UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

(Mark One)

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

For the fiscal year ended September 30, 2004

Or

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

Commission file number 000-23195

TIER TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

California		94-3145844
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

10780 Parkridge Blvd., 4^th Floor
Reston, Virginia 20191
(571) 382-1000
(Address of principal executive offices and registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Class B common stock, no par value

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 o No þ

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” if Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated Filer þ     Non-accelerated filero

On March 31, 2006, 2005 and 2004, the aggregate market value of the voting stock held by nonaffiliates of the registrant was approximately $156,969,000, $143,509,000 and $201,434,000, respectively, based on the last reported sale price of the registrant’s common stock on such date.

The number of shares of the registrant’s outstanding stock on October 17, 2006 was 20,383,606.

DOCUMENTS INCORPORATED BY REFERENCE

None

 

 

TIER TECHNOLOGIES, INC.

FORM 10-K/A
TABLE OF CONTENTS

				Page
		Explanatory note			3
		PART I
Item 1.		Business			5
		PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
		Purchases of Equity Securities			13
Item 6.		Selected Financial Data			14
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 8.		Financial Statements and Supplementary Information			42
Item 9A.		Controls and Procedures			42
Item 15.		Exhibits and Financial Statement Schedules			45
SIGNATURES

Private Securities Litigation Reform Act Safe Harbor Statement

     Certain statements contained in this report, including statements regarding the development of and demand for our services and our markets, anticipated trends in various expenses, expected costs of legal proceedings and other statements that are not historical facts, are forward-looking statements within the meaning of the federal securities laws. These forward-looking statements relate to future events or our future financial and/or operating performance and can generally be identified as such because the context of the statement will include words such as “may,” “will,” “intends,” “plans,” “believes,” “anticipates,” “expects,” “estimates,” “shows,” “predicts,” “potential,” “continue,” or “opportunity,” the negative of these words or words of similar import. These forward-looking statements are subject to risks and uncertainties, including the risks and uncertainties described and referred to under “Factors That May Affect Future Results” beginning on page 33 that could cause actual results to differ materially from those anticipated as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

EXPLANATORY NOTE

     Tier Technologies, Inc. (“Tier” or the “Company”) is filing this Amendment No. 3 to its Annual Report on Form 10-K/A for the fiscal year ended September 30, 2004, which was filed on December 28, 2004 and previously amended on January 28, 2005 (Amendment No. 1) and April 20, 2005 (Amendment No. 2), including our consolidated financial statements and notes thereto, which were included in Exhibit 15. The purpose of this Amendment No. 3 on this Form 10-K/A is to reflect the restatement of our historical financial statements for the fiscal year ended September 30, 2004, including the quarters ended December 31, 2003, March 31, 2004 and June 30, 2004 and for fiscal year ended September 30, 2003, including the quarters ended December 31, 2002, March 31, 2003 and June 30, 2003. Also, we are restating selected financial data for the years ended September 30, 2002 and 2001. This Amendment No. 3 includes, in their entirety, all items that were impacted by our restatement, including Items 1, 5, 6, 7, 8, 9A and 15. Except as otherwise expressly provided, this Amendment No. 3 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2004, does not reflect events occurring after the filing of the original Annual Report on Form 10-K or modify or update those disclosures, except as required to reflect the effects of the restatement.

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

     We are restating our historical financial statements for the fiscal year ended September 30, 2004, including the quarters ended December 31, 2003, March 31, 2004 and June 30, 2004 and for fiscal year ended September 30, 2003, including the quarters ended December 31, 2002, March 31, 2003 and June 30, 2003. Also, we are restating selected financial data for the years ended September 30, 2002 and 2001. These restatements and revisions primarily reflect adjustments to:

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

     In addition to the above adjustments, we also made a number of other minor adjustments and reclassifications in our financial statements to comply with accounting principles generally accepted in the United States.

     The restatement has the following impact on net income and diluted earnings per common share by period:

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

For additional information relating to the effect of the restatement, see Note 1 to our Consolidated Financial Statements included in Item 15, as well as the following items:

     Part I:

          Item 1—Business

     Part II:

          Item 5—Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

          Item 6—Selected Financial Data

          Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations

          Item 8—Financial Statements and Supplementary Data

          Item 9A—Controls and Procedures

PART I

Item 1. Business

GENERAL

     We provide transaction processing services and software and systems integration services primarily to federal, state and local government and other public sector clients. Our clients outsource portions of their business processes to us, and rely on us for our industry-specific information technology expertise and solutions. We reported approximately $127.8 million in revenues for fiscal year 2004. We were incorporated in California in 1991, and are based in Reston, Virginia.

     Our core services are providing secure, efficient and reliable transaction processing options and industry-specific software and systems integration services to our clients. Our transaction processing services primarily consist of child support payment processing and related services for state government clients, and electronic payment processing services for federal, state, and local government clients, which allow those clients to offer their constituents the option of paying governmental obligations, such as taxes and other fees, using credit or debit cards or electronic checks. Our software and systems integration services primarily involve integrating our proprietary software products and licensed third-party software products into our clients’ business operations. In fiscal year 2004, approximately two-thirds of our revenues were derived from transaction processing based operations, and approximately one third of our revenues were derived from software and systems integration operations. For most of our services, we generate revenue from fees received directly from our clients, but in the case of our electronic payment processing services, most of our revenues are derived from convenience fees paid by the individual taxpayer or other end user of our service.

     We provide our services through the following three business units:

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

     We target industry sectors that we believe are driven by forces that make demand for our services less discretionary and are 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 collection and disbursement, and involve fundamental shifts in consumer transaction preferences, such as the increased usage of electronic payment methods relative to cash or paper checks among U.S. consumers. Our clients generally outsource portions of their business processes to us in order to rapidly provide their customers with technologically advanced services, and achieve cost efficiencies. We have provided additional information about revenues and assets of each of these segments in Note 10—Segment Information of our Notes to Consolidated Financial Statements.

INDUSTRY OVERVIEW

     Today’s government and public sector entities are facing an increasingly competitive and complex operating environment. Demographic shifts, continuous regulatory changes, the need for real-time information, the expansion of the Internet as an informational as well as transactional channel, the development of complex technologies, and advanced operational systems are all dramatically impacting the way these entities conduct business.

     The state child support payment industry has been revolutionized by regulatory initiatives, including the U.S. Personal Responsibility and Work Opportunity Reconciliation Act of 1996. This act required every state, as a condition of receiving federal funds, to develop an automated and centralized process for collecting and disbursing child support payments. This act also created the Financial Institution Data Match program, which required states to match delinquent obligations

against records held by every financial institution doing business within that state. Once a match is identified, the state child support enforcement agencies can issue liens or levies on respective financial accounts to expedite the collection of past due child support obligations. Child support payments in the United States for the federal 2003 fiscal year rose to a record high of $21.2 billion. State and local government entities are increasing child support services due to the growth in caseloads and their desire to improve enforcement systems.

     The expansion of the Internet has facilitated a profound change in the way governments interact with their constituents. A paperless environment not only increases the speed of interaction and accessibility to information, but also dramatically reduces cost while increasing user convenience and efficiency. In 1998, the Internal Revenue Service Restructuring and Reform Act established the goal that by the year 2007, at least 80% of all federal tax and information returns would be filed electronically. According to the Internal Revenue Service 2004 Filing Season Statistics weekly report, 61.0 million individual federal returns for the 2003 tax year were electronically filed as of August 27, 2004, amounting to approximately 48% of total returns filed.

     The drive toward electronic filing has also increased the need for electronic payment options, including the ability to make tax and other payments with a credit or debit card or electronic check. According to the U.S. Payment Card Information Network, approximately 83% of U.S. households have at least one credit card. According to the Bureau of Economic Analysis, federal, state and local taxes and fees from individuals and businesses totaled $3.0 trillion in 2003. Many government entities lack the technical expertise and personnel required to efficiently develop, implement and maintain a process to accept electronic payments from consumers using the Internet or over the telephone. These government entities increasingly rely on external service providers to outsource this function.

     Advances in telephone call center technologies, combined with the need for governments and other public sector entities to reduce operating costs while improving service delivery to their constituents, have resulted in these entities considering new ways to accomplish their missions. Recent advances in technologies such as natural language speech recognition have enabled the delivery of a wide variety of services through automated telephone-based interactive voice response systems that formerly required a live telephone attendant. Automated call centers can now provide interactive services twenty-four hours a day, seven days a week, ranging from basic information delivery, to more complex transaction and payment processing services. These automated services can generally be provided at a savings relative to the cost of a live telephone attendant.

     The changing regulatory needs of government, coupled with the increasing reliance on Internet-based communication, are prompting state and local governmental entities to evaluate, upgrade and modify their financial management applications. The potential market for the development, delivery and operation of financial management applications for governmental entities is large. According to the 2002 U.S. Census of Governments, in addition to the federal and 50 state governmental entities, there were 87,849 units of local governments. Of these, 38,971 are general-purpose local entities – 3,034 county governments, 19,431 municipal and 16,506 town or township governments. The remainder, which comprises over one-half of the total, are special purpose local governments, including 13,522 school districts and 35,356 special district governments.

     Demographic and regulatory forces have also driven significant change within the public retirement systems industry. Increased life expectancy, an aging population, new investment vehicles, outdated legacy systems, increased focus on retirement security and a dynamic regulatory environment have resulted in a significant increase in the complexity and administration of state and local government public pension organizations. These organizations provide a myriad of services and benefits to their membership, including pension benefits and disability benefits, retirement planning and education, death benefits and retiree healthcare. To address these issues, public pension organizations have increasingly been required to provide additional services, such as on-line access to benefits, to meet the growing needs of their membership. Additionally, the Economic Growth and Tax Relief Reconciliation Act of 2001 called for extensive changes to the rules relating to individual retirement arrangements and qualified pension plans, increasing contribution limits and catch-up contributions to IRAs while adding new provisions for government employee pension plans. According to the U.S. Census Bureau 2002 Census of Governments, there were 2,670 state and local government retirement systems, with a membership of 17.2 million persons who could be eligible for regular benefit payments in the future. Cash and security investment holdings of these organizations totaled $2.2 trillion.

     The Job Creation and Worker Assistance Act, signed into law in March 2002, was designed to stimulate the economy and included, among other provisions, a special distribution, commonly called the Reed Act Distribution, of $8 billion to state unemployment insurance trust funds. While much of this money is being used to support the solvency of the funds, additional unemployment benefits, and lower unemployment insurance taxes, the U.S. Department of Labor recommended that states

consider setting aside a portion of the distribution for unemployment insurance automation costs to assure that states have sufficient funds to invest in large computer installations and upgrades. According to the U.S. Department of Labor, Employment and Training Administration, $41.3 billion in unemployment insurance benefits were paid through the 50 state unemployment insurance agencies in calendar year 2003.

     Challenging economic conditions as well as rapid changes in technology and dynamic market forces are affecting the way government and public sector entities do business today. These entities are increasingly employing external service providers such as Tier to efficiently outsource strategic business operations, and develop and implement broad information technology strategies that leverage existing strengths and provide a solid foundation for future success.

BUSINESS STRATEGY

     We believe that we are able to add significant value to our clients as a result of our comprehensive service offerings and industry-specific knowledge in the sectors in which we operate. In fiscal 2004, we focused on transaction processing and packaged software and systems implementations for government and other public sector clients, and have eliminated all business units and segments not core to these two focal areas. We intend to focus on the following growth strategies.

Penetrate and expand our presence in non-discretionary markets

     We intend to continue to focus on markets that are driven either by state or federal mandates that require immediate operating changes or by intense competitive pressures that drive significant business process changes. We believe that the demand by our clients for services to implement these changes is in large part non-discretionary.

Build recurring revenue streams

     We intend to build recurring revenue streams by offering differentiated services under multi-year arrangements to clients that are outsourcing significant components of their ongoing operations, systems maintenance and systems development activity. These arrangements provide continuity of services to our clients and minimize disruption to our clients’ operations. We believe that our industry expertise, our proprietary applications and the portability of our prior project experience motivate our clients to enter into these arrangements and to select us for follow-on and extended projects.

Leverage proprietary applications

     We intend to leverage our proprietary software applications and acquire or invest in additional proprietary applications that allow us to gain market share quickly in the industry sectors in which we operate. We currently have proprietary software applications that target the health and human services and financial management segments of the state and local government market, as well as government back-office administration and electronic payment channels.

Leverage expertise in the industry sectors in which we operate

     We intend to attract new clients and provide additional services to existing clients by leveraging our expertise in the industry sectors in which we operate. We have developed expertise in areas such as child support payment processing and related services, electronic payment processing of tax and other government payments, public pension systems, unemployment insurance systems, government accounting, financial management and procurement systems, and interactive voice response systems.

Provide end-to-end solutions

     We differentiate ourselves by being able to provide our clients with end-to-end solutions for their projects, including implementation and operation. We can rapidly deploy a team of senior experts with proven industry expertise and extensive technology capabilities.

Attract and retain high-value employees

     We strive to attract and retain highly skilled professionals in order to deliver high quality services to clients. Our goal is to offer competitive compensation packages, technical training programs and attractive career advancement opportunities. Our sales force is supplemented by industry experts who have the ability to translate industry-specific challenges into business development opportunities.

Develop partnership relationships and complete strategic acquisitions

     We intend to develop partnership relationships with service and technology providers in the pursuit of new business development opportunities. In addition to broadening our client base, we believe these relationships enable us to maintain our technological leadership through the deployment of leading edge applications. We also evaluate potential acquisitions that may expand our presence in key marketplaces, provide us the advantage of owning or influencing the intellectual property that we offer to our clients, supplement our industry expertise, or provide us with additional human resources or client relationships. Since October 2001, we have completed four such acquisitions.

SERVICES

     We categorize our service offerings as transaction and payment processing, systems design and integration, and maintenance and support services. We provide suites of services under each of these offerings. Several of our engagements involve providing a combination of services from different offerings as part of the overall project. Revenue contributed by offering is as follows:

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

Transaction and payment processing

     We use our proprietary software applications, Kids1st^®, VIPRS^® and FundFinder^®, to process business transactions related to payment of child support obligations and enforcement. We believe our ability to customize our core proprietary software applications reduces the costs and risks inherent in software implementation and makes our solution a scalable and flexible option for our clients. Our expertise in child support payment processing, regulatory and banking issues and our proprietary financial institution data match software application, FundFinder, have enabled us to be a leader in the implementation of financial institution data match programs. As of September 30, 2004, we were providing financial institution data match services utilizing FundFinder to 16 states. As of September 30, 2004, we had child support payment processing operations in nine states where we were processing approximately $3.8 billion of child support payments on an annualized basis. Our payment processing operations, through the use of Kids1st and VIPRS, provide many services on behalf of our clients, including the handling of payment collections, the electronic imaging of checks and other supporting documentation, the application of payments to the appropriate child support court orders, the entry of new court orders into the payment system, the creation and maintenance of payment histories, the creation and mailing of child support disbursements, and the creation and maintenance of direct deposits of child support payments. Our clients can choose from an array of service offerings including full customer service/call center operations, a government-to-consumer web application, interface between the state’s financial institutions and its child support enforcement division to assist in the location and seizure of delinquent child support and full processing of child support payments.

     We provide electronic transaction and payment processing services through our wholly owned subsidiaries Official Payments Corp. and EPOS Corporation. We acquired Official Payments Corp. in July 2002, and EPOS in June 2004. Official Payments Corp. provides proprietary telephone and Internet systems for electronic payment options to the IRS, 24 states, the District of Columbia, and over 1,500 local and municipal governments. EPOS is a provider of interactive communications and transaction processing technologies. In fiscal year 2004, we processed over 2.6 million transactions, collecting more than $1.6 billion in government taxes and fees, including federal and state personal income taxes, state business taxes, and local taxes and fees such as property taxes, utilities, parking citations, traffic violations and local licenses. By utilizing our electronic payment processing services, governments and other public sector clients reduce remittance-processing costs, increase speed of pay and provide added convenience to their constituents.

     Our transaction processing revenue is typically paid by our government and public sector clients and is largely based on a per-transaction fee applied to the number of transactions processed for our child support payment processing operations.

     Our electronic payment processing revenue is generally derived from transaction convenience fees, based on a percentage of the payment amount or a flat fee, paid by individual taxpayers and other end users of these services.

Systems design and integration

     We implement software applications that enhance our clients’ operating functionality. Our proven ability to integrate enterprise-wide applications in government and other public sector markets has strengthened our expertise and credentials. We offer these services through the following practice areas:

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

     Our systems design and integration revenue is generally derived on a time and materials or fixed price contract basis for software systems design and integration projects.

Maintenance and support services

     We provide product maintenance and support services for our proprietary software systems to clients in the public sector. We have a support team based in Reston, Virginia to answer questions and resolve software discrepancies that may arise in the normal operation of the software. A toll-free, staff-supported voice hotline is available from 7:30 a.m. to 8:30 p.m. EST, Monday through Friday, except holidays.

     EPOS provides product maintenance and support services of our proprietary software and third party hardware and software included in our solutions. EPOS maintains a staff-supported call center available by phone or email from 8:00 a.m. to 5:00 p.m. CST, Monday through Friday, except holidays, for primary support of our maintenance customers. In addition, 24/7 and onsite options are available for emergency support.

     Clients are eligible to receive new releases of the baseline licensed software and corresponding supporting documentation. All released software patches are available on our self-service web site. Clients can also review the on-line knowledge base and potentially resolve a problem prior to submitting an issue to our support team. In addition, questions can be submitted by email. Some clients also take advantage of enhanced support services on a time and materials basis, typically performed on-site.

Products sales and other services

     We provide automated telephony, license and call center hardware systems and services for re-designing web portals for state and local government clients.

CLIENTS

     Our clients consist primarily of federal, state and local government and other public sector entities. We provided our services to clients in 49 states during the fiscal year ended September 30, 2004. For the fiscal year ended September 30, 2004,

our revenues were derived from sales to government agencies, public sector entities, and from convenience fees paid by their constituents. We believe that most of our total future revenues will continue to be attributable to sales to government agencies and other public sector entities such as educational institutions and public utilities.

     We derive a significant portion of our revenues from a limited number of large clients. For the fiscal year ended September 30, 2004, the revenues from IRS taxpayers accounted for 12.3% of our revenues. Most of our contracts are terminable by the client following limited notice and without significant penalty to the client, and the completion, cancellation or significant reduction in the scope of a large project could have a material adverse effect on our business, financial condition and results of operations. In addition, we performed child support payment processing services for three different state governments as a subcontractor to ACS State and Local Solutions, Inc., a division of Affiliated Computer Services, Inc., or ACS. For the fiscal year ended September 30, 2004, work performed under these three subcontracts accounted for 11.1% of our revenues. In June 2004, we were notified by ACS of its decision not to renew one of our subcontracts effective June 30, 2004.

     In December 2001, we entered into a contract with the California Public Employees Retirement System, or CalPERS, to integrate the contributions reporting function of a third-party software product into CalPERS’ legacy environment. In the fourth quarter of fiscal 2003, our contract with CalPERS was terminated. As a result, we recorded an adjustment to revenue of approximately $12.8 million in that quarter to write down the total value of our unbilled receivable from CalPERS. For fiscal year 2002, revenues from CalPERS represented approximately 12.9% of our total revenues.

SALES AND MARKETING

     Our sales and marketing objective is to develop relationships with clients that result in both repeat and long-term engagements. Rather than using only a commissioned sales force, we also utilize consultants within the markets as a key sales and delivery resource. Members of our management team have a wide range of industry contacts and established reputations in the 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 penetrate markets quickly and with lower client acquisition costs.

     Through our marketing efforts we seek to increase brand awareness, raise awareness of our electronic payment options, and generate new business. We have worked with our government clients to publicize our services through advertisements in payment invoices, publications and web sites, which typically occurs without charge to us. We enter into cooperative advertising and marketing arrangements with our credit and debit card partners and major card-issuing banks, which include advertising campaigns and promotion of our services via print and online. We utilized newspaper, television, radio and public relations campaigns to supplement these efforts in 2004.

EMPLOYEES

     As of September 30, 2004, we had a workforce of 860, which included 808 employees and 52 independent contractors.

     We believe that there is significant competition for seasoned professionals and that our future success is highly dependent upon our ability to attract, train, motivate, mentor and retain skilled consultants with the advanced technical skills necessary to perform the services we offer.

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., Bank of America Corp., 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 on a fixed price or transaction basis as well as 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 methodologies, solutions and protection of intellectual property rights. We rely upon a combination of non-disclosure agreements, licensing agreements 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 non-disclosure agreements with all our employees, subcontractors and the parties we team with for contracts and with many of our clients. We also control and limit distribution of proprietary information. We cannot assure that the steps we take in this regard 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 utilize intellectual property laws, including copyright and trademark laws, to protect our proprietary rights. A portion of our business also involves the development of software applications for specific client engagements and the customization of existing software products for specific clients. Ownership of the developed software and the customizations to the existing software is the subject of negotiation with each particular client 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

     We make copies of our filings with the Securities and Exchange Commission, or the SEC, available to investors on our website without charge as soon as reasonably practicable after we file them with the SEC. Our SEC filings can be found on the Investors page of our website at www.tier.com.

EXECUTIVE OFFICERS

     The following persons were our executive officers as of December 28, 2004:

Name		Age				Position
James R. Weaver(1)			47			President, Chief Executive Officer and Director
Jeffrey A. McCandless(1)			46			Senior Vice President, Chief Financial Officer and Treasurer
Donald R. Fairbairn(1)			48			Senior Vice President, Human Resources
Michael A. Lawler			41			Senior Vice President, Electronic Payment Processing
Todd F. Vucovich			40			Senior Vice President, Packaged Software and Systems Integration
Stephen V. Wade			43			Senior Vice President, Business Development

     Mr. Weaver was elected Chairman of the Board in January 2004, elected to the Board of Directors in October 2003, appointed Chief Executive Officer in August 2003, and appointed President in January 2002. He was Chief Operating Officer from November 2002 through August 2003. Mr. Weaver joined us as President, Government Services Division in May 1998 and became President, U.S. Operations in August 2000. From June 1997 until May 1998, Mr. Weaver served as Vice President, Government Solutions of BDM International, Inc., an information technology company. From March 1995 until June 1997, he served as National Program Director, Public Sector for Unisys Corporation, an information technology company. Prior to that time, he served as Director, Public Sector Services with Lockheed Martin Information Management Services and District Manager with the Commonwealth of Virginia, Division of Child Support Enforcement. Mr. Weaver received a Bachelors of Arts degree in Psychology from California University of Pennsylvania.

     Mr. McCandless joined us as Senior Vice President, Chief Financial Officer and Treasurer in July 2003. From April 2000 to July 2003, Mr. McCandless served as Senior Vice President and Chief Financial Officer of Interelate, an application services provider firm. From 1997 to April 2000, Mr. McCandless was Chief Financial Officer at Mastech Corp.,

now iGATE Corp., a global information technology company. Mr. McCandless received a Bachelor of Arts degree in Business Administration from Westminster College.

     Mr. Fairbairn joined us as Senior Vice President, Human Resources in September 2003. From April 2002 to June 2003, he served as Senior Vice President, Human Resources for HCL Technologies America, a global IT services and product engineering company. Mr. Fairbairn was Vice President of Human Resources for Getronics, now part of BAE Systems, a computer services company, from August 1997 to March 2002. Mr. Fairbairn has earned certifications as a Senior Professional in Human Resources, a Certified Compensation Professional, and a Certified Benefits Professional. He received a Bachelor of Arts degree in Human Resources from Michigan State University and completed the Strategic Human Resource Management Program at Harvard Business School.

     Mr. Lawler joined us as Senior Vice President, Electronic Payment Processing in June 2004, with the acquisition of EPOS. Mr. Lawler was President of EPOS beginning November 1989 and Chairman of EPOS beginning in September 1991. He received Bachelor of Computer Engineering and Master of Science degrees from Auburn University.

     Mr. Vucovich is Senior Vice President, Packaged Software and Systems Integration and has served in this capacity since November 2004. He has 18 years of experience in the development and implementation of information systems, including seven years in a business development role and eight years in a managerial capacity. Mr. Vucovich has been with us since December 1995. From September 2000 until November 2004, Mr. Vucovich served as Vice President, Quality Assurance and Resource Management. From October 1997 to September 2000, he was Business Development Manager, Government Services Division. Mr. Vucovich received a Bachelor of Science degree in Computer Science from the University of Southern Mississippi.

     Mr. Wade was appointed Senior Vice President, Strategy and Business Development in October 2003. Prior to this appointment, Mr. Wade was Vice President, Business Development and Sales from June 1999 through September 2003. Prior to his joining Tier, Mr. Wade was Director, Business Development at TRW, System and Information Technology Group from 1997-1999 and Director, Business Development at BDM, International from 1990 to 1996.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     Throughout fiscal year 2004, our Class B common stock was quoted on the NASDAQ National Market under the symbol TIER. Effective May 23, 2006, our stock was delisted and became quoted on the Pink Sheets under the symbol TIER or Tier.PK. See Note 17—Subsequent Events (unaudited) to the Consolidated Financial Statements for additional detail about these events. The table below sets forth the high and low sales price for our Class B common stock as reported by the Nasdq National Market for the periods indicated:

		High				Low
Fiscal Year Ended September 30, 2003:
First Quarter		$	20.46			$	13.98
Second Quarter			17.60				9.39
Third Quarter			10.34				6.10
Fourth Quarter			11.86				7.05

		High				Low
Fiscal Year Ended September 30, 2004:
First Quarter		$	10.75			$	6.83
Second Quarter			11.69				7.70
Third Quarter			12.05				8.55
Fourth Quarter			10.10				7.36

     We have never declared or paid cash dividends on our common stock. We currently intend to retain future earnings to fund the development and growth of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors; however, under our current credit facility, we are prohibited from declaring dividends.

     As of December 6, 2004, there were 275 holders of record of our Class B common stock.

Securities

     The following table sets forth information about our equity compensation plans as of September 30, 2004 (in thousands, except exercise price):

Equity Compensation Plan Information

Number of securities to be issued

Weighted-average exercise

Number of securities remaining

upon exercise of outstanding

price of outstanding options, warrants

available for future issuance under

Plan category

options, warrants and rights

and rights

equity compensation plans(1)

Equity compensation plans approved by security holders

2,456

$11.00

1,117

Equity compensation plans not approved by security holders

—

—

—

Item 6. Selected Financial Data

     The following table summarizes our selected consolidated financial data for the fiscal years ended September 30, 2000 through 2004. 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. The table also demonstrates the effect of the restatement adjustments on our selected consolidated financial data. Historical results are not necessarily indicative of results to be expected for any future period.

		FISCAL YEARS ENDED SEPTEMBER 30,
		As Previously Reported																					Restatement Adjustments1)																					As Restated
(in thousand, except per share data)		2004				2003				2002				2001				2000					2004				2003				2002				2001				2000					2004				2003				2002				2001				2000
Consolidated statement of operations data:
Revenues		$	127,937			$	115,917			$	84,656			$	54,600			$	50,298				$	(160	)		$	(340	)		$	(223	)		$	(107	)		$	—				$	127,777			$	115,577			$	84,433			$	54,493			$	50,298
Cost and expenses:
Direct costs			83,637				89,657				52,847				32,150				30,019					762				—				—				—				—					84,399				89,657				52,847				32,150				30,019
General and administrative			27,959				23,579				14,360				12,560				13,871					274				27				148				1,415				—					28,233				23,606				14,508				13,975				13,871
Selling and marketing			7,161				5,893				3,853				2,889				2,067					280				(312	)			—				—				—					7,441				5,581				3,853				2,889				2,067
Depreciation and amortization			4,977				5,273				3,761				3,051				2,560					132				150				3				—				—					5,109				5,423				3,764				3,051				2,560
Restructuring and other charges			3,493				—				—				—				—					—				414				—				—				—					3,493				414				—				—				—
Total costs and expenses			127,227				124,402				74,821				50,650				48,517					1,448				279				151				1,415				—					128,675				124,681				74,972				52,065				48,517
Income before other income (loss)			710				(8,485	)			9,835				3,950				1,781					(1,608	)			(619	)			(374	)			(1,522	)			—					(898	)			(9,104	)			9,461				2,428				1,781
Other income (loss):
Interest income, net			1,149				1,185				1,554				711				1,833					(314	)			(281	)			(292	)			7				—					835				904				1,262				718				1,833
Total other income			1,149				1,185				1,554				711				1,833					(314	)			(281	)			(292	)			7				—					835				904				1,262				718				1,833
Income before income taxes & discontinued operations			1,859				(7,300	)			11,389				4,661				3,614					(1,922	)			(900	)			(666	)			(1,515	)			—					(63	)			(8,200	)			10,723				3,146				3,614
Provision for income taxes			105				(2,764	)			4,084				1,710				1,897					(105	)			—				(74	)			(102	)			—					—				(2,764	)			4,010				1,608				1,897
Net income from continuing operations		$	1,754			$	(4,536	)		$	7,305			$	2,951			$	1,717				$	(1,817	)		$	(900	)		$	(592	)		$	(1,413	)		$	—				$	(63	)		$	(5,436	)		$	6,713			$	1,538			$	1,717
Earnings (loss) per share from continuing operations:
Basic		$	0.09			$	(0.24	)		$	0.42			$	0.23			$	0.14				$	(0.09	)		$	(0.04	)		$	(0.03	)		$	(0.11	)		$	—				$	—			$	(0.29	)		$	0.39			$	0.12			$	0.14
Diluted		$	0.09			$	(0.24	)		$	0.40			$	0.22			$	0.13				$	(0.09	)		$	(0.04	)		$	(0.01	)		$	(0.11	)		$	—				$	—			$	(0.29	)		$	0.39			$	0.11			$	0.13
Number of shares used in calculating earnings (loss) per share from continuing operations: 1)
Basic			18,987				18,782				17,225				12,687				12,344					18,987				18,782				17,225				12,687				—					18,987				18,782				17,225				12,687				12,344
Diluted			19,322				18,782				18,376				13,455				12,740					18,987				18,782				17,225				13,455				—					18,987				18,782				17,225				13,455				12,740
Consolidated balance sheet data:
Cash, cash equivalents and short-term investments		$	55,680			$	31,670			$	59,180			$	22,120			$	17,669				$	10,027			$	20,851			$	346			$	(2,768	)		$	—				$	65,707			$	52,521			$	59,526			$	19,352			$	17,669
Working capital			53,785				42,515				72,692				36,356				20,026					6,935				22,748				2,308				(1,437	)			—					60,720				65,263				75,000				34,919				20,026
Total assets			177,469				164,974				201,118				102,578				95,829					(5,489	)			(3,600	)			(3,143	)			(3,387	)			—					171,980				161,374				197,975				99,191				95,829
Long-term debt, less current portion			89				195				288				7,707				294					—				—				—				—				—					89				195				288				7,707				294
Total shareholders’ equity			145,950				138,150				167,021				78,152				69,277					(6,256	)			(4,491	)			(3,581	)			(3,431	)			—					139,694				133,659				163,440				74,721				69,277

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     We provide transaction processing services and software and systems integration services primarily to federal, state and local government and other public sector clients. Our clients outsource portions of their business processes to us, and rely on us for our industry-specific information technology expertise and solutions. The following section provides an overview of a restatement of our financial results for the fiscal years ended September 30, 2001 through 2004. Following that discussion is an overview of our company, followed by details of our results of operations and our financial condition, as restated.

Restatement

     We are restating our historical financial statements for fiscal years 2002 through 2004 and for the quarters in fiscal 2004 and 2003. The adjustments to our restatements are described in detail in Note 1 to our Consolidated Financial Statements, Item 6—Selected Financial Data on page 14, and Selected Quarterly Statements of Operations beginning on page 28. These restatements primarily reflect changes in the timing of the recognition of certain revenue and expense transactions associated with our payment processing centers, as well as changes in project accounting, sales commissions, related-party notes, accrued expenses and other miscellaneous areas. A more complete description of the background and effect of each of these restatement categories is included in Note 1 to our Consolidated Financial Statements, under the caption “Restatement Overview,” beginning on page F-8.

     The following table shows the impact of the restatements in each of these categories on Tier’s net income during fiscal years 2002 through 2004.

Summary of Restatement Adjustments

		Year Ended September 30,
(In thousands)		2004				2003				2002
Restatement adjustments:
Payment processing center-related adjustments		$	442			$	(539	)		$	(224	)
Project accounting			(1,313	)			(90	)			(18	)
Sales commissions			(280	)			82				—
Related-party notes			(275	)			(211	)			(233	)
Accrued expenses			(303	)			—				—
Other miscellaneous adjustments			(193	)			(142	)			(191	)
Pre-tax adjustments			(1,922	)			(900	)			(666	)
Income taxes			105				—				74
Total adjustments to net loss			(1,817	)			(900	)			(592	)
Previously reported net income (loss)			314				(23,782	)			(15,040	)
Restated net loss		$	(1,503	)		$	(24,682	)		$	(15,632	)
Earnings (loss) per fully diluted share:
As previously reported		$	0.02			$	(1.27	)		$	(0.82	)
Restatement adjustments			(0.09	)			(0.04	)			(0.03	)
Impact of anti-dilutive stock equivalents(1)			(0.01	)			—				(0.06	)
Restated earnings (loss) per fully diluted share		$	(0.08	)		$	(1.31	)		$	(0.91	)
Weighted-average diluted number of shares:
As previously reported			19,322				18,782				18,376
Anti-dilutive common stock equivalents(1)			(335	)			—				(1,151	)
Restated weighted-average diluted shares			18,987				18,782				17,225

     The following table provides the impact of the restatement on our Consolidated Balance Sheet at September 30, 2004 and 2003.

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

     See Note 1 to our Consolidated Financial Statements under the caption “Restatement Overview,” beginning on page F-8, for a detailed discussion of each of the restatement adjustments.

Recent Events

     The following events occurred after September 30, 2004 related to the restatement of our financial statements for fiscal years 2002 through 2004, 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.

     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 10-K for the fiscal year ended September 30, 2005 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 the filing of our Annual Report on Form 10-K for the fiscal year ended September 30, 2005 would not be timely filed. Subsequently, we did not timely file reports on Form 10-Q for the quarters ended December 31, 2005, March 31, 2006 and June 30, 2006.

     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 common stock, effective at the open of business on Thursday, 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 Tier’s Board of Directors; and 2) the 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 once we have filed all required reports with the Securities and Exchange Commission.

     Management Changes. On May 31, 2006, we announced the resignation of James 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 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 intends to cooperate fully in this investigation.

OVERVIEW OF TIER

     We provide transaction processing services and software and systems integration services primarily to federal, state and local government and other public sector clients. Our clients outsource portions of their business processes to us, and rely on us for our industry-specific information technology expertise and solutions.

     From October 1, 2001 through September 30, 2004, we completed four acquisitions for a total consideration of approximately $99.8 million using cash and Class B common stock. In our most recent acquisition, effective June 1, 2004, we purchased all of the outstanding stock of EPOS Corporation, an Alabama corporation that supplies interactive voice response communication and electronic transaction processing technologies. The total purchase price was approximately $20.1 million and was comprised of approximately $15.6 million in cash and 402,422 shares of Class B common stock valued at approximately $4.5 million, based on the closing price of Class B common stock on June 1, 2004.

     Our workforce, composed of employees, independent contractors and subcontractors, increased to 860 on September 30, 2004 from 769 on September 30, 2003, primarily due to our acquisition of EPOS in June 2004.

     In fiscal year 2003, we operated our business through four strategic business units: U.S. Government Services, U.S. Commercial Services, OPC and United Kingdom Operations. In the fourth quarter of fiscal year 2003, we

completed a strategic review of all business units and began a restructuring plan which renewed our focus on our core Government Services businesses while exiting other unprofitable or marginal business operations. As of December 31, 2003, we had exited the United Kingdom business unit, the U.S. Commercial Services business unit, which includes the Systems and Technology Training division, and the Justice & Public Safety and Strategies divisions of our former U.S. Government Services business unit. The financial position, results of operations and cash flows for the U.S. Commercial Services and United Kingdom business units are reported as discontinued operations for each period in this report. We also created two new business units from our U.S. Government Services business unit: the Government Business Process Outsourcing, GBPO, business unit and the Government Systems Integration, Government SI, business unit.

     In connection with our acquisition of EPOS, we renamed our Government SI business unit as Packaged Software and Systems Integration, PSSI, and the OPC business unit as Electronic Payment Processing, EPP. Our GBPO business unit includes our child support payment processing business, our health and human services consulting business, and the financial institution data match business. We expect to see significant proposal activity in the child support payment processing market over the next six months as we believe approximately three states intend to issue new requests for proposals. Our PSSI business unit includes our pension contracts, unemployment insurance contracts, financial management systems, or FMS, contracts, our e-Government contracts, the State of Missouri contracts and the EPOS computer telephony and call center contracts. We have shifted our systems integration model from custom developed solutions to implementation and modification of packaged software. We believe this strategy of implementing pre-existing software applications that include customizations to meet our particular clients’ needs will combine the potential for greater profitability with less risk compared to our earlier strategy of building a system based upon a set of functional requirements. Our EPP business unit includes the electronic payment processing business of OPC and EPOS.

     We derive revenues primarily from transaction and payment processing services, systems design and integration services, and maintenance and support services. For transaction and payment processing services, we bill clients on a per-transaction basis, a fixed price basis or a time and materials basis. We recognize revenues from transaction-based contracts based on fees charged on a per-transaction basis or fees charged as a percentage of dollars processed. We recognize revenues from software licenses that include significant implementation or customization services on the percentage-of-completion method of accounting based upon the ratio of costs incurred to total estimated project costs. We recognize revenues from software licenses that do not include significant implementation or customization services upon delivery to the licensee when the fees are fixed and determinable, collection is probable and vendor specific objective evidence exists to determine the value of any undeliverable elements of the arrangement. We recognize fixed price revenues for other projects as services are provided and accepted by our clients, if applicable. We recognize time and materials revenues as we perform services and incur expenses. Revenues from software maintenance contracts are recognized ratably over the term of the contract, typically one year.

     During the year ended September 30, 2004, we generated 62.8% of our revenues on a per-transaction basis, 19.0% on a fixed-price basis and 18.1% on a time-and-material basis. During the year ended September 30, 2003, we generated 63.3% of our revenues on a per-transaction basis, 18.1% on a fixed-price basis, and 18.4% on time-and-material basis. Substantially all of our contracts are terminable by the client following limited notice and without significant penalty to the client. From time to time, in the regular course of our business, we negotiate the modification, termination, renewal or transition of time and materials, fixed-price and per-transaction based contracts that may involve an adjustment to the scope, duration or nature of the project, billing rates or price. If we significantly overestimate the volume for transaction-based contracts or underestimate the resources, costs or time required for fixed price or per-transaction based contracts, our financial condition and results of operations would be materially-and adversely affected. Unsatisfactory performance of services or proprietary software or unanticipated difficulties or delays in completing projects may result in client dissatisfaction and a reduction in payment to us, termination of a contract, or payment of damages or penalties by us as a result of litigation or otherwise.

     We have derived a significant portion of our revenues from a small number of large clients or their constituents. For some of these clients, we perform a number of different projects pursuant to multiple contracts or purchase orders. For the year ended September 30, 2004, revenues from the Internal Revenue Service contract accounted for 12.3% of our total revenues. In addition, we performed child support payment processing services for three different state governments as a subcontractor to ACS during the year ended September 30, 2004 which accounted for 11.1% of total revenues. In June 2004, we were notified by ACS of its unilateral decision not to renew one of our subcontracts effective June 30, 2004. This subcontract accounted for approximately 4.3% of total revenues for the

fiscal year ended September 30, 2004. We anticipate that a substantial portion of our revenues will continue to be derived from a small number of large clients.

     Personnel expenses represent a significant percentage of our operating expenses and are relatively fixed in advance of any particular quarter. We manage our personnel utilization rates by carefully monitoring our needs and anticipating personnel increases based on specific project requirements. To the extent revenues do not increase at a rate commensurate with these additional expenses, our results of operations could be materially and adversely affected. In addition, to the extent that we are unable to hire and retain salaried employees to staff new or existing client engagements or retain hourly employees or contractors, due to economic or technical skill set constraints, our financial results could suffer.

     In connection with our acquisitions from October 1, 2001 through September 30, 2004, we incurred $1.0 million in cumulative compensation charges related to business combinations and $1.3 million in cumulative business combination integration charges. Generally, we record contingent payments as additional goodwill at the time the payment can be determined beyond a reasonable doubt. If a contingent payment is based, in part, on a seller’s continuing employment with us, the payments are recorded as compensation expense under U.S. generally accepted accounting principles over the vesting period when the amount is deemed probable.

     In fiscal 2004, we completed the consolidation of our Walnut Creek, California and Reston, Virginia offices. As part of the office consolidation, we relocated the accounting, financial planning, information technology, legal, human resources and facilities corporate functions to the Reston office and closed the Walnut Creek office. This relocation was undertaken to improve the efficiency of our workforce, reduce our cost structure, assist in developing a consistent corporate culture and streamline the overall back office operations. In addition, we closed our Boston, Massachusetts office, and provided our former CEO, who was located in that office, with a $1.5 million severance package. These office consolidations resulted in $2.9 million of restructuring charges, including $1.5 million of severance for our former CEO, who was based in Boston, $0.4 million of severance for our Walnut Creek staff and $1.1 million of facilities costs associated with the closure of the Walnut Creek and Boston offices, net of sublease income.

Critical Accounting Policies and Estimates

     The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect our reported assets, liabilities, revenues and expenses, and our related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, costs, collectibility of receivables, goodwill and intangible assets, income taxes, restructuring obligations and discontinued operations. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Such experience and assumptions form the basis of judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

     We believe the following critical accounting policies and the related judgments and estimates significantly affect the preparation of our consolidated financial statements:

     Basis of Presentation. During the quarter ended March 31, 2002, we adopted a plan to sell our Australian operations, and in September 2002, we completed the sale. The Australian operations were accounted for as a discontinued operation under Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” and, accordingly, amounts in the consolidated financial statements and related notes for all periods presented reflect discontinued operation accounting. During the year ended September 30, 2003, we adopted SFAS 144, “Accounting for the Impairment and Disposal of Long Lived Assets” 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 to the point of actual disposal of the operations. During the year ended September 30, 2003, we completed a plan to exit the operations of our U.S. Commercial Services business unit, our United Kingdom Operations business unit and the Justice and Public Safety and Strategies divisions within the U.S. Government Services business unit. Effective October 1, 2003, the remaining U.S. Government Services business unit was split into our GBPO and PSSI business units. During the quarter ended December 31, 2003,

we exited the U.S. Commercial Services and United Kingdom Operations business units and the financial position, results of operations and cash flows of these components are reported as discontinued operations for each period in this report. We must use our judgment to determine whether particular operations are considered a component of the entity and when the operations have been disposed.

     Revenue Recognition. Certain judgments affect the application of our revenue policy. Our EPP and GBPO business units generate transaction and payment processing revenues. Revenues from transaction and payment processing contracts are recognized based on fees charged on a per-transaction basis or fees charged as a percentage of total dollars processed. We establish the per-transaction fee or transaction fee percentage in our contracts based on estimated future costs and the estimate of transaction volume over the life of the contract. The estimated average length of the transaction processing contracts in our GBPO business unit is approximately three years plus optional client renewals averaging approximately two and one-half years. We use our historical experience and mathematical models to estimate transaction volumes. We monitor transaction volume on a monthly basis. Any significant variance from the estimated number of transactions or average transaction dollars processed could significantly impact the resulting revenues and operating profit. If the volume of transactions processed at all child support payment processing centers decreased 10% from the volume processed during fiscal year 2004, our transaction processing revenues would have decreased approximately $3.0 million. Additionally, if the average volume of dollars processed by OPC for each payment type decreased 10% from the average volume processed by OPC for each payment type during fiscal year 2004, our transaction and payment processing revenues would have decreased by approximately $3.9 million.

     For EPP business unit electronic payment transactions, we use judgment and historical experience to estimate sales returns and allowances attributable to credit card reversals and chargebacks in determining revenues. When estimating these reserves, we analyze historical trends, our specific customer experience and current economic conditions. Within our EPP business unit, on-line payment processing revenues are typically generated by consumer payments. Before our EPP business unit processes payment transactions, each consumer must agree to pay us a processing fee by making the appropriate selection on our web site or telephone system. Credit card reversal and chargebacks of convenience fees were $199,000 and $119,000 or 0.5% and 0.3% of EPP segment revenues for the years ended September 30, 2004 and 2003, respectively.

     Our PSSI business unit generates systems design and integration revenues. Net license and services revenues from contracts involving significant modification, customization or services which are essential to the functionality of the software are recognized using the percentage-of-completion method of accounting based upon the ratio of costs incurred to total estimated project costs. The total estimated cost is calculated using financial models and is based on our historical experience and expected project time and effort. Any significant changes in total estimated costs could significantly impact the recognition of revenue. Provided the arrangement does not require significant implementation or customization of the software, software license revenue is recognized when there is persuasive evidence of an arrangement, the fee is fixed or determinable, collectibility is probable and delivery to the client has occurred. Revenues for software license fees not requiring significant modification were $403,000, $75,000 and $329,000 for the years ended September 30, 2004, 2003 and 2002, respectively.

     Our PSSI business unit also generates maintenance and support services revenues. Revenues from software maintenance contracts are recognized ratably over the term of the contract, typically one year. Non-essential support services, including training and consulting, are also provided on a time and materials basis. Revenue is recognized as the services are performed. Maintenance and non-essential support services revenues were $20.3 million, $17.0 million and $15.1 million for the years ended September 30, 2004, 2003 and 2002, respectively.

     Generally our government contracts are subject to “fiscal funding” clauses, which entitle the client, in the event of budgetary constraints, to reduce or eliminate the services we are to provide, with a corresponding reduction in the fee the client must pay under the terms and conditions of the original contract. Revenues are recognized under such contracts only when we consider the likelihood of cancellation of funding to be remote. Within the EPP business unit, the consumer generally bears the transaction fee, not the government entity, so EPP business unit contracts are not generally subject to fiscal funding issues. For the years ended September 30, 2004 and 2003, revenues recognized under contracts subject to fiscal funding clauses were 68.2% and 68.0%, respectively, of total revenues.

     For all our business units, the amount and timing of our revenue is difficult to predict, and 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.

     Cost and Volume Estimates. For our transaction and payment processing business, we establish the per-transaction fee or transaction fee percentage in our client contracts based on estimated future costs and estimates of transaction and dollar volume over the life of the contract. Included in our cost estimates for certain child support payment processing contracts are estimates regarding misapplied payments and payments that are rejected due to insufficient funds to the extent we are to bear these costs. Actual misapplied payments and amounts for insufficient funds checks are held as receivables until collected or written off, as deemed appropriate. Included in our EPP business unit cost estimates are processing fees that are subject to change with limited or no notice. We use our judgment and review historical trends, our specific experience and current economic conditions in order to estimate these costs. Any significant variance from our estimates could significantly impact our operating profit. For the years ended September 30, 2004 and 2003, expenses incurred by us related to misapplied payments and insufficient funds checks were $1.1 million and $0.8 million, respectively.

     We recognize fixed-price revenues for our systems design and integration projects using the percentage-of-completion method, based upon the ratio of costs incurred to total estimated project costs. Any significant changes in total estimated project costs could significantly affect our operating profit.

     Collectibility of Receivables. A considerable amount of judgment is required to assess the likelihood of the ultimate realization of receivables, including assessing the probability of collection and the current credit worthiness of our clients. Probability of collection is based upon the assessment of the client’s financial condition through the review of its current financial statements or credit reports. For follow-on sales to existing clients, prior payment history is also used to evaluate probability of collection. We maintain an allowance for doubtful accounts for receivable balances, including receivables resulting from misapplied payments and payments that are rejected due to insufficient funds, and a sales return and allowance provision for reversals and chargebacks from consumers who use our credit or debit card payment services. At September 30, 2004 and 2003, the combined balance of the allowance accounts was $2.9 million and $2.5 million, respectively. We have several large accounts receivable and unbilled receivable balances, and any dispute, early contract termination or other collection issues could have a material adverse impact on our financial condition and results of operations. For example, during the fourth quarter of fiscal year 2003, our contract with CalPERS was terminated. As a result, we recorded a charge against revenues of $12.8 million to write down the total value of unbilled receivables from CalPERS. At September 30, 2004, $7.4 million of our accounts receivable and $2.7 million of our unbilled receivables balances were balances owed by five clients for amounts greater than $1.0 million each.

     Goodwill and Other Intangible Assets. Consideration paid in connection with acquisitions is required to be allocated to the acquired assets, including identifiable intangible assets, and liabilities acquired. Acquired assets and liabilities are recorded based on our estimate of fair value, which requires significant judgment with respect to future cash flows and discount rates. We utilize historical experience as well as external specialists to estimate fair value. For intangible assets, we are required to estimate the useful life of the asset or determine if it has an indefinite useful life. We use our judgment to evaluate potential indicators of impairment of goodwill and other intangible assets. Our judgments regarding the existence of impairment indicators are based on market conditions, operational performance of our acquired businesses and identification of reporting units. Future events could cause us to conclude that impairment indicators exist and that goodwill and other intangible assets associated with our acquired businesses are impaired. Beginning October 1, 2002, we adopted Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets.” Accordingly, our goodwill and other intangible assets that have an indefinite useful life are not amortized but instead are reviewed at least annually for impairment. Impairment tests involve the use of estimates related to the fair market value of the business operations with which goodwill is associated. During the fourth quarter of fiscal year 2003, we decided to shut down the U.S. Commercial Services business unit and the United Kingdom Operations business unit and accordingly recorded a charge of $17.6 million to write down goodwill to its fair value as determined by calculating the expected cash flows from the remaining contractual obligations of those business units. During the quarter ended December 31, 2003, we wrote down the remaining goodwill associated with these business units, resulting from the Company’s decision to abandon the remaining portion of this business.

     In the fourth quarter of fiscal year 2004, we performed our annual impairment test to determine if the remaining goodwill associated with our continuing business units was impaired. Our estimate of fair value did not indicate any impairment. The fair market value of the remaining business units was determined using forecasted future cash flows. Those cash flows were forecasted using significant assumptions including: future revenues and expenses, future growth rates and discount rates. A change in the discount rate of 1.0% reduces the fair value calculated in the analysis by $52.8 million. These growth rates and other assumptions are consistent with our past plans and present experience.

     Income Taxes. We are required to estimate our income taxes in each of the jurisdictions in which we operate as part of the process of preparing our consolidated financial statements. This process involves estimating our actual current tax liability, including assessing temporary differences resulting from differing tax treatment of items, such as the difference in amortizable lives for intangible assets for tax and accounting purposes. These differences result in deferred tax assets and liabilities. At September 30, 2004 and September 30, 2003, we had a net deferred tax asset of $7.1 million and $3.0 million, respectively, comprised of net operating loss carryforwards, foreign tax credit carryforwards and other deductible temporary differences, against which we are carrying a $22.7 million and $23.8 million valuation allowance, respectively. Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes” requires that the deferred tax assets be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. In evaluating our ability to recover our deferred tax assets we consider all available positive and negative evidence including our past operating results, the existence of cumulative losses in the most recent fiscal years and our forecast of future taxable income. In determining future taxable income, we are responsible for assumptions utilized including the amount of federal and state pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses. Management concluded to establish a full valuation allowance as of September 30, 2003. As of September 30, 2004, management concluded to maintain the full valuation allowance. We intend to maintain this valuation allowance until sufficient positive evidence exists to support reversal of the valuation allowance. Our income tax expense recorded in the future will be reduced to the extent of offsetting decreases in our valuation allowance. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Although we believe that our estimates are reasonable, resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on our financial position and cash flows.

     Determination of Restructuring Obligations. As a result of our acquisition of OPC in July 2002, we assumed certain liabilities for restructuring costs that OPC had previously recognized in connection with the termination of employees and the consolidation of facilities. During the quarter ended June 30, 2004, we relocated the accounting, financial planning, information technology, legal, human resources and facilities corporate functions to Reston, Virginia and closed the Walnut Creek, California office. We have recorded restructuring charges related to this office consolidation. The restructuring liability for consolidation of facilities is the estimated net obligation payable on abandoned office facilities. The estimated net obligation includes the gross obligation payable under existing lease agreements through estimated disposition dates, estimated costs of abandonment or lease transfer, as offset by estimated sublease income. The estimated sublease income was calculated based on executed subleases. At September 30, 2004 and 2003, we had restructuring liabilities totaling approximately $2.0 million and $2.3 million, respectively.

Statements of Operations

     The following is a description of certain line items from our statement of operations, which include the operations of EPOS from June 1, 2004, the date of acquisition.

     Direct costs consists primarily of those costs directly attributable to providing services to a client, including employee salaries and incentive compensation, independent contractor and subcontractor costs, credit and debit card discount fees, employee benefits, payroll taxes, travel-related expenditures, amortization of intellectual property and any project-related equipment, hardware or software purchases. For state child support payment processing center operations, direct costs also include facility, depreciation and amortization expense and direct overhead costs.

     Selling and marketing expenses consist primarily of personnel costs, sales commissions, advertising and marketing expenditures, and travel-related expenditures.

     General and administrative expenses consist primarily of personnel costs related to general management and administrative functions, human resources, resource management, regulatory compliance, EPP’s engineering, client service and customer service departments, staffing, accounting and finance, legal, facilities, information systems, as

well as professional fees related to legal, audit, tax, external financial reporting and investor relations matters and bad debt expense.

     Depreciation and amortization consists primarily of expenses associated with depreciation of equipment and leasehold improvements and amortization of other intangible assets resulting from acquisitions and other intellectual property not directly attributable to client projects. Prior to October 1, 2002, depreciation and amortization also included goodwill amortization. Project-related depreciation and amortization is included in direct costs. For OPC, no depreciation and amortization expense is included in direct costs.

RESULTS OF OPERATIONS

     The following table summarizes our operating results as a percentage of revenues for each of the periods indicated:

		Year ended September 30,
		2004				2003				2002
		(Restated)				(Restated)				(Restated)
Revenues			100.0	%			100.0	%			100.0	%
Costs and expenses:
Direct costs			66.1				77.6				62.6
General and administrative			22.1				20.4				17.2
Selling and marketing			5.8				4.8				4.5
Depreciation and amortization			4.0				4.7				4.5
Restructuring and other charges			2.7				0.4				—
(Loss) income before other income (loss)			(0.7	)			(7.9	)			11.2
Interest income, net			0.7				0.8				1.5
(Loss) income from continuing operations before income taxes			—				(7.1	)			12.7
Income tax (benefit) provision			—				(2.4	)			4.7
(Loss) income from continuing operations, net of income taxes			—	%			(4.7	)%			8.0	%

FISCAL YEARS ENDED SEPTEMBER 30, 2004 AND 2003

Revenues

     Revenues increased 10.6% to $127.8 million for the fiscal year ended September 30, 2004 from $115.6 million for the fiscal year ended September 30, 2003. This increase resulted primarily from an increase in PSSI revenues of approximately $11.8 million and an increase in EPP revenues of $3.7 million offset by a decrease in GBPO revenues of approximately $3.3 million. The following table presents the revenues for the fiscal years ended September 30, 2004 and 2003 for each of the three reportable segments:

		Year ended September 30,
		2004				2003
		(Restated)				(Restated)
		(in thousands)
GBPO		$	45,205			$	48,465
PSSI			41,903				30,107
EPP			40,669				37,005
Total		$	127,777			$	115,577

     The $3.3 million decrease in GBPO revenues resulted primarily from the end of contract terms for two contracts that ended in fiscal year 2003 and in the first half of 2004, which generated an additional $4.0 million in revenues during the fiscal year ended September 30, 2003. The $11.8 million increase in PSSI revenues resulted primarily from increased revenues related to our unemployment and pension services of approximately $2.6 million, additional revenues of approximately $1.6 million related to e-Government services, and $4.2 million in revenues from EPOS. In addition, the increase reflects the fact that the fiscal 2003 PSSI revenues included the adjustment to write down the total value of unbilled receivables from CalPERS resulting in negative PSSI revenues, during the fourth quarter of fiscal 2003, of $3.4 million. The

$3.7 million increase in EPP revenues resulted primarily from an increase in adoption rates of OPC services with increased revenue of $2.3 million and $1.4 million in revenues from EPOS.

     The following table presents revenues for the last two fiscal years by offering:

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

     Revenues from transaction and payment processing services increased 3.7% to $83.3 million in the fiscal year ended September 30, 2004 compared to $80.3 million in the fiscal year ended September 30, 2003 primarily as a result of the $3.7 million increase in EPP revenues offset by a decline in GBPO’s child support processing center revenues of $0.7 million. Revenues from systems design and integration services increased 14.7% to $18.7 million in the fiscal year ended September 30, 2004 compared to $16.3 million in the fiscal year ended September 30, 2003, primarily due to increased revenues of approximately $4.4 million related to our unemployment and pension services, partially offset by decreased revenues of approximately $4.5 million from four contracts, which either ended in fiscal 2004 or for which a loss was recognized in fiscal year 2004. In addition, the increase reflects the fact that the fiscal 2003 systems design and integration services revenues included the adjustment to write down the total value of unbilled receivables from CalPERS resulting in negative revenues of $3.4 million. Revenues from maintenance and support services increased 19.4% to $20.3 million in the fiscal year ended September 30, 2004 compared to $17.0 million in the fiscal year ended September 30, 2003 primarily as a result of increased revenues of $2.8 million from our State of Missouri practice. Revenues from product sales and other services increased 180.9% to $5.4 million in the fiscal year ended September 30, 2004 compared to $1.9 million in the fiscal year ended September 30, 2003 primarily due to increased growth in new practice areas, including web portal services, with revenues of $1.8 million and product sales revenues of $2.2 million from EPOS both during the fiscal year ended September 30, 2004.

     Reimbursement and software license revenues for each fiscal year were each less than 10% of total revenues for the period.

Direct costs

     Direct costs decreased 5.9% to $84.4 million for the fiscal year ended September 30, 2004 from $89.7 million for the fiscal year ended September 30, 2003, respectively. Direct costs include depreciation and amortization of $2.3 million and $2.2 million for the fiscal year ended September 30, 2004 and 2003, respectively. The decrease in direct costs resulted primarily from the costs incurred on the CalPERS project for which we recorded an adjustment to decrease revenues by $12.8 million to write down the total value of the unbilled receivables from CalPERS in the fiscal year end September 30, 2003 offset primarily by increases in direct labor related to our increase in revenues for the fiscal year ended September 30, 2004.

Selling and marketing

     Selling and marketing expenses increased 33.3% to $7.4 million for the fiscal year ended September 30, 2004 from $5.6 million for the fiscal year ended September 30, 2003. As a percentage of revenues, selling and marketing expenses increased slightly to 5.8% for the fiscal year ended September 30, 2004 from 4.8% for the fiscal year ended September 30, 2003. The increase in selling and marketing expenses was primarily attributable to the inclusion of expenses of $726,000 related to EPOS and sales and marketing expenses relating to OPC advertising of $450,000.

General and administrative

     General and administrative expenses increased 19.6% to $28.2 million for the fiscal year ended September 30, 2004 from $23.6 million for the fiscal year ended September 30, 2003. As a percentage of revenues, general and administrative expenses increased to 22.1% for the fiscal year ended September 30, 2004 from 20.4% for the fiscal year

ended September 30, 2003. The increase in general and administrative expenses resulted primarily from $1.3 million in legal and other costs related to the terminated CalPERS contract and the shareholder lawsuits that were dismissed in December 2003 and March 2004, $2.2 million in other costs related to the office consolidation and $1.5 million of expenses related to our acquisition of EPOS.

Restructuring and other charges

     The following table presents the restructuring and other charges for the fiscal years ended September 30, 2004 and 2003:

		Year ended September 30,
		2004				2003
		(Restated)				(Restated)
		(in thousands)
Asset impairment charges		$	571			$	91
Severance charge resulting from restructuring			1,846				280
Office closure charge resulting from restructuring			1,076				43
Total		$	3,493			$	414

     During the fiscal year ended September 30, 2004, we recorded asset impairment charges totaling $571,000 resulting from assets written off due to the closure of two offices. The severance charge of $1.8 million represented severance costs of $1.5 million resulting from the signing of a termination agreement with our former chief executive officer and including a charge due to the modification of his stock options based on the price of our Class B common stock on April 1, 2004 and severance costs of $385,000 resulting from our consolidation of our Walnut Creek, CA and Reston, VA offices. The office closure charge of $1.1 million represented costs incurred for the closure of two offices, net of estimated sublease income of $1.5 million. During fiscal 2003, Tier closed a portion of its Boston facility, thereby incurring $414,000 of charges for severance, office closure and goodwill impairment.

Depreciation and amortization

     Depreciation and amortization decreased 5.8% to $5.1 million for the fiscal year ended September 30, 2004 from $5.4 million for the fiscal year ended September 30, 2003. As a percentage of revenues, depreciation and amortization decreased to 4.0% for the fiscal year ended September 30, 2004 from 4.7% for the fiscal year ended September 30, 2003. The decrease in depreciation and amortization resulted primarily from decreased capital expenditures in the first six months of the fiscal year and assets that became fully depreciated or amortized.

Interest income, net

     Net interest income during fiscal years 2004 and 2003 was $0.8 million and $0.9 million, respectively. The interest income for both years reflects higher investment balances offset by lower rates.

Income tax (benefit) provision

     Tier recorded no net provision for income taxes for the fiscal year ended September 30, 2004 as compared to a benefit for income taxes on a loss from continuing operations of $2.8 million for the fiscal year ended September 30, 2003. No tax provision on the net income for the fiscal year ended September 30, 2004 was recorded due to an offsetting decrease in our valuation allowance. Our effective tax rate was 33.7% for the fiscal year ended September 30, 2003. These 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. The 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, the ability to utilize foreign tax credits and net operating losses, and any non-deductible items related to acquisitions or other nonrecurring charges. We will continue to closely monitor the effective tax rate.

     In fiscal 2003, we recorded a $9.1 million increase in our valuation allowance which reduced our net deferred tax assets to zero. We intend to maintain this valuation allowance until sufficient positive evidence exists to support reversal of the valuation allowance. Our income tax expense recorded in the future will be reduced to the extent of offsetting decreases in our valuation allowance.

Discontinued operations

     We had a loss from our discontinued operations, net of income taxes, of $1.4 million for the fiscal year ended September 30, 2004 compared to a loss of $19.2 million for the fiscal year ended September 30, 2003. The losses represent the historical operating results of our U.S. Commercial Services, including the Systems and Technology Training division, and United Kingdom segments and the asset impairment and restructuring charges recorded as a result of discontinuing these segments.

FISCAL YEARS ENDED SEPTEMBER 30, 2003 AND 2002

Revenues

     Revenues increased 36.9% to $115.6 million for the fiscal year ended September 30, 2003 from $84.4 million for the fiscal year ended September 30, 2002. The following table presents the revenues for the fiscal years ended September 30, 2003 and 2002 for each of the three reportable segments:

		Year ended September 30,
		2003				2002
		(Restated)				(Restated)
		(in thousands)
GBPO		$	48,465			$	40,377
PSSI			30,107				40,356
EPP			37,005				3,700
Total		$	115,577			$	84,433

     The $8.1 million increase in GBPO revenues resulted primarily from new child support payment processing contracts in the amount of $3.2 million and increased revenues on existing contracts of approximately $5.8 million due primarily to the inclusion of these contracts for the entire fiscal year. The $10.2 million decrease in PSSI revenues resulted primarily from the adjustment of $12.8 million to write down the total value of the unbilled receivables from CalPERS as a result of the dispute with CalPERS, which was partially offset by an increase in revenues from our unemployment services of approximately $3.6 million. The increase in EPP revenues resulted primarily from a full year of OPC operations in fiscal 2003 compared to two months of operations in fiscal 2002 following our acquisition of OPC in late July 2002 in addition to an increase in all revenues categories primarily driven by higher adoption rates by consumers.

     The following table presents revenues for the fiscal years ended September 30, 2003 and 2002 by offering:

		Year ended September 30,
		2003				2002
		(Restated)				(Restated)
		(in thousands)
Transaction and payment processing		$	80,305			$	37,057
Systems design and integration			16,307				29,933
Maintenance and support services			17,032				15,145
Product sales and other services			1,933				2,298
Total		$	115,577			$	84,433

     Revenues from transaction and payment processing services increased 116.7% in fiscal year 2003 primarily as a result of the inclusion of a full year of OPC operations as well as revenues from new child support payment processing contracts in our GBPO segment. Revenues from systems design and integration services decreased 45.5% in fiscal year 2003 primarily due to the $12.8 million charge to revenues to write down the total value of the CalPERS unbilled receivables in our PSSI segment. Revenues from maintenance and support services increased 12.5% in fiscal year 2003 primarily from the inclusion of a full year of revenues from the Government Solutions Center (“GSC”) which we acquired from KPMG Consulting Inc. (now BearingPoint, Inc.) in March 2002. Revenues from product sales and other services, which declined 15.9% in fiscal 2003, were affected by a reduction in client IT spending.

     Reimbursement and software license revenues for each fiscal year were each less than 10% of total revenues for the period.

Direct costs

     Direct costs increased 69.7% to $89.7 million for the fiscal year ended September 30, 2003 from $52.8 million for the fiscal year ended September 30, 2002. Direct costs include depreciation and amortization of $2.2 million for the year ended September 30, 2003 and $2.1 million for the year ended September 30, 2002. The increase in direct costs resulted from the increase in revenues as well as costs incurred on the CalPERS project for which we recorded an adjustment to decrease revenues by $12.8 million to write down the total value of the unbilled receivables from CalPERS as mentioned above.

Selling and marketing

     Selling and marketing expenses increased 44.8% to $5.6 million for the fiscal year ended September 30, 2003 from $3.9 million for the fiscal year ended September 30, 2002. As a percentage of revenues, selling and marketing expenses increased to 4.8% for the fiscal year ended September 30, 2003 from 4.5% for the fiscal year ended September 30, 2002. The increase in selling and marketing expenses in total dollars was primarily attributable to the addition of OPC’s sales and marketing costs for a full year in 2003.

General and administrative

     General and administrative expenses increased 62.7% to $23.6 million for the fiscal year ended September 30, 2003 from $14.5 million for the fiscal year ended September 30, 2002. As a percentage of revenues, general and administrative expenses increased to 20.4% for the fiscal year ended September 30, 2003 from 17.2% for the fiscal year ended September 30, 2002. The increase in general and administrative expense in total dollars was primarily attributable to the addition of OPC’s general and administrative costs for a full year in 2003, an increase in rent expense due to more office locations, increasing business insurance costs and $1.3 million in legal costs to comply with the DOJ investigation.

Depreciation and amortization

     Depreciation and amortization increased 44.1% to $5.4 million for the fiscal year ended September 30, 2003 from $3.8 million for the fiscal year ended September 30, 2002. As a percentage of revenues, depreciation and amortization increased to 4.7% for the fiscal year ended September 30, 2003 from 4.5% for the fiscal year ended September 30, 2002. The increase in depreciation and amortization expense was primarily attributable to increased amortization of acquired intangibles from the OPC acquisition.

Interest income net

     We had net interest income of $0.9 million for the fiscal year ended September 30, 2003 compared to net interest income of $1.3 million for the fiscal year ended September 30, 2002. This decrease was primarily attributable to a lower investment balance and lower investment yields.

Income tax (benefit) provision

     The benefit for income taxes on loss from continuing operations was $2.8 million for the fiscal year ended September 30, 2003, as compared to provision for income taxes on income from continuing operations of $4.0 million for the fiscal year ended September 30, 2002. The effective tax rate on loss from continuing operations for the fiscal year ended September 30, 2003 was 33.7%. The effective tax rate on income from continuing operations for the fiscal year ended September 30, 2002 was 37.4%. These 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. The 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, the ability to utilize foreign tax credits and net operating losses, and any non-deductible items related to acquisitions or other nonrecurring charges.

     In fiscal 2003, we recorded a $9.1 million increase in our valuation allowance which reduced our net deferred tax assets to zero. We intend to maintain this valuation allowance until sufficient positive evidence exists to support reversal of the valuation allowance. Our income tax expense recorded in the future will be reduced to the extent of offsetting decreases in our valuation allowance.

Discontinued operations

     The loss on disposal of the discontinued operation represents the total loss on the disposal and wind-down of the Australian operation. The losses from operations represent the historical operating results of our former U.S. Commercial Services and United Kingdom business units and Australian operations.

SELECTED QUARTERLY STATEMENTS OF OPERATIONS

     The following table set forth certain unaudited consolidated quarterly statements of operations data for each of the eight fiscal quarters ended September 30, 2004. In our opinion, this information has been prepared on the same basis as the audited consolidated financial statements contained herein. This information should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this report. Our operating results for any one quarter are not necessarily indicative of results for any future period.

Selected Quarterly Financial Statements

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

     The following table summarizes the impact of the restatement for each reported period. See Note 1 to the Consolidated Financial Statements for further information regarding the restatement.

		Three months ended
		Sept. 30,				June 30,				Mar. 31,				Dec. 31,				Sept. 30,				June 30,				Mar. 31,				Dec. 31,
Consolidated statement of operations data:		2004				2004				2004				2003				2003				2003				2003				2002
		(in thousands, except per share data )
Revenues		$	183			$	(675	)		$	134			$	198			$	(77	)		$	(38	)		$	(125	)		$	(100	)
Costs and expenses:
Direct costs			165				590				7				—				—				—				—				—
General and administrative			456				(394	)			(261	)			473				(245	)			89				92				91
Selling and marketing			225				100				—				(45	)			(312	)			—				—				—
Depreciation and amortization			—				44				44				44				152				(1	)			(1	)			—
Restructuring and other charges			—				—				—				—				414				—				—				—
(Loss) income from continuing operations			(663	)			(1,015	)			344				(274	)			(86	)			(126	)			(216	)			(191	)
Interest income, net			(80	)			(81	)			(78	)			(75	)			(71	)			(70	)			(70	)			(70	)
(Loss) income from continuing operations before income taxes			(743	)			(1,096	)			266				(349	)			(157	)			(196	)			(286	)			(261	)
Income tax (benefit) provision			—				(35	)			(35	)			(35	)			—				—				—				—
(Loss) income from continuing operations, net of income taxes			(743	)			(1,061	)			301				(314	)			(157	)			(196	)			(286	)			(261	)
Income (loss) from discontinued operations, net of income taxes			—				—				—				—				—				—				—				—
Net (loss) income		$	(743	)		$	(1,061	)		$	301			$	(314	)		$	(157	)		$	(196	)		$	(286	)		$	(261	)
(Loss) earnings from continuing operations, net of income taxes
Per basic share		$	(0.04	)		$	(0.06	)		$	0.02			$	(0.02	)		$	(0.01	)		$	(0.01	)		$	(0.01	)		$	(0.01	)
Per diluted share		$	(0.04	)		$	(0.06	)		$	0.02			$	(0.02	)		$	(0.01	)		$	(0.01	)		$	(0.01	)		$	(0.01	)
(Loss) earnings from discontinued operations, net of income taxes:
Per basic share		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—
Per diluted share		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—
Net (loss) earnings:
Per basic share		$	(0.04	)		$	(0.06	)		$	0.02			$	(0.02	)		$	(0.01	)		$	(0.01	)		$	(0.01	)		$	(0.01	)
Per diluted share		$	(0.04	)		$	(0.06	)		$	0.02			$	(0.02	)		$	(0.01	)		$	(0.01	)		$	(0.01	)		$	(0.01	)
Shares used in computing:
Basic (loss) earnings per share			19,396				19,030				18,808				18,702				18,642				18,600				18,834				19,052
Diluted (loss) earnings per share			19,396				19,030				19,217				18,702				18,642				18,821				19,355				19,815