filed as an exhibit to Form 8-K, filed July 5, 2005, and incorporated herein by reference(26)
    
    Filed as an exhibit to Form 8-K, filed January 11, 2006, and incorporated herein by reference(27)
    
    Filed as an exhibit to Form 8-K, filed January 11, 2006, and incorporated herein by reference(28)
    
    Filed as an exhibit to Form 8-K, filed February 22, 2006, and incorporated herein by reference(29)
    
    Filed as an exhibit to Form 8-K, filed March 9, 2006, and incorporated herein by reference(30)
    
    Filed as an exhibit to Form 8-K, filed April 3, 2006, and incorporated herein by reference(31)
    
    Filed as an exhibit to Form 8-K, filed June 1, 2006, and incorporated herein by reference(32)
    
    Filed as an exhibit to Form 8-K, filed August 1, 2006, and incorporated herein by reference(33)
    
    Filed as an exhibit to Form 8-K, filed August 25, 2006, and incorporated herein by reference(34)
    
    Filed as an exhibit to Form 8-K, filed August 29, 2006, and incorporated herein by reference 65




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##### 



SIGNATURES
  Tier Technologies, Inc.Dated: December 13, 2006
    By:
    /s/ RONALD L. ROSSETTIRonald L. RossettiChief Executive Officer  Signature
    
    Title
    
    Date/s/ RONALD L. ROSSETTI

Ronald L. Rossetti
    
    Chief Executive Officer and
Chairman of the Board
(principal executive
officer)
    
    December 13, 2006/s/ DAVID E. FOUNTAIN

David E. Fountain
    
    Chief Financial Officer
(principal financial officer
and principal accounting
officer)
    
    December 13, 2006/s/ CHARLES W. BERGER

Charles W. Berger
    
    Director
    
    December 13, 2006/s/ SAMUEL CABOT III

Samuel Cabot III
    
    Director
    
    December 13, 2006/s/ MORGAN P. GUENTHER

Morgan P. Guenther
    
    Director
    
    December 13, 2006/s/ T. MICHAEL SCOTT

T. Michael Scott
    
    Director
    
    December 13, 2006/s/ BRUCE R. SPECTOR

Bruce R. Spector
    
    Director
    
    December 13, 2006
 66