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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
----------------
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 000-23195
TIER TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
----------------
California 94-3145844
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1350 Treat Boulevard, Suite 250
Walnut Creek, California 94596
(Address of principal executive offices)
(Zip Code)
(925) 937-3950
(Registrant's telephone number, including area code)
----------------
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.
(1) Yes [X] No [_] (2) Yes [X] No [_]
As of August 4, 1999, the number of shares outstanding of the Registrant's
Class A Common Stock was 1,639,762 and the number of shares outstanding of the
Registrant's Class B Common Stock was 10,884,451.
This report contains a total of 27 pages of which this page is number 1.
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TIER TECHNOLOGIES, INC.
FORM 10-Q
TABLE OF CONTENTS
Part I--FINANCIAL INFORMATION
Page
----
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of June 30, 1999 and
September 30, 1998............................................ 3
Condensed Consolidated Statements of Operations for the three
and nine months ended June 30, 1999 and 1998.................. 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended June 30, 1999 and 1998........................... 5
Notes to Condensed Consolidated Financial Statements........... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 24
Part II--OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 25
Item 2 Changes in Securities and Use of Proceeds...................... 25
Item 6. Exhibits and Reports on Form 8-K............................... 26
Signatures.............................................................. 27
Safe Harbor Statement
Certain statements contained in this report, including statements regarding
the development of the Company's services, markets and future demand for the
Company's services, and other statements regarding matters that are not
historical facts, are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Certain such forward-looking
statements can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "pro forma," "estimates" or "anticipates" or the negative
thereof, other variations thereof or comparable terminology, or by discussions
of strategy, plans or intentions. Such forward-looking statements include
risks and uncertainties; consequently, actual results may differ materially
from those expressed or implied thereby. Factors that could cause actual
results to differ materially include, but are not limited to, those factors
listed in "Factors that May Affect Future Results" section, as set forth
beginning on page 18 of this report. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
of this report. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements or factors to
reflect events or circumstances after the date of this report or to reflect
the occurrence of unanticipated events.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TIER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
June 30, September 30,
1999 1998
-------- -------------
ASSETS
------
Current assets:
Cash and cash equivalents........................... $ 9,252 $22,466
Restricted cash..................................... 794 712
Short-term investments.............................. 12,261 16,834
Accounts receivable, net............................ 20,731 18,335
Prepaid expenses and other current assets........... 5,988 1,399
------- -------
Total current assets.............................. 49,026 59,746
Equipment and improvements, net....................... 6,676 2,371
Notes and accrued interest receivable from related
parties.............................................. 1,569 1,871
Acquired intangibles, net............................. 24,442 9,794
Other assets.......................................... 604 721
------- -------
Total assets...................................... $82,317 $74,503
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.................................... $ 3,517 $ 3,263
Accrued liabilities................................. 2,176 934
Accrued subcontractor expenses...................... 1,699 2,503
Accrued compensation and related liabilities........ 3,288 2,310
Other current liabilities........................... 1,864 1,041
------- -------
Total current liabilities......................... 12,544 10,051
Other liabilities..................................... 989 280
------- -------
Total liabilities................................. 13,533 10,331
------- -------
Commitments and contingencies
Shareholders' equity:
Common stock, no par value.......................... 65,831 62,656
Notes receivable from shareholders.................. (1,773) (2,159)
Deferred compensation............................... (441) (591)
Foreign currency translation adjustment............. (139) (1,210)
Retained earnings................................... 5,306 5,476
------- -------
Total shareholders' equity........................ 68,784 64,172
------- -------
Total liabilties and shareholders' equity......... $82,317 $74,503
======= =======
See Notes to Condensed Consolidated Financial Statements
3
TIER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- ------------------
1999 1998 1999 1998
--------- --------- -------- --------
Revenues.............................. $ 23,798 $ 14,890 $ 65,397 $ 36,713
Cost of revenues...................... 13,913 9,241 39,733 23,678
--------- --------- -------- --------
Gross profit.......................... 9,885 5,649 25,664 13,035
Costs and expenses:
Selling and marketing............... 1,716 800 4,473 2,217
General and administrative.......... 5,598 2,725 13,650 6,428
Compensation charge related to
business combinations.............. 355 94 477 646
Purchased in-process technology..... 4,000 -- 4,000 --
Reserve for contract dispute........ 1,856 -- 1,856 --
Depreciation and amortization....... 1,219 337 2,577 706
--------- --------- -------- --------
Income (loss) from operations......... (4,859) 1,693 (1,369) 3,038
Interest income (expense), net........ 266 219 1,091 544
--------- --------- -------- --------
Income (loss) before income taxes..... (4,593) 1,912 (278) 3,582
Provision (benefit) for income taxes.. (1,791) 713 (108) 1,390
--------- --------- -------- --------
Net income (loss)..................... $ (2,802) $ 1,199 $ (170) $ 2,192
========= ========= ======== ========
Basic net income (loss) per share..... $ (0.23) $ 0.12 $ (0.01) $ 0.26
========= ========= ======== ========
Shares used in computing basic net
income (loss) per share.............. 12,262 9,848 12,006 8,378
========= ========= ======== ========
Diluted net income (loss) per share... $ (0.23) $ 0.11 $ (0.01) $ 0.22
========= ========= ======== ========
Shares used in computing diluted net
income (loss) per share.............. 12,262 11,373 12,006 9,760
========= ========= ======== ========
See Notes to Condensed Consolidated Financial Statements
4
TIER TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Nine Months Ended
June 30,
------------------
1999 1998
-------- --------
Operating activities:
Net income (loss).......................................... $ (170) $ 2,192
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization............................. 2,747 653
Amortization of deferred compensation..................... 150 --
Provision for doubtful accounts........................... 1,822 50
Deferred income taxes..................................... -- (399)
Tax benefit of stock options exercised.................... 565 314
Forgiveness of notes receivable from employees............ 511 --
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable...................................... (2,707) (6,558)
Prepaid expenses and other current assets................ (897) (636)
Other assets............................................. 97 (850)
Accounts payable and accrued liabilities................. 207 1,728
Income taxes payable..................................... (3,925) 793
Deferred income.......................................... 905 301
-------- --------
Net cash used in operating activities...................... (695) (2,412)
-------- --------
Investing activities:
Purchases of equipment and improvements.................... (4,758) (948)
Notes and accrued interest receivable from related
parties................................................... (520) (192)
Repayment on notes and accrued interest receivable from
related parties........................................... 212 --
Business combinations, net of cash acquired................ (12,773) (5,465)
Purchases of available-for-sale securities................. (26,642) (13,283)
Sales of available-for-sale securities..................... 17,478 1,063
Maturities of available-for-sale securities................ 13,737 2,000
Other assets............................................... 20 --
-------- --------
Net cash used in investing activities...................... (13,246) (16,825)
-------- --------
Financing activities:
Borrowings under bank lines of credit...................... 909 6,912
Payments on borrowings..................................... (1,466) (9,671)
Net proceeds from issuance of common stock................. -- 54,772
Repurchases of common stock................................ (414) --
Repayment by shareholders on notes receivable.............. 386 95
Exercise of stock options.................................. 1,109 495
Employee stock purchase plan............................... 388 116
Increase in capital lease obligations...................... 46 --
Payments on capital lease obligations...................... (140) (28)
Deferred financing costs................................... -- 224
Payments on notes payable to shareholders.................. (19) (39)
-------- --------
Net cash provided by financing activities.................. 799 52,876
-------- --------
Effect of exchange rate changes on cash.................... (72) (609)
-------- --------
Net (decrease) increase in cash and cash equivalents....... (13,214) 33,030
Cash and cash equivalents at beginning of period........... 22,466 106
-------- --------
Cash and cash equivalents at end of period................. $ 9,252 $ 33,136
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest paid............................................. $ 243 $ 88
======== ========
Income taxes paid (refunded), net......................... $ 3,345 $ 683
======== ========
Equipment acquired under capital lease obligations......... $ 46 $ 207
======== ========
Accrued purchase price and assumed liabilities related to
business combinations..................................... $ 3,670 $ 175
======== ========
Conversion of preferred stock into common stock............ $ -- $ 1,892
======== ========
Common stock issued in business combinations............... $ 1,328 $ 666
======== ========
Restricted stock held in escrow for employees.............. $ -- $ 701
======== ========
See Notes to Condensed Consolidated Financial Statements
5
TIER TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1--BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Tier
Technologies, Inc. ("Tier" or the "Company") include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. In the
opinion of management, the condensed consolidated financial statements reflect
all normal and recurring adjustments which are necessary for a fair
presentation of the Company's financial position, results of operations and
cash flows as of the dates and for the periods presented. The condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Consequently, these statements do not include all the disclosures normally
required by generally accepted accounting principles for annual financial
statements nor those normally made in the Company's Annual Report on Form 10-
K. Accordingly, reference should be made to the Company's Form 10-K filed on
December 21, 1998 and other reports the Company filed with the Securities and
Exchange Commission for additional disclosures, including a summary of the
Company's accounting policies, which have not materially changed. The
consolidated results of operations for the three months and nine months ended
June 30, 1999 are not necessarily indicative of results that may be expected
for the fiscal year ending September 30, 1999 or any future period, and the
Company makes no representations related thereto.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities and the results of operations
during the reporting period. Actual results could differ materially from those
estimates.
Certain reclassifications have been made to the prior period's financial
statements to conform to the current year's presentation.
NOTE 2--REVENUE RECOGNITION
The majority of the Company's revenues are derived from time and material
contracts and are recognized as services are performed. Revenues from fixed
price contracts are recognized using the percentage-of-completion method of
contract accounting based on the ratio of incurred costs to total estimated
costs. Revenues from performance-based contracts are recognized based on fees
charged on a per-transaction basis. Losses on contracts are recognized when
they become known and reasonably estimable. Actual results of contracts may
differ from management's estimates and such differences could be material to
the consolidated financial statements. Most of the Company's contracts are
terminable by the client following limited notice and without significant
penalty to the client. Cost incurred in anticipation of specific future
contracts are deferred if recoverability from the contract is probable. As of
June 30, 1999, deferred costs were $1,121,000. The completion, cancellation or
significant reduction in the scope of a large project would have a material
adverse effect on the Company's business, financial condition and results of
operations. Unbilled receivables were $5,262,000 and $3,444,000 at June 30,
1999 and September 30, 1998, respectively. Unbilled receivable for one client
accounted for 10.7% of total accounts receivable at June 30, 1999.
Revenues derived from governmental agencies were $9,054,000 and $5,951,000
for the three months ended June 30, 1999 and 1998, respectively, and
$20,699,000 and $15,781,000 for the nine months ended June 30, 1999 and 1998,
respectively.
NOTE 3--ACQUISITIONS
Technology Training Services
Effective May 1, 1999, the Company acquired certain assets and assumed
certain liabilities of the Technology Training Services division ("TTS") of
Automated Concepts, Inc., a leading provider of training
6
TIER TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
NOTE 3--ACQUISITIONS (continued)
services to the IT professionals of Fortune 500 companies and other major
corporations. The initial cost of the acquisition totaled approximately $1.7
million in cash including $213,000 in estimated acquisition costs. Additional
contingent payments of up to $1.5 million may be paid in shares of the
Company's Class B common stock and cash over a two-year period based on the
acquired business achieving certain levels of gross profit and revenues
measured annually over the two-year period. Shares of the Company's Class B
common stock equal to $1.5 million based on the average closing price of the
Company's Class B common stock for the five trading days preceding the
agreement date of April 6, 1999, are currently in an escrow account. If
contingent performance requirements are met, the number of shares released
will be determined utilizing the average closing price of the Company's Class
B common stock for the five trading days preceding each performance
anniversary. In the event the value of the shares in the escrow account is not
sufficient to satisfy the additional contingent payments, such shortfall shall
be paid in cash. Any shares not released at the end of the two-year
performance period will be returned to the Company. The TTS acquisition was
accounted for using the purchase method of accounting. Contingent payments
will be accrued when earned and recorded as additional purchase price. The
accompanying consolidated financial statements include the results of
operations of TTS for periods beginning on or subsequent to May 1, 1999.
The allocation of the initial purchase price was as follows:
(in thousands)
Cash paid..................................................... $1,500
Estimated acquisition costs................................... 213
------
$1,713
======
Tangible assets............................................... $ 131
Intangible assets:
Goodwill.................................................... 1,653
Liabilities assumed........................................... (71)
------
$1,713
======
Acquired tangible assets, which primarily consist of fixed assets, are
being depreciated over their useful lives of three to five years. Goodwill is
being amortized over an eight-year useful life.
Pro Forma Disclosure of Significant Acquisitions
The initial purchase price for significant acquisitions since September 30,
1997, was allocated to the assets acquired and liabilities assumed based on
their estimated fair values on the respective acquisition dates as follows:
Sancha
Group Infact Midas
------ ------ -------
(in thousands)
Tangible assets..................................... $ 17 $ 23 $ 1,812
Acquired workforce.................................. 302 304 --
Goodwill............................................ 4,901 2,813 3,787
------ ------ -------
5,220 3,140 5,599
Liabilities assumed................................. (66) (118) (1,692)
------ ------ -------
Net assets acquired................................. $5,154 $3,022 $ 3,907
====== ====== =======
7
TIER TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
NOTE 3--ACQUISITIONS (continued)
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations of the Company as if three prior
significant acquisitions, Sancha Computer Group Pty Limited, Infact Pty
Limited as Trustee of the Infact Unit Trust and Midas Computer Software
Limited, had been purchased by the Company as of October 1, 1997, after
including the impact of certain pro forma adjustments, such as the increased
amortization expense due to the recording of intangible assets.
Nine Months
Ended June 30,
----------------
1999 1998
------- -------
(in thousands,
except per
share data)
Revenues................................................... $66,113 $48,814
Net income (loss).......................................... (346) 2,881
Basic net income (loss) per share.......................... (0.03) 0.34
Diluted net income (loss) per share........................ (0.03) 0.29
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisitions had been in effect for the entire period
presented and are not intended to be a projection of future results.
Purchased In-Process Technology
In June 1999, the Company purchased for $4 million the exclusive worldwide
licensing rights to components of a large scale, enterprise-wide commercial
billing system currently under development by the Company for a client. The
license includes all additions, enhancements, and improvements to the software
to the extent that the Company is employed by the licensor to make such
changes in the future. The completion of the software, which is currently not
executable, is expected to occur in the second quarter of fiscal year 2000. If
the development of the software is not completed, the Company's cash flows and
operations would not be materially adversely affected.
NOTE 4--BANK LINE OF CREDIT
On June 30, 1999, the Company had an $8 million revolving credit facility
which terminates on May 27, 2000. The total commitment amount is limited to
the lesser of 85% of eligible accounts receivable or $8 million. The loans are
secured by first priority liens and security interests in substantially all of
the Company's assets, including a pledge of all stock of its domestic
subsidiaries and a pledge of approximately 65% of the stock of the Company's
foreign subsidiaries. Interest is based on either the adjusted LIBOR rate plus
2.5% per annum or an alternate base rate plus 0.5% per annum, at the Company's
option. The alternate base rate is the greater of the bank's base rate or the
federal funds effective rate plus 0.5% per annum. Interest is charged monthly
on alternate base rate loans. Interest is payable on LIBOR loans on the last
day of the interest period applicable thereto and is also paid when a LIBOR
loan becomes due. Among other provisions, the credit facility requires the
Company to maintain certain minimum financial ratios. As of June 30, 1999, the
Company was in compliance with all covenants. As of June 30, 1999 and
September 30, 1998, the Company had no outstanding borrowings under its credit
facility; however, the availability of the total commitment amount to the
Company has been reduced by the $800,000 letter of credit issued in connection
with the SDA acquisition.
8
TIER TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
NOTE 5--NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per share:
Three Months Nine Months
Ended Ended
June 30, June 30,
--------------- --------------
1999 1998 1999 1998
------- ------ ------ ------
(in thousands, except per
share data)
Numerator:
Net income (loss).......................... $(2,802) $1,199 $ (170) $2,192
======= ====== ====== ======
Denominator for basic net income (loss) per
share-weighted average common shares
outstanding................................. 12,262 9,848 12,006 8,378
Effects of dilutive securities:
Common stock options....................... -- 1,492 -- 1,251
Convertible preferred stock................ -- -- -- 120
Common stock contingently issuable......... -- 33 -- 11
------- ------ ------ ------
Dilutive common stock equivalents............ -- 1,525 -- 1,382
------- ------ ------ ------
Denominator for diluted net income (loss) per
share-adjusted weighted average common
shares and assumed conversions.............. 12,262 11,373 12,006 9,760
======= ====== ====== ======
Basic net income (loss) per share............ $ (0.23) $ 0.12 $(0.01) $ 0.26
======= ====== ====== ======
Diluted net income (loss) per share.......... $ (0.23) $ 0.11 $(0.01) $ 0.22
======= ====== ====== ======
Options to purchase approximately 128,043 shares of Class B common stock at
a price ranging from $13.88 to $16.38 per share were not included in the
computation of diluted net income per share for the nine months ended June 30,
1998 because the options' exercise prices were greater than the average market
price of the shares. For the three months and nine months ended June 30, 1999,
common stock equivalents of 574,000 shares and 823,000 shares, respectively,
were excluded from the calculation of net loss per share since their effect
would have been anti-dilutive.
NOTE 6--COMPREHENSIVE INCOME (LOSS)
The Company's comprehensive income (loss) was as follows:
Nine Months
Three Months Ended
Ended June 30, June 30,
--------------- --------------
1999 1998 1999 1998
------- ------ ------ ------
(in thousands)
Net income (loss)........................... $(2,802) $1,199 $ (170) $2,192
Currency translation adjustment............. 647 (553) 1,069 (609)
------- ------ ------ ------
Comprehensive income (loss)................. $(2,155) $ 646 $ 899 $1,583
======= ====== ====== ======
NOTE 7--CONTINGENCIES
Guaranty of Obligation
On December 22, 1998, the Company guaranteed a portion of an obligation of
James L. Bildner, the Company's Chief Executive Officer, with respect to his
California residence (the "Guaranty"). The Company's liability under the
Guaranty is capped at $1,000,000. In connection with the Guaranty, Mr. Bildner
had previously
9
TIER TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
NOTE 7--CONTINGENCIES (continued)
pledged to the Company shares of Tier Technologies, Inc. common stock owned by
him with a fair market value of at least 110% of the Guaranty amount and
agreed to indemnify the Company for any loss, liability or expense incurred in
connection with the Guaranty. Effective June 30, 1999, the Company amended the
pledge agreement with Mr. Bildner such that his pledge to the Company is set
at 126,619 shares of Tier Technologies, Inc. common stock, which as of June
30, 1999 had a market value of $886,333. Mr. Bildner continues to indemnify
the Company for any loss, liability or expense incurred in connection with the
Guaranty.
NOTE 8--NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosure about Segments of an Enterprise and Related Information"
("FAS 131"). The Company is required to adopt FAS 131 in the fiscal year 1999
annual financial statements. FAS 131 requires disclosure of certain
information regarding operating segments, products and services, geographic
areas of operation and major customers. Adoption of FAS 131 is expected to
have no material impact on the Company's consolidated financial position,
results of operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"). The new standard requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives will be
reported in the statement of operations or as a deferred item, depending on
the use of the derivatives and whether they qualify for hedge accounting. The
key criterion for hedge accounting is that the derivative must be highly
effective in achieving offsetting changes in fair value or cash flows of the
hedged items during the term of the hedge. In July 1999, the Financial
Accounting Standards Board issued Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activity--Deferral of Effective Date of
FASB Statement No. 133," which defers the effective date for the Company until
the quarter ended December 31, 2000. The Company will adopt FAS 133 in its
quarter ending December 31, 2000 and has not yet determined the impact, if
any, that the adoption of FAS 133 will have on the consolidated financial
statements.
NOTE 9--CONTRACT DISPUTE
The Company received a notice dated December 17, 1998 that a prime
contractor was exercising its right to terminate one of the Company's
Australian projects alleging a breach of the sub-contract. The Company
believes that the termination was not valid under the terms of the sub-
contract and that it has not breached the agreement. In early January 1999,
the Company and the prime contractor reached an understanding to continue the
engagement on a time and materials basis with both parties retaining their
rights under the original agreement. In accordance with the January agreement,
the Company continued to provide resources on a time and materials basis on
the engagement. The Company and the prime contractor met in early June to
discuss the project and resolution of outstanding issues. The parties were not
able to resolve the dispute at that time. On June 17, 1999, the Company
received a letter from the prime contractor requesting a plan to terminate the
Company's involvement in the project. After a series of further discussions
with the prime contractor concerning the future of the relationship between
the parties, the Company determined that it would establish a reserve for the
entire net receivable balance of $1,856,000. On June 28, 1999, the Company
filed a federal civil action against the prime contractor for the amounts the
Company is due.
10
TIER TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)
NOTE 9--CONTRACT DISPUTE (continued)
On August 11, 1999, the Company received the prime contractor's answer and
counterclaim in response to the Company's complaint. The prime contractor
denied the Company's claim and counterclaimed alleging breach of contract and
seeking declaratory relief and damages in excess of $8 million. The Company
denies the allegations and intends to vigorously pursue its own claim against
the prime contractor. In the event the prime contractor prevails in its action,
the Company's financial condition and results of operations would be materially
and adversely affected.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Tier provides information technology ("IT") consulting, application
development and software engineering services that facilitate the migration of
clients' enterprise-wide systems and applications to leading edge
technologies. Through offices located in the United States, Australia and the
United Kingdom, the Company works closely with Fortune 1000, government and
other clients to determine, evaluate and implement an IT strategy that allows
it to rapidly adopt, deploy and transfer emerging technologies while
preserving viable elements of the client's legacy systems. The Company's
revenues increased to $65.4 million in the nine months ended June 30, 1999
from $36.7 million in the nine months ended June 30, 1998. The Company's
workforce, composed of employees, independent contractors and subcontractors,
has grown to 706 on June 30, 1999 from 436 on June 30, 1998.
The Company's revenues are derived primarily from professional fees billed
to clients on either a time and materials basis, a fixed price basis, or a
per-transaction basis. Time and materials revenues are recognized as services
are performed and expenses are incurred. Fixed price revenues are recognized
using the percentage-of-completion method, based upon the ratio of costs
incurred to total estimated project costs. Revenues from performance-based
contracts are recognized based on fees charged on a per-transaction basis. The
percentage of the Company's revenues generated on a fixed price basis was
21.0% and 27.9% for the three months ended June 30, 1999 and 1998,
respectively, and 13.2% and 23.3% for the nine months ended June 30, 1999 and
June 30, 1998, respectively. Revenues from the resale of products and software
licenses were $2.1 million and $178,000 for the three months ended June 30,
1999 and 1998, respectively, and $5.2 million and $2.6 million for the nine
months ended June 30, 1999 and June 30, 1998, respectively. Substantially all
of Tier's 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 its business, the Company negotiates the modification, termination,
renewal or transition of time and materials and fixed price contracts that may
involve an adjustment to the scope or nature of the project, billing rates or
outstanding receivables. To date, the Company has generally been able to
obtain an adjustment in its fees following a significant change in the
assumptions upon which the original estimate was made, but there can be no
assurance that the Company will be successful in obtaining adjustments in the
future.
The Company has derived a significant portion of its revenues from a small
number of large clients. For many of these clients, the Company performs a
number of different projects pursuant to multiple contracts or purchase
orders. For the nine months ended June 30, 1999, Humana Inc. and the State of
Missouri accounted for 33.9% and 13.9% of the Company's revenues,
respectively. The Company anticipates that a substantial portion of its
revenues will continue to be derived from a small number of large clients. The
completion, cancellation or significant reduction in the scope of a large
project would have a material adverse effect on the Company's business,
financial condition and results of operations. A significant portion of the
Company's revenues are derived from sales to government agencies. For the nine
months ended June 30, 1999, approximately 31.7% of the Company's revenues were
derived from sales to government agencies, as compared to 43% for the nine
months ended June 30, 1998.
Personnel and rent expenses represent a significant percentage of the
Company's operating expenses and are relatively fixed in advance of any
particular quarter. Senior executives manage the Company's personnel
utilization rates by carefully monitoring its needs and basing most personnel
increases on specific project requirements. To the extent revenues do not
increase at a rate commensurate with these additional expenses, the Company's
results of operations would be materially and adversely affected. In addition,
to the extent that the Company is unable to hire and retain salaried employees
to staff new or existing client engagements and retains hourly employees or
independent contractors in their place, the Company's business, financial
condition and results of operations would be materially and adversely
affected.
From December 1996 through June 30, 1999, the Company made twelve
acquisitions for a total cost of approximately $23.9 million, including the
issuance of shares of Class B common stock but excluding future contingent
payments, all of which were accounted for under the purchase method of
accounting. Generally,
12
contingent payments are recorded as additional purchase price 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 the Company, when
the amount is deemed probable to be made the payments are recorded as
compensation expense over the vesting period. These acquisitions helped the
Company to expand its operations in the United States, to establish its
operations in Australia and the United Kingdom, to broaden the Company's
client base, service offerings and technical expertise and to supplement its
human resources. International operations accounted for 33.9% and 22.0% of
revenues for the nine months ended June 30, 1999 and June 30, 1998,
respectively. The Company believes that the percentage of total revenues
attributable to international operations will continue to be significant and
may continue to grow. International operations may subject the Company to
foreign currency translation adjustments and transaction gains and losses for
amounts denominated in foreign currencies.
Results of Operations
The following table sets forth, for the periods indicated, selected
statements of operations data as a percentage of net revenues:
Three Months Nine Months
Ended June 30, Ended June 30,
----------------- -----------------
1999 1998 1999 1998
------- ------- ------- -------
Revenues............................. 100.0 % 100.0% 100.0 % 100.0%
Cost of revenues..................... 58.5 62.1 60.8 64.5
------- ------- ------- -------
Gross profit......................... 41.5 37.9 39.2 35.5
Costs and expenses:
Selling and marketing.............. 7.2 5.4 6.8 6.0
General and administrative......... 23.5 18.3 20.9 17.5
Compensation charge related to
business combinations............. 1.5 0.6 0.7 1.8
Purchased in-process technology.... 16.8 -- 6.1 --
Reserve for contract dispute....... 7.8 -- 2.9 --
Depreciation and amortization...... 5.1 2.3 3.9 1.9
------- ------- ------- -------
Income (loss) from operations........ (20.4) 11.3 (2.1) 8.3
Interest income (expense), net....... 1.1 1.5 1.7 1.5
------- ------- ------- -------
Income (loss) before income taxes.... (19.3) 12.8 (0.4) 9.8
Provision (benefit) for income
taxes............................... (7.5) 4.8 (0.1) 3.8
------- ------- ------- -------
Net income (loss).................... (11.8)% 8.0% (0.3)% 6.0%
======= ======= ======= =======
Three Months Ended June 30, 1999 and June 30, 1998
Revenues. Revenues are generated primarily by providing professional
consulting services on client engagements. Revenues increased 59.8% to $23.8
million for the three months ended June 30, 1999 from $14.9 million in the
three months ended June 30, 1998. This increase resulted primarily from
internal growth, including an expanded client base and several significant new
contracts, and from acquisitions including two months of revenues from the TTS
acquisition completed during the quarter.
Gross Profit. Cost of revenues consists primarily of those costs directly
attributable to providing service to a client, including employee salaries,
independent contractor and subcontractor costs, employee benefits, payroll
taxes, travel expenses, and any equipment or software costs. For projects
performed on a per-transaction basis, cost of revenues would also include
facility and overhead costs. Gross profit increased 75.0% to $9.9 million for
the three months ended June 30, 1999 from $5.6 million in the three months
ended June 30, 1998. Gross margin increased to 41.5% for the three months
ended June 30, 1999 as compared to 37.9% in the three months ended June 30,
1998. This increase resulted primarily from higher margins on certain large
contracts.
13
Selling and Marketing. Selling and marketing expenses consist primarily of
personnel costs, sales commissions, travel costs and product literature.
Selling and marketing expenses increased 114.5% to $1.7 million for the three
months ended June 30, 1999 from $800,000 in the three months ended June 30,
1998. As a percentage of revenues, selling and marketing expenses increased to
7.2% for the three months ended June 30, 1999 from 5.4% in the three months
ended June 30, 1998. The increase in selling and marketing expenses was
primarily attributable to the addition of sales and marketing personnel, both
internally and through acquisitions, to support the higher revenue base and
increased selling and marketing efforts.
General and Administrative. General and administrative expenses consist
primarily of personnel costs related to general management functions, human
resources, recruiting, finance, legal, accounting and information systems, as
well as professional fees related to legal, audit, tax, external financial
reporting and investor relations matters. General and administrative expenses
increased 105.4% to $5.6 million for the three months ended June 30, 1999 from
$2.7 million in the three months ended June 30, 1998. As a percentage of
revenues, general and administrative expenses increased to 23.5% for the three
months ended June 30, 1999 from 18.3% in the three months ended June 30, 1998.
The increase in general and administrative expenses, both in total dollars and
as a percentage of revenues, was attributable to building the infrastructure
to support, manage and control the Company's growth, as well as the costs of
integrating and operating acquired businesses.
Compensation Charge Related to Business Combinations. Compensation charge
related to business combinations consists primarily of certain contingent
performance payments made in connection with prior acquisitions. Compensation
charge related to business combinations increased 277.7% to $355,000 for the
three months ended June 30, 1999 from $94,000 in the three months ended June
30, 1998. As a percentage of revenues, compensation charges related to
business combinations increased to 1.5% for the three months ended
June 30, 1999 from 0.6% in the three months ended June 30, 1998. The increase
in total compensation charge related to business combinations was attributable
to an increase in contingent payments earned during the current period by
prior owners of the acquired businesses. For the three months ended June 30,
1999, the compensation charge related to business combinations resulted from
contingent payments earned in accordance with the acquisition agreements for
Simpson Fewster & Co. Pty Limited ("SFC") and Infact Pty Limited as trustee of
the Infact Unit Trust ("Infact"). For the three months ended June 30, 1998,
the compensation charge related to business combinations resulted from
contingent payments earned in accordance with the acquisition agreements for
Encore Consulting, Inc. ("Encore") and SFC. The Company expects compensation
charges related to business combinations to fluctuate significantly from
quarter to quarter depending upon whether performance payments are earned or
missed by acquired businesses and the timing of those determinations.
Purchased In-Process Technology. Purchased in-process technology charge of
$4 million was recorded for the three months ended June 30, 1999. There was no
comparable charge for the three months ended June 30, 1998. As a percentage of
revenues, the purchased in-process technology charge was 16.8% for the three
months ended June 30, 1999. This charge results from the purchase of exclusive
worldwide licensing rights to components of a large scale, enterprise-wide
commercial billing system currently under development by the Company for a
client.
Reserve for Contract Dispute. Reserve for contract dispute charge of $1.9
million was recorded for the three months ended June 30, 1999. There was no
comparable charge for the three months ended June 30, 1998. As a percentage of
revenues, the reserve for contract dispute was 7.8% for the three months ended
June 30, 1999. This reserve relates to a previously disclosed ongoing contract
dispute with a prime contractor to which the Company is a subcontractor. After
a series of discussions with the prime contractor, the Company determined that
collection of the outstanding accounts receivable balance was unlikely.
Depreciation and Amortization. Depreciation and amortization consist
primarily of expenses associated with the depreciation of equipment and
improvements and amortization of intangible assets resulting from acquisitions
and purchases of certain intellectual property. Depreciation and amortization
increased 261.7% to $1.2 million for the three months ended June 30, 1999 from
$337,000 in the three months ended June 30, 1998. As a percentage of revenues,
depreciation and amortization increased to 5.1% for the three months ended
June 30, 1999 from 2.3% in the three months ended June 30, 1998. The increase
in total depreciation and
14
amortization expense was primarily attributable to the amortization of
increased intangible assets from business combinations, the amortization of
the costs associated with the purchase of a project management system, and the
depreciation associated with increased capital expenditures.
Interest Income and Interest Expense, Net. Net interest income increased
21.5% to $266,000 for the three months ended June 30, 1999 compared to net
interest income of $219,000 in the three months ended June 30, 1998. This
increase was primarily attributable to interest income generated from the
Company's investments. The three months ended June 30, 1998 does not reflect
the increased investment base from the secondary offering proceeds as these
were not invested until late June of 1998.
Provision (Benefit) for Income Taxes. The benefit for income taxes was
$(1.8) million for the three months ended June 30, 1999 as compared to a
provision for income taxes of $713,000 in the three months ended June 30,
1998. The effective tax rate for the three months ended June 30, 1999 was
39.0%, compared to 37.3% for the three months ended June 30, 1998. The
increase in the effective tax rate was due to the potential impact of the
Company's ability to utilize its foreign tax credits given the change in the
geographic mix of the Company. The Company anticipates that its effective tax
rate for the fiscal year ending September 30, 1999 will be 39.0%; however, the
actual rate may vary due to a change in the estimated amount or geographic mix
of the Company's earnings, changes in tax law, the effect of future
acquisitions or a change in the Company's investment in tax-advantaged
securities.
Nine Months Ended June 30, 1999 and June 30, 1998
Revenues. Revenues increased 78.1% to $65.4 million for the nine months
ended June 30, 1999 from $36.7 million in the nine months ended June 30, 1998.
This increase resulted primarily from internal growth, including an expanded
client base and several significant new contracts, and from multiple
acquisitions.
Gross Profit. Gross profit increased 96.9% to $25.7 million for the nine
months ended June 30, 1999 from $13.0 million in the nine months ended June
30, 1998. Gross margin increased to 39.2% for the nine months ended June 30,
1999 from 35.5% in the nine months ended June 30, 1998. The increase in gross
margin was primarily attributable to higher margins on certain large
contracts.
Selling and Marketing. Selling and marketing expenses increased 101.8% to
$4.5 million for the nine months ended June 30, 1999 from $2.2 million in the
nine months ended June 30, 1998. As a percentage of revenues, selling and
marketing expenses increased to 6.8% for the nine months ended June 30, 1999
from 6.0% in the nine months ended June 30, 1998. The increase in total
selling and marketing expenses was primarily attributable to the addition of
sales and marketing personnel, both internally and through acquisitions, to
support the higher revenue base and increased selling and marketing efforts.
General and Administrative. General and administrative expenses increased
112.4% to $13.7 million for the nine months ended June 30, 1999 from $6.4
million in the nine months ended June 30, 1998. As a percentage of revenues,
general and administrative expenses increased to 20.9% for the nine months
ended June 30, 1999 from 17.5% in the nine months ended June 30, 1998. The
increase in general and administrative expenses, both in total dollars and as
a percentage of revenues, was primarily attributable to building the
infrastructure to support, manage and control the Company's growth, as well as
the costs of integrating and operating acquired businesses.
Compensation Charge Related to Business Combinations. Business combination
compensation expenses were $477,000 or 0.7% of revenues, for the nine months
ended June 30, 1999 as compared to $646,000, or 1.8% of revenues, for the nine
months ended June 30, 1998. The decrease in total compensation charge related
to business combinations was attributable to a decrease in contingent payments
earned during the current period by prior owners of the acquired businesses.
For the nine months ended June 30, 1999, the compensation charge related to
business combinations resulted from contingent payments earned in accordance
with the acquisition agreements for SFC and Infact. For the nine months ended
June 30, 1998, the compensation charge related to business combinations
resulted from contingent payments earned in accordance with the acquisition
agreements for Encore, Albanycrest, Limited and SFC.
15
Purchased In-Process Technology. Purchased in-process technology charge of
$4 million was recorded for the nine months ended June 30, 1999. There was no
comparable charge for the nine months ended June 30, 1998. As a percentage of
revenues, the purchased in-process technology charge was 6.1% for the nine
months ended June 30, 1999. This charge results from the purchase of exclusive
worldwide licensing rights to components of a large scale, enterprise-wide
commercial billing system currently under development by the Company for a
client.
Reserve for Contract Dispute. Reserve for contract dispute charge of $1.9
million was recorded for the nine months ended June 30, 1999. There was no
comparable charge for the nine months ended June 30, 1998. As a percentage of
revenues, the reserve for contract dispute was 2.9% for the nine months ended
June 30, 1999. This reserve relates to a previously disclosed ongoing contract
dispute with a prime contractor to which the Company is a subcontractor. After
a series of discussions with the prime contractor, the Company determined that
collection of the outstanding accounts receivable balance was unlikely.
Depreciation and Amortization. Depreciation and amortization increased
265.0% to $2.6 million for the nine months ended June 30, 1999 from $706,000
in the nine months ended June 30, 1998. As a percentage of revenues,
depreciation and amortization increased to 3.9% for the nine months ended June
30, 1999 from 1.9% in the nine months ended June 30, 1998. The increase in
total depreciation and amortization expenses was primarily attributable to the
amortization of increased intangible assets from business combinations, the
depreciation associated with increased capital expenditures, and the
amortization of the costs associated with the purchase of a project management
system.
Interest Income and Interest Expense, Net. The Company had net interest
income of $1.1 million for the nine months ended June 30, 1999 compared to net
interest income of $544,000 for the nine months ended June 30, 1998. This
change was primarily attributable to the interest income generated from its
investment of proceeds from the initial and secondary public offerings.
Provision (Benefit) for Income Taxes. The benefit for income taxes was
$(108,000) for the nine months ended June 30, 1999 as compared to a provision
for income taxes of $1.4 million in the nine months ended June 30, 1998. The
effective tax rate for the nine months ended June 30, 1999 and June 30, 1998
was 39%.
Liquidity and Capital Resources
The Company's principal capital requirement is to fund working capital to
support its growth, including potential future acquisitions. The Company
maintains an $8 million revolving credit facility (the "Credit Facility") that
allows the Company to borrow the lesser of an amount equal to 85% of eligible
accounts receivable or $8 million. The loans bear interest, at the Company's
option, either at the adjusted LIBOR rate plus 2.5% per annum or an alternate
base rate plus 0.5% per annum. The alternate base rate is the greater of the
bank's base rate or the federal funds effective rate plus 0.5% per annum at
the Company's option. The loans are secured by first priority liens and
security interests in substantially all of the Company's assets, including a
pledge of all stock of its domestic subsidiaries and a pledge of approximately
65% of the stock of the Company's foreign subsidiaries. The Credit Facility
contains certain restrictive covenants, including limitations on the amount of
loans the Company may extend to officers and employees, the incurrence of
additional debt and a prohibition against the payment of dividends (other than
dividends payable in its stock). The Credit Facility requires the maintenance
of certain financial ratios, including a minimum quarterly net income
requirement and a minimum ratio of total liabilities to earnings before
interest, taxes, depreciation and amortization. As of June 30, 1999, the
Company was in compliance with all covenants. As of June 30, 1999, there were
no borrowings outstanding under the Credit Facility; however, the availability
of the total commitment amount to the Company has been reduced by the $800,000
letter of credit issued in connection with the SDA acquisition.
Net cash used in operating activities was $695,000 in the nine months ended
June 30, 1999 as compared to net cash used in operating activities of $2.4
million in the nine months ended June 30, 1998. The decrease in net cash used
in operating activities is largely attributable to increased depreciation and
amortization and provision for doubtful accounts and a smaller increase in
accounts receivable, as partially offset by a decrease in net
16
income, a larger decrease in accounts payable and accrued liabilities and
income taxes payable. During the three months ended June 30, 1999, the Company
acquired the exclusive worldwide licensing rights to components of a large
scale, enterprise-wide commercial billing system currently being developed by
the Company for a client. The license includes all additions, enhancements,
and improvements to the software to the extent that the Company is employed by
the licensor to make such changes in the future. Upon completion, the billing
system will be customizable for licensing to the Company's clients in both the
commercial and government sectors.
Net cash used in investing activities was $13.2 million and $16.8 million
in the nine months ended June 30, 1999 and June 30, 1998, respectively. The
decrease in cash used in investing activities is largely attributable to an
increase in sales and maturities of available-for-sale securities, as
partially offset by an increase in purchases of available-for-sale securities
and increased investments in the acquisition of Midas Computer Software
Limited, ADC Consultants Pty Limited, Service Design Associates, Inc. and
Technology Training Services, a division of Automated Concepts, Inc. Capital
expenditures, including equipment acquired under capital lease but excluding
assets acquired or leased through business combinations, were approximately
$4.8 million in the nine months ended June 30, 1999 and $1.2 million in the
nine months ended June 30, 1998. The increase in capital expenditures was
primarily attributable to an increased workforce, geographic expansion and
development of the Company's technology infrastructure. The Company
anticipates that it will continue to have significant capital expenditures in
the near-term related to, among other things, purchases of computer equipment
to enhance the Company's global operations and support its growth, as well as
potential expenditures related to new office leases and the establishment of
the Company's application development centers and global project management
office. During the three months ended June 30, 1999, the Company purchased
from a client the ownership rights to a project management system for $2
million. The system will be used by the Company as its standard project
management system.
Net cash provided by financing activities totaled $799,000 in the nine
months ended June 30, 1999 and $52.9 million in the nine months ended June 30,
1998. In the nine months ended June 30, 1998, the Company completed its
initial public offering, which raised net proceeds of $54.8 million, and
repaid $2.8 million under its line of credit.
The Company anticipates that its existing capital resources, including cash
provided by operating activities and available bank borrowings, will be
adequate to fund the Company's operations for at least the next 12 months.
There can be no assurance that changes will not occur that would consume
available capital resources before such time. The Company's capital
requirements depend on numerous factors, including potential acquisitions, new
contracts, the timing of the receipt of accounts receivable and employee
growth. The Company is involved in a contract dispute with the prime
contractor on one of the Company's Australian projects. See "Item 1. Legal
Proceedings." On June 28, 1999, the Company filed a federal civil action
against the prime contractor for the amounts the Company is due under the
contract. On August 11, 1999, the Company received the prime contractor's
answer and counterclaim, in which the prime contractor denies the Company's
claim, alleges breach of contract by the Company and seeks declaratory relief
and damages in excess of $8 million. The Company denies the allegations and
intends to vigorously pursue its own claim against the prime contractor. At
this time, there can be no assurance as to the course of this dispute or its
possible resolution. In the event the prime contractor prevails in its action,
the Company's financial condition and results of operations would be
materially and adversely affected. To the extent that the Company's existing
capital resources are insufficient to meet its capital requirements, the
Company will have to raise additional funds. There can be no assurance that
additional funding, if necessary, will be available on favorable terms, if at
all.
Year 2000
The "Year 2000 Issue" is typically the result of software being written
using two digits rather than four to define the applicable year. The Company
uses a significant number of computer software programs and operating systems
in its service offerings, financial business systems and administrative
functions. To the extent these software applications are unable to
appropriately interpret the upcoming calendar year "2000", remediation of such
applications will be necessary.
17
The Company is continuing to assess the preparedness of its internal IT and
non-IT systems and has substantially completed the remediation, testing and
certification of its critical internal systems. To date, no significant Year
2000 related problems have been identified. The Company's internal systems are
largely PC-based and a majority were recently acquired or installed. As a
result, the Company believes that a high percentage of its hardware and non-IT
systems already address the Year 2000 Issue, as does a majority of its
software. Tier anticipates that the remediation, testing and certification
process of its remaining systems and software will be substantially completed
during the summer of 1999. The Company has not incurred material remediation
costs to date and does not anticipate that the cost of such process will have
a material adverse effect on the Company's business, result of operations or
financial condition.
In addition, the Company has made an initial evaluation of the Year 2000
readiness of its key suppliers and other key third parties. The Company
continues to work with these parties to address the Year 2000 Issue and to
obtain appropriate assurances. The Company's operations could be materially
adversely affected if these third parties or the products or services they
supply to Tier are disrupted or impaired by the Year 2000 Issue.
There can be no assurance that the remediation, testing and certification
of the Company's systems will be successful or that the Company's key
contractors will have successful conversion programs, and that such Year 2000
Issue compliance failures will not have a material adverse effect on the
Company's business, results of operations or financial condition.
As a result of the Company's assessment to date, the Company currently
believes that a formal contingency plan to address Year 2000 non-compliance is
unnecessary; however, the Company may develop such a plan if its on-going
assessment indicates areas of significant exposure.
Factors That May Affect Future Results
The following factors, among others could cause actual results to differ
materially from those contained in forward-looking statements in this Form 10-
Q. Tier is referred to in this section as "we" or "us".
Potential Adverse Effect on Operating Results from Dependence on Large
Projects, Limited Clients or Certain Market Sectors. The completion,
cancellation or significant reduction in the scope of a large project or a
project with certain clients would have a material adverse effect on our
business, financial condition and results of operations. Most of our contracts
are terminable by the client following limited notice and without significant
penalty to the client. We have derived, and believe that we will continue to
derive, a significant portion of our revenues from a limited number of
clients. For the nine months ended June 30, 1999, Humana Inc. and the State of
Missouri accounted for 33.9% and 13.9% of our revenues, respectively. The
volume of work performed for specific clients is likely to vary from period to
period, and a major client in one period may not use our services in a
subsequent period. In addition, as a result of our focus in specific vertical
markets, economic and other conditions that affect the companies in these
markets could have a material adverse effect on our business, financial
condition and results of operations.
Variability of Quarterly Operating Results. Our revenues and operating
results are subject to significant variation from quarter to quarter due to a
number of factors, including:
. the number, size and scope of projects in which we are engaged,
. the contractual terms and degree of completion of such projects,
. start-up costs including software sublicense fees incurred in connection
with the initiation of large projects,
. our ability to staff projects with salaried employees versus hourly
independent and sub-contractors,
. competitive pressures on the pricing of our services,
. any delays incurred in connection with, or early termination of, a
project,
. employee utilization rates,
18
. the number of billable days in a particular quarter,
. the adequacy of provisions for losses,
. the accuracy of estimates of resources required to complete ongoing
projects,
. demand for our services generated by strategic partnerships and certain
prime contractors,
. our ability to increase both the number and size of engagements from
existing clients, and
. economic conditions in the vertical and geographic markets we serve.
Due to the relatively long sales cycles for our services in the government
services market, the timing of revenue is difficult to forecast. In addition,
the achievement of anticipated revenues is substantially dependent on our
ability to attract, on a timely basis, and retain skilled personnel. A high
percentage of our operating expenses, particularly personnel and rent, are
fixed in advance. In addition, we typically reach the annual limitation on
FICA contributions for many of our consultants before the end of the calendar
year. As a result, payroll taxes as a component of cost of sales will vary
from quarter to quarter during the fiscal year and will generally be higher at
the beginning of the calendar year. Because of the variability of our
quarterly operating results, we believe that period-to-period comparisons of
our operating results are not necessarily meaningful, should not be relied
upon as indications of future performance and may result in volatility in the
price of our common stock. In addition, our operating results will from time
to time be below the expectations of analysts and investors.
Potential Failure to Identify, Acquire or Integrate New Acquisitions. An
important component of our business strategy is to expand our presence in new
or existing markets by acquiring additional businesses. From December 1996
through June 30, 1999, we acquired twelve businesses. There can be no
assurance that we will be able to identify, acquire or profitably manage
additional businesses or to integrate successfully any acquired businesses
without substantial expense, delay or other operational or financial problems.
Acquisitions involve a number of special risks, including:
. diversion of management's attention,
. failure to retain key personnel,
. amortization of acquired intangible assets,
. client dissatisfaction or performance problems with an acquired firm,
. assumption of unknown liabilities, and
. other unanticipated events or circumstances.
Any of these risks could have a material adverse effect on our business,
financial condition and results of operations.
Inability to Manage Growth. If we are unable to manage our growth
effectively, such inability would have a material adverse effect on the
quality of our services, our ability to retain key personnel, and our
business, financial condition and results of operations. Our growth has
placed, and is expected to continue to place, significant demands on our
management, financial, staffing and other resources. We have expanded
geographically by opening new offices domestically and abroad, and intend to
open additional offices. Our ability to manage growth effectively will require
us to continue to develop and improve our operational, financial and other
internal systems, as well as our business development capabilities, and to
train, motivate and manage our employees. In addition, as the average size and
number of our projects continues to increase, we must be able to manage such
projects effectively. There can be no assurance that our rate of growth will
continue or that we will be successful in managing any such growth.
Inability to Attract and Retain Professional Staff Necessary to Existing
and Future Projects. Our inability to attract, retain and train skilled
employees could impair our ability to adequately manage and staff our existing
projects and to bid for or obtain new projects, which would have a material
adverse effect on our
19
business, financial condition and results of operation. In addition, the
failure of our employees to achieve expected levels of performance could
adversely affect our business. Our success depends in large part upon our
ability to attract, retain, train, manage and motivate skilled employees,
particularly project managers and other senior technical personnel. There is
significant competition for employees with the skills required to perform the
services we offer. In particular, qualified project managers and senior
technical and professional staff are in great demand worldwide and competition
for such persons is likely to increase. In addition, we require that many of
our employees travel to client sites to perform services on our behalf, which
may make a position with us less attractive to potential employees. There can
be no assurance that a sufficient number of skilled employees will continue to
be available, or that we will be successful in training, retaining and
motivating current or future employees.
Dependence on Key Personnel. Our success depends in large part upon the
continued services of a number of key employees, including our Chief Executive
Officer and Chairman of the Board of Directors, James L. Bildner, and our
President and Chief Technology Officer, William G. Barton. Although we have
entered into employment agreements with each of Messrs. Bildner and Barton,
either of them may terminate their employment agreements at any time. The loss
of the services of either of Messrs. Bildner or Barton could have a material
adverse effect on our business. In addition, if one or more of our key
employees resigns to join a competitor or to form a competing company, the
loss of such personnel and any resulting loss of existing or potential clients
to any such competitor could have a material adverse effect on our business,
financial condition and results of operations.
Control of Company and Corporate Actions by Principal
Shareholders. Concentration of voting control could have the effect of
delaying or preventing a change in control of us and may affect the market
price of our stock.
. All of the holders of Class A Common Stock have entered into a Voting
Trust with respect to their shares of Class A Common Stock, which
represents 60.1% of the total common stock voting power at June 30,
1999. All power to vote shares held in the Voting Trust has been vested
in the Voting Trust's trustees, Messrs. Bildner and Barton. As a result,
Messrs. Bildner and Barton will be able to control the outcome of all
corporate actions requiring shareholder approval, including changes in
our equity incentive plan, the election of a majority of our directors,
proxy contests, mergers, tender offers, open-market purchase programs or
other purchases of common stock that could give holders of our Class B
Common Stock the opportunity to realize a premium over the then-
prevailing market price for their shares of Class B Common Stock.
. The California Corporations Code and our Bylaws currently permit
shareholders to require cumulative voting in connection with the
election of directors, subject to certain requirements. However, the
Articles and Bylaws also provide that cumulative voting will be
eliminated effective as of the first record date for an annual meeting
on which we have equity securities listed on Nasdaq and 800 or more
holders of our equity securities.
. Holders of an aggregate of 779,762 shares of Class A Common Stock have
entered into agreements with us that may restrict their ability to
transfer shares of Class A Common Stock following termination of their
employment with the Company. Such agreements would effectively delay the
conversion of such shares of Class A Common Stock and may perpetuate
control of the Company by the Voting Trust's trustees.
Dependence on Partnerships with Third Parties in Performing Certain Client
Engagements. We sometimes perform client engagements in partnership with third
parties. In the government services market, we often join with other
organizations to bid and perform an engagement. In these engagements, we may
engage subcontractors or we may act as a subcontractor to the prime contractor
of the engagement. In the commercial services market, we sometimes partner
with software or technology providers to jointly bid and perform engagements.
In both markets, we often depend on the software, resources and technology of
our partners in order to perform the engagement. There can be no assurance
that actions or failures attributable to our partners
20
or to the prime contractor or subcontractor will not also negatively affect
our business, financial condition or results of operations. In addition, the
refusal or inability of a partner to permit continued use of its software,
resources or technology by us, or the discontinuance or termination by the
prime contractor of our services or the services of a key subcontractor, would
have a material adverse effect on our business, financial condition and
results of operations.
Dependence on Contracts with Government Agencies. For the nine months ended
June 30, 1999, approximately 31.7% of our revenues were derived from sales to
government agencies. Such government agencies may be subject to budget cuts or
budgetary constraints or a reduction or discontinuation of funding. A
significant reduction in funds available for government agencies to purchase
IT services would have a material adverse effect on our business, financial
condition and results of operations. In addition, the loss of a major
government client, or any significant reduction or delay in orders by such
client, would have a material adverse effect on our business, financial
condition and results of operations.
Failure to Estimate Accurately Fixed Price and Performance-Based
Contracts. Our failure to estimate accurately the resources or time required
for a fixed price project or the expected volume of transactions under a
performance-based contract could have a material adverse effect on our
business, financial condition and results of operations. Under fixed price
contracts, we receive our fee if we meet specified objectives such as
completing certain components of a system installation. For performance-based
contracts, we receive our fee on a per-transaction basis, such as the number
of child support payments processed. To earn a profit on these contracts, we
rely upon accurately estimating costs involved and assessing the probability
of meeting the specified objectives or realizing the expected number of
transactions within the contracted time period. If we fail to estimate
accurately the factors upon which we base our contract pricing, we may incur
losses on these contracts. During the nine months ended June 30, 1999, 13.2%
of our revenues were generated on a fixed price basis. During the nine months
ended June 30, 1999, performance-based contracts did not constitute a material
component of the Company's operations; however, such contracts are expected to
become a more significant portion of operations in the future.
Significant Start-Up Costs. When we are awarded a contract to manage a
government program, we can incur significant start-up costs before the
facility is fully operational and transactions are being processed. These
expenses include leasing office space, purchasing equipment and hiring
personnel. As a result, we may incur operating losses in the early stage of a
contract.
Potential Costs or Claims Resulting from Project Performance. Many of our
engagements involve projects that are critical to the operations of our
clients' businesses and provide benefits that may be difficult to quantify.
The failure by us, or of the prime contractor on an engagement in which we are
a subcontractor, to meet a client's expectations in the performance of the
engagement could damage our reputation and adversely affect our ability to
attract new business, and could have a material adverse effect upon our
business, financial condition and results of operations. We have undertaken,
and may in the future undertake, projects in which we guarantee performance
based upon defined operating specifications or guaranteed delivery dates.
Unsatisfactory performance or unanticipated difficulties or delays in
completing such projects may result in client dissatisfaction and a reduction
in payment to, or payment of damages (as a result of litigation or otherwise)
by us, which could have a material adverse effect upon our business, financial
condition and results of operations. In addition, unanticipated delays could
necessitate the use of more resources than we initially budgeted for a
particular project, which also could have a material adverse effect upon our
business, financial condition and results of operations.
Insufficient Insurance Coverage for Potential Claims. Any failure in a
client's system could result in a claim against us for substantial damages,
regardless of our responsibility for such failure. There can be no assurance
that the limitations of liability set forth in our service contracts will be
enforceable or will otherwise protect us from liability for damages. Although
we maintain general liability insurance coverage, including coverage for
errors or omissions, there can be no assurance that such coverage will
continue to be available on reasonable terms, will be available in sufficient
amounts to cover one or more claims or that the insurer will not
21
disclaim coverage as to any future claim. The successful assertion for one or
more claims against us that exceed available insurance coverage or changes in
our insurance policies, including premium increases or the imposition of large
deductible or co-insurance requirements, would adversely affect our business,
financial condition and results of operations.
Delay or Failure to Develop New IT Solutions. Our success will depend in
part on our ability to develop IT solutions that keep pace with continuing
changes in technology, evolving industry standards and changing client
preferences. There can be no assurance that we will be successful in
developing such IT solutions in a timely manner or that if developed we will
be successful in the marketplace. Delay in developing or failure to develop
new IT solutions would have a material adverse effect on our business,
financial condition and results of operations.
Substantial Competition in the IT Services Market. The IT services market
is highly competitive and is served by numerous international, national and
local firms. There can be no assurance that we will be able to compete
effectively in the market. Market participants include systems consulting and
integration firms, including national accounting firms and related entities,
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. Many of these competitors have significantly greater financial,
technical and marketing resources, generate greater revenues and have greater
name recognition than we do. In addition, there are relatively low barriers to
entry into the IT services market, and we have faced, and expect to continue
to face, additional competition from new entrants into the IT services market.
We believe that the principal competitive factors in the IT services market
include:
. reputation,
. project management expertise,
. industry expertise,
. speed of development and implementations,
. technical expertise,
. competitive pricing, and
. the ability to deliver results on a fixed price 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,
. the ability of our clients to perform the services themselves, and
. the extent of our competitors' responsiveness to client needs.
Our inability to compete effectively on these competitive factors would
have a material adverse effect on our business, financial condition and
results of operations.
Inability to Protect Proprietary Intellectual Property. The steps we take
to protect our intellectual property rights may be inadequate to avoid the
loss or misappropriation of such information, or to detect unauthorized use of
such information. We rely on a combination of nondisclosure and other
contractual arrangements, and copyright, trade secret and trademark laws to
protect our intellectual property rights. We also
22
(1) enter into confidentiality agreements with our employees, (2) generally
require that our consultants and clients enter into such agreements and (3)
limit access to our proprietary information.
Issues relating to the ownership of, and rights to use, software and
application frameworks can be complicated, and there can be no assurance that
disputes will not arise that affect our ability to resell or reuse such
software and application frameworks. A portion of our business involves the
development of software applications for specific client engagements.
Ownership of such software is the subject of negotiation with each particular
client and is typically assigned to the client. We also develop software
application frameworks, and may retain ownership or marketing rights to these
application frameworks, which may be adapted through further customization for
future client projects. Certain clients have prohibited us from marketing the
software and application frameworks developed for them entirely or for
specified periods of time or to specified third parties, and there can be no
assurance that clients will not demand similar or other restrictions in the
future.
Although we believe that our services and products do not infringe on the
intellectual property rights of others, there can be no assurance that such a
claim will not be asserted against us in the future, or that if asserted, any
such claim will be successfully defended.
Failure to Manage and Expand International Operations. For the nine months
ended June 30, 1999, international operations accounted for 33.9% of our total
revenues. We believe that the percentage of total revenues attributable to
international operations will continue to be significant. In addition, a
significant portion of our sales are to large multinational companies. To meet
the needs of such companies, both domestically and internationally, we must
provide worldwide services, either directly or indirectly. As a result, we
intend to expand our existing international operations and may enter
additional international markets, which will require significant management
attention and financial resources and could adversely effect our operating
margins and earnings. In order to expand international operations, we will
need to hire additional personnel and develop relationships with potential
international clients through acquisition or otherwise. To the extent that we
are unable to do so on a timely basis, our growth in international markets
would be limited, and our business, financial condition and results of
operations would be materially and adversely affected.
Our international business operations are subject to a number of risks,
including, but not limited to, difficulties in building and managing foreign
operations, enforcing agreements and collecting receivables through foreign
legal systems, longer payment cycles, fluctuations in the value of foreign
currencies and unexpected regulatory, economic or political changes in foreign
markets. There can be no assurance that these factors will not have a material
adverse effect on our business, financial condition and results of operations.
Potential Year 2000 Non-Compliance. The "Year 2000 Issue" is typically the
result of software being written using two digits rather than four to define
the applicable year. The Company uses a significant number of computer
software programs and operating systems in its service offerings, financial
business systems and administrative functions. To the extent these software
applications are unable to appropriately interpret the upcoming calendar year
"2000", remediation of such applications will be necessary.
The Company is continuing to assess the preparedness of its internal IT and
non-IT systems and has substantially completed the remediation, testing and
certification of its critical internal systems. To date, no significant Year
2000 related problems have been identified. The Company's internal systems are
largely PC-based and a majority were recently acquired or installed. As a
result, the Company believes that a high percentage of its hardware and non-IT
systems already address the Year 2000 Issue, as does a majority of its
software. Tier anticipates that the remediation, testing and certification
process of its remaining systems and software will be substantially completed
during the summer of 1999. The Company has not incurred material remediation
costs to date and does not anticipate that the cost of such process will have
a material adverse effect on the Company's business, result of operations or
financial condition.
In addition, the Company has made an initial evaluation of the Year 2000
readiness of its key suppliers and other key third parties. The Company is
working with these parties to address the Year 2000 Issue and to obtain
appropriate assurances. The Company's operations could be materially adversely
affected if these third parties or the products or services they supply to
Tier are disrupted or impaired by the Year 2000 Issue.
23
There can be no assurance that the remediation, testing and certification
of the Company's systems will be successful or that the Company's key
contractors will have successful conversion programs, and that such Year 2000
Issue compliance failures will not have a material adverse effect on the
Company's business, results of operations or financial condition.
As a result of the Company's assessment to date, the Company currently
believes that a formal contingency plan to address Year 2000 non-compliance is
unnecessary; however, the Company may develop such a plan if its on-going
assessment indicates areas of significant exposure.
Potential Volatility of Stock Price. A public market for our Class B Common
Stock has existed only since the initial public offering of the Class B Common
Stock in December 1997. There can be no assurance that an active public market
will be sustained. The market for securities of early stage companies has been
highly volatile in recent years as a result of factors often unrelated to a
company's operations. Factors such as quarterly variations in operating
results, announcements of technological innovations or new products or
services by us or our competitors, general conditions in the IT industry or
the industries in which our clients compete, changes in earnings estimates by
securities analysts and general economic conditions such as recessions or high
interest rates could contribute to the volatility of the price of the Class B
Common Stock and could cause significant fluctuations. Further, in the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against the
issuing company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on our business, financial condition and results of operations.
Any adverse determination in such litigation could also subject us to
significant liabilities. There can be no assurance that such litigation will
not be instituted in the future against us.
Issuance of Preferred Stock May Prevent Change in Control and Adversely
Affect Market Price for Class B Common Stock. The Board of Directors has the
authority to issue preferred stock and to determine the preferences,
limitations and relative rights of shares of preferred stock and to fix the
number of shares constituting any series and the designation of such series,
without any further vote or action by our shareholders. The preferred stock
could be issued with voting, liquidation, dividend and other rights superior
to the rights of our Class B Common Stock. The potential issuance of preferred
stock may delay or prevent a change in control of us, discourage bids for the
Class B Common Stock at a premium over the market price and adversely affect
the market price and the voting and other rights of the holders of our common
stock.
No Current Intention to Declare or Pay Dividends. We have never declared or
paid cash dividends on our capital stock and do not anticipate paying any cash
dividends in the foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of the Company due to adverse
changes in market prices and rates. The Company is exposed to market risk
because of changes in foreign currency exchange rates as measured against the
U.S. dollar and currencies of the Company's subsidiaries and operations in
Australia and the United Kingdom.
Foreign Currency Exchange Rate Risk. The Company has wholly owned
subsidiaries in Australia and conducts operations in the United Kingdom
through a U.S.-incorporated subsidiary and a United Kingdom subsidiary.
Revenues from these operations are typically denominated in Australian Dollars
or British Pounds, respectively, thereby potentially affecting the Company's
financial position, results of operations and cash flows due to fluctuations
in exchange rates. The Company does not anticipate that near-term changes in
exchange rates will have a material impact on future earnings, fair values or
cash flows of the Company and has not engaged in foreign currency hedging
transactions for the nine months ended June 30, 1999. There can be no
assurance that a sudden and significant decline in the value of the Australian
Dollar or British Pound would not have a material adverse effect on the
Company's financial condition and results of operations.
24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company received a notice dated December 17, 1998 that a prime
contractor was exercising its right to terminate one of the Company's
Australian projects alleging a breach of the sub-contract. The Company
believes that the termination was not valid under the terms of the sub-
contract and that it has not breached the agreement. In early January 1999,
the Company and the prime contractor reached an understanding to continue the
engagement on a time and materials basis with both parties retaining their
rights under the original agreement. In accordance with the January agreement,
the Company has continued to provide resources on a time and materials basis
on the engagement. The Company and the prime contractor met in early June to
discuss the project and resolution of outstanding issues. The parties were not
able to resolve the dispute at that time. On June 17, 1999, the Company
received a letter from the prime contractor requesting a plan to terminate the
Company's involvement in the project. After a series of further discussions
with the prime contractor concerning the future of the relationship between
the parties, the Company determined that it would establish a reserve for the
entire net receivable balance of $1,856,000. On June 28, 1999, the Company
also filed a civil action (Tier Technologies, Inc. v. Unisys Corporation) in
the U.S.D.C. for the Northern District of California seeking money damages in
excess of $2,000,000 and a declaration that the Company has performed its
duties and obligations under the agreement, that it has no further obligations
under the agreement, and that the prime contractor is obligated to pay the
Company all amounts outstanding under the agreement. On August 11, 1999, the
Company received the prime contractor's answer and counterclaim in response to
the Company's complaint. The prime contractor denied the Company's claim and
counterclaimed alleging breach of contract and seeking declaratory relief. The
prime contractor is also seeking damages in excess of $8 million and
indemnification for damages, claims, penalties, fines and/or other sanctions
which may be levied in the future by the client of the prime contractor. The
Company denies the prime contractor's allegations and intends to vigorously
pursue its own claim against the prime contractor.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
c. Effective as of April 30, 1999, in connection with the acquisition of
certain assets and the assumption of certain liabilities of the Technology
Training Services division ("TTS") of Automated Concepts, Inc., the Company
issued into escrow 172,406 shares of its Class B common stock registered in
the name of "Automated Concepts, Inc." At the time of issue the shares were
valued at $1.5 million. The shares are contingently issuable from escrow based
on the acquired business achieving certain levels of gross profit and revenues
measured annually over a two-year period. If contingent performance
requirements under the acquisition agreement are met, the number of shares to
be released from escrow will be determined utilizing the average closing price
of the Company's Class B common stock for the five trading days preceding each
performance anniversary. The offer and sale of these securities were made in
reliance on the exemption from registration under Section 4(2) and Regulation
D of the Securities Act of 1933.
25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
------- -----------
10.49 Asset Purchase Agreement dated as of May 17, 1999 by and between the
Registrant and Humana, Inc.*
10.50 End User Agreement dated as of May 17, 1999 between the Registrant and
Humana, Inc.*
10.51 End User Agreement dated as of May 19, 1999 between the Registrant and
Humana, Inc.*
10.52 Amended and Restated Pledge Agreement, dated as of June 30, 1999, by
and between the Registrant and James L. Bildner
10.53 Second Amended and Restated Pledge Agreement, dated as of June 30,
1999, by and between the Registrant and James L. Bildner
10.54 Third Amended and Restated Pledge Agreement, dated as of June 30,
1999, by and between the Registrant and James L. Bildner
10.55 Third Amended and Restated Pledge Agreement, dated as of June 30,
1999, by and between the Registrant and William G. Barton
10.56 Amended and Restated Revolving Credit Agreement, dated as of May 28,
1999, by and between the Registrant, Tier Technologies (United
Kingdom) and BankBoston, N.A.
10.57 First Amendment to Amended and Restated Revolving Credit Agreement,
dated as of June 30, 1999, by and between the Registrant, Tier
Technologies (United Kingdom), Inc. and BankBoston, N.A.
10.58 Standard Services Contract Agreement, dated as of June 1, 1999, by and
between the Registrant and the Maryland Department of Human Resources
10.59 Contract, dated as of May 27, 1999, by and between the Registrant and
the State of Tennessee Department of Human Services
27.1 Financial Data Schedule
- --------
* Filed as an exhibit to the Registrant's Current Report on Form 8-K, filed
on June 16, 1999.
(b) Reports on Form 8-K.
Current Report on Form 8-K, filed on April 6, 1999 pursuant to Item 5
regarding the acquisition of certain assets and liabilities of Service Design
Associates, Inc.
Current Report on Form 8-K, filed on May 14, 1999 pursuant to Item 5
regarding the acquisition of certain assets and liabilities of Automated
Concepts, Inc.
Current Report on Form 8-K, filed on June 16, 1999 pursuant to Item 5
regarding the acquisition of a project management system and intellectual
property rights.
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Tier Technologies, Inc.
Dated: August 13, 1999
By: /s/ James L. Bildner
-----------------------------------
James L. Bildner
Chairman of the Board and Chief
Executive Officer
(Duly Authorized Officer)
By: /s/ George K. Ross
-----------------------------------
George K. Ross
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
27
EXHIBIT INDEX
Exhibit
Number Description Page
------- ----------- ----
10.52 Amended and Restated Pledge Agreement, dated as of June 30,
1999, by and between the Registrant and James L. Bildner
10.53 Second Amended and Restated Pledge Agreement, dated as of June
30, 1999, by and between the Registrant and James L. Bildner
10.54 Third Amended and Restated Pledge Agreement, dated as of June
30, 1999, by and between the Registrant and James L. Bildner
10.55 Third Amended and Restated Pledge Agreement, dated as of June
30, 1999, by and between the Registrant and William G. Barton
10.56 Amended and Restated Revolving Credit Agreement, dated as of
May 28, 1999, by and between the Registrant, Tier Technologies
(United Kingdom) and BankBoston, N.A.
10.57 First Amendment to Amended and Restated Revolving Credit
Agreement, dated as of June 30, 1999, by and between the
Registrant, Tier Technologies (United Kingdom) and BankBoston,
N.A.
10.58 Standard Services Contract Agreement, dated as of June 1, 1999,
by and between the Registrant and the Maryland Department of
Human Resources
10.59 Contract, dated as of May 27, 1999, by and between the
Registrant and the State of Tennessee Department of Human
Services
27.1 Financial Data Schedule