United States Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2006

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

TIER TECHNOLOGIES, INC.

DELAWARE		94-3145844
(State of Incorporation)		(I.R.S. ID)

10780 PARKRIDGE BOULEVARD—4^th FLOOR, RESTON, VA 20191
(Address of principal executive offices)

(571) 382-1000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act

Securities registered pursuant to Section 12(g) of the Act

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o          Accelerated Filer þ            Non-accelerated filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

As of March 31, 2006, the aggregate market value of common stock held by non-affiliates of the registrant was $156,969,000, based on the closing sale price as reported on the Nasdaq National Market (now the Nasdaq Global Market). As of December 8, 2006, there were 20,383,606 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Items 10, 11, 12, 13 and 14 of Part III (except for information required with respect to our executive officers, which is set forth under “Part I—Executive Officers”) have been omitted from this report, as we expect to file with the Securities and Exchange Commission, not later than 120 days after the close of our fiscal year ended September 30, 2006, a definitive proxy statement for our 2007 annual meeting of stockholders. The information required by Items 10, 11, 12, 13 and 14 of Part III of this report, which will appear in our definitive proxy statement, is incorporated by reference into this report.

 

 

TIER TECHNOLOGIES, INC.
FORM 10-K
TABLE OF CONTENTS

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

Special Note About Forward-Looking Statements

Certain statements contained in this report, other than purely historical information (including estimates, projections, statements relating to our business plans, objectives and expected operating results and assumptions upon which those statements are based) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements relate to future events or to our future financial and/or operating performance and generally can be identified as such, because the context of the statement will include words such as “may,” “will,” “intends,” “plans,” “believes,” “anticipates,” “expects,” “estimates,” “shows,” “predicts,” “potential,” “continue,” or “opportunity” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the section entitled 1A—Risk Factors, beginning on page 6. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I
ITEM 1—BUSINESS

GENERAL

Tier Technologies, Inc. provides federal, state and local government and other public sector clients with transaction processing services and software and systems integration. Typically, the demand for our services is driven by an increasing preference of consumers and governmental agencies to make payments electronically, increased acceptance of interactive voice response systems and contact management solutions, as well as by legislative mandates, such as child support and tax collections and disbursements. Originally incorporated in 1991 in California, we reincorporated in Delaware effective July 15, 2005. We are headquartered in Reston, Virginia and our 948 employees provide services to over 3,100 clients nationwide.

SEGMENT INFORMATION

We organize our operations into segments in order to provide management with a comprehensive financial and operational view into our key business activities. These segments provide a framework for aligning strategies and objectives and for allocating resources throughout our organization. Our three segments are: Electronic Payment Processing, Government Business Process Outsourcing, and Packaged Software and Systems Integration. The growth and revenues produced by each of these segments is driven by the growth of our client base, as well as the addition of new complementary services and products. The market for the services provided by each of our segments is highly competitive and is served by numerous international, national and local firms, as well as internal information technology resources of state and local governments. We believe the efficiency of our systems, outstanding customer service, competitive pricing and innovative technological solutions will enhance our standing relative to our competitors.

A description of each of our segments is provided below. See Note 12—Segment Information of the Notes to Consolidated Financial Statements for information regarding the profitability of each segment.

Electronic Payment Processing, or EPP. Our EPP segment provides government and public-sector clients with electronic payment processing alternatives for collecting taxes, fees and other obligations. In fiscal year 2006, our client base included the U.S. Internal Revenue Service, 26 states, the District of Columbia and nearly 2,600 local governments and other public sector clients. While our EPP segment does have a large number of clients, over a third of our revenues for this segment, representing 18% of our consolidated revenues, are generated under a contract with the U.S. Internal Revenue Service.

Clients who use our electronic payment processing services can offer their customers the ability to make tax, tuition and utility payments with a credit or debit card or an electronic check. Our secure electronic payment processing services help our clients reduce remittance-processing costs, increase collection speed and provide convenient payment alternatives to their constituents.

During the last decade, increased consumer acceptance of electronic media, such as interactive voice response systems and the Internet, have led to greater reliance on “cashless” payment methods including credit and debit cards and electronic checks. However, many government entities have neither the technical expertise nor the personnel to develop, implement and maintain electronic payment processes or to accept Internet or telephonic originated payments. As a result, they rely on external service providers, such as Tier, to perform this function.

During fiscal year 2006, we processed over 5.8 million transactions, representing nearly $3.6 billion of payments collected for federal and state income taxes, state business taxes, property taxes, parking citations, traffic violations, local licenses, educational institution fees and utility bills. The revenues we receive for payment services are transaction-based. Increases and decreases in these revenues typically represent changes in the volume of transactions and associated dollars that we process. This volume, in turn, reflects the size of our client base, the level of customer acceptance of electronic payment processing alternatives, the number and type of complementary partnership relationships and the variety of payment alternatives offered. Typically, EPP revenues are higher in the second and third quarters of our fiscal year as a result of the seasonal surge in income tax payments in March and April.

Government Business Process Outsourcing, or GBPO. Our GBPO segment focuses on child support payment processing, child support financial institution data match services, health and human services consulting, call centers and interactive voice response systems and other related systems integration services. Because of the nature of the services provided by the GBPO segment, revenues are relatively constant throughout the year. Our GBPO segment derives a significant portion of its revenues from a limited number of large contracts. During fiscal year 2006, we derived over 64% of our GBPO revenues from three contracts, including our contract with the State of Michigan, which contributed over 10% of our consolidated revenues during fiscal 2006.

Under the U.S. Personal Responsibility and Work Opportunity Reconciliation Act of 1996, each state must have an automated and centralized process for collecting and distributing child support payments. Our payment processing operations provide many services related to this Act on behalf of our state clients, including: the receipt, disbursement and processing of manual and electronic child support payments; check and document imaging; and maintenance of payment and court order histories. Our clients can choose from an array of service offerings, including: customer service and call center operations; a government-to-consumer web application; and an interface between states’ financial institutions and their respective child support enforcement divisions to assist in the location and seizure of delinquent child support and full processing of child support payments. During fiscal year 2006, we used internally developed software to process approximately $3.7 billion of transactions for six states as the primary contractor and one state as a subcontractor. Child support payment processing revenue is based on a per-transaction fee applied to the number of transactions processed.

The U.S. Personal Responsibility and Work Opportunity Reconciliation Act of 1996 also created the Financial Institution Data Match Program, which requires states to match delinquent obligations against records held by financial institutions. When matches are identified, state child support enforcement agencies can issue liens or levies on noncustodial parents’ bank accounts to expedite the collection of past due child support obligations. We provide these services to a fifteen-state alliance formed to develop and oversee outsourced financial institution match programs. We also provide these services to two states that are not members of the alliance. Since 2002, we have located more than $18.5 billion for our clients. We derive revenue under this program by assessing a fee based on the number of financial institutions matched.

Packaged Software and System Integration, or PSSI. Our PSSI segment provides software systems design, development and integration, maintenance and support services primarily to state and local government clients. Our clients rely on us to integrate leading-edge technologies into their operations that improve customer service and operational efficiency. Our PSSI segment provides services to more than 500 clients nationwide; however, 25% of the revenues generated by the PSSI segment in fiscal year 2006 were from projects with the State of Missouri. Our PSSI segment offers these services through the following practice areas:

•

Financial Management Systems—develops, implements and supports financial management and purchasing systems for state and local governments;

	•		Public Pension Administration Systems—provides services to support the design, development and implementation of pension applications for state, county and city governments;
	•		Unemployment Insurance Systems—provides software application integration services to state governments that are reforming unemployment insurance systems;
	•		Voice and Systems Automation—provides call center interactive voice response systems and support services, including customization, installation and maintenance; and
	•		State Systems Integration—provides information technology development, integration and maintenance support projects, primarily for the State of Missouri.

The level of revenues generated by our PSSI segment is driven primarily by the size of our customer base, the addition of new service offerings and new partnership relationships with complementary service and technology providers. Revenues recognized by this segment reflect the specific contract deliverables and are not influenced by seasonal changes.

SALES AND MARKETING

Our sales and marketing objective is to develop relationships with clients that result in repeat long-term and cross-sale engagements. Each segment maintains a dedicated sales force that may work cooperatively on joint sales efforts involving a combination of our services across different segments. When a segment provides products or services to another segment, the associated intercompany revenues and expenses are eliminated as part of our consolidation process.

Enhancing our commissioned sales force, we also utilize the business development capabilities of our segment leaders in their vertical markets as a supplemental sales and delivery resource. Members of our management team have a wide range of industry contacts and established reputations in their applicable industries and play a key role in developing, selling and managing major engagements. As a result of our market-focused sales approach, we believe that we are able to identify and qualify for opportunities quickly and cost effectively.

We strive to generate new business by increasing brand awareness and recognition to our diverse solution offerings using a variety of media. Our most significant marketing and advertising program involves the promotion of electronic payment processing services offered by OPC. We work with our government clients to publicize our services through advertisements in payment invoices, publications and web sites, typically at little or no cost to us. We also enter cooperative advertising and marketing arrangements with our card processing partners and major card-issuing banks, including print and online advertising campaigns and promotions. In fiscal 2006, we used newspaper, television, radio, internet and public relations campaigns to supplement these efforts.

COMPETITION

The transaction processing and software and systems integration markets are highly competitive and are served by numerous international, national and local firms. Representative market participants in transaction processing markets include: Affiliated Computer Systems, Inc.; JPMorgan Chase; Systems and Methods, Inc.; and Link2Gov. Competition in the software and systems integration market includes U.S. and international consulting and integration firms, the internal information systems groups of our prospective clients, professional services companies, hardware and application software vendors, and divisions of large integrated technology companies and outsourcing companies. Representative market participants include: Accenture; CGI-AMS; BearingPoint; Covansys; Deloitte; IBM; Tata (TCS America); Ciber; NIC, Inc.; Lawson; and Tyler Technologies.

We believe that the principal competitive factors in our markets include reputation, project management expertise, industry expertise, speed of development and implementation, technical expertise, competitive pricing and the ability to deliver results, whether on a fixed-price or on a time-and-materials basis. We believe that our ability to compete also depends in part on a number of competitive factors outside our control, including the ability of our clients or competitors to hire, retain and motivate project managers and other senior technical staff, the ownership by competitors of software used by potential clients, the price at which others offer comparable services, greater financial resources of our competitors, the ability of our clients to perform the services themselves and the extent of our competitors’ responsiveness to client needs.

INTELLECTUAL PROPERTY RIGHTS

Our success depends, in part, on our protection of our methodologies, solutions and intellectual property rights. We rely upon a combination of nondisclosure, licensing and other contractual arrangements, as well as trade secret, copyright and trademark laws to protect our proprietary rights and the proprietary rights of third parties from whom we license intellectual property. We enter into nondisclosure agreements with all our employees, subcontractors and parties with whom we team. In addition, we control and limit distribution of proprietary information. We cannot assure that these steps will be adequate to deter the misappropriation of proprietary information or that we will be able to detect unauthorized use of this information and take appropriate steps to enforce our intellectual property rights.

We have developed and acquired proprietary software that is licensed to clients pursuant to license agreements and other contractual arrangements. We use intellectual property laws, including copyright and trademark laws, to protect our proprietary rights. Part of our business also develops software applications for specific client engagements and customizes existing software products for specific clients. Ownership of developed software and customizations to existing software is subject to negotiation with individual clients and is typically assigned to the client. In some situations, we may retain ownership or obtain a license from our client, which permits us or a third party to use and market the developed software or the customizations for the joint benefit of the client and us or for our sole benefit.

AVAILABLE INFORMATION

Our Internet address is www.Tier.com. There we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports, as soon as reasonably practicable after we electronically file such material with or furnish it to the Securities and Exchange Commission, or SEC. Our SEC reports can be accessed through the investor relations section of our Web site. The information found on our Web site is not part of this or any other report we file with or furnish to the SEC.

ITEM 1A—RISK FACTORS

The following factors and other risk factors could cause our actual results to differ materially from those contained in forward-looking statements in this Form 10-K.

If we fail to regain our listing status on Nasdaq, the value of our stock may continue to be depressed, we may have difficulties attracting and retaining customers and employees and our company may be susceptible to takeover attempts. Effective at the open of business on May 25, 2006, our common stock was delisted from the Nasdaq National Market (now the Nasdaq Global Market). Although we intend to apply for re-listing in the near future, we may not be successful in having our common stock listed on the Nasdaq Global Market.

We have incurred losses in the past and may not be profitable in the future. We have incurred losses in the past and we may do so in the future. While we reported net income from continuing operations in fiscal year 2005, we reported losses from continuing operations of $9.5 million during the fiscal year 2006; $63,000 in fiscal year 2004 and $5.4 million in fiscal year 2003.

Our revenues and operating margins may decline and may be difficult to forecast, which could result in a decline in our stock price. Our revenues, operating margins and cash flows are subject to significant variation from quarter to quarter due to a number of factors, many of which are outside our control. These factors include:

	•		economic conditions in the marketplace;
	•		our customers’ budgets and demand for our services;
	•		seasonality of business;
	•		timing of service and product implementations;

	•		unplanned increase in costs;
	•		delay in completion of projects;
	•		intense competition;
	•		variability of software license revenues; and
	•		integration and costs of acquisitions.

The occurrence of any of these factors may cause the market price of our stock to decline or fluctuate significantly, which may result in substantial losses to investors. We believe that period-to-period comparisons of our operating results are not necessarily meaningful and/or indicative of future performance. From time to time our operating results may fail to meet analysts’ and investors’ expectations, which could cause a significant decline in the market price of our stock. Price fluctuations and trading volume of our stock may be rapid and severe and may leave investors little time to react. Other factors that may affect the market price of our stock include announcements of technological innovations or new products or services by competitors, and general economic or political conditions such as recession, acts of war or terrorism. Fluctuations in the price of our stock could cause investors to lose all or part of their investment.

We rely on small numbers of projects, customers and target markets for significant portions of our revenues and our cash flow may decline significantly if we are unable to retain or replace these projects or clients. We depend on a small number of clients to generate a significant portion of our revenues. The completion or cancellation of a large project or a significant reduction in project scope could significantly reduce our revenues and cash flows. Many of our contracts allow our clients to terminate the contract for convenience upon notice and without penalty. If any of our large clients or prime contractors terminates its relationship with us, we will lose a significant portion of our revenues and cash flows. Because of our specific market focus, adverse economic conditions affecting government agencies in these markets could also result in a reduction in our revenues and cash flows. During the fiscal year ended September 30, 2006, our ten largest clients represented approximately 56% of our total revenues, including one contract that generated over 18% of our total revenues. Our operating results and cash flows could decline significantly if we cannot keep these clients, or replace them if lost.

Our markets are highly competitive. If we do not compete effectively, we could face price reductions, reduced profitability and loss of market share. Our business is focused on transaction processing and software systems solutions, which are highly competitive markets and are served by numerous international, national and local firms. Many competitors have significantly greater financial, technical and marketing resources and name recognition than we do. In addition, there are relatively low barriers to entry into these markets and we expect to continue to face additional competition from new entrants into our markets. Parts of our business are subject to increasing pricing pressures from competitors, as well as from clients facing pressure to control costs. Some competitors are able to operate at significant losses for extended periods of time, which increases pricing pressure on our products and services. If we do not compete effectively, the demand for our products and services and our revenue growth and operating margins could decline, resulting in reduced profitability and loss of market share.

Changes in accounting standards could significantly change our reported results. Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time, the Financial Accounting Standards Board changes the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in our restating prior period financial statements.

Changes in laws and government and regulatory compliance requirements may result in additional compliance costs and may adversely impact our reported earnings. Our business is subject to numerous federal, state and local laws, government regulations, corporate governance standards, industry association rules and public disclosure requirements, which are subject to change. Changing laws, regulations and standards relating to corporate governance, accounting standards, and public disclosure, including the Sarbanes-Oxley Act of

2002, SEC regulations and Nasdaq Stock Market rules are creating uncertainty for companies and increasing the cost of compliance. To maintain high standards of corporate governance and public disclosure, we intend to invest all reasonably necessary resources to comply with evolving standards. This investment may result in increased general and administrative expenses for outside services and a diversion of management time and attention from revenue-generating activities. New laws, regulations or industry standards may be enacted, or existing ones changed, which could negatively impact our services and revenues. Taxes or fees may be imposed or we could be subject to additional requirements in regard to privacy, security or qualification for doing business. For our transaction processing services, we are subject to the rules of the National Automated Clearing House Association and the applicable credit/debit card association rules. A change in such rules and regulations could restrict or eliminate our ability to provide services or accept certain types of transactions, and could increase costs, impair growth and make our services unprofitable.

The revenues provided by our EPP segment from electronic payment processing may fluctuate and the ability to maintain profitability is uncertain. Our EPP segment primarily provides credit and debit card and electronic check payment options for the payment of federal and state personal income taxes, real estate and personal property taxes, business taxes, fines for traffic violations and parking citations and educational and utility obligations. The revenues earned by our EPP segment depend on consumers’ continued willingness to pay a convenience fee and our relationships with clients such as government taxing authorities, educational institutions, public utilities and their respective constituents. If consumers are not receptive to paying a convenience fee; if card associations change their rules or if laws are passed which do not allow us to charge the convenience fees; or if credit or debit card issuers or marketing partners eliminate or reduce the value of rewards to consumers under their respective rewards programs, demand for electronic payment processing services could decline. The processing fees charged by credit/debit card associations and financial institutions can be increased with little or no notice, which could reduce margins and harm our profitability. Demand for electronic payment processing services would also be affected adversely by a decline in the use of the Internet or consumer migration to a new or different technology or payment method. The use of credit and debit cards and electronic checks to make payments to government agencies is subject to increasing competition and rapid technology change. If we are not able to develop, market and deliver competitive technologies, our market share will decline and our operating results and financial condition could suffer.

Our ability to grow depends largely on our ability to attract, integrate and retain qualified personnel. The success of our business is based largely on our ability to attract and retain talented and qualified employees and contractors. The market for skilled workers in our industry is extremely competitive. In particular, qualified project managers and senior technical and professional staff are in great demand worldwide. If we are not successful in our recruiting efforts, or are unable to retain key employees, our ability to staff projects and deliver products and services may be adversely affected. We believe our success also depends upon the continued services of senior management and a number of key employees whose employment may terminate at any time. If one or more key employees resigns to join a competitor or to form a competing company, the loss of such personnel and any resulting loss of existing or potential clients could harm our competitive position.

We depend on third parties for our products and services. Failure by these third parties to perform their obligations satisfactorily could hurt our reputation, operating results and competitiveness. Our business is highly dependent on working with other companies and organizations to bid on and perform complex multi-party projects. We may act as a prime contractor and engage subcontractors, or we may act as a subcontractor to the prime contractor. We use third-party software, hardware and support service providers to perform joint engagements. We depend on licensed software and other technology from a small number of primary vendors. We also rely on a third-party co-location facility for our primary data center, use third-party processors to complete payment transactions and use third-party software providers for system solutions, security and infrastructure. The failure of any of these third parties to meet their contractual obligations, our inability to obtain favorable contract terms, failures or defects attributable to these third parties or their products, or the discontinuation of the services of a key subcontractor or vendor could result in significant cost and liability, diminished profitability and damage to our reputation and competitive position.

Our fixed-price and transaction-based contracts require accurate estimates of resources and transaction volumes and failure to estimate these factors accurately could cause us to lose money on these contracts. Our business relies on accurate estimates. If we underestimate the resources, cost or time required for a project or overestimate the expected volume of transactions or transaction dollars processed, our costs could be greater than expected or our revenues could be less than expected. Under fixed-price contracts, we generally receive our

fee if we meet specified deliverables, such as completing certain components of a system installation. For transaction-based contracts, we receive our fee on a per-transaction basis or as a percentage of dollars processed, such as the number of child support payments processed or tax dollars processed. If we fail to prepare accurate estimates on factors used to develop contract pricing, such as labor costs, technology requirements or transaction volumes, we may incur losses on those contracts and our operating margins could decline.

Our revenues are highly dependent on government funding and the loss or decline of existing or future government funding could cause our revenues and cash flows to decline. A significant portion of our revenues is derived from federal and state mandated projects. A large portion of these projects may be subject to a reduction or discontinuation of funding which may cause early termination of projects, diversion of funds away from our projects or delays in implementation. The occurrence of any of these conditions could adversely affect our projected revenues, cash flows and profitability.

If we are not able to obtain adequate or affordable insurance coverage or bonds, we could face significant liability claims and increased premium costs and our ability to compete for business could be compromised. We maintain insurance to cover various risks in connection with our business. Additionally, our business includes projects that require us to obtain performance and bid bonds from a licensed surety. There is no guarantee that such insurance coverage or bonds will continue to be available on reasonable terms, or at all. If we are unable to successfully maintain adequate insurance and bonding coverage, potential liabilities associated with the risks discussed in this report could exceed our coverage, and we may not be able to obtain new contracts, which could result in decreased business opportunities and declining revenues.

Unauthorized data access and other security breaches could have an adverse impact on our business and our reputation. Security breaches or improper access to data in our facilities, computer networks, or databases, or those of our suppliers, may cause harm to our business and result in liability and systems interruptions. Despite security measures we have taken, our systems may be vulnerable to physical break-ins, computer viruses, attacks by hackers and similar problems causing interruption in service and loss or theft of data and information. Our third-party suppliers also may experience security breaches involving the unauthorized access of proprietary information. A security breach could result in theft, publication, deletion or modification of confidential information, cause harm to our business and reputation and result in loss of clients and revenue.

We could suffer material losses if our operations fail to perform effectively. The potential for operational risk exposure exists throughout our organization. Integral to our performance is the continued efficacy of our technical systems, operational infrastructure, relationships with third parties and key executives in our day-to-day and ongoing operations. Failure by any or all of these resources subjects us to risks that may vary in size, scale and scope. This includes but is not limited to operational or technical failures, ineffectiveness or exposure due to interruption in third-party support as expected, as well as the loss of key individuals or failure on the part of the key individuals to perform properly. Our insurance may not be adequate to compensate us for all losses that may occur as a result of any such event, or any system, security or operational failure or disruption.

Our business may be harmed by claims, lawsuits or investigations which could result in adverse outcomes. At any given time, we are subject to a variety of claims and lawsuits. Adverse outcomes in any particular claim, lawsuit, government investigation, tax determination, or other liability matter may result in significant monetary damages, substantial costs, or injunctive relief against us that could adversely affect our ability to conduct our business. We cannot guarantee that the disclaimers, limitations of warranty, limitations of liability and other provisions set forth in our contracts will be enforceable or will otherwise protect us from liability for damages. The successful assertion of one or more claims against us may not be covered by, or may exceed our available insurance coverage.

In May 2003, we received a subpoena from a grand jury in the Southern District of New York to produce certain documents pursuant to an investigation by the Antitrust Division of the U.S. Department of Justice, or the DOJ, involving the child support payment processing industry. We have fully cooperated, and intend to continue to cooperate fully, with the subpoena and with the DOJ’s investigation. On November 20, 2003, the DOJ granted us conditional amnesty pursuant to the Antitrust Division’s Corporate Leniency Policy. Consequently, the DOJ will not bring any criminal charges against us or our officers, directors and employees, as long as we continue to comply with the Corporate Leniency Policy, which requires, among other things, our full cooperation in the investigation and restitution payments if it is determined that parties were injured as a result of impermissible anticompetitive conduct. We anticipate that we will incur additional expenses as we continue to cooperate with the investigation.

Such expenses and any restitution payments could negatively impact our reputation, compromise our ability to compete and win new projects and result in financial losses.

In May 2006, we received a subpoena from the Philadelphia District Office of the SEC requesting documents relating to financial reporting and personnel issues. If the SEC were to conclude that further investigative activities are merited or to take formal action against Tier, our reputation could be impaired. We have cooperated, and intend to continue to cooperate, fully with this investigation. We anticipate that we will incur additional legal and administrative expenses as we continue to cooperate with the SEC’s investigation.

On November 20, 2006, the Company was served with a class action lawsuit on behalf of purchasers of our common stock from November 29, 2001 to October 25, 2006, related to compliance with the Securities Exchange Act of 1934. We anticipate that we will incur legal and administrative expenses to defend this claim. In addition, significant adverse verdicts or settlements could exceed the levels of our insurance coverage.

If we are not able to protect our intellectual property we could suffer serious harm to our business. We protect our intellectual property rights through a variety of methods, such as use of nondisclosure and license agreements, and use of trade secret, copyright and trademark laws. Ownership of developed software and customizations to software are the subject of negotiation with individual clients. Despite our efforts to safeguard and protect our intellectual property and proprietary rights, there is no assurance that these steps will be adequate to avoid the loss or misappropriation of our rights or that we will be able to detect unauthorized use of our intellectual property rights. If we are unable to protect our intellectual property, competitors could market services or products similar to ours, and demand for our offerings could decline, resulting in an adverse impact on revenues.

We may be subject to infringement claims by third parties, resulting in increased costs and loss of business. From time to time we receive notices from others claiming we are infringing on their intellectual property rights. Defending a claim of infringement against us could prevent or delay our providing products and services, cause us to pay substantial costs and damages, or force us to redesign products or enter into royalty or licensing agreements on less favorable terms. If we are required to enter into such agreements or take such actions, our operating margins could decline.

Our markets are changing rapidly and if we are not able to adapt to changing conditions, we may lose market share and be unable to compete effectively. The markets for our products are characterized by rapid changes in technology, client expectations and evolving industry standards. Our future success depends on our ability to innovate, develop, acquire and introduce successful new products and services for our target markets and to respond quickly to changes in the market. If we are unable to address these requirements, or if our products do not achieve market acceptance, we may lose market share and our revenues could decline.

We may not be successful in identifying acquisition candidates and, if we undertake acquisitions, they could be expensive, increase our costs or liabilities or disrupt our business. One of our strategies is to pursue growth through acquisitions. We may not be able to identify suitable acquisition candidates at prices that we consider appropriate or to finance acquisitions at favorable terms. If we do identify an appropriate acquisition candidate, we may be unsuccessful in negotiating the terms of the acquisition, finance the acquisition or, if the acquisition occurs we may be unsuccessful in integrating the acquired business into our existing business. Negotiations of potential acquisitions and the integration of acquired business operations could disrupt our business by diverting management attention away from day-to-day operations. Acquisitions of businesses or other material operations may require additional debt or equity financing, resulting in leverage or dilution of ownership. We also may not realize cost efficiencies or synergies that we anticipated when selecting our acquisition candidates. In addition, we may need to record write-downs from future impairments of identified intangible assets and goodwill, which could reduce our future reported earnings. Acquisition candidates may have liabilities or adverse operating issues that we fail to discover through due diligence prior to the acquisition. Any costs, liabilities or disruptions associated with any future acquisitions we may pursue could harm our operating results.

Our business is subject to increasing performance requirements, which could result in reduced revenues and increased liability. Our business involves projects that are critical to the operations of our clients’ businesses. The failure to meet client expectations could damage our reputation and compromise our ability to

attract new business. On certain projects we make performance guarantees, based upon defined operating specifications, service levels and delivery dates, which are sometimes backed by contractual guarantees and performance bonds. Unsatisfactory performance or unanticipated difficulties or delays in starting or completing such projects may result in termination of the contract, a reduction in payment, liability for penalties and damages, or claims against a performance bond. Client performance expectations or unanticipated delays could necessitate the use of more resources than we initially budgeted for a particular project, which could increase our project costs and make us less profitable.

ITEM 1B—UNRESOLVED STAFF COMMENTS

There are no material unresolved written comments that were received from the Securities and Exchange Commission’s staff 180 days or more before the end of our fiscal year 2006 regarding our periodic or current reports under the Securities Exchange Act of 1934.

ITEM 2—PROPERTIES

As of September 30, 2006, we leased over 185,000 square feet of space throughout the country. These leased facilities included our 41,000 square foot corporate headquarters in Reston, Virginia. We also leased 68,000 square feet of space for our payment processing centers in Michigan, Kansas, Tennessee, Alabama and Kentucky. In addition, we leased 56,000 square feet of space in Georgia, Connecticut, California, New Mexico, Missouri, Virginia and Pennsylvania to house our subsidiary operations for the EPP and PSSI segments and the call centers for our GBPO segment and to provide general office space for each of our three segments to support our projects and our clients. We also own a 28,060 square foot building in Alabama which houses certain administrative, call center, warehouse and other operations. Finally, we also leased 20,000 square feet in California that we subleased to an unrelated third party.

ITEM 3—LEGAL PROCEEDINGS

In May 2003, we received a subpoena from a grand jury in the Southern District of New York to produce certain documents pursuant to an investigation by the Antitrust Division of the DOJ, involving the child support payment processing industry. We have fully cooperated, and intend to continue to cooperate fully, with the subpoena and with the DOJ’s investigation. On November 20, 2003, the DOJ granted us conditional amnesty pursuant to the Antitrust Division’s Corporate Leniency Policy. Consequently, the DOJ will not bring any criminal charges against us or our officers, directors and employees, as long as we continue to comply with the Corporate Leniency Policy, which requires, among other things, our full cooperation in the investigation and restitution payments if it is determined that parties were injured as a result of impermissible anticompetitive conduct.

In May 2006, we received a subpoena from the Philadelphia District Office of the SEC requesting documents relating to financial reporting and personnel issues. If the SEC were to conclude that further investigative activities are merited or to take formal action against us, our reputation could be impaired. We have cooperated and intend to continue to cooperate fully with this investigation.

On November 20, 2006, the Company was served with a class action lawsuit on behalf of purchasers of our common stock from November 29, 2001 to October 25, 2006. The suit alleges that Tier and certain of our former and/or current officers violated the Securities Exchange Act of 1934, but did not identify the damages being sought. This case is pending in the United States District Court for the Eastern District of Virginia. We are not able to estimate the probability or level of exposure associated with this complaint.

ITEM 4—SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our shareholders during the fourth quarter of fiscal 2006.

EXECUTIVE OFFICERS

The names, ages and positions of our executive officers at September 30, 2006, are listed in the following table, together with their business experience during the past five years. Unless otherwise specified, all officers served continuously since the date indicated. There is no family relationship among the officers.

		Date elected
Name, age and position with the Registrant		or appointed
Ronald L Rossetti, Age 64(a) Chairman of the Board, Chief Executive Officer		May 2006
Steven M. Beckerman, Age 48(b) Senior Vice President, Business Process Outsourcing		March 2006
David E. Fountain, Age 46(c) Senior Vice President, Chief Financial Officer and Treasurer		May 2005
Michael A. Lawler, Age 43(d) Senior Vice President (Electronic Payment Processing)		June 2004
Deanne M. Tully, Age 48(e) Vice President, General Counsel and Corporate Secretary		July 2003
Vice President, General Counsel		February 2001
Stephen V. Wade, Age 45(f) Senior Vice President (Strategy and Business Development)		October 2003
Vice President (Business Development and Sales)		June 1999

PART II
ITEM 5—MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

As of September 30, 2006, our stock was quoted on the Pink Sheets under the symbol TIER or TIER.PK. Prior to May 25, 2006, our stock was quoted on the Nasdaq National Market (now the Nasdaq Global Market) under the symbol TIER. On May 25, 2006, our common stock was delisted from the Nasdaq National Market, in accordance with a notification from the Nasdaq Listing Qualifications Hearings Panel, or the Panel. In reaching its determination, the Panel cited concerns about the: 1) quality and timing of our communications with the Panel and the public regarding an independent investigation performed by the Audit Committee of our Board of Directors; and 2) failure to file our Annual Report on Form 10-K for fiscal year 2005 or our Quarterly Reports on Form 10-Q for the first two quarters of fiscal year 2006. We appealed the Panel’s decision to the Nasdaq Listing and Hearing Review Council, or the Listing Council. However, on July 26, 2006, the Listing Council affirmed the Panel’s decision to delist our common stock. We intend to apply for re-listing in the near future.

On December 8, 2006, there were 215 record holders of our common stock. The quarterly high and low prices per share during fiscal 2006 and 2005 were as follows:

		Year ended September 30,
		2006								2005
		High				Low				High				Low
First quarter		$	8.50			$	6.93			$	10.00			$	7.98
Second quarter		$	8.08			$	7.34			$	9.73			$	6.45
Third quarter		$	8.70			$	5.67			$	9.82			$	6.85
Fourth quarter		$	7.05			$	5.25			$	9.67			$	7.51

We have never declared or paid cash dividends on our common stock and do not anticipate doing so for the foreseeable future. Instead, we intend to retain our current and future earnings to fund the development and growth of our business. Our current credit facility prohibits us from declaring dividends.

SECURITIES

All of our equity compensation plans have received the approval of our security holders. The following table summarizes key information about our equity compensation plans at September 30, 2006:

Equity Compensation Plan Information

Number of securities to be issued

Number of securities remaining

upon exercise of outstanding

Weighted-average exercise

available for future issuance under

options, warrants and rights

price of outstanding options,

equity compensation plans

Plan category

(in thousands)

warrants and rights

(in thousands)

Equity compensation plans:

Approved by security holders

2,237

$

8.45

1,869

Not approved by security holders

—

—

—

Total

2,237

$

8.45

1,869

There were no sales of unregistered securities and no stock repurchases during fiscal 2006.

ITEM 6—SELECTED FINANCIAL DATA

The following table summarizes selected consolidated financial data for the fiscal years ended September 30, 2002 through 2006. You should read the following selected consolidated financial data in conjunction with the financial statements, including the related notes, and Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations. Historical results are not necessarily indicative of results to be expected for any future period.

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

ITEM 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements. We have based these forward-looking statements on our current plans, expectations and beliefs about future events. In light of the risks, uncertainties and assumptions discussed under Item 1A—Risk Factors of this Annual Report on Form 10-K and other factors discussed in this section, there are risks that our actual experience will differ materially from the expectations and beliefs reflected in the forward-looking statements in this section and throughout this report. For more information regarding what constitutes a forward-looking statement refer to Special Note About Forward-Looking Statements on page 3.

OVERVIEW

We provide transaction processing services and software and systems integration services primarily to federal, state and local governments and other public sector clients. We target industry sectors where we believe demand for our services is less discretionary and is likely to provide us with recurring revenue streams through long-term contracts. The forces driving the need for our services tend to involve federal- or state-mandated services, such as child support payment processing, as well as a fundamental shift in consumer preferences toward electronic payment methods, rather than cash or paper checks. Since the markets we serve are highly competitive, changes in our competitors’ strategies or service offerings could have a significant impact on our profitability unless we adapt our business model to meet the changes in the marketplace.

We have derived, and expect to continue to derive, a significant portion of our revenues from a small number of large clients or their constituents. For example, during the fiscal years ended September 30, 2006 and 2005, contracts with our three largest clients and their constituents generated 36% and 29%, respectively, of our total revenues, including our contracts with the U.S. Internal Revenue Service and the State of Michigan that generated more than 18% and 10%, respectively, of our total revenues during fiscal 2006. Substantially all of our contracts are terminable by the client following limited notice and without significant penalty to the client. Thus, unsatisfactory performance or unanticipated difficulties in completing projects may result in client dissatisfaction, contractual or adjudicated monetary penalties or contract terminations—all of which could have a material adverse effect upon our business, financial condition and results of operations.

Our clients outsource portions of their business processes to us and rely on us for our industry-specific information technology expertise and solutions. During fiscal 2006, nearly 73% of our revenues were generated by our transaction-based services including: 1) child support payment processing and related services for state government clients; and 2) electronic payment processing services for federal, state and local government clients, which allow our clients to offer their constituents the ability to use credit cards, debit cards or electronic checks to pay taxes and other governmental obligations. We believe that we will continue to earn a significant portion of our revenues from these transaction-based services for the foreseeable future. While many of these transactions occur on a monthly basis, there are seasonal and annual fluctuations in the volume of some transactions that we process, such as tax payments. We recognize revenues for transaction-based services at the time the services are performed.

Our packaged software and systems integration segment primarily integrates our proprietary software products and licensed third-party software products into our clients’ business operations. We recognize these revenues on a time-and-material basis, percentage-of-completion basis or at the time delivery is made, depending upon the terms of the contract and the requirements of associated accounting standards.

RECENT EVENTS

The following recent events occurred related to our restatement of financial statements for fiscal years 2002 through 2004 and for the fiscal quarters of 2004 and 2005, as well as the resulting delay in the filing of our Annual Report on Form 10-K for fiscal year 2005 and our Quarterly Reports on Form 10-Q for the quarters ended December 31, 2005, March 31, 2006 and June 30, 2006. For additional information regarding this restatement, see Amendment 3 to our Annual Report on Form 10-K/A for the fiscal year ended September 30, 2004, which was filed on October 25, 2006, and our Annual Report on Form 10-K for the fiscal year ended September 30, 2005, which was filed on October 27, 2006. Subsequently, we also filed our Quarterly Report on Form 10-Q/A for the

quarter ended December 31, 2005 on November 13, 2006, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 on November 14, 2006 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 on November 22, 2006.

Fiscal 2005 Filing Delay Announced. While preparing our financial statements for the fiscal year ended September 30, 2005, senior management discovered a number of errors in our historical financial statements, including the accounting for: 1) accounts receivable, net, relating to a payment processing operation; 2) certain accruals and reserves; and 3) certain notes receivable. Because of these errors, senior management recommended to the Audit Committee that we delay the filing of our Annual Report on Form 10-K and restate our previously issued financial statements. On December 12, 2005, the Audit Committee of our Board of Directors agreed with senior management’s recommendations and concluded that our previously issued financial statements for fiscal years 2002, 2003 and 2004 (and for the associated fiscal quarters) would likely be restated and, accordingly, should no longer be relied upon. On December 14, 2005, we announced that our Annual Report on Form 10-K for the fiscal year ended September 30, 2005 would not be timely filed. Subsequently, we did not file timely reports on Form 10-Q for the quarters ended December 31, 2005, March 31, 2006 and June 30, 2006. In December 2005, the Audit Committee also initiated an independent investigation of the qualitative and quantitative financial reporting issues giving rise to the restatement.

Stockholder Rights Plan. On January 10, 2006, our Board of Directors adopted a Stockholder Rights Plan, pursuant to which all of our shareholders received rights to purchase shares of a new series of preferred stock. This plan was designed to enable all of our shareholders to realize the full value of their investment in our company and to ensure that all of our shareholders receive fair and equal treatment in the event that an unsolicited attempt is made to acquire Tier. This plan is intended as a means to guard against abusive takeover tactics and was not adopted in response to any proposal to acquire Tier. We believe this plan would discourage efforts to acquire more than 10% of our common stock without first negotiating with the Board of Directors.

Audit Committee Investigation. On May 12, 2006, we announced the completion of an independent investigation conducted on behalf of the Audit Committee of our Board of Directors. The scope of the independent investigation included an examination of the qualitative and financial reporting issues giving rise to the restatement. Among other things, the investigation found earnings management at Tier, particularly during the close of fiscal 2004.

Delisting by Nasdaq. On May 23, 2006, we received a notification from the Nasdaq Listing Qualifications Hearings Panel, or the Panel, informing us of the Panel’s determination to delist our securities, effective at the open of business on May 25, 2006. In reaching its determination, the Panel cited: 1) concerns about the quality and timing of our communications with the Panel and the public regarding an independent investigation performed by the Audit Committee of our Board of Directors; and 2) our failure to file our Annual Report on Form 10-K for fiscal year 2005 or our Quarterly Reports on Form 10-Q for the first two quarters of fiscal 2006. We appealed the Panel’s decision to the Nasdaq Listing and Hearing Review Council, or the Listing Council. However, on July 26, 2006, the Listing Council affirmed the Panel’s decision to delist our common stock. We intend to apply for re-listing in the near future.

Management Changes. On May 31, 2006, we announced the resignation of James R. Weaver, our Chief Executive Officer, President and Chairman, following a recommendation by the Audit Committee of our Board of Directors that his employment with Tier be terminated. Ronald L. Rossetti, a member of our Board of Directors and the Audit Committee, agreed to serve as our Chief Executive Officer and Chairman. Because he is no longer independent under SEC and Nasdaq rules, Mr. Rossetti was replaced on the Audit Committee by Samuel Cabot III, another independent director.

SEC Subpoena. On May 31, 2006, we received a subpoena from the Philadelphia District Office of the Securities and Exchange Commission requesting documents relating to financial reporting and personnel issues. Tier has cooperated, and intends to continue to cooperate, fully in this investigation.

Claim. On November 20, 2006, we were served with a class action lawsuit on behalf of purchasers of our common stock from November 29, 2001 to October 25, 2006. The suit alleges that Tier and certain of our former and/or current officers violated the Securities Exchange Act of 1934, but it did not identify the damages being sought. This case is pending in the United States District Court for the Eastern District of Virginia. We are not able to estimate the probability or level of exposure associated with this complaint.

RESULTS OF OPERATIONS

The following table provides an overview of our results of operations for fiscal years 2006, 2005 and 2004:

														Variance
		Year ended September 30,												2006 vs. 2005								2005 vs. 2004
(in thousands, except percentages)		2006				2005				2004				$ Amount				%				$ Amount				%
Revenues		$	168,731			$	150,601			$	127,777			$	18,130				12	%		$	22,824				18	%
Costs and expenses			181,151				150,222				128,675				30,929				21	%			21,547				17	%
(Loss) income before other income, incomes taxes and discontinued operations			(12,420	)			379				(898	)			(12,799	)			*				1,277				*
Other income			3,470				874				835				2,596				*				39				5	%
(Loss) income before income taxes and discontinued operations			(8,950	)			1,253				(63	)			(10,203	)			*				1,316				*
Provision for income taxes			501				127				—				374				*				127				*
—
(Loss) income from continuing operations			(9,451	)			1,126				(63	)			(10,577	)			*				1,189				*
Loss from discontinued operations, net of income taxes			—				—				(1,440	)			—				*				1,440				*
— —   -
Net (loss) income		$	(9,451	)		$	1,126			$	(1,503	)		$	(10,577	)			*			$	2,629				*

Revenues

Our revenues increased to $168.7 million in fiscal 2006, an $18.1 million, or 12%, increase over fiscal 2005. This increase primarily reflects a 39% year-over-year increase in revenues earned by our Electronic Payment Processing, or EPP, segment, which resulted from an increase in the volume of transactions processed under new and pre-existing contracts in that segment. The increase in revenues from the improved performance of our EPP segment was partially offset by a 7% year-over-year decrease in revenues earned by our Package Software and Systems Integration, or PSSI, segment as a result of contracts that have completed or are nearing completion.

During fiscal 2005, our revenues increased to $150.6 million, a $22.8 million, or 18%, increase over fiscal 2004. This increase primarily reflects: $18.2 million of incremental revenues from EPOS, a subsidiary that we purchased in July 2004; $9.6 million of revenues generated by a new five-year child support payment processing contract; and $10.5 million of revenues from additional federal, state and local tax collections. These increases were partially offset by a $14.6 million decline in revenues from contracts that were nearing completion in late fiscal 2004 and early fiscal 2005, with the remaining $0.9 million decline resulting from changes in transactional rate and volume.

The following table summarizes changes in our revenues during fiscal years 2006, 2005 and 2004:

														Variance
		Year ended September 30,												2006 vs. 2005								2005 vs. 2004
(in thousands, except percentages)		2006				2005				2004				$ Amount				%				$ Amount				%
Revenues, by segment:
EPP		$	78,427			$	56,452			$	40,669				21,975				39	%		$	15,783				39	%
GBPO			45,478				45,771				45,205				(293	)			(1	)%			566				1	%
PSSI(1)			44,826				48,378				41,903				(3,552	)			(7	)%			6,475				15	%
Total		$	168,731			$	150,601			$	127,777			$	18,130				12	%		$	22,824				18	%

Electronic Payment Processing Segment. Our EPP segment provides electronic payment processing options, including the payment of taxes, fees and other obligations owed to government entities, educational institutions and other public sector clients. The level of revenues reported by our EPP segment reflect the number of contracts with clients, the volume of transactions processed under each contract and the rates that we charge for each transaction that we process.

During fiscal 2006, our EPP segment generated $78.4 million of revenues, which represented $22.0 million, or 39%, of additional revenues compared with fiscal 2005. During fiscal 2005, our EPP segment generated $56.5 million of revenues, a $15.8 million, or 39%, increase over fiscal 2004 results. Approximately $10.6 million and $4.9 million, respectively, of the year-over-year increases in fiscal 2006 and 2005 were attributable to

increases in the volume of payments processed for the EPP segment’s largest customer. Approximately $11.4 million and $5.6 million, respectively, of the year-over-year increases in fiscal 2006 and 2005 were attributable to a rise in the volume of taxes and other payments processed for other state and local jurisdictions. We believe these increases are largely attributable to a changing consumer preference toward using electronic methods to pay federal, state, and local government obligations. The remaining revenue increase in fiscal 2005 primarily reflects the inclusion of EPOS’ revenues for a full year.

Government Business Processing Segment. Our GBPO segment provides governmental clients with child support payment processing, child support financial institution data match services, health and human services consulting and other related systems integration services. Because of the importance that these clients place on receiving consistent and reliable service, the contracts with our GBPO customers are typically three to five years in duration and, because of our clients’ past experience with our company, we may receive contract extensions or renewals.

During fiscal 2006, our GBPO segment generated $45.5 million in revenues, which represented a $0.3 million, or 1%, decrease from fiscal 2005. The completion of several contracts during fiscal 2006 and the second half of fiscal 2005 led to a $7.8 million revenue decrease from fiscal 2005. This decrease was partially offset by $7.5 million of additional revenues generated by a child support processing contract that commenced in the second quarter of fiscal 2005. During fiscal 2005, our GBPO segment generated $45.8 million of revenues, which represented a $0.6 million, or 1%, increase over the prior year’s performance. This increase was driven by $9.6 million of additional revenues, including $2.3 million of one-time installation revenues generated from a five-year child support payment processing contract that commenced in fiscal 2005. This increase was offset by an $8.5 million reduction in revenues from four contracts that expired in 2005, and the remaining decrease is attributable to lower rates and transaction volume. One of our GBPO segment contracts, which will expire in June 2007, contributed approximately $7.6 million of revenues throughout fiscal 2006. The absence of revenues from this contract in the fourth fiscal quarter of 2007 is expected to reduce our fiscal year 2007 revenues and net income by approximately $1.9 million and $1.0 million, respectively.

Packaged Software and Systems Integration Segment. Our PSSI segment provides software and systems implementation services through practice areas in financial management systems, public pension administration systems, unemployment insurance administration systems, computer telephony and call centers and systems integration services. Since the services provided by our PSSI segment are generally project-oriented, the contracts with our clients typically have a one to three year contract term and may have subsequent maintenance and support phases. The revenue reported by our PSSI segment in any given period reflects the size and volume of active contracts, as well as the current phase in the project life cycle of individual contracts.

During fiscal 2006, our PSSI segment generated $44.8 million in revenues, which represented a $3.6 million, or 7%, decrease from fiscal 2005 results. This decrease resulted primarily from $10.9 million of contracts that were completed, nearing completion, or entering the maintenance phase of the project during fiscal 2006. These decreases were partially offset by $8.4 million of revenues earned from new contracts that we entered into during fiscal 2006 and the latter part of fiscal 2005. During fiscal 2005, our PSSI segment produced $48.4 million of revenues, which represented $6.5 million, or 15%, of additional revenues during fiscal year 2005 as compared to fiscal year 2004. Approximately $8.3 million of this increase was attributable to the recognition of a full year of revenues generated by EPOS, and $2.8 million of the year-over-year increase in fiscal 2005 was attributable to additional work that was being performed under pre-existing contracts. These increases were partially offset by the absence of $4.4 million of revenues from contracts completed or nearing completion during fiscal 2005.

Costs and Expenses

The following table provides an overview of the operating costs and expenses we incurred during fiscal years 2006, 2005 and 2004:

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

Direct costs—Direct costs, which represent costs directly attributable to providing services to clients, include: labor and labor-related costs; independent contractor/subcontractor costs; travel-related expenditures; credit card interchange fees and assessments; amortization of intellectual property; amortization and depreciation of project-related equipment, hardware and software purchases; and the cost of hardware, software and equipment sold to clients.

During fiscal 2006, direct costs increased $22.0 million, or 21%, over fiscal 2005. This year-over-year increase primarily reflects: $16.3 million of additional interchange fees and other costs incurred to support the increased volume of transactions processed by our EPP segment; $2.0 million of additional postage and printing charges to support an increase in the number of transactions processed by our GBPO segment; $1.6 million of additional depreciation expense on assets acquired for use on new projects undertaken during fiscal 2006; $1.4 million in one-time costs incurred to reconcile certain accounts for one of our payment processing centers; and $0.7 million of accrued forward losses recognized on two contracts. During fiscal 2005, the direct costs that we incurred to serve our clients rose to $103.8 million, a $19.4 million, or 23%, increase over fiscal 2004. This increase reflects $14.7 million of additional interchange fees resulting from the increased volume and level of transactions processed by our EPP segment and $5.5 million of additional labor and subcontractor costs needed to support new projects, including a new five-year contract to provide child support payment processing services. These increases were offset by a $0.8 million decrease in costs that are reimbursable under the terms of our contracts. Direct costs include $3.7 million, $2.7 million and $2.3 million, respectively, of depreciation and amortization directly associated with our projects for fiscal years 2006, 2005 and 2004.

General and administrative. General and administrative expenses consist primarily of labor and labor-related costs for general management, administrative, accounting, investor relations, compliance and legal functions and information systems.

During fiscal 2006, general and administrative costs increased $9.6 million, or 33%, over fiscal 2005. This increase primarily reflects: $4.8 million of additional legal, accounting and other consulting costs associated with the restatement of our historical financial statements; $1.6 million of additional labor and labor-related expenses reflecting an increase in the size and compensation of administrative staff; $0.9 million of severance expenses associated with the May 2006 separation of our Chief Executive Officer; and $0.4 million of travel costs. In addition, since we adopted SFAS 123(R)—Share-Based Payments, or SFAS 123R, beginning on October 1, 2005, we recognized $1.6 million of expenses for share-based compensation for the first time in fiscal 2006, including $0.2 million of expenses associated with the acceleration of options relating to the separation of our former Chief Executive Officer.

During fiscal year 2005, our general and administrative costs increased $0.7 million, or 3%, over the prior year. This year-over-year increase includes: $2.0 million of additional consulting and accounting services, primarily attributable with our Sarbanes-Oxley compliance; $0.7 million of additional bonus expense; $0.5 million of additional tax expense; $0.4 million of miscellaneous office expenses; and $0.2 million of additional legal expenses. These increases are offset primarily by the absence in fiscal 2005 of $2.3 million of expenses associated with the relocation of our headquarters during fiscal 2004, as well as a $0.9 million decline in legal costs attributable to the DOJ investigation.

Selling and marketing. Selling and marketing expenses consist primarily of labor and labor-related costs, commissions, advertising and marketing expenditures and travel-related expenditures. We expect selling and marketing expenses to fluctuate from quarter to quarter due to a variety of factors, such as increased advertising and marketing expenses incurred in anticipation of the April 15th federal tax season. During fiscal 2006, selling and marketing expense increased $0.1 million over fiscal 2005. The increase is attributable to $0.3 million of share-based compensation expense resulting from the adoption of SFAS 123R and $0.3 million of additional advertising expenses in fiscal 2005. These increases were partially offset by a $0.2 million decrease in labor and labor-related expenses and a $0.4 million decrease in the cost of outside professional services. During fiscal 2005, selling and marketing expenses increased $3.9 million, or 52%, primarily because of additional labor and labor-related expenses resulting from the addition of sales staff from the EPOS acquisition, an increase in PSSI’s direct sales force and bonuses associated with the successful sales efforts that resulted in a significant new state project. The remaining increases primarily reflect other incremental selling and marketing costs associated with our EPOS acquisition.

Depreciation and amortization. Depreciation and amortization consists primarily of expenses associated with the depreciation of equipment, software and leasehold improvements, as well as the amortization of intangible assets from acquisitions and other intellectual property not directly attributable to client projects. Project-related depreciation and amortization is included in direct costs. During fiscal 2006, depreciation and amortization decreased $0.8 million from the preceding year. This decrease was due to the absence of depreciation expense on assets, which became fully depreciated. During fiscal year 2005, depreciation and amortization increased $1.0 million, or 19%, primarily as a result of incremental depreciation and amortization incurred by EPOS after its acquisition.

Restructuring charges. Restructuring and other charges include costs that we incurred to restructure the organization, including office relocation and severance costs. The following table presents a breakdown of the costs included in restructuring charges:

														Variance
		Year ended September 30,												2006 vs. 2005								2005 vs. 2004
		2006				2005				2004				$ Amount				%				$ Amount				%
Restructuring charges:
Asset impairment charges		$	—			$	—			$	571			$	—				—			$	(571	)			(100	)%
Severance costs			3				31				1,846				(28	)			(90	)%			(1,815	)			(98	)%
Office closure costs (net of sublease income)			32				15				1,076				17				113	%			(1,061	)			(99	)%
Total		$	35			$	46			$	3,493			$	(11	)			(24	)%		$	(3,447	)			(99	)%

During the fiscal years ended September 30, 2006 and 2005, we recorded $35,000 and $46,000, respectively, of severance and office relocation charges that we incurred when we moved our New Jersey Financial Institution Data Match Program operations to our Michigan office, a change that was made to improve efficiency and reduce future operating costs. In fiscal year 2004, we incurred $3.5 million of restructuring charges that resulted from the relocation of our corporate headquarters from Walnut Creek, California to Reston, Virginia.

Other Income (Loss)

Equity in net income (loss) of unconsolidated affiliate. Equity in net income (loss) of unconsolidated affiliate represents our share of the net income and losses from CPAS, Inc., an entity in which we held 46.96% and 47.37%, respectively, of the outstanding common stock at September 30, 2006 and 2005. During fiscal 2006, our share of CPAS’ net income was $0.4 million, compared with a $0.2 million loss in fiscal 2005. This improvement resulted from new contracts that CPAS was awarded in 2006 and the latter part of 2005. Since we purchased CPAS in October 2004, we did not report any income or loss for CPAS during fiscal 2004.

Loss on sale of investments. During the fiscal year 2005, we sold two of our mutual fund investments at $0.5 million below cost.

Income Tax Provision

During fiscal 2006, 2005 and 2004, we reported an income tax provision of $501,000, $127,000 and zero, respectively. The fiscal year 2006 and 2005 provision for income taxes represents federal and state tax obligations incurred by our subsidiaries. Our Consolidated Statements of Operations for fiscal 2006, 2005 and 2004 do not reflect a federal tax provision because of offsetting adjustments to our valuation allowance. Our effective tax rates differ from the federal statutory rate due to state and foreign income taxes, tax-exempt interest income and the charge for establishing a valuation allowance on our net deferred tax assets. Our future tax rate may vary due to a variety of factors, including, but not limited to: the relative income contribution by tax jurisdiction; changes in statutory tax rates; the amount of tax exempt interest income generated during the year; changes in our valuation allowance; our ability to utilize foreign tax credits and net operating losses and any non-deductible items related to acquisitions or other nonrecurring charges.

Discontinued Operations

There were no discontinued operations during fiscal year 2006 or 2005. However, during fiscal year 2004 we incurred a loss of $1.4 million, which consisted of the historical operating results of our U.S. Commercial Services and United Kingdom segments and asset impairment and restructuring charges incurred to discontinue these segments.

LIQUIDITY AND CAPITAL RESOURCES

Our principal capital requirement is to fund working capital to support our organic growth, including potential future acquisitions. We maintained a $15.0 million revolving credit facility that was to expire on March 31, 2007, of which $15.0 million could be used for letters of credit and additional borrowing. The credit facility set interest at the adjusted LIBOR rate plus 2.25% or the lender’s announced prime rate at our option. At September 30, 2005, there was $1.3 million of standby letters of credit outstanding under this facility. The credit facility was collateralized by first priority liens and security interests in our assets. The credit facility contained certain restrictive covenants, including, but not limited to, limitations on the amount of loans we may extend to officers and employees, the payment of dividends, the repurchase of common stock and the incurrence of additional debt. As of September 30, 2005, there were no outstanding borrowings under this facility. However, the delayed availability of our financial statements for the fiscal year ended September 30, 2005 and the loss for the quarter ended September 30, 2005 constituted events of default under the revolving credit agreement between Tier and our lender. In addition, we incurred similar events of default for the quarter ended December 31, 2005. To address these events of default, we entered into an Amended and Restated Credit and Security Agreement with the lender on March 6, 2006. The agreement, which amends and restates the original agreement signed by Tier and the lender on January 29, 2003, made a number of significant changes, including the termination of the $15.0 million revolving credit facility, the reduction of financial reporting covenants and the elimination of financial ratio covenants. The March 6, 2006 agreement provides that we may obtain up to $15.0 million of letters of credit and also grants the lender a perfected security interest in cash collateral in an amount equal to all issued and to be issued letters of credit.

In addition to the letters of credit issued under the credit facility mentioned above, at September 30, 2006, we had a $3.0 million letter of credit outstanding, which was collateralized by certain securities in our investment portfolio. This letter of credit was issued to secure a performance bond.

Net Cash from Continuing Operations—Operating Activities

During fiscal 2006, our operating activities provided $4.9 million of cash. This reflects a $9.5 million net loss, plus $12.5 million of noncash transactions that are included on our Consolidated Statements of Operations. During fiscal 2006, $5.1 million was generated by a decrease in the balance of accounts receivable, due to our successful collection efforts, and $1.3 million was generated by an increase in accounts payable and other accrued liabilities. These increases were partially offset by a $2.8 million year-over-year decrease in prepaid expenses and other assets, which was primarily caused by an increase in long-term retainers receivable from our PSSI clients for long-term projects that are underway. In addition, a decrease in deferred income used $2.0 million of cash, resulting from the completion and the nearing completion of a number of contracts in our PSSI segment.

During fiscal 2005, the operating activities of our continuing operations provided $13.1 million of cash. This reflects $1.1 million of income from continuing operations, plus $10.2 million of noncash transactions that are included on our Consolidated Statements of Operations. During fiscal 2005, $2.5 million was generated by an increase in deferred revenue, of which $1.3 million is attributable to a contract with the State of Pennsylvania. A year-over-year decrease of $2.1 million in prepaid expenses also contributed to the increase in cash provided by operating activities of continuing operations. These increases were offset primarily by $3.5 million of cash used to support higher accounts receivable levels from increased sales.

During fiscal 2004, the operating activities of our continuing operations provided $25.4 million of cash, including $9.1 million of cash from net income from continuing operations, adjusted for non-cash items. In addition, during fiscal 2004 $9.0 million of cash was generated by a reduction in accounts receivable caused by improved collection activities, while $9.4 million of operating cash was generated by an increase in income taxes payable and $2.5 million of cash was used to pay accounts payable and to reduce accrued liabilities.

Net Cash from Continuing Operations—Investing Activities.

Net cash used in our investment activities from continuing operations for fiscal 2006 was $14.0 million, including $46.0 million used to purchase marketable securities, offset by $44.3 million provided by sales and maturities. In addition, $14.3 million was used to purchase restricted investments in the form of certificates of deposit required to collateralize performance bonds, offset by $6.6 million generated by sales and maturities of restricted investments. In addition, we used $4.8 million to purchase equipment and software, the majority of which was used to install a call center under a new contract in 2006.

During fiscal 2005, our continuing operations used $13.5 million of cash for investing activities, including $10.0 million used to purchase equipment and software, primarily for our Michigan operations and $4.1 million used to purchase our investment in CPAS and the assets of MyLocalGov.com. During this period, the sales and maturities of our available-for-sale securities generated $72.7 million of cash and the maturities of restricted investments generated $3.3 million of cash, the proceeds of which were invested in securities.

During fiscal 2004, we used $8.6 million for investing activities, of which $15.6 million was used to purchase EPOS and $3.4 million was used to purchase equipment and software. During fiscal 2004, purchases and maturities of marketable securities generated $6.3 million of cash. In addition, during fiscal 2004, a decrease in the level of restricted investments that we were required to maintain provided $4.4 million of cash, which we invested in marketable securities.

Net Cash from Continuing Operations—Financing Activities.

Net cash used in our financing activities from continuing operations for fiscal 2006 was $17,000, including $69,000 provided by the exercise of options to purchase our common stock, partially offset by the use of $86,000 for capital lease obligations.

During fiscal 2005 and 2004, $0.2 million and $2.2 million, respectively, of cash was provided by the financing activities of our continuing operations. These increases represent $0.3 million and $2.4 million, respectively, of proceeds provided by the exercise of options to purchase our common stock, partially offset by $0.1 million and $0.1 million, respectively, of cash used in both years for capital lease obligations.

We expect to generate cash flows from operating activities over the long-term; however, we may experience significant fluctuations from quarter to quarter resulting from the timing of the billing and collection of large project milestones. We anticipate that our existing capital resources, including our cash balances, cash that we anticipate will be provided by operating activities and our available credit facilities will be adequate to fund our operations for at least fiscal 2007. There can be no assurance that changes will not occur that would consume available capital resources before such time. Our capital requirements and capital resources depend on numerous factors, including: potential acquisitions; initiation of large child support payment processing contracts that typically require large cash outlays for capital expenditures and staff-up costs; contingent payments earned; new and existing contract requirements; the timing of the receipt of accounts receivable, including unbilled receivables; the timing and ability to sell investment securities held in our portfolio without a loss of principal; our ability to draw on our bank facility; and employee growth. To the extent that our existing capital resources are insufficient to meet our capital requirements, we will have to raise additional funds. There can be no assurance that additional funding, if necessary, will be available on favorable terms, if at all. The raising of additional capital may dilute our shareholders’ ownership in us.

Net Cash from Discontinued Operations.

During fiscal years 2006 and 2005, our discontinued operations used $21,000 and $386,000, respectively, of cash, all of which was used in operating activities. During fiscal year 2004, our discontinued operations provided $0.4 million, of which $1.9 million was generated by investing activities, offset by $1.5 million used in operating activities. See Note 15—Discontinued Operations of the Notes to Consolidated Financial Statements for additional information regarding our discontinued operations.

Due to the current economic climate, the performance bond market has changed significantly, resulting in reduced availability of bonds, increased cash collateral requirements and increased premiums. Some of our government contracts require a performance bond and future requests for proposal may also require a performance bond. Our inability to obtain performance bonds, increased costs to obtain such bonds or a requirement to pledge significant cash collateral in order to obtain such bonds would adversely affect our business and our capacity to obtain additional contracts. Increased premiums or a claim made against a performance bond could adversely affect our earnings and cash flow and impair our ability to bid for future contracts.

Our discussion and analysis of our financial condition and results of operations is based on our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Note 2—Summary of Significant Accounting Policies of our Notes to Consolidated Financial Statements contains a summary of our significant accounting policies, many of which require the use of estimates and assumptions. We believe that of our significant policies, the following are the most noteworthy because they are based upon estimates and assumptions that require complex subjective judgments by management, which can have a material effect on our reported results. Changes in these estimates or assumptions could materially impact our financial condition and results of operations. Actual results could differ materially from management’s estimates.

Revenue Recognition. Certain judgments affect the application of our revenue policy. We derive revenues primarily from transaction and payment processing, systems design and integration and maintenance and support services. We recognize revenues in accordance with accounting principles generally accepted in the United States, which, in some cases, require us to estimate costs and project status. The primary methods that we use to recognize revenues are described below:

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

Any given contract may contain one or more elements with attributes of more than one of the contract types described above. In those cases, we account for each element separately, using the applicable accounting standards. In addition, we also establish an allowance for credit card reversals and charge-backs as part of our revenue recognition practices. For all our segments, the amount and timing of our revenue is difficult to predict. Any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from quarter to quarter and could result in future operating losses.

Collectibility of Receivables. Accounts receivable includes funds that are due to us to compensate us for the services we provide to our customers. In addition, under certain contracts by our GBPO segment we are obligated to fund any payments that we misapply and checks that we receive for insufficient funds. We record the amounts that we fund for misapplied payments and insufficient funds checks as receivables until the amounts can be collected. We have established an allowance for doubtful accounts, which represents our best estimate of probable losses inherent in the accounts receivable balance. Each quarter we adjust this allowance based upon management’s review and assessment of each category of receivable. Factors that we consider to establish this adjustment include the age of receivables, past payment history and the demographics of the associated debtors. Our allowance for uncollectible accounts is based both on the performance of specific debtors and upon general categories of debtors.

Goodwill and Other Intangible Assets. We review goodwill and purchased intangible assets with indefinite lives for impairment annually at the reporting unit level (operating segment) and whenever events or changes indicate that the carrying value of an asset may not be recoverable in accordance with the Financial Accounting Standards Board, or FASB, Statement of Financial Accounting Standards, or SFAS, No. 142—Goodwill and Other Intangible Assets. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated using a discounted cash flow methodology. This requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, the useful life over which cash flows will occur and determination of our weighted-average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

Investments. We review our investments quarterly to identify other-than-temporary impairments in accordance with SFAS 115—Accounting for Certain Investments in Debt and Equity Securities and SEC Staff Accounting Bulletin No 59—Accounting for Noncurrent Marketable Equity Securities. This determination requires us to use significant judgment in evaluating a number of factors, including: the duration and extent to which the fair value of an investment is less than its cost; the financial health of and near-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow; and our intent and ability to hold the investment. When investments exhibit unfavorable attributes in these and other areas, we conduct additional analyses to determine that the fair value of the investment is other-than-temporarily impaired.

Contingencies. The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. SFAS 5—Accounting for Contingencies, which requires that an estimated loss from a loss contingency such as a legal proceeding or claim should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial position or our results of operations.

Income Taxes. SFAS 109—Accounting for Income Taxes establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial position, results of operations or cash flows.

Discontinued Operations. During the year ended September 30, 2003, we adopted SFAS 144—Accounting for the Impairment and Disposal of Long Lived Assets, or SFAS 144, which broadened the presentation of discontinued operations from the disposal of a segment to the disposal of a component of the entity. SFAS 144 also changed the timing of presentation from the point of commitment, as was required under APB 30, to the point of actual disposal of the operations. We must use our judgment to determine whether particular operations are considered a component of the entity and when the operations should no longer be classified as continuing operations.

Share-Based Compensation. Beginning October 1, 2005, we adopted SFAS 123(R)—Share-Based Payment, or SFAS 123R, which requires public companies to expense employee share-based payments based on fair value. In addition, the staff of the Securities and Exchange Commission issued SAB 107—Share-Based Payment, or SAB 107, which provided public companies with additional guidance on implementing SFAS 123R. We must use our judgment to determine key factors in determining the fair value of the share-based payment, such as volatility, forfeiture rates and the expected term in which the options will be outstanding.

RECENT ACCOUNTING STANDARDS

SFAS 154—Accounting Changes and Error Corrections. In May 2005, FASB issued Statement of Financial Accounting Standard No. 154—Accounting Changes and Error Corrections, or SFAS 154, which changes the requirements for the accounting for, and reporting of, a change in accounting principle. It also carries forward earlier guidance for the correction of errors in previously issued financial statements, as well as the guidance for changes in accounting estimate. SFAS 154 applies to all voluntary changes in accounting principles, as well as changes mandated by a standard-setting authority that do not include specific transition provisions. For such changes in accounting principles, SFAS 154 requires retrospective application to prior periods’ financial statements, unless it is impracticable to determine either period specific or cumulative effects of the change. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We adopted this standard beginning in October 2006. Since this standard applies to both voluntary changes in accounting principles, as well as those that may be mandated by standard-setting authorities, it is not possible to estimate the impact that the adoption of this standard will have on our financial position and results of operations.

SFAS 157—Fair Value Measurements. In October 2006, FASB issued Statement of Financial Accounting Standards No. 157—Fair Value Measurements, or SFAS 157. This standard establishes a framework for measuring fair value and expands disclosures about fair value measurement of a company’s assets and liabilities. This standard also requires that the fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and, generally, must be applied prospectively. We expect to adopt this standard beginning in October 2008. Currently, we are evaluating the impact that this new standard will have on our financial position and results of operations.

FIN 47—Accounting for Conditional Asset Retirement Obligations. In March 2005, FASB Interpretation No. 47—Accounting for Conditional Asset Retirement Obligations, or FIN 47, was issued. FIN 47 provides interpretive guidance on the term “conditional asset retirement obligation,” which is used in SFAS 143—Accounting for Asset Retirement Obligations. A conditional asset retirement obligation is a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be in control of the entity. FIN 47 requires that the fair value of a liability for the conditional asset retirement obligation should be recognized when incurred—generally upon acquisition, construction or development and/or through the normal operation of the asset. We adopted FIN 47 during the fourth quarter of fiscal 2006. Our adoption of FIN 47 did not materially impact our financial position or results of operations.

FIN 48—Accounting for Uncertainty in Income Taxes. In July 2006, FASB Interpretation No. 48—Accounting for Uncertainty in Income Taxes, or FIN 48, was issued. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109—Accounting for Income Taxes. FIN 48 is effective for fiscal years beginning after December 15, 2006. We expect to implement FIN 48 beginning on October 1, 2007. We are evaluating the impact that adopting FIN 48 will have on our financial position and results of operations.

FSP 46R-6—Determining the Variability to be Considered in Applying FASB Interpretation No. 46(R). In April 2006, FASB Staff Position FIN 46(R)-6—Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R), or FSP 46R-6 was issued. This standard addresses how a reporting enterprise should determine the variability to be considered in applying FASB Interpretation No. 46—Consolidation of Variable Interest Entities. Specifically, FSP 46(R)-6 prescribes the following two-step process for determining variability: 1) analyze the nature of the risks in the entity being acquired; and 2) determine the purpose for which the entity was created and the variability the entity is designed to create and pass along to its interest holders. We adopted this standard on July 1, 2006 and will apply this FSP to any future ventures.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

Indemnification Agreements

We have entered into indemnification agreements with each of our directors and executive officers and one non-executive officer. These agreements provide such persons with indemnification, to the maximum extent permitted by our Articles of Incorporation or Bylaws or by the Delaware General Corporation Law, against all expenses, claims, damages, judgments and other amounts (including amounts paid in settlement) for which such persons become liable as a result of acting in any capacity on behalf of Tier, subject to certain limitations.

Employment Agreements

During fiscal 2005, four executives had employment agreements with us which entitled them to severance payments ranging from 1.5 to 2 years of base salary if they are terminated without cause or if certain events occurred as a result of a change of control of the Company. At September 30, 2006, we could pay as much as $0.8 million under these agreements if these events occurred.

During fiscal 2006, we entered into Employment and Security Agreements with four executive officers and certain other key managers. Under the terms of these agreements, if certain pre-defined events were to occur as a result of a change in control of our Company, the individuals covered by these agreements would be entitled to severance payments ranging between six to twelve months of their current base salary. As of September 30, 2006, the maximum amount that could be paid under these agreements would be $3.4 million.

Effective May 31, 2006, we entered into a Separation Agreement and Release with James R. Weaver, who had served as our Chairman, Chief Executive Officer and President. This agreement included a change of control clause whereby Mr. Weaver would receive $175,000 to $350,000 if a pre-defined reorganization event were to occur within two years of the effective date of the agreement. As of September 30, 2006, the maximum amount that could be paid under this agreement would be $350,000.

Effective June 2006, the Company entered into a one-year employment agreement with Ronald Rossetti. Pursuant to the Agreement, Mr. Rossetti is entitled to receive a base salary of $50,000 per month and a bonus of $50,000 per month. In the event that certain pre-defined events occur before the end of this one-year agreement, we would be obligated to compensate Mr. Rossetti these amounts through the remaining term of the one-year agreement. As of September 30, 2006, the maximum amount that could be paid under these agreements would be $0.8 million.

Changes to 401(k) Plan

We announced that effective January 1, 2007 we will adopt a Safe Harbor non-elective employer contribution for our 401(k) Plan. The safe harbor contribution of three percent of plan-eligible compensation will be made to all plan-eligible employees. Our contributions to the 401(k) Plan will become vested at the time we make the contributions. We believe that our contribution to this plan will total approximately $1.0 million in fiscal year 2007.

Contractual Obligations

We have contractual obligations to make future payments on lease agreements, none of which have remaining terms that extend beyond five years. Additionally, in the normal course of business, we enter into contractual arrangements whereby we commit to future purchases of products or services from unaffiliated parties. Purchase obligations are legally binding arrangements whereby we agree to purchase products or services with a specific minimum quantity defined at a fixed minimum or variable price over a specified period of time. The most significant purchase obligation is for contracts with our subcontractors. The following table presents our expected payments for contractual obligations that were outstanding at September 30, 2006. All of these obligations are due within five years.

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

ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We maintain a portfolio of cash equivalents and investments in a variety of securities including certificates of deposit, money market funds and government and non-government debt securities. These available-for-sale securities are subject to interest rate risk and may decline in value if market interest rates increase. If market interest rates increase immediately and uniformly by ten percentage points from levels at September 30, 2006, the fair value of the portfolio would decline by about $17,000.

ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reports of Independent Registered Public Accounting Firms			29
Consolidated Balance Sheets			31
Consolidated Statements of Operations			32
Consolidated Statements of Shareholders’ Equity			33
Consolidated Statements of Comprehensive (Loss) Income			34
Consolidated Statements of Cash Flows			35
Notes to Consolidated Financial Statements			37
Schedule II—Valuation and Qualifying Accounts			57

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Tier Technologies, Inc.
Reston, Virginia

We have audited the consolidated balance sheets of Tier Technologies, Inc. and subsidiaries as of September 30, 2006 and 2005, and the related consolidated statements of operations, shareholders’ equity, comprehensive (loss) income, and cash flows for the years then ended. Our audits also included the financial statement schedule of Tier Technologies, Inc. listed in Item 15(a). These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tier Technologies, Inc. and subsidiaries as of September 30, 2006 and 2005, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

Tier Technologies, Inc. and subsidiaries changed their method of accounting for stock-based compensation in accordance with guidance provided in Statement of Financial Standards No. 123 (R), “Share-Based Payment”.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Tier Technologies, Inc. and subsidiaries internal control over financial reporting as of September 30, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated December 13, 2006 expressed an unqualified opinion on management’s assessment of the effectiveness of Tier Technologies, Inc.’s internal control over financial reporting and an unqualified opinion on the effectiveness of Tier Technologies, Inc.’s internal control over financial reporting.

/s/ McGladrey & Pullen, LLP
Alexandria, Virginia
December 13, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of
Tier Technologies, Inc.

In our opinion, the consolidated statements of operations, of shareholders’ equity, of comprehensive income (loss) and of cash flows for the year ended September 30, 2004 of Tier Technologies, Inc. and its subsidiaries (the “Company”) present fairly, in all material respects, the results of operations and cash flows for the year ended September 30, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year ended September 30, 2004 listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers, LLP
San Jose, California
December 27, 2004, except for the restatement described in Note 1 to the consolidated financial statements (not presented herein), as to which the date is October 23, 2006.

TIER TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS

		September 30,
(in thousands)		2006				2005
ASSETS
Current assets:
Cash and cash equivalents		$	18,486			$	27,843
Investments in marketable securities			36,950				36,493
Accounts receivable, net			15,035				19,449
Unbilled receivables			2,918				3,094
Prepaid expenses and other current assets			3,067				3,680
Total current assets			76,456				90,559
Property, equipment and software, net			13,466				13,501
Long-term accounts receivable			—				1,560
Goodwill			37,567				37,567
Other intangible assets, net			21,879				26,147
Restricted investments			12,287				3,335
Investment in unconsolidated affiliate			3,978				3,590
Other assets			3,916				483
Total assets		$	169,549			$	176,742
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	871			$	1,902
Income taxes payable			7,288				7,113
Accrued compensation liabilities			5,325				5,139
Accrued subcontractor expense			2,360				3,226
Other accrued liabilities			11,823				7,836
Deferred income			5,750				7,795
Total current liabilities			33,417				33,011
Other liabilities			1,922				2,192
Total liabilities			35,339				35,203
Commitments and contingencies (Note 8)
Shareholders’ equity:
Preferred stock, no par value; authorized shares: 4,579; no shares issued and outstanding			—				—
Common stock and paid-in capital—Shares authorized: 44,260; shares issued: 20,383 and 20,374; and shares outstanding: 19,499 and 19,490			184,387				182,066
Treasury stock—at cost, 884 shares			(8,684	)			(8,684	)
Notes receivable from related parties			(4,275	)			(3,998	)
Accumulated other comprehensive loss			(33	)			(111	)
Accumulated deficit			(37,185	)			(27,734	)
Total shareholders’ equity			134,210				141,539
Total liabilities and shareholders’ equity		$	169,549			$	176,742

See Notes to Consolidated Financial Statements

TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

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

See Notes to Consolidated Financial Statements

TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

		Common stock
		Class A								Class B								$0.01 par value												Treasury stock												Accumulated other								Total
																										Paid-in-												Notes receivable				comprehensive (loss)				Accumulated				shareholders’
(in thousands)		Shares				Amount				Shares				Amount				Shares				Amount				capital				Shares				Amount				from shareholders				income				deficit				equity
Balance at September 30, 2003			880			$	930				18,662			$	172,496				—			$	—			$	403				(884	)		$	(8,684	)		$	(3,908	)		$	(221	)		$	(27,357	)		$	133,659
Net loss			—				—				—				—				—				—				—				—				—				—				—				(1,503	)			(1,503	)
Exercise of stock options			—				—				350				2,196				—				—				—				—				—				—				—				—				2,196
Issuance of Class B common stock			—				—				30				199				—				—				—				—				—				—				—				—				199
Conversion 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				—				—				—				—				—				—				—				—				4,447
Stock option revision charge			—				—				—				552				—				—				—				—				—				—				—				—				552
Notes and interest receivable from related parties			—				—				—				—				—				—				256				—				—				(205	)			—				—				51
Unrealized loss on investments			—				—				—				—				—				—				—				—				—				—				(176	)			—				(176	)
Foreign currency translation adjustment			—				—				—				—				—				—				—				—				—				—				269				—				269
Balance at September 30, 2004			—				—				20,324				180,820				—				—				659				(884	)			(8,684	)			(4,113	)			(128	)			(28,860	)			139,694
Net income			—				—				—				—				—				—				—				—				—				—				—				1,126				1,126
Exercise of stock options			—				—				9				54				1				—				6				—				—				—				—				—				60
Issuance of Class B common stock			—				—				33				242				—				—				—				—				—				—				—				—				242
Issuance of Class B common stock in business combinations			—				—				7				79				—				—				—				—				—				—				—				—				79
Conversion of Class B common stock to $0.01 par value common stock			—				—				(20,373	)			(181,195	)			20,373				204				180,991				—				—				—				—				—				—
Notes and interest receivable from related parties			—				—				—				—				—				—				206				—				—				115				—				—				321
Unrealized gain on investments			—				—				—				—				—				—				—				—				—				—				89				—				89
Foreign currency translation adjustment			—				—				—				—				—				—				—				—				—				—				(72	)			—				(72	)
Balance at September 30, 2005			—				—				—				—				20,374				204				181,862				(884	)			(8,684	)			(3,998	)			(111	)			(27,734	)			141,539
Net loss			—				—				—				—				—				—				—				—				—				—				—				(9,451	)			(9,451	)
Exercise of stock options			—				—				—				—				9				—				69				—				—				—				—				—				69
Interest receivable from related parties			—				—				—				—				—				—				277				—				—				(277	)			—				—				—
Share-based payment			—				—				—				—				—				—				1,975				—				—				—				—				—				1,975
Unrealized gain on investments			—				—				—				—				—				—				—				—				—				—				53				—				53
Foreign currency translation adjustment			—				—				—				—				—				—				—				—				—				—				25				—				25
Balance at September 30, 2006			—			$	—				—			$	—				20,383			$	204			$	184,183				(884	)		$	(8,684	)		$	(4,275	)		$	(33	)		$	(37,185	)		$	134,210

See Notes to Consolidated Financial Statements

TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

		Year ended September 30,
(in thousands)		2006				2005				2004
Net (loss) income		$	(9,451	)		$	1,126			$	(1,503	)
Other comprehensive (loss) income, net of taxes:
Investments in marketable securities:
Unrealized gain (loss)			53				19				(176	)
Less impact of realized losses (transferred out of accumulated other comprehensive income and included in net income)			—				70				—
Net change from marketable securities			53				89				(176	)
Foreign currency translation gain (loss)			25				(72	)			269
Other comprehensive income			78				17				93
Comprehensive (loss) income		$	(9,373	)		$	1,143			$	(1,410	)

See Notes to Consolidated Financial Statements

TIER TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

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