##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K/A
 Amendment No. 3
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended September 30, 2004
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number 000-23195
 TIER TECHNOLOGIES, INC.
  California
    
    94-3145844(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 10780 Parkridge Blvd., 4 th Floor  Reston, Virginia 20191  (571) 382-1000
 Securities registered pursuant to Section 12(b) of the Act:
 Securities registered pursuant to Section 12(g) of the Act:
 o þ
 o þ
 o þ
 o
  o þ o
   DOCUMENTS INCORPORATED BY REFERENCE




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TIER TECHNOLOGIES, INC.
 FORM 10-K/A
TABLE OF CONTENTS
 PageExplanatory note
    
    
    3PART
IItem 1.
    
    Business
    
    
    5PART
IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters, and IssuerPurchases of Equity Securities
    
    
    13Item 6.
    
    Selected Financial Data
    
    
    14Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 8.
    
    Financial Statements and Supplementary Information
    
    
    42Item 9A.
    
    Controls and Procedures
    
    
    42Item 15.
    
    Exhibits and Financial Statement Schedules
    
    
    45SIGNATURES
 Private Securities Litigation Reform Act Safe Harbor Statement




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##### 



EXPLANATORY NOTE
  RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
  
    
    correct previously reported restricted cash, payables and receivables for one of our
payment processing centers and adjust historical provisions for uncollectible accounts
receivable for several payment processing centers;
    
    adjust the timing of expense accruals, including sales commissions and subcontractor
accruals;
    
    correct the accounting for notes and interest receivable from former executives,
including: 1) adjustments to the principal and interest receivable on notes receivable
from a former Chairman of the Board and Chief Executive Officer; 2) correct the
classification of related-party notes and interest receivable from the asset section of
our Consolidated Balance Sheets to the equity section; and 3) correct the accounting
for interest accrued on related-party notes to Additional Paid-in Capital in the
shareholders equity section of our Consolidated Balance Sheet;
    
    correct an overstatement of certain accrued liabilities related to the 2002
acquisition of two companies; and
    
    exclude certain software-related maintenance revenues from the
percentage-of-completion models used to recognize revenues and to adjust the revenues
calculated by these models to reflect project-related labor and travel costs that were
previously reflected in general and administrative expenses.
  3




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##### 



Net Income Adjustment
    
    
    Diluted EPS($000)
    
    
    AdjustmentBeginning Adjustment
    
    
    
    
    
    $
    17
    
    
    
    N/AFiscal 2001
    
    
    
    
    
    
    (1,413
    )
    
    $
    (0.11
    )Fiscal 2002
    
    
    
    
    
    
    (592
    )
    
    
    (0.03
    )Fiscal 2003
    
    
    Q1
    
    
    
    (261
    )
    
    
    (0.01
    )Q2
    
    
    
    (286
    )
    
    
    (0.01
    )Q3
    
    
    
    (196
    )
    
    
    (0.01
    )Q4
    
    
    
    (157
    )
    
    
    (0.01
    )Year
    
    
    (900
    )
    
    $
    (0.04
    )Fiscal 2004
    
    
    Q1
    
    
    
    (314
    )
    
    
    (0.02
    )Q2
    
    
    
    301
    
    
    
    0.02Q3
    
    
    
    (1,061
    )
    
    
    (0.06
    )Q4
    
    
    
    (743
    )
    
    
    (0.04
    )Year
    
    
    (1,817
    )
    
    $
    (0.10
    )Total
    
    $
    (4,705
    )
          4




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##### 



PART I
 Item 1. Business
 GENERAL
    
    
    Government Business Process Outsourcing, which focuses on child support payment
processing, child support financial institution data match services, health and
human services consulting, and other related system integration services.
    
    Packaged Software and Systems Integration, which provides software and systems
implementation services through practice areas in financial management systems,
public pension administration systems, unemployment insurance administration
systems, electronic government services, systems integration services for the State
of Missouri, and interactive voice response systems.
    
    Electronic Payment Processing, which provides electronic payment processing
options including payment of taxes, fees and other obligations owed to government
entities, educational institutions and other public sector clients.
  INDUSTRY OVERVIEW
   5




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6




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##### 



BUSINESS STRATEGY
  Penetrate and expand our presence in non-discretionary markets
  Build recurring revenue streams
  Leverage proprietary applications
  Leverage expertise in the industry sectors in which we operate
  Provide end-to-end solutions
  Attract and retain high-value employees
  7




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##### 



Develop partnership relationships and complete strategic acquisitions
  SERVICES
  Year ended September 30,2004
    
    
    2003
    
    
    2002(Restated)
    
    
    (Restated)
    
    
    (Restated)($ in thousands)Transaction and payment processing
    
    $
    83,310
    
    
    
    65.2
    %
    
    $
    80,305
    
    
    
    69.5
    %
    
    $
    37,057
    
    
    
    43.9
    %Systems design and integration
    
    
    18,699
    
    
    
    14.6
    
    
    
    16,307
    
    
    
    14.1
    
    
    
    29,933
    
    
    
    35.5Maintenance and support services
    
    
    20,338
    
    
    
    15.9
    
    
    
    17,032
    
    
    
    14.7
    
    
    
    15,145
    
    
    
    17.9Products sales and other services
    
    
    5,430
    
    
    
    4.3
    
    
    
    1,933
    
    
    
    1.7
    
    
    
    2,298
    
    
    
    2.7Total
    
    $
    127,777
    
    
    
    100.0
    %
    
    $
    115,577
    
    
    
    100.0
    %
    
    $
    84,433
    
    
    
    100.0
    %
 Transaction and payment processing
 ® ® ®
  8




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##### 



Systems design and integration
  
    
    Financial Management Systems  Develops, implements and supports financial
management and purchasing systems for state and local governments using our ONLINE
FAMISTM, and Performance SeriesTM suites of proprietary products.
    
    Public Pension Administration Systems  Provides a full range of services to support
the design, development and implementation of pension applications in the state, county
and city marketplace.
    
    Unemployment Insurance Systems  Provides software application integration services
to state governments reforming unemployment insurance systems.
    
    Electronic Government Systems  Provides systems integration and strategy services
for the creation of government Web portals.
    
    State Systems Integration  Provides information technology development, integration
and maintenance support projects for the State of Missouri.
    
    EPOS Systems Integration  Provides services to support the customization,
installation and maintenance of our EPOS transaction processing and interactive voice
response FirstLine EncoreTM system.
  Maintenance and support services
    Products sales and other services
  CLIENTS
  9




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##### 



SALES AND MARKETING
   EMPLOYEES
   COMPETITION
   10




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##### 



INTELLECTUAL PROPERTY RIGHTS
   AVAILABLE INFORMATION
  EXECUTIVE OFFICERS
  Name
    
    Age
    
    PositionJames R. Weaver(1)
    
    
    47
    
    
    President, Chief Executive Officer and DirectorJeffrey A. McCandless(1)
    
    
    46
    
    
    Senior Vice President, Chief Financial Officer and TreasurerDonald R. Fairbairn(1)
    
    
    48
    
    
    Senior Vice President, Human ResourcesMichael A. Lawler
    
    
    41
    
    
    Senior Vice President, Electronic Payment ProcessingTodd F. Vucovich
    
    
    40
    
    
    Senior Vice President, Packaged Software and Systems IntegrationStephen V. Wade
    
    
    43
    
    
    Senior Vice President, Business Development
 
 (1)
    
    For additional information, see the subheading titled Recent Events in Item
7Managements Discussion and Analysis of Financial Condition and Results of Operations and Note 17-Subsequent
Events, to our Consolidated Financial Statements.   11




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##### 



12




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##### 



PART II
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
  High
    
    LowFiscal Year Ended September 30, 2003:First Quarter
    
    $
    20.46
    
    
    $
    13.98Second Quarter
    
    
    17.60
    
    
    
    9.39Third Quarter
    
    
    10.34
    
    
    
    6.10Fourth Quarter
    
    
    11.86
    
    
    
    7.05
 High
    
    LowFiscal Year Ended September 30, 2004:First Quarter
    
    $
    10.75
    
    
    $
    6.83Second Quarter
    
    
    11.69
    
    
    
    7.70Third Quarter
    
    
    12.05
    
    
    
    8.55Fourth Quarter
    
    
    10.10
    
    
    
    7.36
   Securities
  Equity Compensation Plan InformationNumber of securities to be issued
    
    
    Weighted-average exercise
    
    
    Number of securities remainingupon exercise of outstanding
    
    
    price of outstanding options, warrants
    
    
    available for future issuance underPlan category
    
    options, warrants and rights
    
    
    and rights
    
    
    equity compensation plans(1)Equity compensation plans
approved by security holders
    
    
    2,456
    
    
    
    $11.00
    
    
    
    1,117Equity compensation plans not
approved by security holders
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Includes 78,000 shares remaining available for issuance as of September 30, 2004 under the Employee Stock Purchase Plan. 13




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##### 



Item 6. Selected Financial Data
  FISCAL YEARS ENDED SEPTEMBER 30,As Previously Reported
    
    
    
    Restatement Adjustments1)
    
    
    
    As Restated(in thousand, except per share data)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Consolidated statement of operations data:Revenues
    
    $
    127,937
    
    
    $
    115,917
    
    
    $
    84,656
    
    
    $
    54,600
    
    
    $
    50,298
    
    
    
    $
    (160
    )
    
    $
    (340
    )
    
    $
    (223
    )
    
    $
    (107
    )
    
    $
    
    
    
    
    $
    127,777
    
    
    $
    115,577
    
    
    $
    84,433
    
    
    $
    54,493
    
    
    $
    50,298Cost and expenses:Direct costs
    
    
    83,637
    
    
    
    89,657
    
    
    
    52,847
    
    
    
    32,150
    
    
    
    30,019
    
    
    
    
    762
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84,399
    
    
    
    89,657
    
    
    
    52,847
    
    
    
    32,150
    
    
    
    30,019General and administrative
    
    
    27,959
    
    
    
    23,579
    
    
    
    14,360
    
    
    
    12,560
    
    
    
    13,871
    
    
    
    
    274
    
    
    
    27
    
    
    
    148
    
    
    
    1,415
    
    
    
    
    
    
    
    
    28,233
    
    
    
    23,606
    
    
    
    14,508
    
    
    
    13,975
    
    
    
    13,871Selling and marketing
    
    
    7,161
    
    
    
    5,893
    
    
    
    3,853
    
    
    
    2,889
    
    
    
    2,067
    
    
    
    
    280
    
    
    
    (312
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,441
    
    
    
    5,581
    
    
    
    3,853
    
    
    
    2,889
    
    
    
    2,067Depreciation and amortization
    
    
    4,977
    
    
    
    5,273
    
    
    
    3,761
    
    
    
    3,051
    
    
    
    2,560
    
    
    
    
    132
    
    
    
    150
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    5,109
    
    
    
    5,423
    
    
    
    3,764
    
    
    
    3,051
    
    
    
    2,560Restructuring and other charges
    
    
    3,493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    414
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,493
    
    
    
    414
    
    
    
    
    
    
    
    
    
    
    
    Total costs and expenses
    
    
    127,227
    
    
    
    124,402
    
    
    
    74,821
    
    
    
    50,650
    
    
    
    48,517
    
    
    
    
    1,448
    
    
    
    279
    
    
    
    151
    
    
    
    1,415
    
    
    
    
    
    
    
    
    128,675
    
    
    
    124,681
    
    
    
    74,972
    
    
    
    52,065
    
    
    
    48,517Income before other income (loss)
    
    
    710
    
    
    
    (8,485
    )
    
    
    9,835
    
    
    
    3,950
    
    
    
    1,781
    
    
    
    
    (1,608
    )
    
    
    (619
    )
    
    
    (374
    )
    
    
    (1,522
    )
    
    
    
    
    
    
    
    (898
    )
    
    
    (9,104
    )
    
    
    9,461
    
    
    
    2,428
    
    
    
    1,781Other income (loss):Interest income, net
    
    
    1,149
    
    
    
    1,185
    
    
    
    1,554
    
    
    
    711
    
    
    
    1,833
    
    
    
    
    (314
    )
    
    
    (281
    )
    
    
    (292
    )
    
    
    7
    
    
    
    
    
    
    
    
    835
    
    
    
    904
    
    
    
    1,262
    
    
    
    718
    
    
    
    1,833Total other income
    
    
    1,149
    
    
    
    1,185
    
    
    
    1,554
    
    
    
    711
    
    
    
    1,833
    
    
    
    
    (314
    )
    
    
    (281
    )
    
    
    (292
    )
    
    
    7
    
    
    
    
    
    
    
    
    835
    
    
    
    904
    
    
    
    1,262
    
    
    
    718
    
    
    
    1,833Income before income taxes & discontinued operations
    
    
    1,859
    
    
    
    (7,300
    )
    
    
    11,389
    
    
    
    4,661
    
    
    
    3,614
    
    
    
    
    (1,922
    )
    
    
    (900
    )
    
    
    (666
    )
    
    
    (1,515
    )
    
    
    
    
    
    
    
    (63
    )
    
    
    (8,200
    )
    
    
    10,723
    
    
    
    3,146
    
    
    
    3,614Provision for income taxes
    
    
    105
    
    
    
    (2,764
    )
    
    
    4,084
    
    
    
    1,710
    
    
    
    1,897
    
    
    
    
    (105
    )
    
    
    
    
    
    
    (74
    )
    
    
    (102
    )
    
    
    
    
    
    
    
    
    
    
    
    (2,764
    )
    
    
    4,010
    
    
    
    1,608
    
    
    
    1,897Net income from continuing operations
    
    $
    1,754
    
    
    $
    (4,536
    )
    
    $
    7,305
    
    
    $
    2,951
    
    
    $
    1,717
    
    
    
    $
    (1,817
    )
    
    $
    (900
    )
    
    $
    (592
    )
    
    $
    (1,413
    )
    
    $
    
    
    
    
    $
    (63
    )
    
    $
    (5,436
    )
    
    $
    6,713
    
    
    $
    1,538
    
    
    $
    1,717Earnings (loss) per share from continuing operations:Basic
    
    $
    0.09
    
    
    $
    (0.24
    )
    
    $
    0.42
    
    
    $
    0.23
    
    
    $
    0.14
    
    
    
    $
    (0.09
    )
    
    $
    (0.04
    )
    
    $
    (0.03
    )
    
    $
    (0.11
    )
    
    $
    
    
    
    
    $
    
    
    
    $
    (0.29
    )
    
    $
    0.39
    
    
    $
    0.12
    
    
    $
    0.14Diluted
    
    $
    0.09
    
    
    $
    (0.24
    )
    
    $
    0.40
    
    
    $
    0.22
    
    
    $
    0.13
    
    
    
    $
    (0.09
    )
    
    $
    (0.04
    )
    
    $
    (0.01
    )
    
    $
    (0.11
    )
    
    $
    
    
    
    
    $
    
    
    
    $
    (0.29
    )
    
    $
    0.39
    
    
    $
    0.11
    
    
    $
    0.13Number of shares used in calculating earnings
 (loss) per share
from continuing operations:1)Basic
    
    
    18,987
    
    
    
    18,782
    
    
    
    17,225
    
    
    
    12,687
    
    
    
    12,344
    
    
    
    
    18,987
    
    
    
    18,782
    
    
    
    17,225
    
    
    
    12,687
    
    
    
    
    
    
    
    
    18,987
    
    
    
    18,782
    
    
    
    17,225
    
    
    
    12,687
    
    
    
    12,344Diluted
    
    
    19,322
    
    
    
    18,782
    
    
    
    18,376
    
    
    
    13,455
    
    
    
    12,740
    
    
    
    
    18,987
    
    
    
    18,782
    
    
    
    17,225
    
    
    
    13,455
    
    
    
    
    
    
    
    
    18,987
    
    
    
    18,782
    
    
    
    17,225
    
    
    
    13,455
    
    
    
    12,740Consolidated balance sheet data:Cash, cash equivalents and short-term investments
    
    $
    55,680
    
    
    $
    31,670
    
    
    $
    59,180
    
    
    $
    22,120
    
    
    $
    17,669
    
    
    
    $
    10,027
    
    
    $
    20,851
    
    
    $
    346
    
    
    $
    (2,768
    )
    
    $
    
    
    
    
    $
    65,707
    
    
    $
    52,521
    
    
    $
    59,526
    
    
    $
    19,352
    
    
    $
    17,669Working capital
    
    
    53,785
    
    
    
    42,515
    
    
    
    72,692
    
    
    
    36,356
    
    
    
    20,026
    
    
    
    
    6,935
    
    
    
    22,748
    
    
    
    2,308
    
    
    
    (1,437
    )
    
    
    
    
    
    
    
    60,720
    
    
    
    65,263
    
    
    
    75,000
    
    
    
    34,919
    
    
    
    20,026Total assets
    
    
    177,469
    
    
    
    164,974
    
    
    
    201,118
    
    
    
    102,578
    
    
    
    95,829
    
    
    
    
    (5,489
    )
    
    
    (3,600
    )
    
    
    (3,143
    )
    
    
    (3,387
    )
    
    
    
    
    
    
    
    171,980
    
    
    
    161,374
    
    
    
    197,975
    
    
    
    99,191
    
    
    
    95,829Long-term debt, less current portion
    
    
    89
    
    
    
    195
    
    
    
    288
    
    
    
    7,707
    
    
    
    294
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89
    
    
    
    195
    
    
    
    288
    
    
    
    7,707
    
    
    
    294Total shareholders equity
    
    
    145,950
    
    
    
    138,150
    
    
    
    167,021
    
    
    
    78,152
    
    
    
    69,277
    
    
    
    
    (6,256
    )
    
    
    (4,491
    )
    
    
    (3,581
    )
    
    
    (3,431
    )
    
    
    
    
    
    
    
    139,694
    
    
    
    133,659
    
    
    
    163,440
    
    
    
    74,721
    
    
    
    69,277
 
 1)
    
    With the exception of the basic and diluted number of shares, all amounts shown in the Restatement Adjustments columns reflect adjustments made to Tiers Consolidated Financial Statements. Basic and Diluted Number of Shares reflect the adjusted number of
shares, taking into account changes in dilution caused by changes in previously reported financial results. See Note 1Overview of Organization, Restatement and Significant Accounting Policies to the Consolidated Financial Statements for a discussion of the restatement of
previously issued financial statements for fiscal years 2004, 2003 and 2002.Fiscal 2001 adjustments include a $72,000 revenue decrease resulting from the inclusion of license fees under a fixed-price contract and a $35,000 revenue decrease resulting from the correction of the over-billing of a customer. In addition, general and administrative
expense for fiscal 2001 increased $1.4 million as a result of
the adjustment of: a) $1.3 million of receivables at one of our payment processing centers identified during a reconciliation project performed in 2005 through 2006; b) the recognition of a $44,000 reserve for
taxes other-than-income; and 3) the correction of $85,000 of franchise taxes which were previously reported as income taxes. Interest income for fiscal 2001 was adjusted by $7,000 for interest from a related party. Fiscal 2001 income taxes were also adjusted to reflect
the impact of the other restatement adjustments. In addition, as part of the reconciliation of accounts for one of our payment processing centers and the review of the allowance for uncollectible accounts for all of our payment processing centers, we increased our
accounts receivable, net balance by $1.4 million with an offsetting reduction of $2.8 million in cash. To correct the recognition of revenue for certain fixed priced contracts, we reduced unbilled revenues by $0.9 million with the corresponding offset being reflected in
accumulated deficit. We also
reclassified $1.7 million of related party notes and associated interest receivable from long-term assets
to related-party notes in the equity section of our Consolidated Balance Sheet.During fiscal 2002, our Consolidated Balance Sheet included a number of adjustments associated with our investment portfolio, including the reclassification of $1.1 million of securities from cash and cash equivalents and $4.4 million from long-term investments into
short term investments in marketable securities which were made to correct the classification of available-for-sale securities and cash equivalents under accounting principles generally accepted in the United States. In addition, as part of the reconciliation of
accounts for one of our payment processing centers and the review of the allowance for uncollectible accounts for all of our payment processing centers, we increased our accounts receivable, net balance by $2.3 million with an offsetting reduction of $1.1 million in
cash. To correct the recognition of revenue for certain fixed-priced contracts, we reduced unbilled revenues by $0.9 million with the corresponding offset being reflected in accumulated deficit. We also reclassified $2.0 million of related-party notes and the
associated interest receivable from long-term assets to related-party notes in the equity section of our Consolidated Balance Sheet. 
 14




---



##### 



Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Restatement
   Summary of Restatement Adjustments
 Year Ended September 30,(In thousands)
    
    2004
    
    
    2003
    
    
    2002Restatement adjustments:Payment processing center-related adjustments
    
    $
    442
    
    
    $
    (539
    )
    
    $
    (224
    )Project accounting
    
    
    (1,313
    )
    
    
    (90
    )
    
    
    (18
    )Sales commissions
    
    
    (280
    )
    
    
    82
    
    
    
    Related-party notes
    
    
    (275
    )
    
    
    (211
    )
    
    
    (233
    )Accrued expenses
    
    
    (303
    )
    
    
    
    
    
    
    Other miscellaneous adjustments
    
    
    (193
    )
    
    
    (142
    )
    
    
    (191
    )Pre-tax adjustments
    
    
    (1,922
    )
    
    
    (900
    )
    
    
    (666
    )Income taxes
    
    
    105
    
    
    
    
    
    
    
    74Total adjustments to net loss
    
    
    (1,817
    )
    
    
    (900
    )
    
    
    (592
    )Previously reported net income (loss)
    
    
    314
    
    
    
    (23,782
    )
    
    
    (15,040
    )Restated net loss
    
    $
    (1,503
    )
    
    $
    (24,682
    )
    
    $
    (15,632
    )Earnings (loss) per fully diluted share:As previously reported
    
    $
    0.02
    
    
    $
    (1.27
    )
    
    $
    (0.82
    )Restatement adjustments
    
    
    (0.09
    )
    
    
    (0.04
    )
    
    
    (0.03
    )Impact of anti-dilutive stock equivalents(1)
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.06
    )Restated earnings (loss) per fully diluted share
    
    $
    (0.08
    )
    
    $
    (1.31
    )
    
    $
    (0.91
    )Weighted-average diluted number of shares:As previously reported
    
    
    19,322
    
    
    
    18,782
    
    
    
    18,376Anti-dilutive common stock equivalents(1)
    
    
    (335
    )
    
    
    
    
    
    
    (1,151
    )Restated weighted-average diluted shares
    
    
    18,987
    
    
    
    18,782
    
    
    
    17,225
 
 (1)
    
    During fiscal year 2002, Tier incorrectly included anti-dilutive common stock equivalents
in its loss per share calculations. In addition, because the restatement adjustments for fiscal year 2004
changed net income into a loss, we removed the impact of anti-dilutive common stock equivalents. 15




---



##### 



At September 30,2004
    
    
    
    2003As
    
    
    
    
    
    
    
    Aspreviously
    
    
    
    
    
    
    
    previously(In thousands)
    
    reported
    
    
    Restated
    
    
    
    reported
    
    
    RestatedAssets:Current assets:Cash and cash equivalents
    
    $
    42,061
    
    
    $
    28,495
    
    
    
    $
    26,178
    
    
    $
    8,871Investments in marketable securities
    
    
    13,619
    
    
    
    37,212
    
    
    
    
    5,492
    
    
    
    43,650Restricted investments
    
    
    780
    
    
    
    
    
    
    
    
    
    
    
    
    Accounts receivable, net
    
    
    17,394
    
    
    
    17,086
    
    
    
    
    20,024
    
    
    
    22,096Unbilled receivables
    
    
    5,046
    
    
    
    4,101
    
    
    
    
    7,872
    
    
    
    7,692Prepaid expenses and other current assets
    
    
    4,617
    
    
    
    4,337
    
    
    
    
    4,602
    
    
    
    4,602Assets of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    3,550
    
    
    
    3,550Total current assets
    
    
    83,517
    
    
    
    91,231
    
    
    
    
    67,718
    
    
    
    90,461Property, equipment and software, net
    
    
    7,158
    
    
    
    7,213
    
    
    
    
    5,422
    
    
    
    6,408Long-term notes/interestrelated parties
    
    
    2,406
    
    
    
    
    
    
    
    
    2,152
    
    
    
    Goodwill
    
    
    37,824
    
    
    
    37,527
    
    
    
    
    29,625
    
    
    
    29,328Other acquired intangibles, net
    
    
    30,761
    
    
    
    30,771
    
    
    
    
    24,832
    
    
    
    24,844Long-term investments
    
    
    10,537
    
    
    
    
    
    
    
    
    24,883
    
    
    
    Restricted investments
    
    
    3,329
    
    
    
    3,329
    
    
    
    
    7,707
    
    
    
    7,733Other assets
    
    
    1,937
    
    
    
    1,909
    
    
    
    
    2,635
    
    
    
    2,600Total assets
    
    $
    177,469
    
    
    $
    171,980
    
    
    
    $
    164,974
    
    
    $
    161,374Liabilities and shareholders equity:Current liabilities:Accounts payable
    
    $
    2,626
    
    
    $
    2,624
    
    
    
    $
    2,087
    
    
    $
    2,086Income taxes payable
    
    
    7,007
    
    
    
    7,007
    
    
    
    
    
    
    
    
    Accrued compensation liabilities
    
    
    4,623
    
    
    
    4,820
    
    
    
    
    3,654
    
    
    
    3,571Accrued subcontractor expense
    
    
    2,478
    
    
    
    2,457
    
    
    
    
    5,494
    
    
    
    5,494Other accrued liabilities
    
    
    7,501
    
    
    
    7,433
    
    
    
    
    8,476
    
    
    
    7,833Deferred income
    
    
    5,269
    
    
    
    5,269
    
    
    
    
    3,299
    
    
    
    3,299Other current liabilities
    
    
    228
    
    
    
    901
    
    
    
    
    2,193
    
    
    
    2,915Total current liabilities
    
    
    29,732
    
    
    
    30,511
    
    
    
    
    25,203
    
    
    
    25,198Long-term debt, less current portion
    
    
    89
    
    
    
    89
    
    
    
    
    195
    
    
    
    195Non-current liabilities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    432
    
    
    
    432Other liabilities
    
    
    1,698
    
    
    
    1,686
    
    
    
    
    994
    
    
    
    1,890Total liabilities
    
    
    31,519
    
    
    
    32,286
    
    
    
    
    26,824
    
    
    
    27,715Shareholders equity:Common stock issued
    
    
    172,136
    
    
    
    180,820
    
    
    
    
    164,742
    
    
    
    173,426Additional paid-in-capital
    
    
    
    
    
    
    659
    
    
    
    
    
    
    
    
    403Treasury stock
    
    
    
    
    
    
    (8,684
    )
    
    
    
    
    
    
    
    (8,684
    )Note receivable from shareholders
    
    
    (1,773
    )
    
    
    (4,113
    )
    
    
    
    (1,773
    )
    
    
    (3,908
    )Accumulated other comprehensive loss
    
    
    (258
    )
    
    
    (128
    )
    
    
    
    (350
    )
    
    
    (221
    )Accumulated deficit
    
    
    (24,155
    )
    
    
    (28,860
    )
    
    
    
    (24,469
    )
    
    
    (27,357
    )Total shareholders equity
    
    
    145,950
    
    
    
    139,694
    
    
    
    
    138,150
    
    
    
    133,659Total liabilities and shareholders equity
    
    $
    177,469
    
    
    $
    171,980
    
    
    
    $
    164,974
    
    
    $
    161,374
  Recent Events
  16




---



##### 



Fiscal 2005 Filing Delay Announced
 Audit Committee Investigation.
 Delisting by Nasdaq
 Management Changes
 SEC Subpoena
 OVERVIEW OF TIER
     17




---



##### 



18




---



##### 



Critical Accounting Policies and Estimates
   Basis of Presentation
 19




---



##### 



Revenue Recognition
      20




---



##### 



Cost and Volume Estimates
  Collectibility of Receivables
 Goodwill and Other Intangible Assets
  21




---



##### 



Income Taxes
 Determination of Restructuring Obligations
 Statements of Operations
     22




---



##### 



RESULTS OF OPERATIONS
  Year ended September 30,2004
    
    
    2003
    
    
    2002(Restated)
    
    
    (Restated)
    
    
    (Restated)Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Costs and expenses:Direct costs
    
    
    66.1
    
    
    
    77.6
    
    
    
    62.6General and administrative
    
    
    22.1
    
    
    
    20.4
    
    
    
    17.2Selling and marketing
    
    
    5.8
    
    
    
    4.8
    
    
    
    4.5Depreciation and amortization
    
    
    4.0
    
    
    
    4.7
    
    
    
    4.5Restructuring and other charges
    
    
    2.7
    
    
    
    0.4
    
    
    
    (Loss) income before other income (loss)
    
    
    (0.7
    )
    
    
    (7.9
    )
    
    
    11.2Interest income, net
    
    
    0.7
    
    
    
    0.8
    
    
    
    1.5(Loss) income from continuing operations before income taxes
    
    
    
    
    
    
    (7.1
    )
    
    
    12.7Income tax (benefit) provision
    
    
    
    
    
    
    (2.4
    )
    
    
    4.7(Loss) income from continuing operations, net of income taxes
    
    
    
    %
    
    
    (4.7
    )%
    
    
    8.0
    %
 FISCAL YEARS ENDED SEPTEMBER 30, 2004 AND 2003
 Revenues
  Year ended September 30,2004
    
    
    2003(Restated)
    
    
    (Restated)(in thousands)GBPO
    
    $
    45,205
    
    
    $
    48,465PSSI
    
    
    41,903
    
    
    
    30,107EPP
    
    
    40,669
    
    
    
    37,005Total
    
    $
    127,777
    
    
    $
    115,577
  23




---



##### 



Year ended September 30,2004
    
    
    2003(Restated)
    
    
    (Restated)(in thousands)Transaction and payment processing
    
    $
    83,310
    
    
    $
    80,305Systems design and integration
    
    
    18,699
    
    
    
    16,307Maintenance and support services
    
    
    20,338
    
    
    
    17,032Product sales and other services
    
    
    5,430
    
    
    
    1,933Total
    
    $
    127,777
    
    
    $
    115,577
   Direct costs
  Selling and marketing
  General and administrative
  24




---



##### 



Restructuring and other charges
  Year ended September 30,2004
    
    
    2003(Restated)
    
    
    (Restated)(in thousands)Asset impairment charges
    
    $
    571
    
    
    $
    91Severance charge resulting from restructuring
    
    
    1,846
    
    
    
    280Office closure charge resulting from restructuring
    
    
    1,076
    
    
    
    43Total
    
    $
    3,493
    
    
    $
    414
  Depreciation and amortization
  Interest income, net
  Income tax (benefit) provision
   25




---



##### 



Discontinued operations
  FISCAL YEARS ENDED SEPTEMBER 30, 2003 AND 2002
 Revenues
  Year ended September 30,2003
    
    
    2002(Restated)
    
    
    (Restated)(in thousands)GBPO
    
    $
    48,465
    
    
    $
    40,377PSSI
    
    
    30,107
    
    
    
    40,356EPP
    
    
    37,005
    
    
    
    3,700Total
    
    $
    115,577
    
    
    $
    84,433
   Year ended September 30,2003
    
    
    2002(Restated)
    
    
    (Restated)(in thousands)Transaction and payment processing
    
    $
    80,305
    
    
    $
    37,057Systems design and integration
    
    
    16,307
    
    
    
    29,933Maintenance and support services
    
    
    17,032
    
    
    
    15,145Product sales and other services
    
    
    1,933
    
    
    
    2,298Total
    
    $
    115,577
    
    
    $
    84,433
   26




---



##### 



Direct costs
  Selling and marketing
  General and administrative
  Depreciation and amortization
  Interest income net
  Income tax (benefit) provision
   Discontinued operations
  27




---



##### 



SELECTED QUARTERLY STATEMENTS OF OPERATIONS
  Selected Quarterly Financial Statements
 Three months endedSept. 30,
    
    
    June 30,
    
    
    Mar. 31,
    
    
    Dec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    Mar. 31,
    
    
    Dec. 31,2004
    
    
    2004
    
    
    2004
    
    
    2003
    
    
    2003
    
    
    2003
    
    
    2003
    
    
    2002Consolidated statement of operations data:
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)(in thousands, except per share data )Revenues
    
    $
    31,218
    
    
    $
    40,058
    
    
    $
    29,793
    
    
    $
    26,708
    
    
    $
    13,869
    
    
    $
    42,681
    
    
    $
    30,040
    
    
    $
    28,987Costs and expenses:Direct costs
    
    
    18,323
    
    
    
    28,702
    
    
    
    19,406
    
    
    
    17,968
    
    
    
    20,464
    
    
    
    30,878
    
    
    
    19,750
    
    
    
    18,565General and administrative
    
    
    9,687
    
    
    
    6,557
    
    
    
    6,032
    
    
    
    5,957
    
    
    
    6,368
    
    
    
    5,845
    
    
    
    5,523
    
    
    
    5,870Selling and marketing
    
    
    2,250
    
    
    
    2,103
    
    
    
    1,756
    
    
    
    1,332
    
    
    
    1,187
    
    
    
    1,540
    
    
    
    1,413
    
    
    
    1,441Depreciation and amortization
    
    
    1,579
    
    
    
    1,204
    
    
    
    1,151
    
    
    
    1,175
    
    
    
    1,402
    
    
    
    1,257
    
    
    
    1,387
    
    
    
    1,377Restructuring and other charges
    
    
    (431
    )
    
    
    1,847
    
    
    
    5
    
    
    
    2,072
    
    
    
    414
    
    
    
    
    
    
    
    
    
    
    
    (Loss) income from continuing operations
    
    
    (190
    )
    
    
    (355
    )
    
    
    1,443
    
    
    
    (1,796
    )
    
    
    (15,966
    )
    
    
    3,161
    
    
    
    1,967
    
    
    
    1,734Interest income, net
    
    
    194
    
    
    
    224
    
    
    
    215
    
    
    
    202
    
    
    
    190
    
    
    
    180
    
    
    
    226
    
    
    
    308Income (loss) from continuing operations
before income taxes
    
    
    4
    
    
    
    (131
    )
    
    
    1,658
    
    
    
    (1,594
    )
    
    
    (15,776
    )
    
    
    3,341
    
    
    
    2,193
    
    
    
    2,042Income tax (benefit) provision
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,909
    )
    
    
    1,352
    
    
    
    955
    
    
    
    838Income (loss) from continuing
operations, net of income taxes
    
    
    4
    
    
    
    (131
    )
    
    
    1,658
    
    
    
    (1,594
    )
    
    
    (9,867
    )
    
    
    1,989
    
    
    
    1,238
    
    
    
    1,204(Loss) income from discontinued
operations, net of income taxes
    
    
    (22
    )
    
    
    (17
    )
    
    
    164
    
    
    
    (1,565
    )
    
    
    (19,504
    )
    
    
    (58
    )
    
    
    57
    
    
    
    259Net (loss) income
    
    $
    (18
    )
    
    $
    (148
    )
    
    $
    1,822
    
    
    $
    (3,159
    )
    
    $
    (29,371
    )
    
    $
    1,931
    
    
    $
    1,295
    
    
    $
    1,463(Loss) earnings from continuing
operations, net of income taxesPer basic share
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    0.09
    
    
    $
    (0.08
    )
    
    $
    (0.53
    )
    
    $
    0.11
    
    
    $
    0.07
    
    
    $
    0.06Per diluted share
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    0.09
    
    
    $
    (0.08
    )
    
    $
    (0.53
    )
    
    $
    0.11
    
    
    $
    0.07
    
    
    $
    0.06(Loss) earnings from discontinued
operations, net of income taxes:Per basic share
    
    $
    
    
    
    $
    
    
    
    $
    0.01
    
    
    $
    (0.09
    )
    
    $
    (1.05
    )
    
    $
    (0.01
    )
    
    $
    
    
    
    $
    0.01Per diluted share
    
    $
    
    
    
    $
    
    
    
    $
    0.01
    
    
    $
    (0.09
    )
    
    $
    (1.05
    )
    
    $
    (0.01
    )
    
    $
    
    
    
    $
    0.01(Loss) earnings:Per basic share
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    0.10
    
    
    $
    (0.17
    )
    
    $
    (1.58
    )
    
    $
    0.10
    
    
    $
    0.07
    
    
    $
    0.07Per diluted share
    
    $
    
    
    
    $
    (0.01
    )
    
    $
    0.10
    
    
    $
    (0.17
    )
    
    $
    (1.58
    )
    
    $
    0.10
    
    
    $
    0.07
    
    
    $
    0.07Weighted-average shares used in
computing:Basic (loss) earnings per share
    
    
    19,396
    
    
    
    19,030
    
    
    
    18,808
    
    
    
    18,702
    
    
    
    18,642
    
    
    
    18,600
    
    
    
    18,834
    
    
    
    19,052Diluted (loss) earnings per share
    
    
    19,396
    
    
    
    19,030
    
    
    
    19,217
    
    
    
    18,702
    
    
    
    18,642
    
    
    
    18,821
    
    
    
    19,355
    
    
    
    19,815
 28




---



##### 



Three months endedSept. 30,
    
    
    June 30,
    
    
    Mar. 31,
    
    
    Dec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    Mar. 31,
    
    
    Dec. 31,Consolidated statement of operations data:
    
    2004
    
    
    2004
    
    
    2004
    
    
    2003
    
    
    2003
    
    
    2003
    
    
    2003
    
    
    2002(in thousands, except per share data )Revenues
    
    $
    183
    
    
    $
    (675
    )
    
    $
    134
    
    
    $
    198
    
    
    $
    (77
    )
    
    $
    (38
    )
    
    $
    (125
    )
    
    $
    (100
    )Costs and expenses:Direct costs
    
    
    165
    
    
    
    590
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    General and administrative
    
    
    456
    
    
    
    (394
    )
    
    
    (261
    )
    
    
    473
    
    
    
    (245
    )
    
    
    89
    
    
    
    92
    
    
    
    91Selling and marketing
    
    
    225
    
    
    
    100
    
    
    
    
    
    
    
    (45
    )
    
    
    (312
    )
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    
    
    
    
    44
    
    
    
    44
    
    
    
    44
    
    
    
    152
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    Restructuring and other charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    414
    
    
    
    
    
    
    
    
    
    
    
    (Loss) income from continuing operations
    
    
    (663
    )
    
    
    (1,015
    )
    
    
    344
    
    
    
    (274
    )
    
    
    (86
    )
    
    
    (126
    )
    
    
    (216
    )
    
    
    (191
    )Interest income, net
    
    
    (80
    )
    
    
    (81
    )
    
    
    (78
    )
    
    
    (75
    )
    
    
    (71
    )
    
    
    (70
    )
    
    
    (70
    )
    
    
    (70
    )(Loss) income from continuing operations
before income taxes
    
    
    (743
    )
    
    
    (1,096
    )
    
    
    266
    
    
    
    (349
    )
    
    
    (157
    )
    
    
    (196
    )
    
    
    (286
    )
    
    
    (261
    )Income tax (benefit) provision
    
    
    
    
    
    
    (35
    )
    
    
    (35
    )
    
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Loss) income from continuing operations,
net of income taxes
    
    
    (743
    )
    
    
    (1,061
    )
    
    
    301
    
    
    
    (314
    )
    
    
    (157
    )
    
    
    (196
    )
    
    
    (286
    )
    
    
    (261
    )Income (loss) from discontinued
operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) income
    
    $
    (743
    )
    
    $
    (1,061
    )
    
    $
    301
    
    
    $
    (314
    )
    
    $
    (157
    )
    
    $
    (196
    )
    
    $
    (286
    )
    
    $
    (261
    )(Loss) earnings from continuing
operations, net of income taxesPer basic share
    
    $
    (0.04
    )
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )Per diluted share
    
    $
    (0.04
    )
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )(Loss) earnings from discontinued
operations, net of income taxes:Per basic share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Per diluted share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Net (loss) earnings:Per basic share
    
    $
    (0.04
    )
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )Per diluted share
    
    $
    (0.04
    )
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )Shares used in computing:Basic (loss) earnings per share
    
    
    19,396
    
    
    
    19,030
    
    
    
    18,808
    
    
    
    18,702
    
    
    
    18,642
    
    
    
    18,600
    
    
    
    18,834
    
    
    
    19,052Diluted (loss) earnings per share
    
    
    19,396
    
    
    
    19,030
    
    
    
    19,217
    
    
    
    18,702
    
    
    
    18,642
    
    
    
    18,821
    
    
    
    19,355
    
    
    
    19,815
  Three months endedSept. 30
    
    
    June 30,
    
    
    Mar. 31,
    
    
    Dec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    Mar. 31,
    
    
    Dec. 31,2004
    
    
    2004
    
    
    2004
    
    
    2003
    
    
    2003
    
    
    2003
    
    
    2003
    
    
    2002As a percentage of revenues:
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Costs and expenses:Direct costs
    
    
    58.7
    
    
    
    71.7
    
    
    
    65.1
    
    
    
    67.3
    
    
    
    147.6
    
    
    
    72.3
    
    
    
    65.7
    
    
    
    64.0General and administrative
    
    
    31.0
    
    
    
    16.4
    
    
    
    20.2
    
    
    
    22.3
    
    
    
    45.9
    
    
    
    13.7
    
    
    
    18.4
    
    
    
    20.3Selling and marketing
    
    
    7.2
    
    
    
    5.2
    
    
    
    5.9
    
    
    
    5.0
    
    
    
    8.5
    
    
    
    3.6
    
    
    
    4.7
    
    
    
    5.0Depreciation and amortization
    
    
    5.1
    
    
    
    3.0
    
    
    
    3.9
    
    
    
    4.4
    
    
    
    10.1
    
    
    
    2.9
    
    
    
    4.6
    
    
    
    4.8Restructuring and other charges
    
    
    (1.4
    )
    
    
    4.6
    
    
    
    
    
    
    
    7.8
    
    
    
    3.0
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) from continuing operations
    
    
    (0.6
    )
    
    
    (0.9
    )
    
    
    4.9
    
    
    
    (6.8
    )
    
    
    (115.1
    )
    
    
    7.5
    
    
    
    6.6
    
    
    
    5.9Interest income, net
    
    
    0.6
    
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.8
    
    
    
    1.4
    
    
    
    0.4
    
    
    
    0.8
    
    
    
    1.1Income (loss) from continuing
operations before income taxes
    
    
    
    
    
    
    (0.3
    )
    
    
    5.6
    
    
    
    (6.0
    )
    
    
    (113.7
    )
    
    
    7.9
    
    
    
    7.4
    
    
    
    7.0Provision (benefit) for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42.6
    )
    
    
    3.2
    
    
    
    3.2
    
    
    
    2.9Income (loss) from continuing
operations, net of income taxes
    
    
    
    %
    
    
    (0.3
    )%
    
    
    5.6
    %
    
    
    (6.0
    )%
    
    
    (71.1
    )%
    
    
    4.7
    %
    
    
    4.2
    %
    
    
    4.1
    %
 29




---



##### 



LIQUIDITY AND CAPITAL RESOURCES
      30




---



##### 



31




---



##### 



Disclosures About Contractual Obligations And Commercial Commitments
  Payments due by periodLess than
    
    2  3 years
    
    4 5 yearsContractual Cash Obligations
    
    Total
    
    1 year (FY2005)
    
    (FY2006 & 2007)
    
    (FY2008 & 2009)
    
    After 5 yearsDebt, including interest
    
    $
    218
    
    
    $
    124
    
    
    $
    94
    
    
    $
    
    
    
    $
    Operating leases
    
    
    11,350
    
    
    
    3,943
    
    
    
    4,218
    
    
    
    2,671
    
    
    
    518Restructuring liability
    
    
    2,033
    
    
    
    1,125
    
    
    
    728
    
    
    
    180
    
    
    
    Total
    
    $
    13,601
    
    
    $
    5,192
    
    
    $
    5,040
    
    
    $
    2,851
    
    
    $
    518
 Amount of commitment expiration per periodTotal amounts
    
    Less than
    
    2  3 years
    
    4 5 yearsOther Commercial Commitments
    
    committed
    
    1 year (FY2005)
    
    (FY2006 & 2007)
    
    (FY2008 & 2009)
    
    After 5 yearsStandby letters of credit
    
    $
    5,024
    
    
    $
    1,823
    
    
    $
    3,151
    
    
    $
    
    
    
    $
    50Performance bonds
    
    
    27,115
    
    
    
    23,950
    
    
    
    3,165
    
    
    
    
    
    
    
    Total
    
    $
    32,139
    
    
    $
    25,773
    
    
    $
    6,316
    
    
    $
    
    
    
    $
    50
 Recent Accounting Standards
   32




---



##### 



Factors That May Affect Future Results
  If we fail to regain our listing status on the Nasdaq Global Market, the value of our stock may
continue to be depressed, we may have difficulties attracting and retaining customers and employees
and our Company may be susceptible to take over attempts.
  Our quarterly revenues, operating results and cash flows are volatile, may fluctuate significantly
from quarter to quarter and may be difficult to forecast, which may cause the market price of our
Class B common stock to decline.
  
    
    the number, size and scope of projects in which we are engaged;
    
    economic conditions in the markets we serve;
    
    demand for our services generated by strategic partnerships and certain prime contractors;
    
    our consultant utilization rates and the number of billable days in a particular
quarter which may be significantly impacted by increased vacations and public holidays;
    
    the seasonality of OPCs business, due primarily to the fact that the majority of
federal and state personal income tax payments are made in March and April and real estate
and personal property tax payments may be made annually or semi-annually in many
jurisdictions;
    
    changes to processing fees charged to our EPP business unit by its credit/debit card
partners and financial institutions for processing payment transactions;
    
    the contractual terms and degree of completion of projects;
    
    any delays or costs incurred in connection with, or early termination of, a project;
    
    the amount and timing of costs related to our sales and marketing and other initiatives;
    
    variability of software license fee revenue in a particular quarter;
    
    start-up costs incurred in connection with the initiation of large projects;
    
    the integration of acquisitions, including EPOS, without disruption to our other business activities; and
    
    our ability to staff projects with our own salaried employees rather than hourly
employees, hourly independent contractors and sub-contractors.
  33




---



##### 



We rely on small numbers of projects, customers and target markets for significant portions of our
revenues, and our operating results and cash flows may decline significantly if we cannot keep or replace
these projects or clients or if conditions in our target markets deteriorate.
     Our markets are highly competitive; if we do not compete effectively for any reason, we could face
price reductions, reduced profitability and loss of market share.
   
    
    the ability of our clients or competitors to hire, retain and motivate project managers
and other senior technical staff;
 34




---



##### 




    
    the ownership by competitors of software used by potential clients;
    
    the price at which others offer comparable services;
    
    the ability of our clients to perform the services themselves; and
    
    the extent of our competitors responsiveness to client needs.
  If we fail to accurately estimate the resources necessary to meet our obligations under fixed price
contracts or the volume of transactions or transaction dollars processed under our
transaction-based contracts, we may incur losses on these contracts.
    Our business may be harmed by claims, lawsuits or investigations which could result in adverse
outcomes.
   35




---



##### 



Our Class B common stock price and trading volume have been and could continue to be volatile,
which could result in substantial losses for investors in our Class B common stock.
  
    
    quarterly variations in operating results;
    
    developments with respect to specific projects;
    
    developments in our organization, such as our restructuring in the fourth quarter of
fiscal year 2003 and the consolidation of the Walnut Creek and Reston offices during the
second half of fiscal year 2004;
    
    announcements of technological innovations or new products or services by us or our competitors;
    
    general conditions in the information technology industry or the industries in which our clients compete;
    
    changes in earnings estimates by securities analysts or us;
    
    general economic and political conditions such as recessions and acts of war or terrorism; and
    
    integration of acquired assets and companies.
  Compliance with changing regulation of corporate governance and public disclosure may result in
additional expenses.
  An investigation involving the child support payment processing industry could force us to incur
unusual expenses and may negatively affect our business reputation.
   Within our EPP Segment, OPCs business model is continuing to evolve, it is difficult to evaluate
OPCs business and its ability to maintain profitability.
  36




---



##### 



Our ability to grow our business will suffer if we are unable to attract, successfully integrate
and retain qualified personnel and key employees.
   Because we sometimes work with third parties and use third party software in providing products and
services to clients, any failure by these third parties to satisfactorily perform their obligations
could hurt our reputation, operating results and competitiveness.
  37




---



##### 



We have completed numerous acquisitions and may complete others, which could increase our costs or
be disruptive to our business.
  
    
    failure to realize the value of the acquired assets, businesses or projects;
    
    diversion of managements attention;
    
    failure to retain key personnel;
    
    entrance into markets in which we have limited or no prior experience;
    
    increased general and administrative expenses;
    
    client dissatisfaction or performance problems with acquired assets, businesses or projects;
    
    write-offs due to impairment of goodwill and other intangible assets and other charges against earnings;
    
    assumption of unknown liabilities;
    
    the potentially dilutive issuance of our common stock, the use of significant amounts of cash or the
incurrence of substantial amounts of debt; and
    
    other unanticipated events or circumstances.
  If our EPP business units clients or credit/debit card issuers cease to publicize our services or
adversely change the manner in which our services are promoted, consumer use of its services may
slow, and we may suffer a large increase in advertising costs.
   38




---



##### 



We depend on government agencies for our revenues and the loss or decline of existing or future
government agency funding could cause our revenues and cash flows to decline.
  Our failure to deliver error-free products and services could result in reduced payments,
significant financial liability or additional costs to us, as well as negative publicity.
   The software products we provide compete in markets that are rapidly changing and we must develop,
acquire and introduce new products and technologies to grow our revenues and remain competitive.
  39




---



##### 



If we are unable to obtain adequate or affordable insurance coverage or sufficient performance
bonds for any reason, we could face significant liability claims and increased premium costs and
our ability to compete for business could be compromised.
   A decline in the economic climate could adversely affect demand for our products and services,
which could cause us to lose revenue and could hurt our margins and profitability.
   We could suffer material losses if our systems or operations fail or are disrupted.
  40




---



##### 



If we fail to adapt our business to changes in economic or business conditions, our financial
results could suffer.
  Capacity constraints could compromise our ability to process transactions, which could harm our
reputation and cause us to lose business.
  We could become subject to other lawsuits that could result in material liabilities to us or cause
us to incur material costs.
  If we are unable to protect our intellectual property and proprietary rights, demand for our
products and services could be reduced.
    41




---



##### 



Item 8. Financial Statements and Supplementary Data
  Item 9A. Controls and Procedures
    Identification of Material Weaknesses
    
    
    We did not maintain an effective control environment under the criteria established
under the Committee of Sponsoring Organizations of the Treadway
Commission, or COSO,
frameworkSpecifically, we did not set an effective tone for promoting ethical behavior and
did not maintain controls adequate to prevent or detect instances of intentional override
or intervention of our controls by certain former members of senior management. In fiscal
2004, this problem was exacerbated by the lack of institutional knowledge and technical
accounting expertise of the accounting staff that was in place at September 30, 2004, as
well as the high number of vacancies in the accounting department at
that time. On May 12, 2006, we announced the completion of an
independent investigation conducted on behalf of the Audit Committee
of Tiers Board of Directors. The scope of the independent
investigation included an examination of the qualitative and
financial reporting issues giving rise to the restatement of prior
period financial statements. Among other things, the investigation
found earnings management at Tier, particularly during the close of
fiscal 2004, which included recording a series of adjustments not in
accordance with generally accepted accounting principles. Furthermore, as of September 30, 2004, certain accounting-related functions reported directly to operational
personnel, rather than accounting personnel, which diminished the internal control over the
financial information produced by operating functions. This lack of an effective control
environment resulted in certain transactions not being properly accounted for in our
consolidated financial statements and contributed to the need to restate certain of our
previously issued financial statements. The combination of these matters resulted in the
following additional material weaknesses.
 42




---



##### 



o
    
    We did not maintain effective accounting and disclosure controls over
one of our payment processing centersWe did not reconcile three accounts in our
general ledger (cash, accounts receivable, and accounts payable) with information
maintained at one of our payment processing centers. This deficiency was limited
to three accounts at a single payment processing center.o
    
    We did not maintain effective internal control over the processes used
to estimate and record the allowance for uncollectible accounts receivableAt
certain payment processing centers, we must fund insufficiently funded checks that
we receive from noncustodial parents, as well as payments that we inadvertently
make to the incorrect party. As such, we recognize a receivable that represents
the amount that we could recoup from the applicable party. We determined that the
judgmental process used to establish the allowance for uncollectible accounts
receivable for these specific types of accounts had been overridden by management in
a manner that resulted in material misstatements of our financial statements.o
    
    We did not maintain effective internal control over the recognition of
revenue for fixed-price contracts that are accounted for using the
percentage-of-completion methodWe did not reflect all appropriate forecast or
actual costs in the calculations used as the basis for recognizing revenues,
including the separate accounting for each portion of the contracts that had
separate vendor-specific objective evidence of fair value.o
    
    We did not maintain effective internal control over related-party
notesWe did not have adequate controls to ensure that the principal and interest
on related-party notes, which were entered into prior to the effective date of the
Sarbanes-Oxley Act of 2002, were calculated and recorded correctly, including the
calculation of interest and proper categorization of notes on our Consolidated
Financial Statements.o
    
    We did not maintain effective controls over our accounting for accrued
liabilitiesWe did not review and adjust our accrued liability accounts on a timely
basis, including certain accrued liabilities associated with the acquisition of a
subsidiary. In addition, our then-current management overrode a control to reverse
the accrual for sales commissions that were probable of payout.o
    
    We did not have internal controls over the reporting of our investment
portfolioWe did not have the technical accounting knowledge to account for and
report on our investment portfolio in accordance with accounting principles
generally accepted in the United States. As a result, a number of our investments
were not classified properly on our Consolidated Balance Sheets.
  Remediation of Material Weaknesses in Internal Control over Financial Reporting
  
    
    The Board of Directors appointed a new Chairman and Chief Executive Officer during the
third quarter of fiscal 2006 and appointed a new Chief Financial Officer and a new
Controller during the third quarter of fiscal 2005. The Board believes that each of these
individuals possesses the strong technical accounting and management skills necessary to
establish an appropriate internal control environment;
    
    We established and communicated an atmosphere of zero-tolerance for improper behavior;
    
    We reestablished a Disclosure Committee consisting of senior executives from our
operating, finance and legal groups. The Disclosure Committee was established to assist in
the administration of disclosure controls and procedures with respect to our public
disclosures, including SEC filings;
    
    We reorganized and appropriately staffed our accounting department. Specifically, we:
 o
    
    replaced all finance and accounting employees, including the Chief
Financial Officer and the Controller;o
    
    filled previously existing vacancies in our accounting and finance
department with individuals with the appropriate levels of technical accounting
expertise and we have increased the size of our accounting staff;
 43




---



##### 



o
    
    implemented a new organizational structure in the department that
segregates duties to minimize the potential for errors;o
    
    established and staffed accounting positions to perform reconciliations
and accounting analyses at key offsite facilities. These offsite accounting
positions report directly to corporate accounting; ando
    
    established programs to provide our accounting staff with regular
training on our accounting policies, procedures and controls, as well as training
on technical accounting issues.
 
    
    We established and documented processes to: (i) identify and determine the appropriate
accounting for unusual, judgmental, and complex transactions; (ii) monitor new and evolving
accounting standards; (iii) document all such reviews and analyses, as well as changes in
accounting policy; and (iv) review significant accounting issues with the appropriate
levels of management and the Audit Committee of the Board of Directors and the Disclosure
Committee;
    
    We increased the formality and rigor around the operation of key accounting and
financial disclosure controls, including the:
 o
    
    documentation and testing of key financial accounting controls;o
    
    implementation of written procedures to ensure the timely completion of account reconciliations;o
    
    implementation of appropriate written policies and procedures over our accounting estimates;o
    
    implementation of written procedures to document managements review
and approval of transactions; ando
    
    implementation of appropriate written requirements for preparing and
maintaining appropriate support for accounting transactions.
   
    
    we will automate certain controls that are currently performed manually;
    
    we will complete our written documentation of all key financial procedures; and
    
    we will consolidate and simplify our back office operations.
 Changes in Internal Control
  Limitations on Effectiveness of Controls
  44




---



##### 



PART IV
 Item 15. Exhibits and Financial Statement Schedules
 (a)
    
    The following statements are filed as part of this report:
 (1)
    
    Consolidated Financial Statements. See Index to Consolidated
Financial Statements on Page F-1(2)
    
    Financial Statement Schedules
   (b)
    
    Exhibits. See Exhibit Index(c)
    
    Financial Statement Schedules. See Index to Consolidated Financial Statements on page F-1.
 45




---



##### 



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 TIER TECHNOLOGIES, INC.
 Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets
    
    F-3Consolidated Statements of Operations
    
    F-4Consolidated Statements of Shareholders Equity
    
    F-5Consolidated Statements of Cash Flows
    
    F-6Notes to Consolidated Financial Statements
    
    F-8Schedule IIValuation and Qualifying Accounts
    
    S-1
 F-1




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
   /s/ PricewaterhouseCoopers LLP  pricewaterhousecoopers, llp




---



##### 



TIER TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
 September 30,2004
    
    
    2003(Restated)
    
    
    (Restated)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    28,495
    
    
    $
    8,871Investments in marketable securities
    
    
    37,212
    
    
    
    43,650Accounts receivable, net
    
    
    17,086
    
    
    
    22,096Unbilled receivables
    
    
    4,101
    
    
    
    7,692Prepaid expenses and other current assets
    
    
    4,337
    
    
    
    4,602Assets of discontinued operations
    
    
    
    
    
    
    3,550Total current assets
    
    
    91,231
    
    
    
    90,461Property, equipment and software, net
    
    
    7,213
    
    
    
    6,408Goodwill
    
    
    37,527
    
    
    
    29,328Other intangible assets, net
    
    
    30,771
    
    
    
    24,844Restricted investments
    
    
    3,329
    
    
    
    7,733Other assets
    
    
    1,909
    
    
    
    2,600Total assets
    
    $
    171,980
    
    
    $
    161,374LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,624
    
    
    $
    2,086Income taxes payable
    
    
    7,007
    
    
    
    Accrued compensation liabilities
    
    
    4,820
    
    
    
    3,571Accrued subcontractor expense
    
    
    2,457
    
    
    
    5,494Other accrued liabilities
    
    
    7,433
    
    
    
    7,833Deferred income
    
    
    5,269
    
    
    
    3,299Other current liabilities
    
    
    901
    
    
    
    2,915Total current liabilities
    
    
    30,511
    
    
    
    25,198Other liabilities
    
    
    1,775
    
    
    
    2,517Total liabilities
    
    
    32,286
    
    
    
    27,715Commitments and contingencies (Notes 6, 8 and 16)Shareholders equity:Preferred stock, no par value; authorized shares: 4,579;
no shares issued and outstanding
    
    
    
    
    
    
    Common stock and paid-in capitalShares authorized: 43,480;
shares issued: 20,324 and 19,542; and shares outstanding 19,440 and 18,658
    
    
    181,479
    
    
    
    173,829Treasury stockat cost, 884 shares
    
    
    (8,684
    )
    
    
    (8,684
    )Notes
receivable from related parties
    
    
    (4,113
    )
    
    
    (3,908
    )Accumulated other comprehensive loss
    
    
    (128
    )
    
    
    (221
    )Accumulated deficit
    
    
    (28,860
    )
    
    
    (27,357
    )Total shareholders equity
    
    
    139,694
    
    
    
    133,659Total liabilities and shareholders equity
    
    $
    171,980
    
    
    $
    161,374
  F-3




---



##### 



TIER TECHNOLOGIES, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share data)
 Year ended September 30,2004
    
    
    2003
    
    
    2002(Restated)
    
    
    (Restated)
    
    
    (Restated)Revenues
    
    $
    127,777
    
    
    $
    115,577
    
    
    $
    84,433Costs and expenses:Direct costs
    
    
    84,399
    
    
    
    89,657
    
    
    
    52,847General and administrative
    
    
    28,233
    
    
    
    23,606
    
    
    
    14,508Selling and marketing
    
    
    7,441
    
    
    
    5,581
    
    
    
    3,853Depreciation and amortization
    
    
    5,109
    
    
    
    5,423
    
    
    
    3,764Restructuring and other charges
    
    
    3,493
    
    
    
    414
    
    
    
    Total costs and expenses
    
    
    128,675
    
    
    
    124,681
    
    
    
    74,972(Loss) income before other income, income taxes and loss
from discontinued operations
    
    
    (898
    )
    
    
    (9,104
    )
    
    
    9,461Interest income, net
    
    
    835
    
    
    
    904
    
    
    
    1,262(Loss) income from continuing operations before income taxes
    
    
    (63
    )
    
    
    (8,200
    )
    
    
    10,723Income tax (benefit) provision
    
    
    
    
    
    
    (2,764
    )
    
    
    4,010(Loss) income from continuing operations
    
    
    (63
    )
    
    
    (5,436
    )
    
    
    6,713Loss from discontinued operations, net of income taxes
    
    
    (1,440
    )
    
    
    (19,246
    )
    
    
    (22,345
    )Net loss
    
    $
    (1,503
    )
    
    $
    (24,682
    )
    
    $
    (15,632
    )(Loss) earnings per shareBasic:From continuing operations
    
    $
    
    
    
    $
    (0.29
    )
    
    $
    0.39From discontinued operations
    
    $
    (0.08
    )
    
    $
    (1.02
    )
    
    $
    (1.30
    )Loss per shareBasic
    
    $
    (0.08
    )
    
    $
    (1.31
    )
    
    $
    (0.91
    )(Loss) earnings per shareDilutedFrom continuing operations
    
    $
    
    
    
    $
    (0.29
    )
    
    $
    0.39From discontinued operations
    
    $
    (0.08
    )
    
    $
    (1.02
    )
    
    $
    (1.30
    )Loss per shareDiluted
    
    $
    (0.08
    )
    
    $
    (1.31
    )
    
    $
    (0.91
    )Weighted-average shares used in computing:Basic (loss) earnings per share
    
    
    18,987
    
    
    
    18,782
    
    
    
    17,225Diluted (loss) earnings per share
    
    
    18,987
    
    
    
    18,782
    
    
    
    17,225
  F-4




---



##### 



TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands)
 Common Stock
    
    
    
    
    
    
    Accumulated Other
    
    
    
    
    
    
    
    
    
    ComprehensiveClass A
    
    
    Class B
    
    
    Treasury Stock
    
    
    Additional
    
    
    Notes Receivable
    
    
    Comprehensive
    
    
    Retained Earnings
    
    
    Total Shareholders
    
    
    IncomeShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Paid-in-Capital
    
    
    From Shareholders
    
    
    Income (Loss)
    
    
    (Accum. Deficit)
    
    
    Equity
    
    
    (Loss)Shares
    
    
    Amount
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)Balance at September 30, 2001, as previously reported
    
    
    967
    
    
    $
    992
    
    
    
    12,151
    
    
    $
    69,908
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (1,773
    )
    
    $
    (5,328
    )
    
    $
    14,353
    
    
    $
    78,152Restatement of 2001 and prior
    
    
    
    
    
    
    
    
    
    
    316
    
    
    
    2,019
    
    
    
    (316
    )
    
    
    (2,019
    )
    
    
    
    
    
    
    (2,035
    )
    
    
    
    
    
    
    (1,396
    )
    
    
    (3,431
    )Balance at September 30, 2001 (Restated)
    
    
    967
    
    
    
    992
    
    
    
    12,467
    
    
    
    71,927
    
    
    
    (316
    )
    
    
    (2,019
    )
    
    
    
    
    
    
    (3,808
    )
    
    
    (5,328
    )
    
    
    12,957
    
    
    
    74,721Exercise of stock options
    
    
    10
    
    
    
    36
    
    
    
    1,575
    
    
    
    12,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,436Issuance of Class B common stock
    
    
    
    
    
    
    
    
    
    
    4,164
    
    
    
    77,581
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,581Tax benefit of stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,349
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,349Conversion of Class A common stock into Class B common
stock
    
    
    (97
    )
    
    
    (98
    )
    
    
    97
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of Class B common stock in business combinations
    
    
    
    
    
    
    
    
    
    
    141
    
    
    
    2,604
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,604Option acceleration charge from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,902
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,902Notes and interest receivable from related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    202
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    277Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,632
    )
    
    
    (15,632
    )
    
    $
    (15,632
    )Unrealized gain on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98
    
    
    
    
    
    
    
    98
    
    
    
    98Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,104
    
    
    
    
    
    
    
    5,104
    
    
    
    5,104Balance at September 30, 2002
    
    
    880
    
    
    
    930
    
    
    
    18,444
    
    
    
    170,861
    
    
    
    (316
    )
    
    
    (2,019
    )
    
    
    202
    
    
    
    (3,733
    )
    
    
    (126
    )
    
    
    (2,675
    )
    
    
    163,440
    
    
    $
    (10,430
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    182
    
    
    
    1,218
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,218Issuance of Class B common stock
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    417
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    417Repurchase of Class B common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (568
    )
    
    
    (6,665
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,665
    )Notes and interest receivable from related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    201
    
    
    
    (175
    )
    
    
    
    
    
    
    
    
    
    
    26Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,682
    )
    
    
    (24,682
    )
    
    $
    (24,682
    )Unrealized loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66
    )
    
    
    
    
    
    
    (66
    )
    
    
    (66
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    
    
    
    
    (29
    )
    
    
    (29
    )Balance at September 30, 2003
    
    
    880
    
    
    
    930
    
    
    
    18,662
    
    
    
    172,496
    
    
    
    (884
    )
    
    
    (8,684
    )
    
    
    403
    
    
    
    (3,908
    )
    
    
    (221
    )
    
    
    (27,357
    )
    
    
    133,659
    
    
    $
    (24,777
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    350
    
    
    
    2,196
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,196Issuance of Class B common stock
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    199Conversion of Class A common stock into Class B common
stock
    
    
    (880
    )
    
    
    (930
    )
    
    
    880
    
    
    
    930
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of Class B common stock in business combinations
    
    
    
    
    
    
    
    
    
    
    402
    
    
    
    4,447
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,447Stock option revision charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    552
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    552Notes and interest receivable from related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256
    
    
    
    (205
    )
    
    
    
    
    
    
    
    
    
    
    51Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,503
    )
    
    
    (1,503
    )
    
    $
    (1,503
    )Unrealized loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (176
    )
    
    
    
    
    
    
    (176
    )
    
    
    (176
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    269
    
    
    
    
    
    
    
    269
    
    
    
    269Balance at September 30, 2004
    
    
    
    
    
    $
    
    
    
    
    20,324
    
    
    $
    180,820
    
    
    
    (884
    )
    
    $
    (8,684
    )
    
    $
    659
    
    
    $
    (4,113
    )
    
    $
    (128
    )
    
    $
    (28,860
    )
    
    $
    139,694
    
    
    $
    (1,410
    )
  F-5




---



##### 



TIER TECHNOLOGIES, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Year ended September 30,2004
    
    2003
    
    2002(Restated)
    
    (Restated)
    
    (Restated)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (1,503
    )
    
    $
    (24,682
    )
    
    $
    (15,632
    )Less: Loss from discontinued operations, net
    
    
    (1,440
    )
    
    
    (19,246
    )
    
    
    (22,345
    )(Loss) income from continuing operations, net
    
    
    (63
    )
    
    
    (5,436
    )
    
    
    6,713Non-cash items included in net (loss) income:Depreciation and amortization
    
    
    7,139
    
    
    
    7,631
    
    
    
    6,075Write-down of unbilled receivables
    
    
    
    
    
    
    12,936
    
    
    
    Goodwill and other assets impairment charge
    
    
    571
    
    
    
    91
    
    
    
    (121
    )Stock options revision charge
    
    
    552
    
    
    
    
    
    
    
    Provision for doubtful accounts
    
    
    388
    
    
    
    703
    
    
    
    (255
    )Deferred income taxes
    
    
    25
    
    
    
    (2,325
    )
    
    
    (785
    )Tax benefit of stock options exercised
    
    
    
    
    
    
    
    
    
    
    4,349Interest on, and losses from forgiveness of, notes from related parties
    
    
    2
    
    
    
    (8
    )
    
    
    (71
    )Net effect of changes in assets and liabilities:Accounts receivable
    
    
    9,015
    
    
    
    (9,713
    )
    
    
    (10,356
    )Income taxes payable
    
    
    9,382
    
    
    
    (4,131
    )
    
    
    1,257Prepaid expenses and other assets
    
    
    (485
    )
    
    
    658
    
    
    
    (377
    )Accounts payable and accrued liabilities
    
    
    (1,926
    )
    
    
    466
    
    
    
    (488
    )Deferred revenue
    
    
    780
    
    
    
    139
    
    
    
    130Net cash provided by operating activities from continuing operations
    
    
    25,380
    
    
    
    1,011
    
    
    
    6,071Net cash (used in) provided by operating activities from discontinued operations
    
    
    (1,531
    )
    
    
    (18,874
    )
    
    
    723Net cash provided by (used in) operating activities
    
    
    23,849
    
    
    
    (17,863
    )
    
    
    6,794CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of available-for-sale securities
    
    
    (26,639
    )
    
    
    (35,103
    )
    
    
    (48,293
    )Sales of available-for-sale securities
    
    
    
    
    
    
    5,989
    
    
    
    43,750Maturities of available-for-sale securities
    
    
    32,931
    
    
    
    9,144
    
    
    
    13,518Restricted investments
    
    
    4,403
    
    
    
    223
    
    
    
    (7,376
    )Business combinations, net of cash acquired
    
    
    (15,639
    )
    
    
    294
    
    
    
    (65,668
    )Repayments of notes and accrued interest from related parties
    
    
    
    
    
    
    15
    
    
    
    482Purchase of equipment and software
    
    
    (3,429
    )
    
    
    (1,655
    )
    
    
    (2,108
    )Other investing activities
    
    
    (241
    )
    
    
    (34
    )
    
    
    334Net cash used in investing activities from continuing operations
    
    
    (8,614
    )
    
    
    (21,127
    )
    
    
    (65,361
    )Net cash provided by (used in) investing activities from discontinued operations
    
    
    1,913
    
    
    
    17,841
    
    
    
    (1,954
    )Net cash used in investing activities
    
    
    (6,701
    )
    
    
    (3,286
    )
    
    
    (67,315
    )CASH FLOWS FROM FINANCING ACTIVITIES:Borrowings under bank line of credit
    
    
    2,200
    
    
    
    
    
    
    
    Repayments under bank line of credit
    
    
    (2,200
    )
    
    
    
    
    
    
    (7,500
    )Repurchase of treasury stock
    
    
    
    
    
    
    (6,665
    )
    
    
    Net proceeds from issuance of common stock
    
    
    2,395
    
    
    
    1,635
    
    
    
    90,092Capital lease obligations and other financing arrangements
    
    
    (149
    )
    
    
    (482
    )
    
    
    (1,830
    )Net cash provided by (used in) financing activities from continuing operations
    
    
    2,246
    
    
    
    (5,512
    )
    
    
    80,762Effect of exchange rate changes on cash from continuing operations
    
    
    
    
    
    
    (59
    )
    
    
    (119
    )Effect of exchange rate changes on cash from discontinued operations
    
    
    230
    
    
    
    
    
    
    
    5,221Net increase (decrease) in cash and cash equivalents
    
    
    19,624
    
    
    
    (26,720
    )
    
    
    25,343Cash and cash equivalents at beginning of period
    
    
    8,871
    
    
    
    35,591
    
    
    
    10,248Cash and cash equivalents at end of period
    
    $
    28,495
    
    
    $
    8,871
    
    
    $
    35,591
  F-6




---



##### 



TIER TECHNOLOGIES, INC.
CONSOLIDATED SUPPLEMENTAL CASH FLOW INFORMATION (Continued)
(in thousands)
 Year ended September 30,2004
    
    2003
    
    2002(Restated)
    
    (Restated)
    
    (Restated)Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    99
    
    
    $
    55
    
    
    $
    294Income taxes paid (refunded), net
    
    $
    (9,573
    )
    
    $
    2,988
    
    
    $
    2,373Supplemental disclosures of non-cash transactions:Equipment acquired under capital lease obligations and other financing arrangements
    
    $
    
    
    
    $
    68
    
    
    $
    1,717Class B common stock issued in business combinations
    
    $
    4,447
    
    
    $
    
    
    
    $
    2,604Conversion of Class A common stock to Class B common stock
    
    $
    930
    
    
    $
    
    
    
    $
    98
  F-7




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. OVERVIEW OF ORGANIZATION, RESTATEMENT,
AND SIGNIFICANT ACCOUNTING POLICIES
  Restatement Overview
  EFFECT OF RESTATEMENT ADJUSTMENTS
FISCAL YEARS ENDED SEPTEMBER 30,
(in thousands, except per share data)
 As Previously Reported
    
    
    Restatement Adjustments
    
    
    As Restated2004
    
    2003
    
    2002
    
    
    2004
    
    2003
    
    2002
    
    
    2004
    
    2003
    
    2002Revenues
    
    $
    127,937
    
    
    $
    115,917
    
    
    $
    84,656
    
    
    
    $
    (160
    )
    
    $
    (340
    )
    
    $
    (223
    )
    
    
    $
    127,777
    
    
    $
    115,577
    
    
    $
    84,433Costs and expenses:Direct costs
    
    
    83,637
    
    
    
    89,657
    
    
    
    52,847
    
    
    
    
    762
    
    
    
    
    
    
    
    
    
    
    
    
    84,399
    
    
    
    89,657
    
    
    
    52,847General and administrative
    
    
    27,959
    
    
    
    23,579
    
    
    
    14,360
    
    
    
    
    274
    
    
    
    27
    
    
    
    148
    
    
    
    
    28,233
    
    
    
    23,606
    
    
    
    14,508Selling and marketing
    
    
    7,161
    
    
    
    5,893
    
    
    
    3,853
    
    
    
    
    280
    
    
    
    (312
    )
    
    
    
    
    
    
    
    7,441
    
    
    
    5,581
    
    
    
    3,853Depreciation and amortization
    
    
    4,977
    
    
    
    5,273
    
    
    
    3,761
    
    
    
    
    132
    
    
    
    150
    
    
    
    3
    
    
    
    
    5,109
    
    
    
    5,423
    
    
    
    3,764Restructuring and other charges
    
    
    3,493
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    414
    
    
    
    
    
    
    
    
    3,493
    
    
    
    414
    
    
    
    Total costs and expenses
    
    
    127,227
    
    
    
    124,402
    
    
    
    74,821
    
    
    
    
    1,448
    
    
    
    279
    
    
    
    151
    
    
    
    
    128,675
    
    
    
    124,681
    
    
    
    74,972(Loss) income before other income (loss)
    
    
    710
    
    
    
    (8,485
    )
    
    
    9,835
    
    
    
    
    (1,608
    )
    
    
    (619
    )
    
    
    (374
    )
    
    
    
    (898
    )
    
    
    (9,104
    )
    
    
    9,461Other income:Interest income, net
    
    
    1,149
    
    
    
    1,185
    
    
    
    1,554
    
    
    
    
    (314
    )
    
    
    (281
    )
    
    
    (292
    )
    
    
    
    835
    
    
    
    904
    
    
    
    1,262Total other income
    
    
    1,149
    
    
    
    1,185
    
    
    
    1,554
    
    
    
    
    (314
    )
    
    
    (281
    )
    
    
    (292
    )
    
    
    
    835
    
    
    
    904
    
    
    
    1,262(Loss) income before income
taxes and discontinued operations
    
    
    1,859
    
    
    
    (7,300
    )
    
    
    11,389
    
    
    
    
    (1,922
    )
    
    
    (900
    )
    
    
    (666
    )
    
    
    
    (63
    )
    
    
    (8,200
    )
    
    
    10,723Income tax (benefit) provision
    
    
    105
    
    
    
    (2,764
    )
    
    
    4,084
    
    
    
    
    (105
    )
    
    
    
    
    
    
    (74
    )
    
    
    
    
    
    
    
    (2,764
    )
    
    
    4,010Net (loss) income from continuing operations
    
    
    1,754
    
    
    
    (4,536
    )
    
    
    7,305
    
    
    
    
    (1,817
    )
    
    
    (900
    )
    
    
    (592
    )
    
    
    
    (63
    )
    
    
    (5,436
    )
    
    
    6,713Loss from discontinued operations, net of tax
    
    
    (1,440
    )
    
    
    (19,246
    )
    
    
    (22,345
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,440
    )
    
    
    (19,246
    )
    
    
    (22,345
    )Net (loss) income
    
    $
    314
    
    
    $
    (23,782
    )
    
    $
    (15,040
    )
    
    
    $
    (1,817
    )
    
    $
    (900
    )
    
    $
    (592
    )
    
    
    $
    (1,503
    )
    
    $
    (24,682
    )
    
    $
    (15,632
    )(Loss)
earnings per share:Basic
    
    $
    0.02
    
    
    $
    (1.27
    )
    
    $
    (0.87
    )
    
    
    $
    (0.10
    )
    
    $
    (0.04
    )
    
    $
    (0.04
    )
    
    
    $
    (0.08
    )
    
    $
    (1.31
    )
    
    $
    (0.91
    )Diluted
    
    $
    0.02
    
    
    $
    (1.27
    )
    
    $
    (0.82
    )
    
    
    $
    (0.10
    )
    
    $
    (0.04
    )
    
    $
    (0.09
    )
    
    
    $
    (0.08
    )
    
    $
    (1.31
    )
    
    $
    (0.91
    )
  F-8




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Summary of Restatement Adjustments
 Year Ended September 30,(In thousands)
    
    2004
    
    2003
    
    2002Restatement adjustments:Payment processing center
    
    $
    442
    
    
    $
    (539
    )
    
    $
    (224
    )Project accounting
    
    
    (1,313
    )
    
    
    (90
    )
    
    
    (18
    )Sales commissions
    
    
    (280
    )
    
    
    82
    
    
    
    Related-party notes
    
    
    (275
    )
    
    
    (211
    )
    
    
    (233
    )Accrued expenses
    
    
    (303
    )
    
    
    
    
    
    
    Other miscellaneous adjustments
    
    
    (193
    )
    
    
    (142
    )
    
    
    (191
    )Pre-tax adjustments
    
    
    (1,922
    )
    
    
    (900
    )
    
    
    (666
    )Income taxes
    
    
    105
    
    
    
    
    
    
    
    74Total adjustments to net loss
    
    
    (1,817
    )
    
    
    (900
    )
    
    
    (592
    )Previously reported net income (loss)
    
    
    314
    
    
    
    (23,782
    )
    
    
    (15,040
    )Restated net loss
    
    $
    (1,503
    )
    
    $
    (24,682
    )
    
    $
    (15,632
    )Earnings (loss) per fully diluted share:As previously reported
    
    $
    0.02
    
    
    $
    (1.27
    )
    
    $
    (0.82
    )Restatement adjustments
    
    
    (0.09
    )
    
    
    (0.04
    )
    
    
    (0.03
    )Impact of anti-dilutive stock equivalents(1)
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.06
    )Restated earnings (loss) per fully diluted share
    
    $
    (0.08
    )
    
    $
    (1.31
    )
    
    $
    (0.91
    )Weighted-average diluted number of shares:As previously reported
    
    
    19,322
    
    
    
    18,782
    
    
    
    18,376Anti-dilutive common stock equivalents(1)
    
    
    (335
    )
    
    
    
    
    
    
    (1,151
    )Restated weighted-average diluted shares
    
    
    18,987
    
    
    
    18,782
    
    
    
    17,225
 
 (1)
    
    During fiscal years 2002, Tier incorrectly included anti-dilutive common stock equivalents
in its loss per share calculations. In addition, because the restatement adjustments for fiscal year 2004
changed net income into a loss, the Company removed the impact of anti-dilutive common stock equivalents. Accounting for Payment Processing Centers.
   F-9




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Project Accounting.
  Sales Commissions.
 Related-Party Notes .
 Accrued Expenses.
 F-10




---



##### 



TIER TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Acquisition Adjustments.
 Investments .
 Other Miscellaneous Adjustments.
 Cash Flow Presentation
 F-11




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  As previously
    
    PPC
    
    
    
    
    
    Project
    
    Sales
    
    
    
    
    
    Related
    
    Accrued
    
    Other(in thousands)
    
    reported
    
    Related
    
    Investments
    
    Accounting
    
    Commissions
    
    Acquisition
    
    Party Notes
    
    Expenses
    
    Misc.
    
    Taxes
    
    RestatedAssets:Current assetsCash and cash equivalents
    
    $
    42,061
    
    
    $
    (669
    )
    
    $
    (12,974
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    77
    
    
    $
    
    
    
    $
    28,495Investments in marketable securities
    
    
    13,619
    
    
    
    
    
    
    
    23,593
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,212Restricted investments
    
    
    780
    
    
    
    (780
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accounts receivable, net
    
    
    17,394
    
    
    
    (438
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,086Unbilled receivables
    
    
    5,046
    
    
    
    
    
    
    
    
    
    
    
    (945
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,101Prepaid expenses and other current assets
    
    
    4,617
    
    
    
    
    
    
    
    (84
    )
    
    
    (196
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,337Total current assets
    
    
    83,517
    
    
    
    (1,887
    )
    
    
    10,535
    
    
    
    (1,141
    )
    
    
    
    
    
    
    100
    
    
    
    30
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    91,231Property, equipment and software
    
    
    7,158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    
    
    
    
    7,213Long-term notes/interestrelated parties
    
    
    2,406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,406
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Goodwill
    
    
    37,824
    
    
    
    
    
    
    
    121
    
    
    
    
    
    
    
    
    
    
    
    (418
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,527Other acquired intangibles, net
    
    
    30,761
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    30,771Long-term investments
    
    
    10,537
    
    
    
    
    
    
    
    (10,537
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted investments
    
    
    3,329
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,329Other assets
    
    
    1,937
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    1,909Total assets
    
    $
    177,469
    
    
    $
    (1,887
    )
    
    $
    119
    
    
    $
    (1,141
    )
    
    $
    
    
    
    $
    (318
    )
    
    $
    (2,376
    )
    
    $
    
    
    
    $
    114
    
    
    $
    
    
    
    $
    171,980Liabilities and shareholders equity:Current liabilitiesAccounts payable
    
    $
    2,626
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (2
    )
    
    $
    
    
    
    $
    2,624Income taxes payable
    
    
    7,007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,007Accrued compensation liabilities
    
    
    4,623
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    198
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    4,820Accrued subcontractor expense
    
    
    2,478
    
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,457Other accrued liabilities
    
    
    7,501
    
    
    
    (245
    )
    
    
    
    
    
    
    386
    
    
    
    
    
    
    
    (318
    )
    
    
    
    
    
    
    303
    
    
    
    (194
    )
    
    
    
    
    
    
    7,433Deferred income
    
    
    5,269
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,269Liabilities of discontinued operations
    
    
    121
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    286
    
    
    
    
    
    
    
    407Other current liabilities
    
    
    107
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    373
    
    
    
    494Total current liabilities
    
    
    29,732
    
    
    
    (245
    )
    
    
    
    
    
    
    365
    
    
    
    198
    
    
    
    (318
    )
    
    
    
    
    
    
    303
    
    
    
    103
    
    
    
    373
    
    
    
    30,511Long-term debt, less current portion
    
    
    89
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89Non-current liabilities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other liabilities
    
    
    1,698
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1,686Total liabilities
    
    
    31,519
    
    
    
    (245
    )
    
    
    
    
    
    
    352
    
    
    
    198
    
    
    
    (318
    )
    
    
    
    
    
    
    303
    
    
    
    104
    
    
    
    373
    
    
    
    32,286Shareholders equity:Common stock issued
    
    
    172,136
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,684
    
    
    
    
    
    
    
    180,820Additional paid-in-capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    659
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    659Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,684
    )
    
    
    
    
    
    
    (8,684
    )Note
receivable from related parties
    
    
    (1,773
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,340
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,113
    )Accumulated other comprehensive loss
    
    
    (258
    )
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    (128
    )Accumulated deficit
    
    
    (24,155
    )
    
    
    (1,642
    )
    
    
    (1
    )
    
    
    (1,493
    )
    
    
    (198
    )
    
    
    
    
    
    
    (695
    )
    
    
    (303
    )
    
    
    
    
    
    
    (373
    )
    
    
    (28,860
    )Total shareholders equity
    
    
    145,950
    
    
    
    (1,642
    )
    
    
    119
    
    
    
    (1,493
    )
    
    
    (198
    )
    
    
    
    
    
    
    (2,376
    )
    
    
    (303
    )
    
    
    10
    
    
    
    (373
    )
    
    
    139,694Total liabilities and shareholders equity
    
    $
    177,469
    
    
    $
    (1,887
    )
    
    $
    119
    
    
    $
    (1,141
    )
    
    $
    
    
    
    $
    (318
    )
    
    $
    (2,376
    )
    
    $
    
    
    
    $
    114
    
    
    $
    
    
    
    $
    171,980
 F-12




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  As previously
    
    PPC
    
    
    
    
    
    Project
    
    Sales
    
    
    
    
    
    Related
    
    Accrued
    
    Other(in thousands)
    
    reported
    
    Related
    
    Investments
    
    Accounting
    
    Commissions
    
    Acquisition
    
    Party Notes
    
    Expenses
    
    Misc.
    
    Taxes
    
    RestatedAssets:Current assetsCash and cash equivalents
    
    $
    26,178
    
    
    $
    (4,056
    )
    
    $
    (13,304
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    53
    
    
    $
    
    
    
    $
    8,871Investments in marketable securities
    
    
    5,492
    
    
    
    
    
    
    
    38,158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,650Restricted investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accounts receivable, net
    
    
    20,024
    
    
    
    1,972
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,096Unbilled receivables
    
    
    7,872
    
    
    
    
    
    
    
    
    
    
    
    (180
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,692Prepaid
expenses and other current assets
    
    
    4,602
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,602Assets of discontinued operations
    
    
    3,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,550Total current asset
    
    
    67,718
    
    
    
    (2,084
    )
    
    
    24,854
    
    
    
    (180
    )
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    90,461Property, equipment and software
    
    
    5,422
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    986
    
    
    
    
    
    
    
    6,408Long-term notes/interestrelated parties
    
    
    2,152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,152
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Goodwill
    
    
    29,625
    
    
    
    
    
    
    
    121
    
    
    
    
    
    
    
    
    
    
    
    (418
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,328Other acquired intangibles, net
    
    
    24,832
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    24,844Long-term investments
    
    
    24,883
    
    
    
    
    
    
    
    (24,883
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted investments
    
    
    7,707
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,733Non-current assets of discontinued operations
    
    
    760
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    760Other assets
    
    
    1,875
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35
    )
    
    
    
    
    
    
    1,840Total assets
    
    $
    164,974
    
    
    $
    (2,084
    )
    
    $
    118
    
    
    $
    (180
    )
    
    $
    
    
    
    $
    (318
    )
    
    $
    (2,152
    )
    
    $
    
    
    
    $
    1,016
    
    
    $
    
    
    
    $
    161,374Liabilities and shareholders equity:Current liabilitiesAccounts payable
    
    $
    2,087
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    
    
    
    $
    2,086Income taxes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accrued compensation liabilities
    
    
    3,654
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    3,571Accrued subcontractor expense
    
    
    5,494
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,494Other accrued liabilities
    
    
    8,476
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (318
    )
    
    
    
    
    
    
    
    
    
    
    (325
    )
    
    
    
    
    
    
    7,833Deferred income
    
    
    3,299
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,299Liabilities of discontinued operations
    
    
    2,043
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    377
    
    
    
    
    
    
    
    2,420Other current liabilities
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90
    
    
    
    255
    
    
    
    495Total current liabilities
    
    
    25,203
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82
    )
    
    
    (318
    )
    
    
    
    
    
    
    
    
    
    
    140
    
    
    
    255
    
    
    
    25,198Long-term debt, less current portion
    
    
    195
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    195Non-current liabilities of discontinued operations
    
    
    432
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    432Other liabilities
    
    
    994
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    896
    
    
    
    
    
    
    
    1,890Total liabilities
    
    
    26,824
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (82
    )
    
    
    (318
    )
    
    
    
    
    
    
    
    
    
    
    1,036
    
    
    
    255
    
    
    
    27,715Shareholders equity:Common stock issued
    
    
    164,742
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,684
    
    
    
    
    
    
    
    173,426Additional paid-in-capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    403
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    403Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,684
    )
    
    
    
    
    
    
    (8,684
    )Note
receivable from related parties
    
    
    (1,773
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,135
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,908
    )Accumulated other comprehensive loss
    
    
    (350
    )
    
    
    
    
    
    
    149
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    (221
    )Accumulated deficit
    
    
    (24,469
    )
    
    
    (2,084
    )
    
    
    (31
    )
    
    
    (180
    )
    
    
    82
    
    
    
    
    
    
    
    (420
    )
    
    
    
    
    
    
    
    
    
    
    (255
    )
    
    
    (27,357
    )Total shareholders equity
    
    
    138,150
    
    
    
    (2,084
    )
    
    
    118
    
    
    
    (180
    )
    
    
    82
    
    
    
    
    
    
    
    (2,152
    )
    
    
    
    
    
    
    (20
    )
    
    
    (255
    )
    
    
    133,659Total liabilities and shareholders equity
    
    $
    164,974
    
    
    $
    (2,084
    )
    
    $
    118
    
    
    $
    (180
    )
    
    $
    
    
    
    $
    (318
    )
    
    $
    (2,152
    )
    
    $
    
    
    
    $
    1,016
    
    
    $
    
    
    
    $
    161,374
 F-13




---



##### 



Year ended September 30, 2004As Previously
    
    Restatement(in thousands)
    
    Reported
    
    Adjustments
    
    As RestatedCASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    314
    
    
    $
    (1,817
    )
    
    $
    (1,503
    )Less: Loss from discontinued operations, net
    
    
    (1,440
    )
    
    
    
    
    
    
    (1,440
    )Income (loss) from continuing operations, net
    
    
    1,754
    
    
    
    (1,817
    )
    
    
    (63
    )Non-cash items included in net incomeDepreciation and amortization
    
    
    7,274
    
    
    
    (135
    )
    
    
    7,139Goodwill and other assets impairment charge
    
    
    571
    
    
    
    
    
    
    
    571Stock option revision charge
    
    
    552
    
    
    
    
    
    
    
    552Provision for doubtful accounts
    
    
    205
    
    
    
    183
    
    
    
    388Deferred income taxes
    
    
    25
    
    
    
    
    
    
    
    25Interest on, and losses from forgiveness of, notes from related-parties
    
    
    8
    
    
    
    (6
    )
    
    
    2Net effect of changes in assets and liabilities:Accounts receivable
    
    
    6,653
    
    
    
    2,362
    
    
    
    9,015Income taxes payable
    
    
    9,382
    
    
    
    
    
    
    
    9,382Prepaid expenses and other current assets
    
    
    (1,144
    )
    
    
    659
    
    
    
    (485
    )Accounts payable and accrued liabilities
    
    
    (3,262
    )
    
    
    1,336
    
    
    
    (1,926
    )Deferred revenue
    
    
    780
    
    
    
    
    
    
    
    780Net cash from continuing operations provided by operating activities
    
    
    22,798
    
    
    
    2,582
    
    
    
    25,380Net cash from discontinued operations used in operating activities
    
    
    
    
    
    
    (1,531
    )
    
    
    (1,531
    )Net cash provided by operating activities
    
    
    22,798
    
    
    
    1,051
    
    
    
    23,849CASH FLOWS FROM INVESTING ACTIVITIESPurchases of available-for-sale securities
    
    
    (26,639
    )
    
    
    
    
    
    
    (26,639
    )Maturities of available-for-sale securities
    
    
    32,712
    
    
    
    219
    
    
    
    32,931Restricted investments
    
    
    3,597
    
    
    
    806
    
    
    
    4,403Business combinations, net of cash acquired
    
    
    (15,639
    )
    
    
    
    
    
    
    (15,639
    )Notes and accrued interest receivable from related parties
    
    
    (262
    )
    
    
    262
    
    
    
    Purchase of equipment and software
    
    
    (3,389
    )
    
    
    (40
    )
    
    
    (3,429
    )Other investing activities
    
    
    (244
    )
    
    
    3
    
    
    
    (241
    )Net cash from continuing operations used in by investing activities
    
    
    (9,864
    )
    
    
    1,250
    
    
    
    (8,614
    )Net cash from discontinued operations provided by investing activities
    
    
    
    
    
    
    1,913
    
    
    
    1,913Net cash used in investing activities
    
    
    (9,864
    )
    
    
    3,163
    
    
    
    (6,701
    )CASH FLOWS FROM FINANCING ACTIVITIESBorrowings under bank lines of credit
    
    
    2,200
    
    
    
    
    
    
    
    2,200Payments under bank lines of credit
    
    
    (2,200
    )
    
    
    
    
    
    
    (2,200
    )Net proceeds from issuance common stock
    
    
    2,395
    
    
    
    
    
    
    
    2,395Capital lease obligations and other financing arrangements
    
    
    (149
    )
    
    
    
    
    
    
    (149
    )Net cash from continuing operations provided by financing activities
    
    
    2,246
    
    
    
    
    
    
    
    2,246Effect of exchange rate changes on cash from discontinued operations
    
    
    
    
    
    
    230
    
    
    
    230Net cash provided by discontinued operations
    
    
    703
    
    
    
    (703
    )
    
    
    Net increase in cash and cash equivalents
    
    
    15,883
    
    
    
    3,741
    
    
    
    19,624Cash and cash equivalents at beginning of period
    
    
    26,178
    
    
    
    (17,307
    )
    
    
    8,871Cash and cash equivalents at end of period
    
    $
    42,061
    
    
    $
    (13,566
    )
    
    $
    28,495
 F-14




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Year ended September 30, 2003Restatement(in thousands)
    
    As reported
    
    Adjustments
    
    As restatedCASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (23,782
    )
    
    $
    (900
    )
    
    $
    (24,682
    )Less: Loss from discontinued operations, net
    
    
    (19,246
    )
    
    
    
    
    
    
    (19,246
    )Loss from continuing operations, net
    
    
    (4,536
    )
    
    
    (900
    )
    
    
    (5,436
    )Non-cash items included in net incomeDepreciation and amortization
    
    
    7,435
    
    
    
    196
    
    
    
    7,631Write-down of unbilled receivables
    
    
    
    
    
    
    12,936
    
    
    
    12,936Goodwill and other assets impairment charge
    
    
    91
    
    
    
    
    
    
    
    91Provision for doubtful accounts
    
    
    613
    
    
    
    90
    
    
    
    703Deferred income taxes
    
    
    (2,325
    )
    
    
    
    
    
    
    (2,325
    )Interest on, and losses from forgiveness of, notes from related-parties
    
    
    54
    
    
    
    (62
    )
    
    
    (8
    )Net effect of changes in assets and liabilitiesAccounts receivable
    
    
    3,149
    
    
    
    (12,862
    )
    
    
    (9,713
    )Income taxes payable
    
    
    (4,131
    )
    
    
    
    
    
    
    (4,131
    )Prepaid expenses and other current assets
    
    
    384
    
    
    
    274
    
    
    
    658Accounts payable and accrued liabilities
    
    
    941
    
    
    
    (475
    )
    
    
    466Deferred revenue
    
    
    139
    
    
    
    
    
    
    
    139Net cash from continuing operations provided by operating activities
    
    
    1,814
    
    
    
    (803
    )
    
    
    1,011Net cash from discontinued operations used in operating activities
    
    
    
    
    
    
    (18,874
    )
    
    
    (18,874
    )Net cash provided by (used in) operating activities
    
    
    1,814
    
    
    
    (19,677
    )
    
    
    (17,863
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchases of available-for-sale securities
    
    
    (35,103
    )
    
    
    
    
    
    
    (35,103
    )Sales of available-for-sale securities
    
    
    5,989
    
    
    
    
    
    
    
    5,989Maturities of available-for-sale securities
    
    
    21,461
    
    
    
    (12,317
    )
    
    
    9,144Restricted investments
    
    
    (2
    )
    
    
    225
    
    
    
    223Business combinations, net of cash acquired
    
    
    294
    
    
    
    
    
    
    
    294Notes and accrued interest receivable from related parties
    
    
    (263
    )
    
    
    263
    
    
    
    Repayments on notes and accrued interest receivable from related parties
    
    
    15
    
    
    
    
    
    
    
    15Purchase of equipment and software
    
    
    (1,655
    )
    
    
    
    
    
    
    (1,655
    )Other investing activities
    
    
    
    
    
    
    (34
    )
    
    
    (34
    )Net cash from continuing operations used in investing activities
    
    
    (9,264
    )
    
    
    (11,863
    )
    
    
    (21,127
    )Net cash from discontinued operations provided by investing activities
    
    
    
    
    
    
    17,841
    
    
    
    17,841Net cash used in investing activities
    
    
    (9,264
    )
    
    
    5,978
    
    
    
    (3,286
    )CASH FLOWS FROM FINANCING ACTIVITIESBorrowings under bank lines of credit
    
    
    
    
    
    
    
    
    
    
    Payments under bank lines of credit
    
    
    
    
    
    
    
    
    
    
    Repurchase of Class B common stock
    
    
    (6,665
    )
    
    
    
    
    
    
    (6,665
    )Net proceeds from issuance common stock
    
    
    1,635
    
    
    
    
    
    
    
    1,635Capital lease obligations and other financing arrangements
    
    
    (482
    )
    
    
    
    
    
    
    (482
    )Net cash from continuing operations used in financing activities
    
    
    (5,512
    )
    
    
    
    
    
    
    (5,512
    )Effect of exchange rate changes on cash from continuing operations
    
    
    (59
    )
    
    
    
    
    
    
    (59
    )Net cash used in discontinued operations
    
    
    (1,410
    )
    
    
    1,410
    
    
    
    Net decrease in cash and cash equivalents
    
    
    (14,431
    )
    
    
    (12,289
    )
    
    
    (26,720
    )Cash and cash equivalents at beginning of period
    
    
    40,609
    
    
    
    (5,018
    )
    
    
    35,591Cash and cash equivalents at end of period
    
    $
    26,178
    
    
    $
    (17,307
    )
    
    $
    8,871
 F-15




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Year ended September 30, 2002Restatement(in thousands)
    
    As reported
    
    Adjustments
    
    As RestatedCASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (15,040
    )
    
    $
    (592
    )
    
    $
    (15,632
    )Less: Loss from discontinued operations, net
    
    
    (22,345
    )
    
    
    
    
    
    
    (22,345
    )Income from continuing operations, net
    
    
    7,305
    
    
    
    (592
    )
    
    
    6,713Non-cash items included in net incomeDepreciation and amortization
    
    
    5,840
    
    
    
    235
    
    
    
    6,075Goodwill and other assets impairment charge
    
    
    
    
    
    
    (121
    )
    
    
    (121
    )Provision for doubtful accounts
    
    
    (42
    )
    
    
    (213
    )
    
    
    (255
    )Deferred income taxes
    
    
    (785
    )
    
    
    
    
    
    
    (785
    )Tax benefit of stock options exercised
    
    
    4,349
    
    
    
    
    
    
    
    4,349Recognized loss from forgiveness of notes from related-parties
    
    
    65
    
    
    
    (136
    )
    
    
    (71
    )Net effect of changes in assets and liabilities:Accounts receivable
    
    
    (9,449
    )
    
    
    (907
    )
    
    
    (10,356
    )Income taxes payable
    
    
    1,257
    
    
    
    
    
    
    
    1,257Prepaid expenses and other current assets
    
    
    (342
    )
    
    
    (35
    )
    
    
    (377
    )Accounts payable and accrued liabilities
    
    
    (629
    )
    
    
    141
    
    
    
    (488
    )Deferred revenue
    
    
    130
    
    
    
    
    
    
    
    130Net cash from continuing operations provided by operating activities
    
    
    7,699
    
    
    
    (1,628
    )
    
    
    6,071Net cash from discontinued operations provided by operating activities
    
    
    
    
    
    
    723
    
    
    
    723Net cash provided by operating activities
    
    
    7,699
    
    
    
    (905
    )
    
    
    6,794CASH FLOWS FROM INVESTING ACTIVITIESPurchases of available-for-sale securities
    
    
    (48,293
    )
    
    
    
    
    
    
    (48,293
    )Sales of available-for-sale securities
    
    
    43,750
    
    
    
    
    
    
    
    43,750Maturities of available-for-sale securities
    
    
    14,476
    
    
    
    (958
    )
    
    
    13,518Restricted investments
    
    
    (7,125
    )
    
    
    (251
    )
    
    
    (7,376
    )Business combinations, net of cash acquired
    
    
    (65,668
    )
    
    
    
    
    
    
    (65,668
    )Notes and accrued interest receivable from related parties
    
    
    (338
    )
    
    
    338
    
    
    
    Repayments on notes and accrued interest receivable from related parties
    
    
    482
    
    
    
    
    
    
    
    482Purchase of equipment and software
    
    
    (2,108
    )
    
    
    
    
    
    
    (2,108
    )Other investing activities
    
    
    85
    
    
    
    249
    
    
    
    334Net cash from continuing operations used in investing activities
    
    
    (64,739
    )
    
    
    (622
    )
    
    
    (65,361
    )Net cash from discontinued operations used in investing activities
    
    
    
    
    
    
    (1,954
    )
    
    
    (1,954
    )Net cash used in investing operations
    
    
    (64,739
    )
    
    
    (2,576
    )
    
    
    (67,315
    )CASH FLOWS FROM FINANCING ACTIVITIESPayments under bank lines of credit
    
    
    (7,500
    )
    
    
    
    
    
    
    (7,500
    )Net proceeds from issuance common stock
    
    
    90,092
    
    
    
    
    
    
    
    90,092Capital lease obligations and other financing arrangements
    
    
    (1,830
    )
    
    
    
    
    
    
    (1,830
    )Net cash from continuing operations provided by financing activities
    
    
    80,762
    
    
    
    
    
    
    
    80,762Effect of exchange rate changes on cash from continuing operations
    
    
    (119
    )
    
    
    
    
    
    
    (119
    )Effect of exchange rate changes on cash from discontinued operations
    
    
    
    
    
    
    5,221
    
    
    
    5,221Net cash provided by discontinued operations
    
    
    3,990
    
    
    
    (3,990
    )
    
    
    Net increase in cash and cash equivalents
    
    
    27,593
    
    
    
    (2,250
    )
    
    
    25,343Cash and cash equivalents at beginning of period
    
    
    13,016
    
    
    
    (2,768
    )
    
    
    10,248Cash and cash equivalents at end of period
    
    $
    40,609
    
    
    $
    (5,018
    )
    
    $
    35,591
 F-16




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Basis of Presentation
  Use of Estimates
  Revenue Recognition and Credit Risk
  Transaction and Payment Processing Revenue Recognition.
 Systems Design and Integration 
  F-17




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      Maintenance and Support Services 
 Multiple Elements Arrangements Revenue Arrangements with Multiple Deliverables
 Customer Concentration and Risk
  F-18




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        F-19




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Cash and Cash Equivalents
    Fair Value of Financial Instruments
  Investments
    F-20




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  September 30, 2004
    
    September 30, 2003(Restated)
    
    (Restated)Unrealized
    
    Estimated
    
    
    
    
    
    Unrealized
    
    Unrealized
    
    Estimated(in thousands)
    
    Cost
    
    loss
    
    fair value
    
    Cost
    
    gain
    
    loss
    fair valueCash equivalents:Money market
    
    $
    15,465
    
    
    $
    
    
    
    $
    15,465
    
    
    $
    6,254
    
    
    $
    
    
    
    $
    (26
    )
    
    $
    6,228Municipal bonds/notes
    
    
    5,199
    
    
    
    (4
    )
    
    
    5,195
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    U.S. government sponsored enterprise obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    550
    
    
    
    
    
    
    
    
    
    
    
    550Total investments included in cash and
cash equivalents
    
    
    20,664
    
    
    
    (4
    )
    
    
    20,660
    
    
    
    6,804
    
    
    
    
    
    
    
    (26
    )
    
    
    6,778Investments in marketable securities:Debt securities
    
    
    20,618
    
    
    
    (30
    )
    
    
    20,588
    
    
    
    36,581
    
    
    
    35
    
    
    
    (6
    )
    
    
    36,610U.S. government sponsored enterprise obligations
    
    
    7,899
    
    
    
    (40
    )
    
    
    7,859
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mutual funds
    
    
    5,235
    
    
    
    (70
    )
    
    
    5,165
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    
    7,000Equity securities
    
    
    3,600
    
    
    
    
    
    
    
    3,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    40Total short-term investments
    
    
    37,352
    
    
    
    (140
    )
    
    
    37,212
    
    
    
    43,621
    
    
    
    35
    
    
    
    (6
    )
    
    
    43,650Restricted investments:U.S. government sponsored enterprise obligations
    
    
    3,307
    
    
    
    
    
    
    
    3,307
    
    
    
    2,997
    
    
    
    
    
    
    
    (1
    )
    
    
    2,996Municipal notes/bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,374
    
    
    
    30
    
    
    
    
    
    
    
    4,404Certificate of deposit and money market
    
    
    22
    
    
    
    
    
    
    
    22
    
    
    
    333
    
    
    
    
    
    
    
    
    
    
    
    333Total restricted investments
    
    
    3,329
    
    
    
    
    
    
    
    3,329
    
    
    
    7,704
    
    
    
    30
    
    
    
    (1
    )
    
    
    7,733Total investments
    
    $
    61,345
    
    
    $
    (144
    )
    
    $
    61,201
    
    
    $
    58,129
    
    
    $
    65
    
    
    
    (33
    )
    
    $
    58,161
  Fair value(in thousands)
    
    (Restated)Within one year
    
    $
    12,466One to five years
    
    
    4,167Greater than ten years
    
    
    3,955Total
    
    $
    20,588
   Advertising Expense
  Equipment and Software
  F-21




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Long-Lived Assets
    Software Development Costs
 Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed
 Internal Use Software Costs
 Accounting for the Costs of Computer Software Developed or Obtained for Internal Use
 F-22




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Stock-Based Compensation
 Accounting for Stock-Based Compensation Costs  Transition
and Disclosure Accounting
for Stock Issued to Employees Accounting for Stock-Based Compensation Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services
  Year Ended September 30,2004
    
    2003
    
    2002(Restated)
    
    (Restated)
    
    (Restated)(in thousands, except per share data)Net loss, as restated
    
    $
    (1,503
    )
    
    $
    (24,682
    )
    
    $
    (15,632
    )Add: Stock-based compensation
expense included in reported net
loss, net of related tax effects
    
    
    552
    
    
    
    3⁄4
    
    
    
    1,902Deduct: Total stock-based
compensation expense determined
under fair value-based method
for all awards, net of tax
effects
    
    
    2,440
    
    
    
    3,530
    
    
    
    3,823Net loss, pro forma
    
    $
    (3,391
    )
    
    $
    (28,212
    )
    
    $
    (17,553
    )Basic and diluted loss per share:As restated
    
    $
    (0.08
    )
    
    $
    (1.31
    )
    
    $
    (0.91
    )Pro forma
    
    $
    (0.18
    )
    
    $
    (1.50
    )
    
    $
    (1.02
    )
  Year Ended September 30,2004
    
    2003
    
    2002Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    47.0% - 70.8
    %
    
    
    59.0% - 71.9
    %
    
    
    47.0%-72.6
    %Risk-free interest rate
    
    
    2.46% - 4.88
    %
    
    
    1.66% - 3.55
    %
    
    
    2.60% - 5.11
    %Expected life of the option
    
    
    1.0 to 7 years
    
    
    
    1.5 to 6 years
    
    
    1.5 - 6 years
 Income Taxes
 Accounting for Income Taxes
 Earnings (Loss) Per Share
  F-23




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Earnings Per
Share
 Comprehensive Income (Loss)
 Reporting Comprehensive Income
 Segment Reporting
   Guarantees
  F-24




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Impact of Recently Issued Accounting Standards
 The Meaning of Other than Temporary
Impairment Accounting for
Certain Investments in Debt and Equity Securities
   F-25




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2. (LOSS) EARNINGS PER SHARE
  Years Ended September 30,2004
    
    2003
    
    2002(Restated)
    
    (Restated)
    
    (Restated)(in thousands, except per share data)(Loss) earnings from continuing operations, net of income taxes
    
    $
    (63
    )
    
    $
    (5,436
    )
    
    $
    6,713Loss from discontinued operations, net of income taxes
    
    
    (1,440
    )
    
    
    (19,246
    )
    
    
    (22,345
    )Net loss
    
    $
    (1,503
    )
    
    $
    (24,682
    )
    
    $
    (15,632
    )Denominator for basic (loss) earnings per share-weighted average common
shares outstanding
    
    
    18,987
    
    
    
    18,782
    
    
    
    17,225Effects of dilutive securities:Common stock options
    
    
    
    
    
    
    
    
    
    
    Contingently issuable shares
    
    
    
    
    
    
    
    
    
    
    Denominator for diluted (loss) anings per share-adjusted weighted average
common shares and assumed conversions
    
    
    18,987
    
    
    
    18,782
    
    
    
    17,225(Loss) earnings per shareBasic:Continuing operations
    
    $
    
    
    
    $
    (0.29
    )
    
    $
    0.39Discontinued operations
    
    $
    (0.08
    )
    
    $
    (1.02
    )
    
    $
    (1.30
    )Loss per shareBasic
    
    $
    (0.08
    )
    
    $
    (1.31
    )
    
    $
    (0.91
    )(Loss) earnings per shareDiluted:Continuing operations
    
    $
    
    
    
    $
    (0.29
    )
    
    $
    0.39Discontinued operations
    
    $
    (0.08
    )
    
    $
    (1.02
    )
    
    $
    (1.30
    )Loss per shareDiluted
    
    $
    (0.08
    )
    
    $
    (1.31
    )
    
    $
    (0.91
    )
  3. BALANCE SHEET COMPONENTS
  September 30,2004
    
    2003(Restated)
    
    (Restated)(in thousands)Land and building
    
    $
    2,452
    
    
    $
    3⁄4Computer equipment
    
    
    8,757
    
    
    
    5,070Software
    
    
    14,558
    
    
    
    11,758Furniture, equipment and leasehold improvements
    
    
    4,649
    
    
    
    5,02830,416
    
    
    
    21,856Less: Accumulated depreciation and amortization
    
    
    (23,203
    )
    
    
    (15,448
    )$
    7,213
    
    
    $
    6,408
 F-26




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    4. GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS
   September 30, 2004 (Restated)
    
    September 30, 2003 (Restated)Amortization
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    
    
    
    AccumulatedPeriod
    
    Gross
    
    Amortization
    
    Net
    
    Gross
    
    Amortization
    
    Net(in thousands)
    
    (in thousands)Client relationships
    
    10 years
    
    $
    28,640
    
    
    $
    (5,429
    )
    
    $
    23,211
    
    
    $
    24,400
    
    
    $
    (2,847
    )
    
    $
    21,553Trademarks
    
    3 years
    
    
    3,214
    
    
    
    (697
    )
    
    
    2,517
    
    
    
    3,214
    
    
    
    (375
    )
    
    
    2,839Technology
    
    10 years
    
    
    740
    
    
    
    (534
    )
    
    
    206
    
    
    
    740
    
    
    
    (288
    )
    
    
    452Acquired contracts
    
    12 months
    
    
    500
    
    
    
    (500
    )
    
    
    3⁄4
    
    
    
    500
    
    
    
    (500
    )
    
    
    3⁄4Backlog and acquired contracts
    
    1 year
    
    
    675
    
    
    
    (238
    )
    
    
    437
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Technology
    
    5 years
    
    
    4,150
    
    
    
    (277
    )
    
    
    3,873
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Technology & research and
development
    
    7 years
    
    
    30
    
    
    
    (1
    )
    
    
    29
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Non-compete agreements
    
    3 years
    
    
    560
    
    
    
    (62
    )
    
    
    498
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    3⁄4Other acquired
intangible assets, net
    
    
    
    
    
    $
    38,509
    
    
    $
    (7,738
    )
    
    $
    30,771
    
    
    $
    28,854
    
    
    $
    (4,010
    )
    
    $
    24,844
  F-27




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Years Ending September 30,2005
    
    $
    4,8482006
    
    
    4,2052007
    
    
    4,1432008
    
    
    4,0182009
    
    
    3,741$
    20,955
  Business
    
    Packaged
    
    ElectronicProcessing
    
    Software and
    
    PaymentOutsourcing
    
    Systems
    
    Processing
    
    Total(Restated)
    
    Integration
    
    (Restated)
    
    (Restated)Balance as of September 30, 2003
    
    $
    5,284
    
    
    $
    9,721
    
    
    $
    14,323
    
    
    $
    29,328Acquisition of EPOS Corporation
    
    
    3⁄4
    
    
    
    8,199
    
    
    
    3⁄4
    
    
    
    8,199Balance as of September 30, 2004
    
    $
    5,284
    
    
    $
    17,920
    
    
    $
    14,323
    
    
    $
    37,527
  Year EndedSeptember 30, 2002(in thousands, except per share date)
    
    (Restated)Reported net loss
    
    $
    (15,632
    )Add back: Goodwill amortization, net of tax
    
    
    2,324Adjusted net loss
    
    $
    (13,308
    )Net loss per basic and diluted share:As reported
    
    $
    (0.91
    )Goodwill amortization, net of tax
    
    
    0.14Adjusted net loss per basic share
    
    $
    (0.77
    )
 5. BANK LINES OF CREDIT
   F-28




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   6. COMMITMENTS AND CONTINGENCIES
  Operating
    
    
    CapitalLeases
    
    
    Leases(in thousands)Year ending September 30,2005
    
    $
    3,943
    
    
    $
    1242006
    
    
    2,252
    
    
    
    902007
    
    
    1,966
    
    
    
    42008
    
    
    1,552
    
    
    
    3⁄42009
    
    
    1,119
    
    
    
    Thereafter
    
    
    518
    
    
    
    Total minimum lease payments
    
    $
    11,350
    
    
    
    218Less amounts representing interest
    
    
    
    
    
    
    (22
    )Present value of capital lease obligations
    
    
    
    
    
    
    196Less amounts due within one year
    
    
    
    
    
    
    (107
    )$
    89
    7. SHAREHOLDERS EQUITY
 Common Stock
   F-29




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Common Stock Repurchase Program
  1996 Equity Incentive Plan
  F-30




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Weighted AverageNumber of Shares
    
    Exercise Price(in thousands)Options outstanding at September 30, 2001
    
    
    3,674
    
    
    $
    8.19Options granted
    
    
    712
    
    
    $
    16.15Options cancelled
    
    
    (270
    )
    
    $
    8.23Options exercised
    
    
    (1,575
    )
    
    $
    7.87Options outstanding at September 30, 2002
    
    
    2,541
    
    
    $
    10.61Options granted
    
    
    664
    
    
    $
    15.24Options cancelled
    
    
    (306
    )
    
    $
    13.44Options exercised
    
    
    (182
    )
    
    $
    6.70Options outstanding at September 30, 2003
    
    
    2,717
    
    
    $
    11.68Options granted
    
    
    782
    
    
    $
    8.29Options cancelled
    
    
    (702
    )
    
    $
    12.95Options exercised
    
    
    (350
    )
    
    $
    6.28Options outstanding at September 30, 2004
    
    
    2,447
    
    
    $
    11.00
   Options Outstanding
    
    Options ExercisableWeighted Average
    
    Weighted
    
    
    
    
    
    WeightedRange of
    
    Number
    
    Remaining
    
    Average
    
    Number
    
    AverageExercise Prices
    
    Outstanding
    
    Contractual Life
    
    Exercise Price
    
    Exercisable
    
    Exercise Price(in thousands)
    
    
    
    
    
    
    
    
    
    (in thousands)$
    3.25 - $6.50
    
    
    
    342
    
    
    
    5.15
    
    
    $
    5.81
    
    
    
    311
    
    
    $
    5.83$
    6.81-$7.78
    
    
    
    197
    
    
    
    5.36
    
    
    $
    7.18
    
    
    
    194
    
    
    $
    7.18$
    7.81-$7.81
    
    
    
    462
    
    
    
    9.17
    
    
    $
    7.81
    
    
    
    
    
    
    $
    $
    7.86-$9.10
    
    
    
    385
    
    
    
    7.85
    
    
    $
    8.74
    
    
    
    203
    
    
    $
    8.55$
    9.19-$14.25
    
    
    
    250
    
    
    
    6.34
    
    
    $
    11.65
    
    
    
    201
    
    
    $
    11.98$
    14.82-$16.12
    
    
    
    327
    
    
    
    5.80
    
    
    $
    15.46
    
    
    
    299
    
    
    $
    15.40$
    16.38-$17.75
    
    
    
    404
    
    
    
    7.33
    
    
    $
    17.29
    
    
    
    211
    
    
    $
    17.48$
    17.81-$17.81
    
    
    
    5
    
    
    
    3.75
    
    
    $
    17.81
    
    
    
    5
    
    
    $
    17.81$
    19.56-$19.56
    
    
    
    40
    
    
    
    7.31
    
    
    $
    19.56
    
    
    
    40
    
    
    $
    19.56$
    20.70-$20.70
    
    
    
    35
    
    
    
    7.26
    
    
    $
    20.70
    
    
    
    14
    
    
    $
    20.70$
    3.25-$20.70
    
    
    
    2,447
    
    
    
    6.98
    
    
    $
    11.00
    
    
    
    1,478
    
    
    $
    11.37
 Employee Stock Purchase Plan
  F-31




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Additional Paid-in-Capital
  8. ACQUISITIONS
     F-32




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Description
    
    Amount
    
    
    Estimated Useful LifeClient relationships
    
    $
    4,240
    
    
    10 yearsBacklog and acquired contracts
    
    
    600
    
    
    1 yearTechnology
    
    
    4,150
    
    
    5 yearsTechnology & research and development
    
    
    30
    
    
    7 yearsNon-compete agreement
    
    
    560
    
    
    3 yearsTotal
    
    $
    9,580
    Accounts receivable
    
    $
    1,514Prepaid expenses and other current assets
    
    
    989Property, equipment and software
    
    
    2,413Other assets
    
    
    37Deferred income tax asset
    
    
    25Accounts payable and accrued expenses
    
    
    (1,473
    )Deferred revenue
    
    
    (1,190
    )Other long-term liability
    
    
    (9
    )Other acquired intangible assets
    
    
    9,580Goodwill
    
    
    8,199Total consideration
    
    $
    20,085
 F-33




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Year ended September 30,2004
    
    2003
    
    2002(Restated)
    
    (Restated)
    
    (Restated)Revenues
    
    $
    143,405
    
    
    $
    126,807
    
    
    $
    97,537Net loss
    
    $
    (1,481
    )
    
    $
    (25,058
    )
    
    $
    (16,281
    )Basic and diluted loss per share
    
    $
    (0.08
    )
    
    $
    (1.33
    )
    
    $
    (0.95
    )Shares used in computing basic and diluted loss per share
    
    
    18,987
    
    
    
    18,782
    
    
    
    17,225
   9. RELATED PARTY TRANSACTIONS
 Notes Receivable from Shareholders
     F-34




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 10. SEGMENT INFORMATION
  RestatedGBPO
    
    PSSI
    
    EPP
    
    Eliminations
    
    Total(in thousands)For the Fiscal Year Ended September 30, 2004Revenues
    
    $
    45,205
    
    
    $
    41,903
    
    
    $
    40,669
    
    
    $
    
    
    
    $
    127,777Direct costs
    
    
    28,774
    
    
    
    27,538
    
    
    
    28,448
    
    
    
    (361
    )
    
    
    84,399For the Fiscal Year Ended September 30, 2003Revenues
    
    
    48,465
    
    
    
    30,107
    
    
    
    37,005
    
    
    
    
    
    
    
    115,577Direct costs
    
    
    29,939
    
    
    
    33,033
    
    
    
    26,685
    
    
    
    
    
    
    
    89,657For the Fiscal Year Ended September 30, 2002Revenues
    
    
    40,377
    
    
    
    40,356
    
    
    
    3,700
    
    
    
    
    
    
    
    84,433Direct costs
    
    
    22,854
    
    
    
    27,308
    
    
    
    2,685
    
    
    
    
    
    
    
    52,847
 11. INCOME TAXES
  September 30,2004
    
    2003(Restated)
    
    (Restated)(in thousands)Deferred tax liabilities:Intangibles
    
    $
    6,246
    
    
    $
    1,911Internally developed software
    
    
    552
    
    
    
    709Other deferred tax liabilities
    
    
    267
    
    
    
    402Total deferred tax liabilities
    
    
    7,065
    
    
    
    3,022Deferred tax assets:Accrued expenses
    
    
    2,930
    
    
    
    2,098Deferred income
    
    
    41
    
    
    
    39Depreciation
    
    
    233
    
    
    
    149Accounts receivable allowance
    
    
    456
    
    
    
    362Net operating loss carryforward
    
    
    25,520
    
    
    
    24,135Foreign tax credit carryforward
    
    
    584
    
    
    
    26Valuation allowance
    
    
    (22,699
    )
    
    
    (23,787
    )Total deferred tax assets
    
    
    7,065
    
    
    
    3,022Net deferred tax assets (liabilities)
    
    $
    
    
    
    $
    
 F-35




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
      Year Ended September 30,2004
    
    2003
    
    2002(Restated)
    
    (Restated)
    
    (Restated)(in thousands)Current (benefit):Federal
    
    $
    
    
    
    $
    (2,496
    )
    
    $
    4,100State
    
    
    
    
    
    
    (268
    )
    
    
    433Foreign
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    
    (2,764
    )
    
    
    4,525Deferred (benefit):Federal
    
    
    
    
    
    
    
    
    
    
    (471
    )State
    
    
    
    
    
    
    
    
    
    
    (44
    )
    
    
    
    
    
    
    
    (515
    )Total provision (benefit) for income taxes
    
    $
    
    
    
    $
    (2,764
    )
    
    $
    4,010
  Year Ended September 30,2004
    
    
    2003
    
    
    2002(Restated)
    
    
    (Restated)
    
    
    (Restated)U.S statutory federal tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %State taxes, net of federal tax benefit
    
    
    (111.0
    )%
    
    
    3.9
    %
    
    
    4.0
    %Tax exempt interest income
    
    
    307.8
    %
    
    
    0.7
    %
    
    
    (3.4
    )%Keyman life insurance
    
    
    (11.1
    )%
    
    
    (0.1
    )%
    
    
    Meals and entertainment
    
    
    (145.6
    )%
    
    
    (1.1
    )%
    
    
    1.0
    %Valuation allowance
    
    
    (71.0
    )%
    
    
    (3.7
    )%
    
    
    2.0
    %Other
    
    
    (3.1
    )%
    
    
    
    
    
    
    (0.2
    )%Effective tax rate
    
    
    
    
    
    
    33.7
    %
    
    
    37.4
    %
 F-36




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 12. RETIREMENT PLAN
  13. RESTRUCTURING
     Liability as of
    
    Additions/
    
    Cash
    
    Liability as ofSeptember 30, 2002
    
    Reductions
    
    Payments
    
    September 30, 2003Severance  OPC
    
    $
    2,254
    
    
    $
    (38
    )
    
    $
    (1,083
    )
    
    $
    1,133Facilities closure  OPC
    
    
    513
    
    
    
    (15
    )
    
    
    (361
    )
    
    
    137Severance  continuing operations
    
    
    3⁄4
    
    
    
    280
    
    
    
    (280
    )
    
    
    Facilities closure  continuing operations
    
    
    3⁄4
    
    
    
    53
    
    
    
    3⁄4
    
    
    
    53Severance  discontinued operations
    
    
    3⁄4
    
    
    
    427
    
    
    
    (249
    )
    
    
    178Facilities closure  discontinued operations
    
    
    3⁄4
    
    
    
    829
    
    
    
    3⁄4
    
    
    
    829$
    2,767
    
    
    $
    1,536
    
    
    $
    (1,973
    )
    
    $
    2,330
  Liability as of
    
    Additions/
    
    Cash
    
    Liability as ofSeptember 30, 2003
    
    (Reductions)
    
    Payments
    
    September 30, 2004Severance  OPC
    
    $
    1,133
    
    
    $
    3⁄4
    
    
    $
    (501
    )
    
    $
    632Facilities closure  OPC
    
    
    137
    
    
    
    3⁄4
    
    
    
    (91
    )
    
    
    46Severance  continuing operations
    
    
    3⁄4
    
    
    
    986
    
    
    
    (515
    )
    
    
    471Facilities closure  continuing operations
    
    
    53
    
    
    
    1,357
    
    
    
    (640
    )
    
    
    770Severance  discontinued operations
    
    
    178
    
    
    
    787
    
    
    
    (965
    )
    
    
    3⁄4Facilities closure  discontinued operations
    
    
    829
    
    
    
    (385
    )
    
    
    (330
    )
    
    
    114$
    2,330
    
    
    $
    2,745
    
    
    $
    (3,042
    )
    
    $
    2,033
 F-37




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 14. DISCONTINUED OPERATIONS
     Year Ended September 30,2004
    
    2003
    
    2002Revenues
    
    $
    1,780
    
    
    $
    11,185
    
    
    $
    19,158Loss from operations of discontinued operation,
adjusted for applicable provision (benefit) for
income taxes of $0, ($538), and $592 for the years
ended September 30, 2004, 2003 and 2002,
respectively
    
    
    (1,440
    )
    
    
    (19,246
    )
    
    
    (3,894
    )Loss on disposal of discontinued operation,
including income taxes of $356 for the year ended
September 30, 2002
    
    
    
    
    
    
    
    
    
    
    (18,451
    )Loss from discontinued operation, net of income taxes
    
    $
    (1,440
    )
    
    $
    (19,246
    )
    
    $
    (22,345
    )
 15. LEGAL PROCEEDINGS
  F-38




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 16. SUBSEQUENT EVENTS
 Investments
  17. SUBSEQUENT EVENTS (Unaudited)
 Events Related to the Audit Committee Investigation and the Restatement
      F-39




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Bank Line of Credit
    Related-Party Agreements
 CPAS.
 James R. Weaver.
  F-40




---



##### 



TIER TECHNOLOGIES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Jeffrey A. McCandless
 Employment Agreement
    System Outage
  F-41




---



##### 



TIER TECHNOLOGIES, INC.
SCHEDULE II
Valuation and Qualifying Accounts
 Balance at
    
    
    
    
    
    
    
    
    
    Balance atBeginning of
    
    Additions/
    
    
    
    
    
    End ofPeriod
    
    (Reductions)
    
    Write-offs
    
    Period(Restated)
    
    (Restated)
    
    (Restated)
    
    (Restated)Year Ended September 30, 2004:Allowance for doubtful receivables
    
    $
    843
    
    
    $
    150
    
    
    $
    (314
    )
    
    $
    679Allowance for NSF and mispost receivables
    
    
    1,659
    
    
    
    1,057
    
    
    
    (464
    )
    
    
    2,252Deferred tax asset valuation allowance
    
    
    23,787
    
    
    
    (1,088
    )
    
    
    
    
    
    
    22,699Inventory
allowance
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    75Year Ended September 30, 2003:Allowance for doubtful accounts receivables
    
    
    650
    
    
    
    1,074
    
    
    
    (881
    )
    
    
    843Allowance for NSF and mispost receivables
    
    
    864
    
    
    
    826
    
    
    
    (31
    )
    
    
    1,659Deferred tax asset valuation allowance
    
    
    14,363
    
    
    
    9,424
    
    
    
    
    
    
    
    23,787Year Ended September 30, 2002:Allowance for doubtful accounts receivables
    
    
    209
    
    
    
    470
    
    
    
    (29
    )
    
    
    650Allowance for NSF and mispost receivables
    
    
    810
    
    
    
    487
    
    
    
    (433
    )
    
    
    864Deferred tax asset valuation allowance
    
    
    215
    
    
    
    14,148
    
    
    
    
    
    
    
    14,363
 S- 1




---



##### 



SIGNATURES
  Tier Technologies, Inc.Dated: October 19, 2006
    By:
    /s/ Ronald L. RossettiRonald L. RossettiChief Executive Officer




---



##### 



EXHIBIT INDEX
 ExhibitNumber
    
    Exhibit Description3.1
    
    Amended and Restated Articles of Incorporation(5)3.2
    
    Amended and Restated Bylaws(1)4.1
    
    Form of Class B common stock Certificate(2)4.2
    
    See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Articles of Incorporation and Amended and Restated Bylaws of the Registrant defining rights of the holders of Class B common stock of the Registrant10.1
    
    Amended and Restated 1996 Equity Incentive Plan, dated January 28, 1999(9)*10.2
    
    Third Amended and Restated Employment Agreement by and between the Registrant and James L. Bildner, dated as of October 1, 2000(9)*10.3
    
    Full Recourse Promissory Note by and between the Registrant and James L. Bildner, dated as of January 2, 1997(2)10.4
    
    Full Recourse Promissory Note by and between the Registrant and James L. Bildner, dated as of May 31, 1997(2)10.5
    
    Full Recourse Promissory Note by and between the Registrant and James L. Bildner, dated as of July 15, 1997(2)10.6
    
    Amended and Restated Full Recourse Secured Promissory Note, dated as of April 1, 1998, and Amended and Restated Pledge Agreement dated April 1, 1998, by and between the Registrant and James L. Bildner(3)10.7
    
    Amended and Restated Full Recourse Secured Promissory Note, dated as of April 1, 1998, and Amended and Restated Pledge Agreement dated April 1, 1998, by and between the Registrant and James L. Bildner(3)10.8
    
    Form of Indemnification Agreement(2)10.9
    
    Tier Corporation 401(k) Plan, Summary Plan Description(2)10.10
    
    Employee Stock Purchase Plan(7)*10.11
    
    Amended and Restated Pledge Agreement, dated as of June 30, 1999, by and between the Registrant and James L. Bildner.(4)10.12
    
    Second Amended and Restated Pledge Agreement, dated as of June 30, 1999, by and between the Registrant and James L. Bildner.(4)10.13
    
    Third Amended and Restated Pledge Agreement, dated as of June 30, 1999, by and between the Registrant and James L. Bildner.(4)10.14
    
    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).(6)10.15
    
    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).(6)10.16
    
    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).(6)10.17
    
    Pledge Agreement by and between the Registrant and James L. Bildner, dated as of March 27, 2000.(6)10.18
    
    Full Recourse Promissory Note by and between the Registrant and James L. Bildner, dated as of July 26, 2000(8)10.19
    
    Full Recourse Promissory Note by and between the Registrant and James Weaver, dated as of September 18,
2000(8)10.20
    
    Incentive Compensation Plan (9)*




---



##### 



ExhibitNumber
    
    Exhibit Description10.21
    
    Severance and Change in Control Benefits Agreement by and between the Registrant and James Weaver(10) *10.22
    
    Full Recourse Unsecured Promissory note by and between the Registrant and Harry Wiggins, dated as of October 22,
2001(11)10.23
    
    First Amendment to the Third Amended and Restated Employment Agreement by and between the Registrant and James L.
Bildner, dated August 8, 2002 (12)*10.24
    
    Severance and Change in Control Benefits Agreement by and between the Registrant and Laura B. DePole, dated August 22,
2002 (12) *10.25
    
    Amended Employment Agreement by and between the Registrant and Harry Wiggins, dated September 29, 2002(12)*10.26
    
    Credit and Security Agreement as of January 29, 2003 by and between the Registrant and City National Bank(13)10.27
    
    Termination Agreement dated October 14, 2003 by and between the Company and James L. Bildner(14)*10.28
    
    Separation Agreement dated December 12, 2003 by and between the Company and Harry Wiggins(14)*10.29
    
    Employment Agreement dated July 2, 2003 by and between the Company and Mr. Jeffrey A. McCandless(15)*10.30
    
    Pledge Agreement between the Company and James L. Bildner, dated April 1, 2004(16)10.31
    
    First Amendment to the Pledge Agreement between the Company and James L. Bildner, dated June 14, 2004(16)10.32
    
    First Amendment to the Second Amended and Restated Pledge Agreement between the Company and James L. Bildner, dated June
14, 2004(16)10.33
    
    First Amendment to the Third Amended and Restated Pledge Agreement between the Company and James L. Bildner, dated June
14, 2004(16)10.34
    
    Agreement and Plan of Merger among the Company, Baker Acquisition Corporation, EPOS Corporation, the individuals named herein, and Michael A. Lawler, as Shareholder Representative, dated
June 1, 2004(16)10.35
    
    Executive Employment Agreement, dated November 9, 2004, by and between Registrant and James Weaver(17)*10.36
    
    Form of Incentive Stock Option Agreement under the Registrants Amended and Restated 1996 Equity Incentive Plan(17) *10.37
    
    Form of Nonstatutory Stock Option Agreement under the Registrants Amended and Restated 1996 Equity Incentive Plan(17) *10.38
    
    Employment Agreement dated May 28, 2004, by and between EPOS Corporation and Michael A. Lawler*10.39
    
    Supplemental Indemnity Agreement by and between Registrant and Bruce R. Spector, dated September 2, 2004*10.40
    
    Cross-Collateralization Agreement dated December 13, 2004, by and between Registrant and James L. Bildner(18)16.1
    
    Letter from PricewaterhouseCoopers LLP, dated April 19, 2005(22)21.1
    
    Subsidiaries of the Registrant(20)31.1
    
    Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.(20)31.2
    
    Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.(20)31.3
    
    Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.(21)




---



##### 



ExhibitNumber
    
    Exhibit Description31.4
    
    Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.(21)31.5
    
    Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.(22)31.6
    
    Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.(22)31.7
    
    Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.31.8
    
    Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(20)32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(20)32.3
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(21)32.4
    
    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.(21)32.5
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(22)32.6
    
    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.(22)32.7
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.8
    
    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.(1)
    
    Filed as an exhibit to Form S-1/A (No. 333-37661), filed on November 17, 1997, and
incorporated herein by reference.(2)
    
    Filed as an exhibit to Form S-1 (No. 333-37661), filed on October 10, 1997, and
incorporated herein by reference.(3)
    
    Filed as an exhibit to Form S-1/A (No. 333-52065), filed on May 7, 1998, and
incorporated herein by reference.(4)
    
    Filed as an exhibit to Form 10-Q, filed August 16, 1999, and incorporated herein by
reference.(5)
    
    Filed as an exhibit to Form 10-K, filed December 21, 1998, and incorporated herein by
reference.(6)
    
    Filed as an exhibit to Form 10-Q, filed May 15, 2000, and incorporated herein by
reference.(7)
    
    Filed as an exhibit to Form S-8 (No. 333-42082), filed on July 24, 2000, and
incorporated herein by reference.(8)
    
    Filed as an exhibit to Form 10-K, filed December 6, 2000, and incorporated herein by
reference.




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##### 



(9)
    
    Filed as an exhibit to Form 10-Q, filed May 11, 2001, and incorporated herein by
reference.(10)
    
    Filed as an exhibit to Form 10-K, filed November 29, 2001, and incorporated herein
by refe13, 2004, and incorporated herein by reference.(11)
    
    Filed as an Exhibit to Form 10-Q, filed February 13, 2002(12)
    
    Filed as an exhibit to Form 10-K, filed December 11, 2002, and incorporated herein
by reference.(13)
    
    Filed as an exhibit to Form 10-Q, filed May 12, 2004, 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 May 11, 2004, and incorporated herein by
reference.(16)
    
    Filed as an exhibit to Form 10-Q, filed August 15, 2004, and incorporated herein by
reference.(17)
    
    Filed as an exhibit to Form 8-K filed November 12, 2004, and incorporated herein by
reference.(18)
    
    Filed as an exhibit to Form 8-K filed December 15, 2004, and incorporated herein by
reference.(19)
    
    Filed as an exhibit to Form 8-K filed December 17, 2004, and incorporated herein by
reference.(20)
    
    Filed as an exhibit to Form 8-K filed December 28, 2004, and incorporated herein by
reference.(21)
    
    Filed as an exhibit to Amendment No. 1 to Form 10-K/A filed January 28, 2005, and
incorporated herein by reference.(22)
    
    Filed as an exhibit to Amendment No. 2 to Form 10-K/A filed April 20, 2005, and
incorporated herein by reference.