TIER TECHNOLOGIES INC, 424B4, 1997-12-17

TIER TECHNOLOGIES INC
424B4, 1997-12-17
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE>

Filed Pursuant to Rule 424(b)(4)
File No. 333-37661

3,400,000 SHARES

LOGO

CLASS B COMMON STOCK

--------------

Of the 3,400,000 shares of Class B Common Stock offered hereby, 2,725,000
shares are being sold by the Company and 675,000 shares are being sold by the
Selling Shareholders. See "Principal and Selling Shareholders." The Company
will not receive any of the proceeds from the sale of the shares by the
Selling Shareholders.

The capital stock of the Company consists of Class A Common Stock and Class
B Common Stock (collectively, the "Common Stock"). The two classes are
substantially identical, except that the Class A Common Stock is entitled to
ten votes per share on all matters and the Class B Common Stock is entitled to
one vote per share on all matters, and each share of Class A Common Stock is
convertible into one share of Class B Common Stock and converts automatically
upon a transfer, except for certain limited permitted transfers. Holders of
the Class B Common Stock, voting as a separate class, are entitled to elect
two of the currently authorized five Directors of the Company, and holders of
the Class A and Class B Common Stock, voting together as a single class, are
entitled to elect three Directors. See "Principal and Selling Shareholders"
and "Description of Capital Stock."

Prior to this offering, there has been no public market for the Common Stock
of the Company. See "Underwriting" for a discussion of the factors considered
in determining the initial public offering price. The Class B Common Stock has
been approved for quotation and trading on the Nasdaq National Market under the
symbol "TIER."

SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS B COMMON
STOCK OFFERED HEREBY.

--------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
==================================================================================
PRICE UNDERWRITING PROCEEDS PROCEEDS
TO DISCOUNTS AND TO TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) SHAREHOLDERS (2)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..... $8.50 $0.595 $7.905 $7.905
- ----------------------------------------------------------------------------------
Total (3)..... $28,900,000 $2,023,000 $21,541,125 $5,335,875
==================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company and the Selling
Shareholders, estimated at $1,141,000 and $284,000, respectively.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 510,000 shares of Class B Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $33,235,000, $2,326,450 and $25,572,675, respectively. See
"Underwriting."

--------------

The shares of Class B Common Stock are offered by the several Underwriters,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of the shares of
Class B Common Stock will be made at the offices of Adams, Harkness & Hill,
Inc., Boston, Massachusetts, on or about December 22, 1997.

ADAMS, HARKNESS & HILL, INC. NATIONSBANC MONTGOMERY SECURITIES, INC.

The date of this Prospectus is December 17, 1997.
<PAGE>

[Graphic: A representation of the Tier Migration solution methodology,
indicating each of its four phases, Business Assessment and Scoping,
Application Effectiveness Scoring, IT Strategy, Architecture and Prototyping
and Information Technology Implementation.]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS B COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

The Company has applied for the registered servicemark "Tier Technologies."
All trademarks and trade names referred to in this Prospectus are the property
of their respective owners.
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Investors should carefully consider the
risk factors related to the purchase of Class B Common Stock of the Company.
See "Risk Factors."

THE COMPANY

Applying the Tier Migration Solution, the Company first assesses a client's
existing business processes and defines the scope of the project, including a
determination of the client's expectations for quantifiable business
improvement. The Company then analyzes the client's existing IT system to
determine which areas would benefit the most from the application of new
technologies. When this assessment is completed, Tier develops a specific IT
strategy that uses a system architecture consistent with the client's existing
environment. Tier then implements the recommended IT strategy. The Company
applies the Tier Migration Solution to all client projects in combination with
a formal internal risk assessment program that enables the Company to manage
and benchmark projects on an on-going basis.

Through its ten offices located in the United States, the United Kingdom and
Australia, the Company works closely with its clients to determine, evaluate
and implement an IT strategy that allows the Company to rapidly adopt, deploy
and transfer emerging technologies in a cost-effective manner. Tier combines
its significant understanding of enterprise-wide IT systems with expertise in
vertical industries, such as healthcare, financial services and government
services, to provide clients with rapid and flexible migration solutions. The
Company's clients consist primarily of Fortune 1000 companies with information-
intensive businesses and government entities with large volume information and
technology needs, including Kaiser Foundation Health Plan, Inc., Equifax Europe
(UK) Ltd., the State of Missouri and the Commonwealth of Australia.

The Company seeks to become the leading provider of comprehensive IT
migration solutions to Fortune 1000 companies and large government entities.
The Company's strategy includes the following elements: (i) concentrate on
migration opportunities; (ii) develop strategic partnerships; (iii) pursue
strategic acquisitions; (iv) expand into key vertical markets; (v) expand its
geographic presence; and (vi) attract highly skilled employees. This strategy
has allowed the Company to increase revenues from $11.8 million in the nine
months ended September 30, 1996 to $22.5 million in the nine-month fiscal year
ended September 30, 1997. The Company's workforce has grown from 54 on January
1, 1995 to 231 on September 30, 1997.

From December 1996 through September 1997, Tier acquired five IT service
providers for a total cost of $2.7 million, excluding future contingent
payments, to broaden its client base, acquire additional technical expertise
and supplement human resources in key vertical markets. The Company believes
these acquisitions have enabled it to gain access to international labor
markets and to compete effectively for highly skilled employees who have
particular geographic preferences.

3
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THE OFFERING

<TABLE>
<S> <C>
Class B Common Stock offered by:
The Company.......................... 2,725,000 shares
The Selling Shareholders............. 675,000 shares
Common Stock to be outstanding after
the offering(1)....................... 1,639,762 shares of Class A Common Stock
7,156,191 shares of Class B Common Stock
Use of proceeds........................ To retire indebtedness and for working
capital and general corporate purposes.
Nasdaq National Market symbol.......... TIER
</TABLE>
- --------
(1) Excludes 20,000 shares of Class A Common Stock issuable upon the exercise
of outstanding stock options (at an exercise price of $3.58 per share) and
1,713,075 shares of Class B Common Stock issuable upon the exercise of
outstanding stock options (at a weighted average exercise price of $3.94
per share) under the Company's Amended and Restated 1996 Equity Incentive
Plan. See Note 7 of Notes to Consolidated Financial Statements.

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NINE-MONTH
NINE MONTHS FISCAL YEAR
YEAR ENDED DECEMBER 31, ENDED ENDED
--------------------------------- SEPTEMBER 30, SEPTEMBER 30,
1993 1994 1995 1996 1996 1997(1)
------- ------- -------- -------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Revenues................ $ 3,651 $ 5,597 $ 12,373 $ 16,197 $ 11,790 $ 22,479
Cost of revenues........ 3,026 4,419 9,066 11,616 8,669 14,917
------- ------- -------- -------- -------- --------
Gross profit............ 625 1,178 3,307 4,581 3,121 7,562
Costs and expenses:
Selling and marketing.. 37 272 627 975 577 1,836
General and
administrative........ 369 816 1,560 2,574 1,774 4,397
Depreciation and
amortization.......... 14 18 45 80 56 274
------- ------- -------- -------- -------- --------
Income from operations.. 205 72 1,075 952 714 1,055
Interest income and
expense, net........... 16 17 61 74 50 99
------- ------- -------- -------- -------- --------
Income before income
taxes.................. 189 55 1,014 878 664 956
Provision for income
taxes.................. - - 570 351 266 384
------- ------- -------- -------- -------- --------
Net income.............. $ 189 $ 55 $ 444 $ 527 $ 398 $ 572
======= ======= ======== ======== ======== ========
Net income per
share(2)............... $ 0.02 $ -- $ 0.04 $ 0.07 $ 0.05 $ 0.08
======= ======= ======== ======== ======== ========
Shares used in computing
net income per
share(2)............... 12,138 13,068 12,199 7,126 7,357 6,735
======= ======= ======== ======== ======== ========
</TABLE>

4
<PAGE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(3)(4)
------ ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash.................................... $ 106 $ 204 $ 17,977
Working capital......................... 2,234 2,332 21,326
Total assets............................ 10,823 10,921 28,683
Total long-term debt, less current
portion................................ 1,608 1,608 82
Total shareholders' equity.............. 4,163 4,261 24,781
</TABLE>
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(1) In September 1997, the Company changed its fiscal year end to September 30.
(2) Computed on the basis described in Note 1 of Notes to Consolidated
Financial Statements.
(3) Adjusted to give effect to (i) the conversion of the Series A Convertible
Preferred Stock (the "Series A Preferred Stock") into 420,953 shares of
Class B Common Stock; and (ii) the exercise of options to purchase 30,000
shares of Class B Common Stock by certain Selling Shareholders prior to
this offering at an exercise price of $3.25 per share in order to sell such
shares in this offering.
(4) Adjusted to give effect to (i) the sale of 2,725,000 shares of Class B
Common Stock by the Company in this offering and the application of the
estimated net proceeds therefrom; and (ii) the repayment of approximately
$131,000 of indebtedness and accrued interest by certain Selling
Shareholders.

----------------

Except as otherwise noted, all information in this Prospectus assumes (i) no
exercise of the Underwriters' over-allotment option; (ii) the conversion of the
Company's outstanding Series A Preferred Stock into 420,953 shares of Class B
Common Stock upon the consummation of this offering; (iii) the automatic
conversion of 645,000 shares of Class A Common Stock offered by the Selling
Shareholders into shares of Class B Common Stock upon the sale thereof pursuant
to the Company's Amended and Restated Articles of Incorporation (the
"Articles"); and (iv) the exercise of options to purchase 30,000 shares of
Class B Common Stock by certain Selling Shareholders prior to this offering in
order to sell such shares in this offering. This Prospectus contains forward-
looking statements which involve risks and uncertainties. The Company's actual
results may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk Factors."

5
<PAGE>

RISK FACTORS

The following risk factors should be considered carefully in addition to the
other information in this Prospectus before purchasing the Class B Common
Stock offered by this Prospectus. Except for the historical information
contained herein, the discussion in this Prospectus contains certain forward-
looking statements that involve risks and uncertainties. When used in this
Prospectus, the words "believes," "expects," "anticipates," "intends,"
"estimates," "should," "will likely" and similar expressions are intended to
identify such forward-looking statements. The cautionary statements made in
this Prospectus should be read as being applicable to all related forward-
looking statements wherever they appear in this Prospectus. The Company's
actual results could differ materially from those discussed here. Important
factors that could cause or contribute to such differences include those
discussed below, as well as those discussed elsewhere herein.

Variability of Quarterly Operating Results. The Company's 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 the Company is engaged; the contractual terms and degree of
completion of such projects; competitive pressures on pricing of the Company's
services; any delays incurred in connection with, or early termination of, a
project; employee utilization rates; the adequacy of provisions for losses;
the accuracy of estimates of resources required to complete ongoing projects;
demand for the Company's services generated by strategic partnerships and
certain prime contractors; the Company's ability to increase both the number
and size of engagements from existing clients; and economic conditions in the
vertical and geographic markets served by the Company. Due to the relatively
long sales cycles for the Company's 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 the
Company's ability to attract, on a timely basis, and retain skilled personnel.
A high percentage of the Company's operating expenses, particularly personnel
and rent, are fixed in advance. Changes in the number, scope, duration or
progress toward completion, of the Company's projects or in employee
utilization rates would cause significant variations in operating results in
any particular quarter. In addition, the Company typically reaches the annual
limitation on its FICA contributions for many of its 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. Therefore, the
Company believes that period-to-period comparisons of its 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 the Class B
Common Stock. Due to the foregoing factors, among others, the Company's
operating results will from time to time be below the expectations of the
analysts and investors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Concentration of Revenues; Dependence on Large Projects; Risk of
Termination. The Company has derived, and believes that it will continue to
derive, a significant portion of its revenues from a limited number of large
client projects. For the nine-month fiscal year ended September 30, 1997, the
State of Missouri, Kaiser Foundation Health Plan, Inc. ("Kaiser") and Unisys
Corporation ("Unisys") accounted for 22.3%, 21.1% and 19.7% of the Company's
revenues, respectively. Kaiser accounted for 59.3% and 68.1% of the Company's
revenues in 1996 and 1995, respectively, while Unisys accounted for 14.6% of
the Company's revenues in 1996. The volume of work performed for specific
clients is likely to vary from year to year, and a major client in one year
may not use the Company's services in a subsequent year. 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 could have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, the amount of the Company's services required by any of its clients
can be adversely affected by a number of factors, including technological
developments and the internal budget cycles of such clients. As a result of
the Company's focus in specific vertical markets, economic and other
conditions that affect these industries could lead to a reduction in capital
spending on IT

6
<PAGE>

projects, government spending cuts or general budgetary constraints, any of
which would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business -
Clients."

Need to Attract and Retain Professional Staff. The Company's success will
depend in large part upon its 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 the Company offers. 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, the Company requires that a significant number of its employees
travel to client sites to perform services on its behalf, which may make a
position with the Company less attractive to potential employees. There can be
no assurance that a sufficient number of skilled employees will continue to be
available to the Company, or that the Company will be successful in training,
retaining and motivating current or future employees. The Company's inability
to attract, retain and train skilled employees or failure of its employees to
achieve expected levels of performance could impair the Company's ability to
adequately manage and staff its existing projects and to bid for or obtain new
projects, which would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Human Resources."

Dependence on Key Personnel. The Company's success will depend in large part
upon the continued services of a number of key employees, including its Chief
Executive Officer and Chairman of the Board of Directors, James L. Bildner,
and its President and Chief Operating Officer, William G. Barton. The loss of
the services of either of Messrs. Bildner or Barton or of one or more of the
Company's other key personnel could have a material adverse effect on the
Company's business. Although the Company has entered into employment
agreements with each of Messrs. Bildner and Barton, either of them may
terminate their employment agreement at any time. If one or more of the
Company's key employees resigns from the Company 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 the Company's business, financial condition and results of
operations. In the event of the loss of any such personnel, there can be no
assurance that the Company would be able to prevent the unauthorized
disclosure or use of its technical knowledge, practices or procedures by such
personnel. See "Business -- Intellectual Property Rights" and "Management --
Employment Agreements."

Control by Principal Shareholders; Voting Trust. All of the holders of Class
A Common Stock have entered into a voting trust (the "Voting Trust") with
respect to their shares of Class A Common Stock, which represents 69.6% of the
Common Stock voting power after this offering. 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 the election of a majority of the Company's directors, proxy
contests, mergers involving the Company, tender offers, open-market purchase
programs or other purchases of Common Stock that could give holders of the
Company's 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
concentration of voting control could have the effect of delaying or
preventing a change in control of the Company and may affect the market price
of the Class B Common Stock. The holders of the Class A Common Stock also hold
a number of shares of Class B Common Stock that will represent 45.3% of the
shares of Class B Common Stock outstanding after this offering. If such
holders vote their shares of Class B Common Stock as a block, it is likely
they will initially be able to elect all of the directors to be elected solely
by the holders of the Class B Common Stock. In addition, as authorized by the
California Corporations Code and based upon provisions in the Company's
Amended and Restated Bylaws (the "Bylaws") and the concentration of voting
control, Messrs. Bildner and Barton may take any action which may be taken at
any meeting of shareholders, subject to certain exceptions related to the
election of

7
<PAGE>

directors, by written consent without formally convening a meeting of
shareholders. In addition, the Articles and 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 that the Company has equity securities
listed on Nasdaq and has 800 or more holders of its equity securities. See
"Description of Capital Stock." In addition, holders of an aggregate of
779,762 shares of Class A Common Stock have entered into agreements with the
Company which may restrict their ability to transfer shares of Class A Common
Stock following termination of employment with the Company. Such agreements
would effectively delay the conversion of such shares of Class A Common Stock
and may perpetuate the control of the Company by the Voting Trustees.

Benefits of this Offering to Existing Shareholders. The existing
shareholders of the Company will benefit from the creation of a public market
for the shares of Class B Common Stock held by them after the closing of this
offering. There can be no assurance that an active public market for the Class
B Common Stock will develop after this offering or that the market price of
the Class B Common Stock will not decline below the initial public offering
price. The Selling Shareholders will receive gross proceeds of approximately
$5.7 million from the sale of 675,000 shares of Class B Common Stock offered
by them hereby, which will result in an aggregate gain of approximately $5.5
million over the acquisition price of such shares. Following the closing of
this offering, the existing shareholders of the Company will hold a total of
5,395,953 shares of Class A and Class B Common Stock having an estimated
aggregate value equal to approximately $45.9 million at the time of this
offering, which will result in an estimated aggregate unrealized gain at that
time of approximately $41.3 million over the acquisition price of such shares.
See "-- No Prior Public Market; Potential Volatility of Stock Price" and
"Dilution."

Risks Associated with Rapid Technological Advances. The Company's success
will depend in part on its 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 the Company will be
successful in developing such IT solutions in a timely manner or that if
developed the Company will be successful in the marketplace. Delay in
developing or failure to develop new IT solutions would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Strategy."

Risks Associated with Possible Acquisitions. A principal component of the
Company's business strategy is to grow by acquiring additional businesses to
expand its presence in new or existing markets. From December 1996 through
September 1997, the Company acquired five businesses. There can be no
assurance that the Company will be able to identify, acquire or profitably
manage additional businesses or to integrate successfully any acquired
businesses into the Company without substantial expense, delay or other
operational or financial problems. Acquisitions may also 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, or other unanticipated events or circumstances, any of
which could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
any acquired business will achieve anticipated revenues and operating results.
The failure of the Company to manage its acquisition strategy successfully
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Acquisitions," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Strategy."

Management of Growth. The Company's growth has placed, and is expected to
continue to place, significant demands on its management, financial, staffing
and other resources. The Company has expanded geographically by opening new
offices domestically and abroad, and intends to open additional offices. The
Company's ability to manage its growth effectively will require it to continue
to develop and improve its operational, financial and other internal systems,
as well as its business development

8
<PAGE>

capabilities, and to train, motivate and manage its employees. In addition,
the Company's future success will depend in large part upon its ability to
continue to estimate project parameters accurately, to maintain employee
utilization rates and project quality and to meet delivery dates, particularly
if the average size and number of the Company's projects continues to
increase. If the Company is unable to manage its growth and projects
effectively, such inability would have a material adverse effect on the
quality of the Company's services, its ability to retain key personnel, and
its business, financial condition and results of operations. There can be no
assurance that the Company's rate of growth will continue or that the Company
will be successful in managing any such growth. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

Risks Associated with Partnerships; Risk of Termination or
Nonperformance. The Company has entered into written arrangements or
understandings with certain technology and service providers pursuant to which
the providers have agreed that the Company is, or will be, the exclusive, or
one of a small number of, preferred systems integrators for that provider's
clients within specific market segments or geographic areas. These
arrangements are typically of limited duration, include broad exceptions to
each party's obligations and are terminable by either party following limited
notice and without significant penalty. Certain of these arrangements contain
provisions whereby the provider agrees to utilize a specified number of the
Company's consultants or agrees to provide the Company with business
opportunities resulting in specified revenues. There can be no assurance that
any of these arrangements will result in the future utilization of the
Company's consultants, additional business opportunities or additional
revenues. There also can be no assurance that any business opportunities that
do result from these arrangements will be on terms ultimately satisfactory or
profitable to the Company. The cancellation or a significant reduction in the
scope of any of these arrangements, or the refusal or inability of a provider
to meet its obligations under the relevant arrangement, would have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, in the government services market, the Company often
joins with another organization, such as Unisys, to obtain engagements. In
these engagements, the Company is a subcontractor to the prime contractor of
the engagement. There can be no assurance that actions or failures
attributable to the prime contractor of such engagements will not also
negatively affect the Company's business, financial condition or results of
operations. See "Business -- Strategy" and "-- Clients."

Project Risks; Liability to Clients; Client Dissatisfaction. Many of the
Company's engagements involve projects which are critical to the operations of
its clients' businesses and provide benefits that may be difficult to
quantify. The failure of the Company, or of the prime contractor on an
engagement in which the Company is a subcontractor, to meet a client's
expectations in the performance of its services could damage the Company's
reputation and adversely affect its ability to attract new business, and could
have a material adverse effect upon its business, financial condition and
results of operations. The Company has undertaken, and may in the future
undertake, projects in which the Company guarantees 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, the
Company, which could have a material adverse effect upon its business,
financial condition and results of operations. In addition, unanticipated
delays could necessitate the use of more resources than initially budgeted by
the Company for a particular project, which also could have a material adverse
effect upon its business, financial condition and results of operations. Any
failure in a client's system could result in a claim for substantial damages
against the Company, regardless of the Company's responsibility for such
failure. There can be no assurance that the limitations of liability set forth
in the Company's service contracts will be enforceable or will otherwise
protect the Company from liability for damages. Although the Company maintains
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 of one or more claims against the
Company that exceed available insurance

9
<PAGE>

coverage or changes in the Company's insurance policies, including premium
increases or the imposition of large deductible or co-insurance requirements,
would adversely affect the Company's business, financial condition and results
of operations. See "Business -- Representative Engagements" and "-- Clients."

Reliance on Government Contracts; Risk of Termination. For the nine-month
fiscal year ended September 30, 1997, 45.1% of the Company's revenues were
derived from sales to government agencies. A significant reduction in
government funds available for agencies or departments to which Tier supplies
IT services, either due to budget cuts or the imposition of budgetary
constraints, or a determination by the particular federal, state or foreign
government that funding of such agencies or departments should be reduced or
discontinued, would have a material adverse effect on the Company's 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 the Company's business,
financial condition and results of operations. See "Business -- Sales and
Marketing" and "-- Clients."

Fixed Price Contracts; Budget Overruns. During fiscal 1996 and the nine-
month fiscal year ended September 30, 1997, 1.4% and 12.4%, respectively, of
the Company's revenues were generated on a fixed price basis, rather than on a
time and materials basis. The Company's failure to estimate accurately the
resources required for a fixed price project or its failure to complete its
contractual obligations in a timely manner consistent with the project plan
upon which its fixed price contract is based could have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, the Company may establish prices before project
design specifications are finalized, which could result in a fixed price that
proves to be too low and therefore adversely affects the Company's business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

Substantial Competition. The IT services market is highly competitive and is
served by numerous international, national and local firms. Market
participants include systems consulting and integration firms, including
national accounting firms and related entities, the internal information
systems groups of its 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 the Company. In
addition, there are relatively low barriers to entry into the IT services
market, and the Company has faced, and expects to continue to face, additional
competition from new entrants into the IT services market.

The Company believes that the principal competitive factors in the IT
services market include reputation, project management expertise, industry
expertise, speed of development and implementation, technical expertise,
competitive pricing, and the ability to deliver results on a fixed price as
well as a time and materials basis. The Company believes that its ability to
compete also depends in part on a number of competitive factors outside its
control, including the ability of its 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 its clients to perform the
services themselves; and the extent of its competitors' responsiveness to
client needs. There can be no assurance that the Company will be able to
compete effectively on pricing or other requirements with current and future
competitors or that competitive pressures will not cause the Company's
revenues or income to decline or otherwise materially adversely affect its
business, financial condition and results of operations. See "Business --
Competition."

Intellectual Property Rights; Limited Protection; Inability to Resell or
Reuse Rights. The Company relies on a combination of trade secrets,
nondisclosure and other contractual arrangements, and copyright and trademark
laws to protect its intellectual property rights. The Company enters into
confidentiality agreements with its employees, generally requires that its
consultants and clients enter into such agreements and limits access to its
proprietary information. There can be no assurance that the steps taken by the
Company in this regard will be adequate to avoid the loss or misappropriation
of its proprietary information, or that the Company will able to detect
unauthorized use of such information and take appropriate steps to enforce its
intellectual property rights.

10
<PAGE>

A portion of the Company's 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. The Company also develops 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 the Company 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. 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 the Company's ability to resell or reuse
such software and application frameworks.

Although the Company believes that its 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 the Company in the future, or that
if asserted, any such claim will be successfully defended. See "Business --
Intellectual Property Rights."

Risks of Conducting International Operations. International operations in
Australia and the United Kingdom accounted for 13.7% of the Company's total
revenues for the nine-month fiscal year ended September 30, 1997. In addition,
a significant portion of the Company's sales are to large multinational
companies. To meet the needs of such companies, both domestically and
internationally, the Company must provide worldwide services, either directly
or indirectly. As a result, the Company intends to expand its existing
international operations and enter additional international markets, which
will require significant management attention and financial resources and
could adversely affect the Company's operating margins and earnings. In order
to expand international operations, the Company will need to hire additional
personnel and develop relationships with potential international clients
through acquisition or otherwise. To the extent that the Company is unable to
do so on a timely basis, any growth of the Company in international markets
would be limited, and the Company's business, financial condition and results
of operations would be materially and adversely affected.

The Company's 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. The Company does not currently engage in hedging
transactions. There can be no assurance that these factors will not have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Shares Eligible for Future Sale. Sales of substantial amounts of Class B
Common Stock in the public market following this offering could have a
material adverse effect on the market price of the Class B Common Stock. The
3,400,000 shares of Class B Common Stock offered hereby will be freely
tradable without restriction under the Securities Act of 1993, as amended (the
"Securities Act"). Each of the Selling Shareholders and certain other
shareholders, who will, upon the closing of the offering, hold an aggregate of
779,762 shares of Class A Common Stock and 2,413,812 shares of Class B Common
Stock, and options to purchase a total of 410,000 shares of Class B Common
Stock, has agreed that they will not offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock owned beneficially by them for
365 days after the date of this Prospectus, subject to certain exceptions.
Each executive officer, director, current shareholder or optionee, other than
the Selling Shareholders and certain other shareholders, who will, upon the
closing of this offering, hold an aggregate of 860,000 shares of Class A
Common Stock and 1,342,379 shares of Class B Common Stock and options to
purchase a total of 20,000 shares of Class A Common Stock and a total of
1,303,075 shares of Class B Common Stock, has agreed that they will not offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock
owned beneficially by them for a period of 180 days after the date of this
Prospectus, subject to certain exceptions. To the extent that a significant
portion of such shares are sold by the holders thereof, such sales may
adversely affect the market price of the Class

11
<PAGE>

B Common Stock. Pursuant to an agreement between the Company and the holders
of 420,953 shares of Class B Common Stock, such holders are entitled to
certain demand and piggyback registration rights with respect to such shares.
If such holders, by exercising their demand registration rights, cause a large
number of shares to be registered and sold in the public market, such sales
could have an adverse effect on the market price for the Class B Common Stock.
If the Company were required to include in a Company-initiated registration
shares held by such holders pursuant to the exercise of their piggyback
registration rights, such sales may have an adverse effect on the Company's
ability to raise needed capital. After completion of this offering, the
Company intends to file a Form S-8 registration statement under the Securities
Act to register all shares of Class B Common Stock issuable under the
Company's Amended and Restated 1996 Equity Incentive Plan and the Employee
Stock Purchase Plan. See "Description of Capital Stock -- Registration Rights"
and "Shares Eligible for Future Sale."

Unspecified Use of Proceeds. The principal purposes of this offering are to
increase the Company's working capital and financial flexibility, to repay
certain indebtedness, to facilitate future access by the Company to public
equity markets and to provide increased visibility, credibility and name
recognition for the Company in a marketplace where many of its competitors are
publicly held companies. The Company has not yet identified specific uses for
a majority of the net proceeds, and, pending such uses, the Company expects
that it will invest such net proceeds in short-term, interest-bearing
investment-grade securities. Accordingly, the Company's management will have
broad discretion as to the use of such net proceeds without any action or
approval of the Company's shareholders. See "Use of Proceeds."

No Prior Public Market; Potential Volatility of Stock Price. Prior to this
offering there has been no public market for the Class B Common Stock. There
can be no assurance that an active public market for the Class B Common Stock
will develop after this offering or that the market price of the Class B
Common Stock will not decline below the initial public offering price.

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 the
Company or its competitors, general conditions in the IT industry or the
industries in which Tier's 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 the Company's business, financial condition and results of
operations. Any adverse determination in such litigation could also subject
the Company to significant liabilities. There can be no assurance that such
litigation will not be instituted in the future with respect to the Company.

Issuance of Preferred Stock; Potential Adverse Effects to Holders of 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 the
Company's shareholders. The Preferred Stock could be issued with voting,
liquidation, dividend and other rights superior to the rights of the Class B
Common Stock. The potential issuance of Preferred Stock may delay or prevent a
change in control of the Company, 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 the Common Stock. See
"Description of Capital Stock -- Preferred Stock."

Immediate and Substantial Dilution. Investors who purchase shares of Class B
Common Stock in this offering will incur immediate dilution in pro forma net
tangible book value of $5.88 per share. See "Dilution."

No Dividends. The Company has never declared or paid cash dividends on its
capital stock and does not anticipate paying any cash dividends in the
foreseeable future. See "Dividend Policy."

12
<PAGE>

THE COMPANY

Tier was incorporated in the State of California in 1991. The Company
maintains its principal executive offices at 1350 Treat Boulevard, Suite 250,
Walnut Creek, California 94596. The Company's telephone number is (510) 937-
3950.

ACQUISITIONS

From December 1996 through September 1997, the Company made five strategic
acquisitions for a total cost of $2.7 million, excluding future contingent
payments, all of which were structured and accounted for as asset purchases.
Acquisition prices were determined based on arm's length negotiations with
unaffiliated third parties. Factors considered by the Company in making such
determinations included geographic opportunities, consulting resources and
strategic client relationships offered through the acquisition.

On December 16, 1996, the Company acquired certain assets and liabilities of
Chicago Consulting Alliance, LLC ("CCA"). CCA was based in Chicago, Illinois
and provided consulting services for the custom design of software and
computer systems for business applications. The CCA acquisition allowed the
Company to expand its geographic and client base into the Chicago market. The
cost of the acquisition was $170,000.

On December 31, 1996, the Company acquired certain assets and liabilities of
Encore Consulting, Inc. ("Encore"), a Missouri-based corporation, which
provided consulting services for computer systems integration under a
government contract. The Encore acquisition added to Tier's established state
government IT practice. The cost of the acquisition totalled $934,000. A
$150,000 contingent payment is payable by the Company upon the second year's
renewal of this contract.

On January 2, 1997, the Company acquired certain assets and liabilities of
Five Points Consulting, LLC, ("Five Points") which was based in Atlanta,
Georgia. Five Points provided custom designed software and computer systems
for special business applications. Tier acquired Five Points for its
technological expertise with Java, as well as to expand into the southeastern
United States. The cost of the acquisition totalled $284,000.

On March 10, 1997 the Company acquired certain assets and liabilities of
Tangent Group, Pty, Limited, ("Tangent Group") an Australian entity which
provided computer systems consulting services. The Tangent Group acquisition
provided Tier with a local base to support its Australian IT practice and a
foundation for Tier's resource and recruiting needs for a project being
conducted for the Australian federal government. The cost of the acquisition
totalled $488,000. In addition, the Company will pay at least $120,000 in
royalties over the first two-year period following the acquisition. The
royalty is based on 3.0% of the Company's gross revenues generated by its
Australian operations. The maximum amount of royalties to be paid over the
first three-year period following the acquisition is approximately $240,000.

On July 11, 1997, the Company acquired certain assets and liabilities of
Albanycrest Limited, ("Albanycrest"), a United Kingdom private limited
company, which provided information and management consulting services on the
design of software and computer systems. The Albanycrest acquisition added to
Tier's financial services expertise and provided a platform for the expansion
of Tier's international practice into the United Kingdom and Europe. The
purchase price totalled $868,000. Contingent payments of up to $407,000 will
be paid if certain performance criteria are met.

While the Company in the ordinary course of business regularly evaluates and
enters into negotiations relating to potential acquisition opportunities, as
of the date of this Prospectus, there are no existing commitments or
agreements with respect to any future acquisitions.

13
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,725,000 shares of
Class B Common Stock offered by the Company hereby, after deducting the
estimated underwriting discounts and estimated offering expenses payable by
the Company, are estimated to be approximately $20.4 million. The Company will
not receive any proceeds from the sale of shares by the Selling Shareholders.
See "Principal and Selling Shareholders."

The Company intends to use a portion of the net proceeds from this offering
to repay all borrowings under its credit facility, which totaled $3.5 million
at November 10, 1997 (borrowings totaled $2.8 million at September 30, 1997).
As of November 10, 1997, the revolving and term components of the current
credit facility bore interest at 10.00% and 10.25% per annum, respectively,
and mature in December 1998. Following such repayment, the Company will
maintain the credit facility through its term to fund future financing
requirements. The Company has used the proceeds from borrowings to fund
working capital requirements, the growth of the business and selective
acquisitions. For a description of the terms of the credit facility, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The Company intends to use the
remaining net proceeds from this offering for working capital and other
general corporate purposes, which may include the acquisition of capital
equipment and leasehold improvements totaling approximately $800,000. In the
normal course of business, the Company evaluates potential acquisitions of
businesses that would complement or expand the Company's business. A portion
of the net proceeds may be used for one or more such acquisitions, although
the Company has no present commitments or agreements with respect to any such
acquisitions and no portion of the net proceeds has been allocated for any
specific acquisition. Pending such uses, the Company intends to invest the
remaining net proceeds of this offering in investment-grade securities,
including short-term, interest-bearing money market funds.

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its Common Stock.
The Company's credit facility contains restrictions on the Company's ability
to pay cash dividends. The Company currently intends to retain future
earnings, if any, to fund the development and growth of its business and does
not anticipate paying any cash dividends in the foreseeable future.

14
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1997 on an actual, pro forma and pro forma as adjusted basis.
The capitalization information set forth in the table below is qualified by
the more detailed Consolidated Financial Statements and Notes thereto include
elsewhere in this Prospectus, and should be read in conjunction with such
Consolidated Financial Statements and Notes.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
------ ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt(3)...................... $1,316 $1,316 $ 84
====== ====== =======
Long-term debt, less current
portion(3)............................. $1,608 $1,608 $ 82
------ ------ -------
Shareholders' equity:
Preferred stock, no par value per
share, 5,000,000 shares authorized
and 420,953 shares issued and
outstanding, actual; 4,579,047 shares
authorized and none outstanding, pro
forma and pro forma as adjusted...... 1,892 - -
Class A common stock, no par value,
2,304,762 shares authorized and
2,284,762 shares issued and
outstanding, actual and pro forma;
1,659,762 authorized and 1,639,762
issued and outstanding pro forma as
adjusted(4).......................... 1,649 1,649 1,638
Class B common stock, no par value,
12,600,000 shares authorized and
3,335,238 shares issued and
outstanding, actual; 42,600,000
shares authorized and 3,786,191
shares issued and outstanding pro
forma and 7,156,191 shares issued and
outstanding pro forma as
adjusted(4).......................... 1,299 3,289 23,700
Notes receivable from shareholders.... (2,253) (2,253) (2,133)
Foreign currency translation
adjustment........................... (40) (40) (40)
Retained earnings..................... 1,616 1,616 1,616
------ ------ -------
Total shareholders' equity.......... 4,163 4,261 24,781
------ ------ -------
Total capitalization.............. $5,771 $5,869 $24,863
====== ====== =======
</TABLE>
- --------

(1) Adjusted to give effect to (i) the conversion of the Series A Preferred
Stock into 420,953 shares of Class B Common Stock; (ii) the exercise of
options to purchase 30,000 shares of Class B Common Stock by certain
Selling Shareholders prior to this offering at an exercise price of $3.25
per share in order to sell such shares in this offering; and (iii) the
approval by the Company's Board of Directors and shareholders of an
increase in the authorized number of shares of Class B Common Stock to
42,600,000.
(2) Adjusted to give effect to (i) the sale of 2,725,000 shares of Class B
Common Stock offered by the Company hereby and the application of the
estimated net proceeds therefrom; and (ii) the repayment of approximately
$131,000 of indebtedness and accrued interest by certain Selling
Shareholders.
(3) See Notes 4, 5 and 6 of Notes to Consolidated Financial Statements.
(4) Based on the number of shares outstanding as of September 30, 1997.
Excludes (i) 20,000 shares of Class A Common Stock issuable upon the
exercise of outstanding options (at an exercise price of $3.58 per share);
and (ii) 1,713,075 shares of Class B Common Stock issuable upon the
exercise of outstanding stock options under the Company's Amended and
Restated 1996 Equity Incentive Plan (the "Plan") (at a weighted average
exercise price of $3.94 per share). Also excludes 1,246,258 shares of
Class B Common Stock reserved for issuance under the Plan and 100,000
shares of Class B Common Stock reserved for issuance under the Company's
Employee Stock Purchase Plan. See "Equity Incentive Plans" and Note 7 to
Notes to Consolidated Financial Statements and Management."

15
<PAGE>

DILUTION

The pro forma net tangible book value of the Common Stock as of September
30, 1997 was approximately $2.5 million or $0.41 per share. Pro forma net
tangible book value per share represents the Company's total tangible assets
less total liabilities, divided by the total number of shares of Common Stock
outstanding assuming the conversion of the outstanding shares of Series A
Preferred Stock into shares of Class B Common Stock.

After giving effect to the sale of the 2,725,000 shares of Class B Common
Stock by the Company offered hereby and the receipt of the net proceeds
therefrom, the pro forma net tangible book value of the Company as of
September 30, 1997 would have been approximately $23.0 million or $2.62 per
share. This represents an immediate increase in pro forma net tangible book
value of $2.21 per share to existing shareholders and an immediate dilution in
pro forma net tangible book value of $5.88 per share to purchasers of Class B
Common Stock in this offering. The following table illustrates the per share
dilution as of September 30, 1997:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $8.50
Pro forma net tangible book value per share as of
September 30, 1997....................................... $0.41
Increase per share attributable to new shareholders....... 2.21
-----
Pro forma net tangible book value per share as of September
30, 1997 after the offering................................ 2.62
-----
Dilution per share to new shareholders...................... $5.88
=====
</TABLE>

The following table sets forth on a pro forma basis the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by existing shareholders and by new shareholders:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)...... 6,070,953 69.0% $ 4,641,370 16.7% $ 0.76
New shareholders.............. 2,725,000 31.0 23,162,500 83.3 8.50
--------- ----- ----------- -----
Total....................... 8,795,953 100.0% $27,803,870 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Includes 30,000 shares to be issued upon the exercise of options by
certain Selling Shareholders prior to this offering at an exercise price
of $3.25 per share.

At September 30, 1997, there were outstanding options to purchase 20,000
shares of Class A Common Stock at an exercise price of $3.58 per share and
1,713,075 shares of Class B Common Stock at a weighted average exercise price
of $3.94 per share. To the extent such options are exercised, there will be
dilution to new shareholders.

The sale of Class B Common Stock by the Selling Shareholders in this
offering will reduce the pro forma number of shares held by existing
shareholders as of September 30, 1997 to 5,395,953, or approximately 61.3% of
the total number of shares of Common Stock outstanding immediately after this
offering (58.0% if the Underwriters' over-allotment option is exercised in
full), and will increase the number of shares to be purchased by new
shareholders to 3,400,000, or approximately 38.7% of the total number of
shares of Common Stock outstanding immediately after this offering (42.0% if
the Underwriters' over-allotment option is exercised in full). See "Principal
and Selling Shareholders."

16
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The Selected Consolidated Financial Data set forth below for the years ended
December 31, 1995 and December 31, 1996, and for the nine-month fiscal year
ended September 30, 1997 have been derived from the Consolidated Financial
Statements of the Company that have been audited by Ernst & Young LLP,
independent auditors, whose report thereon is included herein. The Selected
Consolidated Financial Data presented below for the years ended December 31,
1993 and December 31, 1994 and for the nine-month period ended September 30,
1996 have been derived from the Company's unaudited consolidated financial
statements and have been prepared on the same basis and, in the opinion of
management, include all necessary adjustments, consisting only of normal
recurring adjustments that the Company considers necessary to present fairly
this information in accordance with generally accepted accounting principles.
These historical results are not necessarily indicative of the results to be
expected in the future. The Selected Consolidated Financial Data should be
read in conjunction with, and are qualified by, the Consolidated Financial
Statements and Notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE-MONTH
NINE MONTHS FISCAL YEAR
YEAR ENDED DECEMBER 31, ENDED ENDED
----------------------------- SEPTEMBER 30, SEPTEMBER 30,
1993 1994 1995 1996 1996 1997(1)
------ ------ ------- ------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
INCOME DATA:
Revenues................ $3,651 $5,597 $12,373 $16,197 $11,790 $22,479
Cost of revenues........ 3,026 4,419 9,066 11,616 8,669 14,917
------ ------ ------- ------- ------- -------
Gross profit............ 625 1,178 3,307 4,581 3,121 7,562
Costs and expenses:
Selling and marketing.. 37 272 627 975 577 1,836
General and
administrative........ 369 816 1,560 2,574 1,774 4,397
Depreciation and
amortization.......... 14 18 45 80 56 274
------ ------ ------- ------- ------- -------
Income from operations.. 205 72 1,075 952 714 1,055
Interest income and
interest expense, net.. 16 17 61 74 50 99
------ ------ ------- ------- ------- -------
Income before income
taxes.................. 189 55 1,014 878 664 956
Provision for income
taxes.................. - - 570 351 266 384
------ ------ ------- ------- ------- -------
Net income.............. $ 189 $ 55 $ 444 $ 527 $ 398 $ 572
====== ====== ======= ======= ======= =======
Net income per
share(2)............... $ 0.02 $ - $ 0.04 $ 0.07 $ 0.05 $ 0.08
====== ====== ======= ======= ======= =======
Shares used in computing
net income per
share(2)............... 12,138 13,068 12,199 7,126 7,357 6,735
====== ====== ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997
------ ------ ----- ----- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash .............................. $ 13 $ 22 $ - $ 306 $ 106
Working capital.................... 297 236 920 1,191 2,234
Total assets....................... 647 907 2,316 4,133 10,823
Long-term debt, net of current
obligations....................... - 5 156 576 1,608
Total shareholders' equity......... 330 316 686 1,028 4,163
</TABLE>
- --------
(1) In September 1997, the Company changed its fiscal year end to September
30.
(2) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of shares used in computing net income
per share.

17
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Tier provides IT consulting, application development and software
engineering services that facilitate the migration of clients' enterprise-wide
systems and applications to leading edge technologies. Through its ten offices
located in three countries, the Company works closely with its 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 installed IT
base. From its founding in 1991 through 1994, the Company provided third party
IT services through a workforce consisting primarily of independent
contractors hired to staff particular engagements. In 1995, the Company began
employing more full-time, salaried IT consultants. As of September 30, 1997,
75.6% of the Company's IT consultants were salaried employees, with the
remaining consultants being hourly contractors. The composition of its
workforce provides the Company with staffing flexibility. Revenues increased
from $11.8 million in the nine months ended September 30, 1996 to $22.5
million in the nine-month fiscal year ended September 30, 1997. The Company's
workforce has grown from 54 on January 1, 1995 to 231 on September 30, 1997.

The Company's revenues are derived primarily from professional fees billed
to clients on either a time and materials or a fixed price basis. Time and
materials revenues are recognized as services are performed. Fixed price
revenues are recognized using the percentage-of-completion method, based upon
the ratio of costs incurred to total estimated project costs. During fiscal
1996 and the nine-month fiscal year ended September 30, 1997, 1.4% and 12.4%,
respectively, of the Company's revenues were generated on a fixed price basis.
The Company's risk management committee monitors all material projects,
focusing primarily on factors such as size of revenue and credit exposure to
the Company, number of resources employed, progress against defined project
milestones, clarity of user expectations and definition of project scope.
Substantially all of Tier's contracts are terminable by the client following
limited notice and without significant penalty to the client. 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. Currently, the Company has no specific
concerns with respect to potential losses or overruns under existing
contracts.

The Company has derived, and believes that it will continue to derive, a
significant portion of its revenue 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 fiscal 1997, the State
of Missouri, Kaiser and Unisys accounted for 22.3%, 21.1% and 19.7% of the
Company's revenues, respectively.

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 management manages 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 could be materially and adversely affected.

From December 1996 through September 1997, the Company made five
acquisitions for a total cost of $2.7 million, excluding future contingent
payments, all of which were structured and accounted for as asset purchases.
These acquisitions helped to expand the Company's operations in the United
States, to establish the Company's operations in Australia and the United
Kingdom, to broaden the Company's client base and technical expertise and to
supplement its access to human resources. International operations accounted
for 13.7% of fiscal 1997 revenues. International operations may subject the
Company to foreign currency translation adjustments and transaction gains and
losses for amounts denominated in foreign currencies. The Company does not
currently engage in hedging transactions.

In September 1997, the Company changed its fiscal year end to September 30.
Fiscal year 1997 is comprised of the nine months ended September 30, 1997.

18
<PAGE>

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
NINE-MONTH
YEAR ENDED NINE MONTHS FISCAL YEAR
DECEMBER 31, ENDED ENDED
-------------- SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1997
------ ------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues.......................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................. 73.3 71.7 73.5 66.4
------ ------ ----- -----
Gross profit...................... 26.7 28.3 26.5 33.6
Costs and expenses:
Selling and marketing............ 5.0 6.0 4.9 8.1
General and administrative....... 12.6 15.9 15.0 19.6
Depreciation and amortization.... 0.4 0.5 0.5 1.2
------ ------ ----- -----
Income from operations............ 8.7 5.9 6.1 4.7
Interest income and interest
expense, net..................... 0.5 0.5 0.5 0.4
------ ------ ----- -----
Income before income taxes........ 8.2 5.4 5.6 4.3
Provision for income taxes........ 4.6 2.1 2.2 1.8
------ ------ ----- -----
Net income........................ 3.6% 3.3% 3.4% 2.5%
====== ====== ===== =====
</TABLE>

NINE-MONTH FISCAL YEAR ENDED SEPTEMBER 30, 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996

Revenues. Revenues increased 90.7% to $22.5 million for the nine-month
fiscal year ended September 30, 1997 from $11.8 million in the nine months
ended September 30, 1996. This increase resulted primarily from revenues
associated with the five acquisitions completed since December 1996, internal
growth, including $2.1 million from a significant new contract, and an
increase in billing rates for the Company's IT consultants.

Gross Profit. Cost of revenues consists of those costs directly attributable
to providing service to a client, including consultant salaries, benefits and
travel expenses. Gross profit increased 142.3% to $7.6 million for the nine-
month fiscal year ended September 30, 1997 from $3.1 million in the nine
months ended September 30, 1996. Gross margin increased to 33.6% for the nine-
month fiscal year ended September 30, 1997 from 26.5% in the nine months ended
September 30, 1996. The improvement in gross margin was primarily attributable
to an increased use of salaried employees as opposed to hourly employees,
higher billing rates, larger contracts and an increased use of fixed price
contracts.

Selling and Marketing. Selling and marketing expenses consist primarily of
personnel costs, sales commissions, product literature and participation in
conferences and trade shows. Selling and marketing expenses increased 218.2%
to $1.8 million for the nine-month fiscal year ended September 30, 1997 from
$577,000 in the nine months ended September 30, 1996. As a percentage of
revenues, selling and marketing expenses increased to 8.1% for the nine-month
fiscal year ended September 30, 1997 from 4.9% in the nine months ended
September 30, 1996. This increase was primarily attributable to the addition
of sales and marketing personnel and the Company's increased participation in
conferences and trade shows.

General and Administrative. General and administrative expenses consist
primarily of personnel costs related to general management functions, human
resources, recruiting, finance, accounting and information systems, as well as
professional fees related to legal, audit, tax and recruiting matters. General
and administrative expenses increased 147.9% to $4.4 million for the nine-
month fiscal year ended September 30, 1997 from $1.8 million in the nine
months ended September 30, 1996. As a percentage of revenues, general and
administrative expenses increased to 19.6% for the nine-month fiscal year
ended September 30, 1997 from 15.0% in the nine months ended September 30,
1996. This increase was primarily attributable to building the infrastructure
to support, manage and control the Company's growth. The Company believes that
general and administrative expenses will continue to increase as the Company
grows

19
<PAGE>

but that such expenses will decrease as a percentage of revenues as the
Company realizes economies of scale from its administrative infrastructure.

Depreciation and Amortization. Depreciation and amortization consists
primarily of costs associated with the straight line method depreciation of
equipment and improvements and amortization of certain other intangible assets
resulting from acquisitions. Depreciation and amortization increased 389.3% to
$274,000 for the nine-month fiscal year ended September 30, 1997 from $56,000
in the nine months ended September 30, 1996. As a percentage of revenues,
depreciation and amortization increased to 1.2% for the nine-month fiscal year
ended September 30, 1997 from 0.5% in the nine months ended September 30,
1996. The increase in depreciation and amortization expense was primarily due
to the depreciation associated with increased capital expenditures and the
amortization of increased intangible assets.

Interest Income and Interest Expense, Net. Interest income and interest
expense, net increased 98.0% to a net expense of $99,000 for the nine-month
fiscal year ended September 30, 1997 from a net expense of $50,000 in the nine
months ended September 30, 1996. This increase was primarily attributable to
the increase in borrowings under the Company's bank lines of credit to fund
working capital, capital expenditures and acquisitions.

Provision for Income Taxes. Provision for income taxes increased 44.4% to
$384,000 for the nine-month fiscal year ended September 30, 1997 from $266,000
in the nine months ended September 30, 1996. The effective tax rate for fiscal
1997 was 40.2%, compared to 40.0% for the nine months ended September 30,
1996.

FISCAL YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995

Revenues. Revenues increased 30.9% to $16.2 million for fiscal 1996 from
$12.4 million in fiscal 1995. This increase was primarily attributable to an
increase in billing rates, an increase in revenue from government service
contracts and the overall growth of the business.

Gross Profit. Gross profit increased 38.5% to $4.6 million for fiscal 1996
from $3.3 million in fiscal 1995. Gross margin increased to 28.3% for fiscal
1996 from 26.7% in fiscal 1995. This increase was primarily attributable to an
increased use of salaried employees rather than hourly employees, higher
billing rates, larger contracts and an increased use of fixed price contracts.

Selling and Marketing. Selling and marketing expenses increased 55.5% to
$975,000 for fiscal 1996 from $627,000 in fiscal 1995. As a percentage of
revenues, selling and marketing expenses increased to 6.0% for fiscal 1996
from 5.0% in fiscal 1995. This increase was primarily attributable to the
hiring of additional sales and marketing employees during the period.

General and Administrative. General and administrative expenses increased
65.0% to $2.6 million for fiscal 1996 from $1.6 million in fiscal 1995. As a
percentage of revenues, general and administrative expenses increased to 15.9%
for fiscal 1996 from 12.6% in fiscal 1995. This increase was primarily
attributable to building the infrastructure to support, manage and control the
Company's growth.

Depreciation and Amortization. Depreciation and amortization increased 77.8%
to $80,000 for fiscal 1996 from $45,000 in fiscal 1995. This increase was
primarily due to increased capital expenditures and the associated
depreciation.

Interest Income and Interest Expense, Net. Interest income and interest
expense, net increased 21.3% to a net expense of $74,000 for fiscal 1996 from
a net expense of $61,000 in fiscal 1995. This increase was primarily
attributable to an increase in borrowings.

Provision for Income Taxes. Provision for income taxes decreased 38.4% to
$351,000 for fiscal 1996 from $570,000 in fiscal 1995. The effective tax rate
for fiscal 1996 was 40.0% from 56.2% for fiscal 1995. The decrease in the
effective tax rate was primarily attributable to a one-time tax expense of
$165,000 taken in 1995 related to the Company's recording of deferred income
taxes upon dissolution of Tier Group, a partnership, and the transfer of
assets to the Company. Excluding this one-time tax expense, the effective tax
rate for fiscal 1995 would have been 40.0%.

20
<PAGE>

SELECTED QUARTERLY STATEMENTS OF INCOME

The following table sets forth certain unaudited consolidated quarterly
statement of income data for each of the seven quarters ending with the
quarter ended September 30, 1997. In the opinion of management, this
information has been prepared on the same basis as the audited Consolidated
Financial Statements contained herein and includes all necessary adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary to present fairly this information in accordance with generally
accepted accounting principles. This information should be read in conjunction
with the Consolidated Financial Statements of the Company and Notes thereto
appearing elsewhere in this Prospectus. The Company's operating results for
any one quarter are not necessarily indicative of results for any future
period.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
-------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
INCOME DATA:
Revenues................ $3,836 $4,068 $3,886 $4,407 $6,799 $7,343 $8,337
Cost of revenues........ 2,972 2,982 2,715 2,947 4,729 4,814 5,374
------ ------ ------ ------ ------ ------ ------
Gross profit............ 864 1,086 1,171 1,460 2,070 2,529 2,963
Costs and expenses:
Selling and
marketing............ 188 189 200 398 473 641 722
General and
administrative....... 466 609 699 800 1,207 1,531 1,659
Depreciation and
amortization......... 16 19 21 24 59 79 136
------ ------ ------ ------ ------ ------ ------
Income from operations.. 194 269 251 238 331 278 446
Interest income and
interest expense, net.. 15 17 18 24 28 33 38
------ ------ ------ ------ ------ ------ ------
Income before income
taxes.................. 179 252 233 214 303 245 408
Provision for income
taxes.................. 72 101 93 85 121 97 166
------ ------ ------ ------ ------ ------ ------
Net income.............. $ 107 $ 151 $ 140 $ 129 $ 182 $ 148 $ 242
====== ====== ====== ====== ====== ====== ======
</TABLE>

The following table sets forth certain unaudited quarterly results of
operations expressed as a percentage of revenues for each of the seven
quarters ending with the period ended September 30, 1997.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
-------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF REVENUES:
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 77.5 73.3 69.9 66.9 69.6 65.6 64.5
----- ----- ----- ----- ----- ----- -----
Gross profit............ 22.5 26.7 30.1 33.1 30.4 34.4 35.5
Costs and expenses:
Selling and
marketing............ 4.9 4.6 5.1 9.0 7.0 8.7 8.7
General and
administrative....... 12.1 15.0 18.0 18.2 17.6 20.8 19.9
Depreciation and
amortization......... 0.4 0.5 0.5 0.5 0.9 1.1 1.6
----- ----- ----- ----- ----- ----- -----
Income from operations.. 5.1 6.6 6.5 5.4 4.9 3.8 5.3
Interest income and
interest expense, net.. 0.4 0.4 0.5 0.5 0.4 0.5 0.4
----- ----- ----- ----- ----- ----- -----
Income before income
taxes.................. 4.7 6.2 6.0 4.9 4.5 3.3 4.9
Provision for income
taxes.................. 1.9 2.5 2.4 2.0 1.8 1.3 2.0
----- ----- ----- ----- ----- ----- -----
Net income.............. 2.8% 3.7% 3.6% 2.9% 2.7% 2.0% 2.9%
===== ===== ===== ===== ===== ===== =====
</TABLE>

21
<PAGE>

The Company's revenues and operating results are subject to significant
variation from quarter to quarter due to many factors, including the number,
size and scope of projects in which the Company is engaged; the contractual
terms and degree of completion of such projects; competitive pressures on the
pricing of the Company's services; any delays incurred in connection with, or
early termination of, a project; employee utilization rates; the adequacy of
provisions for losses; the accuracy of estimates of resources required to
complete ongoing projects; demand for the Company's services generated by
strategic partnerships and certain prime contractors; the Company's ability to
increase both the number and size of engagements from existing clients; and
economic conditions in the vertical and geographic markets served by the
Company. Due to the relatively long sales cycles for the Company's 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 the Company's ability to attract, on a timely
basis, and retain skilled personnel.

A high percentage of the Company's operating expenses, particularly
personnel and rent, are fixed in advance. Changes in the number, scope,
duration or progress toward completion, of the Company's projects or in
employee utilization rates would cause significant variations in operating
results in any particular quarter. In addition, the Company typically reaches
the annual limitation on its FICA contributions for many of its consultants
before the end of the calendar year. As a result, payroll taxes as a component
of cost of revenues will vary from quarter to quarter during the fiscal year
and will generally be higher at the beginning of the calendar year. As a
result, the Company believes that period-to-period comparisons of its
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
the Company's Class B Common Stock in the public market. Due to the foregoing
factors, among others, the Company's operating results will from time to time
be below the expectations of the public market analysts and investors.

LIQUIDITY AND CAPITAL RESOURCES

To date, the Company has financed its operations principally through cash
flows from operating activities, the private placement of equity securities
and proceeds from borrowings under asset-based lines of credit.

The Company's principal capital requirement is to fund working capital to
support its growth. The Company utilizes asset-based loan facilities to fund
working capital requirements. In November 1997, the Company entered into a
$5.0 million credit facility (the "New Credit Facility") that matures in
December 1998. The revolving portion of this facility allows the Company to
borrow the lesser of the sum of 80% of eligible accounts receivable or $4.5
million. The New Credit Facility also allows for up to $500,000 of borrowings
for equipment through a term facility. The New Credit Facility is secured by
all of the Company's assets and contains certain restrictive covenants,
including limitations on amounts of loans the Company may extend to officers
and employees and the incurrence of additional debt. Certain executive
officers have personally guarantied the New Credit Facility. The guarantees
terminate upon completion of this offering if the Company obtains certain debt
to tangible net worth ratios, which it expects to do. The New Credit Facility
requires the maintenance of certain financial ratios, including minimum
tangible net worth and a limit on the ratio of total liabilities to total
tangible net worth.

As of November 10, 1997, the principal amount outstanding under the New
Credit Facility, excluding outstanding checks and deposits that have been
included in the New Credit Facility balance in the Company's Consolidated
Financial Statements, was approximately $3.5 million and approximately
$600,000 remained available for borrowing. The revolving and term components
of the New Credit Facility bear interest at the bank's prime rate plus 1.50%
and 1.75% per annum, respectively. The Company intends to repay all of the
borrowings under the New Credit Facility with a portion of the proceeds from
this offering. Following such repayment, the Company will maintain the New
Credit Facility through its maturity in December 1998 to fund future financing
requirements.

22
<PAGE>

As of September 30, 1997, prior to obtaining the New Credit Facility, the
Company had a $4.3 million credit facility (the "Old Credit Facility"). The
revolving portion of this facility allowed the Company to borrow the lesser of
the sum of 85% of eligible receivables (approximately $3.1 million as of
September 30, 1997) or $3.75 million. This facility allowed for the financing
of acquisitions up to $1.5 million. The Old Credit Facility also allowed for
up to $500,000 of borrowings for equipment and software. The Old Credit
Facility was secured by all of the Company's assets and contained certain
restrictive covenants, including limitations on amounts of loans the Company
may extend to officers and employees, the incurrence of additional debt and
the payment of dividends on the Company's common or preferred stock. Certain
executive officers had personally guarantied the Old Credit Facility. The
agreement required the maintenance of certain financial ratios, including
minimum tangible net worth and a limit on the ratio of total liabilities to
total tangible net worth. At September 30, 1997, the Company was not in
compliance with the covenant limiting annual capital expenditures and had
received a letter from the bank waiving such noncompliance.

As of September 30, 1997, the principal amount outstanding under the Old
Credit Facility was $2.8 million, and approximately $900,000 remained
available for borrowing. The revolving and acquisition line components of the
Old Credit Facility, bore interest at the bank's prime rate plus 1.50% and
1.75%, per annum respectively. All borrowings under the Old Credit Facility
were repaid in November 1997 through borrowings under the New Credit Facility
and the Old Credit Facility is no longer in effect.

The Company currently plans to make additional investments in equipment and
leasehold improvements of approximately $800,000 in fiscal 1998, principally
for leasehold improvements, furniture, software, personal computers and other
technology equipment, which the Company intends to fund through working
capital, borrowings under its New Credit Facility or proceeds from this
offering.

Net cash (used in) provided by operating activities was $(177,000) in fiscal
1995, $491,000 in fiscal 1996 and $(1.7) million in the nine-month fiscal year
ended September 30, 1997. Throughout these periods, the Company experienced
increases in receivables as a result of increases in the Company's sales
volume, which were partially offset by increases in accounts payable and
accrued expenses in those periods.

Net cash used in investing activities totaled $116,000, $297,000, and $2.9
million for fiscal 1995, fiscal 1996 and the nine-month fiscal year ended
September 30, 1997, respectively. These activities consisted primarily of
purchases of equipment and leasehold improvements in fiscal 1995 and fiscal
1996. In the nine-month fiscal year ended September 30, 1997, the Company made
several acquisitions in addition to the purchase of property and equipment.

Net cash provided from financing activity totaled $271,000, $112,000, and
$4.4 million for fiscal 1995, fiscal 1996 and the nine-month fiscal year ended
September 30, 1997, respectively. In the nine-month fiscal year ended
September 30, 1997, the Company raised gross proceeds of $2.2 million through
the issuance of 420,953 shares of Series A Preferred Stock and increased its
borrowing by $2.1 million under its Old Credit Facility.

The Company anticipates that its existing capital resources, including cash
provided by operating activities and available bank borrowings, together with
the anticipated net proceeds from this offering, 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, the timing of the receipt
of accounts receivable and employee growth. To the extent that the Company's
existing capital resources, together with the anticipated net proceeds of this
offering, 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.

23
<PAGE>

BUSINESS

Tier Technologies, Inc. ("Tier" or the "Company") 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. Tier provides IT migration
solutions by applying the Tier Migration Solution, a methodology by which the
Company evaluates or "scores" the efficacy of a client's existing imbedded IT
capital against its business goals. Through its ten offices located in three
countries, the Company works closely with its 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 installed IT base. Tier combines
significant understanding of enterprise-wide IT systems with expertise in
vertical industries such as healthcare, financial services and government
services to provide clients with rapid and flexible migration solutions. By
helping clients maintain their core IT systems, Tier provides high value,
cost- effective, flexible solutions that minimize the risks associated with
migration to new technologies.

BACKGROUND

Today, large corporations and government agencies often face a number of
challenges, including a rapidly changing operating environment, intense
competitive pressures and accelerating technological change. To adapt to
change and remain competitive, these organizations have sought to harness
their intellectual and informational capital by investing in advanced IT
systems. As these organizations have become increasingly dependent on more
complex IT systems, their ability to integrate advanced technologies in a
rapid, reliable and cost-effective manner has become critical to their
success.

The migration of enterprise-wide IT systems, which is the process of
incrementally supplementing and replacing IT system components to integrate
advanced technologies, has become a key competitive strategy. This process
enables an organization to preserve the imbedded capital in its installed base
of IT systems, to obtain the benefits of technological innovations and to
mitigate some of the risks, costs and delays inherent in full system
replacements. Several forces are driving the increased use of rapid migration
strategies. As a result of the increasing pace of technological change along
with rapid changes in competitive and business environments, the useful lives
of new technologies have tended to shorten dramatically. To capture more of
the benefits of these technologies, IT projects must be designed and completed
relatively quickly or they risk being out of date upon completion.
Organizations are re-using existing IT components both to preserve the
significant imbedded capital represented by those systems and to achieve new
functionality. For example, mainframe computers are now being used as high
volume servers in distributed computing environments because of their data
storage capacity and transaction processing speeds. As the length and scope of
an IT project expands, so too does the likelihood that the project will fail
to satisfy time, cost or functionality expectations. Consequently,
organizations seek high-impact IT solutions that can be implemented quickly.

Given the complex and mission-critical nature of IT systems, many
organizations choose to outsource the development and eventual migration of
these systems to new technologies. According to Dataquest Incorporated, the
worldwide market for IT professional services was estimated to be $133 billion
in 1997, with a projected annual growth rate of over 16% through the year
1999. The Company believes that successful IT service providers will be
characterized by (i) significant experience in the migration of enterprise-
wide IT systems; (ii) an ability to adopt, deploy and transfer relevant,
emerging technologies rapidly and reliably; (iii) an understanding of the
client's industry, business and existing IT environments; (iv) successful
management of the risks inherent in large system projects; and (v) the ability
to deliver services on a global basis.

24
<PAGE>

THE TIER MIGRATION SOLUTION

Tier works closely with its 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 installed IT
base. Tier combines its significant understanding of enterprise-wide IT
systems with its expertise in vertical industries, such as healthcare,
financial services and government services, to provide clients with rapid and
flexible migration solutions to their IT needs. By helping clients to maintain
their core IT systems, Tier believes it provides high value, cost effective,
flexible solutions that minimize the risks associated with system
improvements.

The Tier Migration Solution is applied to all of the Company's projects.
Initially, the Company assesses a client's existing business processes and
clearly defines the scope of the project, including a determination of the
client's expectations for quantifiable business improvement. The Company then
analyzes the client's existing IT system to determine which areas would
benefit the most from the application of new technologies. When this
assessment is completed, Tier develops a specific IT strategy that uses a
system architecture consistent with the client's existing environment. Tier
then implements the recommended IT strategy. Throughout all phases, Tier's
risk management committee regularly evaluates the risks inherent in the
project. If the risk management committee detects areas of concern, it
investigates the matter at an early stage and takes appropriate corrective
action to mitigate potential costs and delays.

STRATEGY

Concentrate on Migration Opportunities. The Company focuses on the migration
of enterprise-wide IT systems to leading edge technologies for Fortune 1000
companies and large government entities. The Company maintains proficiency in
relevant mainstream and legacy technologies, while also developing expertise
in high demand, emerging technologies that are expected to facilitate the
Company's development and deployment of IT solutions. This strategy allows
Tier to function effectively in open architecture IT environments and to
rapidly adopt, deploy and transfer emerging technologies within existing IT
systems.

Develop Strategic Partnerships. The Company develops strategic partnerships
with service and technology providers pursuant to which Tier becomes the
exclusive or preferred system integrator related to that provider's products
or services within specific market segments or geographic areas. These
relationships offer Tier identifiable revenue opportunities. The Company
believes these relationships provide a number of competitive advantages,
including (i) enabling the Company to broaden its client base; (ii)
maintaining the Company's technological leadership through the deployment of
leading edge applications; and (iii) allowing the Company to project its
staffing needs and more fully maximize employee utilization.

Pursue Strategic Acquisitions. Tier considers potential acquisitions which
may expand the Company's presence in key geographic or vertical marketplaces,
supplement the Company's technical scope or industry expertise or allow it to
acquire additional human resources or strategic client relationships. Given
the highly fragmented nature of the IT services marketplace, the Company
believes significant acquisition opportunities exists. Since December 1996,
Tier has acquired five IT service providers in order to add three domestic and
two international locations, broaden the Company's technical expertise in
areas such as Java and expand its professional resources by 73 IT consultants.

Expand in Key Vertical Markets. The Company intends to increase its client
base and leverage its expertise by focusing its sales, marketing and
development efforts on high-value opportunities in certain vertical markets,
such as healthcare, government services, financial services, transportation
and

25
<PAGE>

telecommunications. Within those markets, Tier has developed expertise in
areas such as child welfare services, child support services and procurement
processes. The Company believes that large organizations with intensive
information processing needs provide the best near-term market opportunities
for the Company's services.

Expand Geographic Presence. The Company intends to expand its operations by
opening additional branches in targeted domestic and international locations
to augment its current operations in the United States, Australia and the
United Kingdom. Tier integrates domestic and multi-national resources to
deliver timely, cost-effective IT solutions on a local level. By expanding its
geographic presence, the Company has increased its access to international
labor markets and is able to compete more effectively for highly skilled
employees who have particular geographic preferences. The Company believes
that the local delivery of services is a significant differentiating factor
among IT service providers.

Attract Highly Skilled Employees. The Company maintains programs and
personnel to identify, hire, train and retain highly skilled IT professionals
because it believes these professionals are a critical element in its ability
to deliver high quality services to clients. The Company offers competitive
compensation and benefits including stock option and other stock-based awards,
and has developed a career advancement program that offers employees career
enrichment opportunities, individualized up-training and cross-training
programs, on-the-job learning opportunities and annual training allowances.

SERVICES AND METHODOLOGY

The Company provides IT consulting, application development and software
engineering services which facilitate the migration of its clients' existing
IT systems to leading edge technologies. These services are typically provided
on an enterprise-wide basis. Tier's methodology for providing migration
services combines the ability to evaluate or "score" the efficacy of the
client's imbedded IT capital in comparison to its stated business goals, with
a formal risk assessment program to manage and benchmark projects on an on-
going basis. Tier maintains a high level of vertical market and industry
expertise. As a result the Company is able to understand the environment and
business rules in which its clients operate. This approach allows Tier to
retain, reuse, repeat and distribute its experiential knowledge throughout the
Company and to achieve significant improvements in cost, quality and time to
deployment on client projects.

Services

The Company seeks to rapidly implement cost-effective IT solutions through a
flexible combination of one or more of the following services:

Custom Build. The Company often custom builds an IT solution or component
for the client. The Company has developed custom applications in several
vertical markets, including healthcare, financial services, transportation and
consumer products, using advanced languages such as Java, Forte, PowerBuilder
and Composer. The Company's technical professionals have implemented custom
applications on a variety of platforms and working environments, such as
mainframe, UNIX and Windows NT, using a number of databases, including Oracle,
Sybase, DB2 and Informix. Tier has also developed Internet/intranet, data
warehousing and e-commerce applications, as well as applications in the more
established mainframe and client/server environments.

Repeatable Transfer Solution. In some situations, the Company identifies
existing, transferable IT applications or components that satisfy a portion of
the client's needs. Tier addresses the client's remaining functional elements
through either custom built applications or packaged software. Transfer
solutions greatly shorten the development cycle by providing a working system
as the starting point for the IT solution. For example, between government
agencies, the Company has successfully transferred components of IT systems
that it has built to solve complex child support and welfare requirements.

26
<PAGE>

Packaged Software. When the most appropriate solution for a client is a
commercially available application package, the Company evaluates, recommends,
implements and integrates enterprise-level package applications from providers
such as NovaSoft Systems, Inc., Ariba Technologies, Inc. and Requisite
Technology, Inc. The Company has developed expertise with commercial
applications in areas such as workflow process management, document
management, operations resource management, e-commerce and procurement. Tier's
package implementation practices are organized around specific application
areas such as healthcare, financial services, transportation and procurement.

Methodology

The Company has developed the Tier Migration Solution over numerous client
engagements and relies on this methodology to provide services in various
industries and technical environments. The four-phase scaleable, repeatable
and leverageable methodology is modular in design and the various phases can
be tailored depending on the scope of a client's needs.

[LOGO OF TIER MIGRATION SOLUTION METHODOLOGY]

Phase I - Business Assessment and Scoping. The Company establishes the scope
of each project and determines expectations for quantifiable business
improvement. The Company assesses the client's current business processes,
identifies improvement opportunities and inventories the existing IT
applications and systems. Tier consultants bring industry and technical
expertise to each engagement and employ current business engineering
techniques, such as workflow analysis, process mapping, use-case analysis and
business rules definition. Typically, Tier consultants interview key
management personnel, lead group discussions, conduct workshops, review
existing business process documentation and inventory the existing application
portfolio. The work product is a business requirements and scope document that
provides a clear charter for the project and a risk management assessment map
to measure project performance throughout the project's life cycle.

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<PAGE>

Phase II - Application Effectiveness Scoring. The Company develops a
technology portfolio analysis to determine how best to leverage the client's
capital investment in its existing IT system. Tier conducts an in-depth
analysis of the existing IT application portfolio using a qualitative method
of "scoring" to determine which areas would benefit most from the application
of new technologies. The resulting matrix correlates the client's business
functions with the most suitable IT solution. Once agreed to by the client,
the application scoring matrix becomes a roadmap to assist in determining
whether to replace or re-use components of the client's existing IT system.

Phase III - IT Strategy, Architecture and Prototyping. The Company develops
a specific IT strategy to address the development, transfer or acquisition of
new IT solutions and their integration into the client's existing business
environment. Tier analyzes "buy versus build" opportunities, evaluates
potential commercial software products and identifies appropriate software
development techniques. Tier may model critical business rules to test the
underlying assumptions of the IT solution and often prepares an early look-
and-feel prototype to allow the user to visualize the resulting integrated IT
environment. Ultimately, Tier provides clients with a defined IT architecture
designed to meet the client's expectations specified at the beginning of the
engagement.

Phase IV - Information Technology Implementation. Tier implements the IT
solution. The Company employs rapid IT processes and incorporates the
Company's collective experience in managing enterprise-wide IT projects in
areas such as packaged software implementation, custom software development,
quality assurance and testing, systems integration, client testing and
acceptance, implementation and help desk support. The output of this final
phase is an implemented IT solution set. Following installation, the Company
and the client conduct a post-project assessment to evaluate the effectiveness
of the new IT solution against the business improvement goals established in
Phase I. In addition, the Company provides post-implementation services, such
as on-going software maintenance and enhancements, help desk support and
training of end users and in-house IT staff.

Across all four phases of its methodology, Tier employs a comprehensive risk
management process. The Company believes that its emphasis on risk management
is a critical component of its methodology, particularly in a market that
increasingly demands service providers to undertake large scale projects while
maintaining a high success rate. Given the importance of this process, the
Company's risk management committee (the "Committee") includes the Company's
Chief Executive, Operating and Financial Officers. Using the risk management
assessment map developed in Phase I of Tier's Migration Solution, the
Committee evaluates projects on a regular basis against a checklist of risk
factors and assigns a status that determines the frequency of intervention and
review required. The Committee focuses on the following risk factors: size of
revenue and credit exposure to the Company, number of resources employed,
progress against defined project milestones, clarity of user expectations,
definition of project scope, use of new technology, effectiveness of project
management personnel and other quantitative and qualitative measures as may be
appropriate to a particular project. If the Committee detects areas of
concern, it investigates the matter at an early stage and takes appropriate
corrective action to mitigate potential costs and delays.

REPRESENTATIVE ENGAGEMENTS

The following are examples of Tier's IT migration engagements:

Healthcare Process Improvement. In an engagement for a national HMO, Tier
completed the implementation of a Medicare compliance system that reduced the
HMO's application process cycle time from six weeks to two days, which in turn
accelerated its Medicare collections. By adding an improved input and analysis
"front end" to the HMO's existing insurance claims processing system, Tier
leveraged the most beneficial components of the HMO's existing technology
infrastructure. In a second project for the HMO, Tier developed an enterprise-
wide budget development system to allow the HMO's nationwide staff of
controllers, analysts and cost center managers to run financial simulations
and receive real-time feedback.

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<PAGE>

The project increased the quality of the client's budgets and significantly
reduced their development time. The new system was integrated with the HMO's
existing accounting and finance applications to provide a financial control
solution at a fraction of the cost of a complete system replacement. Over a
four-year period, Tier has completed more than a dozen strategic projects for
the HMO.

International Risk Management Application. Tier is currently performing a
multi-national engagement for a worldwide financial services and information
company to develop a global check authorization system. This $10 million, 18-
month project encompasses the redesign of business processes, a full migration
of application software, specifications for the selective replacement of
system hardware and the creation of a data warehouse for decision support.
Tier was chosen over its competitors for its industry expertise in process
redesign, simulation modeling, technical architecture, database design, rapid
application development, project management and its ability to rapidly
implement this complex project.

Child Welfare Case Management Solution. Tier, in conjunction with Unisys,
developed and implemented an integrated child welfare case management system
for a state government's health and human services department. By focusing on
improved workflow, integrated data management and the use of distributed
client/server technology, the Company believes the case management system will
increase the amount of time available for the case worker to work directly
with families, while also improving the quality and timeliness of information.
The case management system supports the state's child protective services
intake hotline, report investigation, case planning and outcome management and
financial and staff management.

Transportation System Solutions. Tier successfully completed a multi-phased
$1.3 million migration project for a state's department of transportation to
develop a fleet management system, including a preventive maintenance program
and a mechanized warranty system. The Company's IT solution utilized an
advanced client/server technology and leveraged components from two existing
mainframe systems. The system provides complete fleet management services to
over 200 users throughout the state. The client performed an extensive cost-
benefit analysis prior to developing the system and determined that the
improved service of the equipment will pay for the system within two years.
Tier is currently performing an $8.8 million, multi-phased client/server
project to redesign the department's multiple legacy transportation management
systems into one highly integrated decision making tool.

SALES AND MARKETING

The Company markets and sells its services through a direct sales force. As
of September 30, 1997, Tier employed ten full-time, dedicated sales and
marketing staff. In addition, the Company's senior management is closely
involved in a significant portion of the Company's sales and marketing
activities. Most of the Company's sales professionals have extensive work
experience in the IT industry, often as strategic IT consultants or managers.
In order to more clearly define the delivery of its services and to reflect
the needs of its clients, the Company has organized its sales and marketing
effort into three strategic business units ("SBUs"): (i) Commercial Services,
which targets custom software development and transfer solutions for
commercial markets; (ii) Government Services, which targets custom software
development and transfer solutions in the fast-growing health and human
services and state strategic IT markets; and (iii) Business Solutions, which
targets packaged software implementation services for both commercial and
governmental markets.

The Company's focus on the vertical markets defined by these SBUs broadens
its knowledge and expertise in these selected industries and generates
additional client engagements. As a result of its focused sales channel
approach, the Company believes that it is able to penetrate markets quickly
and with lower sales acquisition costs.

The sales team derives leads through (i) strategic partnerships with
software providers under which the Company delivers services on an exclusive
or preferred basis within specific geographic or vertical markets; (ii)
industry networking and referrals from existing clients; (iii) government
requests for proposals; (iv) directed sales activities identified by other
strategic business units within the Company; and (v) a national marketing
program. The Company believes that its use of these multiple sales and
marketing activities results in a shorter sales cycle than generally
experienced by other providers.

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<PAGE>

The Company's marketing program includes targeted software industry trade
shows; joint marketing with software providers through strategic partnership
arrangements; participation in user groups; provision of speakers to
technology conferences; publication of white papers, articles and direct
client newsletters; and distribution of marketing materials through print
advertising, direct mail, media and public relations announcements.

CLIENTS

The Company's clients consist primarily of Fortune 1000 companies with
information-intensive businesses and government entities with large volume
information and technology needs. Tier's sales and marketing objective is to
develop relationships with clients which result in both repeat and long-term
engagements. Of the Company's clients with revenues in excess of $50,000 in
fiscal 1996, 88% (15 of 17) were clients in the nine-month fiscal year ended
September 30, 1997 and generated revenues in excess of $50,000 in such
subsequent period.

Tier has derived, and believes that it will continue to derive, a
significant portion of its revenues from a small number of large clients, many
of which engage the Company on a number of projects. For the nine-month fiscal
year ended September 30, 1997, the State of Missouri, Kaiser and Unisys
Corporation accounted for 22.3%, 21.1% and 19.7% of the Company's revenues,
respectively. Kaiser accounted for 59.3% and 68.1% of the Company's revenues
in 1996 and 1995, respectively, while Unisys accounted for 14.6% of the
Company's revenues in 1996.

The following is a list of the Company's representative clients:

FINANCIAL/INSURANCE SERVICES COMMUNICATIONS
Allstate Insurance Company GTE Mobilnet Incorporated
Bank of America, N.T. & S.A. Pacific Bell Telesis Co.
Equifax Europe (UK) Ltd. TCI Western TeleCommunications, Inc.
General Electric Capital US WEST Communications, Inc.
Services, Inc.

INDUSTRIAL GOVERNMENT
Anheuser-Busch Cos., Inc. Commonwealth of Australia*
McKesson Corp. (multiple agencies)
US Foodservice Inc. Los Angeles County, California
Warner-Lambert Company, Inc. Murray-Darling Basin Commission
State of Arizona*
HEALTH CARE State of Missouri (multiple agencies)
Blue Cross/Blue Shield U.S. Department of Agriculture*
of Tennessee, Inc.
Kaiser Foundation Health Plan, Inc. TRANSPORTATION
Laboratory Corporation of America Automobile Club of Southern California
Holdings Matson Navigation Company, Inc.
Southshore Hospital

OTHER INDUSTRIES
Chevron Information Technology Company
Export Software International, Inc.
Sears Roebuck & Co.
- --------
* Indicates that the Company was engaged as a subcontractor for certain
project engagements for the client.

In its Government Services SBU, the Company sometimes obtains project
engagements through prime contractors such as Unisys. For example, in a
project for the State of Arizona, Tier was responsible for the complete IT
strategy, architecture, design, software development and testing as a
subcontractor to Unisys, which was engaged by the State to implement a new
child welfare system. The Company believes that it has been able to secure
large, complex government projects with low acquisition costs by capitalizing
on the reputation, marketing infrastructure and government relationships of
these prime contractors, while

30
<PAGE>

at the same time allowing the prime contractors to leverage Tier's IT
competency in their bid proposals. When Unisys bid for the Australian National
Child Support System, Unisys relied on Tier as an integral part of the team
responsible for securing the engagement. The Tier/Unisys team ultimately was
awarded the contract for the entire system. The Company will continue to seek
subcontracting relationships with parties such as Unisys.

Until fiscal 1997, Company revenues were generated primarily through Tier's
domestic operations. In the nine-month fiscal year ended September 30, 1997,
the Company's operations in Australia and the United Kingdom represented 9.1%
and 4.6% of revenues, respectively. See Note 10 to Notes to Consolidated
Financial Statements.

HUMAN RESOURCES

Tier's approach to managing human resources has allowed the Company to meet
its staffing needs while also achieving a low level of employee turnover. As
of September 30, 1997, the Company had a workforce of 231, including 146
salaried IT consultants, ten sales/marketing employees and 28
administrative/accounting employees. In addition to its employee IT
consultants, the Company has retained 47 hourly contractors to supplement its
IT workforce. As of September 30, 1997, approximately 75.6% of the Company's
IT consultants were salaried and the remaining 24.4% were hourly contractors.
Of the Company's total workforce, 80.1%, 10.8% and 9.1% are located in the
United States, Australia and the United Kingdom, respectively.

The Company employs two Senior Directors of Recruiting and seven full-time
recruiters who pursue a three level employee-sourcing strategy. The primary
sources include employee referrals, job fairs, Internet job postings and
direct recruiting. Tier also has established national and international
sources through preferred-rate partnerships with recruiting suppliers. If peak
staffing demand exceeds these resources, the Company engages recruiting
agencies on a contingent basis at market rates. The Company attracts and
retains employees by offering significant technical training opportunities, a
stock option award program and a competitive benefits and compensation
package. Given the rapid pace of technological evolution, the Company
recognizes that skill obsolescence is a fundamental concern for IT
professionals. As a key component of the Company's employee retention program,
Tier has developed a program that enables each employee to specify their
career goals and develop a plan to achieve those goals. The program includes
specific career enrichment opportunities, individualized up-training and
cross-training, on-the-job learning opportunities and challenging assignments.
As part of the program, each consultant works under the guidance of a practice
manager and senior technology expert within their practice. All employees
receive annual training allowances which can be utilized for an array of
career development needs such as internal and external seminars and computer-
based training. The Company believes that there is a shortage of, and
significant competition for, IT professionals and that its future success is
highly dependent upon its ability to attract, train, motivate and retain
skilled IT consultants with the advanced technical skills necessary to perform
the services offered by the Company.

COMPETITION

The IT services market is highly competitive and is served by numerous
international, national and local firms. Market participants include systems
consulting and integration firms, including national accounting firms and
related entities, the internal information systems groups of its 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 the Company. In addition, there are
relatively low barriers to entry into the IT services market, and the Company
has faced, and expects to continue to face, additional competition from new
entrants into the IT services market.

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<PAGE>

The Company believes that the principal competitive factors in the IT
services market include reputation, project management expertise, industry
expertise, speed of development and implementation, technical expertise,
competitive pricing and the ability to deliver results on a fixed price as
well as a time and materials basis. The Company believes that its ability to
compete also depends in part on a number of competitive factors outside its
control, including the ability of its 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 its clients to perform the
services themselves; and the extent of its competitors' responsiveness to
client needs. There can be no assurance that the Company will be able to
compete effectively on pricing or other requirements with current and future
competitors or that competitive pressures will not cause the Company's
revenues or income to decline or otherwise materially adversely affect its
business, financial condition and results of operations.

INTELLECTUAL PROPERTY RIGHTS

Tier's success has resulted, in part, from its methodologies and other
proprietary intellectual property rights. The Company relies upon a
combination of nondisclosure and other contractual arrangements and trade
secret, copyright and trademark laws to protect its proprietary rights and the
proprietary rights of third parties from whom the Company licenses
intellectual property. The Company enters into confidentiality agreements with
its employees and limits distribution of proprietary information. There can be
no assurance that the steps taken by the Company in this regard will be
adequate to deter the misappropriation of proprietary information or that the
Company will be able to detect unauthorized use of this information and take
appropriate steps to enforce its intellectual property rights.

Software developed by Tier in connection with a client engagement is
typically assigned to the client. In limited situations, the Company may
retain ownership, or obtain a license from its client, which permits Tier or a
third party to market the software for the joint benefit of the client and
Tier or for the sole benefit of Tier.

FACILITIES

Tier's principal executive offices are located at 1350 Treat Boulevard,
Suite 250, Walnut Creek, California. The Company's lease on these premises
covers approximately 9,745 square feet and expires November 30, 2001. The
Company also leases facilities in Atlanta, Georgia; Boston, Massachusetts;
Chicago, Illinois; Jacksonville, Florida; Jefferson City, Missouri; Phoenix,
Arizona; Birmingham, England; Canberra, Australia; and Sydney, Australia. Tier
anticipates that additional space will be required as its business expands and
believes that it will be able to obtain suitable space as needed.

LEGAL PROCEEDINGS

The Company is not currently a party to any legal proceedings.

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<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company and their ages as of
September 30, 1997, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James L. Bildner................... 43 Chairman of the Board and Chief Executive Officer
William G. Barton.................. 40 President, Chief Operating Officer and Director
George K. Ross..................... 56 Senior Vice President, Chief Financial Officer
and Director
Albert A. Arthur................... 44 Vice President, Strategic Business Development
Jacqueline R. Hampton.............. 44 Vice President, Business Solutions SBU
F. Thomas Latham................... 51 Vice President, Commercial Services SBU
Bryan D. McCaul.................... 39 Vice President and Chief Information/Technology
Officer
Bradley H. Nickels................. 36 Vice President, Government Services SBU and
Secretary
John W. Reasner.................... 58 Vice President, Human Resources
Samuel Cabot III(1)(2)(3).......... 56 Director
Ronald L. Rossetti(1)(2)(3)........ 54 Director
</TABLE>
- --------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
(3) Class B Director.

Mr. Bildner joined Tier as Chairman of the Board in November 1995 and became
Chief Executive Officer in December 1996. From December 1994 to December 1996,
Mr. Bildner was employed as a principal of Argus Management Corporation, a
management consulting firm. In 1984, Mr. Bildner founded J. Bildner & Sons,
Inc., a specialty retailer, and served as its Chairman of the Board and Chief
Executive Officer from its inception to December 1994. J. Bildner & Sons, Inc.
filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code in July
1988 and emerged from reorganization in October 1989. Mr. Bildner received an
A.B. from Dartmouth College and a J.D. from Case Western Reserve School of
Law.

Mr. Barton, one of the initial founders of the Company, has served as
President and Chief Operating Officer and as a Director since 1991. From 1990
to 1991, Mr. Barton was employed as an IT management consultant at Titan
Consulting, an IT consulting firm. From 1979 to 1990, Mr. Barton held various
positions leading to Director of Advanced Business Systems at American Express
Card Services, a financial services company. Previously, Mr. Barton held
positions within the IT industry as a systems analyst, software engineer and
programmer. He received a B.S. in Business Administration and Management from
the University of Phoenix and a Presidential/Key Executive MBA from Pepperdine
University.

Mr. Ross has been a Director of the Company since January 1996 and has
served as Senior Vice President and Chief Financial Officer since February
1997. From September 1992 to January 1997, Mr. Ross was a partner at Capital
Partners, a private equity investment firm. Between 1979 and 1992, Mr. Ross
was Corporate Vice President, Controller for Axel Johnson, Inc., a highly
diversified private holding company. Mr. Ross has also held corporate and
operating positions with RJR Nabisco, Inc. and served as a senior consultant
with Ernst & Young LLP. Mr. Ross received a B.A. from Ohio Wesleyan University
and an MBA from Ohio State University. Mr. Ross is a certified public
accountant.

Mr. Arthur joined Tier in February 1997 as Director, National Account Sales
and has served as the Company's Vice President, Strategic Business Development
since June 1997. From April 1996 to March 1997, Mr. Arthur was employed by
Texas Instruments Software, a software provider, where he was the Trading Area
Manager for the western United States and Canada. From August 1995 until April
1996, he served as Director of Financial Business Development (Bay Area) for
Oracle Corporation, a software provider. From 1988 until August 1995, he
served as Global Account Manager for Bank of America, N.T. & S.A. He received
an A.B. degree from Stanford University.

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<PAGE>

Ms. Hampton joined the Company as Vice President, Business Solutions SBU in
June 1997. From September 1995 to April 1997, Ms. Hampton was Vice President
for Worldwide Professional Services at Netscape Communications, an Internet
browser company. From April 1992 to September 1995, Ms. Hampton served as Vice
President of Professional Services, Western Area, for Sybase, a software
provider. From 1989 to 1992, she was a managing consultant at Oracle
Corporation. Between 1983 and 1989 she held various senior management and
consulting positions with Ernst & Young LLP and Andersen Consulting. She
received a B.S. in Biochemistry and Microbiology from San Diego State
University and an MBA from Boston University.

Mr. Latham joined Tier in August 1996 as Vice President, Commercial Services
SBU. From March 1995 to August 1996, Mr. Latham was the President of
Distributed Business Technology Solutions, an IT consulting company. From
February 1993 to February 1995, he was a Senior Director at Florida Power and
Light. From 1981 to February 1993, he served as Vice President, Strategic
Business Systems and Vice President, Technology at American Express.

Mr. McCaul has served as Vice President and Chief Information/Technology
Officer since March 1993. From 1990 to March 1993, he was a senior consultant
and trainer for Montare International, a technology consulting firm located in
Dallas, Texas. From 1986 to 1990, Mr. McCaul was a senior systems analyst with
Texas Instruments Software, a software provider. Mr. McCaul received a B.S. in
Business Administration and an M.S. in Computer Science from the University of
Kansas.

Mr. Nickels, one of the initial founders of the Company, has served as Vice
President of the Company's Government Services SBU since January 1996. From
October 1991 to December 1995, he served as a principal consultant and project
manager at the Company. From 1988 to 1992, Mr. Nickels was a project manager
at American Express Travel Related Services. Mr. Nickels received a B.S. in
Computer Science from Arizona State University.

Mr. Reasner joined the Company as Vice President, Human Resources, in
January 1997. From 1989 to December 1996, Mr. Reasner served as Vice
President - Human Resources for Pilkington, Barnes, Hind, a global contact
lens and solution manufacturer where he was responsible for its world-wide
human resources function. Mr. Reasner received a B.A. from Monmouth College.

Mr. Cabot has served as a Director of the Company since January 1997. He has
served as president of Samuel Cabot Inc., a manufacturer and marketer of
premium quality exterior stains and architectural coatings, since 1978. He is
also on the board of directors of Plasticolors, Inc. and Blue Cross/Blue
Shield of Massachusetts, Inc., the National Paint and Coatings Association and
the Associated Industries of Massachusetts. Mr. Cabot received an A.B. from
Dartmouth College and an MBA from Boston University.

Mr. Rossetti has served as a Director of the Company since November 1995.
Since February 1997, he has served as President of Riverside Capital Partners,
Inc., a venture capital investment firm. From 1976 until September 1994, Mr.
Rossetti was President, Chief Executive Officer and a director of Nature Food
Centers, Inc. Mr. Rossetti is also on the Board of Directors of General
Nutrition Co. and City Sports, the advisory board of Hamilton Associates and
serves as a trustee of Northeastern University. He received a B.S. from
Northeastern University.

Executive officers of the Company are appointed by the Board of Directors
and serve at the discretion of the Board. All directors hold office until the
next annual meeting of the Company, or until their successors have been duly
elected and qualified. There are no family relationships between any of the
executive officers or directors of the Company.

The Bylaws authorize a range of directors, numbering between five and nine.
Currently, the Company has designated a Board of five directors. The Company
is actively seeking two additional qualified directors, unaffiliated with the
Company, which process the Company anticipates will be completed within 12
months

34
<PAGE>

of this offering. Upon an increase in the number of directors to seven, the
holders of shares of Class B Common Stock will elect three directors and the
remaining four directors will be elected by holders of Class A and Class B
Common Stock, voting together. See "Description of Capital Stock."

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors maintains an Audit Committee and a Compensation
Committee. The Audit Committee, consisting of Messrs. Rossetti and Cabot,
reviews the results and scope of the annual audit and the services provided by
the Company's independent auditors. The Compensation Committee, consisting of
Messrs. Rossetti and Cabot, establishes the compensation of officers of the
Company and administers the Company's compensation programs, including the
grant of stock options.

DIRECTOR COMPENSATION

The members of the Company's Board of Directors are reimbursed for
reasonable travel expenses incurred in attending Board meetings. In addition,
non-employee members of the Board of Directors receive a grant, upon their
initial appointment, of fully vested options to purchase 5,000 shares of Class
B Common Stock and an annual grant, upon their re-election thereafter, of
fully vested options to purchase 5,000 shares of Class B Common Stock under
the Company's Amended and Restated 1996 Equity Incentive Plan. See "--
Incentive Plans."

EMPLOYMENT AGREEMENTS

In December 1996, the Company entered into a three-year employment agreement
with James L. Bildner, the Company's Chairman of the Board and Chief Executive
Officer. The agreement provides for an annual base salary of $325,000,
quarterly incentive compensation totaling at least $100,000 per year upon the
achievement of certain targeted levels of earnings by the Company, and
benefits under the Company's benefit plans. Mr. Bildner is also entitled to a
$50,000 relocation loan, which bears interest at 5.75% per annum and is
forgivable over a three-year period beginning on December 31, 1996 (the
"Relocation Loan"), and a monthly housing allowance of $2,750 (for a three-
year period beginning December 31, 1996), payable in advance upon request of
Mr. Bildner. The agreement also provides, among other things, that if Mr.
Bildner's employment with the Company is terminated (i) by the Company for
cause (as defined in the agreement), other than Mr. Bildner's conviction of a
felony, the Company will pay to Mr. Bildner his base salary and benefits for a
period of 24 months from the date of termination; or (ii) by the Company
without cause or by Mr. Bildner for good reason (as defined in the agreement),
the outstanding principal balance and accrued interest under the Relocation
Loan will be forgiven, all outstanding unvested options held by Mr. Bildner
will immediately vest and the Company will pay Mr. Bildner a lump sum amount
equal to the discounted present value of 24 months of a base salary plus 100%
of the maximum amount of incentive compensation Mr. Bildner could have earned
during the year in which the termination occurs. Benefits substantially
similar to those set forth in clause (ii) above are provided in the event of
termination of Mr. Bildner's employment due to death or disability and, upon
any event of termination, the Company will take all action required to release
Mr. Bildner from any personal guaranties of Company indebtedness. Pursuant to
this agreement Mr. Bildner also received an option to purchase 80,000 shares
of Class A Common Stock and 120,000 shares of Class B Common Stock at an
exercise price equal to 100% of the fair market value of such stock on the
date of grant, which vested immediately. He also received an option for
120,000 shares of Class A Common Stock and 180,000 shares of Class B Common
Stock, which vests ratably on the first three annual anniversaries of the date
of grant, except that 33.3% of the option vests upon completion of this
offering (the "Bildner Repurchaseable Option"). The Bildner Repurchaseable
Option was exercised by Mr. Bildner prior to vesting and is subject to a right
of repurchase by the Company at its exercise price until vested. Mr. Bildner's
employment agreement was amended in September 1997 to extend its term through
August 1, 2001. Beginning in January 2000, the agreement provides for a
minimum base salary of the greater of $375,000 or $50,000 greater than the
highest base salary previously paid to Mr. Bildner. See "-- Executive
Compensation" and "Certain Transactions."

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<PAGE>

In December 1996, the Company entered into a three-year employment agreement
with William G. Barton, the Company's President and Chief Operating Officer.
The agreement provides for an annual base salary of $225,000, quarterly
incentive compensation totaling at least $75,000 per year upon the achievement
of certain targeted levels of earnings by the Company, and benefits under the
Company's benefit plans. Mr. Barton is also entitled to an education loan up
to $50,000, which bears interest at 5.75% per annum and is forgivable over
approximately three years (the "Education Loan"). The agreement also provides,
among other things, that if Mr. Barton's employment with the Company is
terminated (i) by the Company for cause (as defined in the agreement), other
than Mr. Barton's conviction of a felony, the Company will pay to Mr. Barton
his base salary and benefits for a period of 24 months from the date of
termination; or (ii) by the Company without cause or by Mr. Barton for good
reason (as defined in the agreement), the outstanding principal balance and
accrued interest under the Education Loan will be forgiven, all outstanding
unvested options held by Mr. Barton will immediately vest and the Company will
pay Mr. Barton a lump sum amount equal to the discounted present value of 24
months of a base salary plus 100% of the maximum amount of incentive
compensation Mr. Barton could have earned during the year in which the
termination occurs. Benefits substantially similar to those set forth in
clause (ii) above are provided in the event of termination of Mr. Barton's
employment due to death or disability and, upon any event of termination, the
Company will take all action required to release Mr. Barton from any personal
guaranties of Company indebtedness. Pursuant to this agreement, Mr. Barton
received an option to purchase 120,000 shares of Class A Common Stock and
180,000 shares of Class B Common Stock, at an exercise price equal to 110% of
the fair market value of such stock on the date of grant, which vests ratably
on the first three annual anniversaries of the date of grant, except that
33.3% of the option vests upon completion of this offering (the "Barton
Repurchaseable Option"). The Barton Repurchaseable Option was exercised by Mr.
Barton prior to vesting and is subject to a right of repurchase by the Company
at its exercise price until vested. Mr. Barton's employment agreement was
amended in September 1997 to extend its term through August 1, 2001. See "--
Executive Compensation" and "Certain Transactions."

In February 1997, the Company entered into an employment agreement with
George K. Ross, the Company's Senior Vice President and Chief Financial
Officer. The agreement terminates August 1, 2001 and provides for an annual
base salary of $175,000 and quarterly incentive compensation totaling at least
$25,000 per year upon the achievement of certain targeted levels of earnings
by the Company. In the event the agreement is terminated by Mr. Ross for good
reason (as defined in the agreement) or by the Company other than for cause
(as defined in the agreement), Mr. Ross will be entitled to receive his full
salary for a period of six months from the date of such termination and a pro
rata portion of the incentive compensation for which he could be eligible
during the year the termination occurs. The agreement also provides that the
Company offer an unsecured relocation loan of up to $20,000, bearing simple
interest at 5.81% per annum, which amount shall be forgiven over three years
so long as Mr. Ross remains employed by the Company. Pursuant to this
agreement, Mr. Ross received an option to purchase 105,000 shares of Class B
Common Stock, at an exercise price equal to 100% of the fair market value of
such stock on the date of grant, which option vests ratably on the first three
annual anniversaries of the grant. In the event of a sale of substantially all
of the assets of the Company, a change in control of the Company or upon the
termination of James L. Bildner as Chief Executive Officer of the Company, the
option fully vests immediately. See "-- Executive Compensation" and "Certain
Transactions."

36
<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation
earned by the Company's Chief Executive Officer and each of the four other
most highly compensated executive officers for the twelve-month period ended
September 30, 1997 (collectively, the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
------------------------------- -------------------
NUMBER OF SHARES
NAME AND PRINCIPAL POSITION OTHER ANNUAL UNDERLYING
(*) SALARY BONUS COMPENSATION OPTIONS GRANTED (#)
- --------------------------- -------- -------- ------------- -------------------
<S> <C> <C> <C> <C>
James L. Bildner(2)........ $242,293 $171,931 $43,749(3) 720,000
Chairman of the Board and
Chief Executive Officer
William G. Barton.......... 209,856 139,785 - 520,000
President and Chief
Operating Officer
Bryan D. McCaul............ 163,542 25,050 - 110,000
Vice President and Chief
Information/Technology
Officer
Bradley H. Nickels......... 163,542 25,000 - 110,000
Vice President, Government
Services SBU
F. Thomas Latham........... 131,250 23,125 - 77,500
Vice President, Commercial
Services SBU
</TABLE>
- --------
* Mr. George K. Ross, the Company's Senior Vice President, Chief Financial
Officer and a member of its Board of Directors, joined the Company in
February 1997. From February 1, 1997 through September 30, 1997, Mr. Ross
received salary of $109,375 and bonus of $17,500. In addition, the Company
granted Mr. Ross options to purchase 130,000 shares of the Company's Class
B Common Stock, forgave $4,065 of debt and accrued interest thereon owed
by Mr. Ross to the Company arising from a housing and relocation loan and
paid Mr. Ross certain other compensation totalling $2,500.
(1) In accordance with the rules of the Securities and Exchange Commission,
the compensation described in this table does not include perquisites and
other personal benefits received by the Named Executive Officers which do
not exceed the lesser of $50,000 or 10% of the total salary and bonus
reported for such Named Executive Officer.
(2) Mr. Bildner joined the Company as an employee in December 1996.
Previously, Mr. Bildner served as a consultant to the Company pursuant to
a consulting agreement between the Company and his employer, Argus
Corporation, pursuant to which Argus was paid $198,890 during the twelve
months ended December 31, 1996.
(3) Represents forgiveness of debt and accrued interest thereon owed by Mr.
Bildner to the Company arising from loans made for housing and relocation
expenses. See "Management -- Employment Agreements" and "Certain
Transactions."

37
<PAGE>

The following table sets forth information concerning options granted to the
Named Executive Officers during the twelve-month period ended September 30,
1997.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (3)
-------------------------------------------------------- -----------------------
NUMBER OF
SHARES PERCENT OF
UNDERLYING TOTAL OPTIONS EXERCISE
OPTIONS GRANTED TO PRICE EXPIRATION
NAME GRANTED (#) EMPLOYEES (1) ($/SHARE)(2) DATE 5% 10%
- ---- ------------------ ------------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
James L. Bildner......... 200,000 Class A(4) 7.2% $1.65 12/30/06 $ 2,439,000 $ 4,079,000
300,000 Class B(4) 10.8 1.65 12/30/06 3,659,000 6,119,000
120,000 Class A(5) 4.3 3.58 2/27/02 872,000 1,213,000
100,000 Class B(6) 3.6 5.77 7/30/02 508,000 792,000
William G. Barton........ 120,000 Class A(5) 4.3 1.82 12/30/01 1,083,000 1,424,000
180,000 Class B(5) 6.5 1.82 12/30/01 1,625,000 2,136,000
120,000 Class A(5) 4.3 3.58 2/27/02 872,000 1,213,000
100,000 Class B(6) 3.6 5.77 7/30/02 508,000 792,000
Bradley H. Nickels....... 100,000 Class B(7) 3.6 3.25 2/27/07 1,060,000 1,880,000
10,000 Class B(8) 0.4 5.25 7/31/07 86,000 168,000
Bryan D. McCaul.......... 100,000 Class B(7) 3.6 3.25 2/27/07 1,060,000 1,880,000
10,000 Class B(8) 0.4 5.25 7/31/07 86,000 168,000
F. Thomas Latham......... 67,500 Class B(7) 2.4 3.25 2/27/07 715,000 1,269,000
10,000 Class B(8) 0.4 5.25 7/31/07 86,000 168,000
</TABLE>

OPTION GRANTS IN THE TWELVE-MONTH PERIOD ENDED SEPTEMBER 30, 1997

- --------
(1) Based on an aggregate of 2,783,075 options granted to employees in the
twelve-month period ended September 30, 1997, including options granted to
the Named Executive Officers.
(2) The exercise price equals or exceeds the fair market value of the stock as
of the grant date as determined by the Board of Directors after
consideration of a number of factors, including, but not limited to, the
Company's financial performance, the price of shares of equity securities
sold to or purchased by outside investors and third-party appraisals.
(3) The amounts shown are hypothetical gains based on the indicated assumed
rates of appreciation of the Class B Common Stock based on the initial
public offering price of $8.50 per share, compounded annually for the term
of the option. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Class B Common Stock and
overall stock market conditions. There can be no assurance that the Class
B Common Stock will appreciate at any particular rate, or at all, in
future years.
(4) Options vest 40% on the date of grant and then 20% on each of the first
three anniversaries of the date of grant; provided, however, that 20% vest
upon completion of this offering. Certain of these options were exercised
in advance of vesting, subject to a right of repurchase by the Company at
such option's exercise price.
(5) Options vest 33.3% on each of the first three anniversaries of the date of
the option; provided, however, that 33.3% vest immediately upon completion
of this offering with the remaining shares vesting over the scheduled
period. Certain of these options were exercised in advance of vesting,
subject to a right of repurchase by the Company at such option's exercise
price.
(6) Options vest 25% on each of the first four anniversaries of the date of
grant.
(7) Options vest 33.3% on each of the first three anniversaries of the date of
grant.
(8) Options vest 25% on each of the first four anniversaries of the date of
grant.

38
<PAGE>

The following table sets forth certain information regarding option
exercises during the twelve-month period ended September 30, 1997 and the
value of unexercised options held as of September 30, 1997 by the Named
Executive Officers.

AGGREGATED OPTION EXERCISES IN THE TWELVE-MONTH PERIOD ENDED SEPTEMBER 30,
1997
AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS AT
SHARES END (#) FISCAL YEAR-END(2)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James L. Bildner........ 910,000 $1,256,000 10,000 100,000 $49,000 $273,000
William G. Barton....... 410,000 429,000 10,000 100,000 49,000 273,000
Bradley H. Nickels...... - - - 110,000 - 558,000
Bryan D. McCaul......... - - - 110,000 - 558,000
F. Thomas Latham........ - - - 77,500 - 387,000
</TABLE>
- --------
(1) The value realized is based on the difference between the market price at
the time of exercise of the options and the applicable exercise price.
(2) The value of unexercised in-the-money options is calculated based on the
initial public offering price of $8.50 per share. Amounts reflected are
based on such estimated fair market value minus the aggregate exercise
price and do not necessarily reflect that the optionee sold such stock.

INCENTIVE PLANS

Amended and Restated 1996 Equity Incentive Plan. The Company's Amended and
Restated 1996 Equity Incentive Plan (the "Plan") provides for grants to
employees of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, and for grants to employees,
directors and consultants of non-qualified stock options, restricted stock and
stock bonuses. The purposes of the Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentives to the employees and consultants of the Company and to
promote business.

In October 1997, the Company amended the Plan to authorize a total of
2,989,333 shares of Class B Common Stock for issuance pursuant to the Plan. As
of September 30, 1997, options to purchase 1,713,075 shares of Class B Common
Stock were outstanding at a weighted average exercise price of $3.94, and upon
the closing of this offering 1,246,258 shares will be available for future
grant under the Plan.

The Plan is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee has the power to determine the terms of
the options granted, including the exercise price, the number of shares
subject to the option and the exercisability thereof, and the form of
consideration payable upon exercise. Except as permitted by the Compensation
Committee, options granted under the Plan are not transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
only by such optionee. The exercise price of all incentive stock options
granted under the Plan must be at least equal to the fair market value of the
Class B Common Stock on the date of grant. The exercise price of non-qualified
stock options may not be less than 85% of the fair market value of a share of
Class B Common Stock on the date of grant. With respect to any optionee who
owns 10% or more of the Company's outstanding capital stock, the exercise
price of any incentive stock option granted to such optionee must equal or
exceed 110% of the fair market value of the Class B Common Stock on the grant
date and the term of the option must not exceed five years. The aggregate fair
market value of the Class B Common Stock (determined at the time the option is
granted) with respect to which incentive stock options granted to an
individual first become exercisable in any calendar year shall not exceed
$100,000. No more than 100,000

39
<PAGE>

shares may be granted pursuant to options to any one person under the Plan in
any single fiscal year. The term of all options (other than options granted to
any optionee who owns 10% or more of the Company's outstanding capital stock)
may not exceed ten years.

The Compensation Committee may grant restricted shares, i.e., shares of
Class B Common Stock which are subject to transfer restrictions determined by
the Compensation Committee and subject to substantial risk of forfeiture
unless and until specific conditions established by the Compensation Committee
at the time of grant are met. Such conditions may be based on continuing
employment or achievement of pre-established performance goals, or both, as
determined by the Compensation Committee.

The Plan also authorizes the Compensation Committee to award or to offer
bonuses of shares of Class B Common Stock, either restricted or unrestricted,
and as current or deferred compensation, in lieu of all or any portion of the
cash compensation to which the employee is entitled, for a number of shares
having a value on the grant date equal to the amount of such cash
compensation.

Stock options and performance-based restricted stock granted under the Plan
are intended to be "performance-based compensation" and therefore not subject
to the deduction limitation of Code Section 162(m).

The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and in the year ended December 31, 1996 adopted the disclosure-only
alternative described in Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." Restricted and unrestricted stock
bonuses under the Plan would, however, involve an earnings charge.

The Plan was approved by the Board of Directors and shareholders and became
effective on February 10, 1997. Unless terminated sooner, the Plan will
terminate automatically on February 9, 2007. The Board of Directors has the
authority to amend, suspend or terminate the Plan, subject to any required
shareholder approval under applicable law. Notwithstanding the foregoing, no
amendment, suspension or termination of the Plan shall alter or impair an
interest granted to a beneficiary under the Plan without such beneficiary's
written consent.

Employee Stock Purchase Plan. In October 1997, the Company adopted an
Employee Stock Purchase Plan (the "Purchase Plan"). A total of 100,000 shares
of Class B Common Stock is reserved for issuance under the Purchase Plan. The
Purchase Plan, which is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code, permits eligible
employees to purchase shares of Class B Common Stock through payroll
deductions. Eligible employees may select a rate of payroll deduction between
1% and 10% of their cash compensation, but not more than 500 shares may be
purchased per participant on any purchase date. The price of stock purchased
under the purchase plan will be 85% of the lower of the fair market value of
the Common Stock at the beginning or the end of the six-month purchase period.
Employees will generally be eligible to participate if they are employed by
the Company on the beginning of a purchase period. Employees may end their
participation in the Purchase Plan at any time, and participation ends
automatically on termination of employment with the Company.

The Board of Directors may amend, suspend or terminate the Purchase Plan at
any time, to be effective immediately after the close of any purchase period.
However, the Board of Directors may not, without shareholder approval,
materially increase the number of shares of Class B Common Stock available for
issuance, alter the purchase price formula so as to reduce the purchase price
payable for shares of Class B Common Stock, or materially modify the
eligibility requirements for participation. The Purchase Plan will in all
events terminate on September 30, 2007, unless terminated earlier by the Board
of Directors.

401(k) Plan. The Company maintains a 401(k) profit-sharing and deferred
contribution plan (the "401(k) Plan"). All employees of the Company who have
reached 21 years of age and who have

40
<PAGE>

completed one month of employment are eligible to participate in the 401(k)
Plan, pursuant to which each participant may contribute up to 15% of eligible
compensation (up to a statutorily prescribed annual limit of $9,500 in 1997).
Although the Company is permitted to contribute to the 401(k) Plan, it has not
made such contributions in the past. Participants vest in Company
contributions, if any, ratably on the third through seventh anniversaries of
the Company's contribution. All amounts contributed by employee participants
and earnings on these contributions are fully vested at all times. Employee
participants may elect to invest their contributions in various established
funds.

41
<PAGE>

CERTAIN TRANSACTIONS

The Company retained the consulting services of Argus Corporation ("Argus"),
a consulting firm for which the Company's Chairman of the Board and Chief
Executive Officer, James L. Bildner, was then a principal, for payments
aggregating $198,890 for services rendered during the year ended December 31,
1996.

The Company has made loans to certain employees in connection with their
exercise of stock options, the payment of taxes associated with those
exercises, relocation and housing expenses, educational expenses and personal
purposes. All loans are made pursuant to full-recourse, interest-bearing
promissory notes and certain notes are secured by a pledge of Common Stock
held by the employee. Interest rates range from 5.75% to 9.00% and vary based
on the term of the loan and its date of origination. The loans have ten-year
terms, with the exception of forgivable loans which have three-year terms and
are typically forgiven ratably over the note's term so long as the employee
remains with the Company. Loans to Mr. Bildner total $1,859,302, of which
amount $135,250 plus accrued interest may be forgiven. Loans to Mr. Barton
total $1,164,558, of which amount $47,677 plus accrued interest may be
forgiven. Loans to Mr. Ross total $20,000, which amount plus accrued interest
may be forgiven in its entirety. Loans to Mr. Latham total $10,000, which
amount plus accrued interest may be forgiven in its entirety. See
"Management -- Employment Agreements."

The Company has entered into employment agreements with Mr. Bildner, Mr.
Barton, its President and Chief Operating Officer, and Mr. Ross, its Senior
Vice President and Chief Financial Officer. See "Management -- Employment
Agreements."

In July 1997, certain officers, directors and more than 5% shareholders
participated in the private placement of shares of the Company's Series A
Preferred Stock (the "Private Placement"). Messrs. Barton, Cabot, Ross and
Rossetti purchased 9,524, 3,810, 4,762 and 9,524 shares of Series A Preferred
Stock, respectively, at a price of $5.25 per share, which price was determined
based on arm's length negotiations with unaffiliated third parties. The
Private Placement was made pursuant to Rule 506 of Regulation D under the Act.
Upon the closing of this offering, these shares will automatically convert
into an equal number of shares of Class B Common Stock. These shareholders
have identical registration rights to those of other purchasers in the Private
Placement. See "Description of Capital Stock -- Registration Rights."

In August 1997, the Company entered into an agreement (the "Direct Sale
Agreement") with AH&H Partners Fund Limited Partnership, Wilson Hitchings (who
served as a director of the Company until September 1997), Leon Normand (who
served as a director of the Company until September 1997), Robert Butorac,
James Hinson and Greg Bowen (the "Selling Founders"), wherein the Selling
Founders agreed to sell a total of 95,238 shares of their Class A Common Stock
(which, upon the consummation of the sale converted to an equal number of
shares of Class B Common Stock) to the AH&H Partners Fund Limited Partnership.
Messrs. Hitchings and Normand each received approximately $113,636, before
payment of expenses associated with the transaction. The purchase price was
determined based on arm's length negotiations with unaffiliated third parties.

The Company has entered into indemnification agreements with each of its
directors and executive officers. These agreements provide such persons with
indemnification, to the maximum extent permitted by the Company's Articles or
Bylaws or by the California General Corporation Law, against all expenses,
claims, damages, judgments and other amounts (including amounts paid in
settlement) for which such persons become liable as a result of acting in any
capacity on behalf of the Company, subject to certain limitations.

In August 1996, the Company repurchased 5,000 shares of its common stock
from one of its directors, William C. Lavin, upon his resignation, for a total
of $74,970, which price was determined based on book value per share in
accordance with the terms of his stock purchase agreement. This amount is

42
<PAGE>

payable to Mr. Lavin pursuant to the terms of a promissory note. The note
bears interest at 8.25% per annum over five years and principal and interest
thereunder are payable monthly. The description of this transaction does not
reflect the Company's recapitalization, pursuant to which each outstanding
share of common stock was exchanged for 40 shares of Class A Common Stock and
60 shares of Class B Common Stock.

43
<PAGE>

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth, as of November 17, 1997, and as adjusted to
reflect the sale of Class B Common Stock offered hereby, certain information
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person known by the Company to own beneficially more than five percent of
the outstanding shares of Common Stock; (ii) each director of the Company;
(iii) each of the Named Executive Officers; (iv) all officers and directors of
the Company as a group; and (v) each of the Selling Shareholders. Unless
otherwise indicated below, to the knowledge of the Company, all persons listed
below have sole voting and investment power with respect to their shares of
Common Stock, except to the extent authority is shared by spouses under
applicable law.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED NUMBER OF SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) SHARES OF AFTER THE OFFERING(1)
---------------------------------- CLASS B ----------------------------------
EXECUTIVE OFFICERS, NUMBER NUMBER PERCENT OF COMMON NUMBER NUMBER PERCENT OF
DIRECTORS OF CLASS A OF CLASS B TOTAL VOTING STOCK OF CLASS A OF CLASS B TOTAL VOTING
AND 5% STOCKHOLDERS(2) SHARES SHARES(3) POWER(4) OFFERED(5) SHARES SHARES(3) POWER(4)
- ---------------------- ---------- ---------- ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James L. Bildner(6)(7).. 2,304,762 499,048 88.2% - 1,659,762 499,048 72.3%
William G. Barton(7).... 2,304,762 489,524 88.1 - 1,659,762 489,524 72.2
George K. Ross.......... - 4,762 * - - 4,762 *
F. Thomas Latham........ - - * - - - *
Bryan McCaul............ 200,000 300,000 8.6 84,930 115,070 300,000 6.2
Bradley H. Nickels...... 200,000 300,000 8.6 84,930 115,070 300,000 6.2
Samuel Cabot III........ - 8,810 * - - 8,810 *
Ronald L. Rossetti...... - 14,524 * - - 14,524 *
All officers and
directors as a group
(11 persons)........... 2,304,762 1,616,668 92.0 169,860 1,659,762 1,616,668 76.6
OTHER SELLING
SHAREHOLDERS(2)(8)
- ------------------------
Greg Bowen.............. 187,013 300,000 8.2 67,710 119,303 300,000 6.3
Robert G. Butorac....... 178,355 300,000 7.8 84,930 93,425 300,000 5.2
Thomas Funk............. - 110,000 * 10,000 - 100,000 *
James B. Hinson......... 182,684 300,000 8.0 84,930 97,754 300,000 5.4
Wilson Hitchings........ 178,355 300,000 7.8 84,930 93,425 300,000 5.2
Leon Normand............ 178,355 300,000 7.8 84,930 93,425 300,000 5.2
Graham Pettifer......... 120,000 180,000 5.2 67,710 52,290 180,000 3.0
Deborah Rogers.......... - 75,000 * 20,000 - 55,000 *
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting power and
investment power with respect to shares. Shares issuable upon the exercise
of outstanding stock options that are currently exercisable or become
exercisable within 60 days from November 17, 1997 are considered
outstanding for the purpose of calculating the percentage of voting power
of such person but not for the purpose of calculating the percentage of
voting power of any other person. The number of shares subject to stock
options that are exercisable within 60 days of November 17, 1997 is as
follows: Mr. Bildner - 10,000 shares of Class A Common Stock; Mr. Barton -
10,000 shares of Class A Common Stock; Mr. Cabot - 5,000 shares of Class
B Common Stock; Mr. Rossetti - 5,000 shares of Class B Common Stock (which
options were issued to Riverside Capital Partners, Inc., an entity
controlled by Mr. Rossetti, and are therefore deemed to be beneficially
owned by Mr. Rossetti); Mr. Funk - 110,000 shares of Class B Common Stock;
Ms. Rogers - 75,000 shares of Class B Common Stock; and all officers and
directors as a group: 20,000 shares of Class A Common Stock and 10,000 of
Class B Common Stock.
(2) The address of each of the officers, directors and Selling Shareholders
listed above is c/o Tier Technologies, Inc., 1350 Treat Boulevard, Suite
250, Walnut Creek, CA 94596.
(3) Assumes the conversion of all outstanding shares of Series A Preferred
Stock into an equal number of shares of Class B Common Stock upon
completion of this offering.
(4) In calculating the percentage of total voting power, the voting power of
shares of Class A Common Stock (ten votes per share) and Class B Common
Stock (one vote per share) is aggregated.
(5) Assumes the conversion of 645,000 shares of Class A Common Stock into an
equal number of shares of Class B Common Stock upon sale in this offering
pursuant to the terms of the Company's Articles. See "Description of
Capital Stock."
(6) Includes 19,048 shares of Series A Preferred Stock held by Allen Bildner,
who is the father of James L. Bildner, as to which James L. Bildner
exercises investment discretion. James L. Bildner disclaims beneficial
ownership of such shares.
(7) Includes all shares of Class A Common Stock held in the Voting Trust as to
which Messrs. Bildner and Barton exercise voting control as trustees.
Messrs. Bildner and Barton disclaim beneficial ownership of 1,864,762
shares of Class A Common Stock prior to this offering and 1,219,762 shares
of Class A Common Stock after this offering. See "Description of Capital
Stock --Voting Trust."
(8) Employees of the Company.

44
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 2,304,762 shares of
Class A Common Stock, without par value, 42,600,000 shares of Class B Common
Stock, without par value, and 4,579,047 shares of Preferred Stock. As of
September 30, 1997, there were 2,284,762 shares of Class A Common Stock
outstanding held by ten holders of record, and 3,786,191 shares of Class B
Common Stock outstanding held by 43 holders of record.

CLASS A AND CLASS B COMMON STOCK

Voting Rights. Each share of Class A Common Stock entitles the holder to ten
votes and each share of Class B Common Stock entitles the holder to one vote
on all matters submitted to a vote of the shareholders. Except as described
below, holders of the Class A Common Stock and Class B Common Stock vote
together as a single class on all matters presented for a vote of the
shareholders. However, holders of the Class B Common Stock, voting as a
separate class, elect that number of Directors which is the largest integral
number which is less than 50% of the authorized number of Directors (i.e. two
of the present five directors) (the "Class B Specified Voting Right"). The
holders of Class A and Class B Common Stock, voting together, elect the
remaining members of the Board (i.e. three of the present five directors).
Immediately following this offering, the holders of Class A Common Stock will
retain effective control, and will continue to direct the business, management
and policies of the Company through holding 69.6% of the combined voting power
of the outstanding Class A and Class B Common Stock and the ability to elect
three of the currently authorized five members of the Board of Directors. The
holders of the Class A Common Stock also hold a number of shares of Class B
Common Stock that will represent 45.3% of the shares of Class B Common Stock
outstanding after this offering.

Directors may be removed with or without cause by the holders of the class
of stock that elected them or, to the extent permitted by applicable law, with
cause by the Board of Directors. A vacancy on the Board created by the removal
or resignation of a director or an increase in the authorized number of
directors may be filled either by directors in office or, if the directors
have not filled the vacancy, by the shareholders. Elections or appointments
for any such vacancies shall be made in accordance with the Class B Specified
Voting Right.

Voting Trust. All of the current holders of Class A Common Stock (the
"Beneficiaries") have transferred their Class A Common Stock into a Voting
Trust. James L. Bildner and William G. Barton are the trustees of the Voting
Trust (the "Trustees") and have the exclusive right to vote all shares of
Class A Common Stock held in the Voting Trust. Shares held in the Voting Trust
are evidenced by a voting trust certificate. The Voting Trust has a term of
ten years and is renewable by consent of the Beneficiaries and the Trustees
during the last two years of the original or an extended term. The Voting
Trust terminates upon the earlier of the expiration of the original or an
extended term or in the event of (i) an agreement of the Trustees to
terminate; or (ii) the death of the sole remaining Trustee, leaving no
incumbent or identified successor.

Shares of Class A Common Stock transferred to Messrs. Bildner and Barton
remain within the Voting Trust; however, Messrs. Bildner and Barton have each
agreed with the Underwriters that in the event any shares of Class A Common
Stock are transferred to him (other than a transfer by Messr. Bildner or
Barton to the other), he shall immediately convert all of such transferred
shares into shares of Class B Common Stock, which will cause such shares to be
removed from the Voting Trust. Shares of Class A Common Stock transferred to
any Beneficiary other than Messrs. Bildner and Barton, other than transfers of
Class A Common Stock into the Voting Trust or a transfer of such shares from
the Voting Trust back to the person or entity which transferred the shares
into the Voting Trust, will result in the conversion of such shares into an
equal number of shares of Class B Common Stock.

45
<PAGE>

Buy-Sell Agreement. Messrs. Bildner and Barton have entered into a buy-sell
agreement ("Buy-Sell Agreement") respecting their ownership of shares of Class
A Common Stock. Under the terms of the Buy-Sell Agreement, they each agree,
(i) that for five years from the date of the Buy-Sell Agreement they will not
voluntarily transfer their shares of Class A Common Stock, or their voting
trust certificates, if the transfer would result in a conversion of Class A
Common Stock to Class B Common Stock, and that after five years from the date
of the Buy-Sell Agreement, they grant each other a right of first refusal on
such shares on any such transfer; (ii) that on the death of one of them, the
other has an obligation to purchase the shares of Class A Common Stock (or the
voting trust certificate for such shares) of the deceased party; (iii) that
they will maintain life insurance policies at their own expense on each
others' lives to fund in part the obligation to purchase the shares at the
death of the other; (iv) that the Buy-Sell Agreement terminates on the
termination of the Voting Trust or if earlier, on the death of both parties;
(v) that the price for the shares of Class A Common Stock (or the voting trust
certificates) is the market price of the shares of Class B Common Stock on the
date that the right or obligation to purchase arises; and (vi) that there is
no restriction on the parties' ability to amend the Buy-Sell Agreement without
the consent of any other person.

Dividends. Holders of Class A and Class B Common Stock are entitled to
receive dividends at the same rate if, as and when declared by the Board of
Directors of the Company out of any funds legally available therefore, subject
to the dividend rights of any Preferred Stock that may be issued and
outstanding. If a dividend is declared on either class of Common Stock, a
proportionate dividend must be paid to the other. No dividend may be declared
or paid in shares of Class A Common Stock.

Convertibility. Each share of Class A Common Stock is convertible at any
time at the option of the holder into Class B Common Stock on a share-for-
share basis. Shares of Class A Common Stock will be automatically converted
into shares of Class B Common Stock on the happening of certain transfers
described below. Transfers of shares of Class A Common Stock are also subject
to the terms of the Voting Trust Agreement. The Class B Common Stock has no
conversion rights.

Each share of Class A Common Stock shall automatically be converted into
Class B Common Stock, on a share-for-share basis, in the event that the
beneficial or record ownership of such share of Class A Common Stock shall be
transferred (including, without limitation, by way of gift, settlement, will
or intestacy) to any person or entity except for (i) transfers to Messrs.
Bildner and Barton, subject to Messrs. Bildner and Barton's agreement with the
Underwriters that in the event any shares of Class A Common Stock are
transferred to him (other than a transfer by Messr. Bildner or Barton to the
other), he shall immediately convert all of such transferred shares into
shares of Class B Common Stock, which will cause such shares to be removed
from the Voting Trust; or (ii) a transfer of Class A Common Stock into the
Voting Trust, or a transfer of such shares from the Voting Trust back to the
person or entity which transferred the shares into the Voting Trust.

Liquidation Rights. In the event of the liquidation of the Company, after
satisfaction of amounts payable to creditors and distribution to the holders
of outstanding Preferred Stock, if any, of amounts to which they may be
preferentially entitled, holders of the Class A Common Stock and Class B
Common Stock are entitled to share ratably in the assets available for
distribution to the shareholders.

Other Provisions. There are no preemptive rights to subscribe to any
additional securities which the Company may issue and there are no redemption
provisions or sinking fund provisions applicable to the Class A or Class B
Common Stock, nor is either class subject to calls or assessments by the
Company. All outstanding shares are, and all shares to be outstanding upon
completion of this offering will be, legally issued, fully paid and
nonassessable.

PREFERRED STOCK

Upon the closing of this offering, all outstanding shares of Series A
Preferred Stock will be converted into 420,953 shares of Class B Common Stock.
See Note 7 of Notes to Consolidated Financial Statements for a description of
currently outstanding Preferred Stock. Following the conversion, the shares
converted will be retired from the number of authorized shares of Preferred
Stock.

46
<PAGE>

Under the Articles, the Board of Directors has the authority, without further
action by the shareholders, to issue up to 4,579,047 shares of Preferred Stock
in one or more series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon any unissued shares of Preferred Stock
and to fix the number of shares constituting any series and the designations of
such series. The issuance of Preferred Stock with voting or conversion rights
could adversely affect the voting power or other rights of the holders of
Common Stock and the likelihood that such holders will receive dividend
payments and payments upon liquidation may have the effect of delaying,
deferring or preventing a change in control of the Company. The Company has no
present intention to issue any Preferred Stock.

BYLAW PROVISIONS

The Company's Bylaws provide that special meetings of the shareholders may be
called only by the Board of Directors, the Chairman of the Board, the
President, the Chief Executive Officer of the Company, or by one or more
shareholders holding shares entitled to cast not less than 10% of the aggregate
votes entitled to be cast at such meeting. The Bylaws also provide that any
action which may be taken at any meeting of shareholders, subject to certain
exceptions relating to the election of directors, may be taken without a
meeting if written consents approving the action are signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to take such action at a meeting of shareholders. Accordingly,
immediately following this offering, the holders of Class B Common Stock will
have insufficient voting power, in the aggregate, to call special meetings of
shareholders and the holders of the Class A Common Stock may take certain
actions by written consent without formally convening a meeting of shareholders
and without giving prior notice to the holders of the Class B Common Stock. The
Bylaws provide that shareholders may not bring business before or nominate
directors at a meeting of shareholders unless certain advance notice
requirements are satisfied. In addition, the Articles and Bylaws provide for
the automatic elimination of the cumulative voting rights of shareholders in
the election of directors as soon as the Company has 800 shareholders of
record. Without cumulative voting, the holders of a majority of the voting
power of the Common Stock can determine the composition of the Board of
Directors.

REGISTRATION RIGHTS

The holders ("Registration Rights Holders") of 420,953 shares of Class B
Common Stock (upon the conversion of all outstanding shares of Series A
Preferred Stock into an equal number of shares of Class B Common Stock upon
completion of this offering) are entitled to certain rights with respect to
registration of such shares under the Securities Act, pursuant to an Investors'
Rights Agreement dated July 28, 1997. In particular, under certain
circumstances and subject to certain conditions, the Registration Rights
Holders can require the Company to register shares under the Act, which right
becomes exercisable one year from the closing of this offering. The
Registration Rights Holders were also granted certain "piggy-back" registration
rights, whereby on two occasions during the period beginning on July 28, 1997
and ending on July 27, 2002, they may include shares in any Company
registration of shares of Common Stock under the Securities Act, other than a
registration relating solely to employee benefit plans or a registration on a
form which does not permit the registration of shares by selling shareholders,
and subject to the ability of the Underwriters to limit the participation of
the Registration Rights Holders due to marketing concerns. All Registration
Rights Holders have waived registration rights with respect to this offering.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Class B Common Stock is ChaseMellon
Shareholder Services ("Chase"). Chase's address is 235 Montgomery Street, 23rd
Floor, San Francisco, California 94104, and its telephone number is (415) 743-
1444.

47
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial numbers of shares of Class B Common Stock of the
Company in the public market following this offering could adversely affect
the market price of the Class B Common Stock. Upon completion of this
offering, the Company will have outstanding 1,639,762 shares of Class A Common
Stock and 7,156,191 shares of Class B Common Stock. The Class A Common Stock
is convertible on a share-for-share basis into Class B Common Stock and must
be converted to effect any public sale of such stock. Of these shares, the
3,400,000 shares of Class B Common Stock sold in this offering will be freely
tradable without restriction under the Securities Act of 1933 (the "Securities
Act") except for any shares purchased by "affiliates" of the Company (as that
term is defined in Rule 144 under the Securities Act), which may generally
only be sold in compliance with Rule 144.

The 1,639,762 shares of Class A Common Stock and the remaining 3,756,191
shares of Class B Common Stock (the "Restricted Shares") were issued and sold
by the Company in private transactions in reliance upon exemptions under the
Securities Act. The Restricted Shares generally may be sold in the public
market only if registered under the Securities Act or sold in compliance with
Rule 144 or Rule 701.

Of the Restricted Shares, 374,042 shares of Class A Common Stock and
1,213,788 shares of Class B Common Stock will be eligible for sale in the
public market in reliance on Rule 144(k) immediately following the closing of
this offering and an additional 1,002,350 shares of Class A Common Stock and
1,300,920 shares of Class B Common Stock will be eligible for sale in the
public market pursuant to Rule 144 and Rule 701 under the Securities Act
beginning approximately 90 days after the date of this Prospectus.
Notwithstanding the foregoing, all of the Restricted Shares are subject to the
lock-up agreements described below.

Each of the Selling Shareholders and certain other shareholders, who will,
upon the closing of this offering, hold an aggregate of 779,762 shares of
Class A Common Stock and 2,413,812 shares of Class B Common Stock, and options
to purchase a total of 410,000 shares of Class B Common Stock, has agreed that
they will not offer, sell, contract to sell or otherwise dispose of any shares
of Common stock owned beneficially by them for a period of 365 days after the
date of this Prospectus, other than (i) with the prior written consent of
Adams, Harkness & Hill, Inc.; or (ii) a transfer of any or all of such Common
Stock either (A) during his or her lifetime, by bona fide gift, (B) upon his
or her death, by will or intestacy, or (C) to a trust, the beneficiaries of
which are exclusively the transferor or members of his or her immediate
family, provided that such transferee agrees in writing to be bound by the
foregoing restrictions.

Each executive officer, director, current shareholder or optionee, other
than the Selling Shareholders and certain other shareholders, who will, upon
the closing of this offering, hold an aggregate of 860,000 shares of Class A
Common Stock and 1,342,379 shares of Class B Common Stock and options to
purchase a total of 20,000 shares of Class A Common Stock and a total of
1,303,075 shares of Class B Common Stock, has agreed that they will not offer,
sell, contract to sell or otherwise dispose of any shares of Common stock
owned beneficially by them for a period of 180 days after the date of this
Prospectus, other than (i) with the prior written consent of Adams, Harkness &
Hill, Inc.; or (ii) a transfer of any or all of such Common Stock either (A)
during his or her lifetime, by bona fide gift, (B) upon his or her death, by
will or intestacy, or (C) to a trust, the beneficiaries of which are
exclusively the transferor or members of his or her immediate family, provided
that the transferee agrees in writing to be bound by the foregoing
restrictions.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be affiliates of the
Company, whose Restricted Shares have been fully paid for and held for at
least a year from the later of the date of the issuance by the Company or
acquisition from an affiliate of the Company, may sell such securities in
brokers' transactions or directly to market makers beginning approximately 90
days after the date of this Prospectus, provided the number of shares sold in
any three-month period does not exceed the greater of 1% of the then
outstanding shares of the Class B Common Stock (approximately 71,562 shares,
based on the number of shares to be outstanding

48
<PAGE>

after this offering) or the average weekly trading volume in the public market
during the four calendar weeks preceding the filing of the seller's Form 144.
Sales under Rule 144 are also subject to certain notice of sale requirements
and availability of current public information concerning the Company. After
two years have elapsed from the later of the issuance of Restricted Shares by
the Company or their acquisition from an affiliate of the Company, such shares
may be sold without limitation, pursuant to Rule 144(k), by persons who have
not been affiliates of the Company for at least three months. Rule 144 also
provides that affiliates who are selling shares that are not Restricted Shares
must nonetheless comply with the same restrictions applicable to Restricted
Shares with the exception of the holding period requirement.

Restricted Shares that have been issued in reliance on Rule 701 (such as
shares of Class B Common Stock issued under the Plan) may be resold by persons
other than affiliates of the Company, beginning approximately 90 days after
the date of this Prospectus, subject only to the manner of sale provisions of
Rule 144, and may be resold by affiliates of the Company under Rule 144
without compliance with its one-year holding period requirement.

Rule 144A under the Securities Act would permit, subject to certain
conditions, the sale by the current holders of Restricted Shares of all or a
portion of their shares to certain "qualified institutional buyers," as
defined in Rule 144A.

Certain shareholders of the Company hold registration rights. See
"Description of Capital Stock - Registration Rights." If such holders exercise
their demand registration rights and cause a large number of shares to be
registered and sold in the public market, such sales may have a material
adverse effect on the market price of the Class B Common Stock. If the Company
is required in a Company-initiated registration to register the shares held by
such holders pursuant to the exercise of their piggyback registration rights,
such sales may have a material adverse effect on the Company's ability to
raise needed capital.

At September 30, 1997, the Company had outstanding options to purchase
20,000 shares of Class A Common Stock and 1,713,075 shares of Class B Common
Stock, of which 20,000 shares of Class A Common Stock and 177,498 of Class B
Common Stock were exercisable. After the completion of this offering, the
Company intends to file a Form S-8 registration statement under the Securities
Act to register all shares of Class B Common Stock issuable under the Plan and
the Purchase Plan. The S-8 registration statement will become effective
immediately upon filing. Shares of Class B Common Stock issued pursuant to the
S-8 registration statement will be eligible for resale in the public market,
subject to the Rule 144 limitations applicable to affiliates of the Company.

Prior to this offering there has been no public market for the Class B
Common Stock of the Company and no prediction can be made as to the effect, if
any, that market sales of shares or the availability of shares for sale will
have on the market price of the Class B Common Stock prevailing from time to
time. Sales of substantial numbers of shares of Class B Common Stock in the
public market could adversely affect the market price of the Class B Common
Stock and could impair the Company's ability to raise capital through a sale
of its equity securities.

49
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Shareholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Adams,
Harkness & Hill, Inc. and NationsBanc Montgomery Securities, Inc. are acting as
representatives (the "Representatives"), has severally agreed to purchase from
the Company and the Selling Shareholders, the respective numbers of shares of
Class B Common Stock set forth opposite each Underwriter's name below:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF CLASS B
UNDERWRITER COMMON STOCK
----------- -----------------
<S> <C>
Adams, Harkness & Hill, Inc. .............................. 1,150,000
NationsBanc Montgomery Securities, Inc..................... 1,150,000
BancAmerica Robertson Stephens............................. 100,000
BT Alex. Brown Incorporated................................ 100,000
Cowen & Company............................................ 100,000
Deutsche Morgan Grenfell Inc............................... 100,000
Donaldson, Lufkin & Jenrette Securities Corporation........ 100,000
Furman Selz LLC............................................ 100,000
Hambrecht & Quist LLC...................................... 100,000
Lehman Brothers Inc. ...................................... 100,000
PaineWebber Incorporated................................... 100,000
Robert W. Baird & Co., Inc................................. 50,000
William Blair & Company, L.L.C............................. 50,000
Friedman, Billings, Ramsey & Co., Inc...................... 50,000
Needham & Company, Inc..................................... 50,000
---------
Total.................................................... 3,400,000
=========
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all shares offered hereby, if
any are taken.

The Underwriters propose to offer the shares of Class B Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at
such price less a concession not in excess of $0.33 per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $0.10
per share to certain brokers and dealers. After the shares of Class B Common
Stock are released for sale to the public, the offering price and other selling
terms may from time to time be varied by the Representatives.

The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 510,000
additional shares of Class B Common Stock to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 3,400,000 shares of Class B
Common Stock offered hereby. The Underwriters may exercise such option only to
cover over-allotments in connection with the sale of the 3,400,000 shares of
Class B Common Stock offered hereby.

The Company, all of the executive officers and directors of the Company,
certain holders of Common Stock and certain of the option holders have agreed,
subject to certain exceptions, not to offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of Adams,
Harkness & Hill, Inc. All Selling

50
<PAGE>

Shareholders and certain holders of Common Stock have agreed, subject to
certain exceptions, not to offer, sell, contract to sell or otherwise dispose
of any shares of Common Stock for a period of 365 days after the date of this
Prospectus without the prior written consent of Adams, Harkness & Hill, Inc.

The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.

In order to facilitate the offering of the Class B Common Stock, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class B Common Stock. Specifically, the Underwriters
may over-allot the Class B Common Stock in connection with this offering,
creating a short position in the Class B Common Stock for their own account. In
addition, to cover over-allotments or to stabilize the price of the Class B
Common Stock, the Underwriters may bid for, and purchase, shares of the Class B
Common Stock in the open market. The Underwriters may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing Class B
Common Stock in this offering, if the Underwriters repurchase previously
distributed the Class B Common Stock in transactions to cover their short
positions, in stabilization transactions or otherwise. Finally, the
Underwriters may bid for, and purchase, shares of the Class B Common Stock in
market making transactions and impose penalty bids. These activities may
stabilize or maintain the market price of the Class B Common Stock above the
market level that may otherwise prevail. The Underwriters are not required to
engage in these activities, and may terminate any such activities at any time.

Prior to this offering, there has been no public market for the Class B
Common Stock. The initial public offering price has been negotiated among the
Company and the Representatives. Among the factors considered in determining
the initial public offering price of the Common Stock, in addition to
prevailing market conditions, were the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.

The Class B Common Stock has been approved for quotation and trading on the
Nasdaq National Market under the symbol "TIER."

The Company and the Selling Shareholders have agreed to indemnify the several
Underwriters against, or contribute to losses arising out of, certain
liabilities, including liabilities under the Securities Act.

In July 1997, the Company issued 420,953 shares of Series A Preferred Stock,
resulting in aggregate proceeds of approximately $2.2 million. Certain
employees of Adams, Harkness & Hill, Inc., one of the Representatives,
purchased an aggregate of 38,574 shares of the Company's Series A Preferred
Stock for an aggregate purchase price of approximately $203,000, which upon the
closing of this offering, will convert into 38,574 shares of the Company's
Class B Common Stock. Such individuals have agreed not to offer, sell, contract
to sell or otherwise dispose of such shares of Common Stock for a period of 365
days after the date of this Prospectus. For services as placement agent in
connection with the Series A Preferred Stock financing, Adams, Harkness & Hill,
Inc. received approximately $100,000 (approximately $68,000 net of certain
expenses). In August 1997, AH&H Partners Fund Limited Partnership, a related
party to Adams, Harkness & Hill, Inc., purchased 95,238 shares of the Company's
Class B Common Stock from certain of the Company's shareholders for an
aggregate purchase price of approximately $500,000. See "Certain Transactions."
AH&H Partners Fund Limited Partnership has agreed not to offer, sell, contract
to sell or otherwise dispose of such shares of Common Stock for a period of 365
days after the date of this Prospectus.

51
<PAGE>

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Farella Braun & Martel LLP, San Francisco, California.
Certain legal matters with respect to this offering are being passed upon for
the Underwriters by Cooley Godward LLP, San Diego, California.

EXPERTS

The Consolidated Financial Statements of Tier Technologies, Inc. as of
December 31, 1996 and September 30, 1997 and each of the two years in the
period ended December 31, 1996 and for the nine-month period ended September
30, 1997 and the financial statements of Encore Consulting, Inc. as of December
31, 1996 and for the period from April 15, 1996 (inception) through December
31, 1996 appearing in this Prospectus and the Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.

The financial statements of Albanycrest Limited as of June 30, 1997 and for
the period from November 13, 1996 (inception) through June 30, 1997 appearing
in this Prospectus and the Registration Statement have been audited by Ernst &
Young, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as expert in accounting and audit.

ADDITIONAL INFORMATION

A Registration Statement on Form S-1, including amendments thereto, relating
to the Class B Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission, Washington, D.C. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference to such
exhibit. For further information with respect to the Company and the Class B
Common Stock offered hereby, reference is made to such Registration Statement,
exhibits and schedules. A copy of the Registration Statement may be inspected
without charge at the public reference facilities maintained by the Commission
at 450 Fifth Street, NW, Judiciary Plaza, Washington D.C. 20549 and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained from the Public Reference Section of the Commission, Room 1024
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its public
reference facilities in New York, New York and Chicago, Illinois, and copies of
all or any part thereof may be obtained from the Commission upon the payment of
certain fees prescribed by the Commission. The Registration Statement,
including the exhibits and schedules thereto, is also available at the
Commission's web site at www.sec.gov. Copies of reports, proxy and information
statements and other information regarding the Company will be available at the
Commission's web site.

52
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

TIER TECHNOLOGIES, INC.

<TABLE>
<S> <C>
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Income........................................ F-4
Consolidated Statements of Shareholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
ENCORE CONSULTING, INC.
Report of Independent Auditors........................................... F-20
Balance Sheet............................................................ F-21
Statement of Income...................................................... F-22
Statement of Shareholders' Equity........................................ F-23
Statement of Cash Flows.................................................. F-24
Notes to Financial Statements............................................ F-25
ALBANYCREST LIMITED
Report of Independent Auditors........................................... F-27
Balance Sheet............................................................ F-28
Statement of Income...................................................... F-29
Statement of Shareholders' Equity........................................ F-30
Statement of Cash Flows.................................................. F-31
Notes to Financial Statements............................................ F-32
SELECTED UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
Introduction............................................................. F-34
Selected Unaudited Pro Forma Condensed Consolidated Statement of Income
for the Nine Months Ended September 30, 1997............................ F-35
Notes to the Selected Unaudited Pro Forma Consolidated Financial
Statements.............................................................. F-36
</TABLE>

F-1
<PAGE>

TIER TECHNOLOGIES, INC.

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Tier Technologies, Inc.

We have audited the accompanying consolidated balance sheets of Tier
Technologies, Inc. as of December 31, 1996 and September 30, 1997, and the
related consolidated statements of income, shareholders' equity, and cash
flows for the years ended December 31, 1995 and 1996 and for the nine month
period ended September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tier Technologies, Inc. at
December 31, 1996 and September 30, 1997, and the results of its operations
and its cash flows for the years ended December 31, 1995 and 1996 and for the
nine month period ended September 30, 1997 in conformity with generally
accepted accounting principles.

Ernst & Young LLP

Walnut Creek, California
October 6, 1997, except for Note 14,
as to which the date is November 14, 1997

F-2
<PAGE>

TIER TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
EQUITY
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................ $ 305,546 $ 106,435
Accounts receivables, net of
allowance for doubtful accounts of
$-0- in 1996 and $50,000 in 1997... 2,978,119 5,905,809
Income taxes receivable............. 26,750 693,235
Prepaid expenses and other current
assets............................. 73,018 285,779
---------- -----------
Total current assets.................. 3,383,433 6,991,258
Equipment and improvements, net....... 337,184 773,666
Notes receivable from shareholders.... - 942,426
Deferred financing costs.............. - 223,597
Other assets.......................... 412,048 1,891,863
---------- -----------
Total assets.......................... $4,132,665 $10,822,810
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under bank lines of
credit............................. $ 223,116 $ 1,232,111
Accounts payable.................... 841,979 1,373,358
Accrued liabilities................. 35,390 652,322
Accrued compensation and related
liabilities........................ 785,378 1,228,295
Deferred revenue.................... 54,309 33,762
Notes payable to current and former
shareholders....................... 69,487 52,704
Capital lease obligations due within
one year........................... 42,690 31,198
Deferred income taxes............... 139,663 153,116
---------- -----------
Total current liabilities............. 2,192,012 4,756,866
Borrowings under bank lines of credit,
less current portion................. 432,916 1,526,441
Accrued royalties..................... - 59,385
Notes payable to current and former
shareholders, less current portion... 96,960 57,244
Capital lease obligations, less
current portion...................... 46,193 24,944
Deferred income taxes................. 336,631 234,656
Commitments and contingent liabilities
Shareholders' equity:
Convertible preferred stock, no par
value;
Authorized shares - 5,000,000 (pro
forma - 4,579,047)
Issued and outstanding shares -
none in 1996 and 420,953 in
1997 (pro forma - none).......... - 1,892,223 $ -
Common stock, no par value;
Authorized shares - 14,904,762 (pro
forma - 14,904,762)
Issued and outstanding shares -
4,300,000 in 1996 and 5,620,000
in 1997 (pro forma - 6,040,953)... 78,812 2,948,852 4,841,075
Notes receivable from shareholders.. (94,830) (2,253,430) (2,253,430)
Foreign currency translation
adjustment......................... - (40,198) (40,198)
Retained earnings................... 1,043,971 1,615,827 1,615,827
---------- ----------- -----------
Total shareholders' equity............ 1,027,953 4,163,274 $ 4,163,274
---------- ----------- ===========
Total liabilities and shareholders'
equity............................... $4,132,665 $10,822,810
========== ===========
</TABLE>

See accompanying notes.

F-3
<PAGE>

TIER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------------
1995 1996 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues...................... $12,373,309 $16,197,466 $11,790,231 $22,478,643
Cost of revenues.............. 9,065,832 11,616,662 8,668,805 14,916,846
----------- ----------- ----------- -----------
Gross profit.................. 3,307,477 4,580,804 3,121,426 7,561,797
Costs and expenses:
Selling and marketing....... 626,954 975,236 576,967 1,836,082
General and administrative.. 1,560,589 2,573,942 1,774,601 4,397,315
Depreciation and
amortization............... 45,018 80,350 55,546 273,676
----------- ----------- ----------- -----------
Income from operations........ 1,074,916 951,276 714,312 1,054,724
Interest income............... 435 3,866 3,065 70,429
Interest expense.............. 61,504 77,625 53,468 169,299
----------- ----------- ----------- -----------
Income before income taxes.... 1,013,847 877,517 663,909 955,854
Provision for income taxes.... 570,336 351,007 265,563 383,998
----------- ----------- ----------- -----------
Net income.................... $ 443,511 $ 526,510 $ 398,346 $ 571,856
=========== =========== =========== ===========
Net income per share.......... $ 0.04 $ 0.07 $ 0.05 $ 0.08
=========== =========== =========== ===========
Shares used in computing net
income per share............. 12,199,274 7,125,575 7,357,410 6,735,432
=========== =========== =========== ===========
</TABLE>

See accompanying notes.

F-4
<PAGE>

TIER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND THE NINE MONTHS ENDED SEPTEMBER
30, 1997

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK NOTES FOREIGN
------------------ ---------------------------------------------- RECEIVABLE CURRENCY
CLASS A CLASS B FROM TRANSLATION RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHAREHOLDERS ADJUSTMENT EARNINGS
------- ---------- ---------- ---------- ---------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1994............. - $ - 4,600,000 $ 46,000 6,900,000 $ 69,000 $ - $ - $ 73,950
Retirement of
common stock and
assumption of
liabilities by
Tier Group
partners upon
the dissolution
of the
partnership..... - - (2,200,000) 82,662 (3,300,000) 123,993 (94,830) - -
Issuance of
common stock for
cash and notes
receivable...... - - 200,000 14,644 300,000 21,966 (31,610) - -
Repurchase of
common stock.... - - (400,000) (30,759) (600,000) (46,139) - - -
Net income...... - - - - - - - 443,511
------- ---------- ---------- ---------- ---------- ---------- ----------- -------- ----------
Balance at
December 31,
1995............. - - 2,200,000 112,547 3,300,000 168,820 (126,440) - 517,461
Repurchase of
common stock.... - - (480,000) (81,022) (720,000) (121,533) 31,610 - -
Net income...... - - - - - - - - 526,510
------- ---------- ---------- ---------- ---------- ---------- ----------- -------- ----------
Balance at
December 31,
1996............. - - 1,720,000 31,525 2,580,000 47,287 (94,830) - 1,043,971
Issuance of
Series A
convertible
preferred stock
for cash, net of
issuance costs
of $317,778..... 420,953 1,892,223 (95,238) (1,746) 95,238 1,746 - - -
Exercise of
stock options... - - 660,000 1,350,040 660,000 846,000 (2,196,040) - -
Tax benefit of
exercise of
stock options... - - - 269,600 - 404,400 - - -
Payment on notes
receivable...... - - - - - - 37,440 - -
Net income...... - - - - - - - - 571,856
Foreign currency
translation
adjustment...... - - - - - - - (40,198) -
------- ---------- ---------- ---------- ---------- ---------- ----------- -------- ----------
Balance at
September 30,
1997............. 420,953 $1,892,223 2,284,762 $1,649,419 3,335,238 $1,299,433 $(2,253,430) $(40,198) $1,615,827
======= ========== ========== ========== ========== ========== =========== ======== ==========
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
-------------
<S> <C>
Balance at
December 31,
1994............. $ 188,950
Retirement of
common stock and
assumption of
liabilities by
Tier Group
partners upon
the dissolution
of the
partnership..... 111,825
Issuance of
common stock for
cash and notes
receivable...... 5,000
Repurchase of
common stock.... (76,898)
Net income...... 443,511
-------------
Balance at
December 31,
1995............. 672,388
Repurchase of
common stock.... (170,945)
Net income...... 526,510
-------------
Balance at
December 31,
1996............. 1,027,953
Issuance of
Series A
convertible
preferred stock
for cash, net of
issuance costs
of $317,778..... 1,892,223
Exercise of
stock options... -
Tax benefit of
exercise of
stock options... 674,000
Payment on notes
receivable...... 37,440
Net income...... 571,856
Foreign currency
translation
adjustment...... (40,198)
-------------
Balance at
September 30,
1997............. $4,163,274
=============
</TABLE>

See accompanying notes.

F-5
<PAGE>

TIER TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- -----------------------
1995 1996 1996 1997
----------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................... $ 443,511 $ 526,510 $ 398,346 $ 571,856
Adjustments to reconcile net
income to net cash (used in)
provided by operating
activities:
Depreciation and
amortization................ 45,018 80,350 55,547 273,676
Provision for doubtful
accounts.................... - - - 50,000
Deferred income taxes........ 570,336 (94,042) - (88,522)
Change in operating assets
and liabilities:
Accounts receivable......... (1,231,926) (420,868) (634,325) (2,739,995)
Income taxes receivable..... - (26,750) (5,261) (666,485)
Prepaid expenses and other
current assets............. 11,592 (72,218) (100,771) (213,861)
Other assets................ (9,405) (31,234) 281 (55,912)
Accounts payable and accrued
liabilities................ 14,661 487,793 534,951 1,234,267
Deferred revenue............ (20,972) 41,438 - (20,547)
----------- --------- --------- -----------
Net cash (used in) provided by
operating activities......... (177,185) 490,979 248,768 (1,655,523)
INVESTING ACTIVITIES
Purchase of equipment and
improvements................. (116,039) (145,449) (49,716) (553,867)
Notes receivable from
shareholders................. - - - (958,482)
Business combinations, net of
cash acquired................ - (152,008) - (1,384,387)
----------- --------- --------- -----------
Net cash used in investing
activities................... (116,039) (297,457) (49,716) (2,896,736)
FINANCING ACTIVITIES
Borrowings under bank lines of
credit....................... 443,322 688,116 312,307 10,356,122
Payment of borrowings on bank
lines of credit.............. (160,000) (450,000) (400,000) (8,253,602)
Repurchase of common stock.... (36,898) (36,635) (36,635) -
Net proceeds from issuance of
common stock................. 5,000 - - -
Net proceeds from sale of
preferred stock.............. - - - 1,892,223
Repayment by shareholder on
note receivable.............. - - - 37,440
Deferred financing costs...... - - - (223,597)
Tax benefit of exercise of
stock option................. - - - 674,000
Payments on capital lease
obligations.................. (15,517) (46,594) (40,240) (32,741)
Borrowings under (payments on)
notes payable to
shareholders................. 35,000 (42,863) (34,484) (56,499)
----------- --------- --------- -----------
Net cash provided by (used in)
financing activities......... 270,907 112,024 (199,052) 4,393,346
Effect of exchange rate
changes on cash.............. - - - (40,198)
----------- --------- --------- -----------
Net (decrease) increase in
cash......................... (22,317) 305,546 - (199,111)
Cash at beginning of year..... 22,317 - - 305,546
----------- --------- --------- -----------
Cash at end of year........... $ - $ 305,546 $ - $ 106,435
=========== ========= ========= ===========
Supplemental disclosures of
cash flow information:
Cash paid during the year
for:
Interest..................... $ 54,760 $ 74,789 $ 53,468 $ 170,188
=========== ========= ========= ===========
Income taxes paid............ $ 800 $ 472,600 $ 322,600 $ 465,000
=========== ========= ========= ===========
Equipment acquired under
capital lease obligations... $ 130,512 $ 8,734 $ 8,734 $ -
=========== ========= ========= ===========
Retirement of common stock
and assumption of
liabilities by Tier Group
partners upon the
dissolution of the
partnership................. $ 111,825 $ - $ - $ -
=========== ========= ========= ===========
Common stock issued in
exchange for notes
receivable.................. $ 126,440 $ - $ - $ 2,196,040
=========== ========= ========= ===========
Repurchase of common stock in
exchange for forgiveness of
notes receivable............ $ - $ 31,610 $ 31,610 $ -
=========== ========= ========= ===========
Repurchase of common stock in
exchange for a note
payable..................... $ 40,000 $ 134,310 $ 134,310 $ -
=========== ========= ========= ===========
Accrued purchase price and
assumed liabilities related
to business combinations.... $ - $ 427,049 $ - $ 715,949
=========== ========= ========= ===========
</TABLE>

See accompanying notes.

F-6
<PAGE>

TIER TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Tier Technologies, Inc. (the "Company") provides information technology
consulting, application development and software engineering services to large
companies and government entities.

The Company was formerly owned by Tier Group (a partnership) and its
partners. In November 1995, the partners of Tier Group transferred all of the
assets of the partnership to the Company and simultaneously dissolved the
partnership. In conjunction with this dissolution, certain partners assumed
the outstanding liabilities of Tier Group and other partners contributed
additional capital in the form of notes payable to the Company. As a result of
the transaction, the shares owned by Tier Group were retired and the partners
of Tier Group retained identical ownership and voting percentages. The
transferred assets and liabilities of Tier Group were recorded at historical
cost.

Basis of Presentation

The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The Company translates the accounts of its
foreign subsidiaries using the local foreign currency as the functional
currency. The assets and liabilities of the foreign subsidiaries are
translated into U.S. dollars using exchange rates in effect at the balance
sheet date, revenues and expenses are translated using the average exchange
rate for the period, and gains and losses from this translation process are
credited or charged to shareholders' equity. Foreign currency transaction
gains and losses have not been material.

In September 1997, the Company changed its fiscal year end to September 30.

Use of Estimates

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 and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.

Interim Financial Information

The interim financial statements for the nine months ending September 30,
1996 are unaudited but have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, that the Company considers necessary for a fair
presentation of its results of operations and cash flows for this period.
Operating results for the nine months ended September 30, 1996 and 1997 are
not necessarily indicative of the results that may be expected for any future
periods.

Revenue Recognition

The majority of the Company's revenues are 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.
Losses on contracts are recognized when they become known. Actual results of
contracts may differ from management's estimates and such differences could be
material. 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 could have a material adverse effect on the Company's business,
financial condition and results of operations. Unbilled receivables were $0
and $676,021 at December 31, 1996 and September 30, 1997, respectively.
Unbilled receivable for one client accounted for 11% of total accounts
receivables at September 30, 1997.

F-7
<PAGE>

TIER TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

REVENUE RECOGNITION - (CONTINUED)

Revenues derived from sales to governmental agencies were $799,211,
$2,709,706 and $10,133,147 for the years ended December 31, 1995 and 1996 and
the nine month period ending September 30, 1997, respectively.

Credit Evaluations and Significant Clients

The Company extends credit based on an evaluation of its client's financial
condition and does not require collateral. The Company's historical credit
losses have not been significant.

During the nine months ending September 30, 1997, sales to three clients
totaled $5,019,140, $4,734,373 and $4,436,656, which represented 22%, 21% and
20% of total revenues, respectively. Accounts receivable balances at September
30, 1997 relating to these three clients amounted to $1,610,627. During 1996,
sales to two clients totaled $9,471,534 and $2,338,730, which represented 59%
and 15% of total revenues, respectively. Accounts receivable balances at
December 31, 1996 relating to these two clients amounted to $1,727,702. During
1995, sales to one client totaled $8,423,946, which represented approximately
68% of total revenues.

Equipment and Improvements

Equipment and improvements are stated at cost. Depreciation and amortization
are computed using the straight-line method over the shorter of the estimated
useful life of the asset or the lease term, which range from three to five
years.

Long-Lived Assets

The Company records impairment losses on long-lived assets used in
operations, such as equipment and improvements, and intangible assets when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the carrying amount of the
assets.

Deferred Financing Costs

Deferred financing costs represent costs incurred in connection with this
proposed initial public offering of the Company's Class B common stock. This
amount will be recorded as a reduction of shareholders' equity upon the
successful completion of the initial public offering of Class B common stock.

Stock-Based Compensation

The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and in the year ended December 31, 1996 adopted the
disclosure-only alternative described in Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123").

Income Taxes

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes," ("FAS
109"), which requires the use of the liability method in accounting for income
taxes. Under this method, deferred income tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using enacted tax rules and laws that
are expected to be in effect when the differences are expected to reverse.

F-8
<PAGE>

TIER TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

Net Income Per Share

Except as noted below, net income per share is computed using the weighted
average number of common shares outstanding. Common equivalent shares from
stock options (using the treasury stock method) have been included in the
computation only when dilutive. Pursuant to applicable Securities and Exchange
Commission ("SEC") Staff Accounting Bulletins, common and common equivalent
shares (stock options and preferred stock) issued during the period commencing
12 months prior to the initial filing of a proposed public offering at prices
below the assumed public offering price have been included in the calculation
as if they were outstanding for all periods presented (using the treasury
stock method for stock options and warrants and the as-if-converted method for
preferred stock at the estimated initial public offering price).

Pro Forma Shareholders' Equity (unaudited)

The Company's pro forma shareholders' equity as of September 30, 1997 gives
effect to the automatic conversion of all preferred stock outstanding into an
aggregate of 420,953 shares of Class B common stock, effective upon the
closing of the Company's initial public offering.

Reclassifications

Certain reclassifications have been made to the prior years' financial
statements to conform to the current year presentation.

Impact of Recently Issued Accounting Standards

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("FAS 128"), which is required to be adopted in
fiscal year 1998. At that time the Company will be required to change the
method currently used to compute earnings per share and to restate earnings
per share for all prior periods.

Under the new requirements for calculating basic (primary) earnings per
share, the dilutive effect of common stock equivalents will be excluded.
Diluted earnings per share will include the dilutive effect of common stock
equivalents. The impact of FAS 128 will not be significant to the calculation
of primary or fully diluted earnings per share.

In June 1997, the Financial Accounting Standards Board issued Statement No.
130 "Reporting Comprehensive Income," ("FAS 130"), and Statement No. 131
"Disclosure about Segments of an Enterprise and Related Information" ("FAS
131"). The Company is required to adopt these Statements in fiscal year 1999.
FAS 130 establishes new standards for reporting and displaying comprehensive
income and its components. FAS 131 requires disclosure of certain information
regarding operating segments, products and services, geographic areas of
operation and major customers. Adoption of these Statements is expected to
have no impact on the Company's consolidated financial position, results of
operations or cash flows.

F-9
<PAGE>

TIER TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)

2. EQUIPMENT AND IMPROVEMENTS

The components of equipment and improvements are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Computer equipment and software............... $ 441,229 $ 870,180
Furniture, equipment and leasehold
improvements................................. 58,901 183,816
--------- ----------
500,130 1,053,996
Less accumulated depreciation and
amortization................................. (162,946) (280,330)
--------- ----------
$ 337,184 $ 773,666
========= ==========
</TABLE>

The cost of assets acquired under capital leases is $155,382 and $155,382
and the related accumulated amortization is $49,723 and $71,727 at December
31, 1996 and September 30, 1997, respectively.

3. OTHER ASSETS

The components of other assets are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Intangible assets:
Acquired client contracts and client lists,
less accumulated amortization of $820 in 1996
and $131,638 in 1997......................... $304,657 $1,537,294
Acquired workforce, less accumulated
amortization of $200 in 1996 and $17,951 in
1997......................................... 43,176 217,285
Acquisition costs and long-term receivables.... 29,535 105,736
Deposits....................................... 34,680 31,548
-------- ----------
$412,048 $1,891,863
======== ==========
</TABLE>

The costs of intangible assets acquired through acquisitions have been
recorded at the estimated fair value based on the allocation of purchase price
and are being amortized over a six-year period.

4. BANK LINES OF CREDIT

The Company has a credit agreement with a bank which provides for lines of
credit of up to $2,250,000 for general corporate purposes and $1,500,000 for
acquisition purposes (including up to $500,000 for stand-by letters of
credit). The lines of credit bear interest at the bank's prime rate (8.5% at
September 30, 1997) plus 1.5% and 1.75%, respectively. Total borrowings are
limited to the lesser of $3,750,000 or 85% of eligible accounts receivable and
are secured by the Company's assets. At December 31, 1996 and September 30,
1997, the outstanding borrowings were $555,532 and $2,417,813, respectively.
Interest payments are due monthly. At May 31, 1998 all outstanding principal
and remaining interest borrowed under the $2,250,000 line of credit becomes
due and payable. At December 31, 1997 all outstanding principal and remaining
interest borrowed under the $1,500,000 line of credit will convert into a term
loan to be repaid over four years.

The Company also has an equipment line of credit agreement with the same
bank. Under the agreement, the Company may borrow up to $399,500 through May
31, 1998 at variable interest rates of 1.75% above the bank's prime rate. At
December 31, 1996 and September 30, 1997, the Company has

F-10
<PAGE>

TIER TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)

4. BANK LINES OF CREDIT - (CONTINUED)

outstanding borrowings of $100,500 and $252,440, respectively, of this amount.
Interest payments are due monthly and, at six-month intervals, all outstanding
principal and interest converts into term loans to be repaid over three years.

At September 30, 1997, the Company has an equipment term loan of $88,299
with the same bank which matures August 31, 2001 at a variable interest rate
of 1.75% above the bank's prime rate. Accrued interest and principal are due
monthly through maturity.

Certain executive officers have personally guaranteed the bank lines of
credit.

Among other provisions, the bank lines of credit requires the Company to
maintain certain minimum financial ratios. At September 30, 1997, the Company
was not in compliance with certain financial ratios and has received a letter
from the bank waiving such noncompliance.

Payments on the outstanding balances of the lines of credit and term loan
will be made as follows:

<TABLE>
<S> <C>
Years ending September 30,
1998........................................................ $1,232,111
1999........................................................ 448,043
2000........................................................ 496,186
2001........................................................ 469,468
2002 and thereafter......................................... 112,744
----------
$2,758,552
==========
</TABLE>

5. NOTES PAYABLE TO CURRENT AND FORMER SHAREHOLDERS

The unsecured notes payable to current and former shareholders are payable
at interest rates ranging from 8.25% to 9.00%. The notes payable to current
and former shareholders are payable as follows:

<TABLE>
<S> <C>
Years ending September 30,
1998.......................................................... $ 52,704
1999.......................................................... 23,743
2000.......................................................... 25,824
2001.......................................................... 7,677
--------
$109,948
========
</TABLE>

F-11
<PAGE>

TIER TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)

6. COMMITMENTS

The Company leases its principal facilities and certain equipment under
operating and capital leases which expire at various dates through 2001.
Future minimum lease payments for noncancellable leases with terms of one year
or more are as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- -------
<S> <C> <C>
Years ending September 30,
1998................................................. $ 325,079 $31,198
1999................................................. 304,442 21,606
2000................................................. 251,356 17,072
2001................................................. 224,376 -
2002................................................. 37,396 -
---------- -------
Total minimum lease payments......................... $1,142,649 69,876
==========
Less amounts representing interest................... (13,734)
-------
Present value of capital lease obligations........... 56,142
Less amounts due within one year..................... (31,198)
-------
$24,944
=======
</TABLE>

Rent expense for years ended December 31, 1995 and 1996 and the nine months
ending September 30, 1997 was $93,616, $163,700 and $183,823, respectively.

7. SHAREHOLDERS' EQUITY

Common Stock

In February 1997, the Company's Board of Directors authorized two classes of
common stock, Class A common stock (2,400,000 shares authorized) and Class B
common stock (12,600,000 shares authorized). Each then outstanding share of
common stock was converted into 40 shares of Class A common stock and 60
shares of Class B common stock. All share and per share information in the
accompanying financial statements has been retroactively adjusted to reflect
this conversion.

The holders of Class A and Class B common stock have 10 votes and 1 vote,
respectively. Each Class A common stock will convert into one share of Class B
common stock upon transfer, except in limited circumstances, or at the
election of the holder of such Class A common stock. Upon conversion of shares
of Class A common stock into shares of Class B common stock, such Class A
common stock shares are retired from the authorized shares and are not
reissuable by the Company. As a result of such conversions, the number of
authorized shares of Class A common stock is 2,304,762 at September 30, 1997.

Convertible Preferred Stock

In July 1997, the Company issued 420,953 shares of Series A preferred stock
at $5.25 per share resulting in net proceeds of approximately $1.9 million.
Each holder of Series A preferred stock may convert such holder's preferred
stock to shares of Class B common stock. The Series A preferred stock has the
same voting rights as the Class B common stock. Series A preferred stock is
initially convertible into one share of the Class B common stock, subject to
certain antidilution provisions. Additionally, Series A preferred stock is
automatically converted upon the earlier of the completion of an underwritten
public offering of common stock or as of June 30, 2003.

F-12
<PAGE>

TIER TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)

7. SHAREHOLDERS' EQUITY - (CONTINUED)

In the event of liquidation of the Company, holders of Series A preferred
stock are entitled to receive an amount of $5.25 per share prior and in
preference to any distribution of the Company assets to holders of Class A and
Class B common stock.

Stock Options

For the year ended December 31, 1996, the Company issued options to purchase
440,000 shares of Class A common stock and 660,000 shares of Class B common
stock. The options were issued to two officers of the Company at exercise
prices ranging from $0.12 to $1.82 per share. Options for 200,000 shares of
Class A common stock and 300,000 shares of Class B common stock vested upon
grant. The remaining options vest ratably over a three year period, except
that 33.3% of the options vest upon completion of this offering. The Company
has the right of first refusal under certain limited circumstances to
repurchase any unvested common stock purchased under these options for a five
year period from the date of grant at the respective exercise price. These
same two officers were granted options in February 1997 to purchase an
additional 240,000 shares of Class A common stock at an exercise price of
$3.58 per share. As of September 30, 1997, options for 660,000 shares of Class
A and 660,000 shares of Class B common stock had been exercised at prices
ranging from $0.12 to $3.58 per share (weighted average exercise price of
$1.66 per share) and options for 20,000 shares of Class A common stock at an
exercise price of $3.58 per share remain outstanding. These outstanding
options will expire in 2002. The weighted average fair value of options
granted to these two employees during the year ended December 31, 1996 and the
nine months ended September 30, 1997 were $0.18 and $0.48 per share,
respectively. At September 30, 1997 820,000 shares of nonvested stock issued
pursuant to exercises were subject to repurchase.

1996 Equity Incentive Plan

In February 1997, the Company adopted the Plan, under which the Board of
Directors may issue Class B incentive stock options to employees and
nonstatutory stock options, stock bonuses or the right to purchase restricted
stock to employees, consultants and outside directors. Upon the adoption of
the Plan, the Company reserved 1,250,000 shares of Class B common stock for
issuance under the Plan, of which 100,000 shares are reserved for outside
directors. The Board of Directors determines who shall receive awards, the
number of shares and the exercise price (which cannot be less than the fair
market value at date of grant for incentive stock options and other awards, or
85% of the fair market value for nonstatutory stock options). Options granted
under the Plan expire no more than 10 years from the date of grant and must
vest at a rate of at least 20% per year over 5 years from date of grant. The
Company has the right of first refusal with respect to common stock purchased
under these options for a five year period from the date of purchase and also
has the right to repurchase shares of Class B common stock acquired under the
Plan within ninety days of the termination of the participant's employment at
a repurchase price equal to the greater of the fair market value of the common
stock on the date of termination or the exercise price. Such right of first
refusal and repurchase right expire upon an initial public offering. In July
1997, the Plan was amended to increase the number of shares authorized for
issuance under the Plan to 1,811,714.

F-13
<PAGE>

TIER TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)

7. SHAREHOLDERS' EQUITY - (CONTINUED)

A summary of activity under the Plan is as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Options outstanding at December 31, 1996............... - $ -
Options granted....................................... 1,782,675 3.91
Options cancelled..................................... (39,600) 3.33
--------- -----
Options outstanding at September 30, 1997.............. 1,743,075 $3.93
========= =====
</TABLE>

At September 30, 1997, options to acquire 207,498 Class B common shares had
vested and no shares of nonvested stock issued pursuant to exercises of
options were subject to repurchase. The weighted average fair value of options
granted to employees under the Plan during the nine-month period ended
September 30, 1997 was $0.85 per share. At September 30, 1997 options to
purchase 68,639 shares of Class B common stock were available for grant. The
weighted average remaining life of outstanding options under the Plan at
September 30, 1997 is 9.00 years.

Pro Forma Disclosures of the Effect of Stock-Based Compensation

The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires the use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options has equaled or exceeded the market price of the
underlying common stock on the grant date, no compensation expense has been
recorded.

Pro forma Disclosures of the Effect of Stock Based Compensation - (continued)

Pro forma information regarding net income and net income per share is
required by FAS 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to December 31, 1994 under the fair value method of FAS 123. Under this
method, the estimated fair value of the options is amortized to expense over
the options' vesting period. The effect of applying FAS 123 fair value method
to the Company's stock-based awards results in net income and net income per
share are as follows:

<TABLE>
<CAPTION>
NINE MONTH
YEAR ENDED PERIOD ENDING
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Net income, as reported......................... $526,510 $571,856
Net income, pro forma .......................... 524,710 436,902
Net income per share, as reported............... 0.07 0.08
Net income per share, pro forma................. 0.07 0.06
</TABLE>

F-14
<PAGE>

TIER TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)

7. SHAREHOLDERS' EQUITY - (CONTINUED)

The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
NINE MONTH
YEAR ENDED PERIOD ENDING
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Expected dividend yield......................... 0% 0%
Expected volatility............................. 0% 0%
Risk-free interest rate......................... 5.78% 6.48%
Expected life of the option..................... 1-4 years 1-5 years
</TABLE>

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimates, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.

Because FAS 123 is applicable only to options granted subsequent to December
31, 1994, its adjusted effect will not be fully reflected until 1999.

8. ACQUISITIONS

On December 16, 1996, the Company acquired certain assets and liabilities of
Chicago Consulting Alliance, LLC ("CCA"). CCA was based in Chicago, Illinois
and provided consulting services for the custom design of software and
computer systems for business applications. The cost of the acquisition was
$170,329 and was accounted for as a purchase. Intangible assets recorded are
being amortized over a six year period.

On December 31, 1996, the Company acquired certain assets and liabilities of
Encore Consulting, Inc. ("Encore"), a Missouri based S corporation, which
provided consulting services for computer systems integration on a government
contract. The cost of the acquisition totalled $934,268 and was accounted for
as a purchase. Intangible assets are being amortized over a six year period. A
contingent payment of $150,000 was accrued in July 1997, upon the first year's
renewal of the government contract, and an additional $150,000 is payable by
the Company upon the second year's renewal of this contract.

On January 2, 1997, the Company acquired certain assets and liabilities of
Five Points Consulting, LLC, ("Five Points") was based in Atlanta, Georgia.
Five Points custom designed software and computer systems for special business
applications. The cost of the acquisition totalled $283,775 and was accounted
for as a purchase. Intangible assets recorded are being amortized over a six
year period.

On March 10, 1997 the Company acquired certain assets and liabilities of
Tangent Group, Pty. Limited, ("Tangent Group") an Australian entity which
provided computer systems consulting services. The cost of the acquisition
totalled $487,698 and the transaction was accounted for as a purchase.
Intangible assets recorded are being amortized over a six year period. In
addition, the Company will pay at least $120,000 in royalties over the first
two year period following the acquisition. The royalty is based on 3% of the
Company's gross revenues generated by its Australian operations. The maximum
royalties to be paid over the first three year period is approximately
$240,000.

F-15
<PAGE>

TIER TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)

8. ACQUISITIONS - (CONTINUED)

On July 11, 1997, the Company acquired certain assets and liabilities of
Albanycrest, Limited, a United Kingdom private limited company, which provided
information and management consulting services on the design of software and
computer systems. The purchase price totalled $868,135 and the transaction was
accounted for as a purchase. Intangible assets recorded are being amortized
over a six year period. Contingent payments of up to $407,000 will be paid to
former shareholders if certain performance criteria are met.

The accompanying consolidated financial statements include the results of
operations of these acquired businesses from the periods subsequent to the
respective acquisition dates.

Pro Forma Disclosure of Significant Subsidiaries (Unaudited)

The following summary, prepared on a pro forma basis, combines the
consolidated results of operations of the Company as if Encore had been
purchased by the Company at its inception on April 15, 1996, and as if
Albanycrest had been purchased by the Company at its inception on November 1,
1996, after including the impact of certain adjustments, such as the unaudited
pro forma adjustments for income taxes which would have been recorded if
Encore had not been an S corporation (based on tax laws in effect during the
applicable period) and increased amortization expense due to recording of
intangible assets:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDING
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Revenues........................................ $18,217,583 $23,845,502
Net income...................................... 761,447 590,384
Net income per share............................ 0.11 0.09
</TABLE>

The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire period
presented and are not intended to be a projection of future results.

9. NOTES RECEIVABLE FROM SHAREHOLDERS

The Company's outstanding notes receivable, which total $942,426, are from
certain officers who are also shareholders of the Company. These notes bear
interest at rates ranging from 5.75% to 9.0% and have due dates ranging from
three to ten years. Certain of these notes with original principal amounts
totalling $212,927 are being forgiven in accordance with the terms of the
officers' employment agreements and have an aggregate balance of $190,869 at
September 30, 1997.

In February 1997, the Company advanced a total of $2,196,040 to two
shareholders, who are also executive officers of the Company, in connection
with the exercise of options to purchase common stock. These notes are due in
February 2007, bear interest at 6.99%, are secured and are full recourse.

10. SEGMENT AND GEOGRAPHIC AREAS

The Company operates in one industry segment, information technology
consulting, and markets its services in the United States, Australia and the
United Kingdom.

F-16
<PAGE>

TIER TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)

10. SEGMENT AND GEOGRAPHIC AREAS - (CONTINUED)

The following table presents a summary of operating information and certain
year end balance sheet information by geographic region:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDING
----------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
<S> <C> <C> <C>
Revenues:
United States...................... $12,373,309 $16,197,466 $19,406,743
Australia.......................... - - 2,048,493
United Kingdom..................... - - 1,023,407
----------- ----------- -----------
Total................................ $12,373,309 $16,197,466 $22,478,643
=========== =========== ===========
Income from operations:
United States...................... $ 1,074,916 $ 951,276 $ 591,607
Australia.......................... - - 205,890
United Kingdom..................... - - 257,227
----------- ----------- -----------
Total................................ $ 1,074,916 $ 951,276 $ 1,054,724
=========== =========== ===========
Identifiable assets:
United States...................... $ 2,315,833 $ 4,132,665 $ 8,145,337
Australia.......................... - - 1,257,348
United Kingdom..................... - - 1,420,125
----------- ----------- -----------
Total................................ $ 2,315,833 $ 4,132,665 $10,822,810
=========== =========== ===========
</TABLE>
11. INCOME TAXES

The domestic and foreign components of income before income taxes are as
follows:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDING
------------------- SEPTEMBER 30,
1995 1996 1997
---------- -------- -------------
<S> <C> <C> <C>
United States............................ $1,013,847 $877,517 $491,566
Foreign.................................. - - 464,288
---------- -------- --------
Total.................................... $1,013,847 $877,517 $955,854
========== ======== ========
</TABLE>

Significant components of the Company's deferred tax liabilities and assets
at December 31, 1996 and September 30, 1997 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Deferred tax liabilities:
Accrual basis to cash basis adjustments...... $499,213 $374,412
Depreciation................................. 34,328 46,580
Other........................................ 226 113,100
-------- --------
Total deferred tax liabilities................. 533,767 534,092
Deferred tax assets:
Vacation accruals............................ 21,593 72,182
Accrued expenses............................. - 20,435
Accrued revenue.............................. 21,724 2,032
Accrued rent................................. 14,156 11,738
Intangibles.................................. - 19,933
Accounts receivable allowance................ - 20,000
-------- --------
Total deferred tax assets...................... 57,473 146,320
-------- --------
Net deferred tax liabilities................... $476,294 $387,772
======== ========
</TABLE>

F-17
<PAGE>

TIER TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)

11. INCOME TAXES - (CONTINUED)

Effective January 1, 1996, the Company changed from the cash to the accrual
method of accounting for income tax purposes. Differences in income tax basis
existing at that date are being amortized to taxable income over a four year
period.

Significant components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDING
----------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
<S> <C> <C> <C>
Current:
Federal................................. $ - $373,151 $252,394
State................................... - 71,898 65,844
Foreign................................. - - 154,282
-------- -------- --------
- 445,049 472,520
Deferred (benefit):
Federal................................. 480,021 (74,646) (75,358)
State................................... 90,315 (19,396) (13,164)
-------- -------- --------
570,336 (94,042) (88,522)
-------- -------- --------
Total provision for income taxes.......... $570,336 $351,007 $383,998
======== ======== ========
</TABLE>

The effective tax rate differs from the applicable U.S. statutory federal
income tax rate as follows:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDING
--------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
U.S. statutory federal tax rate.......... 34% 34% 34%
State taxes, net of federal tax benefit.. 6 6 6
Deferred income taxes recorded upon
dissolution of Tier Group............... 16 - -
------ ------ ---
Effective tax rate....................... 56% 40% 40%
====== ====== ===
</TABLE>

Prior to December 31, 1994, earnings of the Company accrued to Tier Group
for income tax purposes through consulting and management agreements. Any U.S.
federal and state income taxes on the earnings of the partnership were payable
by the partners and, accordingly, no provision for U.S. federal or state
income taxes was made for those years, with the exception of minimum state
franchise taxes. Effective January 1, 1995, the Company terminated its
consulting and management agreements with Tier Group. In connection with the
dissolution of Tier Group and the transfer of all of its assets and
liabilities, the Company recorded deferred income taxes related to temporary
differences associated with the transfer of assets and liabilities. The
recording of such deferred income taxes resulted in a charge to the provision
for income taxes of approximately $165,000 in the year ended December 31,
1995.

12. RETIREMENT PLAN

The Company maintains a savings plan under Section 401(k) of the Internal
Revenue Code (the "401(k) Plan"). Under the 401(k) Plan, participating
employees may defer a portion of their pretax earnings up to the Internal
Revenue Service annual contribution limit. The Company's contributions to the
401(k) Plan are discretionary. The Company has not contributed any amounts to
the 401(k) Plan to date.

F-18
<PAGE>

TIER TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)

13. SUBSEQUENT EVENTS

Proposed Public Offering of Common Stock

On October 1, 1997, the Board of Directors authorized the Company to proceed
with an initial public offering of the Company's Class B common stock. If the
offering is consummated under the terms presently anticipated, all of the
outstanding shares of convertible preferred stock at September 30, 1997 will
automatically convert into shares of Class A common stock. In addition, the
Board of Directors authorized an increase in the number of authorized Class B
common shares to 42,600,000, subject to shareholder approval.

1996 Equity Incentive Plan

On October 1, 1997, the Board of Directors increased the authorized shares
of Class B common stock for issuance under the Plan to 2,989,333, subject to
shareholder approval, to be effective upon the Company's initial public
offering of Class B common stock.

Employee Stock Purchase Plan

On October 1, 1997, the Company's Employee Stock Purchase Plan was adopted
by the Board of Directors, subject to shareholder approval, to be effective
upon the completion of the Company's initial public offering of its common
stock. The Company has reserved a total of 100,000 shares of Class B common
stock for issuance under the plan. Eligible employees may purchase common
stock at 85% of the lesser of the fair market value of the Company's Class B
common stock on the first day or the last day of the applicable purchase
period.

Voting Trust

All of the current Class A shareholders (the "Beneficiaries") have
transferred their Class A common stock into a voting trust. The Company's
Chief Executive Officer and President are the trustees of the voting trust
(the "Trustees") and have the exclusive right to vote all shares of Class A
common stock held in the voting trust. The voting trust has a term of 10 years
and is renewable by consent of the Beneficiaries and the Trustees during the
last 2 years of the original or an extended term. The voting trust terminates
upon the earlier of the expiration of the term or in the event of (i) an
agreement of the Trustees to terminate or (ii) the death of the sole remaining
Trustee, leaving no incumbent or identified successor.

14. LINE OF CREDIT

In November 1997, the Company entered into a credit agreement which provides
for a revolving line of credit of up to $4,500,000 for general corporate
purposes and an equipment line of up to $500,000 which will periodically
convert to term loans, and simultaneously paid off all outstanding borrowings
under the bank line of credit discussed in Note 4. The new credit agreement
matures in December 1998. Borrowings under the revolving line are limited to
the lesser of $4,500,000 or 80% of eligible accounts receivable and are
secured by the Company's assets. Borrowings under the equipment line are
limited to the lesser of $500,000 or 80% of the cost of the equipment
purchased. The revolving line and equipment line bear interest at the bank's
prime rate plus 1.50% and 1.75% per annum, respectively. Certain executive
officers have personally guaranteed these lines of credit. The guarantees
terminate upon the completion of this offering if the Company achieves certain
debt to tangible net worth ratios. The lines of credit require the Company to
maintain certain minimum financial ratios.

F-19
<PAGE>

ENCORE CONSULTING, INC.

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Encore Consulting, Inc.

We have audited the accompanying balance sheet of Encore Consulting, Inc. as
of December 31, 1996, and the related statements of income, shareholders'
equity, and cash flows for the period from April 15, 1996 (inception) through
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Encore Consulting, Inc. at
December 31, 1996, and the results of its operations and its cash flows for
the period from April 15, 1996 (inception) through December 31, 1996, in
conformity with generally accepted accounting principles.

Ernst & Young LLP

Walnut Creek, California
September 8, 1997

F-20
<PAGE>

ENCORE CONSULTING, INC.

BALANCE SHEET

DECEMBER 31, 1996

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 213,726
Accounts receivable, including $537,530 unbilled.................. 1,039,731
----------
Total current assets................................................ 1,253,457
Other assets........................................................ 17,125
----------
Total assets........................................................ $1,270,582
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under bank line of credit.............................. $ 440,713
Accounts payable and accrued liabilities.......................... 191,540
Accrued payroll and related expenses.............................. 44,822
----------
Total current liabilities........................................... 677,075
Commitments
Shareholders' equity:
Common stock, $10 par value; 3,000 shares authorized, 300 shares
issued and outstanding........................................... 3,000
Additional paid-in capital........................................ 210,000
Retained earnings................................................. 380,507
----------
Total shareholders' equity.......................................... 593,507
----------
Total liabilities and shareholders' equity.......................... $1,270,582
==========
</TABLE>

See accompanying notes.

F-21
<PAGE>

ENCORE CONSULTING, INC.

STATEMENT OF INCOME

FOR THE PERIOD FROM APRIL 15, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996

<TABLE>
<S> <C>
Revenues............................................................ $1,873,907
Costs of revenues................................................... 1,389,182
----------
Gross Profit........................................................ 484,725
Selling, general and administrative expenses........................ 104,218
----------
Net income.......................................................... $ 380,507
==========
Pro forma data (Unaudited--Note 2)
Historical net income............................................. $ 380,507
Pro forma income tax provision.................................... 146,941
----------
Pro forma net income.............................................. $ 233,566
==========
</TABLE>

See accompanying notes.

F-22
<PAGE>

ENCORE CONSULTING, INC.

STATEMENT OF SHAREHOLDERS' EQUITY

FOR THE PERIOD FROM APRIL 15, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock....... 300 $3,000 $ - $ - $ 3,000
Additional capital
contribution.................. - - 210,000 - 210,000
Net income for the period from
April 15, 1996 (inception)
through December 31, 1996..... - - - 380,507 380,507
--- ------ -------- -------- --------
Balance at December 31, 1996... 300 $3,000 $210,000 $380,507 $593,507
=== ====== ======== ======== ========
</TABLE>

See accompanying notes.

F-23
<PAGE>

ENCORE CONSULTING, INC.

STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM APRIL 15, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996

<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income....................................................... $ 380,507
Adjustments to reconcile net income to net cash used in operating
activities:
Amortization................................................... 467
Changes in operating assets and liabilities:
Accounts receivable, including unbilled...................... (1,039,731)
Accounts payable and other accrued liabilities............... 236,362
-----------
Net cash used in operating activities............................ (422,395)
INVESTING ACTIVITY
Additions to other assets........................................ (17,592)
-----------
Net cash used in investing activity.............................. (17,592)
FINANCING ACTIVITIES
Borrowings under bank line of credit............................. 1,071,124
Repayments of borrowings under bank line of credit............... (630,411)
Issuance of common stock......................................... 3,000
Additional capital contribution.................................. 210,000
-----------
Net cash provided by financing activities........................ 653,713
-----------
Cash and cash equivalents at end of period....................... $ 213,726
===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest....................... $ 2,095
===========
</TABLE>

See accompanying notes.

F-24
<PAGE>

ENCORE CONSULTING, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

1. ACCOUNTING POLICIES

Organization and Basis of Presentation

Encore Consulting, Inc. ("Encore") was established on April 15, 1996 to
provide custom software development and information technology consulting
services. During the period from April 15, 1996 (inception) through December
31, 1996, all of Encore's revenues were derived from a contract with the State
of Missouri. Encore does not require collateral for receivables and invoices
are generally due within 45 days.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.

Cash Equivalents

Encore considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

Income Taxes

The shareholders have elected under Subchapter S of the Internal Revenue
Code to include Encore's taxable income in their personal income tax returns
for federal and state income tax purposes. Accordingly, Encore was not subject
to federal and state income taxes during the period presented.

Revenue Recognition

Encore revenues are from time and materials contracts, which are recognized
as services are performed.

2. PRO FORMA STATEMENT OF INCOME DATA (UNAUDITED)

The accompanying statement of income for the period from April 15, 1996
through December 31, 1996 includes an unaudited pro forma adjustment for
income taxes which would have been recorded if the Company had not been an S
corporation, based on the tax laws in effect during the period.

The pro forma income tax provision consists of the following for the period
from April 15, 1996 through December 31, 1996:

<TABLE>
<S> <C>
Current:
Federal......................................................... $121,997
State........................................................... 24,944
--------
$146,941
========
</TABLE>

F-25
<PAGE>

ENCORE CONSULTING, INC.

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

2. PRO FORMA STATEMENT OF INCOME DATA (UNAUDITED) - (CONTINUED)

The pro forma income tax provision would result in an effective tax rate
that differs from the statutory federal income tax rate as follows for the
period from April 15, 1996 through December 31, 1996:

<TABLE>
<S> <C>
Federal income tax at 34% statutory rate......................... $129,372
State income taxes, net of federal benefit....................... 16,463
Other............................................................ 1,106
--------
$146,941
========
</TABLE>

3. BANK LINE OF CREDIT

Encore has a credit agreement with a bank which provided for a revolving
line of credit of up to $850,000 through September 1, 1997. Borrowings under
the line of credit bore interest payable quarterly at the bank's prime rate
plus 1.5% (9.75% at December 31, 1996). Borrowings are secured by
substantially all of Encore's assets. Borrowings are guaranteed by the
shareholders of Encore. At December 31, 1996, outstanding borrowings under the
line of credit were $440,713.

4. LEASE COMMITMENT

Encore leases its principal facilities under an operating lease which
expires in October 1997. The lease may be renewed for up to two successive
terms of one year each at Encore's option, subject to 2% annual rent
increases. Future minimum lease payments for this noncancellable lease for the
year ending December 31, 1997 total $7,917. Rent expense for the period from
April 15, 1996 (inception) through December 31, 1996 was $1,583.

5. SUBSEQUENT EVENT

Effective December 31, 1996, Encore entered into an asset sale agreement
under which it sold substantially all of its net assets and assigned its
rights to its contract with the State of Missouri to Tier Technologies, Inc.
The financial statements do not include any adjustments to the recorded
amounts of assets and liabilities which may result from this transaction.

F-26
<PAGE>

ALBANYCREST LIMITED

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Albanycrest Limited

We have audited the accompanying balance sheet of Albanycrest Limited as of
June 30, 1997 and the related statements of income, shareholders' equity and
cash flows for the period from inception (November 13, 1996) to June 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.

We conducted our audit in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Albanycrest Limited at
June 30, 1997 and the results of its operations and its cash flows for the
period from inception (November 13, 1996) to June 30, 1997 in conformity with
United States generally accepted accounting principles.

Ernst & Young
Chartered Accountants

Reading, England
September 30, 1997

F-27
<PAGE>

ALBANYCREST LIMITED

BALANCE SHEET

<TABLE>
<CAPTION>
JUNE 30,
1997
---------------
<S> <C>
ASSETS
Current assets:
Cash........................................................ (Pounds) 31,796
Accounts receivable......................................... 109,141
Accrued revenue............................................. 49,152
---------------
Total assets.................................................. (Pounds)190,089
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable............................................ (Pounds)118,672
Accrued and other liabilities............................... 34,850
---------------
Total current liabilities..................................... 153,522
Shareholders' equity:
Ordinary shares - nominal value (Pounds)1 per share; at
amounts paid up; 1,000 shares authorized, issued and
outstanding at June 30, 1997............................... 1,000
Retained earnings........................................... 36,567
---------------
37,567
---------------
Notes receivable from shareholders.......................... (1,000)
---------------
Total shareholders' equity.................................... 36,567
---------------
Total liabilities and shareholders' equity.................... (Pounds)190,089
===============
</TABLE>

The accompanying notes are an integral part of these statements.

F-28
<PAGE>

ALBANYCREST LIMITED

STATEMENT OF INCOME

<TABLE>
<CAPTION>
INCEPTION
(NOVEMBER 13, 1996)
TO JUNE 30, 1997
-------------------
<S> <C>
Revenues.................................................... (Pounds)829,957
Operating expenses:
Cost of revenues ......................................... 778,345
General and administrative................................ 4,285
---------------
Total operating expenses.................................. 782,630
---------------
Income before provision for income taxes.................... 47,327
Provision for income taxes.................................. 10,760
---------------
Net income.................................................. (Pounds) 36,567
===============
</TABLE>

The accompanying notes are an integral part of these statements.

F-29
<PAGE>

ALBANYCREST LIMITED

STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
ORDINARY SHARES NOTES TOTAL
-------------------- RETAINED FROM SHAREHOLDERS'
SHARES AMOUNT EARNINGS SHAREHOLDERS EQUITY
------ ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Issuance of ordinary
shares to founders..... 1,000 (Pounds)1,000 (Pounds) - (Pounds)(1,000) (Pounds) -
Net income.............. - - 36,567 - 36,567
----- ------------- -------------- -------------- --------------
Balance at June 30,
1997................... 1,000 (Pounds)1,000 (Pounds)36,567 (Pounds)(1,000) (Pounds)36,567
===== ============= ============== ============== ==============
</TABLE>

The accompanying notes are an integral part of these statements.

F-30
<PAGE>

ALBANYCREST LIMITED

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
INCEPTION
(NOVEMBER 13, 1996)
TO JUNE 30, 1997
-------------------
<S> <C>
Cash flows from operating activities
Net income.................................................. (Pounds)36,567
Adjustments to reconcile net income to net cash
provided by operating activities
Changes in assets and liabilities:
Accounts receivable..................................... (109,141)
Accrued revenue......................................... (49,152)
Accounts payable........................................ 118,672
Accrued and other liabilities........................... 34,850
--------------
Net cash provided by operating activities................... 31,796
Cash at beginning of period................................. -
--------------
Cash at end of period....................................... (Pounds)31,796
==============
</TABLE>

The accompanying notes are an integral part of these statements.

F-31
<PAGE>

ALBANYCREST LIMITED

NOTES TO FINANCIAL STATEMENTS

1 BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation

Albanycrest Limited ("Albanycrest") provides information technology ("IT')
consulting, conforming applications development and systems integration
services.

Albanycrest was incorporated in November 1996 under the laws of England and
Wales as a private limited company.

On July 11, 1997, the shareholders and directors of Albanycrest entered into
an agreement with Tier Technologies, Inc., a California corporation, for the
sale of Albanycrest's business. The accompanying financial statements do not
reflect any adjustments arising from this agreement.

The accompanying financial statements have been prepared in accordance with
United States generally accepted accounting principles ("US GAAP').

These financial statements do not comprise statutory accounts of Albanycrest
within the meaning of section 240 of the Companies Act 1985, as amended, of
Great Britain. Albanycrest has not prepared any such accounts.

Concentrations

Sales to one customer accounted for 100% of Albanycrest's revenue from the
date of inception to June 30, 1997. The loss of this customer would have a
material adverse effect on Albanycrest's business, financial condition and
results of operations.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could
differ from those estimates.

Revenue Recognition

Revenue is derived from time and material contracts and recognized during
the period in which the services are provided.

Income Taxes

Income taxes are computed using the liability method, in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under this method, deferred income tax assets and liabilities are
determined based on temporary differences between the financial reporting and
tax bases of assets and liabilities and are measured using enacted tax rates
and laws.

2 ACCRUED AND OTHER LIABILITIES

Accrued and other liabilities consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
1997
--------------
<S> <C>
Income tax authorities.................................... (Pounds)10,760
Accrued expenses.......................................... 14,926
Other..................................................... 9,164
--------------
(Pounds)34,850
==============
</TABLE>

F-32
<PAGE>

ALBANYCREST LIMITED

NOTES TO FINANCIAL STATEMENTS - (CONTINUED)

3 INCOME TAXES

Albanycrest is subject to taxes in the United Kingdom. The income tax expense
for the period ending June 30, 1997 consists entirely of a current charge
computed at the United Kingdom statutory rate.

4 RELATED PARTY TRANSACTIONS

Included within cost of revenues is an amount of approximately
(Pounds)313,000 relating to consulting costs invoiced by three companies;
Albanycrest shareholders are also shareholders and directors of these
companies.

F-33
<PAGE>

SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION

The selected unaudited pro forma condensed consolidated financial
information for the Company set forth below gives effect to the acquisition of
certain assets and liabilities of Albanycrest Limited ("Albanycrest"). The
Company acquired Albanycrest in July 1997. Accordingly, the results of
operations of Albanycrest subsequent to the acquisition date are included in
the Tier Technologies, Inc. consolidated financial statements as of September
30, 1997. Therefore, the results of operations of Albanycrest for the six
months ended June 30, 1997 are reflected in these unaudited pro forma
condensed consolidated financial information. The historical financial
information set forth below has been derived from, and is qualified by
reference to, the financial statements of the Company and Albanycrest and
should be read in conjunction with those financial statements and the notes
thereto included elsewhere herein. The selected unaudited pro forma condensed
consolidated statement of income data for the nine months ended September 30,
1997 set forth below gives effect to the acquisition as if it occurred on
January 1, 1997. The selected unaudited pro forma condensed consolidated
financial information set forth below reflects certain adjustments, including
adjustments to reflect amortization of the intangible assets. The information
set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The selected
unaudited pro forma condensed consolidated financial information set forth
below does not purport to represent what the consolidated results of
operations or financial condition of the Company would actually have been if
the Albanycrest acquisition and related transactions had in fact occurred on
such date or to project the future consolidated results of operations or
financial condition of the Company.

F-34
<PAGE>

SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
COMPANY ALBANYCREST PRO FORMA
FOR THE NINE FOR THE SIX PRO FORMA FOR THE NINE
MONTHS ENDED MONTHS ENDED BUSINESS MONTHS ENDED
SEPTEMBER 30, JUNE 30, COMBINATION SEPTEMBER 30,
1997 1997(1) COMBINED ADJUSTMENTS (2) 1997
------------- ------------ ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues................ $22,478,643 $1,366,859 $23,845,502 $ - $23,845,502
Cost of revenues........ 14,916,846 1,281,856 16,198,702 - 16,198,702
----------- ---------- ----------- -------- -----------
7,561,797 85,003 7,646,800 - 7,646,800
Costs and expenses:
Selling and
marketing............ 1,836,082 - 1,836,082 - 1,836,082
General and
administrative....... 4,397,315 7,057 4,404,372 - 4,404,372
Depreciation and
amortization......... 273,676 - 273,676 46,976 320,652
----------- ---------- ----------- -------- -----------
Income from operations.. 1,054,724 77,946 1,132,670 (46,976) 1,085,694
Interest income......... 70,429 - 70,429 - 70,429
Interest expense........ 169,299 - 169,299 - 169,299
----------- ---------- ----------- -------- -----------
Income before income
taxes.................. 955,854 77,946 1,033,800 (46,976) 986,824
Provision for income
taxes.................. 383,998 17,721 401,719 (5,279) 396,440
----------- ---------- ----------- -------- -----------
Net income.............. $ 571,856 $ 60,225 $ 632,081 $(41,697) $ 590,384
=========== ========== =========== ======== ===========
Net income per
share(3)............... $ 0.09
===========
Shares used in computing
net income per
share(3)............... 6,735,432
===========
</TABLE>

See accompanying notes.

F-35
<PAGE>

NOTES TO THE SELECTED UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION

Pro forma and offering adjustments for statement of operations for the nine
months ended September 30, 1997 are as follows:

(1) The Albanycrest condensed statement of operations is presented after
translation using the local currency as the functional currency.

(2) Reflects the amortization of intangible assets acquired in the
Albanycrest acquisition recorded at $565,628 amortized over a six year
period.

(3) Net income per share is computed using the weighted average number of
shares of common stock outstanding plus common equivalent shares from
convertible preferred stock, that will be converted upon the closing of the
Company's proposed initial public offering (using the if-converted method).
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, common and common equivalent shares issued by the Company at
proceeds below the assumed public offering price for the twelve-month
period prior to the offering have been included in the computation as if
they were outstanding for all periods presented (using the treasury stock
method at the estimated initial public offering price).

See Note 8 of the Tier Technologies, Inc. Consolidated Financial Statements
regarding contingent payments related to the Albanycrest acquisition.

F-36
<PAGE>

[Inside Back Cover Graphic: A representation of Tier's geographic coverage]
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

---------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Company.............................................................. 13
Acquisitions............................................................. 13
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 24
Management............................................................... 33
Certain Transactions..................................................... 42
Principal and Selling Shareholders....................................... 44
Description of Capital Stock............................................. 45
Shares Eligible for Future Sale.......................................... 48
Underwriting............................................................. 50
Legal Matters............................................................ 52
Experts.................................................................. 52
Additional Information................................................... 52
Index to Consolidated Financial Statements............................... F-1
</TABLE>

---------------

UNTIL JANUARY 11, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS B COMMON STOCK OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

3,400,000 SHARES

LOGO

CLASS B COMMON STOCK

------------

PROSPECTUS

------------

ADAMS, HARKNESS & HILL, INC.

NATIONSBANC MONTGOMERY
SECURITIES, INC.

December 17, 1997

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------