**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
   **FORM
        10-K**
  *(Mark
        One)*
 **x
        ANNUAL REPORT PURSUANT
        TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934**
  **FOR
        THE FISCAL YEAR ENDED SEPTEMBER 30, 2007**
  **OR**
  ** ̈
        TRANSITION REPORT
        PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934**
 **___________**
  **COMMISSION
        FILE NUMBER 000-23195**
  **TIER
        TECHNOLOGIES, INC.**
 (Exact
        name of registrant as specified in its charter)
  **DELAWARE**
                (State
                  or other jurisdiction of
                Incorporation
                  or organization)
              **94-3145844**
                (I.R.S.
                  Employer
                Identification
                  No.)
  **10780
        PARKRIDGE BOULEVARD—4th FLOOR,
        RESTON,
        VA  20191**
 (Address
        of principal executive offices)
  **(571) 382-1000**
 (Registrant’s
        telephone number, including area code)
  Securities
        registered pursuant to Section 12(b) of the Act
  Title
                  of each class
                **COMMON
                  STOCK, $0.01 PAR VALUE**
              Name
                  of each exchange on which registered
                **The
                  NASDAQ STOCK MARKET, LLC**
  Securities
        registered pursuant to Section 12(g) of the Act
  **NONE**
  Indicate
        by check mark if the registrant is a well-known seasoned issuer, as defined
        in
        Rule 405 of the Securities Act.  Yes  ̈    No x
  Indicate
        by check mark if the registrant is not required to file reports pursuant
        to
        Section 13 or Section 15(d) of the Act.  Yes  ̈    No x
  Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
        during the preceding 12 months (or for such shorter period that the
        registrant was required to file such reports), and (2) has been subject to
        such filing requirements for the past 90 days.  Yes x    No  ̈
  Indicate
        by check mark if disclosure of delinquent filers pursuant to Item 405 of
        Regulation S-K is not contained herein, and will not be contained, to the
        best of registrant's knowledge, in definitive proxy or information statements
        incorporated by reference in Part III of this Form 10-K or any
        amendment to this Form 10-K   ̈
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act.  (Check one):
  Large
        accelerated filer  ̈Accelerated
        Filer x       Non-accelerated
        filer  ̈
  Indicate
        by check mark whether the Registrant is a shell company (as defined in Rule
        12b-2 of the Act).     Yes  ̈    No
x
  As
        of
        March 31, 2007, the aggregate market value of common stock held by
        non-affiliates of the registrant was $179,419,733, based on the closing sale
        price of the common stock on March 31, 2007, as reported on The Pink
        Sheets.  As of December 7, 2007, there were 20,427,354 shares of
        common stock outstanding.
  **DOCUMENTS
        INCORPORATED BY REFERENCE**
 Items
        10, 11, 12, 13 and 14 of Part III (except for information required with respect
        to our executive officers, which is set forth under “Part I—Executive Officers”)
        have been omitted from this report, as we expect to file with the Securities
        and
        Exchange Commission, not later than 120 days after the close of our fiscal
        year
        ended September 30, 2007, a definitive proxy statement for our 2008 annual
        meeting of stockholders.  The information required by Items 10, 11,
        12, 13 and 14 of Part III of this report, which will appear in our definitive
        proxy statement, is incorporated by reference into this report.
   
  **TIER
        TECHNOLOGIES, INC.**
 **FORM
        10-K**
 **TABLE
        OF CONTENTS**
  **PART
                I******
              1Item
                1—Business
              1Item
                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
              12**PART
                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
              31Item
                8—Financial Statements and Supplementary
                Data
              32Report
                of Independent Registered Public
                Accounting Firm
              33Consolidated
                Balance
                Sheets
              34Consolidated
                Statements of
                Operations
              35Consolidated
                Statements of Shareholders’
                Equity
              36Consolidated
                Statements of Comprehensive (Loss)
                Income
              37Consolidated
                Statements of Cash
                Flows
              38Consolidated
                Supplemental Cash Flow
                Information
              49Note
                1—Organizational
                Overview
              40Note
                2—Summary of Significant Accounting
                Policies
              41Note
                3—(Loss) Earnings per
                Share
              45Note
                4—Customer Concentration and
                Risk
              45Note
                5—Investments
              46Note
                6—Property, Equipment and
                Software
              47Note
                7—Goodwill and Other Intangible
                Assets
              48Note
                8—Contingencies and
                Commitments
              49Note
                9—Shareholders’ Equity
              51Note
                10—Share-based
                Payment
              52Note
                11—Related Party
                Transactions
              53Note
                12—Segment
                Information
              54Note
                13—Income Taxes
              57Note
                14—Restructuring
              58Note
                15—Discontinued
                Operations
              59Note
                16—Subsequent Events
              60Selected
                Quarterly Financial data
                (Unaudited)
              61Item
                9—Changes in and Disagreements with
                Accountants on Accounting and Financial Disclosure
              64Item
                9a—Controls and
                Procedures
              64Item
                9b—Other Information
              66**PART
                III******
              66Item
                10—Directors, Executive Officers and
                Corporate Governance
              66Item
                11—Executive Compensation
              66Item
                12—Security Ownership of Certain Beneficial
                Owners and Management and Related Stockholder Matters
              67Item
                13—Certain Relationships and Related
                Transactions  and Director Independence
              67Item
                14—Principal Accounting Fees and
                Services
              67
 
  
   **PART
                IV******
              68Item
                15—Exhibits, Financial Statement
                Schedules
              68SIGNATURES
              73
               
  
  ***Private
        Securities Litigation Reform Act Safe Harbor
        Statement***
  Certain
        statements
        contained in this report, including statements regarding the future development
        of and demand for our services and our markets, anticipated trends in various
        expenses, expected costs of legal proceedings, expectations for the divestitures
        of certain assets, and other statements that are not historical facts, are
        forward-looking statements within the meaning of the federal securities
        laws.  These forward-looking statements relate to future events or our
        future financial and/or operating performance and can generally be identified
        as
        such because the context of the statement includes words such as "may," "will,"
        "intends," "plans," "believes," "anticipates," "expects," "estimates," "shows,"
        "predicts," "potential," "continue," or "opportunity," the negative of these
        words or words of similar import.  These forward-looking statements
        are subject to risks and uncertainties, including the risks and uncertainties
        described and referred to under *Item 1A—Risk Factors* beginning on page
        6, which could cause actual results to differ materially from those anticipated
        as of the date of this report.  We undertake no obligation to publicly
        update or revise any forward-looking statements, whether as a result of new
        information, future events or otherwise.
   **PART
        I**
  **ITEM
        1—BUSINESS**
  *GENERAL*
  Tier
        Technologies,
        Inc., or Tier, provides federal, state and local government and other public
        sector clients with electronic payment and other transaction processing
        services, as well as software and systems integration services.  The
        demand for our services has been driven by an increasing preference of consumers
        and governmental agencies to make payments electronically, increased acceptance
        of interactive voice response systems and contact management solutions, as
        well
        as by legislative mandates, such as child support and tax collections and
        disbursements.  Originally incorporated in 1991 in California, we
        reincorporated in Delaware effective July 15, 2005.  We are
        headquartered in Reston, Virginia.  As of September 30, 2007, our 816
        employees and contractors provided services to nearly 3,500 clients nationwide,
        including over 3,000 customers served by our core Electronic Payment Processing
        business.
  *SEGMENT
        INFORMATION*
  Fiscal
        year 2007
        was a transitional year for our company.  At the beginning of fiscal
        year 2007, we were organized into three primary segments:  Electronic
        Payment Processing, Government Business Process Outsourcing, and Packaged
        Software and Systems Integration.  While each segment primarily served
        the government sector, the specific governmental agencies they served and
        the
        products and services they offered were extremely
        diverse.  Individually each segment offered strong growth
        opportunities; however, financing, managing and operating these widely disparate
        operations made it difficult to maximize our profitability and overall
        shareholder value.
  Recognizing
        these
        issues, we undertook a strategic initiative during the first quarter of fiscal
        2007, which examined each of these segments.  In part, this strategic
        initiative evaluated the risks, costs, benefits, and growth potential of
        these
        segment’s product lines.  In addition, the strategic initiative
        assessed the degree to which incremental investments or managerial changes
        were
        needed to maximize the profitability of each product line.  Based upon
        this rigorous review, we concluded that we could best maximize our long-term
        profitability and shareholder value if we focused on our core
        business—Electronic Payment Processing, or EPP.
  As
        a result, in
        April 2007, we announced our intention to seek buyers for the sale of the
        majority of our Government Business Process Outsourcing segment, or GBPO,
        and
        our Packaged Software and Systems Integration segment, or
        PSSI.  Concurrent with that announcement, we classified the majority
        of the assets and liabilities for these segments as held-for-sale.  At
        the same time, we gradually began to restructure our organization to facilitate
        the timely and efficient transfer of these operations to potential
        buyers.  By September 30, 2007, our number of segments evolved
        from three segments down to one operating segment, certain wind-down operations
        and our discontinued operations.
 1
  The
        following chart
        illustrates our overall structure as of September 30, 2007:
   **Organizational
        Structure of Tier Technologies, Inc.**
 **As
        of September 30, 2007**
   
  Although
        the
        majority of the GBPO and PSSI businesses are classified as held-for-sale,
        we
        continue to operate them as efficiently and effectively as possible in order
        to
        maximize the proceeds that we expect to receive from the eventual disposition
        of
        these operations.  During the upcoming year, we intend to focus
        increasing amounts of managerial attention and financial resources on
        streamlining and growing our EPP operations.  The following sections
        describe our continuing and held-for-sale operations in more detail, as well
        as
        the major lines of business included in the EPP, GBPO and PSSI
        operations.
  All
        financial
        information presented in this report for historical periods has been
        reclassified to conform to our new organizational structure.
 
 *CONTINUING
        OPERATIONS*
  Our
        continuing
        operations are separated into three major categories:  EPP, Wind-down
        and Corporate.  In addition to the discussion below, Note
        12—*Segment Information* to our Consolidated Financial Statements
        provides detailed information about the profitability of each of these three
        major categories.
  *Electronic
        Payment Processing, or EPP.*****EPP provides
        government and public-sector clients with electronic payment processing
        alternatives for collecting taxes, fees and other obligations.  In
        fiscal year 2007, our client base included the U.S. Internal Revenue Service,
        26 states, the District of Columbia and over 3,000 local governments and
        other public sector clients.  EPP revenues represented 89.5% of
        revenues from continuing operations.  EPP has a large number of
        clients; however, 25.3% of our revenues from continuing operations are generated
        under a contract with the U.S. Internal Revenue Service.
  Clients
        who use our
        electronic payment processing services can offer their customers the ability
        to
        make government obligation, tuition and utility payments with a credit or
        debit
        card or an electronic check.  Our secure electronic payment processing
        services help our clients reduce remittance-processing costs, increase
        collection speed and provide convenient payment alternatives to their
        constituents.
  During
        the last
        decade, increased consumer acceptance of electronic media, such as interactive
        voice response systems and the Internet, have led to greater reliance on
        “cashless” payment methods, including credit and debit cards and electronic
        checks.  However, many government entities have neither the technical
        expertise nor the personnel to develop, implement and maintain electronic
        payment processes or to accept Internet or telephonic originated
        payments.  As a result, they rely on external service providers, such
        as Tier, to perform this function.
  During
        fiscal year
        2007, we processed 8.1 million transactions, representing nearly
        $4.7 billion of payments collected for federal and state income taxes,
        state sales and use taxes, property taxes, parking citations, traffic
        violations, local licenses, educational institution fees and utility
        bills.  The revenues we receive for payment services are
        transaction-based.  Increases and decreases in these revenues
        typically represent changes in the volume of transactions and associated
        dollars
        that we process.  This volume, in turn, reflects
 2
  the
        size of our
        client base, the level of customer acceptance of electronic payment processing
        alternatives, the number and type of complementary partnership relationships
        and
        the variety of payment alternatives offered.  Typically, EPP revenues
        are higher in the second and third quarters of our fiscal year as a result
        of
        the seasonal surge in income tax payments in March and April.
  *Wind-down
        Operations.*  During fiscal 2007, we identified three
        businesses in our then-current GBPO and PSSI segments whose operations were
        neither compatible with our long-term strategic direction nor complementary
        with
        the other businesses that we were divesting.  As a result, we have
        decided to complete, and in some cases extend, the term of existing contracts
        for these businesses.  We believe that these three businesses will be
        phased out over the next five years.  The three businesses included in
        our wind-down operations include: 1) our Voice and Systems Automation
        business, or VSA, which provides interactive voice response systems and support
        services, including customization, installation and maintenance; 2) our Health
        and Human Services practice, which provides certain consulting services to
        state
        agencies; and 3) our Public Pension Administration Systems practice, which
        provides services to support the design, development and implementation of
        pension applications for state, county and city governments.  Our
        wind-down business units serve approximately 290 customers, including
        approximately 275 customers served by our Voice and Systems Automation
        business.  In fiscal year 2007, VSA revenues represented 62.0% of our
        revenues from wind-down operations.
  *Corporate
        Operations.*  Our corporate operations represent those
        functions in the company that support our corporate governance, including
        the
        costs associated with our Board of Directors and executive management team,
        as
        well as accounting, finance, legal and the costs of maintaining our corporate
        headquarters in Reston, Virginia.  In addition, corporate costs
        include functions that provide shared-services that have supported operations
        throughout the company, such as information technology and business
        development.  As we divest the majority of our GBPO and PSSI segments,
        we expect that the size and associated costs to operate our corporate functions
        will decline significantly in the future.  See Item 7—*Management’s
        Discussion and Analysis of Financial Condition and Results of Operations*
        for additional information associated with our corporate-level
        operations.
  *HELD-FOR-SALE
        OPERATIONS*
  As
        discussed above,
        the majority of our GBPO and PSSI operations comprise our held-for-sale
        operations.  In addition to the discussion below, Note
        15—*Discontinued Operations* to our Consolidated Financial Statements
        provides information about the profitability and total assets of these
        held-for-sale operations.
  *Government
        Business Process Outsourcing, or GBPO.***Our GBPO operation
        focuses on child support payment processing, child support financial institution
        data match services, or FIDM, and call center support
        services.  Because of the nature of the services it provides, GBPO’s
        customer contracts typically have a three- to five-year
        duration.  Typically, these contracts produce a relatively constant
        revenue stream over the contract term, with little, if any, seasonal
        variability.  During fiscal 2007, GBPO’s held-for-sale operations
        served approximately 30 customers.  During fiscal year 2007, over 41%
        of GBPO’s revenues were generated by one ongoing contract, and 17% of GBPO’s
        revenues were generated by another contract that expired in June
        2007.
  Under
        the *U.S.
        Personal Responsibility and Work Opportunity Reconciliation Act of 1996*,
        each state must have an automated and centralized process for collecting
        and
        distributing child support payments.  Our payment processing
        operations provide many services related to this Act on behalf of our state
        clients, including: the receipt, disbursement and processing of manual and
        electronic child support payments; check and document imaging; and maintenance
        of payment and court order histories.  Child support payment
        processing revenue is based on a per-transaction fee applied to the number
        of
        transactions processed.  During fiscal year 2007, we used internally
        developed software to process approximately $3.4 billion of transactions
        for eight state clients.
  The
*U.S.
        Personal Responsibility and Work Opportunity Reconciliation Act of 1996*
        also created the Financial Institution Data Match Program, which requires
        states
        to match delinquent obligations against records held by financial
        institutions.  When matches are identified, state child support
        enforcement agencies can issue liens or levies on noncustodial parents’ bank
        accounts to expedite the collection of past due child support
        obligations.
  3
  We
        provide these
        services to a fifteen-state alliance formed to develop and oversee outsourced
        financial institution match programs.  We also provide these services
        to two states that are not members of the alliance. Since 2002, we have located
        more than $23.4 billion for our clients.  We derive revenue under
        this program by assessing a fee based on the number of financial institutions
        matched.
  *Packaged
        Software and System Integration, or PSSI.*  Our PSSI
        held-for-sale operations provide software systems design, development and
        integration, maintenance and support services primarily to state and local
        government clients.  The PSSI held-for-sale operations include the
        following practice areas:
  ·
              *Financial
                  Management
                  Systems*—develops,
                  implements and supports financial management and purchasing systems
                  for
                  state and local governments;
  ·
              *Unemployment
                  Insurance
                  Systems*—provides
                  software application, development and integration services to state
                  governments that are reforming unemployment insurance
                  systems;
  ·
              *State
                  Systems
                  Integration*—provides
                  information technology development, integration and maintenance
                  support
                  projects, primarily for the State of Missouri;
                  and
  ·
              *Independent
                  Validation and Verification*—provides quality assurance reviews of
                  third-party software.
  We
        expect to sell
        each of these practice areas to separate buyers by March 31, 2008.
  The
        revenues
        generated by PSSI are driven primarily by the size of its customer base,
        the
        addition of new service offerings and new partner relationships with
        complementary service and technology providers.  During fiscal 2007,
        PSSI’s held-for-sale operations provided services to nearly 100 clients
        nationwide.  During fiscal year 2007, two contracts generated 29.0%
        and 27.4%, respectively, of PSSI’s revenues.  Revenues recognized by
        PSSI reflect the specific contract deliverables and are not influenced by
        seasonal changes.
  All
        of the above
        practice areas are reported as discontinued operations for all periods
        presented.
  *SALES
        AND
        MARKETING*
  Our
        sales and
        marketing objective is to develop relationships with clients that result
        in
        repeat long-term and cross-sale engagements.  Initially, in fiscal
        2007, we had a shared-service sales and marketing function that worked
        cooperatively on joint sales efforts involving a combination of our services
        across different segments.  However, as our organization began to
        evolve because of the expected divestiture of most of the GBPO and PSSI
        operations, we began to identify specific resources that are dedicated to
        our
        EPP, GBPO and PSSI operations, to facilitate the timely and efficient transfer
        of these operations to potential buyers.
  In
        fiscal 2008, we
        expect to focus our future sales efforts on growing our EPP
        business.  In addition to our sales force, we also rely on the
        business development capabilities of our senior EPP executives as a supplemental
        sales and delivery resource.  Members of our executive team have a
        wide range of industry contacts and established reputations in the electronic
        payment processing industry.  They play a key role in developing,
        selling and managing major engagements.  As a result of our
        market-focused sales approach, we believe that we are able to identify and
        qualify for opportunities quickly and cost effectively.
  We
        strive to
        generate new business by increasing brand awareness and recognition of our
        diverse solution offerings using a variety of media.  Our most
        significant marketing and advertising program involves the promotion of
        electronic payment processing services offered by our subsidiary Official
        Payments Corporation, or OPC.  We work with our various clients to
        publicize our services through advertisements in payment invoices, publications
        and web sites, typically at little or no cost to us. We also enter into
        cooperative advertising and marketing arrangements with our card processing
        partners and major card-issuing banks, including print and online advertising
        campaigns and promotions.  In fiscal 2007, we used newspaper, radio,
        internet and public relations campaigns to supplement these
        efforts.
 4
 *COMPETITION*
  The
        transaction
        processing and software and systems integration markets are highly competitive
        and are served by numerous international, national and local
        firms.  Representative market participants in transaction processing
        markets include Link2Gov and TouchNet Information Systems,
        Inc.  Competition in the software and systems integration market
        includes U.S. and international consulting and integration firms, the internal
        information systems groups of our prospective clients, professional services
        companies, hardware and application software vendors, and divisions of large
        integrated technology companies and outsourcing
        companies.  Representative market participants include: Accenture;
        BearingPoint; CGI-AMS; Deloitte; IBM; Keane; Lawson; New World Systems; Oracle;
        Rose International; SAP; Sungard; and Tyler Technologies.  Competitors
        of our GBPO business include: Systems and Methods, Inc.; Affiliated Computer
        Systems, Inc.; JPMorgan Chase; and Bank of America.  Competitors for
        our VSA business include large technology companies such as CISCO, Gensys
        and
        Nortel.  Finally, competition for our FIDM business includes:
        Affiliated Computer Systems, Inc.; Maximus; and PSI.
  We
        believe that the
        principal competitive factors in our markets include reputation, project
        management expertise, industry expertise, speed of development and
        implementation, technical expertise, competitive pricing and the ability
        to
        deliver results, whether on a transaction, fixed-price
        or  time-and-materials basis.  We believe that our ability
        to compete also depends in part on a number of competitive factors outside
        our
        control, including the ability of our clients or competitors to hire, retain
        and
        motivate project managers and other senior technical staff, the ownership
        by
        competitors of software used by potential clients, the price at which others
        offer comparable services, the financial resources of our competitors, the
        ability of our clients to perform the services themselves and the extent
        of our
        competitors’ responsiveness to client needs.
  *INTELLECTUAL
        PROPERTY RIGHTS*
  Our
        success
        depends, in part, on our protection of our methodologies, solutions and
        intellectual property rights. We rely upon a combination of nondisclosure,
        licensing and other contractual arrangements, as well as trade secret, copyright
        and trademark laws to protect our proprietary rights and the proprietary
        rights
        of third parties from whom we license intellectual property.  The
        remaining life of our trademarks is four-to-five years.  We enter into
        nondisclosure agreements with all our employees, subcontractors and parties
        with
        whom we team.  In addition, we control and limit distribution of
        proprietary information.  We cannot assure that these steps will be
        adequate to deter the misappropriation of proprietary information or that
        we
        will be able to detect unauthorized use of this information and take appropriate
        steps to enforce our intellectual property rights.
  We
        have developed
        and acquired proprietary software that is licensed to clients pursuant to
        license agreements and other contractual arrangements.  We use
        intellectual property laws, including copyright and trademark laws, to protect
        our proprietary rights.  Part of our business also develops software
        applications for specific client engagements and customizes existing software
        products for specific clients.  Ownership of developed software and
        customizations to existing software is subject to negotiation with individual
        clients and is typically assigned to the client.  In some situations,
        we may retain ownership or obtain a license from our client, which permits
        us or
        a third party to use and market the developed software or the customizations
        for
        the joint benefit of the client and us or for our sole benefit.
  *AVAILABLE
        INFORMATION*
  Our
        Internet
        address is www.tier.com.  There we make available, free of charge, our
        annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
        on Form 8-K and any amendments to these reports, as soon as reasonably
        practicable after we electronically file such material with or furnish it
        to the
        Securities and Exchange Commission, or SEC.  Our SEC reports can be
        accessed through the Investor Relations section of our Web site.  The
        information found on our Web site is not part of this or any other report
        we
        file with or furnish to the SEC.
 5
  **ITEM
        1A—RISK FACTORS**
  Investing
        in our
        common stock involves a degree of risk.  You should carefully consider
        the risks and uncertainties described below in addition to the other information
        included or incorporated by reference in this annual report.  If any
        of the following risks actually occur, our business, financial condition
        or
        results of operations would likely suffer.  In that case, the trading
        price of our common stock could fall.
  The
        following
        factors and other risk factors could cause our actual results to differ
        materially from those contained in forward-looking statements in this Form
        10-K.
  **We
        have
        incurred losses in the past and may not be profitable in the
        future.**  We have incurred losses in the past and we may do so
        in the future.  While we reported net income in fiscal year 2005, we
        reported net losses of $3.0 million during fiscal year 2007,
        $9.5 million during the fiscal year 2006, $63,000 in fiscal year 2004 and
        $5.4 million in fiscal year 2003.
  **Our
        revenues and operating margins may decline and may be difficult to forecast,
        which could result in a decline in our stock price.**  Our
        revenues, operating margins and cash flows are subject to significant variation
        from quarter to quarter due to a number of factors, many of which are outside
        our control.  These factors include:
  ·
              economic
                  conditions in the marketplace;
  ·
              our
                  customers’ budgets and demand for our
                  services;
  ·
              seasonality
                  of business;
  ·
              timing
                  of
                  service and product
                  implementations;
  ·
              unplanned
                  increases in costs;
  ·
              delays
                  in
                  completion of projects;
  ·
              intense
                  competition;
  ·
              variability
                  of software license revenues; and
  ·
              integration
                  and costs of acquisitions.
  The
        occurrence of
        any of these factors may cause the market price of our stock to decline or
        fluctuate significantly, which may result in substantial losses to
        investors.  We believe that period-to-period comparisons of our
        operating results are not necessarily meaningful and/or indicative of future
        performance.  From time to time, our operating results may fail to
        meet analysts’ and investors’ expectations, which could cause a significant
        decline in the market price of our stock.  Price fluctuations and
        trading volume of our stock may be rapid and severe and may leave investors
        little time to react.  Other factors that may affect the market price
        of our stock include announcements of technological innovations or new products
        or services by competitors and general economic or political conditions,
        such as
        recession, acts of war or terrorism.  Fluctuations in the price of our
        stock could cause investors to lose all or part of their
        investment.
  **We
        may not
        be successful in divesting certain assets and liabilities and our anticipated
        divestiture could disrupt our operations.**  We may not be able
        to obtain reasonable offers for the fair value of the portions of PSSI and
        GBPO
        assets and liabilities that we are marketing.  In that event, we may
        be required to recognize an impairment loss or to terminate our planned
        divestiture.  Furthermore, our announced divestiture plan has resulted
        in, and could result in, additional turnover of employees or could have an
        adverse impact on our ability to attract and retain customers, which, in
        turn,
        could have an adverse impact on the revenues generated by these
        businesses.  In addition, if our estimates of the fair value of these
        businesses are not accurate, we may incur additional impairment losses or
        other
        losses on the sale of these businesses.  Divestiture of certain
        portions of these businesses may be delayed, or may be unsuccessful, resulting
        in business disruption and increased costs of running and completing certain
        projects.
  Our
          current and future information technology infrastructure may not meet our
          requirements for the
  6
 sustainable
          and economical growth of our EPP business. Our
          EPP business is
          highly dependent upon having a safe and secure information technology platform
          with sufficient capacity to meet the future growth of our business.  If our
          ability to develop and/or acquire upgrades or replacements of our existing
          platform does not keep pace with the growth of our business, we may not
          be able
          to meet our growth expectations.  Furthermore, if we are not able to
          develop these systems on a timely and economical basis, the profitablility
          of
          our EPP business may be adversely affected.
  **While
        our
        continuing operations provide services to over 3,000 clients, our revenues
        and
        cash flows could decline significantly if we were unable to retain our largest
        clients.**Our electronic payment processing provides services
        to over 3,000 clients.  However, our contract with the U.S. Internal
        Revenue Service generates over 25.3% of our revenues from continuing
        operations.  Our operating results and cash flows could decline
        significantly if we were unable to retain this client, or replace it in the
        event we were unable to renew this contract.
  **We
        operate
        in highly competitive markets.  If we do not compete effectively, we
        could face price reductions, reduced profitability and loss of market
        share.**  Our business is focused on transaction processing and
        software systems solutions, which are highly competitive markets and are
        served
        by numerous international, national and local firms.  Many competitors
        have significantly greater financial, technical and marketing resources and
        name
        recognition than we do.  In addition, there are relatively low
        barriers to entry into these markets and we expect to continue to face
        additional competition from new entrants into our markets.  Parts of
        our business are subject to increasing pricing pressures from competitors,
        as
        well as from clients facing pressure to control costs.  Some
        competitors are able to operate at significant losses for extended periods
        of
        time, which increases pricing pressure on our products and
        services.  If we do not compete effectively, the demand for our
        products and services and our revenue growth and operating margins could
        decline, resulting in 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.**  From time to time, the Financial Accounting
        Standards Board changes the financial accounting and reporting standards
        that
        govern the preparation of our financial statements. These changes can be
        hard to
        predict and can have a material effect on how we record and report our financial
        condition and results of operations. In some cases, we could be required
        to
        apply a new or revised standard retroactively, resulting in our restating
        prior
        period financial statements.
  **Changes
        in
        laws and government and regulatory compliance requirements may result in
        additional compliance costs and may adversely impact our reported
        earnings.**  Our business is subject to numerous federal, state
        and local laws, government regulations, corporate governance standards,
        licensing and bonding requirements, industry association rules and public
        disclosure requirements, which are subject to change.  Changing laws,
        regulations and standards relating to corporate governance, accounting
        standards, and public disclosure, including the Sarbanes-Oxley Act of 2002,
        SEC
        regulations and Nasdaq Stock Market rules, are creating uncertainty for
        companies and increasing the cost of compliance.  To maintain high
        standards of corporate governance and public disclosure, we intend to invest
        all
        reasonably necessary resources to comply with evolving
        standards.  This investment may result in increased general and
        administrative expenses for outside services and a diversion of management
        time
        and attention from revenue-generating activities.  New laws,
        regulations or industry standards may be enacted, or existing ones changed,
        which could negatively impact our services and revenues.  Taxes or
        fees may be imposed or we could be subject to additional requirements in
        regard
        to privacy, security or qualification for doing business.  For our
        transaction processing services, we are subject to various federal and state
        laws and regulations, the rules of the National Automated Clearing House
        Association and the applicable credit/debit card association rules.  A
        change in such laws, rules or regulations could restrict or eliminate our
        ability to provide services or accept certain types of transactions, and
        could
        increase costs, impair growth and make our services unprofitable.
  **The
        revenues generated by our electronic payment processing operations may fluctuate
        and the ability to maintain profitability is uncertain.**  EPP
        primarily provides credit and debit card and electronic check payment options
        for the payment of federal and state personal income taxes, real estate and
        personal property taxes, business taxes, fines for traffic violations and
        parking citations and educational and utility obligations.  The
  7
 revenues
        earned by
        EPP depend on consumers’ continued willingness to pay a convenience fee and our
        relationships with clients, such as government taxing authorities, educational
        institutions, public utilities and their respective constituents.  If
        consumers are not receptive to paying a convenience fee; if card associations
        change their rules or laws are passed that do not allow us to charge the
        convenience fees; or if credit or debit card issuers or marketing partners
        eliminate or reduce the value of rewards to consumers under their respective
        rewards programs, demand for electronic payment processing services could
        decline.  The processing fees charged by credit/debit card
        associations and financial institutions can be increased with little or no
        notice, which could reduce margins and harm our profitability.  Demand
        for electronic payment processing services could also be affected adversely
        by a
        decline in the use of the Internet or consumer migration to a new or different
        technology or payment method.  The use of credit and debit cards and
        electronic checks to make payments to government agencies is subject to
        increasing competition and rapid technological change.  If we are not
        able to develop, market and deliver competitive technologies, our market
        share
        will decline and our operating results and financial condition could
        suffer.
  **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.**  The market for skilled workers in our industry
        is extremely competitive.  In particular, qualified project managers
        and senior technical and professional staff are in great demand.  If
        we are not successful in our recruiting efforts or are unable to retain key
        employees, our ability to staff projects and deliver products and services
        may
        be adversely affected.  We believe our success also depends upon the
        continued services of senior management and a number of key employees whose
        employment may terminate at any time.  If one or more key employees
        resigns to join a competitor or to form a competing company, the loss of
        such
        personnel and any resulting loss of existing or potential clients could harm
        our
        competitive position.
  **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
        business is highly dependent on working with other companies and organizations
        to bid on and perform complex multi-party projects.  We may act as a
        prime contractor and engage subcontractors, or we may act as a subcontractor
        to
        the prime contractor.  We use third-party software, hardware and
        support service providers to perform joint engagements.  We depend on
        licensed software and other technology from a small number of primary vendors.
        We also rely on a third-party co-location facility for our primary data center,
        use third-party processors to complete payment transactions and use third-party
        software providers for system solutions, security and
        infrastructure.  The failure of any of these third parties to meet
        their contractual obligations, our inability to obtain favorable contract
        terms,
        failures or defects attributable to these third parties or their products,
        or
        the discontinuation of the services of a key subcontractor or vendor could
        result in significant cost and liability, diminished profitability and damage
        to
        our reputation and competitive position.
  **Our
        fixed-price and transaction-based contracts require accurate estimates of
        resources and transaction volumes.  Failure to estimate these factors
        accurately could cause us to lose money on these
        contracts.**  Our business relies on accurate
        estimates.  If we underestimate the resources, cost or time required
        for a project or overestimate the expected volume of transactions or transaction
        dollars processed, our costs could be greater than expected or our revenues
        could be less than expected.  Under fixed-price contracts, we
        generally receive our fee if we meet specified deliverables, such as completing
        certain components of a system installation.  For transaction-based
        contracts, we receive our fee on a per-transaction basis or as a percentage
        of
        dollars processed, such as the number of child support payments processed
        or tax
        dollars processed.  If we fail to prepare accurate estimates on
        factors used to develop contract pricing, such as labor costs, technology
        requirements or transaction volumes, we may incur losses on those contracts
        and
        our operating margins could decline.
  **Our
        revenue
        is highly dependent on government funding. The loss or decline of existing
        or
        future government funding could cause our revenue and cash flows to
        decline**.  A significant portion of our revenue is derived
        from federal and state mandated projects.  A large portion of these
        projects may be subject to a reduction or discontinuation of funding, which
        may
        cause early termination of projects, diversion of funds away from our projects
        or delays in implementation.  The occurrence of any of these
        conditions could have an adverse effect on our projected revenue, cash flows
        and
        profitability.
 8
  **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.**  Despite security measures we have taken, our
        systems may be vulnerable to physical break-ins, fraud, computer viruses,
        attacks by hackers and similar problems causing interruption in service and
        loss
        or theft of data and information, inclusive of personally identifiable
        data.  Our third-party suppliers also may experience security breaches
        involving the unauthorized access of proprietary information.  A
        security breach could result in theft, publication, deletion or modification
        of
        confidential information; cause harm to our business and reputation; and
        result
        in loss of clients and revenue.
  **We
        could
        suffer material losses if our operations fail to perform
        effectively.  The potential for operational risk exposure exists
        throughout our organization.**  Integral to our performance is
        the continued efficiency of our technical systems, operational infrastructure,
        relationships with third parties and key executives in our day-to-day and
        ongoing operations. Failure by any or all of these resources subjects us
        to
        risks that may vary in size, scale and scope. This includes but is not limited
        to operational or technical failures, ineffectiveness or exposure due to
        interruption in third-party support as expected, as well as the loss of key
        individuals or failure on the part of the key individuals to perform
        properly.  Our insurance may not be adequate to compensate us for all
        losses that may occur as a result of any such event, or any system, security
        or
        operational failure or disruption.
  **At
        any
        given time, we are subject to a variety of claims and lawsuits. An adverse
        decision in any of these claims could have an adverse impact on our reputation
        and financial results.**  Adverse outcomes in a claim, lawsuit,
        government investigation, tax determination, or other liability matter could
        result in significant monetary damages, substantial costs, or injunctive
        relief
        against us that could adversely affect our ability to conduct our
        business.  We cannot guarantee that the disclaimers, limitations of
        warranty, limitations of liability and other provisions set forth in our
        contracts will be enforceable or will otherwise protect us from liability
        for
        damages.  The successful assertion of one or more claims against us
        may not be covered by, or may exceed, our available insurance
        coverage.
  In
        May 2003, we
        received a subpoena from a grand jury in the Southern District of New York
        to
        produce certain documents pursuant to an investigation by the Antitrust Division
        of the U.S. Department of Justice, or the DOJ, involving the child support
        payment processing industry.  We have cooperated, and intend to
        continue to cooperate, fully with the subpoena and with the DOJ’s
        investigation.  On November 20, 2003, the DOJ granted us
        conditional amnesty pursuant to the Antitrust Division’s Corporate Leniency
        Policy.  Consequently, the DOJ will not bring any criminal charges
        against us or our officers, directors and employees, as long as we continue
        to
        comply with the Corporate Leniency Policy, which requires, among other things,
        our full cooperation in the investigation and restitution payments if it
        is
        determined that parties were injured as a result of impermissible
        anticompetitive conduct.  We anticipate that we will incur additional
        expenses as we continue to cooperate with the investigation.  Such
        expenses and any restitution payments could negatively impact our reputation,
        compromise our ability to compete and win new projects and result in financial
        losses.
  In
        May 2006, we
        received a subpoena from the Philadelphia District Office of the SEC requesting
        documents relating to financial reporting and personnel issues.  If
        the SEC were to conclude that further investigative activities are merited
        or to
        take formal action against Tier, our reputation could be impaired.  We
        have cooperated, and intend to continue to cooperate, fully with this
        investigation.  We anticipate that we will incur additional legal and
        administrative expenses as we continue to cooperate with the SEC’s
        investigation.
  On
        November 20,
        2006, we were served with a purported class action lawsuit on behalf of
        purchasers of our common stock from November 29, 2001 to October 25,
        2006.  Subsequently, the complaint was amended to narrow the purported
        class period.  The suit alleges that Tier and certain of our former
        officers issued false and misleading statements from November 2001 to May
        2006,
        but did not specify the damages being sought.  On July 24, 2007,
        the United States District Court for the Eastern District of Virginia entered
        an
        order denying the plaintiff's motion for class certification for the purported
        class action lawsuit.  On December 5, 2007, the court granted our
        motion to dismiss plaintiff's complaint but permitted plaintiff an opportunity
        to file an amended complaint.  Plaintiff's amended complaint must be
        filed by December 28, 2007.  We believe we have minimal, if any,
        exposure associated with this complaint.
 9
  **If
        we are
        not able to protect our intellectual property, our business could suffer
        serious
        harm.**  Our systems and operating platforms, scripts, software
        code and other intellectual property are generally proprietary, confidential,
        and may be trade secrets.  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.  Ownership of developed software and customizations to software
        are the subject of negotiation and license arrangements with individual
        clients.  Despite our efforts to safeguard and protect our
        intellectual property and proprietary rights, there is no assurance that
        these
        steps will be adequate to avoid the loss or misappropriation of our rights
        or
        that we will be able to detect unauthorized use of our intellectual property
        rights.  If we are unable to protect our intellectual property,
        competitors could market services or products similar to ours, and demand
        for
        our offerings could decline, resulting in an adverse impact on
        revenues.
  **We
        may be
        subject to infringement claims by third parties, resulting in increased costs
        and loss of business.**  From time to time we receive notices
        from others claiming we are infringing on their intellectual property
        rights.  Defending a claim of infringement against us could prevent or
        delay our providing products and services, cause us to pay substantial costs
        and
        damages, force us to redesign products or enter into royalty or licensing
        agreements on less favorable terms.  If we are required to enter into
        such agreements or take such actions, our operating margins could
        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.**  We maintain
        insurance to cover various risks in connection with our
        business.  Additionally, our business includes projects that require
        us to obtain performance and bid bonds from a licensed surety.  There
        is no guarantee that such insurance coverage or bonds will continue to be
        available on reasonable terms, or at all.  If we are unable to obtain
        or maintain adequate insurance and bonding coverage, potential liabilities
        associated with the risks discussed in this report could exceed our coverage,
        and we may not be able to obtain new contracts or continue to provide existing
        services, which could result in decreased business opportunities and declining
        revenues.
  **Our
        markets
        are changing rapidly.  If we are not able to adapt to changing
        conditions, we may lose market share and may not be able to compete
        effectively.**  The markets for our products are characterized
        by rapid changes in technology, client expectations and evolving industry
        standards.  Our future success depends on our ability to innovate,
        develop, acquire and introduce successful new products and services for our
        target markets and to respond quickly to changes in the market.  If we
        are unable to address these requirements, or if our products do not achieve
        market acceptance, we may lose market share and our revenues could
        decline.
  **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.  We may not be able to identify suitable
        acquisition candidates at prices that we consider appropriate or to finance
        acquisitions at favorable terms.  If we do identify an appropriate
        acquisition candidate, we may be unsuccessful in negotiating the terms of
        the
        acquisition, financing the acquisition or, if the acquisition occurs,
        integrating the acquired business into our existing
        business.  Negotiations of potential acquisitions and the integration
        of acquired business operations could disrupt our business by diverting
        management attention away from day-to-day operations.  Acquisitions of
        businesses or other material operations may require additional debt or equity
        financing, resulting in leverage or dilution of ownership.  We also
        may not realize cost efficiencies or synergies that we anticipated when
        selecting our acquisition candidates.  In addition, we may need to
        record write-downs from future impairments of identified intangible assets
        and
        goodwill, which could reduce our future reported
        earnings.  Acquisition candidates may have liabilities or adverse
        operating issues that we fail to discover through due diligence prior to
        the
        acquisition.  Any costs, liabilities or disruptions associated with
        any future acquisitions we may pursue could harm our operating
        results.
  **Our
            business is subject to increasing performance requirements, which could
            result
            in reduced revenues and increased liability.**Our business
            involves projects that are critical to the operations of our clients'
            businesses.  The failure to meet client expectations could damage our
            reputation and compromise our ability to attract new business.  On
            certain projects we make performance guarantees, based upon defined operating
            specifications, service levels and delivery dates, which are sometimes
            backed by
            contractual guarantees and performance bonds.  Unsatisfactory
            performance or unanticipated difficulties or delays in starting or completing
            such projects may result in termination of the contract, a reduction
            in payment,
            liability for penalties and damages, or claims against a performance
            bond.  Client performance expectations or unanticipated delays could
            necessitate the use of more resources than we initially budgeted for
            a
            particular project, which could increase our project costs and make us
            less
            profitable.
 10
  **ITEM
        1B—UNRESOLVED STAFF COMMENTS**
  There
        are no
        unresolved written comments that were received from the Securities and Exchange
        Commission’s staff 180 days or more before the end of our fiscal year 2007
        regarding our periodic or current reports under the Securities Exchange Act
        of
        1934.
   **ITEM
        2—PROPERTIES**
  As
        of September 30,
        2007, we leased nearly 175,000 square feet of space throughout the
        country.  These leased facilities included our 41,000 square foot
        corporate headquarters in Reston, Virginia.  We also leased
        59,000 square feet of space for our GBPO payment processing centers in
        Michigan, Tennessee, Alabama and Kentucky. In addition, we leased
        55,000 square feet of space in Georgia, Virginia, Connecticut, California,
        Missouri and New Mexico to house our subsidiary operations for EPP and PSSI
        and
        the call centers for GBPO and to provide general office space to support
        our
        projects and our clients.  We also leased 20,000 square feet in
        California that we subleased to an unrelated third party.  Finally, we
        own a 28,060 square foot building in Alabama which houses certain
        administrative, call center, warehouse and other operations.
   **ITEM
        3—LEGAL PROCEEDINGS**
  In
        May 2003, we
        received a subpoena from a grand jury in the Southern District of New York
        to
        produce certain documents pursuant to an investigation by the Antitrust Division
        of the Department of Justice, or DOJ, involving the child support payment
        processing industry.  We have cooperated, and intend to continue to
        cooperate, fully with the subpoena and with the DOJ’s
        investigation.  On November 20, 2003, the DOJ granted us
        conditional amnesty pursuant to the Antitrust Division’s Corporate Leniency
        Policy.  Consequently, the DOJ will not bring any criminal charges
        against us or our officers, directors and employees, as long as we continue
        to
        comply with the Corporate Leniency Policy, which requires, among other things,
        our full cooperation in the investigation and restitution payments if it
        is
        determined that parties were injured as a result of impermissible
        anticompetitive conduct.
  In
        May 2006,
        we received a subpoena from the Philadelphia District Office of the SEC
        requesting documents relating to financial reporting and personnel
        issues.  If the SEC were to conclude that further investigative
        activities are merited or to take formal action against us, our reputation
        could
        be impaired.  We have cooperated, and intend to continue to cooperate,
        fully with this investigation.
  On
        November 20,
        2006, we were served with a purported class action lawsuit filed in the United
        States District Court for the Eastern District of Virginia on behalf of
        purchasers of our common stock from November 29, 2001 to October 25,
        2006.  Subsequently, the complaint was amended to narrow the purported
        class period.  The suit alleges that Tier and certain of our former
        officers issued false and misleading statements from November 2001 to
        May 2006, but did not specify the damages being sought.  On
        July 24, 2007, the United States District Court for the Eastern District of
        Virginia entered an order denying the plaintiff's motion for class certification
        for the purported class action lawsuit.  The time to appeal the
        Court's order has expired without an appeal.  On December 3,
        2007, the court granted our motion to dismiss plaintiff's complaint but
        permitted plaintiff an opportunity to file an amended
        complaint.  Plaintiff's amended complaint must be filed by
        December 28, 2007.  We believe we have minimal, if any, exposure
        associated with this complaint.
  **ITEM
        4—SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
  No
        matters were
        submitted to a vote of our stockholders during the fourth quarter of fiscal
        2007.
 11
  **EXECUTIVE
        OFFICERS**
  The
        names, ages and
        positions of our executive officers at September 30, 2007, are listed in
        the
        following table, together with their business experience during the past
        five
        years.  Unless otherwise specified, all officers served continuously
        since the date indicated.  There is no family relationship among the
        officers.
 
 Name,
                  age and position with Registrant
              Date
                  elected
                or
                  appointedRonald
                  L. Rossetti, Age 64 (a)Chairman
                  of the Board, Chief Executive Officer
              May
                  2006David
                  E. Fountain, Age 47 (b)Senior
                  Vice President, Chief Financial Officer and Treasurer
              May
                  2005Michael
                  A. Lawler, Age 44 (c)Senior
                  Vice President, Electronic Payment Processing
              June
                  2004Deanne
                  M. Tully, Age 49Vice
                  President, General Counsel and Corporate Secretary
              July
                  2003Vice
                  President, General Counsel
              February
                  2001Steven
                  M. Beckerman, Age 49 (d)Senior
                  Vice President, Business Process Outsourcing
              March
                  2006Kevin
                  C. Connell, Age 40Senior
                  Vice President, Sales & Marketing
              November
                  2006Senior
                  Vice President, Business Development (OPC)
              July
                  2003Vice
                  President, Business Development (OPC)
              August
                  2002(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)
                  Mr. Fountain
                  served as Chief Financial Officer and Treasurer of National Processing
                  Inc., a provider of payment processing services, from 1999 to October
                  2004.(c)
                  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.(d)
                  Mr.
                  Beckerman served as Senior Vice President, Product Management of
                  Certegy
                  Card Services, a company that provides debit, credit and merchant
                  card
                  processing, from January 2004 to February 2006.  From July 2000
                  to December 2003, Mr. Beckerman served as Certegy's Vice President,
                  Sales
                  and Marketing.




**PART
        II**
  **ITEM
        5—MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
        PURCHASES OF EQUITY SECURITIES**
   Our
        common stock is
        quoted on the Nasdaq Global Market under the symbol TIER.  From
        May 26, 2006 to May 20, 2007, our common stock was quoted on the Pink
        Sheets under the symbol TIER or TIER.PK.
  On
        December 7,
        2007, there were 205 record holders of our common stock.  The
        quarterly high and low prices per share during fiscal 2007 and 2006 were
        as
        follows:
  **Year
                  ended September 30,****2007**
              
              
              **2006****High**
              
              
              **Low**
              
              
              **High**
              
              
              **Low**First
                  quarter
              
              $
              7.30
              
              
              $
              6.35
              
              
              $
              8.50
              
              
              $
              6.93Second
                  quarter
              
              $
              8.90
              
              
              $
              5.85
              
              
              $
              8.08
              
              
              $
              7.34Third
                  quarter
              
              $
              10.05
              
              
              $
              8.25
              
              
              $
              8.70
              
              
              $
              5.67Fourth
                  quarter
              
              $
              10.26
              
              
              $
              8.33
              
              
              $
              7.05
              
              
              $
              5.25
  12
  We
        have never
        declared or paid cash dividends on our common stock and do not anticipate
        doing
        so for the foreseeable future.  Instead, we intend to retain our
        current and future earnings to fund the development and growth of our
        business.  Our current credit facility prohibits us from declaring
        dividends.
  *COMPARISON
        OF 5 YEAR CUMULATIVE TOTAL
        RETURN*
  The
        following graph
        compares the percentage change in cumulative stockholder return on our common
        stock for the period September 30, 2002 through September 30, 2007,
        with the cumulative total return on the NASDAQ Composite Index and the Russell
        2000 Index.  The comparison assumes $100.00 was invested on
        September 30, 2002 in our common stock and in each of the foregoing indices
        and assumes reinvestment of all dividends, if any.
   
 **Measurement**
                **Date**
              
              **Tier**
                **Technologies,
                  Inc.**
              
              
              **NASDAQ**
                **Composite**
              
              
              **Russell**
                **2000**9/30/02
              
              $
              100.00
              
              
              $
              100.00
              
              
              $
              100.009/30/03
              
              
              47.09
              
              
              
              150.59
              
              
              
              136.509/30/04
              
              
              51.00
              
              
              
              162.89
              
              
              
              162.129/30/05
              
              
              45.72
              
              
              
              185.48
              
              
              
              191.239/30/06
              
              
              35.94
              
              
              
              196.37
              
              
              
              210.209/30/07
              
              
              53.91
              
              
              
              236.60
              
              
              
              236.14
  The
        information
        included under the heading "Comparison of 5 Year Cumulative Total Return"
        in
        Item 5 of this Annual Report on Form 10-K is "furnished" and not "filed"
        and
        shall not be deemed to be "soliciting material" or subject to Regulation
        14A,
        shall not be deemed "filed" for purposes of Section 18 of the Securities
        Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject
        to
        the liabilities of that section, nor shall it be deemed incorporated by
        reference in any filing under the Securities Act of 1933, as amended, or
        the
        Exchange Act.
 13
   **ITEM
        6—SELECTED FINANCIAL DATA**
   The
        following table
        summarizes selected consolidated financial data for the fiscal years ended
        September 30, 2003 through 2007.  You should read the following
        selected consolidated financial data in conjunction with the financial
        statements, including the related notes, and Item 7—*Management’s Discussion
        and Analysis of Financial Condition and Results of
        Operations*.  Historical results are not necessarily indicative of
        results to be expected for any future period.  Certain historical
        information in the following table has been reclassified to conform to the
        current year presentation.
  **Fiscal
                  years ended September 30,***(in
                  thousands, except per share data)*
              
              **2007**
              
              
              **2006**
              
              
              **2005**
              
              
              **2004**
              
              
              **2003**Revenues
              
              $
              111,148
              
              
              $
              96,492
              
              
              $
              78,695
              
              
              $
              61,948
              
              
              $
              51,779Costs
                  and expenses
              
              
              133,425
              
              
              
              118,825
              
              
              
              98,936
              
              
              
              83,503
              
              
              
              81,343Loss
                  before discontinued and other income (loss)
              
              
              (22,277
              )
              
              
              (22,333
              )
              
              
              (20,241
              )
              
              
              (21,555
              )
              
              
              (29,564
              )Other
                  income
              
              
              4,094
              
              
              
              3,457
              
              
              
              874
              
              
              
              835
              
              
              
              904Loss
                  before income taxes & discontinued operations
              
              
              (18,183
              )
              
              
              (18,876
              )
              
              
              (19,367
              )
              
              
              (20,720
              )
              
              
              (28,660
              )Income
                  tax provision (benefit)
              
              
              76
              
              
              
              45
              
              
              
              127
              
              
              
              —
              
              
              
              (2,764
              )Loss
                  from continuing operations
              
              
              (18,259
              )
              
              
              (18,921
              )
              
              
              (19,494
              )
              
              
              (20,720
              )
              
              
              (25,896
              )Income
                  from discontinued operations, net
              
              
              15,225
              
              
              
              9,470
              
              
              
              20,620
              
              
              
              20,657
              
              
              
              20,460Net
                  (loss) income
              
              $
              (3,034
              )
              
              $
              (9,451
              )
              
              $
              1,126
              
              
              $
              (63
              )
              
              $
              (5,436
              )Total
                  assets
              
              $
              166,424
              
              
              $
              169,860
              
              
              $
              176,742
              
              
              $
              171,980
              
              
              $
              161,374Long-term
                  obligations, less current portion
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              89
              
              
              $
              195(Loss)
                  earnings per share—Basic and diluted:Continuing
                  operations
              
              $
              (0.94
              )
              
              $
              (0.97
              )
              
              $
              (1.00
              )
              
              $
              (1.09
              )
              
              $
              (1.38
              )Discontinued
                  operations
              
              $
              0.78
              
              
              $
              0.49
              
              
              $
              1.06
              
              
              $
              1.09
              
              
              $
              1.09(Loss)
                  earnings per share—Basic and diluted
              
              $
              (0.16
              )
              
              $
              (0.48
              )
              
              $
              0.06
              
              
              $
              —
              
              
              $
              (0.29
              )Weighted
                  average common shares used in computing:Basic
                  and diluted (loss) earning per share
              
              
              19,512
              
              
              
              19,495
              
              
              
              19,470
              
              
              
              18,987
              
              
              
              18,782
  
   14
   **ITEM
        7—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS**
   *This
        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.  Our actual performance could differ materially from
        the expectations and beliefs reflected in the forward-looking statements
        in this
        section and throughout this report, as a result 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.  For
        information regarding what constitutes a forward-looking statement refer
        to
        Private Securities Litigation Reform Act Safe Harbor Statement on
        page 1.*
  ***OVERVIEW***
  We
        provide federal,
        state and local government and other public sector clients with electronic
        payment and other transaction processing services, as well as software and
        systems integration services.  As explained more fully in this
*Management’s Discussion and Analysis of Financial Condition and Results of
        Operations*, we are in the process of divesting a number of incompatible
        businesses and dedicating an increasing amount of effort toward expanding
        our
        core business—Electronic Payment Processing, or EPP.
   ***Key
        Events in Fiscal 2007***
  Fiscal
        2007 was a
        transitional year for our company.  At the beginning of fiscal 2007,
        we were organized into three segments: EPP, Government Business Process
        Outsourcing, or GBPO, and Packaged Software and Systems Integration, or
        PSSI.  While each segment primarily served the government sector, the
        specific governmental agencies they served and products and services they
        offered were extremely diverse.  Individually, each segment offered
        strong growth opportunities; however, financing, managing and operating these
        widely disparate operations made it difficult to maximize our profitability
        and
        overall stockholder value.
  Recognizing
        these
        issues, we undertook a strategic initiative during the first quarter of fiscal
        2007 that evaluated the risks, costs, benefits and growth potential of each
        of
        our product lines and services.  In addition, we assessed the degree
        to which incremental investments or managerial changes were needed to maximize
        the profitability of each product line.  Based upon this rigorous
        review, we concluded that we could best maximize our long-term profitability
        and
        stockholder value if we focused on our core EPP business.  As a
        result, in April 2007 we began to seek buyers for the sale of the majority
        of
        our GBPO and PSSI operations. We expect to accomplish this divestiture by
        selling separate businesses within the GBPO and PSSI operations to five or
        six
        individual buyers.
  On
        our Consolidated
        Balance Sheets, we classified the associated assets and liabilities for each
        of
        these businesses as held-for-sale, in accordance with SFAS 144—*Accounting
        for the Impairment or Disposal of Long-Lived Assets*, or SFAS
        144.  In our Consolidated Statements of Operations, we have classified
        the operations of these businesses as *Income from discontinued operations,
        net,* because we do not expect to have continuing involvement or cash flows
        from these businesses after the divestitures.  All assets and
        liabilities that are reported in these financial statements as “held-for-sale”
are reported at the lower of the carrying cost or fair value less cost to
        sell.  Although we report these held-for-sale operations as
“discontinued” on our Consolidated Statements of Operations, we continue to
        operate these operations as efficiently and effectively as possible in order
        to
        maximize the proceeds that we expect to receive from the eventual disposition
        of
        these operations.
  We
        also have a
        number of businesses within GBPO and PSSI whose operations were neither
        compatible with our long-term strategic direction nor complementary with
        other
        businesses that we were divesting.  We decided to complete, and in
        some cases extend the term of the existing contracts for these
        businesses.  We believe that these three businesses will be phased out
        over the next five years.  We continue to report the businesses as
        continuing operations in our consolidated financial statements, in accordance
        with SFAS 144.
 15
  ***Summary
        of Fiscal 2007 Operating Results***
  For
        fiscal 2007, we
        reported a net loss of $3.0 million, or $0.16 per fully diluted share,
        which represents a $6.4 million, or 67.9% decrease in net loss over fiscal
        2006.  Our continuing operations reported a loss of
        $18.3 million, or $0.94 per fully diluted share, while our discontinued
        operations reported net income of $15.2 million, or $0.78 per fully diluted
        share.
  Our
        continuing
        operations are composed of our EPP business, certain businesses that we are
        winding down and corporate costs.  On a standalone basis and excluding
        any allocation of corporate costs, our EPP business reported income of
        $8.4 million, or $0.43 per fully diluted share, during fiscal
        2007.  This represents a $2.8 million, or 50.5% increase over
        fiscal 2006, resulting from a 36.7% increase in the number of transactions
        and a
        31.2% increase in dollars processed by EPP in fiscal 2007.  We believe
        that the positive performance of our EPP business reflects rising consumer
        demand for electronic payment alternatives, as well as an increase in the
        number
        of client contracts for electronic payment services.  Although EPP
        provides electronic payment processing services to over 3,000 clients,
        approximately 28.3% of EPP’s revenues are generated by transactions processed
        for the Internal Revenue Service.
  The
        positive
        performance of our EPP business was more than offset by a loss of
        $11.2 million, or $0.58 per fully diluted share, from operations that we
        are winding down, including a $9.2 million impairment charge to write down
        the assets and liabilities of these operations to fair value.  During
        fiscal 2008, we expect to wind-down two businesses that generated
        losses.  Another business that reported positive earnings is expected
        to be wound-down over a five-year period.  Our income from continuing
        operations also included corporate overhead of $15.4 million, or $0.79 per
        fully diluted share, including a significant portion of costs for
        shared-services that could not be directly assigned to any business
        unit.  We expect that the need for, and cost of, these shared-services
        and other corporate costs will diminish after we sell and/or wind-down our
        GBPO
        and PSSI businesses.
  For
        fiscal 2007,
        our discontinued operations reported income of $15.2 million, or $0.78 per
        fully diluted share, an increase of $5.8 million from fiscal 2006
        results.  Approximately $8.1 million, or $0.41 per fully diluted
        share, of the income reported for fiscal 2007 resulted from the reversal
        of a
        reserve for a 2003 tax refund for our former Australian operations, which
        received final approval from the Internal Revenue Service in March
        2007.  The remaining $7.1 million, or $0.37 per fully diluted
        share, of income reported in fiscal 2007 was generated by the GBPO and PSSI
        operations that are held-for-sale.  Although the GBPO and PSSI
        operations generated income in fiscal 2007 on a standalone basis (excluding
        an
        allocation of general corporate costs), the expiration of two GBPO contracts
        and
        the completion of a number of PSSI projects in fiscal 2007 are expected to
        result in lower earnings in future years.
  ***Expectations
        for 2008***
  We
        expect that
        fiscal 2008 will be another transition year as we position our company for
        the
        long-term growth of the EPP business.  In fiscal 2008, we expect to
        see continued strong revenue growth in our EPP business, driven not only
        by
        revenue growth initiatives, but also by increasing consumer demand for
        electronic payment processing alternatives.  Furthermore, we are
        undertaking two key initiatives that will help build our EPP business into
        an
        industry leader.  First, we are analyzing our back-office processing
        platforms and infrastructure to determine what actions are needed to improve
        efficiency and reduce costs, while providing the capacity for future
        growth.  Based on our preliminary conclusions, we expect to make a
        significant investment in our current EPP technology in fiscal
        2008.  Second, we expect to move EPP beyond focusing primarily on
        governmental clients into the commercial biller-direct payment processing
        space.  We believe that this second initiative will provide
        significant revenue growth opportunities.  In addition to these two
        EPP-specific initiatives, we also intend to right-size our corporate overhead
        once the sale of our non-core assets is complete.  In fiscal 2008, we
        also expect to finalize the divestiture of the held-for-sale businesses and
        use
        the proceeds from these dispositions to fund future growth in our EPP
        business.
  We
        believe that the
        actions we are taking will position our company for long-term
        growth.  While certain of these initiatives will produce some cost
        savings during fiscal 2008, we believe that the cost of implementing these
        initiatives will outweigh those savings during fiscal 2008 and that we expect
        to
        incur a net loss in
  16`
 fiscal 2008.  However,
        once the implementation of these initiatives is complete, we believe that
        our
        company will report long-term, sustainable profitability.
  ***RESULTS
        OF OPERATIONS***
  The
        following table
        provides an overview of our results of operations for fiscal years 2007,
        2006
        and 2005:
  **Variance****Year
                  ended September 30,**
              
              
              **2007
                  vs. 2006**
              
              
              **2006
                  vs. 2005***(in
                  thousands, except percentages)*
              
              **2007**
              
              
              **2006**
              
              
              **2005**
              
              
              **$
                  Amount**
              
              
              **%**
              
              
              **$
                  Amount**
              
              
              **%**Revenues
              
              $
              111,148
              
              
              $
              96,492
              
              
              $
              78,695
              
              
              $
              14,656
              
              
              
              15.2
              %
              
              $
              17,797
              
              
              
              22.6
              %Costs
                  and expenses
              
              
              133,425
              
              
              
              118,825
              
              
              
              98,936
              
              
              
              14,600
              
              
              
              12.3
              %
              
              
              19,889
              
              
              
              20.1
              %Loss
                  from continuing operations before other income and income
                  taxes
              
              
              (22,277
              )
              
              
              (22,333
              )
              
              
              (20,241
              )
              
              
              56
              
              
              
              —
              
              
              
              (2,092
              )
              
              
              10.3
              %Other
                  income
              
              
              4,094
              
              
              
              3,457
              
              
              
              874
              
              
              
              637
              
              
              
              18.4
              %
              
              
              2,583
              
              
              
              *Loss
                  from continuing operations before income taxes
              
              
              (18,183
              )
              
              
              (18,876
              )
              
              
              (19,367
              )
              
              
              693
              
              
              
              3.7
              %
              
              
              491
              
              
              
              2.5
              %Income
                  tax provision
              
              
              76
              
              
              
              45
              
              
              
              127
              
              
              
              31
              
              
              
              68.9
              %
              
              
              (82
              )
              
              
              (64.6
              )%Loss
                  from continuing operations
              
              
              (18,259
              )
              
              
              (18,921
              )
              
              
              (19,494
              )
              
              
              662
              
              
              
              3.5
              %
              
              
              573
              
              
              
              2.9
              %Income
                  from discontinued operations, net
              
              
              15,225
              
              
              
              9,470
              
              
              
              20,620
              
              
              
              5,755
              
              
              
              60.8
              %
              
              
              (11,150
              )
              
              
              (54.1
              )%Net
                  (loss) income
              
              $
              (3,034
              )
              
              $
              (9,451
              )
              
              $
              1,126
              
              
              $
              6,417
              
              
              
              67.9
              %
              
              $
              (10,577
              )
              
              
              ***
                  Not meaningful*
  The
        following
        sections describe the reasons for key variances in the results that we are
        reporting for continuing and discontinued operations.
  ***Continuing
        Operations***
  The
        continuing
        operations section of our Consolidated Statements of Operations includes
        the
        results of operations of our core EPP business, certain businesses that we
        expect to wind-down over the next five years and general corporate
        costs.  The following table presents the revenues and expenses for our
        continuing operations for fiscal years 2007, 2006 and 2005.  This
        table is followed by a detailed analysis summarizing reasons for variances
        in
        these financial results.
  **Year
                  ended September 30,***(in
                  thousands)*
              
              **2007**
              
              
              **2006**
              
              
              **2005**Revenues
              
              $
              111,148
              
              
              $
              96,492
              
              
              $
              78,695Costs
                  and expenses:Direct
                  costs
              
              
              83,891
              
              
              
              71,670
              
              
              
              59,951General
                  and administrative
              
              
              27,486
              
              
              
              32,860
              
              
              
              24,176Selling
                  and marketing
              
              
              8,243
              
              
              
              9,162
              
              
              
              8,836Depreciation
                  and amortization
              
              
              4,573
              
              
              
              5,133
              
              
              
              5,973Write-down
                  of goodwill and intangibles
              
              
              9,232
              
              
              
              —
              
              
              
              —Total
                  costs and expenses
              
              
              133,425
              
              
              
              118,825
              
              
              
              98,936Loss
                  from continuing operations before other income and income
                  taxes
              
              
              (22,277
              )
              
              
              (22,333
              )
              
              
              (20,241
              )Other
                  income
              
              
              4,094
              
              
              
              3,457
              
              
              
              874Loss
                  from continuing operations before income taxes
              
              
              (18,183
              )
              
              
              (18,876
              )
              
              
              (19,367
              )Income
                  tax provision
              
              
              76
              
              
              
              45
              
              
              
              127Loss
                  from continuing operations
              
              $
              (18,259
              )
              
              $
              (18,921
              )
              
              $
              (19,494
              )
   17
 *Revenues
        (Continuing Operations)*
  The
        following table provides a year-over-year comparison of revenues generated
        by
        our continuing operations during fiscal years 2007, 2006 and 2005.
  **Fiscal
                  2007 vs. 2006**
              
              
              **Fiscal
                  2006 vs. 2005****Year
                  ended September 30,**
              
              
              **Variance**
              
              
              **Year
                  ended September 30,**
              
              
              **Variance***(in
                  thousands)*
              
              **2007**
              
              
              **2006**
              
              
              **$**
              
              
              
              **%**
              
              
              **2006**
              
              
              **2005**
              
              
              **$**
              
              
              
              **%**RevenuesEPP
              
              $
              99,433
              
              
              $
              78,578
              
              
              $
              20,855
              
              
              
              26.5
              %
              
              $
              78,578
              
              
              $
              56,452
              
              
              $
              22,126
              
              
              
              39.2
              %Wind-down
              
              
              12,100
              
              
              
              18,065
              
              
              
              (5,965
              )
              
              
              (33.0
              )%
              
              
              18,065
              
              
              
              27,316
              
              
              
              (9,251
              )
              
              
              (33.9
              )%Eliminations
              
              
              (385
              )
              
              
              (151
              )
              
              
              (234
              )
              
              
              (155.0
              )%
              
              
              (151
              )
              
              
              (5,073
              )
              
              
              4,922
              
              
              
              97.0
              %Total
              
              $
              111,148
              
              
              $
              96,492
              
              
              $
              14,656
              
              
              
              15.2
              %
              
              $
              96,492
              
              
              $
              78,695
              
              
              $
              17,797
              
              
              
              22.6
              %
  The
        following
        sections discuss the key drivers that caused these revenue changes from our
        continuing operations.
  ***EPP
        Revenues:***  EPP provides electronic processing solutions,
        including payment of taxes, fees and other obligations owed to government
        entities, educational institutions, utilities and other public sector
        clients.  EPP’s revenues reflect the number of contracts with clients,
        the volume of transactions processed under each contract and the rates that
        we
        charge for each transaction that we process.  EPP generated
        $99.4 million of revenues during fiscal 2007, a $20.9 million, or
        26.5%, increase over fiscal 2006.  In fiscal 2007, we processed 36.7%
        more transactions than we processed in fiscal 2006, representing 31.2% more
        total dollars.  Nearly half of the year-over-year increase in fiscal
        2007 was attributable to an increase in revenues from processing property
        taxes,
        25.8% was attributable to an increase in revenues from federal and state
        income
        taxes processing, and the remainder was due to increases in electronic payments
        processed for other governmental agencies, utilities and educational
        institutions.
  During
        fiscal 2006, EPP generated $78.6 million of revenues, an increase of
        $22.1 million, or 39.2% over fiscal 2005 results.  Slightly over
        half of this year-over-year increase was attributable to a rise in the number
        and volume of federal and state taxes processed in fiscal 2007, 26.6% was
        attributable to revenues earned by processing property tax payments, and
        the
        remainder was due to increases in electronic payments processed for other
        governmental agencies, utilities and educational institutions.  During
        fiscal 2006, we processed 40.2% more transactions than we processed in fiscal
        2005, representing 53.9% more dollars processed.
  As
        an
        increasing number of public and private sector entities strive to meet rising
        consumer demand for electronic payment alternatives, we believe our renewed
        focus on our core EPP business will continue to produce significant revenue
        growth for the foreseeable future.
  ***Wind-down
        Revenues:***  During fiscal 2007, our three wind-down
        operations generated $12.1 million in revenues, a $6.0 million, or
        33.0%, decrease from fiscal 2006.  The overall revenue decrease was
        due primarily to the completion or near completion of several projects during
        fiscal 2007.  Approximately $7.5 million of the revenues reported
        for fiscal 2007 were generated by our Voice and Systems Automation, or VSA,
        business.  We expect to continue to support and renew existing
        maintenance contracts; however, we do not expect that we will actively pursue
        new contracts for the VSA businesses.  The remaining fiscal 2007
        wind-down revenues were generated by our Pension and Health and Human Services
        businesses, which we expect to wind-down during fiscal 2008.
  During
        fiscal year
        ended September 30, 2006, these wind-down operations generated
        $18.1 million of revenues, a $9.3 million, or 33.9%, decrease from
        fiscal 2005.  Approximately $9.2 million of this decrease
        reflects the completion or near completion of several VSA contracts between
        mid-year fiscal 2006 through 2007, including an intercompany contract with
        our
        GBPO operations to construct a call center at one of our payment processing
        centers.
  18
  ***Corporate
        Operations/Eliminations:***  During fiscal 2007, we
        eliminated $385,000 of revenues for transactions processed by EPP for our
        GBPO
        business (which is included in discontinued operations).  This amount
        was $234,000 greater than the amount eliminated during 2006, because of a
        rise
        in the number of transactions that EPP processed for our GBPO
        business.  During fiscal 2005, we eliminated $5.1 million of
        intercompany revenues, primarily associated with the construction of the
        previously described GBPO call center by our VSA business.
  *Direct
        Costs (Continuing Operations)*
  Direct
        costs, which
        represent costs directly attributable to providing services to clients, include:
        payroll and payroll-related costs; credit card interchange fees and assessments;
        travel-related expenditures; amortization of intellectual property; amortization
        and depreciation of project-related equipment, hardware and software purchases;
        and the cost of hardware, software and equipment sold to clients.  The
        following table provides a year-over-year comparison of direct costs incurred
        by
        our continuing operations during fiscal years 2007, 2006 and 2005:
  **Fiscal
                  2007 vs. 2006**
              
              
              **Fiscal
                  2006 vs. 2005****Year
                  ended September 30,**
              
              
              **Variance**
              
              
              **Year
                  ended September 30,**
              
              
              **Variance***(in
                  thousands)*
              
              **2007**
              
              
              **2006**
              
              
              **$**
              
              
              
              **%**
              
              
              **2006**
              
              
              **2005**
              
              
              **$**
              
              
              
              **%**Direct
                  costsEPP
              
              $
              75,294
              
              
              $
              59,966
              
              
              $
              15,328
              
              
              
              25.6
              %
              
              $
              59,966
              
              
              $
              42,199
              
              
              $
              17,767
              
              
              
              42.1
              %Wind-down
              
              
              8,597
              
              
              
              11,704
              
              
              
              (3,107
              )
              
              
              (26.5
              )%
              
              
              11,704
              
              
              
              17,752
              
              
              
              (6,048
              )
              
              
              (34.1
              )%Total
              
              $
              83,891
              
              
              $
              71,670
              
              
              $
              12,221
              
              
              
              17.1
              %
              
              $
              71,670
              
              
              $
              59,951
              
              
              $
              11,719
              
              
              
              19.6
              %
  The
        following
        sections discuss the key drivers that caused these changes in the direct
        costs
        for continuing operations.
  ***EPP
        Direct Costs:***  Consistent with the year-over-year growth
        in our EPP revenues, EPP’s direct costs rose $15.3 million, or 25.6%, in
        fiscal 2007 and $17.8 million, or 42.1%, in fiscal 2006.  These
        increases directly reflect interchange fees charged to us to process the
        previously described increase in the number and volume of electronic payments
        processed for our electronic payment processing clients. We expect to see
        continued increases in our EPP direct costs as we strive to grow this business
        and as more clients move toward electronic payment processing
        options.
  ***Wind-down
        Direct Costs:***  Direct costs from our wind-down
        operations decreased $3.1 million, or 26.5%, during fiscal 2007 from fiscal
        2006 results.  The year-over-year reduction in direct costs during
        fiscal 2007 reflects the completion and near-completion of a number of Pension
        and Health and Human Services contracts, which, in turn, caused a reduction
        in
        the level of subcontractor and labor and labor-related costs that we
        incurred.  Similarly, during fiscal 2006, the direct costs from our
        wind-down operations decreased $6.0 million, or 34.1%, from fiscal
        2005.  Approximately $4.9 million of the year-over-year decrease
        in direct costs in fiscal 2006 was attributable to the completion and nearing
        completion of a number of VSA contracts during mid-year fiscal 2006 and 2007.
        The remaining decrease was primarily attributable to the completion of Pension
        projects, which resulted in lower subcontractor, labor and labor-related
        expenses.  As we wind down these operations, we expect that the direct
        costs of these operations will continue to decrease during fiscal
        2008.
 19
  *General
        and Administrative (Continuing Operations)*
  General
        and
        administrative expenses consist primarily of payroll and payroll-related
        costs
        for general management, administrative, accounting, legal and information
        systems, as well as fees paid to our directors and auditors.  The
        following table provides a year-over-year comparison of general and
        administrative costs incurred by our continuing operations during fiscal
        years
        2007, 2006 and 2005:
  **Fiscal
                  2007 vs. 2006**
              
              
              **Fiscal
                  2006 vs. 2005****Year
                  ended September 30,**
              
              
              **Variance**
              
              
              **Year
                  ended September 30,**
              
              
              **Variance***(in
                  thousands)*
              
              **2007**
              
              
              **2006**
              
              
              **$**
              
              
              
              **%**
              
              
              **2006**
              
              
              **2005**
              
              
              **$**
              
              
              
              **%**General
                  & administrativeEPP
              
              $
              7,847
              
              
              $
              6,009
              
              
              $
              1,838
              
              
              
              30.6
              %
              
              $
              6,009
              
              
              $
              4,591
              
              
              $
              1,418
              
              
              
              30.9
              %Wind-down
              
              
              3,663
              
              
              
              3,535
              
              
              
              128
              
              
              
              3.6
              %
              
              
              3,535
              
              
              
              4,194
              
              
              
              (659
              )
              
              
              (15.7
              )%Corporate
              
              
              15,976
              
              
              
              23,316
              
              
              
              (7,340
              )
              
              
              (31.5
              )%
              
              
              23,316
              
              
              
              15,391
              
              
              
              7,925
              
              
              
              51.5
              %Total
              
              $
              27,486
              
              
              $
              32,860
              
              
              $
              (5,374
              )
              
              
              (16.4
              )%
              
              $
              32,860
              
              
              $
              24,176
              
              
              $
              8,684
              
              
              
              35.9
              %
  ***EPP
        General and Administrative:***  During fiscal 2007, EPP
        incurred $7.8 million of general and administrative expenses, a
        $1.8 million, or 30.6%, increase over fiscal 2006. These increases are
        attributable primarily to: a $0.9 million increase for labor and labor
        related expenses, including shared-service cost provided specifically for
        EPP by
        Corporate; a $0.7 million increase for consulting services relating to
        our strategic initiative; and $0.2 million was primarily due to a rent
        increase at an EPP facility.  Partially offsetting these increases was
        a $0.2 million decrease in bad debt expense, reflecting successful
        collection efforts in fiscal 2007.  During fiscal 2006, EPP incurred
        $6.0 million of general and administrative expenses, a $1.4 million,
        or 30.9%, increase over fiscal 2005, primarily as a result of higher labor
        and
        labor-related expenses in fiscal 2006.
  During
        fiscal 2008, we expect that general and administrative expenses for our EPP
        operations will increase. Specifically, we are undertaking an initiative
        that
        will establish a common platform for processing electronic
        payments.  Currently, we process payments on multiple platforms at
        multiple locations.  By making this investment in a common platform in
        fiscal 2008, we believe the long-term efficiency and cost-effectiveness of
        our
        EPP operations will improve and we will have the capacity to process
        significantly more transactions.
  ***Wind-down
        General and Administrative:***  During fiscal 2007, our
        wind-down operations incurred $3.7 million of general and administrative
        expenses, a $0.1 million, or 3.6%, increase over fiscal
        2006.  Approximately $1.3 million of the increase is attributable
        to a contract settlement associated with a pension-related
        project.  Partially offsetting these increases was a $0.6 million
        decrease in bad debt expense attributable to successful collection efforts
        and a
        $0.6 million decrease in miscellaneous office-related
        expenses.  During fiscal 2006, our wind-down operations incurred
        $3.5 million of general and administrative expenses, a $0.7 million,
        or 15.7%, decrease from fiscal 2005.  Approximately $1.1 million
        of the decrease was attributable to reduced labor and labor-related expenses,
        partially offset by a $0.3 million increase in bad debt
        expense.  We expect that the administrative and general costs
        associated with these operations will decrease during fiscal 2008 as we continue
        to wind down these operations.
  ***Corporate
        General and Administrative:***  Our corporate operations
        represent those functions that support our corporate governance, including
        the
        costs associated with our Board of Directors and executive management team,
        as
        well as accounting, finance, legal and the costs of maintaining our corporate
        headquarters in Reston, Virginia.  In addition, corporate costs
        include functions that provide shared-services that support operations
        throughout our organization, such as information technology and business
        development.
  During
        fiscal 2007,
        our corporate operations incurred $16.0 million of general and
        administrative expenses, a $7.3 million, or 31.5%, decrease from fiscal
        2006.  The largest driver of this decrease was associated with the
        restatement of our financial statements that occurred during fiscal
        2006.  During fiscal 2006, we incurred $7.2 million of
        non-recurring accounting, legal and Audit Committee investigation
        costs.  This is contrasted with fiscal 2007, during which we incurred
        $1.0 million of accounting fees associated with the restatement and
        $0.7 million of legal fees associated with our 2007 relisting on NASDAQ and
        other legal matters associated
  20
 with
        last year’s
        restatement.  In addition, labor and labor-related expenses decreased
        $0.8 million, of which $1.1 million was related to the absence of
        severance expense and share-based payment expense associated with the fiscal
        2006 departure of our former Chief Executive Officer and $0.6 million was
        related to a share-based payment award granted to our current Chief Executive
        Officer in fiscal 2006, offset by increases in bonus expense of
        $1.0 million.  The remaining $1.0 million year-over-year
        decrease resulted from a $0.7 million decrease in other legal and
        accounting expenses and $0.3 million from lower miscellaneous office
        expenses.  During fiscal 2006, our corporate operations incurred
        $23.3 million of general and administrative expenses, a $7.9 million,
        or 51.5% increase over fiscal 2005.  The primary drivers of this
        increase were the previously described costs associated with the restatement
        of
        our historical financial statements in fiscal 2006 and the compensation
        arrangements for our former and current Chief Executive Officers.
  We
        believe that the
        anticipated sales of the majority of our GBPO and PSSI operations will reduce
        the need for corporate support.  Therefore, during 2008, we anticipate
        reductions in corporate general and administrative expenses as these
        divestitures occur.
  *Selling
        and Marketing (Continuing Operations)*
  Selling
        and
        marketing expenses consist primarily of payroll and payroll-related costs,
        commissions, advertising and marketing expenditures and travel-related
        expenditures.  We expect selling and marketing expenses to fluctuate
        from quarter to quarter due to a variety of factors, such as increased
        advertising and marketing expenses incurred in anticipation of the April
        15th
        federal tax season.  The following table provides a year-over-year
        comparison of selling and marketing costs incurred by our continuing operations
        during fiscal years 2007, 2006 and 2005.
  **Year
                  ended September 30,**
              
              
              **Variance**
              
              
              **Year
                  ended September 30,**
              
              
              **Variance***(in
                  thousands)*
              
              **2007**
              
              
              **2006**
              
              
              **$**
              
              
              
              **%**
              
              
              **2006**
              
              
              **2005**
              
              
              **$**
              
              
              
              **%**Selling
                  and marketingEPP
              
              $
              7,151
              
              
              $
              5,963
              
              
              $
              1,188
              
              
              
              19.9
              %
              
              $
              5,963
              
              
              $
              4,921
              
              
              $
              1,042
              
              
              
              21.2
              %Wind-down
              
              
              1,092
              
              
              
              1,046
              
              
              
              46
              
              
              
              4.4
              %
              
              
              1,046
              
              
              
              1,690
              
              
              
              (644
              )
              
              
              (38.1
              )%Corporate
              
              
              —
              
              
              
              2,153
              
              
              
              (2,153
              )
              
              
              (100.0
              )%
              
              
              2,153
              
              
              
              2,225
              
              
              
              (72
              )
              
              
              (3.2
              )%Total
              
              $
              8,243
              
              
              $
              9,162
              
              
              $
              (919
              )
              
              
              (10.0
              )%
              
              $
              9,162
              
              
              $
              8,836
              
              
              $
              326
              
              
              
              3.7
              %
  ***EPP
        Selling and Marketing:***  During fiscal 2007, EPP incurred
        $7.2 million of selling and marketing expenses, a $1.2 million, or
        19.9%, increase over fiscal 2007.  Of the overall increase,
        $0.9 million is attributable to an increase in labor and labor-related
        expenses, primarily due to an increase in marketing efforts as a result of
        our
        strategic initiative to grow our EPP operations, and $0.3 million is
        attributable to an increase in advertising expense.  During fiscal
        2006, EPP incurred $6.0 million of selling and marketing expenses, a
        $1.0 million, or 21.2%, increase over fiscal 2005, of which
        $0.5 million is attributable to an increase in advertising expense and
        $0.5 million is attributable to increased labor and labor-related expenses.
        During fiscal 2008, we expect that EPP’s direct sales and marketing expenses
        will increase as we strive to accelerate the growth of this
        business.
  ***Wind-down
        Selling and Marketing:***  During fiscal 2007, the selling
        and marketing expenses of our wind-down operation increased to
        $1.1 million, a 4.4% increase over fiscal 2006 results.  The
        minor increase is attributable primarily to a slight increase in labor and
        labor-related expenses, partially offset by a decrease in travel and travel
        related expenses.  During fiscal 2006, our wind-down operations
        selling and marketing expenses incurred $1.0 million of selling and
        marketing expenses, a $0.6 million, or 38.1% decrease from fiscal 2005,
        primarily due to decreased labor and labor related expenses.  We do
        not expect to incur significant selling and marketing expenses for our wind-down
        operations in fiscal 2008.
  ***Corporate
        Selling and Marketing:***  During fiscal 2007, we assigned
        sales and marketing expenses to the specific businesses that benefited from
        the
        associated sales and marketing efforts.  In previous years, a
        significant portion of these costs were charged to
        corporate.   As such, we did not report any Corporate selling and
        marketing expenses during fiscal 2007, as all costs were charged to the
        applicable businesses.  We are
  21
 reporting
        a
        $2.2 million year-over-year decrease in expense as a result of this
        change.  During fiscal 2006, our corporate operations incurred
        $2.2 million in sales and marketing expenses, which are relatively
        consistent with fiscal 2005 spending.  During fiscal 2008, we expect
        to continue to assign corporate sales and marketing function to individual
        operations that directly benefit from these efforts, primarily EPP.
  *Depreciation
        and Amortization (Continuing Operations)*
  Depreciation
        and amortization represents expenses associated with the depreciation of
        equipment, software and leasehold improvements, as well as the amortization
        of
        intangible assets from acquisitions and other intellectual property not directly
        attributable to client projects.
  **Year
                  ended September 30,**
              
              
              **Variance**
              
              
              **Year
                  ended September 30,**
              
              
              **Variance***(in
                  thousands)*
              
              **2007**
              
              
              **2006**
              
              
              **$**
              
              
              
              **%**
              
              
              **2006**
              
              
              **2005**
              
              
              **$**
              
              
              
              **%**Depreciation
                  & amortizationEPP
              
              $
              3,205
              
              
              $
              3,170
              
              
              $
              35
              
              
              
              1.1
              %
              
              $
              3,170
              
              
              $
              3,428
              
              
              $
              (258
              )
              
              
              (7.5
              )%Wind-down
              
              
              764
              
              
              
              1,590
              
              
              
              (826
              )
              
              
              (51.9
              )%
              
              
              1,590
              
              
              
              1,987
              
              
              
              (397
              )
              
              
              (20.0
              )%Corporate
              
              
              604
              
              
              
              373
              
              
              
              231
              
              
              
              61.9
              %
              
              
              373
              
              
              
              558
              
              
              
              (185
              )
              
              
              (33.2
              )%Total
              
              $
              4,573
              
              
              $
              5,133
              
              
              $
              (560
              )
              
              
              (10.9
              )%
              
              $
              5,133
              
              
              $
              5,973
              
              
              $
              (840
              )
              
              
              (14.1
              )%
  Depreciation
        and amortization in fiscal 2007 and 2006 was $0.6 million and $0.8 million
        lower than the results from the prior respective year.  The
        year-over-year results for both periods declined primarily because of the
        absence of depreciation and amortization on assets as they became fully
        depreciated.
  *Write-down
        of Goodwill and Intangible Assets (Continuing Operations)*
  During
        fiscal 2007, we reviewed our asset groups for impairment both in April 2007,
        when we began seeking buyers for certain portions of our business, including
        the
        majority of our PSSI and GBPO segments, and in September 2007, as part of
        our
        annual goodwill impairment testing.  As a result of those reviews we
        identified the need to recognize impairments on assets included in our wind-down
        operations totaling $9.2 million.  This impairment reduced the
        carrying value of goodwill and intangible assets reported on our Consolidated
        Balance Sheets.  Note 7—*Goodwill and Intangible Assets* to our
        Consolidated Financial Statements, provides a detailed discussion about our
        analysis and the need for this impairment.
  *Other
        Income (Loss) (Continuing Operations)*
  ***Equity
        in net income (loss) of unconsolidated
        affiliate:***  Equity in net income (loss) of
        unconsolidated affiliate represents our share of the net income and losses
        from
        CPAS, Inc. an entity in which we held 46.96% of the outstanding common stock
        until June 2007.  During fiscal 2007 and 2006, we recorded net
        income of $0.5 million and $0.4 million, respectively, associated with
        our equity interest in CPAS.  The $0.1 million increase in CPAS’
performance resulted primarily from CPAS’ successful contracting efforts during
        the first quarter of fiscal 2007, partially offset by the recognition of
        an
        incentive payout to CPAS’ managers.  On June 29, 2007, we sold
        our 46.96% equity interest in CPAS back to CPAS.  As a result of that
        transaction, we realized $239,000 foreign currency gain, plus an $80,000
        gain on
        the sale of this equity investment.
  ***Interest
        income, net:*****Interest income earned during fiscal
        2007, 2006 and 2005 was relatively consistent.  Although the average
        daily balance of our investment portfolio increased significantly, the interest
        rates we received on these investment has declined in recent months consistent
        with interest rate changes in the marketplace.  Although the interest
        rates on our investment portfolio fluctuate with changes in the marketplace,
        the
        principal value of our portfolio is secure, since we have no investments
        in the
        types of financial instruments that have caused other financial institutions
        to
        write-down the value of their portfolios.  Our interest income is
        earned by our EPP operations and our Corporate operations.
  *Income
        Tax Provision (Continuing Operations)*
  We
        reported income
        tax provisions of $76,000 for fiscal 2007, $45,000 for fiscal 2006 and $127,000
        for fiscal 2005.  The fiscal year 2007, 2006 and 2005 provision for
        income taxes represents federal and state tax
  22
 obligations
        incurred by our EPP operations.  Our *Consolidated Statements of
        Operations* for fiscal 2007, 2006 and 2005 do not reflect a federal tax
        provision because of offsetting adjustments to our valuation
        allowance.  Our effective tax rates differ from the federal statutory
        rate due to state and foreign income taxes, tax-exempt interest income and
        the
        charge for establishing a valuation allowance on our net deferred tax
        assets.  Our future tax rate may vary due to a variety of factors,
        including, but not limited to:  the relative income contribution by
        tax jurisdiction; changes in statutory tax rates; the amount of tax exempt
        interest income generated during the year; changes in our valuation allowance;
        our ability to utilize foreign tax credits and net operating losses and any
        non-deductible items related to acquisitions or other nonrecurring
        charges.
  ***Discontinued
        Operations***
  In
        April 2007 we
        began to seek buyers for the majority of our GBPO and PSSI
        segments.  As of September 30, 2007, we continued to own and operate
        these businesses.  However, SFAS 144 requires that we report these
        businesses as “discontinued” on our Consolidated Statements of Operations,
        because we do not expect to have continuing involvement in, or cash flows
        from,
        these operations after their divestiture.  As such, we reclassified
        revenues and costs associated with the portions of those segments held-for-sale
        to discontinued operations for all periods represented.
  The
        following table
        summarizes our results of operations from discontinued operations for fiscal
        2007, 2006 and 2005.  Immediately following this table is a discussion
        of key variances in these results:
  **Year
                  ended September 30, 2007**
              
              
              **Year
                  ended September 30, 2006**
              
              
              **Year
                  ended September 30, 2005***(in
                  thousands)*
              
              **GBPO**
              
              
              **PSSI**
              
              
              **Other
                  and Eliminations**
              
              
              **Total**
              
              
              **GBPO**
              
              
              **PSSI**
              
              
              **Other
                  and Eliminations**
              
              
              **Total**
              
              
              **GBPO**
              
              
              **PSSI**
              
              
              **Other
                  and Eliminations**
              
              
              **Total**Revenues
              
              $
              34,835
              
              
              $
              31,372
              
              
              $
              —
              
              
              $
              66,207
              
              
              $
              39,902
              
              
              $
              32,337
              
              
              $
              —
              
              
              $
              72,239
              
              
              $
              40,250
              
              
              $
              31,645
              
              
              $
              10
              
              
              $
              71,905Costs
                  and expenses:Direct
                  costs
              
              
              22,378
              
              
              
              21,557
              
              
              
              (385
              )
              
              
              43,550
              
              
              
              32,041
              
              
              
              22,779
              
              
              
              (646
              )
              
              
              54,174
              
              
              
              27,761
              
              
              
              20,053
              
              
              
              (3,949
              )
              
              
              43,865General
                  and administrative
              
              
              2,257
              
              
              
              6,717
              
              
              
              —
              
              
              
              8,974
              
              
              
              1,510
              
              
              
              4,194
              
              
              
              13
              
              
              
              5,717
              
              
              
              1,100
              
              
              
              3,708
              
              
              
              17
              
              
              
              4,825Selling
                  and marketing
              
              
              1,097
              
              
              
              2,620
              
              
              
              —
              
              
              
              3,717
              
              
              
              610
              
              
              
              1,701
              
              
              
              —
              
              
              
              2,311
              
              
              
              437
              
              
              
              2,065
              
              
              
              —
              
              
              
              2,502Depreciation
                  and amortization
              
              
              2
              
              
              
              95
              
              
              
              —
              
              
              
              97
              
              
              
              2
              
              
              
              122
              
              
              
              —
              
              
              
              124
              
              
              
              —
              
              
              
              93
              
              
              
              —
              
              
              
              93Write-down
                  of goodwill and intangibles
              
              
              2,601
              
              
              
              120
              
              
              
              —
              
              
              
              2,721
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Total
                  costs and expenses
              
              
              28,335
              
              
              
              31,109
              
              
              
              (385
              )
              
              
              59,059
              
              
              
              34,163
              
              
              
              28,796
              
              
              
              (633
              )
              
              
              62,326
              
              
              
              29,298
              
              
              
              25,919
              
              
              
              (3,932
              )
              
              
              51,285Income
                  before other income and income taxes
              
              
              6,500
              
              
              
              263
              
              
              
              385
              
              
              
              7,148
              
              
              
              5,739
              
              
              
              3,541
              
              
              
              633
              
              
              
              9,913
              
              
              
              10,952
              
              
              
              5,726
              
              
              
              3,942
              
              
              
              20,620Other
                  income
              
              
              —
              
              
              
              —
              
              
              
              478
              
              
              
              478
              
              
              
              —
              
              
              
              —
              
              
              
              13
              
              
              
              13
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Income
                  before income taxes
              
              
              6,500
              
              
              
              263
              
              
              
              863
              
              
              
              7,626
              
              
              
              5,739
              
              
              
              3,541
              
              
              
              646
              
              
              
              9,926
              
              
              
              10,952
              
              
              
              5,726
              
              
              
              3,942
              
              
              
              20,620Income
                  tax (benefit) provision
              
              
              —
              
              
              
              —
              
              
              
              (7,599
              )
              
              
              (7,599
              )
              
              
              —
              
              
              
              —
              
              
              
              456
              
              
              
              456
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Income
                  from discontinued
                operations,
                  net
              
              $
              6,500
              
              
              $
              263
              
              
              $
              8,462
              
              
              $
              15,225
              
              
              $
              5,739
              
              
              $
              3,541
              
              
              $
              190
              
              
              $
              9,470
              
              
              $
              10,952
              
              
              $
              5,726
              
              
              $
              3,942
              
              
              $
              20,620
  *Revenues
        (Discontinued Operations)*
  ***GBPO
        Revenues:***  During fiscal 2007, revenues from
        discontinued GBPO operations decreased $5.1 million, or 12.7%, from fiscal
        2006 results.  The decrease is attributable primarily to the absence
        of $4.7 million of revenue from four payment processing center contracts
        that expired during fiscal 2007 and mid-year in fiscal 2006.  A shift
        to lower cost, state-mandated electronic payment alternatives at another
        payment
        processing center reduced revenues by $2.7 million during fiscal 2007.
        Offsetting these decreases was a $2.3 million increase in revenues from a
        call center project that commenced during fiscal 2006.  During fiscal
        year 2006, revenues from these GBPO operations decreased $0.3 million, or
        1.0%, from fiscal 2005 results.  This decrease reflects the absence of
        $7.8 million of revenues from three contracts that were completed or
        nearing completion during fiscal 2006, partially offset by $7.5 million of
        additional revenues contributed by a payment processing center that commenced
        operations mid-year fiscal 2005.
  ***PSSI
        Revenues:***  During fiscal 2007, revenues from
        discontinued PSSI operations decreased $1.0 million, or 3.0%, from fiscal
        2006 results.  The completion of one unemployment insurance project in
        fiscal 2006
  23
 reduced
        revenues by
        $2.6 million and a reduction in revenues earned under a systems integration
        contract in fiscal 2007 resulted in a $2.0 million decrease in revenues
        from fiscal 2006.  In addition, the completion of several smaller
        projects, primarily within our E-Gov and our financial management systems
        operations, contributed another $1.0 million to the overall
        decline.  These decreases were partially offset by $3.2 million
        of revenues from several unemployment insurance contracts and $1.5 million
        of revenues from an independent validation and verification, or IV&V,
        contract, both of which commenced in fiscal 2006.  During fiscal 2006,
        revenues from these PSSI operations increased $0.7 million, or 2.2%,
        because of the commencement of the previously mentioned unemployment insurance
        and IV&V contracts, which contributed $7.1 million of additional
        revenues during fiscal 2006.  These increases were partially offset by
        a $4.5 million reduction in revenue from the completion or nearing
        completion of contracts in our financial management systems and E-Gov businesses
        and a $1.9 million reduction in revenue under a long-term systems
        integration contract.
  *Direct
        Costs (Discontinued Operations)*
  ***GBPO
        Direct Costs:***  During fiscal 2007, direct costs from
        discontinued GBPO operations decreased $9.7 million, or 30.2%, from fiscal
        2006.  The decrease is attributable primarily to the absence of
        $4.8 million of direct costs from four payment processing center contracts
        that expired during fiscal 2007 and mid-year in fiscal 2006.  A shift
        to lower cost, state-mandated electronic payment alternatives at another
        payment
        processing center reduced direct costs by $2.4 million during fiscal
        2007.  In addition, SFAS 144 requires that we suspend depreciation on
        all held-for-sale assets, and the absence of this depreciation and amortization
        decreased our direct costs by $1.4 million in fiscal 2007.  The
        remaining $1.1 million decrease in direct costs is due to the completion or
        nearing completion of several smaller projects.  During fiscal 2006,
        direct costs from these GBPO operations increased $4.3 million, or 15.4%,
        over fiscal 2005, primarily because of the opening of a new payment processing
        center in mid-2005 and the previously mentioned call center, which resulted
        in
        combined increase in direct costs during fiscal 2006 of
        $7.4 million.  This increase was partially offset by a
        $3.0 million reduction in direct costs resulting from the expiration of
        three payment processing center contracts during fiscal 2006.
  ***PSSI
        Direct Costs:***  During fiscal 2007, direct costs from
        discontinued PSSI operations decreased $1.2 million, or 5.4%, from fiscal
        2006 results.  The completion or nearing completion of the previously
        described employment insurance, financial management systems, and E-Gov
        projects, as well as the reduction in work on the systems integration project,
        resulted in a $3.8 million decrease in direct costs during fiscal
        2007.  These decreases were partially offset by $2.5 million of
        additional expenses incurred on the new unemployment insurance and IV&V
        contracts discussed above.  During fiscal 2006, costs from our PSSI
        operations increased $2.7 million, or 13.6%, over fiscal year
        2005.  Unemployment insurance and IV&V projects that commenced in
        fiscal 2006 caused us to incur $4.8 million of additional direct costs in
        fiscal 2006.  This increase was partially offset by a
        $2.1 million reduction in direct costs resulting from the completion of a
        number of financial management systems and E-Gov projects, as well as reduced
        work on a systems integration project.
  *Other
        Expenses (Discontinued Operations)*
  ***GBPO
        Other Expenses:***  During fiscal 2007, general and
        administrative expenses for our GBPO discontinued operations increased
        $0.7 million primarily because of increased labor and labor-related
        expenses of administrative support services.  Selling and marketing
        expenses increased $0.5 million over the same period last year, primarily
        due to the allocation of corporate sales and marketing expenses to the specific
        operations they support.  During fiscal 2007, we recognized a
        $2.6 million impairment loss on our discontinued GBPO assets to write these
        assets down to fair value.  During fiscal 2006, general and
        administrative expenses for our GBPO discontinued operations increased
        $0.4 million over fiscal 2005 results.  This increase is due
        primarily to an increase in labor and labor-related expenses to support
        operations within our GBPO operations.  Selling and marketing expenses
        during fiscal 2006 increased $0.2 million from fiscal 2005 results,
        primarily due to an increase in commission paid to employees for successful
        marketing efforts in obtaining new contracts.
  ***PSSI
        Other Expenses:***  During fiscal 2007, general and
        administrative expenses for discontinued PSSI operations increased
        $2.5 million over the same period last year, primarily because of the
        recognition of
  24
 $1.8 million
        of preliminary technical feasibility work on an internally developed software
        project and a $0.7 million increase in the bad debt reserve for a specific
        account.  Selling and marketing expenses increased $0.9 million
        over fiscal 2006, primarily from the allocation of corporate selling and
        marketing expenses to the specific businesses they support.  During
        fiscal 2006, general and administrative expenses for our discontinued PSSI
        operations increased $0.5 million over fiscal 2005, primarily because of
        additional cost of labor and labor-related expenses of administrative support
        services.  Selling and marketing expenses during fiscal 2006 decreased
        $0.4 million from fiscal 2005 results, primarily due to the absence of
        labor and labor related expenses.
  *Income
        Tax Provision (Discontinued Operations)*
  We
        recorded income
        tax provisions of $456,000 in fiscal 2006 relating to our discontinued
        Australian operations. In fiscal 2002, we disposed of most of our Australian
        operations and in fiscal 2003 requested and received $6.5 million of
        federal income tax refunds associated with this disposal.  Although we
        received the refund in October 2003, we fully reserved the entire balance
        because of uncertainty about the final review and resolution of this transaction
        by the Internal Revenue Service.  Since October 2003, we increased our
        reserve by $1.1 million to recognize the potential interest and penalties
        we could have incurred if the Internal Revenue Service made an unfavorable
        decision.
  In
        March 2007, we
        were notified by the Internal Revenue Service that its Joint Committee on
        Taxation had completed its review and approved the $6.5 million
        refund.  As a result, during the second quarter of fiscal 2007, we
        reversed the $6.5 million reserve for refunds and the $1.1 million
        reserved for potential interest and penalties. This $7.6 million reversal
        has been recorded on our Consolidated Statements of Operations as *Income
        from discontinued operations, net* in accordance with SFAS
        144.  In May 2007, we were notified by the Australian government that
        our operations in Australia, which were primarily disposed of in fiscal 2002,
        were able to be fully liquidated.  In fiscal year 2007, we recorded
        $0.5 million of net income associated with the reversal of certain accruals
        that had been recorded in anticipation of costs, which did not actualize,
        associated with the final close-out of the Australian operations.
  *LIQUIDITY
        AND
        CAPITAL RESOURCES*
  Our
        principal
        capital requirement is to fund working capital to support our organic growth,
        including potential future acquisitions.  Under our Second Amendment
        to Amended and Restated Credit and Security Agreement, as amended, with our
        lender, we may obtain up to $7.5 million of letters of
        credit.  The agreement also grants the lender a perfected security
        interest in cash collateral in an amount equal to all issued and to be issued
        letters of credit.  At September 30, 2007, we had
        $5.5 million of letters of credit outstanding under this credit facility,
        which are fully collateralized.  These letters of credit were issued
        to secure performance bonds, insurance and a property lease.
  *Net
        Cash
        from Continuing Operations—Operating Activities.*  During
        fiscal 2007,
        our operating activities from continuing operations provided $0.4 million
        of
        cash.  This reflects $18.3 million from continuing operations and$15.8
        million of non-cash items.  During fiscal 2007, $3.6 million of cash was
        generated by a decrease in *Prepaid expenses and other current assets*,
        primarily due to the reduction of long-term retainer receivable and $0.1
        million
        of cash was generated by an increase in deferred revenue, primarily due to
        the
        completion or near completion of several projects.  An increase in accounts
        receivable, net and unbilled receivables used $0.7 million of cash and $0.3
        million was used by a decrease in accounts payable.
  During
        fiscal 2006,
        our operating activities from continuing operations used $10.0 million of
        cash, including $18.9 million net loss and $7.3 million of non-cash
        items.  During fiscal 2006, $1.3 million of cash was generated by
        a decrease in the balance of accounts receivable, due to our successful
        collection efforts and $1.0 million of cash was generated by an increase in
        accounts payable and other accrued liabilities.  These increases were
        partially offset by: a $0.3 million of cash due to a reduction in income
        tax receivable; $0.2 million reduction in prepaid expenses and other
        assets; and $0.1 million reduction in deferred income.
  During
        fiscal 2005,
        the operating activities of our continuing operations used $11.1 million of
        cash, including $19.5 million of net losses from continuing operations and
        $7.1 million of non-cash items.  During fiscal 2005,
  25
 $1.6 million
        of cash was generated by a decrease in prepaid expenses and other assets
        and
        $1.1 million was generated by an increase in deferred
        income.  These increases were offset primarily by $0.8 million of
        cash used to support higher accounts receivable levels from increased sales;
        $0.4 million of cash used by an increase in accounts receivable and
        unbilled receivables; and $0.3 million of cash due to a reduction in income
        tax receivable.
  *Net
        Cash
        from Continuing Operations—Investing Activities.*  Net cash
        used in our investment activities from continuing operations for fiscal 2007
        was
        $11.9 million, including $21.0 million of cash used to purchase
        marketable securities, offset by $3.6 million of cash provided by sales and
        maturities.  In addition, $22.6 million of cash was used to
        purchase restricted investments required to collateralize performance bonds,
        offset by $20.1 million of cash generated by sales and maturities of
        restricted investments. In addition, we used $1.0 million of cash to
        purchase equipment and software.  The repayment of notes and accrued
        interest from a former Chief Executive Officer and Chairman of the Board
        provided $4.4 million of cash.  Proceeds from the sale of an
        unconsolidated affiliate provided $4.8 million.  In addition,
        $0.2 million of cash was used by other investing activities.
  Net
        cash used in
        our investment activities from continuing operations for fiscal 2006 was
        $10.7 million, including $46.0 million used to purchase marketable
        securities, offset by $44.3 million of cash provided by sales and
        maturities.  In addition, $14.3 million of cash was used to
        purchase restricted investments in the form of certificates of deposit required
        to collateralize performance bonds, offset by $6.6 million of cash
        generated by sales and maturities of restricted investments. In addition,
        we
        used $1.3 million of cash to purchase equipment and software.
  During
        fiscal 2005,
        our continuing operations used $4.7 million of cash for investing
        activities, including $75.7 million used to purchase available-for-sale
        securities, offset by $72.7 million of cash generated by sales and
        maturities.  In addition, the maturities of restricted investments
        generated $3.3 million of cash, the proceeds of which were invested in
        securities. The purchase of our investment in CPAS and the assets of
        MyLocalGov.com used $4.1 million of cash and the purchase of equipment and
        software used $1.2 million of cash.  Other investing activities
        used $0.1 million of cash.  Finally, the repayment of a note from
        a former Chief Executive Officer and Chairman of the Board generated
        $0.4 million in cash.
  *Net
        Cash
        from Continuing Operations—Financing Activities.*  Net cash
        used in our financing activities from continuing operations for fiscal 2007
        was
        $187,000, including $213,000 provided by the exercise of options to purchase
        our
        common stock, partially offset by the use of $26,000 for capital lease
        obligations.
  Net
        cash used in
        our financing activities from continuing operations for fiscal 2006 was $31,000,
        including $69,000 provided by the exercise of options to purchase our common
        stock, partially offset by the use of $38,000 for capital lease
        obligations.
  During
        fiscal 2005,
        $225,000 was provided by the financing activities of our continuing
        operations.  The amount represents $302,000 of proceeds provided by
        the exercise of options to purchase our common stock, partially offset by
        $77,000 of cash used for capital lease obligations.
  *Net
        Cash
        from Discontinued Operations—Operating Activities.*During fiscal
        2007, our operating activities from discontinued operations provided $13.4
        million of cash.  This reflects $15.2 million of net income offset by $1.8
        million used for non-cash items, of which $2.6 million relates to the write-down
        of goodwill and held-for-sale assets, offset by the reversal of a $7.6 million
        federal income tax reserve, which had been initially recorded in October
        2003,
        pending an IRS review of a refund we received associated with the disposal
        of
        our former Australian operations and $0.5 million associated with the
        liquidation of our Australian operations.
  During
        fiscal 2006,
        our operating activities from discontinued operations generated
        $14.7 million of cash, including $9.5 million of net income and
        $5.2 million of non-cash items.  During fiscal 2005, the
        operating activities of our discontinued operations generated $24.0 million
        of cash, including $20.6 million of net income and $3.3 million of
        non-cash items.
 26
  *Net
        Cash
        from Discontinued Operations—Investing Activities.*  Net cash
        used in our investment activities from discontinued operations for fiscal
        2007
        was $4.0 million, primarily used to purchase equipment and software, and
        fund internally developed software.  Net cash used in our investment
        activities from discontinued operations for fiscal 2006 was $3.5 million,
        primarily to purchase equipment and software for a payment processing center
        project. During fiscal 2005, our discontinued operations used $8.9 million
        of cash for investing activities, primarily used to purchase equipment and
        software for a payment processing center.
  *Net
        Cash
        from Discontinued Operations—Financing Activities.*  Net cash
        used in our financing activities from discontinued operations for fiscal
        2007,
        2006 and 2005 was for capital lease obligations.  We used $6,000 in
        cash in fiscal 2007, $45,000 in fiscal 2006 and $44,000 in fiscal
        2005.
  We
        expect to
        generate cash flows from operating activities over the long term; however,
        we
        may experience significant fluctuations from quarter to quarter resulting
        from
        the timing of the billing and collection of large project
        milestones.  We anticipate that our existing capital resources,
        including our cash balances, cash that we anticipate will be provided by
        operating activities and our available credit facilities will be adequate
        to
        fund our operations for at least fiscal 2008.  There can be no
        assurance that changes will not occur that would consume available capital
        resources before such time.  Our capital requirements and capital
        resources depend on numerous factors, including:  potential
        acquisitions; initiation of large child support payment processing contracts
        that typically require large cash outlays for capital expenditures and staff-up
        costs; contingent payments earned; new and existing contract requirements;
        the
        timing of the receipt of accounts receivable, including unbilled receivables;
        the timing and ability to sell investment securities held in our portfolio
        without a loss of principal; our ability to draw on our bank facility; and
        employee growth.  To the extent that our existing capital resources
        are insufficient to meet our capital requirements, we will have to raise
        additional funds.  There can be no assurance that additional funding,
        if necessary, will be available on favorable terms, if at all.  The
        raising of additional capital may dilute our shareholders’ ownership in
        us.
  Due
        to the current
        economic climate, the performance bond market has changed significantly,
        resulting in reduced availability of bonds, increased cash collateral
        requirements and increased premiums.  Some of our government contracts
        require a performance bond and future requests for proposal may also require
        a
        performance bond.  Our inability to obtain performance bonds,
        increased costs to obtain such bonds or a requirement to pledge significant
        cash
        collateral in order to obtain such bonds would adversely affect our business
        and
        our capacity to obtain additional contracts.  Increased premiums or a
        claim made against a performance bond could adversely affect our earnings
        and
        cash flow and impair our ability to bid for future contracts.
  *SIGNIFICANT
        ACCOUNTING POLICIES*
  Our
        discussion and
        analysis of our financial condition and results of operations is based on
        our
        Consolidated Financial Statements, which have been prepared in accordance
        with
        accounting principles generally accepted in the United States.  Note
        2—*Summary of Significant Accounting Policies*of our Notes to
        Consolidated Financial Statements contains a summary of our significant
        accounting policies, many of which require the use of estimates and
        assumptions.  We believe that of our significant policies, the
        following are the most noteworthy because they are based upon estimates and
        assumptions that require complex subjective judgments by management, which
        can
        have a material effect on our reported results.  Changes in these
        estimates or assumptions could materially impact our financial condition
        and
        results of operations.  Actual results could differ materially from
        management’s estimates.
  *Revenue
        Recognition.*  Certain judgments affect the application of our
        revenue policy.  We derive revenues primarily from transaction and
        payment processing, systems design and integration and maintenance and support
        services.  We recognize revenues in accordance with accounting
        principles generally accepted in the United States, which, in some cases,
        require us to estimate costs and project status.  The primary methods
        that we use to recognize revenues are described below:
  ·
              *Transaction-based
                  contracts*—revenues
                  are
                  recognized based on fees charged on a per-transaction basis or
                  fees
                  charged as a percentage of dollars
                  processed;
  27
 ·
              *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
                    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;
                    and
 ·
              *Software
                  maintenance contracts*—revenues are recognized on a straight-line
                  basis over the contract term, which is typically one
                  year.
  Any
        given contract
        may contain one or more elements with attributes of more than one of the
        contract types described above.  In those cases, we account for each
        element separately, using the applicable accounting standards.  In
        addition, we also establish an allowance for credit card reversals and
        charge-backs as part of our revenue recognition practices.  For all
        our operations, the amount and timing of our revenue is difficult to
        predict.  Any shortfall in revenue or delay in recognizing revenue
        could cause our operating results to vary significantly from quarter to quarter
        and could result in future operating losses.
  *Collectibility
        of Receivables.* Accounts receivable includes funds that are due to
        us to compensate us for the services we provide to our customers.  In
        addition, under certain GBPO contracts we are obligated to fund any payments
        that we misapplied and checks that we received for insufficient
        funds.  We record the amounts that we fund for misapplied payments and
        insufficient funds checks as receivables until the amounts can be collected,
        or
        we determine the amounts cannot be collected.  We have established an
        allowance for doubtful accounts, which represents our best estimate of probable
        losses inherent in the accounts receivable balance.  Each quarter we
        adjust this allowance based upon management’s review and assessment of each
        category of receivable.  Factors that we consider to establish this
        adjustment include the age of receivables, past payment history and the
        demographics of the associated debtors.  Our allowance for
        uncollectible accounts is based both on the performance of specific debtors
        and
        upon general categories of debtors.
  *Goodwill
        and
        Other Intangible Assets**.* We review goodwill and
        purchased intangible assets with indefinite lives for impairment annually
        at the
        reporting unit level (operating segment) and whenever events or changes indicate
        that the carrying value of an asset may not be recoverable in accordance
        with
        the Financial Accounting Standards Board, or FASB, Statement of Financial
        Accounting Standards, or SFAS, No. 142—*Goodwill and Other Intangible
        Assets,*or SFAS 142.  These events or circumstances could include
        a significant change in the business climate, legal factors, operating
        performance indicators, competition, or sale or disposition of a significant
        portion of a reporting unit.  Application of the goodwill impairment
        test requires judgment, including the identification of reporting units,
        assignment of assets and liabilities to reporting units, assignment of goodwill
        to reporting units and determination of the fair value of each reporting
        unit.  The fair value of each reporting unit is estimated using a
        discounted cash flow methodology.  This requires significant
        judgments, including estimation of future cash flows, which is dependent
        on
        internal forecasts, estimation of the long-term rate of growth for our business,
        the useful life over which cash flows will occur and determination of our
        weighted-average cost of capital.  Changes in these estimates and
        assumptions could materially affect the determination of fair value and/or
        goodwill impairment for each reporting unit.
  *Held-For-Sale
        Assets and Liabilities.***Held-for-sale assets and
        liabilities are presented on our Consolidated Balance Sheet at the lower
        of
        their carrying value or fair value less costs to sell, once the criteria
        for
        held-for-sale status has been met.  In accordance with Statement of
        Financial Accounting Standards No. 144—*Impairment or Disposal of Long-Lived
        Assets*, or SFAS 144, assets are not depreciated or amortized while they are
        classified as held-for-sale.  When an asset group is classified as
        held-for-sale and during subsequent interim periods, we also evaluate goodwill
        for impairment at the segment level whenever the
  28
 businesses
        classified as held-for-sale have been fully integrated into the segment and
        the
        acquired goodwill benefits the rest of the reporting unit.  Otherwise,
        the carrying value of the acquired goodwill is included in the carrying amount
        of the business to be disposed of in accordance with SFAS 142.
  *Investments.* We
        review our investments quarterly to identify other-than-temporary impairments
        in
        accordance with SFAS 115—*Accounting for Certain Investments in Debt and
        Equity Securities* and SEC Staff Accounting Bulletin
        No 59—*Accounting for Noncurrent Marketable Equity
        Securities*.  This determination requires us to use significant
        judgment in evaluating a number of factors, including: the duration and extent
        to which the fair value of an investment is less than its cost; the financial
        health of and near-term business outlook for the investee, including factors
        such as industry and sector performance, changes in technology and operational
        and financing cash flow; and our intent and ability to hold the
        investment.  When investments exhibit unfavorable attributes in these
        and other areas, we conduct additional analyses to determine whether the
        fair
        value of the investment is other-than-temporarily impaired.
  *Contingencies.* The
        outcomes of legal proceedings and claims brought against us are subject to
        significant uncertainty.  SFAS 5—*Accounting for
        Contingencies*, which requires that an estimated loss from a loss
        contingency such as a legal proceeding or claim should be accrued by a charge
        to
        income if it is probable that an asset has been impaired or a liability has
        been
        incurred and the amount of the loss can be reasonably
        estimated.  Disclosure of a contingency is required if there is at
        least a reasonable possibility that a loss has been incurred. In determining
        whether a loss should be accrued, we evaluate a number of factors including,
        the
        degree of probability of an unfavorable outcome and the ability to make a
        reasonable estimate of the amount of loss.  Changes in these factors
        could materially impact our financial position and our results of
        operations.
  *Income
        Taxes.* *SFAS 109—Accounting for Income Taxes,* or SFAS 109,
        establishes financial accounting and reporting standards for the effect of
        income taxes.  The objectives of accounting for income taxes are to
        recognize the amount of taxes payable or refundable for the current year
        and
        deferred tax liabilities and assets for the future tax consequences of events
        that have been recognized in an entity’s financial statements or tax
        returns.  Judgment is required in assessing the future tax
        consequences of events that have been recognized in our financial statements
        or
        tax returns.  Variations in the actual outcome of these future tax
        consequences could materially impact our financial position, results of
        operations or cash flows.
  *Discontinued
        Operations.***SFAS 144 provides guidance on the
        presentation of discontinued operations from the disposal of a segment to
        the
        disposal of a component of the entity, as well as the timing of this
        presentation.  We must use our judgment to determine whether
        particular operations are considered a component of the entity and when the
        operations should no longer be classified as continuing operations.
  *Share-Based
        Compensation.**SFAS 123(R)—Share-Based Payment*, or
        SFAS 123R, requires public companies to expense employee share-based payments
        based on fair value.  We must use our judgment to determine key
        factors in determining the fair value of the share-based payment, such as
        volatility, forfeiture rates and the expected term in which the options will
        be
        outstanding.
  *RECENT
        ACCOUNTING STANDARDS*
  *SFAS
        157—Fair Value
        Measurements.*In
        October 2006, FASB issued Statement of Financial Accounting Standards No.
        157—*Fair Value
        Measurements*, or SFAS
        157.  This standard establishes a framework for measuring fair value
        and expands disclosures about fair value measurement of a company’s assets and
        liabilities.  This standard also requires that the fair value
        measurement should be determined based on the assumptions that market
        participants would use in pricing the asset or liability.  SFAS 157 is
        effective for financial statements issued for fiscal years beginning after
        November 15, 2007 and, generally, must be applied prospectively.  We
        expect to adopt this standard beginning in October 2008.  We do not
        expect that the adoption of SFAS 157 will have a material impact on our
        financial position or results of operations.
  *FIN
        48—Accounting for Uncertainty in Income Taxes.*  In July 2006,
        FASB Interpretation No. 48—*Accounting for Uncertainty in Income Taxes*,
        or FIN 48, was issued.  FIN 48 clarifies the accounting for
        uncertainty in
  29
 income
        taxes
        recognized in an enterprise’s financial statements in accordance with SFAS
        109.  FIN 48 is effective for fiscal years beginning after December
        15, 2006.  We will implement FIN 48 beginning on October 1,
        2007.  We do not expect that the adoption of this standard will have a
        material effect.
  *SFAS
        159—The
        Fair Value Option for Financial Assets and Financial
        Liabilities.*  In February 2007, FASB issued Statement of
        Financial Accounting Standard No. 159—*The Fair Value Option for Financial
        Assets and Financial Liabilities*, or SFAS 159, which allows companies to
        choose to measure many financial instruments and certain other items at fair
        value.  Entities that elect the fair value option will report
        unrealized gains and losses in earning at each subsequent reporting
        date.  The principle can be applied on an instrument by instrument
        basis, is irrevocable and must be applied to the entire
        instrument.  SFAS 159 amends previous guidance to extend the use of
        the fair value option to available-for-sale and held-to-maturity
        securities.  SFAS 159 also establishes presentation and disclosure
        requirements to help financial statement users understand the effect of the
        election.  SFAS 159 is effective as of the beginning of each reporting
        fiscal year beginning after November 15, 2007.  We do not believe
        that the adoption of SFAS 159 will have a material effect on our financial
        position or results of operations.
  *OFF-BALANCE
        SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS*
  *Indemnification
        Agreements*
  We
        have
        indemnification agreements with each of our directors and executive officers
        and
        one non-executive officer.  These agreements provide such persons with
        indemnification, to the maximum extent permitted by our Articles of
        Incorporation or Bylaws or by the General Corporation Law of the State of
        Delaware, against all expenses, claims, damages, judgments and other amounts
        (including amounts paid in settlement) for which such persons become liable
        as a
        result of acting in any capacity on behalf of Tier, subject to certain
        limitations.
  *Employment
        Agreement*
  As
        of
        September 30, 2007, five executives, one former executive and 24 other key
        managers had employment and change of control agreements with us.  If
        certain termination or change of control events were to occur under these
        contracts, we could be required to pay up to
        $5.5 million.  During October 2007, we entered into employment
        agreements with two of our executives, which supersede the change of control
        agreements referenced above for these executives.  See Note
        16—*Subsequent Events* for information regarding these employment
        agreements and a key change to the status of two of our executive
        officers.
  As
        of
        September 30, 2007, we also had agreements with 32 key employees under
        which these individuals will be entitled to receive three to twelve months
        of
        their base salaries over a one to two year period, after completing defined
        employment service periods.  During fiscal 2008, we expect to
        recognize $0.9 million in expense relating to these
        agreements.  During fiscal 2009, we expect to recognize
        $0.3 million.
  As
        of
        September 30, 2007, we also had change of control agreements with 38 key
        GBPO and PSSI employees.  Under these agreements, individuals are
        entitled to receive three to twelve months of their base salaries plus three
        to
        twelve months COBRA benefits should certain change of control events
        occur.  Under these agreements we would be required to pay up to
        $2.4 million.
  We
        believe it is
        important to have these contracts in place in order to retain key individuals
        and to ensure a continuity of operations, especially in fiscal 2008 when
        we
        expect to finalize the divestiture of certain business units and to restructure
        our corporate operations.
  *Contractual
        Obligations*
  We
        have contractual
        obligations to make future payments on lease agreements, none of which have
        remaining terms that extend beyond five years.  Additionally, in the
        normal course of business, we enter into contractual arrangements whereby
        we
        commit to future purchases of products or services from unaffiliated
  30
 parties.  Purchase
        obligations are legally binding arrangements whereby we agree to purchase
        products or services with a specific minimum quantity defined at a fixed
        minimum
        or variable price over a specified period of time.  The most
        significant purchase obligation is for contracts with our
        subcontractors.  The following table presents our expected payments
        for contractual obligations that were outstanding at September 30,
        2007.  All of these obligations are due within five
        years.
  *(in
                  thousands)*
              
              **Total**
              
              
              **Due
                  in 1 year or less**
              
              
              **Due
                  after 1 year through 3 years**
              
              
              **Due
                  after 3 years through 5 years**Capital
                  lease
                  obligations (equipment)
              
              $
              108
              
              
              $
              47
              
              
              $
              58
              
              
              $
              3Operating
                  lease obligations:Facilities
                  leases
              
              
              6,360
              
              
              
              3,339
              
              
              
              3,021
              
              
              
              —Equipment
                  leases
              
              
              87
              
              
              
              58
              
              
              
              29
              
              
              
              —Purchase
                  obligations:Subcontractor
              
              
              1,974
              
              
              
              1,818
              
              
              
              156
              
              
              
              —Purchase
                  order
              
              
              274
              
              
              
              274
              
              
              
              —
              
              
              
              —Total
                  contractual obligations
              
              $
              8,803
              
              
              $
              5,536
              
              
              $
              3,264
              
              
              $
              3
  **ITEM
        7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
        RISK**
  We
        maintain a
        portfolio of cash equivalents and investments in a variety of securities,
        including certificates of deposit, money market funds and government and
        non-government debt securities.  These available-for-sale securities
        are subject to interest rate risk and may decline in value if market interest
        rates increase.  If market interest rates increase immediately and
        uniformly by ten percentage points from levels at September 30, 2007,
        the fair value of the portfolio would decline by about $23,000.
   31
  **ITEM
        8—FINANCIAL STATEMENTS AND SUPPLEMENTARY
        DATA**
  Report
                  of
                  Independent Registered Public Accounting Firm
              33Consolidated
                  Balance Sheets
              34Consolidated
                  Statements of Operations
              35Consolidated
                  Statements of Shareholders' Equity
              36Consolidated
                  Statements of Comprehensive (Loss) Income
              37Consolidated
                  Statements of Cash Flows
              38Notes
                  to
                  Consolidated Financial Statements
              40Schedule
                  II—Valuation and Qualifying Accounts
              63
  32
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
        FIRM**
  
 
 To
        the
        Board of Directors and Shareholders
 Tier
        Technologies, Inc.
 Reston,
        Virginia
 
 We
        have
        audited the consolidated balance sheets of Tier Technologies, Inc. and
        subsidiaries as of September 30, 2007 and 2006, and the related consolidated
        statements of operations, shareholders’ equity, comprehensive (loss) income, and
        cash flows for each of the three years in the period ended September 30,
        2007.  Our audits also included the financial statement schedule of
        Tier Technologies, Inc. listed in Item 15(a).  These financial
        statements and financial statement schedule are the responsibility of the
        Company's management. Our responsibility is to express an opinion on these
        financial statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States).  Those standards require
        that we plan and perform the audit to obtain reasonable assurance about whether
        the financial statements are free of material misstatement.  An audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements.  An audit also includes
        assessing the accounting principles used and significant estimates made by
        management, as well as evaluating the overall financial statement
        presentation.  We believe that our audits provide a reasonable basis
        for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of Tier Technologies, Inc.
        and
        subsidiaries as of September 30, 2007 and 2006, and the results of their
        operations and their cash flows for each of the three years in the period
        ended
        September 30, 2007, in conformity with U.S. generally accepted accounting
        principles.  Also, in our opinion, the related financial statement
        schedule, when considered in relation to the basic consolidated financial
        statements taken as a whole, presents fairly in all material respects the
        information set forth therein.
 
 Tier
        Technologies, Inc. and subsidiaries changed their method of accounting for
        stock-based compensation in accordance with guidance provided in Statement
        of
        Financial Standards No. 123(R), “Share-Based Payment”, effective October 1,
        2005.
 
 We
        also
        have audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the effectiveness of Tier Technologies,
        Inc.
        and subsidiaries’ internal control over financial reporting as of September 30,
        2007, based on criteria established in*Internal Control—Integrated Framework
        issued by the Committee of Sponsoring Organizations of the Treadway Commission
        (COSO)* and our report dated December 13, 2007 expressed an unqualified
        opinion on management’s assessment of the effectiveness of Tier Technologies,
        Inc.’s  internal control over financial reporting and an unqualified
        opinion on the effectiveness of Tier Technologies, Inc.’s internal control over
        financial reporting.
 
 
 
 /s/
        McGladrey & Pullen, LLP
 Vienna,
        Virginia
 December
        13, 2007
  33
  **TIER
        TECHNOLOGIES, INC.**
 **CONSOLIDATED
        BALANCE SHEETS**
  **September
                    30,***(in
                    thousands)*
                
                **2007**
                
                
                **2006****ASSETS**Current
                    assets:Cash
                    and cash equivalents
                
                $
                16,516
                
                
                $
                18,468Investments
                    in marketable securities
                
                
                57,815
                
                
                
                36,950Accounts
                    receivable, net
                
                
                5,083
                
                
                
                5,274Unbilled
                    receivables
                
                
                546
                
                
                
                1,916Prepaid
                    expenses and other current assets
                
                
                2,160
                
                
                
                2,615Current
                    assets—held-for-sale
                
                
                36,705
                
                
                
                36,612Total
                    current assets
                
                
                118,825
                
                
                
                101,835Property, equipment and software, net
                
                
                3,745
                
                
                
                3,954Goodwill
                
                
                14,526
                
                
                
                22,980Other intangible assets, net
                
                
                17,640
                
                
                
                21,879Restricted investments
                
                
                11,526
                
                
                
                12,287Investment in unconsolidated affiliate
                
                
                —
                
                
                
                3,978Other assets
                
                
                162
                
                
                
                2,947**Total
                    assets**
                
                **$**
                **166,424**
                
                
                **$**
                **169,860****LIABILITIES
                    AND SHAREHOLDERS’ EQUITY**Current liabilities:Accounts
                    payable
                
                $
                878
                
                
                $
                871Accrued
                    compensation liabilities
                
                
                4,710
                
                
                
                3,605Accrued
                    subcontractor expense
                
                
                522
                
                
                
                426Accrued
                    discount fees
                
                
                4,529
                
                
                
                3,631Deferred
                    income
                
                
                2,649
                
                
                
                2,520Other
                    accrued liabilities
                
                
                4,160
                
                
                
                6,459Liabilities
                    of discontinued operations
                
                
                —
                
                
                
                7,599Current
                    liabilities—held-for-sale
                
                
                11,262
                
                
                
                9,180Total
                    current liabilities
                
                
                28,710
                
                
                
                34,291Other liabilities
                
                
                200
                
                
                
                1,359**Total
                    liabilities**
                
                ****
                **28,910**
                
                
                ****
                **35,650**Commitments
                    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: 20,425 and 20,383; and shares outstanding: 19,541 and
                    19,499
                
                
                186,417
                
                
                
                184,387Treasury
                    stock—at cost, 884 shares
                
                
                (8,684
                )
                
                
                (8,684
                )Notes
                    receivable from related parties
                
                
                —
                
                
                
                (4,275
                )Accumulated
                    other comprehensive loss
                
                
                —
                
                
                
                (33
                )Accumulated
                    deficit
                
                
                (40,219
                )
                
                
                (37,185
                )**Total
                    shareholders’ equity**
                
                ****
                **137,514**
                
                
                ****
                **134,210****Total
                    liabilities and shareholders’ equity**
                
                **$**
                **166,424**
                
                
                **$**
                **169,860**
 *See
        Notes to Consolidated Financial Statements*
 
  34
  **TIER
        TECHNOLOGIES, INC.**
 **CONSOLIDATED
                  STATEMENTS OF OPERATIONS**
  
  **Year
                  ended September 30,***(in
                  thousands, except per share data)*
              
              **2007**
              
              
              **2006**
              
              
              **2005**Revenues
              
              $
              111,148
              
              
              $
              96,492
              
              
              $
              78,695Costs
                  and expenses:Direct
                  costs
              
              
              83,891
              
              
              
              71,670
              
              
              
              59,951General
                  and administrative
              
              
              27,486
              
              
              
              32,860
              
              
              
              24,176Selling
                  and marketing
              
              
              8,243
              
              
              
              9,162
              
              
              
              8,836Depreciation
                  and amortization
              
              
              4,573
              
              
              
              5,133
              
              
              
              5,973Write-down
                  of goodwill and intangible assets
              
              
              9,232
              
              
              
              —
              
              
              
              —Total
                  costs and expenses
              
              
              133,425
              
              
              
              118,825
              
              
              
              98,936Loss
                  from continuing operations before other income and income
                  taxes
              
              
              (22,277
              )
              
              
              (22,333
              )
              
              
              (20,241
              )Other
                  income:Income
                  (loss) from investments:Equity
                  in net income (loss) of unconsolidated affiliate
              
              
              475
              
              
              
              445
              
              
              
              (168
              )Realized
                  foreign currency gain
              
              
              239
              
              
              
              —
              
              
              
              —Gain
                  on sale of unconsolidated affiliate
              
              
              80
              
              
              
              —
              
              
              
              —Loss
                  on sale of investment
              
              
              —
              
              
              
              —
              
              
              
              (501
              )Interest
                  income, net
              
              
              3,300
              
              
              
              2,938
              
              
              
              1,543Other
                  income
              
              
              —
              
              
              
              74
              
              
              
              —Total
                  other income
              
              
              4,094
              
              
              
              3,457
              
              
              
              874Loss
                  from continuing operations before income taxes
              
              
              (18,183
              )
              
              
              (18,876
              )
              
              
              (19,367
              )Income
                  tax provision
              
              
              76
              
              
              
              45
              
              
              
              127Loss
                  from continuing operations
              
              
              (18,259
              )
              
              
              (18,921
              )
              
              
              (19,494
              )Income
                  from discontinued operations, net
              
              
              15,225
              
              
              
              9,470
              
              
              
              20,620Net
                  (loss) income
              
              $
              (3,034
              )
              
              $
              (9,451
              )
              
              $
              1,126(Loss)
                  earnings per share—Basic and diluted:From
                  continuing operations
              
              $
              (0.94
              )
              
              $
              (0.97
              )
              
              $
              (1.00
              )From
                  discontinued operations
              
              
              0.78
              
              
              
              0.49
              
              
              
              1.06**(Loss)
                  earnings per share—Basic and diluted**
              
              **$**
              **(0.16**
              **)**
              
              **$**
              **(0.48**
              **)**
              
              **$**
              **0.06**Weighted
                  average common shares used in computing:Basic
                  and diluted (loss) earning per share
              
              
              19,512
              
              
              
              19,495
              
              
              
              19,470
 *See
        Notes to Consolidated Financial Statements*
  35
  **TIER
        TECHNOLOGIES, INC.**
 **CONSOLIDATED
                  STATEMENTS OF SHAREHOLDERS’
EQUITY**
 
 **Common
                  Stock Issued**
              
              
              
              
              
              **Treasury
                  Stock***(in
                  thousands)*
              
              **Shares**
              
              
              **Amount**
              
              
              **Paid-in-**
                **capital**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **Notes
                  receivable from related parties**
              
              
              **Accumulated
                  other comprehensive (loss) income**
              
              
              **Accumulated**
                **deficit**
              
              
              **Total
                  shareholders' equity****Balance
                  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
              
              
              10
              
              
              
              54
              
              
              
              6
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              60Common
                  stock issuance—business
                  combinations
              
              
              7
              
              
              
              79
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              79Common
                  stock
                  issuance—other
              
              
              33
              
              
              
              242
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              242Conversion
                  of Class B common
                  stock to $0.01par
                  value common stock
              
              
              —
              
              
              
              (180,991
              )
              
              
              180,991
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Notes
                  and interest receivable
                  from
                related parties
              
              
              —
              
              
              
              —
              
              
              
              206
              
              
              
              —
              
              
              
              —
              
              
              
              115
              
              
              
              —
              
              
              
              —
              
              
              
              321Unrealized
                  gain on
                  investments
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              70
              
              
              
              —
              
              
              
              70Realized
                  gain on
                  investments
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              19
              
              
              
              —
              
              
              
              19Foreign
                  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
              
              
              
              —
              
              
              
              25**Balance
                  at September 30, 2006**
              
              
              20,383
              
              
              
              204
              
              
              
              184,183
              
              
              
              (884
              )
              
              
              (8,684
              )
              
              
              (4,275
              )
              
              
              (33
              )
              
              
              (37,185
              )
              
              
              134,210Net
                  loss
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (3,034
              )
              
              
              (3,034
              )Exercise
                  of stock
                  options
              
              
              42
              
              
              
              —
              
              
              
              213
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              213Notes
                  and interest receivable
                  from
                related parties
              
              
              —
              
              
              
              —
              
              
              
              126
              
              
              
              —
              
              
              
              —
              
              
              
              4,275
              
              
              
              —
              
              
              
              —
              
              
              
              4,401Share-based
                  payment
              
              
              —
              
              
              
              —
              
              
              
              1,691
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              1,691Unrealized
                  gain on
                  investments
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              2
              
              
              
              —
              
              
              
              2Impact
                  of realized foreign
                  currency
                gains
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (239
              )
              
              
              —
              
              
              
              (239
              )Foreign
                  currency translation
                adjustment
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              270
              
              
              
              —
              
              
              
              270**Balance
                  at September 30, 2007**
              
              
              20,425
              
              
              $
              204
              
              
              $
              186,213
              
              
              
              (884
              )
              
              $
              (8,684
              )
              
              $
              —
              
              
              $
              —
              
              
              $
              (40,219
              )
              
              $
              137,514
 *See
        Notes to Consolidated Financial Statements*
  36
  **TIER
        TECHNOLOGIES, INC.**
 **CONSOLIDATED
                  STATEMENTS OF COMPREHENSIVE (LOSS) INCOME**
 
 **Year
                  ended September 30,***(in
                  thousands)*
              
              **2007**
              
              
              **2006**
              
              
              **2005**Net
                  (loss) income
              
              $
              (3,034
              )
              
              $
              (9,451
              )
              
              $
              1,126Other
                  comprehensive (loss) income, net of taxes:Investments
                  in marketable securities:Unrealized gain
              
              
              2
              
              
              
              53
              
              
              
              19Less
                  impact of realized
                  losses (transferred from accumulated other comprehensive income
                  and
                  included in net income)
              
              
              —
              
              
              
              —
              
              
              
              70Foreign
                  currency translation:Foreign currency translation adjustment
              
              
              270
              
              
              
              25
              
              
              
              (72
              )Less
                  impact of
                  realized gains (transferred from accumulated other comprehensive
                  income
                  and included in net loss)
              
              
              (239
              )
              
              
              —
              
              
              
              —Other
                  comprehensive income
              
              
              33
              
              
              
              78
              
              
              
              17Comprehensive
                  (loss) income
              
              $
              (3,001
              )
              
              $
              (9,373
              )
              
              $
              1,143
 
 *See
        Notes to Consolidated Financial Statements*
  37
  **TIER
        TECHNOLOGIES, INC.**
 **CONSOLIDATED
                  STATEMENTS OF CASH FLOWS**
  **Year
                    ended September 30,***(In
                    thousands)*
                
                **2007**
                
                
                **2006**
                
                
                **2005****CASH
                    FLOWS FROM OPERATING ACTIVITIES:**Net
                    (loss) income
                
                $
                (3,034
                )
                
                $
                (9,451
                )
                
                $
                1,126Less:
                    Income from discontinued operations, net
                
                
                15,225
                
                
                
                9,470
                
                
                
                20,620Loss
                    from continuing operations, net
                
                
                (18,259
                )
                
                
                (18,921
                )
                
                
                (19,494
                )Non-cash
                    items included in net income from continuing operations:Depreciation
                    and amortization
                
                
                4,664
                
                
                
                5,343
                
                
                
                6,106(Gain)
                    loss on retirement of equipment and software
                
                
                (8
                )
                
                
                76
                
                
                
                41Provision
                    for doubtful accounts
                
                
                (49
                )
                
                
                809
                
                
                
                259Equity
                    in net income of unconsolidated affiliate
                
                
                (475
                )
                
                
                (445
                )
                
                
                168Gain
                    on sale of unconsolidated affiliate
                
                
                (80
                )
                
                
                —
                
                
                
                —Foreign
                    currency translation gain realized on sale of unconsolidated
                    affiliate
                
                
                (239
                )
                
                
                —
                
                
                
                —Share-based
                    compensation
                
                
                1,520
                
                
                
                1,768
                
                
                
                —Accrued
                    forward loss on contracts
                
                
                3
                
                
                
                (270
                )
                
                
                —Settlement
                    of pension contract
                
                
                1,254
                
                
                
                —
                
                
                
                —Write-down
                    of goodwill and intangible assets
                
                
                9,232
                
                
                
                —
                
                
                
                571Other
                    non-cash items included in net income
                
                
                8
                
                
                
                37
                
                
                
                (90
                )Net
                    effect of changes in assets and liabilities:Accounts
                    receivable and unbilled receivables
                
                
                (667
                )
                
                
                1,289
                
                
                
                (359
                )Prepaid
                    expenses and other assets
                
                
                3,579
                
                
                
                (229
                )
                
                
                1,638Accounts
                    payable and accrued liabilities
                
                
                (262
                )
                
                
                961
                
                
                
                (800
                )Income
                    taxes receivable
                
                
                3
                
                
                
                (336
                )
                
                
                (262
                )Deferred
                    income
                
                
                129
                
                
                
                (70
                )
                
                
                1,112Cash
                    provided by (used in) operating activities from continuing
                    operations
                
                
                353
                
                
                
                (9,988
                )
                
                
                (11,110
                )Cash
                    provided by operating activities from discontinued
                    operations
                
                
                13,420
                
                
                
                14,748
                
                
                
                23,960Cash
                    provided by operating activities
                
                
                13,773
                
                
                
                4,760
                
                
                
                12,850**CASH
                    FLOWS FROM INVESTING ACTIVITIES:**Purchases
                    of marketable securities
                
                
                (21,012
                )
                
                
                (45,950
                )
                
                
                (75,702
                )Sales
                    and maturities of marketable securities
                
                
                3,550
                
                
                
                44,278
                
                
                
                72,669Purchases
                    of restricted investments
                
                
                (22,611
                )
                
                
                (14,255
                )
                
                
                —Sales
                    and maturities of restricted investments
                
                
                20,098
                
                
                
                6,570
                
                
                
                3,328Purchase
                    of equipment and software
                
                
                (917
                )
                
                
                (1,312
                )
                
                
                (1,225
                )Repayment
                    of notes and accrued interest from related parties
                
                
                4,401
                
                
                
                —
                
                
                
                411Proceeds
                    from sale of unconsolidated affiliate
                
                
                4,784
                
                
                
                —
                
                
                
                —Business
                    combinations, net of cash acquired
                
                
                —
                
                
                
                —
                
                
                
                (4,135
                )Other
                    investing activities
                
                
                (164
                )
                
                
                —
                
                
                
                (64
                )Cash
                    used in investing activities for continuing operations
                
                
                (11,871
                )
                
                
                (10,669
                )
                
                
                (4,718
                )Cash
                    used in investing activities for discontinued operations
                
                
                (4,024
                )
                
                
                (3,458
                )
                
                
                (8,916
                )Cash
                    used in investing activities
                
                
                (15,895
                )
                
                
                (14,127
                )
                
                
                (13,634
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES:**Net
                    proceeds from issuance of common stock
                
                
                213
                
                
                
                69
                
                
                
                302Capital
                    lease obligations and other financing arrangements
                
                
                (26
                )
                
                
                (38
                )
                
                
                (77
                )Cash
                    provided by financing activities from continuing
                    operations
                
                
                187
                
                
                
                31
                
                
                
                225Cash
                    used in financing activities for discontinued operations
                
                
                (6
                )
                
                
                (45
                )
                
                
                (44
                )Cash
                    provided by (used in) financing activities
                
                
                181
                
                
                
                (14
                )
                
                
                181Effect
                    of exchange rate changes on cash
                
                
                (11
                )
                
                
                17
                
                
                
                (60
                )Net
                    (decrease) in cash and cash equivalents
                
                
                (1,952
                )
                
                
                (9,364
                )
                
                
                (663
                )Cash
                    and cash equivalents at beginning of period
                
                
                18,468
                
                
                
                27,832
                
                
                
                28,495Cash
                    and cash equivalents at end of period
                
                $
                16,516
                
                
                $
                18,468
                
                
                $
                27,832
  38
  
 **TIER
        TECHNOLOGIES, INC.**
 **CONSOLIDATED
                  SUPPLEMENTAL CASH FLOW
                  INFORMATION**
  **Year
                  ended September 30,***(in
                  thousands)*
              
              **2007**
              
              
              **2006**
              
              
              **2005****SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATION:**Cash
                  paid during the period for:Interest
              
              $
              13
              
              
              $
              13
              
              
              $
              23Income
                  taxes paid, net
              
              $
              128
              
              
              $
              248
              
              
              $
              34**SUPPLEMENTAL
                  SCHEDULE OF NON-CASH INVESTING AND FINANCING
                  ACTIVITIES:**Interest
                  accrued on shareholder notes
              
              $
              126
              
              
              $
              277
              
              
              $
              206Equipment
                  acquired under capital lease obligations and other financing
                  arrangements
              
              $
              26
              
              
              $
              78
              
              
              $
              40Class
                  B common stock issued in business combination and
                  acquisition
              
              $
              —
              
              
              $
              —
              
              
              $
              79
 *See
        Notes to Consolidated Financial Statements*
  39
  
  **NOTE
                  1—ORGANIZATIONAL OVERVIEW**
  Tier
        Technologies,
        Inc., or Tier or the Company, provides federal, state and local government
        and
        other public sector clients with electronic payment and other transaction
        processing services, as well as software and systems integrations
        services.  During fiscal 2007, we undertook a strategic initiative
        that evaluated the risks, costs, benefits and growth potential of each of
        our
        product lines and services.  As a result of this process, we concluded
        that our company's focus should be on our core business—Electronic Payment
        Processing, or EPP.  As such, we began to seek buyers for certain
        portions of our business in April 2007.
  At
        the beginning of
        fiscal 2007 our company was organized into three segments:  EPP,
        Government Business Process Outsourcing, or GBPO, and Packaged Software and
        Systems Integration, or PSSI.  During fiscal 2007, we reorganized our
        business to facilitate the growth of our electronic payment processing services,
        as well as the timely and efficient transfer of the operations that we
        held-for-sale to potential buyers.  By September 30, 2007, our number
        of segments evolved from three segments down to one operating segment, certain
        wind-down operations and the operations of our discontinued, or held-for-sale
        businesses.
  As
        of September 30,
        2007, our ***Continuing Operations*** were composed
        of:
  ·
              *Electronic
                  Payment Processing, or EPP*—provides electronic payment processing
                  options, including payment of taxes, fees and other obligations
                  owed to
                  government entities, educational institutions, utilities and other
                  public
                  sector clients.  EPP services are provided by our two wholly
                  owned subsidiaries:  Official Payments Corporation, or OPC, and
                  EPOS Corporation, or EPOS;
  *·*
              *Wind**-down
                  operations*—represents portions of our GBPO and PSSI operations
                  that we expect to wind-down over a five-year period because they
                  are
                  neither compatible with our long-term strategic direction nor
                  complementary with the other businesses that we are
                  divesting.  These operations
                  include:
  *o*
              *Voice
                  and Systems Automation (formerly part of GBPO)*—provides call
                  center interactive voice response systems and support services,
                  including
                  customization, installation and
                  maintenance;
  *o*
              *Health
                  and Human Services (formerly part of GBPO)*—provides certain
                  consulting services to state agencies;
                  and
  *o*
              *Public
                  Pension Administration Systems (formerly part of PSSI)*—provides
                  services to support the design, development and implementation
                  of pension
                  applications for state, county and city
                  governments.
  ·
              *Corporate
                  Operations*—represents those functions that support our corporate
                  governance, as well as certain shared-services, including information
                  technology and business
                  development.
  Our
                  ***Discontinued Operations***, or held-for sale
                  businesses, represent those portions of GBPO and PSSI for which
                  we are
                  seeking buyers, including the
                  following:
  ·
              *GBPO
                  Discontinued Operations*—include our child support payment
                  processing, child support financial institution data match services,
                  and
                  computer telephony and call centers operations;
                  and
  ·
              *PSSI
                  Discontinued Operations*—include our financial management systems,
                  unemployment insurance administration systems, systems integration
                  and
                  independent validation and verification lines of
                  business.
  On
          June 29,
          2007 we sold our 46.96% investment in the outstanding common stock of CPAS
          Systems, Inc., or CPAS, a Canadian-based supplier of pension administration
          software systems, back to CPAS for $4.8 million
          (USD).  Previously, we reported our investment in CPAS under the
          equity method of accounting.
  All
        historical
        financial information presented in our Consolidated Financial Statements
        and
        Notes to Our Consolidated Financial Statements has been reclassified to conform
        to the current year’s presentation.  For additional information about
        our continuing operations, see Note 12—*Segments.*  For
        additional information about the businesses that we have classified as
        held-for-sale, see Note 15—*Discontinued Operations*.
 40
   **NOTE
                  2—SUMMARY OF SIGNIFICANT ACCOUNTING
                  POLICIES**
  *SIGNIFICANT
        ACCOUNTING POLICIES*
  *Basis
        of
        Presentation.*  These financial statements and the
        accompanying notes are prepared in accordance with accounting principles
        generally accepted in the United States of America and conform to Regulation
        S-X
        under the Securities Exchange Act of 1934, as amended.  We believe we
        have made all necessary adjustments so that the financial statements are
        presented fairly and that all such adjustments are of a normal recurring
        nature.
  *Principles
        of Consolidation.*  The financial statements include the
        accounts of Tier Technologies, Inc. and its
        subsidiaries.  Intercompany transactions and balances have been
        eliminated.  Prior to the sale of our investment in CPAS, Inc. (an
        investment in which we exercised significant influence, but did not control
        or
        act as the primary beneficiary) in June 2007, we accounted for our 46.96%
        interest in CPAS using the equity method, under which our share of CPAS’ net
        income (loss) was recognized in the period in which it was earned by
        CPAS.
  *Use
        of
        Estimates.*  Preparing financial statements requires
        management to make estimates and assumptions that affect the amounts reported
        on
        our Consolidated Financial Statements and accompanying notes.  We
        believe that near-term changes could reasonably impact the following
        estimates:  project costs and percentage of completion; effective tax
        rates; deferred taxes and associated valuation allowances; collectibility
        of
        receivables; share-based compensation; and valuation of goodwill, intangibles
        and investments.  Although we believe the estimates and assumptions
        used in preparing our Consolidated Financial Statements and notes thereto
        are
        reasonable in light of known facts and circumstances, actual results could
        differ materially.
  *Foreign
        Currencies.*  We use the local foreign currency as the
        functional currency to translate our investment in certain inactive operations
        and our former investment in CPAS.  The assets and liabilities of the
        subsidiaries are translated into U.S. dollars using exchange rates in effect
        at
        the balance sheet date, revenues and expenses are translated using the average
        exchange rate for the period and gains and losses from this translation process
        are included in *Other comprehensive income* in the shareholders’ equity
        section of our Consolidated Balance Sheets.
  *Cash
        and
        Cash Equivalents.*  Cash equivalents are highly liquid
        investments with maturities of three months or less at the date of purchase
        and
        are stated at amounts that approximate fair value, based on quoted market
        prices.  Cash equivalents consist principally of investments in
        interest-bearing demand deposit accounts with financial
        institutions.
  In
        the course of
        operating a payment processing center for a client, we have maintained one
        or
        more bank accounts to deposit and disburse funds for the client.  The
        cash balance of the accounts and the related liability of the same amount
        was
        netted in the accompanying Consolidated Balance Sheets, since we had the
        right
        to offset such amounts.  Beginning on July 1, 2007 we no longer
        had transactions which required the maintenance of a cash account with an
        offsetting liability.
  *Revenue
        Recognition and Credit Risk.*  We recognize revenue when
        persuasive evidence of an arrangement exists, delivery has occurred, the
        fee is
        fixed or determinable and collectibility is probable.  We assess
        collectibility based upon our clients’ financial condition and prior payment
        history, as well as our performance under the contract. When we enter into
        certain arrangements where we are obligated to deliver multiple products
        and/or
        services, we account for each unit of the contract separately when each unit
        provides value to the customer on a standalone basis and there is objective
        evidence of the fair value of the standalone unit.
  Typically,
        our
        payment processing and call center operations earn revenues based upon a
        specific fee per transaction or percentage of the dollar amount
        processed.  We recognize these revenues in the month that the service
        is provided.
  We
        use the
        percentage-of-completion method to recognize revenues for software licenses
        and
        related services for projects that require significant modification or
        customization that is essential to the functionality of the
        software.  We record a provision in those instances in which we
        believe a contract will probably generate a net loss and we can reasonably
        estimate this loss.  If we cannot reasonably estimate the loss, we
        limit the amount of revenue that we recognize to the costs we have incurred,
        until we can estimate the total loss.  Advance
  41
 payments
        from
        clients and amounts billed to clients in excess of revenue recognized are
        recorded as deferred revenue.  Amounts recognized as revenue in
        advance of contractual billing are recorded as unbilled
        receivables.
  For
        the sale of
        software that does not require significant modification, we recognize revenues
        from license fees when persuasive evidence of an agreement exists, delivery
        of
        the software has occurred, no significant implementation or integration
        obligations exist, the fee is fixed or determinable and collectibility is
        probable.  If we do not believe it is probable that we will collect a
        fee, we do not recognize the associated revenue until we collect the
        payment.
  For
        software
        license arrangements with multiple obligations (for example, undelivered
        maintenance and support), we allocate revenues to each component of the
        arrangement using the residual value method of accounting based on the fair
        value of the undelivered elements, which is specific to our
        company.  Fair value for the maintenance and support obligations for
        software licenses is based upon the specific renewal rates.
  Our
        license
        agreements do not offer return rights or price protection; therefore, we
        do not
        have provisions for sales returns on these types of agreements.  We
        do, however, offer routine, short-term warranties that our proprietary software
        will operate free of material defects and in conformity with written
        documentation.  Under these agreements, if we have an active
        maintenance agreement, we record a liability for our estimated future warranty
        claims, based on historical experience.  If there is no maintenance
        contract, the warranty is considered implied maintenance and we defer revenues
        consistent with other maintenance and support obligations.
  When
        we provide
        ongoing maintenance and support services, the associated revenue is deferred
        and
        recognized on a straight-line basis over the life of the related
        contract—typically one year.  Generally, we recognize the revenues
        earned for non-essential training and consulting support when the services
        are
        performed.
  Finally,
        under the
        terms of a number of our contracts, we are reimbursed for certain costs that
        we
        incur to support the project, including postage, stationery and
        printing.  We include the amounts that we are entitled to be
        reimbursed and any associated mark-up on these expenses in *Revenues* and
        include the expenses in *Direct costs* in our Consolidated Statements of
        Operations.
  *Allowance
        for Doubtful Accounts.*  The allowance for doubtful accounts
        reflects our best estimate of probable losses inherent in the accounts
        receivable balance.  We determine the allowance based on known
        troubled accounts, historical experience and other currently available
        evidence.  In addition, our OPC subsidiary records a sales return
        allowance, calculated monthly at 0.35% of gross revenues on the applicable
        contracts, to establish an allowance for the reversal of convenience
        fees.  Convenience fees are charged to cardholders on a per
        transaction basis and are reinstated to cardholders upon an approved payment
        reversal.  Additions to the provision for bad debts are included in
*General and administrative* on our Consolidated Statements of
        Operations, while the provision for sales return allowance is included in
        *Revenues*.  The balance of our allowance for doubtful accounts
        for continuing operations was $1.2 million at September 30, 2007 and
        $0.9 million at September 30, 2006.
  *Fair
        Value
        of Financial Instruments.*  The carrying amounts of certain
        financial instruments, including cash equivalents, restricted cash, accounts
        receivable, accounts payable and accrued liabilities, approximate fair value
        due
        to their short maturities.
  *Investments
        in Marketable Securities.*  Investments in marketable
        securities are composed of available-for-sale securities. Restricted investments
        pledged in connection with performance bonds and real estate operating leases
        are reported as *Restricted investments* on the Consolidated Balance
        Sheets.  Unrestricted investments with remaining maturities of
        90 days or less (as of the date that we purchased the securities) are
        classified as cash equivalents.  Other securities that would not
        otherwise be included in *Restricted investments* or *Cash and cash
        equivalents* are classified on the Consolidated Balance Sheets as
*Investments in marketable securities*.  Our investments are
        categorized as available-for-sale and recorded at estimated fair value, based
        on
        quoted market prices.  Increases and decreases in fair value are
        recorded as unrealized gains and losses in *Other comprehensive
        income*.  Realized gains and losses and declines in fair value
        judged to be other-than-temporary are included in *Loss on sale of
        investment*.  Interest earned is included in *Interest income,
        net*.
 42
  *Advertising
        Expense.*  We expense advertising costs, net of cooperative
        advertising cash contributions received from partners, during the period
        the
        advertising takes place.  We incurred $0.7 million during fiscal
        year 2007, $0.4 million during fiscal 2006 and $0.4 million during
        fiscal 2005, of net advertising expenses from continuing
        operations.
  *Property,
            Equipment and Software.*  Property, equipment and software are
            stated at cost and depreciated using the straight-line method over the
            shorter
            of the estimated useful lives of the assets or the lease terms, ranging
            from
            three to seven years.  When assets are retired or otherwise disposed
            of, the cost and accumulated depreciation are removed from the accounts
            and any
            resulting gain or loss is reflected in operations in the period
            realized.  We recognize the fair value of the liability for
            conditional asset retirement obligations when incurred—generally upon
            acquisition, construction or development and/or through the normal operation
            of
            the asset.
 We
            expense the
            cost of software that we expect to sell, lease or market as research
            and
            development costs, prior to the time that technical feasibility is
            established.  Once technical feasibility is established, we capitalize
            software development costs until the date that the software is available
            for
            sale.  Similarly, we expense the costs incurred for software that we
            expect to use internally until the preliminary project stage has been
            completed.  Subsequently, we capitalize direct service and material
            costs, as well as direct payroll and payroll-related costs and interest
            costs
            incurred during development.  We amortize capitalized software costs
            at the greater of (a) the ratio of current revenues to total projected
            revenues
            or (b) the straight-line method over the estimated remaining economic
            life of
            the software.
  *Goodwill**.*  Goodwill
        is tested for impairment on an annual basis during the fourth fiscal quarter
        and
        between annual tests if indicators of potential impairment exist, using a
        fair-value based approach.  During the third quarter of fiscal 2007,
        due to our intentions to sell the majority of our GBPO and PSSI operations
        we
        tested the goodwill associated with the assets of these operations for
        impairment.  We recorded goodwill impairment of $8.5 million for
        continuing operations and $2.5 million for discontinued operations during
        fiscal 2007, as a result of the reclassification of assets and liabilities
        to a
        held-for-sale status.
  *Intangible
        Assets.*  We amortize intangible assets with finite lives
        using the straight-line method over their estimated benefit period, ranging
        from
        one to ten years.  We evaluate the recoverability of intangible assets
        periodically and take into account events or circumstances that warrant revised
        estimates of useful lives or that indicate that impairment
        exists.  Initially in April 2007, we classified our VSA operations as
        held-for-sale.  At that time we suspended all depreciation and
        amortization of long-term VSA assets in accordance with SFAS
        144.  When we reclassified the VSA assets back to held and used in
        September 2007, we determined that the carrying value at March 31, 2007,
        adjusted for depreciation that would have been recognized through September
        2007, was less than fair value at September 30, 2007.  To comply
        with this requirement, we reduced the fair value of our intangible assets
        by
        $0.7 million.  In addition, we recognized an impairment loss of
        $0.2 million on two of our other wind-down businesses during fiscal 2007,
        which we recorded as a reduction of intangible assets.
  *Held-For-Sale
        Assets and Liabilities.***Held-for-sale assets and
        liabilities are presented on our Consolidated Balance Sheet at the lower
        of
        their carrying value or fair value less costs to sell, once the criteria
        for
        held-for-sale status has been met.  In accordance with Statement of
        Financial Accounting Standards No. 144—*Impairment or Disposal of Long-Lived
        Assets*, or SFAS 144, assets are not depreciated or amortized while they are
        classified as held-for-sale. At that time the asset group is classified as
        held-for-sale and during each subsequent reporting period, we also evaluate
        goodwill for impairment at the segment level, whenever the businesses classified
        as held-for-sale have been fully integrated into the segment and the acquired
        goodwill benefits the rest of the reporting unit.  In the event that
        the asset group being disposed of represents a business that is part of a
        segment, we allocate goodwill to be included in the carrying amount of the
        business based on the relative fair values of the business to be disposed
        of in
        relation to the remaining businesses in the segment, in accordance with
        Statement of Accounting Standards No. 142—*Goodwill and Other
        Intangibles*.
  *(Loss)
        Earnings Per Share.*  Basic (loss) earnings per share are
        computed by dividing net (loss) income by the weighted-average number of
        shares
        of common stock outstanding for the period.  Diluted earnings per
        share reflects the potential dilution that could occur if securities or other
        contracts to issue common stock were exercised or converted into common
        stock.
  43
 *Share-Based
        Payment.*  Effective October 1, 2005, we adopted
        Statement of Financial Accounting Standards No. 123(R)—*Share-Based
        Payment*, or SFAS 123R, which requires companies to expense share-based
        compensation based on fair value.
  *Income
        Taxes.*  We account for income taxes in accordance with
        Statement of Financial Accounting Standards No. 109—*Accounting for
        Income Taxes*, or SFAS 109, which requires the use of the liability method
        in accounting for income taxes.  Under this method, deferred income
        tax assets and liabilities are determined based on differences between financial
        reporting and tax bases of assets and liabilities and are measured using
        enacted
        tax rules and laws that are expected to be in effect when the differences
        are
        expected to reverse.  Valuation allowances are established against net
        deferred tax assets when it is more likely than not that some portion or
        all of
        the deferred tax assets will not be realized.
  *Comprehensive
        (Loss) Income.*  Our comprehensive income is composed of net
        (loss) income, foreign currency translation adjustments and unrealized gains
        (losses) on marketable investment securities, net of related taxes.
  *Guarantees.*  We
        record guarantees at the fair value of the guarantee at its inception when
        a
        guarantor is required to make payments to the guaranteed party upon failure
        of
        the third party to perform under the obligations of the contract.
  *Accrued
        Discount Fees.*  Our direct costs for our EPP operations
        primarily consist of credit card interchange fees, in addition to assessments
        and other costs passed onto us by our processors.  Collectively, these
        fees and costs are considered to be discount fees.  Discount fees are
        charged to us as a percentage of the dollar volume we transact, and for expense
        purposes, are incurred during the month that the related transaction is
        authorized for payment.  Accrued discount fees represent the total
        amount of discount fees which have been incurred by us on authorized
        transactions, but have yet to be remitted by us as of the reporting
        date.  Discount fees are typically remitted by us in the calendar
        month which follows the date of transaction authorization.
  *RECENT
        ACCOUNTING PRONOUNCEMENTS*
  *SFAS
        157—Fair Value Measurements.*In October 2006, FASB issued
        Statement of Financial Accounting Standards No. 157—*Fair Value
        Measurements*, or SFAS 157.  This standard establishes a framework
        for measuring fair value and expands disclosures about fair value measurement
        of
        a company’s assets and liabilities.  This standard also requires that
        the fair value measurement should be determined based on the assumptions
        that
        market participants would use in pricing the asset or liability.  SFAS
        157 is effective for financial statements issued for fiscal years beginning
        after November 15, 2007 and, generally, must be applied
        prospectively.  We expect to adopt this standard beginning in October
        2008.  We do not expect that the adoption of SFAS 157 will have a
        material effect on our financial position and results of
        operations.
  *FIN
        48—Accounting for Uncertainty in Income Taxes.*  In July 2006,
        FASB Interpretation No. 48—*Accounting for Uncertainty in Income
        Taxes*, or FIN 48, was issued.  FIN 48 clarifies the accounting
        for uncertainty in income taxes recognized in an enterprise’s financial
        statements in accordance with FASB Statement No. 109—*Accounting for Income
        Taxes*.  FIN 48 is effective for fiscal years beginning after
        December 15, 2006.  We implemented FIN 48 on October 1,
        2007.  We do not expect that FIN 48 will have a material effect on our
        financial position or results of operation.
  *SFAS
        159—The
        Fair Value Option for Financial Assets and Financial
        Liabilities.*  In February 2007, FASB issued Statement of
        Financial Accounting Standard No. 159—*The Fair Value Option for Financial
        Assets and Financial Liabilities*, or SFAS 159, which allows companies to
        choose to measure many financial instruments and certain other items at fair
        value.  Entities that elect the fair value option will report
        unrealized gains and losses in earning at each subsequent reporting
        date.  The principle can be applied on an instrument by instrument
        basis, is irrevocable and must be applied to the entire
        instrument.  SFAS 159 amends previous guidance to extend the use of
        the fair value option to available-for-sale and held-to-maturity
        securities.  SFAS 159 also establishes presentation and disclosure
        requirements to help financial statement users understand the effect of the
        election.  SFAS 159 is effective as of the beginning of each reporting
        fiscal year beginning after November 15, 2007.  We do not believe
        that the adoption of SFAS 159 will have a material effect on our financial
        position or results of operations.
 44
   **NOTE
                  3—(LOSS) EARNINGS PER
                  SHARE**
  The
        following table
        sets forth the computation of basic and diluted (loss) earnings per
        share:
  **Year
                  ended September 30,***(in
                  thousands, except per share data)*
              
              **2007**
              
              
              **2006**
              
              
              **2005**Numerator:
                (Loss)
                  income from:Continuing
                  operations, net of income taxes
              
              $
              (18,259
              )
              
              $
              (18,921
              )
              
              $
              (19,494
              )Discontinued
                  operations, net of income taxes
              
              
              15,225
              
              
              
              9,470
              
              
              
              20,620Net
                  (loss) income
              
              $
              (3,034
              )
              
              $
              (9,451
              )
              
              $
              1,126Denominator:Weighted-average
                  common shares outstanding
              
              
              19,512
              
              
              
              19,495
              
              
              
              19,470Effects
                  of dilutive common stock options
              
              
              —
              
              
              
              —
              
              
              
              —Adjusted
                  weighted-average shares
              
              
              19,512
              
              
              
              19,495
              
              
              
              19,470(Loss)
                  earnings per basic and diluted shareFrom
                  continuing operations
              
              $
              (0.94
              )
              
              $
              (0.97
              )
              
              $
              (1.00
              )From
                  discontinued operations
              
              $
              0.78
              
              
              $
              0.49
              
              
              $
              1.06**(Loss)
                  earnings per basic and diluted share**
              
              **$**
              **(0.16**
              **)**
              
              **$**
              **(0.48**
              **)**
              
              **$**
              **0.06**
  The
        following
        options were not included in the computation of diluted (loss) earnings per
        share because the exercise price was greater than the average market price
        of
        our common stock for the periods stated and, therefore, the effect would
        be
        anti-dilutive:
  **Year
                  ended September 30,***(in
                  thousands)*
              
              **2007**
              
              
              **2006**
              
              
              **2005**Weighted-average
                  options excluded from computation of diluted (loss) earnings per
                  share
              
              
              1,523
              
              
              
              2,022
              
              
              
              1,893
  In
        addition,
        154,500 shares at September 30, 2007 and 91,000 shares at
        September 30, 2006, of common stock equivalents were excluded from the
        calculation of diluted loss per share since their effect would have been
        anti-dilutive.
   **NOTE
                  4—CUSTOMER CONCENTRATION AND
                  RISK**
  We
        derive a
        significant portion of our revenue from a limited number of governmental
        customers.  Typically, the contracts allow these customers to
        terminate all or part of the contract for convenience or
        cause.  During the fiscal year ended September 30, 2007, our
        contract with the Internal Revenue Service contributed revenues of
        $28.1 million, or 25.3%, of our revenues from continuing
        operations.  During fiscal year 2006, this contract generated
        $25.0 million, or 25.9%, of our revenues from continuing
        operations.
  *Accounts
        receivable, net.*** As of September 30, 2007 and 2006,
        we reported $5.1 million and $5.3 million, respectively, in
*Accounts receivable, net*on our Consolidated Balance
        Sheets.  This item represents the**short-term portion of
        receivables to our customers and other parties and retainers that we expect
        to
        receive.  Approximately 64.4% and 74.8% of the balances reported at
        September 30, 2007 and 2006, respectively, represent accounts receivable,
        net
        that are attributable to operations that we intend to wind-down during the
        course of the next five years (See Note 12—*Segment Information*, for
        additional information about our wind-down operations).  The remainder
        of the *Accounts receivable, net* balance is composed of receivables from
        certain of our EPP customers.  None of our customers have receivables
        that exceed 10% of our total receivable balance.  As of
        September 30, 2007 and 2006, *Accounts receivable net*, included an
        allowance for uncollectible accounts of $1.2 million and $0.9 million,
        respectively, which represents the balance of receivables that we believe
        are
        likely to become uncollectible.
  Certain
        of our
        contracts allow customers to retain a portion of the amounts owed to us until
        predetermined milestones are achieved or until the project is
        completed.  At September 30, 2007, *Accounts receivable, net*included $0.8 million of retainers that we expected to receive in one
        year.  At September 30, 2006, *Accounts receivable, net*
        included $1.0 million of retainers that we expected to receive in one year
        and *Other assets* on our
  45
 Consolidated
        Balance Sheet included $2.8 million of retainers that we expected to be
        outstanding for more than one year.
  *Unbilled
        receivables* represent revenues that we have earned for the work that has
        been performed to date that cannot be billed under the terms of the applicable
        contract until we have completed specific project milestones or the customer
        has
        accepted our work.  At September 30, 2007, total unbilled
        receivables, all of which are expected to become billable in one year, were
        $0.5 million, of which one customer accounted for 56.2% of the total and
        another customer accounted for the remaining 43.8% of the total.  At
        September 30, 2006, total unbilled receivables, all of which were expected
        to become billable in one year, were $1.9 million, of which three customers
        accounted for 50.0%, 32.2% and 17.9%, respectively, of the total.
  All
        of the
        retainers and unbilled receivable balances discussed above are associated
        with
        businesses that we intend to wind-down over the next five years (See Note
        12—*Segment Information).*
  **NOTE
                  5—INVESTMENTS**
  *Debt
        and Equity
        Securities*
  Investments
        are
        composed of available-for-sale debt and equity securities as defined in SFAS
        No. 115—*Accounting for Certain Investments in Debt and
        Equity**Securities,*or SFAS 115.  Restricted investments
        totaling $5.5 million at September 30, 2007 and $12.3 million at
        September 30, 2006 were pledged in connection with performance bonds and
        real
        estate operating leases and will be restricted for the terms of the project
        performance periods and lease periods, the latest of which is estimated to
        end
        in March 2010.  At September 30, 2007, a $6.0 million money
        market investment was also used as a compensating balance for a bank account
        used for certain operations.  These investments are reported as
*Restricted investments* on the Consolidated Balance Sheets.
  In
        accordance with
        SFAS No. 95—*Statement of Cash Flows*, unrestricted investments with
        remaining maturities of 90 days or less, as of the date of purchase, are
        classified as cash equivalents.  We exclude from cash equivalents
        certain investments such as mutual funds and auction rate
        securities.  Securities such as these, and all other securities that
        would not otherwise be included in *Restricted investments* or *Cash
        and cash equivalents*, are classified on the Consolidated Balance Sheets as
*Investments in marketable securities*.  Except for our
        investment in CPAS and our restricted investments, all of our investments
        are
        categorized as available-for-sale under SFAS 115.  As such, our
        securities are recorded at estimated fair value, based on quoted market
        prices.  Increases and decreases in fair value are recorded as
        unrealized gains and losses in other comprehensive income.
  The
        following table
        shows the balance sheet classification, amortized cost and estimated fair
        values
        of investments included in cash equivalents, investments in marketable
        securities and restricted investments:
 **September
                    30, 2007**
                
                
                **September
                    30, 2006***(in
                    thousands)*
                
                **Amortized**
                  **cost**
                
                
                **Unrealized
                    loss**
                
                
                **Estimated**
                  **fair
                    value**
                
                
                **Amortized**
                  **cost**
                
                
                **Unrealized**
                  **loss**
                
                
                **Estimated**
                  **fair
                    value****Cash
                    equivalents:**Money
                    market
                
                $
                3,537
                
                
                $
                —
                
                
                $
                3,537
                
                
                $
                9,053
                
                
                $
                —
                
                
                $
                9,053**Total
                    investments included in cash and cash equivalents**
                
                ****
                **3,537**
                
                
                ****
                **—**
                
                
                ****
                **3,537**
                
                
                ****
                **9,053**
                
                
                ****
                **—**
                
                
                ****
                **9,053****Investments
                    in marketable securities:**Debt
                    securities (Primarily state and local bonds/notes)
                
                
                54,400
                
                
                
                —
                
                
                
                54,400
                
                
                
                36,950
                
                
                
                —
                
                
                
                36,950Certificates
                    of deposit
                
                
                3,415
                
                
                
                —
                
                
                
                3,415
                
                
                
                —
                
                
                
                —
                
                
                
                —**Total
                    investments in marketable securities**
                
                ****
                **57,815**
                
                
                ****
                **—**
                
                
                ****
                **57,815**
                
                
                ****
                **36,950**
                
                
                ****
                **—**
                
                
                ****
                **36,950****Restricted
                    investments:**Certificates
                    of deposit
                
                
                5,526
                
                
                
                —
                
                
                
                5,526
                
                
                
                8,941
                
                
                
                —
                
                
                
                8,941Money
                    market
                
                
                6,000
                
                
                
                —
                
                
                
                6,000
                
                
                
                —
                
                
                
                —
                
                
                
                —U.S.
                    government sponsored enterprise obligations
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                3,348
                
                
                
                (2
                )
                
                
                3,346**Total
                    restricted investments**
                
                ****
                **11,526**
                
                
                ****
                **—**
                
                
                ****
                **11,526**
                
                
                ****
                **12,289**
                
                
                ****
                **(2**
                **)**
                
                ****
                **12,287****Total
                    investments**
                
                **$**
                **72,878**
                
                
                **$**
                **—**
                
                
                **$**
                **72,878**
                
                
                **$**
                **58,292**
                
                
                **$**
                **(2**
                **)**
                
                **$**
                **58,290**
  46
 As
        of
        September 30, 2007, all of the debt securities that were included in
        marketable securities had remaining maturities in excess of ten
        years.  While all of these debt securities have long-term maturities,
        all of our debt securities are auction rate securities with interest that
        typically resets every 28 days.
  We
        evaluate certain
        available-for-sale investments for other-than-temporary impairment when the
        fair
        value of the investment is lower than its book value.  Factors that we
        consider when evaluating for other-than-temporary impairment include: the
        length
        of time and the extent to which market value has been less than cost; the
        financial condition and near-term prospects of the issuer; interest rates,
        credit risk, the value of any underlying portfolios or investments; and our
        intent and ability to hold the investment for a period of time sufficient
        to
        allow for any anticipated recovery in the market.  We do not adjust
        the recorded book value for declines in fair value that we believe are temporary
        if we have the intent and ability to hold the associated investments for
        the
        foreseeable future and we have not made the decision to dispose of the
        securities as of the reported date.
  If
        we determine
        impairment is other-than-temporary, we reduce the recorded book value of
        the
        investment by the amount of the impairment and recognize a realized loss
        on the
        investment.  At September 30, 2007 and September 30, 2006,
        we do not believe that any of our investments were other-than-temporarily
        impaired.
  *Equity
        Investments*
  In
        June 2007 we
        sold our 46.96% investment of the outstanding common stock of CPAS, a
        Canadian-based supplier of pension administration software systems, back
        to CPAS
        for $4.8 million (USD).  The sale price was approximately equal
        to the US-dollar equivalent of our book value in the CPAS investment as of
        June 30, 2007, plus estimated taxes and other disposal costs.  In
        June 2007, we recorded a gain of $80,000 on the sale of this investment and
        realized a foreign currency gain on the investment of $239,000.
  **NOTE
                  6—PROPERTY, EQUIPMENT AND
                  SOFTWARE**
  *Property,
        equipment and software, net* consist of the following:
  **September
                  30,***(in
                  thousands)*
              
              **2007**
              
              
              **2006**Software
              
              $
              749
              
              
              $
              525Computer
                  equipment
              
              
              5,056
              
              
              
              4,996Furniture
                  and equipment
              
              
              3,328
              
              
              
              2,788Land
                  and building
              
              
              2,452
              
              
              
              2,452Leasehold
                  improvements
              
              
              508
              
              
              
              503Total
                  property, equipment and software, gross
              
              
              12,093
              
              
              
              11,264Less:
                  Accumulated depreciation and amortization
              
              
              (8,348
              )
              
              
              (7,310
              )Total
                  property, equipment and software, net
              
              $
              3,745
              
              
              $
              3,954
  We
        depreciate fixed
        assets on a straight-line basis over their estimated useful
        lives.  Leasehold improvements are amortized over the lesser of the
        estimated remaining life of the leasehold or the remaining term of the lease.
        Depreciation and amortization expense associated with property, equipment
        and
        software that we held and used for our continuing operations is reported
        on the
        following lines on our Consolidated Statements of Operations:
  **Year
                    ended September 30,***(in
                    thousands)*
                
                **2007**
                
                
                **2006**
                
                
                **2005**Depreciation
                    and amortization expenses for property, equipment and
                    software:Included
                    in
                    *Direct costs:*Software
                
                $
                12
                
                
                $
                3
                
                
                $
                3Equipment
                
                
                78
                
                
                
                184
                
                
                
                130Total
                    included
                    in *Direct costs*
                
                
                90
                
                
                
                187
                
                
                
                133Included
                    in
                    *Depreciation and amortization*:Software
                
                
                171
                
                
                
                95
                
                
                
                122Equipment
                
                
                828
                
                
                
                705
                
                
                
                899Total
                    included
                    in *Depreciation and amortization*
                
                
                999
                
                
                
                800
                
                
                
                1,021Total
                    depreciation and amortization expense for property, equipment
                    and
                    software
                
                $
                1,089
                
                
                $
                987
                
                
                $
                1,154
 47
  In
        addition to the
        depreciation and amortization reflected in the above table, the line titled
        *Income from discontinued operation, net* on our Consolidated Statements
        of Operations included depreciation and amortization expenses of
        $1.9 million for fiscal 2007, $3.6 million for fiscal 2006 and
        $2.6 million for fiscal 2005.  These amounts represent
        depreciation and amortization expense that was recorded prior to April 2007
        when
        these assets were classified as held for sale.  Property, equipment,
        software and capitalized leases used by our operations that are held-for-sale
        are reported as *Current assets—held-for-sale* on our Consolidated
        Balance Sheets.  See Note 15—*Discontinued Operations* for
        additional information.
  The
        cost of assets
        acquired under capital leases for our continuing operations was approximately
        $0.3 million at September 30, 2007 and $0.5 million at
        September 30, 2006. The related accumulated depreciation and amortization
        was $0.2 million at September 30, 2007 and $0.4 million at
        September 30, 2006.
  **NOTE
                  7—GOODWILL AND OTHER INTANGIBLE
                  ASSETS**
  *Goodwill*
  The
        following table
        summarizes changes in the carrying amount of goodwill during fiscal years
        2007
        and 2006 for our continuing and discontinued operations.  The goodwill
        for our continuing operations is reported on the line titled *Goodwill*on our Consolidated Balance Sheets, while the goodwill for our
        discontinued
        operations is included in the line titled *Current
        assets—held-for-sale.*
  **Continuing
                  Operations**
              
              
              **Discontinued
                  Operations***(in
                  thousands)*
              
              **EPP**
              
              
              **Wind-down**
              
              
              **Total**
              
              
              **GBPO**
              
              
              **PSSI**
              
              
              **Total**
              
              
              **Total****Balance
                  at September 30, 2005**
              
              $
              14,526
              
              
              $
              8,454
              
              
              $
              22,980
              
              
              $
              5,680
              
              
              $
              8,907
              
              
              $
              14,587
              
              
              $
              37,567**Balance
                  at September 30, 2006**
              
              
              14,526
              
              
              
              8,454
              
              
              
              22,980
              
              
              
              5,680
              
              
              
              8,907
              
              
              
              14,587
              
              
              
              37,567Fiscal
                  year 2007 goodwill
                impairment
              
              
              —
              
              
              
              (8,454
              )
              
              
              (8,454
              )
              
              
              (2,461
              )
              
              
              —
              
              
              
              (2,461
              )
              
              
              (10,915
              )**Balance
                  at September 30, 2007**
              
              $
              14,526
              
              
              $
              —
              
              
              $
              14,526
              
              
              $
              3,219
              
              
              $
              8,907
              
              
              $
              12,126
              
              
              $
              26,652
  As
        a general
        practice, we test goodwill for impairment during the fourth quarter of each
        fiscal year at the reporting unit level using a fair value approach in
        accordance with SFAS 142.  If an event occurs or circumstances change
        that would more likely than not reduce the fair value of a reporting unit
        below
        its carrying value, we would evaluate goodwill for impairment between annual
        tests.  One such triggering event is when there is a
        more-likely-than-not expectation that a reporting unit or a significant portion
        of a reporting unit will be sold or otherwise disposed of.  Hence, our
        intention to sell the majority of our GBPO and PSSI assets and liabilities
        triggered a requirement to review the goodwill associated with these asset
        groups for impairment.  Because we intend to divest portions of two
        reporting units, we tested each business within our PSSI and GBPO segments
        for
        impairment.
  We
        reviewed the
        goodwill for all asset groups classified as held-for-sale during the quarter
        ended June 30, 2007. In September 30, 2007, we reviewed for impairment
        the goodwill assets classified as held-for-sale, as well goodwill for our
        assets
        classified as held and used.  As a result of the June and September
        reviews, we identified the need to reduce goodwill by $8.5 million for our
        wind-down operations and $2.5 million for our discontinued GBPO
        operations.
  *Other
        Intangible Assets, Net*
  Initially
        in April
        2007, we classified our VSA operations as held-for-sale.  At that time
        we suspended all depreciation and amortization of long-term VSA assets in
        accordance with SFAS 144.  As of September 30, 2007, we removed our
        VSA business from the held-for-sale classification.  We made this
        decision because the VSA business supports a portion of our EPP segment and
        because we believe the return for our stockholders would be greater if we
        were
        to continue to operate the VSA business for the near term.  At that
        time we reclassified the VSA assets back to held and used and we determined
        that
        the carrying value at April 2007, adjusted for depreciation and amortization
        that would have been recognized through September 2007, was less than fair
        value
        at September 30, 2007.  As a result, we were required to
        recognize an impairment loss of $0.7 million.  This impairment
        loss was allocated to our intangible assets based upon the amortization we
        would
  48
 have
        accrued if VSA
        had never been classified as held-for-sale.  The following table
        summarizes our *Other intangible assets, net*, for our continuing
        operations:
  **September
                  30, 2007**
              
              
              **September
                  30, 2006***(in
                  thousands)*
              **Amortization
                  period**
              
              **Gross**
              
              
              **Accumulated
                  amortization**
              
              
              **Net**
              
              
              **Gross**
              
              
              **Accumulated
                  amortization**
              
              
              **Net**Client
                  relationships
              7-10
                  years
              
              $
              28,749
              
              
              $
              (13,840
              )
              
              $
              14,909
              
              
              $
              28,749
              
              
              $
              (11,176
              )
              
              $
              17,573Impairment
                  write-down
              
              
              
              (341
              )
              
              
              —
              
              
              
              (341
              )
              
              
              —
              
              
              
              —
              
              
              
              —28,408
              
              
              
              (13,840
              )
              
              
              14,568
              
              
              
              28,749
              
              
              
              (11,176
              )
              
              
              17,573Technology
                  and research and development
              5
                  years
              
              
              4,289
              
              
              
              (2,444
              )
              
              
              1,845
              
              
              
              4,289
              
              
              
              (1,986
              )
              
              
              2,303Impairment
                  write-down
              
              
              
              (323
              )
              
              
              —
              
              
              
              (323
              )
              
              
              —
              
              
              
              —
              
              
              
              —3,966
              
              
              
              (2,444
              )
              
              
              1,522
              
              
              
              4,289
              
              
              
              (1,986
              )
              
              
              2,303Trademarks
              6
                  -10 years
              
              
              3,214
              
              
              
              (1,664
              )
              
              
              1,550
              
              
              
              3,214
              
              
              
              (1,342
              )
              
              
              1,872Non-compete
                  agreements
              3
                  years
              
              
              560
              
              
              
              (529
              )
              
              
              31
              
              
              
              615
              
              
              
              (484
              )
              
              
              131Impairment
                  write-down
              
              
              
              (31
              )
              
              
              —
              
              
              
              (31
              )
              
              
              —
              
              
              
              —
              
              
              
              —529
              
              
              
              (529
              )
              
              
              —
              
              
              
              615
              
              
              
              (484
              )
              
              
              131Other
                  intangible assets, net
              
              
              $
              36,117
              
              
              $
              (18,477
              )
              
              $
              17,640
              
              
              $
              36,867
              
              
              $
              (14,988
              )
              
              $
              21,879
  Amortization
        expense for other intangible assets was $3.6 million for fiscal year 2007,
        $4.3 million for fiscal year 2006 and $4.5 million for fiscal year
        2005, all of which is related to continuing operations.  As of
        September 30, 2007, we expect to recognize the following amortization
        expense on other intangible assets over the next five years:
  *(in
                  thousands)*
              
              **Future**
                **expense****Years
                  ending September 30,**2008
              
              $
              4,0562009
              
              
              3,8202010
              
              
              3,1902011
              
              
              3,1842012
              
              
              2,721Thereafter
              
              
              669Total
                  future amortization expense
              
              $
              17,640
  **NOTE
                  8—CONTINGENCIES AND
                  COMMITMENTS**
  *LEGAL
        ISSUES*
  From
        time to time
        during the normal course of business, we are a party to litigation and/or
        other
        claims.  At September 30, 2007, none of these matters were
        expected to have a material impact on our financial position, results of
        operations or cash flows.  At September 30, 2007 and 2006, we had
        legal accruals of $1.0 million and $1.4 million based upon estimates
        of key legal matters.
  In
        November 2003,
        we were granted conditional amnesty in relation to a Department of Justice
        Antitrust Division investigation involving the child support payment processing
        industry.  We have cooperated, and will continue to cooperate, with
        the investigation and, therefore, will continue to incur legal
        costs.
  On
        May 31,
        2006, we received a subpoena from the Philadelphia District Office of the
        Securities and Exchange Commission requesting documents relating to financial
        reporting and personnel issues.  We have cooperated, and will continue
        to cooperate fully, in this investigation.
  On
        November 20,
        2006, we were served with a purported class action lawsuit on behalf of
        purchasers of our common stock from November 29, 2001 to October 25,
        2006.  Subsequently, the complaint was amended to narrow the purported
        class period.  The suit alleges that Tier and certain of our former
        officers issued false and misleading statements from November 2001 to
        May 2006, but did not specify the damages being sought.  On
        July 24, 2007, the United States District Court for the Eastern District of
        Virginia entered an order denying the plaintiff's motion for class certification
        for the purported class action lawsuit.  The time to appeal the
        Court's order has expired without an appeal.  We have a motion pending
        before the court to dismiss the lawsuit in its entirety.  We believe
        we have minimal, if any, exposure associated with this complaint.  See
        Note 16—*Subsequent Events* for information on key recent events
        associated with this case.
 49
  *BANK
        LINES OF
        CREDIT*
  Throughout
        the
        majority of fiscal 2006, the first quarter of fiscal 2007 and the majority
        of
        the second quarter of fiscal 2007, we had a credit facility that allowed
        us to
        obtain letters of credit up to a total of $15.0 million and also granted
        the lender a perfected security interest in cash collateral in an amount
        equal
        to all issued and to be issued letters of credit.  This credit
        facility was scheduled to mature on March 31, 2007.  On
        March 23, 2007, we elected to reduce the line of credit to
        $10.0 million and entered into an amendment to extend the term of the
        credit facility for an additional six months.  On September 26,
        2007, we entered into a second amendment to this credit facility.  We
        elected to reduce the line of credit to $7.5 million.  In
        addition, this amendment eliminated the unused facility fee and reduced the
        issuance fee from 1.0% to 0.75% per annum.  Currently, this credit
        facility is scheduled to mature on September 30, 2008.  The
        amendment grants the lender a perfected security interest in cash collateral
        in
        an amount equal to all issued and to be issued letters of credit.  As
        of September 30, 2007, $5.5 million of letters of credit were
        outstanding under this credit facility.
  *OTHER
        LETTERS
        OF CREDIT*
  At
        September 30,
        2006, we had a $3.0 million letter of credit outstanding that was
        collateralized by certain securities in our investment
        portfolio.  This letter of credit was issued to secure a performance
        bond.  Effective July 2007, this letter of credit was
        released.  We reported the investments used to collateralize the
        letters of credit as *Restricted investments* on our Consolidated Balance
        Sheets.
  *CREDIT
        RISK*
  We
        maintain our
        cash in bank deposit accounts which, at times, may exceed federally insured
        limits.  We have not experienced any losses in such accounts and
        believe that any associated credit risk is *de minimis*.  As
        can be seen in Note 5—*Investments*, we held $72.9 million of cash
        equivalents, unrestricted marketable securities, and restricted investments
        at
        September 30, 2007.  All of our investments are in highly liquid
        AAA securities, most of which are government-guaranteed.  Because we
        have a stringent policy of investing only in securities that are essentially
        risk-free, our investments are not exposed to significant write-downs in
        fair
        value that have plagued other financial institutions.
  *OPERATING
        AND
        CAPITAL LEASE OBLIGATIONS*
  We
        lease our
        principal facilities and certain equipment under non-cancelable operating
        and
        capital leases, which expire at various dates through fiscal year
        2011.  Future minimum lease payments for non-cancelable leases with
        terms of one year or more are as follows:
  *(in
                  thousands)*
              
              **Operating
                  leases**
              
              
              **Capital**
                **leases(1)**
              
              
              **Total****Year
                  ending September 30,**2008
              
              $
              3,397
              
              
              $
              47
              
              
              $
              3,4442009
              
              
              2,109
              
              
              
              38
              
              
              
              2,1472010
              
              
              941
              
              
              
              20
              
              
              
              9612011
              
              
              —
              
              
              
              3
              
              
              
              3Total
                  minimum lease payments
              
              $
              6,447
              
              
              $
              108
              
              
              $
              6,555*(1)On
                  our
                  Consolidated Balance Sheets, the amount due in fiscal year 2008
                  is
                  included in Total current liabilities, while the liability for
                  capital
                  lease payments due in fiscal years 2009 through 2011 is included
                  in Other
                  liabilities.*
  Certain
        leases
        contain provisions for rental options and rent escalations based on scheduled
        increases, as well as increases resulting from a rise in certain costs incurred
        by the lessor.  We recorded rent expense of $2.8 million during
        fiscal 2007, $2.8 million during fiscal 2006 and $3.1 million during
        fiscal 2005.
  *GUARANTEES*
  In
        conjunction with
        our participation as a subcontractor in a three-year contract for unemployment
        insurance-related services, we guaranteed the performance of the prime
        contractor on the project.  The contract does not establish a
        limitation to the maximum potential future payments under the guarantee;
        however, we estimate that the maximum potential undiscounted cost of the
        guarantee is $4.5 million.  In accordance with FASB
        Interpretation No. 45—*Guarantor’s Accounting and Disclosure Requirements for
        Guarantees, Including Indirect*
  50
 *Guarantees
        of
        Indebtedness of Others*, we valued this guarantee based upon the sum of
        probability-weighted present values of possible future cash flows.  As
        of September 30, 2007, the remaining liability was $0.1 million, which
        is being amortized over the term of the contract.  We believe that the
        probability is remote that the guarantee provision of this contract will
        be
        invoked.
  *PERFORMANCE
        BONDS*
  Under
        certain
        contracts, we are required to obtain performance bonds from a licensed surety
        and to post the performance bonds with our customers.  Fees for
        obtaining the bonds are expensed over the life of each bond and are included
        in
*Direct costs*on our Consolidated Statement of Operations.  At
        September 30, 2007, we had $16.4 million of bonds posted with
        clients.  There were no claims pending against any of these
        bonds.
  *EMPLOYMENT* *AGREEMENTS*
  As
        of
        September 30, 2007, we have employment and change of control agreements
        with five executives, a former executive and 24 other key
        managers.  During October 2007, we entered into employment agreements
        with two of our executives, which supersede the change of control agreements
        referenced above.  See Note 16—*Subsequent Events* for
        information regarding these employment agreements. If certain termination
        or
        change of control events were to occur under the 30 remaining contracts,
        we
        could be required to pay up to $5.5 million.  See Note
        16—*Subsequent Events* for information regarding a key change to the
        status of two of our executive officers.
  As
        of
        September 30, 2007, we also had agreements with 32 key employees under
        which these individuals would be entitled to receive three to twelve months
        of
        their base salaries over a one-to-two year period, after completing defined
        employment service periods.  We expect to recognize a maximum expense
        of $0.9 million during fiscal year 2008 and $0.3 million during fiscal
        year 2009 for these agreements.
  As
        of
        September 30, 2007, we had change of control agreements with 38 key
        employees within our held-for-sale operations, which we entered into in February
        2007.  Under these agreements, individuals are entitled to receive
        three to twelve months of their base salaries plus three to twelve months
        of
        COBRA benefits should certain change of control events occur.  Under
        these agreements we would be required to pay up to $2.4 million if a change
        of control occurred.
  *INDEMNIFICATION* *AGREEMENTS*
  We
        have
        indemnification agreements with each of our directors and a number of key
        executives. These agreements provide such persons with indemnification to
        the
        maximum extent permitted by our Articles of Incorporation or Bylaws or by
        the
        General Corporation Law of the State of Delaware, against all expenses, claims,
        damages, judgments and other amounts (including amounts paid in settlement)
        for
        which such persons become liable as a result of acting in any capacity on
        our
        behalf, subject to certain limitations.  We are not able to estimate
        our maximum exposure under these agreements.
  *FORWARD* *LOSSES*
  Throughout
        the term
        of our customer contracts, we forecast revenues and expenses over the total
        life
        of the contract.  In accordance with generally accepted accounting
        principles, if we determine that the total expenses over the entire term
        of the
        contract will probably exceed the total forecasted revenues over the term
        of the
        contract, we record an accrual in the current period equal to the total
        forecasted losses over the term of the contract, less losses recognized to
        date,
        if any.  As of September 30, 2007 and 2006, accruals totaling
        $0.9 million and $1.0 million, respectively, were included in
*Current liabilities—held-for-sale* on our Consolidated Balance
        Sheets.  Changes in the accrued forward losses are reflected in
*Income from**discontinued operations, net* on our Consolidated
        Statements of Operations.
  **NOTE
                  9—SHAREHOLDERS’ EQUITY**
  In
        July 2005, we
        changed our state of incorporation from California to Delaware and converted
        all
        shares of our Class B common stock to $0.01 par value common
        stock.  Accordingly, as of September 30, 2007 and 2006,
        no
  51
 shares
        of
        Class B common stock were authorized or outstanding.  As of September
        30, 2007, a total of 44,259,762 shares of common stock were authorized, of
        which
        19,540,206 shares were outstanding, and a total of 4,579,047 shares of preferred
        stock were authorized, of which none were outstanding.  Under our
        current credit facility, we are prohibited from declaring or paying any
        dividends (see Note 8—*Commitment and Contingencies*)
  *COMMON
        STOCK
        REPURCHASE PROGRAM*
  In
        October 1998, our Board of Directors authorized the repurchase of up to one
        million shares of Class B common stock. The purchases were to be made in
        the open market or in privately negotiated transactions at the discretion
        of our
        management, depending on financial and market conditions or as otherwise
        provided by the Securities and Exchange Commission and the Nasdaq rules and
        regulations.  In April 2003, our Board increased the number of
        shares authorized for repurchase to two million shares.  As of
        September 30, 2007, we had repurchased 884,400 shares of common stock for
        $8.7
        million.  All such repurchases of our common stock were made prior to
        fiscal 2004.  All stock purchased under the common stock repurchase
        program is reported as *Treasury stock* on our Consolidated Balance
        Sheets.
  *STOCKHOLDER
        RIGHTS PLAN*
  On
        July 12,
        2007, we amended our Stockholder Rights Plan, or the Rights Plan.  The
        amendment increased the beneficial ownership threshold for an acquiring person
        from 10% to 15%.  The adoption of the Rights Plan was originally
        approved by our Board of Directors on January 10, 2006.  On that
        date, our Board of Directors declared a dividend distribution of one right
        for
        each outstanding share of our common stock to stockholders of record on the
        close of business on January 23, 2006.  Upon the occurrence of
        certain events, each right entitles the registered holder to purchase from
        us
        one one-thousandth of a share of Series A Junior Participating Preferred
        Stock,
        $0.01 par value per share, at a purchase price of $50.00 in cash, subject
        to
        adjustment.  The rights are intended to protect our stockholders in
        the event of an unfair or coercive offer to acquire us and to provide our
        Board
        of Directors with adequate time to evaluate unsolicited offers.
  *EQUITY
        INCENTIVE PLAN*
  Under
        our
*Amended and Restated 2004 Stock Incentive Plan*, options for 2,113,091
        shares of common stock were outstanding at
        September 30, 2007.
  **NOTE
                  10—SHARE-BASED PAYMENT**
  Stock
        options are
        issued under the Amended and Restated 2004 Stock Incentive Plan, or the
        Plan.  The Plan provides our Board of Directors with discretion in
        creating employee equity incentives, including incentive and non-statutory
        stock
        options.  Generally, these options vest as to 20% of the underlying
        shares each year on the anniversary of the date granted and expire in ten
        years.  At September 30, 2007, there were 2,321,722 shares of
        common stock reserved for future grant under the Plan.  On
        October 1, 2007 and October 29, 2007, we issued 775,000 and 60,000,
        respectively, options to purchase stock to several key employees.  See
        Note 16—*Subsequent Events* for additional information.
  Stock-based
        compensation expense for all stock-based compensation awards granted was
        based
        on the grant-date fair value using the Black-Scholes model.  We
        recognize compensation expense for stock option awards on a ratable basis
        over
        the requisite service period of the award.  Stock-based compensation
        expense was $1.7 million for fiscal year ended September 30, 2007 and
        $2.0 million for fiscal year ended September 30, 2006.
  Prior
        to adopting
        SFAS 123R on October 1, 2005, we applied the recognition and measurement
        principles of Accounting Principles Board Opinion No. 25—*Accounting for
        Stock-Based Compensation* and provided the pro forma disclosures previously
        required by SFAS 123.  Prior to adopting SFAS 123R, we did not include
        compensation expense for employee stock options in net income (loss), since
        all
        stock options granted under those plans had an exercise price equal to the
        market value of the common stock on the date of the grant.  The
        following table illustrates the effects on net income (loss) after tax and
        earnings per common share as if we had applied the fair value recognition
        provisions of SFAS 123 to stock-based compensation during fiscal year ended
        September 30, 2005:
 52
 *(in
                    thousands, except per share data)*
                
                **Fiscal
                    year ended**
                  **September
                    30, 2005**Net
                    income
                
                $
                1,126Less:
                    Total
                    stock-based compensation expense, determined under fair value-based
                    method
                    for all awards, net of tax effect
                
                
                2,527Net
                    loss, pro
                    forma
                
                $
                (1,401
                )Earnings
                    (loss) per basic and diluted share:As
                    reported
                
                $
                0.06Pro
                    forma
                
                $
                (0.07
                )
  The
        following
        tables shows the weighted average assumptions we used to calculate fair value
        of
        share-based options using the Black-Scholes model, as well as the
        weighted-average fair value of options granted and the weighted-average
        intrinsic value of options exercised.
  **September
                    30,****2007**
                
                
                **2006**
                
                
                **2005**Weighted-average
                    assumptions used in Black-Scholes Model:Expected
                    period that options will be outstanding (*in
                    years*)
                
                
                5.00
                
                
                
                5.00
                
                
                
                4.55Interest
                    rate
                    (*based on 3-year U.S. Treasury Yields at time of
                    grant*)
                
                
                4.66
                %
                
                
                4.87
                %
                
                
                3.76
                %Volatility
                
                
                47.54
                %
                
                
                48.21
                %
                
                
                54.63
                %Dividend
                    yield
                
                
                —
                
                
                
                —
                
                
                
                —Weighted-average
                    fair value of options granted
                
                $
                3.53
                
                
                $
                2.95
                
                
                $
                4.11Weighted-average
                    intrinsic value of options exercised (*in
                    thousands*)
                
                $
                122
                
                
                $
                7
                
                
                $
                33
  Expected
        volatilities are based on both the implied and historical volatility of our
        stock.  In addition, we used historical data to estimate option
        exercise and employee termination within the valuation model.
  Stock
        option
        activity for the fiscal year ended September 30, 2007 is as
        follows:
  **Weighted-average***(in
                    thousands, except per share data)*
                
                **Shares**
                  **under
                    option**
                
                
                **Exercise**
                  **price**
                
                **Remaining**
                  **contractual
                    term**
                
                **Aggregate
                    intrinsic value**Options
                    outstanding at October 1, 2006
                
                
                2,239
                
                
                $
                8.45Granted
                
                
                241
                
                
                
                7.48Exercised
                
                
                (42
                )
                
                
                5.15Forfeitures
                    or expirations
                
                
                (325
                )
                
                
                7.54Options
                    outstanding at September 30, 2007
                
                
                2,113
                
                
                $
                8.54
                
                7.18
                    years
                
                $
                5,703Options
                    exercisable at September 30, 2007
                
                
                1,396
                
                
                $
                9.18
                
                6.59
                    years
                
                $
                3,399
  As
        of
        September 30, 2007, a total of $1.4 million of unrecognized
        compensation cost related to stock options, net of estimated forfeitures,
        was
        expected to be recognized over a 3.2 year weighted-average
        period.
  **NOTE
                  11—RELATED PARTY
                  TRANSACTIONS**
  *NOTES
        AND
        INTEREST RECEIVABLE*
  At
        September 30, 2006, we had $4.3 million of full-recourse notes and
        interest receivable from a former Chairman of the Board and Chief Executive
        Officer.  These notes matured in 2007 and payment of principal and
        accrued interest on all notes was received during fiscal year
        2007.  Approximately $2.2 million of these full-recourse notes
        were issued in connection with the exercise of options to purchase shares
        of our
        common stock.
  The
        notes with the
        former officer were entered into prior to the effective date of the
        Sarbanes-Oxley Act of 2002. We have not entered into any notes with any
        directors or officers following the effective date of that act.
  These
          notes and the
          associated accrued interest are reported as *Notes receivable from related
          parties* in the shareholders’ equity section of our Consolidated Balance
          Sheets.  Interest earned on these notes is included in *Common
          stock and paid-in-capital*in the shareholders’ equity section of our
          Consolidated Balance Sheets.
 53
  *OTHER
        RELATED-PARTY TRANSACTIONS*
  *CPAS*
  Throughout
        the
        majority of fiscal 2007, we owned a 46.96% interest in CPAS, a Canadian-based
        supplier of pension administration software systems.  We accounted for
        this investment using the equity method.  We sold our interest back to
        CPAS on June 29, 2007 for $4.8 million (USD), which resulted in an
        $80,000 gain on the disposition of our equity interest in CPAS and the
        realization of a $0.2 million gain on foreign currency
        translation.
  During
        the fiscal
        year ended September 30, 2007, we recognized $137,000 in revenue related to
        a pension project in which we are a subcontractor to CPAS.  In
        addition, CPAS is a subcontractor on a pension project for which we are the
        prime contractor.
  *Nuance
        Communications, Inc.*
  During
        the fiscal
        year ended September 30, 2007, we purchased $131,000 of software licenses,
        maintenance and related services from Nuance Communications, Inc., a company
        affiliated with a member of our Board of Directors.
  *ITC
        Deltacom, Inc.*
  During
        the fiscal
        year ended September 30, 2007, we purchased $268,000 of telecom services
        from ITC Deltacom, Inc., a company affiliated with a member of our Board
        of
        Directors.
   **NOTE
                  12—SEGMENT INFORMATION**
  As
        described more
        fully in Note 15—*Discontinued Operations*, in April 2007, we announced
        our intention to seek buyers for the sale of the majority of our PSSI and
        GBPO
        operations.  The assets and liabilities associated with these disposal
        groups were classified as *Current assets—held-for-sale*and *Current
        liabilities—held-for-sale* on our consolidated Balance
        Sheets.  The results of operations for these disposal groups reported
        as *Income from discontinued operations, net* on our Consolidated
        Statements of Operations.
  Because
        of our
        decision to sell the majority of PSSI and GBPO, we have only one reportable
        segment as of September 30, 2007, comprised primarily of Electronic Payment
        Processing, or EPP segment.  In addition, we expect to retain and
        wind-down three minor businesses from our former PSSI and GBPO
        segments.  The following table presents the results of operations for
        our EPP segment and our wind-down operations for fiscal years 2007, 2006
        and
        2005.  As of September 30, 2007, our Senior Management team
        allocates resources to and assesses the performance of our operations in
        three
        major categories: EPP, Wind-down and Discontinued Operations.  See
        Note 15—*Discontinued Operations* for additional information
        regarding the discontinued operations of our PSSI and GBPO
        segments.
  The
        Corporate &
Eliminations column of the following table includes corporate overhead and
        other
        costs that could not be directly assigned either to our EPP operations or
        to our
        discontinued operations, as well as eliminations for transactions between
        our
        continuing and discontinued operations.  The operations reported for
        fiscal years 2006 and 2005 are consistent with those reported for the fiscal
        year ended September 30, 2007.
 54
  **Continuing
                  Operations***(in
                  thousands)*
              
              **EPP**
              
              
              **Wind-**
                **down**
              
              
              **Corporate
                  &**
                **Eliminations**
              
              
              **Total****Fiscal
                  Year Ended September 30, 2007:**Revenues
              
              $
              99,433
              
              
              $
              12,100
              
              
              $
              (385
              )
              
              $
              111,148Costs
                  and expenses:Direct
                  costs
              
              
              75,294
              
              
              
              8,597
              
              
              
              —
              
              
              
              83,891General
                  and administrative
              
              
              7,847
              
              
              
              3,663
              
              
              
              15,976
              
              
              
              27,486Selling
                  and marketing
              
              
              7,151
              
              
              
              1,092
              
              
              
              —
              
              
              
              8,243Depreciation
                  and amortization
              
              
              3,205
              
              
              
              764
              
              
              
              604
              
              
              
              4,573Write-down
                  of goodwill and intangible assets
              
              
              —
              
              
              
              9,232
              
              
              
              —
              
              
              
              9,232Total
                  costs and expenses
              
              
              93,497
              
              
              
              23,348
              
              
              
              16,580
              
              
              
              133,425(Loss)
                  income from continuing operations before
                other
                  income and income taxes
              
              
              5,936
              
              
              
              (11,248
              )
              
              
              (16,965
              )
              
              
              (22,277
              )Other
                  income:Interest
                  income
              
              
              2,507
              
              
              
              —
              
              
              
              793
              
              
              
              3,300Income
                  from equity investments
              
              
              —
              
              
              
              —
              
              
              
              794
              
              
              
              794Total
                  other income
              
              
              2,507
              
              
              
              —
              
              
              
              1,587
              
              
              
              4,094(Loss)
                  income from continuing operations before taxes
              
              
              8,443
              
              
              
              (11,248
              )
              
              
              (15,378
              )
              
              
              (18,183
              )Income
                  tax provision
              
              
              76
              
              
              
              —
              
              
              
              —
              
              
              
              76(Loss)
                  income from continuing operations
              
              $
              8,367
              
              
              $
              (11,248
              )
              
              $
              (15,378
              )
              
              $
              (18,259
              )**Fiscal
                  Year Ended September 30, 2006:**Revenues
              
              $
              78,578
              
              
              $
              18,065
              
              
              $
              (151
              )
              
              $
              96,492Costs
                  and expenses:Direct
                  costs
              
              
              59,966
              
              
              
              11,704
              
              
              
              —
              
              
              
              71,670General
                  and administrative
              
              
              6,009
              
              
              
              3,535
              
              
              
              23,316
              
              
              
              32,860Selling
                  and marketing
              
              
              5,963
              
              
              
              1,046
              
              
              
              2,153
              
              
              
              9,162Depreciation
                  and amortization
              
              
              3,170
              
              
              
              1,590
              
              
              
              373
              
              
              
              5,133Total
                  costs and expenses
              
              
              75,108
              
              
              
              17,875
              
              
              
              25,842
              
              
              
              118,825(Loss)
                  income from continuing operations before
                other
                  income and income taxes
              
              
              3,470
              
              
              
              190
              
              
              
              (25,993
              )
              
              
              (22,333
              )Other
                  income:Interest
                  income
              
              
              2,136
              
              
              
              —
              
              
              
              802
              
              
              
              2,938Income
                  from equity investments
              
              
              —
              
              
              
              —
              
              
              
              519
              
              
              
              519Other
                  income
              
              
              2,136
              
              
              
              —
              
              
              
              1,321
              
              
              
              3,457(Loss)
                  income from continuing operations before taxes
              
              
              5,606
              
              
              
              190
              
              
              
              (24,672
              )
              
              
              (18,876
              )Income
                  tax provision
              
              
              45
              
              
              
              —
              
              
              
              —
              
              
              
              45(Loss)
                  income from continuing operations
              
              $
              5,561
              
              
              $
              190
              
              
              $
              (24,672
              )
              
              $
              (18,921
              )
  55
  
 **Continuing
                  Operations**(in
                thousands)
              
              
              **EPP**
              ****
              ****
              ****
              **Wind-**
                **down**
              ****
              ****
              ****
              **Corporate
                  &**
                **Eliminations**
              ****
              ****
              ****
              **Total****Fiscal
                  Year Ended September 30, 2005:**Revenues
              
              $
              56,452
              
              
              $
              27,316
              
              
              $
              (5,073
              )
              
              $
              78,695Costs
                  and expenses:Direct
                  costs
              
              
              42,199
              
              
              
              17,752
              
              
              
              —
              
              
              
              59,951General
                  and administrative
              
              
              4,591
              
              
              
              4,194
              
              
              
              15,391
              
              
              
              24,176Selling
                  and marketing
              
              
              4,921
              
              
              
              1,690
              
              
              
              2,225
              
              
              
              8,836Depreciation
                  and amortization
              
              
              3,428
              
              
              
              1,987
              
              
              
              558
              
              
              
              5,973Total
                  costs and expenses
              
              
              55,139
              
              
              
              25,623
              
              
              
              18,174
              
              
              
              98,936(Loss)
                  income from continuing operations before
                other income and income taxes
              
              
              1,313
              
              
              
              1,693
              
              
              
              (23,247
              )
              
              
              (20,241
              )Other
                  income (expense):Interest
                  income
              
              
              886
              
              
              
              —
              
              
              
              657
              
              
              
              1,543Loss
                  from equity investments
              
              
              —
              
              
              
              —
              
              
              
              (669
              )
              
              
              (669
              )Total
                  other income (expense)
              
              
              886
              
              
              
              —
              
              
              
              (12
              )
              
              
              874(Loss)
                  income from continuing operations before taxes
              
              
              2,199
              
              
              
              1,693
              
              
              
              (23,259
              )
              
              
              (19,367
              )Income
                  tax provision
              
              
              78
              
              
              
              49
              
              
              
              —
              
              
              
              127(Loss)
                  income from continuing operations
              
              $
              2,121
              
              
              $
              1,644
              
              
              $
              (23,259
              )
              
              $
              (19,494
              )
  Our
        total assets
        for each of these businesses are shown in the following table:
  **As
                    of September 30,***(in
                    thousands)*
                
                **2007**
                
                
                **2006**Continuing
                    Operations:EPP
                
                $
                96,527
                
                
                $
                85,296Wind-down
                
                
                8,676
                
                
                
                24,102Corporate
                    (1)
                
                
                24,516
                
                
                
                23,850Assets
                    for
                    continuing operations
                
                
                129,719
                
                
                
                133,248Assets-held-for-sale
                
                
                36,705
                
                
                
                36,612Total
                    assets
                
                $
                166,424
                
                
                $
                169,860(1)Represents
                    assets for our continuing businesses that are not assignable
                    to a specific
                    operation.
  See
        Note
        15—*Discontinued Operations* for a breakdown of assets that are
        classified as held-for-sale.
 56
  **NOTE
                  13—INCOME TAXES**
  The
        components of
        deferred tax liabilities and assets are as follows:
  **September 30,***(in
                  thousands)*
              
              **2007**
              
              
              **2006**Deferred
                  tax liabilities:Internally
                  developed software
              
              $
              2,088
              
              
              $
              1,650Intangibles
              
              
              1,688
              
              
              
              2,992Other
                  deferred tax liabilities
              
              
              581
              
              
              
              569Investment
                  in subsidiary
              
              
              106
              
              
              
              105Total
                  deferred tax liabilities
              
              
              4,463
              
              
              
              5,316Deferred
                  tax assets:Accrued
                  expenses
              
              
              2,842
              
              
              
              3,309Deferred
                  income
              
              
              —
              
              
              
              6Depreciation
              
              
              416
              
              
              
              526Accounts
                  receivable allowance
              
              
              719
              
              
              
              313Other
                  deferred tax assets
              
              
              847
              
              
              
              924Net
                  operating loss carryforward
              
              
              27,948
              
              
              
              27,669Foreign
                  tax credit carryforward
              
              
              566
              
              
              
              566Valuation
                  allowance
              
              
              (28,875
              )
              
              
              (27,997
              )Total
                  deferred tax assets
              
              
              4,463
              
              
              
              5,316Net
                  deferred tax assets (liabilities)
              
              $
              —
              
              
              $
              —
  At
        September 30, 2007, we had $0.6 million of excess foreign tax
        carryforwards for the purpose of offsetting future U.S. federal income
        tax.  Such foreign tax carryforwards will begin to expire in
        2010.  The benefit from the foreign tax carryforwards may be limited
        in certain circumstances.  We believe sufficient uncertainty exists
        regarding the realizability of the foreign tax carryforwards such that a
        full
        valuation allowance is required.
  At
        September 30, 2007, we had $73.1 million of federal net operating loss
        carryforwards, which expire beginning in fiscal 2018.  At September
        30, 2007, we had $62.6 million of state net operating loss carryforwards,
        which begin to expire in fiscal 2008.  Of these amounts,
        $48.6 million of federal net operating loss carryforwards and
        $29.6 million of state net operating loss carryforwards were acquired in
        the acquisition of OPC during fiscal 2002.  Our ability to utilize the
        acquired federal net operating loss carryforward is limited to $3,350,000
        per
        year pursuant to Internal Revenue Code Section 382, which imposes an annual
        limitation on the utilization of net operating loss carryforwards following
        ownership changes.
  At
        September 30,
        2007, we maintained a full valuation allowance against the net deferred tax
        assets due to the uncertainty regarding their utilization.  As of
        September 30, 2007, a total of $20.6 million of the valuation allowance
        related to deferred tax assets for which any subsequently recognized tax
        benefits would reduce goodwill and $2.8 million of the valuation allowance
        related to deferred tax assets for which any subsequently recognized tax
        benefits would increase common stock.
  Our
        fiscal 2002 tax
        return included a $22.5 million loss on disposal of Australian
        operations.  In fiscal 2003 we requested and received
        $6.5 million of federal income tax refunds associated with this
        disposal.  Although we received the refund in October 2003, we fully
        reserved the entire balance because of uncertainty about the final review
        and
        resolution of this transaction by the Internal Revenue Service.  From
        October 2003 to February 2007, we increased our reserve by $1.1 million to
        recognize the potential interest and penalties we could have incurred if
        the
        Internal Revenue Service had made an unfavorable decision.
  In
        March 2007, we
        were notified by the Internal Revenue Service that its Joint Committee on
        Taxation had completed its review and had approved the $6.5 million
        refund.  As a result, during the second quarter of fiscal 2007, we
        reversed the $6.5 million of reserve for the refund and the
        $1.1 million reserve for potential interest and penalties.  This
        $7.6 million reversal has been recorded on our Consolidated Statement of
        Operations as *Income from discontinued operations*.
 57
  Significant
        components of the provision for income taxes are as follows:
  **Continuing
                  Operations**
              
              
              **Discontinued
                  Operations****Year
                  ended September 30,**
              
              
              **Year
                  ended September 30,***(in
                  thousands)*
              
              **2007**
              
              
              **2006**
              
              
              **2005**
              
              
              **2007**
              
              
              **2006**
              
              
              **2005**Current
                  income tax provision:Federal
              
              $
              —
              
              
              $
              —
              
              
              $
              37
              
              
              $
              (7,599
              )
              
              $
              456
              
              
              $
              —State
              
              
              76
              
              
              
              45
              
              
              
              90
              
              
              
              —
              
              
              
              —
              
              
              
              —Total
                  provision for income taxes
              
              $
              76
              
              
              $
              45
              
              
              $
              127
              
              
              $
              (7,599
              )
              
              $
              456
              
              
              $
              —
  There
        were no
        deferred income tax provisions or benefits during the years ended September
        30,
        2007, 2006 or 2005.
  The
        effective tax
        rate differs from the applicable U.S. statutory federal income tax rate as
        follows:
  **Year
                  ended September 30,****2007**
              
              
              **2006**
              
              
              **2005**U.S
                  statutory federal tax rate
              
              
              34.0
              %
              
              
              34.0
              %
              
              
              34.0
              %State
                  taxes, net of federal tax benefit
              
              
              3.9
              %
              
              
              3.5
              %
              
              
              12.6
              %Tax
                  exempt interest income
              
              
              0.2
              %
              
              
              0.3
              %
              
              
              (4.6
              )%Tax
                  effect of foreign operations
              
              
              —
              
              
              
              —
              
              
              
              11.8
              %Meals
                  and entertainment
              
              
              (0.9
              )%
              
              
              (1.5
              )%
              
              
              7.5
              %Goodwill
                  and intangible asset impairment
              
              
              (27.7
              )%
              
              
              —
              
              
              
              —Valuation
                  allowance
              
              
              (7.0
              )%
              
              
              (32.1
              )%
              
              
              (59.3
              )%Stock-based
                  compensation
              
              
              (3.2
              )%
              
              
              (4.2
              )%
              
              
              —Other
              
              
              —
              
              
              
              (5.6
              )%
              
              
              8.1
              %Effective
                  tax
                  rate
              
              
              (0.7
              )%
              
              
              (5.6
              )%
              
              
              10.1
              %
  **NOTE
                  14—RESTRUCTURING**
  During
        2004, we
        incurred facility closure and severance costs associated with the relocation
        of
        our administrative functions from Walnut Creek, California to Reston,
        Virginia.  During the fourth quarter of fiscal year 2005, we also
        moved our Financial Institution Data Match Program offices from New Jersey
        to
        Michigan. The severance and office closure costs associated with both of
        these
        relocations are shown in *General and administrative* in our
        Consolidated Statements of Operations.
  The
        following table
        summarizes restructuring charges we incurred during fiscal years 2007, 2006
        and
        2005:
  **Year
                    ended September 30,***(in
                    thousands)*
                
                **2007**
                
                
                **2006**
                
                
                **2005**Office
                    closure
                    costs (net of sublease income)
                
                $
                —
                
                
                $
                32
                
                
                $
                15Severance
                    costs
                
                
                —
                
                
                
                3
                
                
                
                31Total
                    restructuring charges
                
                $
                —
                
                
                $
                35
                
                
                $
                46
  The
        following table
        summarizes restructuring liabilities associated with continuing operations
        for
        fiscal years 2007 through 2005:
  *(in
                  thousands)*
              
              **Severance**
              
              
              **Facilities
                  closures**
              
              
              **Total****Balance
                  at September 30, 2005**
              
              $
              330
              
              
              $
              610
              
              
              $
              940Additions
              
              
              —
              
              
              
              —
              
              
              
              —Cash
                  payments
              
              
              (330
              )
              
              
              (209
              )
              
              
              (539
              )**Balance
                  at September 30, 2006**
              
              $
              —
              
              
              $
              401
              
              
              $
              401Additions
              
              
              —
              
              
              
              —
              
              
              
              —Cash
                  payments
              
              
              —
              
              
              
              (221
              )
              
              
              (221
              )**Balance
                  at September 30, 2007**
              
              $
              —
              
              
              $
              180
              
              
              $
              180
 As
        shown in the preceding table, we had $0.2 million of
        restructuring liabilities associated with our continuing operations at
        September 30, 2007 and $0.4 million at September 30,
        2006.  At September 30, 2007, the entire liability was included
        in *Other current liabilities* in the Consolidated Balance
        Sheet.  At September 30, 2006,
  58
 $0.2 million
        was included in *Other current liabilities* and $0.2 million was
        included in *Other accrued liabilities*.  We expect to pay the
        remaining $0.2 million liability during fiscal year 2008.
  **NOTE
                  15—DISCONTINUED OPERATIONS**
  *GBPO
        and
        PSSI Asset Groups*
  Early
        in fiscal
        2007, we undertook a strategic initiative to determine how we could best
        utilize
        our financial and management resources.  As a result of that
        initiative, we concluded that maximum value to our stockholders could be
        achieved if we focused on our core business—Electronic Payment
        Processing.  As a result, in April 2007, we announced our intention to
        seek buyers for the sale of the majority of our PSSI and GBPO
        segments.  Beginning in the quarter ended June 30, 2007, we classified
        the assets and liabilities associated with these divestures as *Current
        assets—held-for-sale*and *Current liabilities—held-for-sale*in
        accordance with SFAS 144—*Accounting for the Impairment or Disposal of
        Long-Lived Assets.*
  Because
        the
        practice areas that comprise the GBPO and PSSI segments have widely divergent
        operations and customer bases, each practice area, which represents a separate
        business, is being marketed for sale separately.  In total, we expect
        to divest these practice areas through a series of at least five transactions
        to
        separate buyers.  During the quarter ended September 30, 2007, we
        removed our Voice and Systems Automation, or VSA, operation, which is a practice
        area within the GBPO segment, from the held-for-sale
        classification.  We made this decision because the VSA business
        supports a portion of our EPP segment and because we believe the returns
        for our
        stockholders would be greater if we were to continue to operate the VSA business
        for the near-term.  The decision to reclassify the VSA business to
        continuing operations does not impact the classification of the remaining
        assets
        as held-for-sale on our Consolidated Balance Sheets.
  The
        following
        schedule shows the current carrying value of the assets and liabilities in
        the
        GBPO and PSSI segments that are in the disposal group as of September 30,
        2007
        and 2006.  Consistent with our other financial statements and
        disclosures in this report, we have reclassified certain line items for
        historical periods to conform to the current year’s
        presentation:
 **September
                    30, 2007**
                
                
                **September
                    30, 2006***(in
                    thousands)*
                
                **GBPO**
                
                
                **PSSI**
                
                
                **Eliminations**
                
                
                **Total**
                
                
                **GBPO**
                
                
                **PSSI**
                
                
                **Eliminations**
                
                
                **Total****Assets:**Current
                    assets
                
                $
                4,009
                
                
                $
                6,961
                
                
                $
                39
                
                
                $
                11,009
                
                
                $
                6,290
                
                
                $
                5,104
                
                
                $
                151
                
                
                $
                11,545Property,
                    equipment and software, net
                
                
                5,606
                
                
                
                6,657
                
                
                
                (476
                )
                
                
                11,787
                
                
                
                6,409
                
                
                
                3,821
                
                
                
                (718
                )
                
                
                9,512Goodwill
                
                
                3,219
                
                
                
                8,907
                
                
                
                —
                
                
                
                12,126
                
                
                
                5,680
                
                
                
                8,907
                
                
                
                —
                
                
                
                14,587Other
                    assets
                
                
                5
                
                
                
                1,778
                
                
                
                —
                
                
                
                1,783
                
                
                
                9
                
                
                
                959
                
                
                
                —
                
                
                
                968Total
                    assets
                
                $
                12,839
                
                
                $
                24,303
                
                
                $
                (437
                )
                
                $
                36,705
                
                
                $
                18,388
                
                
                $
                18,791
                
                
                $
                (567
                )
                
                $
                36,612**Liabilities:**Current
                    liabilities
                
                $
                3,037
                
                
                $
                7,923
                
                
                $
                —
                
                
                $
                10,960
                
                
                $
                2,384
                
                
                $
                6,233
                
                
                $
                —
                
                
                $
                8,617Other
                    liabilities
                
                
                284
                
                
                
                18
                
                
                
                —
                
                
                
                302
                
                
                
                487
                
                
                
                76
                
                
                
                —
                
                
                
                563Total
                    liabilities
                
                $
                3,321
                
                
                $
                7,941
                
                
                $
                —
                
                
                $
                11,262
                
                
                $
                2,871
                
                
                $
                6,309
                
                
                $
                —
                
                
                $
                9,180Net
                    assets and liabilities of disposal group
                
                $
                9,518
                
                
                $
                16,362
                
                
                $
                (437
                )
                
                $
                25,443
                
                
                $
                15,517
                
                
                $
                12,482
                
                
                $
                (567
                )
                
                $
                27,432
  We
          performed
          impairment analyses of all of held-for-sale assets in accordance with SFAS
          144
          and SFAS 142.  As a result of this analysis, we determined that two
          businesses within the GBPO segment had a carrying value that exceeded fair
          value.  As a result, during fiscal 2007, we recorded an impairment
          expense of $2.6 million, of which $2.5 million relates to goodwill impairment
          under SFAS 142 and $0.1 million relates to long-lived asset impairment
          under
          SFAS 144 during fiscal 2007.  This impairment is included in
*Income from discontinued operations.*
  Except
        for minor
        transitional activities, we do not believe that we will have any ongoing
        involvement or cash flows in these businesses.  Thus, we classified
        the results of operations for these businesses as *Income from discontinued
        operations, net* on our Consolidated Statements of Operations in accordance
        with SFAS 144.  The following table summarizes our revenue and pre-tax
        income generated by these operations in fiscal years 2007, 2006 and
        2005.
 59
  **Year
                  ended September 30, 2007***(in
                  thousands)*
              
              **2007**
              
              
              **2006**
              
              
              **2005****Revenues
                  (Discontinued operations):**GBPO
              
              $
              34,835
              
              
              $
              39,902
              
              
              $
              40,250PSSI
              
              
              31,372
              
              
              
              32,337
              
              
              
              31,645Other/eliminations
              
              
              —
              
              
              
              —
              
              
              
              10Total
                  Revenues
              
              $
              66,207
              
              
              $
              72,239
              
              
              $
              71,905**Income
                  before taxes (Discontinued operations):**GBPO
              
              $
              6,500
              
              
              $
              5,739
              
              
              $
              10,952PSSI
              
              
              263
              
              
              
              3,541
              
              
              
              5,726Other/eliminations
              
              
              863
              
              
              
              646
              
              
              
              3,942Total
                  income before taxes
              
              $
              7,626
              
              
              $
              9,926
              
              
              $
              20,620
  *Australian
        operations*
  In
        fiscal 2002, we
        disposed of most of our Australian operations and in fiscal 2003 we requested
        and received $6.5 million of federal income tax refunds associated with
        this disposal.  Although we received the refund in October 2003, we
        fully reserved the entire balance because of uncertainty about the final
        review
        and resolution of this transaction by the Internal Revenue
        Service.  Since October 2003, we increased our reserve by
        $1.1 million to recognize the potential interest and penalties we could
        have incurred if the Internal Revenue Service made an unfavorable
        decision.
  In
        March 2007, we
        were notified by the Internal Revenue Service that its Joint Committee on
        Taxation had completed its review and had approved the $6.5 million of
        refund.  As a result, during the second quarter of fiscal 2007, we
        reversed the $6.5 million of reserve for the refund and the
        $1.1 million reserve for potential interest and penalties.  This
        $7.6 million reversal has been recorded on our Consolidated Statements of
        Operations as *Income from discontinued operations* in accordance with
        SFAS 144.
  In
        May 2007 we were
        notified by the Australian government that our operations in Australia, which
        were primarily disposed of in fiscal 2002, were able to be fully
        liquidated.  During the quarter ended June 30, 2007, we recorded
        net income of $0.5 million associated with the reversal of certain accruals
        that had been recorded in anticipation of costs, which did not actualize,
        associated with the final close-out of the Australian operations.
  **NOTE
                  16—SUBSEQUENT EVENTS**
  *Employment
        Agreements*
  On
        October 29,
        2007, we entered into two-year employment agreements with Michael A. Lawler,
        Senior Vice President, Electronic Payment Processing, and Steven M. Beckerman,
        Senior Vice President, Government Business Process Outsourcing.  Under
        the terms of their individual agreements, Mr. Lawler is entitled to a base
        salary of $237,000 per annum and Mr. Beckerman is entitled to a base salary
        of
        $220,000 per annum.  The employment agreements entitle each executive
        to participate in any Company incentive plans, programs and/or arrangements
        applicable to senior-level executives, assuming satisfaction of applicable
        performance goals.  In addition, each executive is entitled to
        participate in any equity-based plans and any executive fringe benefit plans,
        programs or arrangements applicable to senior-level executives.  In
        the event that an executive's employment is terminated as a result of death,
        certain instances of disability, resignation for prescribed events of "Good
        Reason," or without cause he will be entitled to, among other things one
        year's
        base salary, plus twelve months of COBRA health continuation
        benefits.  If an executive were terminated by the company within one
        year after a change in control or if the executive resigned for prescribed
        events of "Good Reason" within one year after a change in control, the executive
        would be entitled to receive two times his base salary, and a bonus equal
        to two
        times the average annual bonus paid to him during the past three years, plus
        eighteen months of COBRA health continuation benefits.  In the event
        of a defined change of control and loss of employment, all options granted
        on
        August 24, 2006 would vest immediately and all other options that would
        have vested within eighteen months of the date of termination would immediately
        vest.
 60
  *Stock
        Option
        Grants*
  On
        October 1,
        2007 and October 29, 2007, we awarded options to purchase 775,000 and
        60,000, respectively, shares of common stock to several key corporate employees
        and key employees in our EPP segment, none of which are executive
        officers.  These options were awarded to individuals as an incentive
        to promote stability in our ongoing operations.
  *Purported
        Class Action Lawsuit*
  On
        December 5,
        2007, the United States District Court for the Eastern District of Virginia
        granted our motion to dismiss plaintiff's complaint but permitted plaintiff
        an
        opportunity to file an amended complaint.  Plaintiff's amended
        complaint must be filed by December 28, 2007.
  *Acceleration
        of Director Grants*
  On
        August 24, 2006, each of our independent directors was issued a stock
        option under the Company’s 2004 Amended and Restated 2004 Stock Incentive Plan
        to purchase 40,000 shares of our common stock at an exercise price of $5.95
        per
        share.  When initially granted, the options vested at the rate of 20% on
        each anniversary of the grant date that each recipient remained on the Board
        of
        Directors and vested 100% upon a change in control.  On December 10,
        2007, the Compensation Committee of the Board of Directors passed a resolution
        that accelerated the vesting of these options in full as of December 7,
        2007.
  *Executive
        Officer Change of Employment Status*
  On
        December 12, 2007, we agreed with Deanne M. Tully that she would cease to
        serve as Vice President, General Counsel and Corporate Secretary of Tier,
        effective March 31, 2008.  We have entered into a Transition
        Agreement, or the Agreement, with Ms. Tully dated December 12, 2007, which
        provides that, if she does not resign and is not terminated for cause prior
        to
        March 31, 2008, and if she satisfies the conditions of the Executive
        Severance and Change in Control Benefits Agreement, or the Severance Agreement,
        dated July 30, 2003 between Ms. Tully and Tier, Ms. Tully will receive 12
        months’ base salary, COBRA premiums for the shorter of 12 months or the period
        during which she is eligible for COBRA, pursuant to the terms of the Severance
        Agreement, and up to $7,500 for expenses related to outplacement incurred
        in
        2008.  The Agreement also provides that Ms. Tully will serve as a
        consultant to Tier, to ensure a smooth transition, for six months following
        March 31, 2008, for a monthly retainer of $18,333.33.
   On
        February 12, 2007, we entered into a Separation Agreement and Release, or
        the Separation Agreement, with Todd F. Vucovich, Senior Vice President, Packaged
        Software and Systems Integration, in which Mr. Vucovich resigned his position
        effective November 30, 2007.  Under the terms of the Separation
        Agreement, Mr. Vucovich is entitled to a lump sum severance payment equal
        to 6
        months' salary, 12 months' COBRA premiums, $75,000 for relocation
        reimbursement, and up to $7,500 for expenses related to outplacement
        incurred.  On November 15, 2007, we entered into Amendment No. 1
        to the Separation Agreement and Release, which revised the separation date
        to
        December 31, 2007 and provided Mr. Vucovich, in addition to the sums
        described above, an additional $10,000.
 61
   **SELECTED
                  QUARTERLY FINANCIAL DATA
                  (UNAUDITED)**
  The
        following
        tables set forth certain unaudited consolidated quarterly statements of
        operations data for each of the eight fiscal quarters ended September 30,
        2007.  In our opinion, this information has been prepared on the same
        basis as the audited Consolidated Financial Statements contained
        herein.  This information should be read in conjunction with our
        Consolidated Financial Statements and the notes thereto appearing elsewhere
        in
        this report.  Our operating results for any one quarter are not
        necessarily indicative of results for any future period.
  **2007
                  fiscal quarters**
              
              
              **2006
                  fiscal quarters***(In
                  thousands, except per share data*)
              
              **Fourth**
              
              
              **Third**
              
              
              **Second**
              
              
              **First**
              
              
              **Fourth**
              
              
              **Third**
              
              
              **Second**
              
              
              **First****Consolidated
                  statement of operations data:**Revenues
              
              $
              20,871
              
              
              $
              40,358
              
              
              $
              23,783
              
              
              $
              26,136
              
              
              $
              18,630
              
              
              $
              37,760
              
              
              $
              19,102
              
              
              $
              21,000Costs
                  and expenses:Direct
                  costs
              
              
              15,270
              
              
              
              31,795
              
              
              
              17,727
              
              
              
              19,099
              
              
              
              13,593
              
              
              
              29,466
              
              
              
              14,368
              
              
              
              14,243General
                  and administrative
              
              
              5,759
              
              
              
              6,821
              
              
              
              9,165
              
              
              
              5,741
              
              
              
              9,026
              
              
              
              10,600
              
              
              
              7,585
              
              
              
              5,649Selling
                  and marketing
              
              
              1,756
              
              
              
              2,821
              
              
              
              2,075
              
              
              
              1,591
              
              
              
              1,971
              
              
              
              2,929
              
              
              
              2,193
              
              
              
              2,069Depreciation
                  and amortization
              
              
              895
              
              
              
              971
              
              
              
              1,355
              
              
              
              1,352
              
              
              
              1,204
              
              
              
              1,298
              
              
              
              1,318
              
              
              
              1,313Impairment
                  of goodwill & held-for-sale assets
              
              
              647
              
              
              
              8,585
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Loss
                  from continuing operations
              
              
              (3,456
              )
              
              
              (10,635
              )
              
              
              (6,539
              )
              
              
              (1,647
              )
              
              
              (7,164
              )
              
              
              (6,533
              )
              
              
              (6,362
              )
              
              
              (2,274
              )Total
                  other income
              
              
              996
              
              
              
              628
              
              
              
              784
              
              
              
              1,686
              
              
              
              771
              
              
              
              893
              
              
              
              1,146
              
              
              
              647(Loss)
                  income from continuing operations before income taxes
              
              
              (2,460
              )
              
              
              (10,007
              )
              
              
              (5,755
              )
              
              
              39
              
              
              
              (6,393
              )
              
              
              (5,640
              )
              
              
              (5,216
              )
              
              
              (1,627
              )Income
                  tax provision (benefit)
              
              
              16
              
              
              
              (7
              )
              
              
              7
              
              
              
              60
              
              
              
              45
              
              
              
              —
              
              
              
              —
              
              
              
              —Loss
                  from continuing operations
              
              
              (2,476
              )
              
              
              (10,000
              )
              
              
              (5,762
              )
              
              
              (21
              )
              
              
              (6,438
              )
              
              
              (5,640
              )
              
              
              (5,216
              )
              
              
              (1,627
              )(Loss)
                  income from discontinued operations, net
              
              
              (791
              )
              
              
              4,281
              
              
              
              9,500
              
              
              
              2,235
              
              
              
              1,766
              
              
              
              4,053
              
              
              
              215
              
              
              
              3,436Net
                  (loss) income
              
              $
              (3,267
              )
              
              $
              (5,719
              )
              
              $
              3,738
              
              
              $
              2,214
              
              
              $
              (4,672
              )
              
              $
              (1,587
              )
              
              $
              (5,001
              )
              
              $
              1,809**Average
                  shares issued and outstanding:**Basic
              
              
              19,512
              
              
              
              19,511
              
              
              
              19,501
              
              
              
              19,499
              
              
              
              19,495
              
              
              
              19,499
              
              
              
              19,493
              
              
              
              19,490Diluted
              
              
              19,512
              
              
              
              19,511
              
              
              
              19,617
              
              
              
              19,591
              
              
              
              19,495
              
              
              
              19,499
              
              
              
              19,493
              
              
              
              19,627**Performance
                  ratios:**Return
                  on average assets
              
              
              (1.94
              )%
              
              
              (3.34
              )%
              
              
              2.16
              %
              
              
              1.29
              %
              
              
              (2.72
              )%
              
              
              (0.91
              )%
              
              
              (2.82
              )%
              
              
              1.01
              %Return
                  on average shareholders' equity
              
              
              (2.35
              )%
              
              
              (4.00
              )%
              
              
              2.65
              %
              
              
              1.63
              %
              
              
              (3.43
              )%
              
              
              (1.14
              )%
              
              
              (3.53
              )%
              
              
              1.27
              %Total
                  ending equity to total ending assets
              
              
              82.63
              %
              
              
              82.59
              %
              
              
              84.35
              %
              
              
              79.06
              %
              
              
              79.01
              %
              
              
              79.45
              %
              
              
              79.64
              %
              
              
              79.71
              %Total
                  average equity to total average
                assets
              
              
              82.61
              %
              
              
              83.47
              %
              
              
              81.70
              %
              
              
              79.04
              %
              
              
              79.23
              %
              
              
              79.55
              %
              
              
              79.68
              %
              
              
              79.89
              %**Per
                  share of common stock data:**(Loss)
                  earnings per share—Basic:Continuing
                  operations(1)
              
              $
              (0.13
              )
              
              $
              (0.51
              )
              
              $
              (0.29
              )
              
              $
              —
              
              
              $
              (0.33
              )
              
              $
              (0.29
              )
              
              $
              (0.27
              )
              
              $
              (0.08
              )Discontinued
                  operations(1)
              
              $
              (0.04
              )
              
              $
              0.22
              
              
              $
              0.48
              
              
              $
              0.11
              
              
              $
              0.09
              
              
              $
              0.21
              
              
              $
              0.01
              
              
              $
              0.17(Loss)
                  earnings per share—Basic
              
              $
              (0.17
              )
              
              $
              (0.29
              )
              
              $
              0.19
              
              
              $
              0.11
              
              
              $
              (0.24
              )
              
              $
              (0.08
              )
              
              $
              (0.26
              )
              
              $
              0.09(Loss)
                  earnings per share—Diluted:Continuing
                  operations(1)
              
              $
              (0.13
              )
              
              $
              (0.51
              )
              
              $
              (0.29
              )
              
              $
              —
              
              
              $
              (0.33
              )
              
              $
              (0.29
              )
              
              $
              (0.27
              )
              
              $
              (0.08
              )Discontinued
                  operations(1)
              
              $
              (0.04
              )
              
              $
              0.22
              
              
              $
              0.48
              
              
              $
              0.11
              
              
              $
              0.09
              
              
              $
              0.21
              
              
              $
              0.01
              
              
              $
              0.17(Loss)
                  earnings per share—Diluted
              
              $
              (0.17
              )
              
              $
              (0.29
              )
              
              $
              0.19
              
              
              $
              0.11
              
              
              $
              (0.24
              )
              
              $
              (0.08
              )
              
              $
              (0.26
              )
              
              $
              0.09**Book
                  value**
              
              $
              7.05
              
              
              $
              7.19
              
              
              $
              7.42
              
              
              $
              6.98
              
              
              $
              6.88
              
              
              $
              7.08
              
              
              $
              7.14
              
              
              $
              7.33**Average
                  balance sheet data:**Total
                  assets
              
              $
              165,158
              
              
              $
              171,249
              
              
              $
              172,808
              
              
              $
              171,435
              
              
              $
              171,815
              
              
              $
              174,269
              
              
              $
              177,573
              
              
              $
              178,560Total
                  liabilities
              
              $
              29,248
              
              
              $
              28,299
              
              
              $
              31,620
              
              
              $
              35,938
              
              
              $
              35,684
              
              
              $
              35,646
              
              
              $
              36,089
              
              
              $
              35,903Total
                  shareholders' equity
              
              $
              138,910
              
              
              $
              142,950
              
              
              $
              141,188
              
              
              $
              135,497
              
              
              $
              136,131
              
              
              $
              138,623
              
              
              $
              141,484
              
              
              $
              142,657**Market
                  price per share of common stock:**High
              
              $
              10.26
              
              
              $
              10.05
              
              
              $
              8.90
              
              
              $
              7.30
              
              
              $
              7.05
              
              
              $
              8.70
              
              
              $
              8.08
              
              
              $
              8.50Low
              
              $
              8.33
              
              
              $
              8.25
              
              
              $
              5.85
              
              
              $
              6.35
              
              
              $
              5.25
              
              
              $
              5.67
              
              
              $
              7.34
              
              
              $
              6.93*(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.*
 
  62
    **SCHEDULE
        II**
 **Valuation
        and Qualifying Accounts**
  *(in
                  thousands)*
              
              **Balance
                  at beginning of period**
              
              
              **Additions/
                  (reductions)**
              
              
              **Write-offs**
              
              
              **Balance
                  at**
                **end
                  of period****Year
                  ended September 30, 2007:**Allowance
                  for receivables
              
              $
              935
              
              
              $
              444
              
              
              $
              (183
              )
              
              $
              1,196Deferred
                  tax asset valuation allowance
              
              
              27,997
              
              
              
              878
              
              
              
              —
              
              
              
              28,875Inventory
                  allowance
              
              
              75
              
              
              
              —
              
              
              
              —
              
              
              
              75**Year
                  ended September 30, 2006:**Allowance
                  for receivables
              
              
              400
              
              
              
              557
              
              
              
              (22
              )
              
              
              935Deferred
                  tax asset valuation allowance
              
              
              25,754
              
              
              
              2,243
              
              
              
              —
              
              
              
              27,997Inventory
                  allowance
              
              
              75
              
              
              
              —
              
              
              
              —
              
              
              
              75**Year
                  ended September 30, 2005:**Allowance
                  for receivables
              
              
              493
              
              
              
              (42
              )
              
              
              (51
              )
              
              
              400Deferred
                  tax asset valuation allowance
              
              
              22,699
              
              
              
              3,055
              
              
              
              —
              
              
              
              25,754Inventory
                  allowance
              
              
              75
              
              
              
              —
              
              
              
              —
              
              
              
              75
  63
   **ITEM
        9—CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE**
   None.
   **ITEM
        9A—CONTROLS AND PROCEDURES**
   *EVALUATION
        OF DISCLOSURE CONTROLS AND
        PROCEDURES*
  Our
        management,
        with the participation of our Chief Executive Officer and Chief Financial
        Officer, evaluated the effectiveness of our disclosure controls and procedures
        (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
        September 30, 2007.  The term “disclosure controls and procedures”
means controls and other procedures that are designed to ensure that information
        required to be disclosed by a company in the reports that it files or submits
        under the Exchange Act is recorded, processed, summarized and reported, within
        the time periods specified in the SEC’s rules and forms.  Disclosure
        controls and procedures include, without limitation, controls and procedures
        designed to ensure that such information is accumulated and communicated
        to the
        company’s management, including its principal executive and principal financial
        officers, as appropriate, to allow timely decisions regarding required
        disclosure.  Management recognizes that any controls and procedures,
        no matter how well designed and operated, can provide only reasonable assurance
        of achieving their objectives and management necessarily applies its judgment
        in
        evaluating the cost-benefit relationship of possible controls and
        procedures.  Based on the evaluation of our disclosure controls and
        procedures as of September 30, 2007, our Chief Executive Officer and our
        Chief
        Financial Officer concluded that as of that date, our disclosure controls
        and
        procedures were effective at the reasonable assurance level.
  *MANAGEMENT’S
        REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING*
  Our
        management is
        responsible for establishing and maintaining adequate internal control over
        financial reporting for the company.  Internal control over financial
        reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the
        Securities Exchange Act of 1934 as a process designed by, or under the
        supervision of, the company’s principal executive and principal financial
        officers and effected by the company’s board of directors, management and other
        personnel, to provide reasonable assurance regarding the reliability of
        financial reporting and the preparation of financial statements for external
        purposes in accordance with generally accepted accounting principles and
        includes those policies and procedures that:
  ·
              pertain
                  to
                  the maintenance of records that in reasonable detail accurately
                  and fairly
                  reflect the transactions and dispositions of the assets of the
                  company;
  ·
              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; and
  ·
              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.
  Because
        of its
        inherent limitations, internal control over financial reporting may not prevent
        or detect misstatements. Projections of any evaluation of effectiveness to
        future periods are subject to the risk that controls may become inadequate
        because of changes in conditions, or that the degree of compliance with the
        policies or procedures may deteriorate.
  Our
          management
          assessed the effectiveness of our internal control over financial reporting
          as
          of September 30, 2007. In making this assessment, our management used the
          criteria set forth by the *Committee of Sponsoring Organizations of the
          Treadway Commission (COSO) in Internal Control—Integrated
          Framework*.
  Based
        on our
        assessment, management concluded that, as of September 30, 2007, our
        internal control over financial reporting is effective based on those
        criteria.
 Our
        independent
        auditors have issued an audit report on our internal control over financial
        reporting.  This report appears on page 65.
 64
  ***ATTESTATION
        REPORT OF THE INDEPENDENT REGISTERED PUBLIC
        ACCOUNTING FIRM***
 
 To
        the
        Board of Directors and Shareholders
 Tier
        Technologies, Inc.
 Reston
        Virginia
 
 We
        have
        audited management's assessment, included in the accompanying Management’s
        Report on Internal Control over Financial Reporting, that Tier Technologies,
        Inc. and subsidiaries maintained effective internal control over financial
        reporting as of September 30, 2007, based on criteria established in
*Internal Control—Integrated Framework issued by the Committee of Sponsoring
        Organizations of the Treadway Commission (COSO).*  Tier
        Technologies, Inc. and subsidiaries management is responsible for maintaining
        effective internal control over financial reporting and for its assessment
        of
        the effectiveness of internal control over financial reporting.  Our
        responsibility is to express an opinion on management's assessment and an
        opinion on the effectiveness of the company's internal control over financial
        reporting based on our audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States).  Those standards require
        that we plan and perform the audit to obtain reasonable assurance about whether
        effective internal control over financial reporting was maintained in all
        material respects. Our audit included obtaining an understanding of internal
        control over financial reporting, evaluating management's assessment, testing
        and evaluating the design and operating effectiveness of internal control,
        and
        performing such other procedures as we considered necessary in the
        circumstances.  We believe that our audit provides a reasonable basis
        for our opinion.
 
 A
        company's internal control over financial reporting is a process designed
        to
        provide reasonable assurance regarding the reliability of financial reporting
        and the preparation of financial statements for external purposes in accordance
        with generally accepted accounting principles.  A company's internal
        control over financial reporting includes those policies and procedures that
        (1)
        pertain to the maintenance of records that, in reasonable detail, accurately
        and
        fairly reflect the transactions and dispositions of the assets of the company;
        (2) 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; and (3) 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.
 
 Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements.  Also, projections of any evaluation
        of effectiveness to future periods are subject to the risk that controls
        may
        become inadequate because of changes in conditions, or that the degree of
        compliance with the policies or procedures may deteriorate.
 
 In
        our
        opinion, management's assessment that Tier Technologies, Inc. maintained
        effective internal control over financial reporting as of September 30, 2007,
        is
        fairly stated, in all material respects, based on criteria established in
        *Internal Control—Integrated Framework issued by the Committee of Sponsoring
        Organizations of the Treadway Commission (COSO).* Also in our opinion, Tier
        Technologies, Inc. maintained, in all material respects, effective internal
        control over financial reporting as of September 30, 2007, based on criteria
        established in *Internal Control—Integrated Framework issued by the Committee
        of Sponsoring Organizations of the Treadway Commission (COSO).*
 
 We
        have
        also audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the consolidated balance sheet as of September
        30, 2007 and the related consolidated statements of operations, shareholders’
equity, comprehensive income (loss) and cash flows for the year then ended
        of
        Tier Technologies, Inc. and our report dated December 13, 2007 expressed
        an
        unqualified opinion.
 
 
 /s/
        McGladrey & Pullen, LLP
 Vienna,
        Virginia
 December
        13, 2007
 
  65
  *CHANGES
        IN
        INTERNAL CONTROL OVER FINANCIAL REPORTING*
  There
        have been no
        changes in our internal control over financial reporting during the quarter
        ended September 30, 2007 that have materially affected, or are reasonably
        likely to materially affect, our internal control over financial
        reporting.
   **ITEM
        9B—OTHER INFORMATION**
  On
        December 12, 2007, we agreed with Deanne M. Tully that she would cease to
        serve as Vice President, General Counsel and Corporate Secretary of Tier,
        effective March 31, 2008.  We have entered into a Transition
        Agreement, or the Agreement, with Ms. Tully dated December 12, 2007, which
        provides that, if she does not resign and is not terminated for cause prior
        to
        March 31, 2008, and if she satisfies the conditions of the Executive
        Severance and Change in Control Benefits Agreement, or the Severance Agreement,
        dated July 30, 2003 between Ms. Tully and Tier, Ms. Tully will receive 12
        months’ base salary, COBRA premiums for the shorter of 12 months or the period
        during which she is eligible for COBRA, pursuant to the terms of the Severance
        Agreement, and up to $7,500 for expenses related to outplacement incurred
        in
        2008.  The Agreement also provides that Ms. Tully will serve as a
        consultant to Tier, to ensure a smooth transition, for six months following
        March 31, 2008, for a monthly retainer of $18,333.33.
  On
        February 12, 2007, we entered into a Separation Agreement and Release, or
        the Separation Agreement, with Todd F. Vucovich, in which Mr. Vucovich would
        cease to serve as Senior Vice President, Packaged Software and Systems
        Integration, effective November 30, 2007.  Under the terms of the
        Separation Agreement, Mr. Vucovich is entitled to a lump sum severance payment
        equal to 6 months' salary, 12 months' COBRA premiums, $75,000 for
        relocation reimbursement, and up to $7,500 for expenses related to outplacement
        incurred.  On November 15, 2007, we entered into Amendment No. 1
        to the Separation Agreement and Release, which revised the separation date
        to
        December 31, 2007, and provided Mr. Vucovich, in addition to the sums
        described above, an additional $10,000.
   **PART
        III**
   **ITEM
        10—DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**
  A
        list of our
        executive officers and their biographical information appears in Part I,
        Item 1 of this report.  Information about our Directors may be
        found under the caption *Election of Directors*of our Proxy Statement
        for the Annual Meeting of Stockholders to be held timely, or the Proxy
        Statement.  That information is incorporated herein by
        reference.
  The
        information in
        the Proxy Statement set forth under the captions*Audit Committee Financial
        Expert, Audit Committee*and*Section 16(a) Beneficial Ownership
        Reporting Compliance*is incorporated herein by
        reference*.*
  We
        have adopted the
        Tier Technology *Code of Ethics*, a code of ethics that applies to our
        Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer,
        Corporate Controller and other finance organization employees. The code of
        ethics is available publicly on our website at www.Tier.com. If we make any
        amendments to the *Code of Ethics* or grant any waiver, including any
        implicit waiver, from a provision of the code to our Chief Executive Officer,
        Chief Financial Officer, Chief Accounting Officer, or the Corporate Controller,
        we will disclose the nature of such amendment or waiver on our website or
        in a
        report on Form 8-K.
   **ITEM
        11—EXECUTIVE COMPENSATION**
   The
        information in
        the Proxy Statement set forth under the captions *Compensation and Analysis,
        Executive Compensation, Director Compensation, Compensation Committee Interlocks
        and Insider Participation*and*Compensation Committee Report*is
        incorporated herein by reference.
 66
   **ITEM
        12—SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
        STOCKHOLDER MATTERS**
   The
        information in
        the Proxy Statement set forth under the captions *Stock Ownership*and*Equity Compensation Plan Information*is
        incorporated herein by reference.
   **ITEM
        13—CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS** **AND
        DIRECTOR INDEPENDENCE**
  The
        information set
        forth under the captions *Certain Relationships and Related Transactions*and*Director Independence* of the Proxy Statement is incorporated
        herein by reference.
   **ITEM
        14—PRINCIPAL ACCOUNTING FEES AND SERVICES**
   Information
        concerning principal accountant fees and services appears in the Proxy Statement
        under the heading *Principal Accounting Fees and Services*and is
        incorporated herein by reference.
   67
   **PART
        IV**
   **ITEM
        15—EXHIBITS, FINANCIAL STATEMENT SCHEDULES**
  (a)         The
        following documents are filed as part of the report:
  ·
              Financial
                  Statements – The financial statements are set forth under Item 8 of this
                  Annual Report on Form 10-K.  See *Financial Statements and
                  Supplementary Data* on page 32.
  ·
              Financial
                  Statement Schedules – *Schedule II—Valuation and Qualifying
                  Accounts* is set forth under Item 8 of this Annual Report on Form
                  10-K on page 63.  All other schedules have been omitted because
                  they were either not required or not applicable or because the
                  information
                  is otherwise included.
  ·
              Exhibits
  **Exhibit**
                **number**
              **Exhibit
                  description**3.1
              Restated
                  Certificate of Incorporation (1)3.2
              Amended
                  and Restated Bylaws of Tier Technologies, Inc., as amended (2)3.3
              Certificate
                  of Designations of Series A Junior Participating Preferred Stock
(3)4.1
              Form
                  of common stock certificate (1)4.2
              See
                  Exhibits 3.1, 3.2 and 3.3, for provisions of the Restated Certificate
                  of
                  Incorporation and Amended and Restated Bylaws, as amended 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
                  (3)4.4
              Form
                  of Rights Certificate (3)4.5
              First
                  Amendment to Rights Agreement, dated July 12, 2007, by and between
                  Tier
                  Technologies, Inc. and American Stock Transfer & Trust Company, as
                  Rights Agent (4)10.1
              Amended
                  and Restated 1996 Equity Incentive Plan, dated January 28, 1999 (5)*10.2
              Form
                  of Incentive Stock Option Agreement under the Registrant’s Amended and
                  Restated 1996 Equity Incentive Plan (6)*10.3
              Form
                  of Nonstatutory Stock Option Agreement under the Registrant’s Amended and
                  Restated 1996 Equity Incentive Plan (6)*10.4
              Amended
                  and Restated 2004 Stock Incentive Plan (7)*10.5
              Form
                  of Incentive Stock Option Agreement under the Registrant’s Amended and
                  Restated 2004 Stock Incentive Plan (7)*10.6
              Form
                  of Nonstatutory Stock Option Agreement under the Registrant’s Amended and
                  Restated 2004 Stock Incentive Plan (7)*10.7
              Form
                  of Restricted Stock Agreement under the Registrant’s Amended and Restated
                  2004 Stock Incentive Plan (7)*10.8
              Form
                  of California Indemnification Agreement (8)10.9
              Form
                  of Delaware Indemnification Agreement for officers *10.10
              Form
                  of Delaware Indemnification Agreement for directors *10.11
              Tier
                  Corporation 401(k) Plan, Summary Plan Description (8)*10.12
              Incentive
                  Compensation Plan, as amended (9)*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)
  68
   
 Exhibit
                number
              Exhibit
                  description10.16
              Full
                  Recourse Promissory Note by and between the Registrant and James
                  L.
                  Bildner, dated as of July 15, 1997 (8)10.17
              Amended
                  and Restated Full Recourse Secured Promissory Note, dated as of
                  April 1,
                  1998, by and between the Registrant and James L. Bildner (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 (6)*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 (7)10.37
              Letter
                  Agreement, dated June 28, 2005, by and between Registrant and City
                  National Bank (7)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 (21)*10.40
              Summary
                  of Board Compensation (19)*
 
 69
 **Exhibit**
                **number**
              **Exhibit
                  Description**10.41
              Offer
                  Letter by and between Registrant and David Fountain, dated May
                  2, 2005
                  (21)*10.42
              Executive
                  Incentive Metrics for Chief Executive Officer and Chief Financial
                  Officer
                  for fiscal year ended September 30, 2005 (21)*10.43
              Senior
                  Vice President – Human Resources Compensation Summary (21)*10.44
              Separation
                  Agreement and Release between Registrant and Jeffrey McCandless,
                  dated
                  March 9, 2005 (22)*10.45
              Employment
                  Agreement dated July 2, 2003 by and between Tier and Mr. Jeffrey
                  A.
                  McCandless (23)*10.46
              Employment
                  Agreement dated July 1, 2004 between Tier and Ms. Deanne M. Tully
(39)*10.47
              Executive
                  Severance and Change in Control Benefits Agreement (39)*10.48
              Third
                  Amendment to Credit and Security Agreement with City National Bank,
                  dated
                  June 28, 2005 (24)10.49
              Shareholder
                  Rights Plan and Rights Agreement, dated January 10, 2006 (25)10.50
              Assumption
                  Agreement between Tier Technologies, Inc., Official Payments Corporation
                  and EPOS Corporation, dated January 6, 2006 (26)10.51
              Security
                  Agreement as of January 6, 2006 by and between the Registrant,
                  Official
                  Payments Corporation, EPOS Corporation and City National Bank (26)10.52
              Board
                  approval of two one-time bonuses to David E. Fountain, dated February
                  21,
                  2006 (27)*10.53
              Amended
                  and Restated Credit and Security Agreement between the Registrant,
                  Official Payments Corporation, EPOS Corporation and City National
                  Bank
                  (28)10.54
              Form
                  of Employment Security Agreements between Tier Technologies, Inc.,
                  and
                  each of Steven Beckerman, Todd Vucovich, and Michael Lawler, dated
                  March
                  28, 2006(29)*10.55
              Management
                  Incentive Plan for Steven Beckerman, Todd Vucovich, Steven Wade,
                  Michael
                  Lawler and Deanne Tully, dated March 28, 2006 (29)*10.56
              Separation
                  Agreement between Tier Technologies, Inc., and James R. Weaver,
                  dated May
                  31, 2006 (30)*10.57
              Employment
                  Agreement between Tier Technologies, Inc., and Ronald L. Rossetti,
                  dated
                  July 26, 2006 (31)*10.58
              Non-Statutory
                  Stock Option Agreement between Tier and Ronald L. Rossetti, dated
                  July 26,
                  2006 (31)*10.59
              Discretionary
                  Incentive Compensation Plan, dated August 22, 2006 (32)*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 (33)*10.61
              Employment
                  Agreement between Tier Technologies, Inc. and David E. Fountain,
                  dated
                  December 11, 2006 (34)*10.62
              First
                  Amendment to Amended and Restated Credit and Security Agreement
                  dated
                  March 20, 2007 between the Registrant, Official Payments Corporation,
                  EPOS
                  Corporation and City National Bank (35)10.63
              Second
                  Amendment to Amended and Restated Credit and Security Agreement
                  dated
                  September 26, 2007 between the Registrant, Official Payments Corporation,
                  EPOS Corporation and City National Bank (36)10.64
              Share
                  Repurchase Agreement between CPAS Systems, Inc., Tier Ventures
                  Corporation
                  and Tier Technologies, Inc. dated June 29, 2007 (37)10.65
              Employment
                  Agreement between Tier Technologies, Inc., and Kevin Connell, dated
                  August
                  9, 2007 (38)*10.66
              Transition
                  Agreement between Tier Technologies, Inc., and Deanne M. Tully
                  dated
                  December 12, 2007 *10.67
              Separation
                  Agreement and Release between Tier Technologies, Inc., and Todd
                  F.
                  Vucovich, dated February 12, 2007 *10.68
              Amendment
                  to the Separation Agreement and Release between Tier Technologies,
                  Inc.,
                  and Todd F. Vucovich, dated November 15, 2007 *21.1
              Subsidiaries
                  of the Registrant
  70
  **Exhibit**
                **number**
              **Exhibit
                  description**23.1
              Consent
                  of McGladrey & Pullen, 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*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 August 9, 2007, and incorporated herein
                  by
                  reference
                (3)Filed
                  as an
                  exhibit to Form 8-K, filed January 11, 2006, and incorporated herein
                  by
                  reference
                (4)
                  Filed as an
                  exhibit to Form 8-K, filed July 12, 2007, and incorporated herein
                  by
                  reference
                (5)Filed
                  as an
                  exhibit to Form 10-Q, filed May 11, 2001, and incorporated herein by
                  reference
                (6)Filed
                  as an
                  exhibit to Form 8-K, filed November 12, 2004, and incorporated herein
                  by reference
                (7)Filed
                  as an
                  exhibit to Form 8-K, filed July 5, 2005 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 May 6, 2005, and incorporated herein
                  by
                  reference
                (22)
                  Filed as an
                  exhibit to Form 8-K, filed March 14, 2005, and incorporated herein by
                  reference
                (23)
                  Filed as an
                  exhibit to Form 10-Q, filed May 11, 2004, and incorporated herein
                  by
                  reference
                (24)
                  Filed as an
                  exhibit to Form 8-K, filed July 5, 2005, and incorporated herein
                  by
                  reference
                (25)
                  Filed as an
                  exhibit to Form 8-K, filed January 11, 2006, and incorporated herein
                  by
                  reference
                (26)
                  Filed as an
                  exhibit to Form 8-K, filed January 11, 2006, and incorporated herein
                  by
                  reference
                (27)
                  Filed as an
                  exhibit to Form 8-K, filed February 22, 2006, and incorporated
                  herein by
                  reference
                (28)
                  Filed as an
                  exhibit to Form 8-K, filed March 9, 2006, and incorporated herein
                  by
                  reference
                (29)
                  Filed as an
                  exhibit to Form 8-K, filed April 3, 2006, and incorporated herein
                  by
                  reference
                (30)
                  Filed as an
                  exhibit to Form 8-K, filed June 1, 2006, and incorporated herein
                  by
                  reference
                (31)
                  Filed as an
                  exhibit to Form 8-K, filed August 1, 2006, and incorporated herein
                  by
                  reference
                (32)
                  Filed as an
                  exhibit to Form 8-K, filed August 25, 2006, and incorporated herein
                  by
                  reference
                (33)
                  Filed as an
                  exhibit to Form 8-K, filed August 29, 2006, and incorporated herein
                  by
                  reference
                (34)
                  Filed as an
                  exhibit to Form 10-K, filed December 13, 2006, and incorporated
                  herein by
                  reference
                (35)
                  Filed as an
                  exhibit to Form 8-K, filed March 28, 2007, and incorporated herein
                  by
                  reference
                (36)
                  Filed as an
                  exhibit to Form 8-K, filed September 27, 2007, and incorporated
                  herein by
                  reference
  71
 
 **Exhibit**
                **number**
              **Exhibit
                  Description**
 (37)
                  Filed as an exhibit to Form 8-K, filed July 3, 2007, and incorporated
                  herein by reference.
                (38)
                  Filed as an exhibit to Form 10-Q, filed August 9, 2007, and incorporated
                  herein by reference.
                (39)
                  Filed as an exhibit to Form 10-K, filed October 27, 2006, and incorporated
                  by reference.
  72
   **SIGNATURES**
   Pursuant
        to the
        requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
        the Registrant has duly caused this report to be signed on its behalf by
        the
        undersigned, thereunto duly authorized.
  
 Tier
                  Technologies, Inc.Dated:December
                  13, 2007
              By:
              /s/
                    RONALD L. ROSSETTIRonald
                  L. Rossetti
                *Chief
                  Executive
                  Officer*
  Pursuant
        to the
        requirements of the Securities Exchange Act of 1934, this report has been
        signed
        by the following persons in the capacities and on the dates
        indicated.
  **Signature**
              **Title**
              **Date**/s/
                    RONALD L. ROSSETTI
                Ronald
                  L. Rossetti
              Chief
                  Executive Officer and Chairman of the Board (principal executive
                  officer)
              December 13
                  2007/s/
                    DAVID E. FOUNTAIN
                David
                  E. Fountain
              Chief
                  Financial Officer (principal financial officer and principal accounting
                  officer)
              December
                  13, 2007/s/
                    CHARLES W. BERGER
                Charles
                  W. Berger
              Director
              December
                  13, 2007/s/
                    SAMUEL CABOT III
                Samuel
                  Cabot III
              Director
              December
                  13, 2007/s/
                    JOHN J. DELUCCA
                John
                  J. Delucca
              Director
              December
                  13, 2007/s/
                    MORGAN P. GUENTHER
                Morgan
                  P. Guenther
              Director
              December
                  13, 2007/s/
                    T. MICHAEL SCOTT
                T.
                  Michael Scott
              Director
              December 13,
                  2007/s/
                    BRUCE R. SPECTOR
                Bruce
                  R. Spector
              Director
              December
                  13, 2007/s/
                    JAMES R. STONE
                James
                  R. Stone
              Director
              December
                  13, 2007
 
  73