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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 December 31, 1999

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
__________________

Commission file number 000-23195

TIER TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
__________________

California 94-3145844
(State or other jurisdiction (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 January 31, 2000, the number of shares outstanding of the Registrant's
Class A Common Stock was 1,546,337 and the number of shares outstanding of the
Registrant's Class B Common Stock was 10,984,686.

This report contains a total of 24 pages of which this page is number 1.

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 December 31, 1999 and September 30, 1999............... 3

Condensed Consolidated Statements of Operations for the three months ended
December 31, 1999 and 1998......................................................................... 4

Condensed Consolidated Statements of Cash Flows for the three months ended
December 31, 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.............. 11

Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................... 22

Part II--OTHER INFORMATION

Item 1. Legal Proceedings.................................................................................. 22

Item 6. Exhibits and Reports on Form 8-K................................................................... 23

Signatures ................................................................................................... 24

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 (as defined in the Private
Securities Litigation Reform Act of 1995). When used in this report, the words
"believes", "expects", "anticipates", "intends", "estimates", "shows", "will
likely" and similar expressions are intended to identify such forward-looking
statements. 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
from those set forth herein include, but are not limited to, those factors
listed in ''Factors that May Affect Future Results'' section, as set forth
beginning on page 16 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.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TIER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)

December 31, September 30,
1999 1999
-------------- --------------
ASSETS
------

Current assets:

Cash and cash equivalents.............................................................. $10,446 $10,121
Restricted cash........................................................................ 950 819
Short-term investments................................................................. 8,763 8,971
Accounts receivable, net............................................................... 27,033 26,151
Prepaid expenses and other current assets.............................................. 2,968 2,653
------- -------
Total current assets................................................................ 50,160 48,715
Equipment and improvements, net.......................................................... 6,974 7,012
Notes and accrued interest receivable from related parties............................... 1,466 1,486
Intangible assets, net................................................................... 25,414 23,913
Other assets............................................................................. 2,433 2,818
------- -------
Total assets........................................................................ $86,447 $83,944
======= =======

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

Current liabilities:
Accounts payable....................................................................... $ 3,401 $ 2,759
Accrued liabilities.................................................................... 5,583 2,618
Accrued subcontractor expenses......................................................... 568 1,113
Accrued compensation and related liabilities........................................... 3,421 3,476
Income taxes payable................................................................... 291 995
Deferred income........................................................................ 1,417 1,506
Other current liabilities.............................................................. 399 408
------- -------
Total current liabilities........................................................... 15,080 12,875
Borrowings, less current portion......................................................... 1,672 443
Other liabilities........................................................................ 351 358
------- -------
Total liabilities................................................................... 17,103 13,676
------- -------

Commitments and contingencies

Shareholders' equity:
Common stock, no par value............................................................. 65,935 66,012
Notes receivable from shareholders..................................................... (1,773) (1,773)
Deferred compensation.................................................................. (292) (352)
Accumulated other comprehensive income (loss).......................................... (298) (101)
Retained earnings...................................................................... 5,772 6,482
------- -------
Total shareholders' equity.......................................................... 69,344 70,268
------- -------
Total liabilities and shareholders' equity.......................................... $86,447 $83,944
======= =======

See Notes to Condensed Consolidated Financial Statements

TIER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)

Three Months
Ended
December 31,
--------------------
1999 1998
---- ----

Revenues..................................................... $24,613 $21,356
Cost of revenues............................................. 14,847 13,156
------- -------

Gross profit................................................. 9,766 8,200
Costs and expenses:
Selling and marketing....................................... 1,488 1,287
General and administrative.................................. 5,609 3,459
Other nonrecurring charges.................................. 1,750 --
Compensation charge related to business combinations........ 60 61
Depreciation and amortization............................... 1,258 527
------- -------
Income (loss) from operations................................ (399) 2,866
Interest income (expense), net............................... 237 456
------- -------
Income (loss) before income taxes............................ (162) 3,322
Provision for income taxes................................... 548 1,296
------- -------
Net income (loss)............................................ $ (710) $ 2,026
======= =======
Basic net income (loss) per share............................ $(0.06) $0.17
======= =======
Shares used in computing basic net income (loss) per share... 12,230 11,881
======= =======
Diluted net income (loss) per share.......................... $(0.06) $0.16
======= =======
Shares used in computing diluted net income (loss) per share. 12,230 12,816
======= =======

See Notes to Condensed Consolidated Financial Statements

TIER TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

Three Months Ended
December 31,
---------------------
1999 1998
--------- ---------

Net cash provided by operating activities.................................................................... $ 3,711 $ 4,459
------- --------

Investing activities:
Purchases of equipment and improvements...................................................................... (717) (408)
Notes and accrued interest receivable from related parties................................................... (163) (262)
Repayment on notes and accrued interest receivable from related parties...................................... 100 --
Business combinations, net of cash acquired.................................................................. (3,862) (2,879)
Restricted cash.............................................................................................. (131) --
Purchases of available-for-sale securities................................................................... (824) (20,049)
Sales and maturities of available-for-sale securities........................................................ 1,032 9,122
Other assets................................................................................................. 169 41
------- --------
Net cash used in investing activities........................................................................ (4,396) (14,435)
------- --------
Financing activities:
Borrowings under bank lines of credit........................................................................ 1,302 832
Payments on borrowings....................................................................................... -- (832)
Repurchases of common stock.................................................................................. (281) --
Repayment by shareholders on notes receivable................................................................ -- 138
Issuance of Class B common stock............................................................................. 180 528
Payments on capital lease obligations and notes payable to shareholders...................................... (90) (26)
------- --------
Net cash provided by financing activities.................................................................... 1,111 640
------- --------
Effect of exchange rate changes on cash...................................................................... (101) (2)
------- --------
Net increase (decrease) in cash and cash equivalents......................................................... 325 (9,338)
Cash and cash equivalents at beginning of period............................................................. 10,121 22,466
------- --------
Cash and cash equivalents at end of period................................................................... $10,446 $ 13,128
======= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest paid.............................................................................................. $ 100 $ 73
======= ========
Income taxes paid (refunded), net.......................................................................... $ 1,288 $ 1,052
======= ========
Equipment acquired under capital lease obligations........................................................... $ 54 $ --
======= ========
Assumed liabilities related to business combinations......................................................... $ 812 $ 1,931
======= ========
Class B common stock issued in business combinations......................................................... $ -- $ 1,328
======= ========
Conversion of Class A common stock to Class B common stock................................................... $ 93 $ --
======= ========

See Notes to Condensed Consolidated Financial Statements

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 10, 1999 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 ended December 31, 1999 are not necessarily indicative of results
that may be expected for the fiscal year ending September 30, 2000 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 financial
statements to conform to the current period presentation.

NOTE 2--REVENUE RECOGNITION

The majority of 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. 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. 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. Revenues from performance-based contracts are
recognized based on fees charged on a per-transaction basis. Most of the
Company's contracts are terminable by the client following limited notice and
without significant penalty to the client. 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 represent revenue recognized in excess of
amounts billed in accordance with contractual billing terms. Unbilled
receivables were $9,239,000 and $8,390,000 at December 31, 1999 and September
30, 1999, respectively. Unbilled receivable for one client accounted for 14.7%
of total accounts receivable at December 31, 1999.

Revenues derived from sales to governmental agencies were $15,019,000 and
$5,260,000 for the three months ended December 31, 1999 and 1998, respectively.

TIER TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)

NOTE 3--ACQUISITIONS

Simsion Bowles & Associates

Effective October 1, 1999, the Company acquired all the issued and outstanding
capital stock of Simsion Bowles & Associates ("SBA"), an Australian entity which
provides business process reengineering and integration of e-commerce consulting
services. The initial purchase price totaled approximately $2,567,000 (converted
into U.S. dollars as of the date of the acquisition) in cash, including $441,000
in estimated acquisition costs. The acquisition was accounted for using the
purchase method of accounting. Additional contingent payments of up to
approximately $3,064,000 (based on a current exchange rate of AU $1.54 to US
$1.00) may be paid in cash and shares of the Company's Class B common stock over
a three-year period based on the acquired business achieving certain performance
targets. Contingent payments will be accrued when earned and recorded as
additional purchase price. Intangible assets of approximately $2,397,000 were
recorded and are being amortized using the straight-line method over an eight to
ten-year period. The accompanying consolidated financial statements include the
results of operations of SBA for periods beginning on or subsequent to October
1, 1999.

The allocation of the initial purchase price was as follows:

(in thousands)

Cash paid ....................................... $2,126
Estimated acquisition costs ..................... 441
------
$2,567
======

Tangible assets ................................. $ 984
Intangible assets ............................... 2,397
Liabilities assumed ............................. (814)
------
$2,567
======

Acquired tangible assets, which primarily consist of fixed assets, are being
depreciated over their useful lives of three to five years.

NOTE 4--BANK LINES OF CREDIT

At December 31, 1999, the Company had an $8 million revolving credit facility
which matures on May 27, 2000. The total commitment amount is limited to the
lesser of 85% of eligible accounts receivable or $8 million and is 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% or
an alternate base rate plus 0.5%, 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%. Among other provisions, the credit facility requires the Company to
maintain certain minimum financial ratios. As of December 31, 1999, the Company
was not in compliance with certain convenants; however, the bank waived such
noncompliance. As of December 31, 1999 and September 30, 1999, the Company had
no outstanding borrowings under this credit facility; however, the Company's
borrowing base has been reduced by the $800,000 letter of credit issued in
connection with the Company's acquisition of certain assets and liabilities of
Service Design Associates, Inc.

TIER TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)

NOTE 4--BANK LINES OF CREDIT (continued)

In October 1999, the Company (through one of its Australian subsidiaries)
entered into a $2,100,000 revolving line of credit with St. George Bank Limited
of Australia (based on a current exchange rate of AU $1.54 to US $1.00). Under
the terms of the agreement, the principal balance of the credit line will reduce
by approximately $195,000 per quarter, beginning February 2000, to a maximum
line of approximately $1,302,000. The line of credit bears interest at fixed
rates that are set at the time of each drawdown on the line. As of December 31,
1999, the available principal balance of the line of credit was reduced by two
letters of credit totalling approximately $78,000. In December 1999, the balance
of the line of credit was converted to a variable rate loan ("Loan"). The
variable rate is based upon the bank's prime rate less 1.25% (7.75% per annum as
of December 31, 1999) and interest is payable monthly. As of December 31, 1999,
the outstanding balance on the Loan was approximately $1,302,000. Among other
provisions, the Loan requires the Company to maintain certain minimum financial
ratios. As of December 31, 1999, the Company was in compliance with the Loan
covenants.

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 Ended
December 31,
--------------------------------
1999 1998
------ ------
(in thousands, except per share data)

Numerator:
Net income (loss)....................................................... $ (710) $ 2,026
======= =======
Denominator for basic income (loss) per share-weighted
average common shares outstanding........................................... 12,230 11,881
Effects of dilutive securities:
Common stock options.................................................... -- 820
Common stock contingently issuable ..................................... -- 115
------- -------
Denominator for diluted net income (loss) per share-
adjusted weighted average common shares and
assumed conversions......................................................... 12,230 12,816
======= =======
Basic net income (loss) per share............................................. $ (0.06) $ 0.17
======= =======
Diluted net income (loss) per share........................................... $ (0.06) $ 0.16
======= =======

For the three months ended December 31, 1999, options to purchase
approximately 4,055,000 shares of Class B common stock at prices ranging from
$2.45 to $17.81 per share were not included in the computation of diluted net
loss per share as their effect would have been anti-dilutive. For the three
months ended December 31, 1999, common stock equivalents of 250,000 shares were
excluded from the calculation of diluted net loss per share since their effect
would have been anti-dilutive.

TIER TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)

NOTE 6--COMPREHENSIVE INCOME (LOSS)

The Company's comprehensive income (loss) was as follows:

Three Months Ended
December 31,
---------------------
1999 1998
-------- ---------

(in thousands)
Net income (loss) ...................................... $(710) $2,026
Currency translation adjustment ........................ (197) 343
----- ------
Comprehensive income (loss) ............................ $(907) $2,369
===== ======

NOTE 7--OTHER NONRECURRING CHARGES

In December 1999, the Company's Board of Directors approved a plan to sell or
dispose of its United Kingdom ERP business. The write-down of certain assets
associated with this business is included in other nonrecurring charges after
reflecting projected proceeds from a potential sale. The Company may record
additional charges and incur additional operating losses from this subsidiary in
future quarters as it completes the sale or disposal of this operation. Also
included in other nonrecurring charges are severance costs for a former officer.

NOTE 8--ALLIANCE AGREEMENT

In September 1999, the Company entered into a long-term strategic alliance
("Alliance Agreement"), with Siemens Business Services Limited ("SBS"). Under
the Alliance Agreement, the Company has committed to utilizing a minimum amount
of resources from the SBS Application Services Center ("ASC"). The Company will
market the ASC's services worldwide in exchange for fees based on the
utilization of resources. To the extent there is a shortfall in minimum
utilization, the Company's obligation under the Alliance Agreement shall not
exceed $17,400,000 over the five-year life of the agreement. Through December
31, 1999, there have been no minimum utilization requirements under the Alliance
Agreement. The Company will also receive approximately $11,200,000 for
consulting services provided over the life of the Alliance Agreement.

NOTE 9--SEGMENT INFORMATION

The Company operates in four reportable segments: Commercial Services,
Government Services, Australian Operations and United Kingdom Operations. The
Company evaluates the performance of its operating segments based on revenue and
gross profit, while other operating costs are evaluated on a geographical basis.
Accordingly, the Company does not include selling and marketing expenses,
general and administrative expenses, depreciation and amortization expense,
interest income (expense), other income (expense) or income tax expense in
segment profitability. The table below presents financial information for the
four reportable segments and for items that cannot be allocated to the operating
segments (in thousands):

United
Commercial Government Australian Kingdom
Services Services Operations Operations Other Total
----------- ----------- ---------- ---------- --------- ---------
Three Months Ended December 31, 1999:

Revenues.................................... $ 3,502 $12,126 $6,658 $2,327 $ -- $24,613
Gross profit................................ 1,159 5,247 2,523 908 (71) 9,766

Three Months Ended December 31, 1998:
Revenues.................................... $11,388 $ 4,617 $3,961 $1,390 $ -- $21,356
Gross profit................................ 4,825 1,464 1,512 406 (7) 8,200

TIER TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(unaudited)

NOTE 10--NEW ACCOUNTING PRONOUNCEMENTS

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. The Company is required to adopt FAS 133 in the fourth
quarter of fiscal 2001 and has not yet determined the impact, if any, that the
adoption of FAS 133 will have on the consolidated financial statements.

In December 1999, the Securities and Exchange Commission issued staff
Accounting Bulletin no. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 is effective no later than the quarter ended December 31, 2000.
The Company is in the process of determining the impact that adoption of SAB 101
will have on the consolidated financial statements.

NOTE 11--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 proper under the terms of the sub-contract and that it has not breached
the agreement. On June 28, 1999, after a series of discussions with the prime
contractor, the Company filed a federal civil action against the prime
contractor for the amounts the Company is due. At that time, the Company
established a reserve for the net receivable balance of $1,856,000. 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 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 allegations
and intends to pursue its own claim against the prime contractor. The parties to
the action have commenced voluntary discovery. The court has set a new case
management hearing date for August 29, 2000. The parties have agreed to mediate
this dispute with JAMS prior to the continued case management conference. The
court will set the case for trial and order completion of all discovery at the
continued case management hearing on August 29, 2000. In the event the prime
contractor prevails in its action, the Company's financial condition, results of
operations and cash flows would be materially and adversely affected.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Overview

Tier provides comprehensive business solutions where information technology
("IT") implementations are a significant component of an overall business
solution. 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
$24.6 million in the three months ended December 31, 1999 from $21.4 million in
the three months ended December 31, 1998. A significant portion of the Company's
revenues are derived from sales to government agencies. For the three months
ended December 31, 1999, approximately 61.0% of the Company's revenues were
derived from sales to government agencies, as compared to 24.6% for the three
months December 31, 1998. The Company's workforce, composed of employees,
independent contractors and subcontractors, has grown to 877 on December 31,
1999 from 510 on December 31, 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 35.2% and 9.3% for
the three months ended December 31, 1999 and 1998, respectively. The percentage
of revenues generated on a per-transaction basis was 11.0% for the three months
ended December 31, 1999. 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. If the Company significantly overestimates the volume
for transaction-based contracts, its financial condition and results of
operations would be materially and adversely affected.

The Company has derived a significant portion of its revenues from a small
number of large clients. For some of these clients, the Company performs a
number of different projects pursuant to multiple contracts or purchase orders.
For the three months ended December 31, 1999, the District of Columbia accounted
for 11.0% of the Company's revenues. 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.

Personnel and rent expenses represent a significant percentage of the
Company's operating expenses and are relatively fixed in advance of any
particular quarter. The Company' manages its personnel utilization rates by
carefully monitoring its needs and anticipating personnel increases based on
specific project requirements. To the extent revenues do not increase at a rate
commensurate with these additional expenses, 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 or retain hourly employees or contractors, the Company's
business, financial condition and results of operations would be materially and
adversely affected.

From December 1996 through December 31, 1999, the Company made thirteen
acquisitions for a total cost of approximately $30.7 million in cash and shares
of Class B common stock, excluding future contingent payments. The Company also
incurred $1.9 million in compensation charges related to business combinations
resulting from these acquisitions. Generally, 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, the payments are recorded as
compensation expense over the vesting period when the amount is deemed probable.
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 36.5%
and 25.1% of revenues for the three months ended December 31, 1999 and 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 summarizes the Company's operating results as a percentage
of revenues for each of the periods indicated:

Three Months
Ended December 31,
---------------------------
1999 1998
------------ ------------

Revenues............................................................................ 100.0% 100.0%
Cost of revenues.................................................................... 60.3 61.6
----- -----
Gross profit........................................................................ 39.7 38.4
Costs and expenses:
Selling and marketing............................................................. 6.0 6.0
General and administrative........................................................ 22.8 16.2
Other nonrecurring charges........................................................ 7.1 --
Compensation charge related to business combinations.............................. 0.3 0.3
Depreciation and amortization..................................................... 5.1 2.5
----- -----
Income (loss) from operations....................................................... (1.6) 13.4
Interest income (expense), net...................................................... 0.9 2.1
----- -----
Income (loss) before income taxes................................................... (0.7) 15.5
Provision for income taxes.......................................................... 2.2 6.0
----- -----
Net income (loss)................................................................... (2.9%) 9.5%
===== =====

Three Months Ended December 31, 1999 and December 31, 1998

Revenues. Revenues are generated primarily by providing professional
consulting services on client engagements. Revenues increased 15.3% to $24.6
million for the three months ended December 31, 1999 from $21.4 million in the
three months ended December 31, 1998. This increase resulted primarily from
multiple acquisitions and internal growth, as partially offset by a decrease in
revenues from commercial operations.

Gross Profit. Cost of revenues consists primarily of those costs directly
attributable to providing service to a client, including employee salaries and
incentive compensation, independent contractor and subcontractor costs, employee
benefits, payroll taxes, travel expenses, and any equipment or software costs.
For payment processing center operations, cost of revenues also include
facility, equipment and overhead costs. Gross margin increased 19.1% to $9.8
million for the three months ended December 31, 1999 from $8.2 million for the
three months ended December 31, 1998. Gross margin increased to 39.7% for the
three months ended December 31, 1999 as compared to 38.4% for

the three months ended December 31, 1998. This increase resulted primarily from
the increase in the payment processing center portion of our business, which has
a higher gross margin than our other consulting services.

Selling and Marketing. Selling and marketing expenses consist primarily of
personnel costs, sales commissions, travel costs and product literature. Selling
and marketing expenses increased 15.6% to $1.5 million for the three months
ended December 31, 1999 from $1.3 million for the three months ended December
31, 1998. As a percentage of revenues, selling and marketing expenses were 6.0%
for the three months ended December 31, 1999 and 1998. The increase in selling
and marketing expenses in total dollars was primarily attributable to the
addition of sales and marketing personnel through acquisitions. The Company
expects selling and marketing expenses to increase in future quarters as the
Company continues to make investments in business development.

General and Administrative. General and administrative expenses consist
primarily of personnel costs related to general management and administrative
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 62.2% to $5.6 million for the three months
ended December 31, 1999 from $3.5 million for the three months ended December
31, 1998. As a percentage of revenues, general and administrative expenses
increased to 22.8% for the three months ended December 31, 1999 from 16.2% in
the three months ended December 31, 1998. The increase in general and
administrative expenses, both in total dollars and as a percentage of revenues,
was attributable primarily to building the infrastructure to support, manage and
control the Company's growth, as well as the costs of integrating and operating
acquired businesses.

Other Nonrecurring Charges. The other nonrecurring charges of $1.8 million
for the three months ended December 31, 1999, result primarily from the write-
down of the United Kingdom ERP business which the Company has decided to sell
or dispose of and severance costs for a former officer. The United Kingdom ERP
business write-down has been reduced by projected proceeds from a potential
sale. If the Company is unable to sell the United Kingdom ERP business or if
there is a change in the projected proceeds from the sale, additional charges
may be recorded.

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 was $60,000 for the three months ended
December 31, 1999 and $61,000 in the three months ended December 31, 1998. As a
percentage of revenues, compensation charges related to business combinations
were 0.3% for the three months ended December 31, 1999 and 1998. For the three
months ended December 31, 1999 and 1998, the compensation charge related to
business combinations resulted from the amortization of the value of shares to
be released over a three year period in connection with the acquisition of
Simpson Fewster & Co. Pty Limited. Compensation charges related to business
combinations may fluctuate in future quarters due to the varying timing of
future contingent payments.

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 138.7% to $1.3 million for the three months ended December 31, 1999
from $527,000 for the three months ended December 31, 1998. As a percentage of
revenues, depreciation and amortization increased to 5.1% for the three months
ended December 31, 1999 from 2.5% for the three months ended December 31, 1998.
The increase in total depreciation and 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. The Company expects that depreciation and amortization
will continue to increase in absolute dollars, although it may vary as a
percentage of revenues.

Interest Income (Expense), Net. Net interest income decreased 48.0% to
$237,000 for the three months ended December 31, 1999 compared to net interest
income of $456,000 for the three months ended December 31, 1998. This decrease
was primarily attributable to the decrease in cash and investment balances as a
result of acquisitions, and purchases of equipment and improvements.

Provision for Income Taxes. The provision for income taxes was $548,000 for
the three months ended December 31, 1999 and $1.3 million for the three months
ended December 31, 1998. The provision for income taxes for the three months
ended December 31, 1999 is impacted by other nonrecurring charges for which no
tax benefit can be recorded at this time. The Company anticipates its effective
tax rate for the fiscal year ending September 30, 2000 will not be materially
different from 41.5%. For the three months ended December 31, 1998, the
Company's effective tax rate was 39%. The future tax rate may vary due to a
variety of factors, including, but not limited to, the relative income
contribution by domestic and foreign operations, changes in statutory tax rates,
the amount of tax exempt interest income generated during the year, the
inability to utilize foreign tax credits and any non-deductible items related to
acquisitions or other nonrecurring charges. The Company will continue to monitor
the effective tax rate on a quarterly basis.

Liquidity and Capital Resources

The Company's principal capital requirement is to fund working capital to
support its growth, including potential future acquisitions and potential
contingent payments related to prior 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 Credit Facility bears 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%. The alternate base rate is the greater of the bank's prime
rate or the federal funds effective rate plus 0.5%. The Credit Facility is
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 December 31, 1999, the Company was not in compliance with
certain covenants; however, the bank waived such noncompliance. As of December
31, 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 an $800,000 letter of credit issued in connection with the Company's
acquisition of certain assets and liabilities of Service Design Associates, Inc.
("SDA") in March 1999.

Net cash provided by operating activities was $3.7 million in the three months
ended December 31, 1999 as compared to $4.5 million in the three months ended
December 31, 1998. The decrease in net cash provided by operating activities is
largely attributable to the increases in receivables and other assets, partially
offset by the increase in depreciation and amortization and other payables.

Net cash used in investing activities was $4.4 million and $14.4 million in
the three months ended December 31, 1999 and December 31, 1998, respectively.
The decrease in cash used in investing activities is largely attributable to the
decrease in cash available for investment. Capital expenditures, including
equipment acquired under capital lease but excluding assets acquired or leased
through business combinations, were approximately $771,000 in the three months
ended December 31, 1999 and $408,000 in the three months ended December 31,

1998. The increase in capital expenditures was primarily attributable to
equipment requirements for our payment processing centers. 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 payment processing
center operations.

Net cash provided by financing activities totaled $1.1 million in the three
months ended December 31, 1999 and $640,000 in the three months ended December
31, 1998.The net cash provided by financing activities for the three months
ended December 31, 1999 results primarily from the bank borrowings in Australia.

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, contingent payments earned,
new contracts, the timing of the receipt of accounts receivable and employee
growth. The Company is involved in a contract dispute with a prime contractor.
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 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 Update

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 continue to
appropriately interpret the calendar year "2000" and subsequent years,
remediation of such applications will be necessary.

As discussed in Form 10-K for the year ended September 30, 1999, the Company
assessed the preparedness of its internal IT and non-IT systems and had
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. The Company has not
incurred material remediation costs to date and does not anticipate that the
cost of any additional remediation will have a material adverse effect on the
Company's business, result of operations or financial condition.

In addition, the Company has made an evaluation of the Year 2000 readiness of
its key suppliers and other key third parties. To date, no significant Year 2000
related problems have been identified. 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.

Since entering the Year 2000, the Company has not experienced any major
disruptions, impacting its customers and suppliers to its business, nor is it
aware of any significant Year 2000-related disruptions. There can be no
assurance that the remediation, testing and certification of the Company's
systems will continue to be successful or that the conversion programs of the
Company's key contractors will continue to be successful, and that any Year 2000
Issue compliance failures will not have a material adverse effect on the
Company's business, results of operations or financial condition.

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".

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 accuracy of estimates of resources required to complete ongoing
projects,

. 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 contractors 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,

. the number of billable days in a particular quarter,

. the adequacy of provisions for losses,

. the accuracy of estimated transaction volume in computing transaction rates
for payment processing center operations,

. 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. Revenues are impacted by the amount of holidays
and vacations taken both within our consultant base and by our clients. As a
result, revenues will vary from quarter to quarter during the fiscal 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 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 three months ended December 31, 1999,
the District of Columbia accounted for 11.0% of our revenues. 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.

Dependence on Contracts with Government Agencies. For the three months ended
December 31, 1999, approximately 61.0% 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.

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 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. Although we have entered into
employment agreements with certain key employees, these employees may terminate
their employment agreements at any time. The loss of the services of any key
employee 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 59.1% of the
total common stock voting power at December 31, 1999. All power to vote shares
held in the Voting Trust has been vested in the Voting Trust's trustees, James
L. Bildner and William G. 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.

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
December 31, 1999, we acquired thirteen 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,

. increased general and administrative expenses,

. 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.

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 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.

Dependence on Partnerships with Third Parties in Performing Certain Client
Engagements. We sometimes perform client engagements in partnership with third
parties. 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. We also partner with
software or technology providers to jointly bid and perform engagements. In
these situations, we 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 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.

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 three months ended December 31, 1999,
35.2% of our revenues were generated on a fixed price basis and 11.0% of our
revenues were generated from performance-based contracts. We believe that the
percentage of revenues attributable to fixed price contracts will continue to be
significant and the percentage of revenue attributable to performance-based
contracts may grow.

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.

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 and transaction-basis as
well as a time and materials basis.

We believe that our ability to compete also depends in part on a number of
competitive factors outside our control, including:

. the ability of our clients or competitors to hire, retain and motivate
project managers and other senior technical staff,

. the ownership by competitors of software used by potential clients,

. the price at which others offer comparable services,

. 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 enter into confidentiality agreements with
our employees, generally require that our consultants and clients enter into
such agreements and 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 three months
ended December 31, 1999, international operations accounted for 36.5% 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 be
able to 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 continue to appropriately interpret the calendar year "2000" and
subsequent years, remediation of such applications will be necessary.

In addition, the Company has made an initial evaluation of the Year 2000
readiness of its key suppliers and other key third parties. To date, no
significant Year 2000-related problems have been identified. 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.

Since entering the Year 2000, the Company has not experienced any major
disruptions, impacting its customers and suppliers to its business, nor is it
aware of any significant Year 2000-related disruptions. There can be no
assurance that the remediation, testing and certification of the Company's
systems will be successful or that the conversion programs of the Company's key
contractors will continue to be successful, and that any Year 2000 Issue
compliance failures will not have a material adverse effect on the Company's
business, results of operations or financial condition.

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, including:

. 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.

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
three months ended December 31, 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.

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 proper under the terms of the sub-contract and that it has not breached
the agreement. On June 28, 1999, the Company filed a civil action (Tier
Technologies, Inc. v. Unisys Corporation) in the United States District Court
for the Northern District of California seeking money damages in excess of $2
million 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. At that time, the Company established a
reserve for the net receivable balance of $1,856,000. 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 pursue its own
claim against the prime contractor. The parties to the action have commenced
voluntary discovery. The court has set a new case management hearing date for
August 29, 2000. The parties have agreed to mediate this dispute with JAMS
prior to the continued case management conference. The court will set the case
for trial and order completion of all discovery at the continued case management
hearing on August 29, 2000.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

Exhibit
- --------
Number Description
- -------- ----------------------------------------------------------

27.1 Financial Data Schedule

__________

(b) Reports on Form 8-K.

The Company did not file any reports on Form 8-K during the three months ended
December 31, 1999.

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: February 14, 2000

By: /s/ JAMES L. BILDNER
------------------------------------------------

James L. Bildner
Chairman of the Board and Chief Executive Officer
(Duly Authorized Officer)

By: /s/ LAURA B. DEPOLE
------------------------------------------------

Laura B. DePole
Chief Financial Officer
(Principal Financial and Accounting Officer)

EXHIBIT INDEX

Exhibit
- ----------
Number Description Page
- ---------- -------------------------------------------- ----

27.1 Financial Data Schedule