<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 19, 2000 (March 31,
2000)
TIER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
California 000-23195 94-3145844
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
1350 Treat Boulevard, Suite 250 94596
Walnut Creek, California (Zip Code)
(Address of principal executive offices)
(925) 937-3950
(Registrant's telephone number, including area code)
================================================================================
<PAGE>
This amends the Form 8-K filed on April 17, 2000, as amended April 18, 2000 and
June 14, 2000, to provide the following financial statements.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
The SCA Group, Inc. and Harris Chapman & Company
Report of Independent Accountants*
Combined Balance Sheet as of December 31, 1999*
Combined Statement of Operations for the Year Ended December 31, 1999*
Combined Statement of Shareholders' Equity (Deficit) for the Year Ended
December 31, 1999*
Combined Statement of Cash Flows for the Year Ended December 31, 1999*
Notes to Combined Financial Statements*
Report of Independent Accountants
Combined Balance Sheet as of December 31, 1998
Combined Statement of Operations for the Year Ended December 31, 1998
Combined Statement of Shareholders' Equity (Deficit) for the Year Ended
December 31, 1998
Combined Statement of Cash Flows for the Year Ended December 31, 1998
Notes to Combined Financial Statements
* As previously filed.
(b) Pro forma financial information.
Introduction*
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
December 31, 1999*
Unaudited Pro Forma Condensed Consolidated Statement of Operations
for the Twelve Months Ended September 30, 1999*
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the Three Months Ended December 31, 1999*
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information*
* As previously filed.
(c) Exhibits.
Exhibit No. Description
----------- -----------
2.1* Agreement for the Purchase and Sale of Assets dated as of March
9, 2000 by and between The SCA Group, Inc. and Tier Technologies,
Inc. (the schedules to the Business Purchase Agreement have been
omitted as permitted by the rules and regulations of the
Securities and Exchange Commission (SEC) but will be provided
supplementally to the SEC upon request).
2.2* Amendment to Agreement for the Purchase and Sale of Assets dated
as of March 29, 2000 by and between The SCA Group, Inc. and Tier
Technologies, Inc.
2.3* Amendment #2 to Agreement for the Purchase and Sale of Assets
dated as of March 30, 2000 by and between The SCA Group, Inc. and
Tier Technologies, Inc.
2.4* Agreement for the Purchase and Sale of Assets dated as of March
25, 2000 by and between Harris Chapman and Tier Technologies,
Inc. (the schedules to the Business Purchase Agreement have been
omitted as permitted by the rules and regulations of the
Securities and Exchange Commission (SEC) but will be provided
supplementally to the SEC upon request).
2.5* Amendment #3 to Agreement for the Purchase and Sale of Assets
dated as of May 15, 2000 by and between The SCA Group, Inc. and
Tier Technologies, Inc.
2.6* Amendment #1 to Agreement for the Purchase and Sale of Assets
dated as of May 15, 2000 by and between Harris Chapman and
Richard E. Kristensen and Tier Technologies, Inc.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
* Previously filed.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TIER TECHNOLOGIES, INC.
By: /s/ Laura B. DePole
--------------------
Laura B. DePole
Chief Financial Officer
Date: July 19, 2000
1
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors and Shareholders of
The SCA Group, Inc. and Harris Chapman & Company
In our opinion, the accompanying combined balance sheet and the related combined
statements of operations, shareholders' deficit and cash flows present fairly,
in all material respects, the combined financial position of The SCA Group, Inc.
and Harris Chapman & Company at December 31, 1999 and the results of their
operations and their cash flows for the year ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
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 of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
May 26, 2000
F-1
<PAGE>
THE SCA GROUP, INC. AND HARRIS CHAPMAN & COMPANY
COMBINED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents........................................................ $ 731,722
Accounts receivable.............................................................. 1,488,767
Prepaid expenses and other current assets........................................ 38,326
-----------
Total current assets......................................................... 2,258,815
Property and equipment, net...................................................... 186,511
-----------
Total assets.............................................................. $ 2,445,326
===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable................................................................. $ 398,320
Accrued payroll and other expenses............................................... 1,059,335
Deferred income.................................................................. 465,705
Bank borrowings.................................................................. 1,713,000
Note payable to shareholder...................................................... 274,752
-----------
Total liabilities......................................................... 3,911,112
-----------
Commitments (Note 6)
Shareholders' deficit:
Common stock, $1.00 par value; 20,000 shares authorized; 10,000 shares issued
and outstanding................................................................. 10,000
Additional paid-in capital....................................................... 4,000
Accumulated deficit.............................................................. (1,479,786)
-----------
Total shareholders' deficit.................................................. (1,465,786)
-----------
Total liabilities and shareholders' deficit............................... $ 2,445,326
===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements
F-2
<PAGE>
THE SCA GROUP, INC. AND HARRIS CHAPMAN & COMPANY
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Revenue............................................................ $17,493,282
Cost of revenue.................................................... 13,909,189
-----------
Gross profit....................................................... 3,584,093
Operating expenses:
Selling and marketing............................................. 3,175,974
General and administrative........................................ 2,470,783
-----------
Loss from operations............................................... (2,062,664)
Interest expense, net.............................................. (113,523)
-----------
Loss before income taxes........................................... (2,176,187)
Provision (benefit) for state income taxes......................... (3,403)
-----------
Net loss........................................................... $(2,172,784)
===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements
F-3
<PAGE>
THE SCA GROUP, INC. AND HARRIS CHAPMAN AND COMPANY
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- Paid-In Retained Earnings Shareholders'
Shares Amount Capital (Accumulated Deficit) Equity (Deficit)
------ ------ ------- --------------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 ................ 10,000 $ 10,000 $ 4,000 $ 1,126,447 $ 1,140,447
Distributions to shareholders ............. -- -- -- (433,449) (433,449)
Net loss .................................. -- -- -- (2,172,784) (2,172,784)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 ................ 10,000 $ 10,000 $ 4,000 $(1,479,786) $(1,465,786)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements
F-4
<PAGE>
THE SCA GROUP, INC. AND HARRIS CHAPMAN & COMPANY
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Operating activities:
<S> <C>
Net loss ..................................................................... $(2,172,784)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization ............................................... 82,807
Change in operating assets and liabilities:
Accounts receivable ........................................................ 977,756
Prepaid expenses and other current assets .................................. 3,654
Accounts payable and accrued liabilities ................................... 482,411
Deferred income ............................................................ 292,948
-----------
Net cash used in operating activities ........................................ (333,208)
-----------
Investing activities:
Purchase of property and equipment ........................................... (98,297)
-----------
Net cash used in investing activities ........................................ (98,297)
-----------
Financing activities:
Borrowings under bank line of credit ......................................... 1,386,000
Repayment of note payable to shareholder ..................................... (64,161)
Distributions to shareholders ................................................ (433,449)
-----------
Net cash provided by financing activities .................................... 888,390
-----------
Net increase in cash and cash equivalents .................................... 456,885
Cash and cash equivalents at beginning of year ............................... 274,837
-----------
Cash and cash equivalents at end of year ..................................... $ 731,722
===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ................................................................... $ 148,845
===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements
F-5
<PAGE>
THE SCA GROUP, INC. AND HARRIS CHAPMAN & COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Business
The SCA Group, Inc., a closely held S-corporation incorporated in July
1969, provides management consulting services to a variety of clients
predominantly in North America. Harris Chapman & Company, a closely held S-
corporation incorporated in September 1993, is a subcontractor to The SCA Group,
Inc. All of its operations for 1999 relate to services performed exclusively for
The SCA Group, Inc. and the sole shareholder of Harris Chapman & Company is part
of The SCA Group's management.
Basis of Presentation
The combined financial statements for The SCA Group, Inc. and Harris
Chapman & Company (together "the Company") include the accounts of Harris
Chapman & Company and The SCA Group, Inc. and its wholly-owned subsidiaries, The
SCA Group, SCA International, SCA International UK, and SCA-ZPC Solutions. All
significant intercompany balances and transactions have been eliminated.
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 and
disclosures of contingent 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.
Revenue Recognition
The Company's revenues are derived primarily from professional fees billed
to clients on either a time and materials basis 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 of contract
accounting, based upon the ratio of costs incurred to total estimated project
costs. Losses on contracts are recognized when they become known and reasonably
estimable.
Unbilled receivables represent revenue recognized in excess of amounts
billed in accordance with contractual billing terms. Unbilled receivables at
December 31, 1999 were $443,343.
Concentration of Credit Risk and Significant Clients
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable.
The Company places its cash primarily in checking and money market accounts
with high quality financial institutions which, at times, have exceeded
federally insured limits.
F-6
<PAGE>
THE SCA GROUP, INC. AND HARRIS CHAPMAN & COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
The Company performs ongoing credit evaluations, does not require
collateral, and maintains reserves for potential credit losses on client
accounts when deemed necessary. For the year ended December 31, 1999, revenues
from three clients represented approximately 19%, 13%, and 17% of total
revenues, respectively. At December 31, 1999, the same three clients accounted
for approximately 50%, 28%, and 0% of accounts receivable.
Cash and Cash Equivalents
The Company considers all highly liquid monetary instruments with an
original maturity of three months or less, including deposits in demand accounts
and money market accounts, to be cash equivalents.
Fair Value of Financial Instruments
The carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable, and
accrued payroll and other expenses, approximate fair value due to their short
maturities. The carrying amount of borrowings approximates fair value based on
the terms of similar borrowing arrangements available to the Company.
Property and Equipment
Property and equipment are stated at cost and depreciated over their
estimated useful lives, which range from 5 to 7 years, using accelerated
methods.
Gains and losses on disposals are included in operations at amounts equal
to the difference between the net book value of the disposed assets and the
proceeds received upon disposal. Expenditures for replacements or betterments
are capitalized, while expenditures for maintenance and repairs are charged to
operations as incurred. Software developed for internal use, including website
software costs, is capitalized in accordance with Statement of Position No. 98-
1 ("SOP 98-1") issued by the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants.
Income Taxes
The Company, with the consent of its stockholders, elected under the
Internal Revenue Code to be treated as an S corporation. In lieu of federal
corporation income taxes, the stockholders of an S corporation are taxed on
their proportionate share of the Company's taxable income. Therefore, no
liability or provision for federal income taxes has been included in these
combined financial statements. Deferred income taxes are recorded for state tax
purposes for the temporary difference between the accrual basis of accounting
which is used for financial reporting purposes and the cash basis of accounting
which is the basis for the Company's state tax return. The temporary differences
relate primarily to accounts receivable, which is not reportable as income for
tax purposes and accounts payable, accrued expenses, and deferred income, which
are not reported as deductible for tax purposes in the current year. The net
deferred tax asset of $6,925 is included in other current assets.
F-7
<PAGE>
THE SCA GROUP, INC. AND HARRIS CHAPMAN & COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
Comprehensive Income
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income". Through December
31, 1999, there has been no difference between the Company's net loss and its
total comprehensive loss.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of Effective Date of
FASB Statement No. 133". SFAS 133, as amended by SFAS 137, is effective for
fiscal quarters beginning after June 15, 2000, with earlier application
encouraged. The Company does not currently use derivative instruments and does
not expect that the adoption of SFAS 133 will have a material impact on its
combined financial statements.
2. Property and Equipment
The components of property and equipment at December 31, 1999 are as
follows:
Computer equipment and software $ 251,635
Office furniture and equipment 239,858
---------
491,493
Less accumulated depreciation (304,982)
---------
$ 186,511
=========
Depreciation expense for the year ended December 31,1999 was $82,807.
3. Accrued Payroll and Other Expenses
Accrued payroll and other expenses at December 31, 1999 consist of the
following:
F-8
<PAGE>
THE SCA GROUP, INC. AND HARRIS CHAPMAN & COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
Payroll and related expenses $ 444,111
Accrued vacation 178,945
Health insurance claims and pension plan contributions 134,318
Other accrued expenses 301,961
----------
$1,059,335
==========
4. Bank Borrowings
In February 1998, The SCA Group, Inc. entered into a revolving line of
credit with a bank which matures annually. The maximum credit available to the
Company was $1,500,000 for the twelve months ended February 28, 1999 and
$2,000,000 for the twelve months ended February 28, 2000. At December 31, 1999,
the outstanding balance was $1,713,000. Interest on the outstanding principal
balance is payable monthly at 1.75% over the one-month London Interbank Offered
Rate ("LIBOR") (8.48% at December 31, 1999). Borrowings under the line of credit
are guaranteed by the stockholder of The SCA Group, Inc. On March 31, 2000, the
arrangement was converted into a $1,000,000 non-revolving line of credit due
August 1, 2000 with an interest rate of 2% over the one-month LIBOR (initially
7.925%). Borrowings under the line of credit are guaranteed by the stockholder
of The SCA Group, Inc.
Interest paid for the year ending December 31, 1999 under this arrangement
was $107,894.
5. Transactions with Shareholder
In January 1996, The SCA Group, Inc. issued a $400,000 demand note to a
shareholder which bears interest payable monthly at a rate equal to the greater
of 9% per annum or the prime rate plus 2%. The effective rate at December 31,
1999 was 10.5%. The Company recognized interest expense of approximately $41,000
during the year ended December 31, 1999.
In December 1997, the same shareholder issued a promissory note to The SCA
Group, Inc. for up to $1,000,000. The unpaid principal amount of the note bears
interest at 9% per annum, which shall be paid at least annually. Under this
arrangement, The SCA Group, Inc. has made advances to the shareholder in the
aggregate amount of $125,248 in the form of personal expenses paid on behalf of
the shareholder.
At December 31, 1999, the net outstanding balance payable to the
stockholder of $274,752 is presented as a liability in the Company's financial
statements.
F-9
<PAGE>
THE SCA GROUP, INC. AND HARRIS CHAPMAN & COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
6. Lease Commitments
The Company leases office space under noncancelable operating leases which
expire in March 2000. Its principal office space lease requires the Company
to pay for its proportionate share of real estate taxes, maintenance, and
other costs.
As of December 31, 1999, the approximate future minimum lease payments total
$14,080. Rent and related expenses for the year ended December 31, 1999 were
approximately $91,000.
7. Subsequent Event
In March 2000, the Company sold a significant portion of its net assets to
Tier Technologies, Inc. for an amount to be determined based on future
revenues and earnings as defined in the purchase agreement.
F-10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of
The SCA Group, Inc. and Harris Chapman & Company
In our opinion, the accompanying combined balance sheet and the related combined
statements of operations, shareholders' equity and cash flows present fairly, in
all material respects, the combined financial position of The SCA Group, Inc.
and Harris Chapman & Company at December 31, 1998 and the results of their
operations and their cash flows for the year ended December 31, 1998 in
conformity with accounting principles generally accepted in the United States.
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 of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
June 30, 2000
F-11
<PAGE>
THE SCA GROUP, INC. AND HARRIS CHAPMAN & COMPANY
COMBINED BALANCE SHEET
DECEMBER 31, 1998
..
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 274,837
Accounts receivable......................................................... 2,429,599
Prepaid expenses and other current assets................................... 41,980
----------------------
Total current assets.................................................... 2,746,416
Property and equipment, net.................................................. 171,021
----------------------
Total assets......................................................... $2,917,437
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 80,460
Accrued payroll and other expenses.......................................... 857,860
Deferred income............................................................. 172,757
Bank borrowings............................................................. 327,000
Note payable to shareholder................................................. 338,913
----------------------
Total liabilities.................................................... 1,776,990
----------------------
Commitments (Note 6)
Shareholders' equity:
Common stock, $1.00 par value; 20,000 shares authorized; 10,000 shares
issued and outstanding..................................................... 10,000
Additional paid-in capital.................................................. 4,000
Retained earnings........................................................... 1,126,447
----------------------
Total shareholders' equity............................................ 1,140,447
----------------------
Total liabilities and shareholders' equity........................ $2,917,437
======================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements
F-12
<PAGE>
THE SCA GROUP, INC. AND HARRIS CHAPMAN & COMPANY
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Revenue............................................................ $23,704,353
Cost of revenue.................................................... 17,555,860
-----------------
Gross profit....................................................... 6,148,493
Operating expenses:
Selling and marketing............................................. 1,720,425
General and administrative........................................ 2,559,447
-----------------
Income from operations............................................. 1,868,621
Interest expense, net.............................................. 79,978
-----------------
Income before income taxes......................................... 1,788,643
Provision for state income taxes................................... 38,721
-----------------
Net income......................................................... $ 1,749,922
=================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements
F-13
<PAGE>
THE SCA GROUP, INC. AND HARRIS CHAPMAN AND COMPANY
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
------------------- Paid-In (Accumulated Shareholders'
Shares Amount Capital Deficit) Equity (Deficit)
------ ------- ----------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997............ 10,000 $10,000 $2,000 $ (441,650) $ (429,650)
Contributions from shareholders.... -- -- 2,000 -- 2,000
Distributions to shareholders...... -- -- -- (181,825) (181,825)
Net Income......................... -- -- -- 1,749,922 1,749,922
------ ------- ------ ----------- -----------
Balance at December 31, 1998............ 10,000 $10,000 $4,000 $1,126,447 $1,140,447
====== ======= ====== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements
F-14
<PAGE>
THE SCA GROUP, INC. AND HARRIS CHAPMAN & COMPANY
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Operating activities:
Net income.............................................................. $ 1,749,922
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization....................................... 64,278
Change in operating assets and liabilities:
Accounts receivable.............................................. (1,124,626)
Prepaid expenses and other current assets........................ (4,402)
Accounts payable and accrued liabilities......................... (12,741)
Deferred income.................................................. 95,600
-----------
Net cash provided by operating activities............................... 768,031
-----------
Investing Activities:
Purchase of property and equipment...................................... (163,212)
-----------
Net cash used in investing activities................................... (163,212)
-----------
Financing Activities:
Borrowings under bank line of credit.................................... 17,000
Repayment of note payable to shareholder................................ (245,385)
Contributed capital..................................................... 2,000
Distributions to shareholders........................................... (181,825)
-----------
Net cash used in financing activities................................... (408,210)
-----------
Net increase in cash and cash equivalents............................... 196,609
Cash and cash equivalents at beginning of year.......................... 78,228
-----------
Cash and cash equivalents at end of year................................ $ 274,837
===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................................ $ 91,206
===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements
F-15
<PAGE>
THE SCA GROUP, INC. AND HARRIS CHAPMAN & COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Business
The SCA Group, Inc., a closely held S-corporation incorporated in July
1969, provides management consulting services to a variety of clients
predominantly in North America. Harris Chapman & Company, a closely held S-
corporation incorporated in September 1993, is a subcontractor to the SCA
Group, Inc. The sole shareholder of Harris Chapman & Company is part of The SCA
Group's management.
Basis of Presentation
The combined financial statements for The SCA Group, Inc. and Harris
Chapman & Company (together "the Company") include the accounts of Harris
Chapman & Company and The SCA Group, Inc. and its wholly-owned subsidiaries,
The SCA Group, SCA International, SCA International UK, and SCA-ZPC Solutions.
All significant intercompany balances and transactions have been eliminated.
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 and
disclosures of contingent 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.
Revenue Recognition
The Company's revenues are derived primarily from professional fees billed
to clients on either a time and materials basis 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 of contract
accounting, based upon the ratio of costs incurred to total estimated project
costs. Losses on contracts are recognized when they become known and
reasonably estimable.
Unbilled receivables represent revenue recognized in excess of amounts
billed in accordance with contractual billing terms. Unbilled receivables at
December 31, 1998 were $1,123,850.
Concentration of Credit Risk and Significant Clients
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable.
The Company places its cash primarily in checking and money market accounts
with high quality financial institutions which, at times, have exceeded
federally insured limits.
F-16
<PAGE>
THE SCA GROUP, INC. AND HARRIS CHAPMAN & COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
The Company performs ongoing credit evaluations, does not require
collateral, and maintains reserves for potential credit losses on client
accounts when deemed necessary. For the year ended December 31, 1998, revenues
from three clients represented approximately 32%, 20%, and 10% of total
revenues, respectively. At December 31, 1998, the same three clients accounted
for approximately 55%, 15%, and 15% of accounts receivable.
Cash and Cash Equivalents
The Company considers all highly liquid monetary instruments with an
original maturity of three months or less, including deposits in demand
accounts and money market accounts, to be cash equivalents.
Fair Value of Financial Instruments
The carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable, and
accrued payroll and other expenses, approximate fair value due to their short
maturities. The carrying amount of borrowings approximates fair value based on
the terms of similar borrowing arrangements available to the Company.
Property and Equipment
Property and equipment are stated at cost and depreciated over their
estimated useful lives, which range from 5 to 7 years, using accelerated
methods.
Gains and losses on disposals are included in operations at amounts equal
to the difference between the net book value of the disposed assets and the
proceeds received upon disposal. Expenditures for replacements or betterments
are capitalized, while expenditures for maintenance and repairs are charged to
operations as incurred.
Income Taxes
The Company, with the consent of its stockholders, elected under the
Internal Revenue Code to be treated as an S corporation. In lieu of federal
corporation income taxes, the stockholders of an S corporation are taxed on
their proportionate share of the Company's taxable income. Therefore, no
liability or provision for federal income taxes has been included in these
combined financial statements. Deferred income taxes are recorded for state
tax purposes for the temporary difference between the accrual basis of
accounting which is used for financial reporting purposes and the cash basis of
accounting which is the basis for the Company's state tax return. The temporary
differences relate primarily to accounts receivable, which is not reportable as
income for tax purposes and accounts payable, accrued expenses, and deferred
income, which are not reported as deductible for tax purposes in the current
year.
Comprehensive Income
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income". Through December
31,
F-17
<PAGE>
THE SCA GROUP, INC. AND HARRIS CHAPMAN & COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1998, there has been no significant difference between the Company's net income
and its total comprehensive income.
2. PROPERTY AND EQUIPMENT
The components of property and equipment at December 31, 1998 are as
follows:
<TABLE>
<S> <C>
Computer equipment and software $ 219,602
Office furniture and equipment 173,595
---------
393,197
Less accumulated depreciation (222,176)
---------
$ 171,021
=========
</TABLE>
Depreciation expense for the year ended December 31,1998 was $64,278.
3. Accrued Payroll and Other Expenses
Accrued payroll and other expenses at December 31, 1998 consist of the
following:
<TABLE>
<S> <C>
Payroll and related expenses $540,941
Accrued vacation 73,665
Health insurance claims and pension plan contributions 118,550
Other accrued expenses 124,704
--------
$857,860
========
</TABLE>
4. Bank Borrowings
In October 1997, the Company entered into a revolving line of credit with a
bank which matures annually with a maximum line of credit available of
$1,000,000. The Company renegotiated the line of credit on February 27, 1998,
increasing the borrowings allowable to $1,500,000. The line expires on February
27, 1999. At December 31, 1998, the outstanding balance was $327,000. Interest
on the outstanding principal balance is payable monthly at a rate of Prime
(7.75% at December 31, 1998). Borrowings under the line of credit are guaranteed
by the stockholders of The SCA Group, Inc.
F-18
<PAGE>
THE SCA GROUP, INC. AND HARRIS CHAPMAN & COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
Interest paid for the year ending December 31, 1998 under this arrangement was
$55,761.
5. Transactions with Shareholder
In January 1996, The SCA Group, Inc. issued a $400,000 demand note to a
shareholder which bears interest payable monthly at a rate equal to the greater
of 9% per annum or the prime rate plus 2%. The effective rate at December 31,
1998 was 9.75%. The Company recognized interest expense of $35,445 during the
year ended December 31, 1998.
In December 1997, the same shareholder issued a promissory note to The SCA
Group, Inc. for up to $1,000,000. The unpaid principal amount of the note bears
interest at 9% per annum, which shall be paid at least annually. Under this
arrangement, The SCA Group, Inc. has made advances to the shareholder in the
aggregate amount of $61,087 in the form of personal expenses paid on behalf of
the shareholder.
At December 31, 1998, the net outstanding balance payable to the stockholder
of $338,913 is presented as a liability in the Company's financial statements.
6. Lease Commitments
The Company leases office space under noncancelable operating leases which
expire in March 2000. Its principal office space lease requires the Company to
pay for its proportionate share of real estate taxes, maintenance, and other
costs.
The Company's future minimum lease payments under noncancelable operating
leases are as follows:
Year ending December 31,
1999 $ 89,660
2000 14,080
--------
Total minimum lease payments $103,740
========
Rent and related expenses for the year ended December 31, 1998 were
approximately $90,000.
F-19
<PAGE>
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated balance sheet set
forth below gives effect to the acquisition of certain assets and liabilities of
The SCA Group, Inc. and Harris Chapman & Company (collectively referred to
herein as "SCA"), as if the acquisition occurred on December 31, 1999. The
unaudited pro forma condensed consolidated statements of operations data for the
twelve months ended September 30, 1999 and three months ended December 31, 1999,
set forth below give effect to the acquisition of certain assets and liabilities
of SCA as if it occurred at the beginning of the respective periods. The
unaudited pro forma condensed consolidated financial information set forth below
reflects certain adjustments, including adjustments to reflect the amortization
of intangible assets. The 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 Tier Technologies, Inc. ("Tier")
would actually have been if the SCA acquisition and related transactions had in
fact occurred on such date or to project the future consolidated results of
operations or financial condition of Tier.
F-20
<PAGE>
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
SCA
Tier SCA Pro Forma Pro Forma
as of as of Business as of
December 31, December 31, Combination December 31,
1999 1999 Combined Adjustments(1) 1999
------------- ------------- --------- ------------------ -------------
ASSETS
------
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents............................. $10,446 $ 732 $11,178 $(5,418) $ 5,760
Restricted cash....................................... 950 -- 950 -- 950
Short-term investments................................ 8,763 -- 8,763 -- 8,763
Accounts receivable, net.............................. 27,033 1,489 28,522 (1,045) 27,477
Prepaid expenses and other current assets............. 2,968 38 3,006 (38) 2,968
------- ------- ------- ------- -------
Total current assets............................... 50,160 2,259 52,419 (6,501) 45,918
Equipment and improvements, net......................... 6,974 187 7,161 (9) 7,152
Notes and accrued interest receivable from related
parties................................................ 1,466 -- 1,466 -- 1,466
Intangible assets, net.................................. 25,414 -- 25,414 16,219 41,633
Other assets............................................ 2,433 -- 2,433 -- 2,433
------- ------- ------- ------- -------
Total assets....................................... $86,447 $ 2,446 $88,893 $ 9,709 $98,602
======= ======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current liabilities:
Borrowings............................................ $ -- $ 1,988 $ 1,988 $(1,988) $ --
Accounts payable...................................... 3,401 398 3,799 (398) 3,401
Accrued liabilities................................... 5,583 -- 5,583 6,511 12,094
Accrued subcontractor expenses........................ 568 62 630 (62) 568
Accrued compensation and related liabilities.......... 3,421 998 4,419 (819) 3,600
Income taxes payable.................................. 291 -- 291 -- 291
Deferred income....................................... 1,417 466 1,883 -- 1,883
Other current liabilities............................. 399 -- 399 -- 399
------- ------- ------- ------- -------
Total current liabilities.......................... 15,080 3,912 18,992 3,244 22,236
Borrowings, less current portion........................ 1,672 -- 1,672 -- 1,672
Other liabilities....................................... 351 -- 351 4,999 5,350
------- ------- ------- ------- -------
Total liabilities.................................. 17,103 3,912 21,015 8,243 29,258
------- ------- ------- ------- -------
Shareholders' equity (deficit):
Common stock.......................................... 65,935 14 65,949 (14) 65,935
Notes receivable from shareholders.................... (1,773) -- (1,773) -- (1,773)
Deferred compensation................................. (292) -- (292) -- (292)
Accumulated other comprehensive loss.................. (298) -- (298) -- (298)
Retained earnings (accumulated deficit)............... 5,772 (1,480) 4,292 1,480 5,772
------- ------- ------- ------- -------
Total shareholders' equity (deficit)............... 69,344 (1,466) 67,878 1,466 69,344
------- ------- ------- ------- -------
Total liabilities & shareholders' equity (deficit). $86,447 $ 2,446 $88,893 $ 9,709 $98,602
======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-21
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
Tier SCA SCA
for the for the Pro Forma Pro Forma
Twelve Twelve Business for the Twelve
Months Ended Months Ended Combination Months Ended
September 30, December 31, Adjustments September 30,
1999 1999 (3) Combined (2) 1999 (4)
------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues........................................... $91,976 $ 17,493 $109,469 $ -- $109,469
Cost of revenues................................... 56,236 13,909 70,145 (45) 70,100
------- -------- -------- ------- --------
Gross profit....................................... 35,740 3,584 39,324 45 39,369
Costs and expenses:
Selling and marketing........................... 6,095 3,176 9,271 1 9,272
General and administrative...................... 18,988 2,388 21,376 (1,475) 19,901
Compensation charge related to business
combinations............................... 608 -- 608 -- 608
Purchased in-process technology................. 4,000 -- 4,000 -- 4,000
Reserve for contract dispute.................... 1,856 -- 1,856 -- 1,856
Depreciation and amortization................... 3,864 83 3,947 1,741 5,688
------- -------- -------- ------- --------
Income (loss) from operations...................... 329 (2,063) (1,734) (222) (1,956)
Interest income (expense), net..................... 1,321 (113) 1,208 (39) 1,169
------- -------- -------- ------- --------
Income (loss) before income taxes.................. 1,650 (2,176) (526) (261) (787)
Provision (benefit) for income taxes............... 644 (3) 641 (947) (306)
------- -------- -------- ------- --------
Net income (loss).................................. $ 1,006 $ (2,173) $ (1,167) $ 686 $ (481)
======= ======== ======== ======= ========
Basic net income (loss) per share.................. $ 0.08 $ (0.04)
======= ========
Shares used in computing basic net 12,056
income (loss) per share........................ 12,056 ========
=======
Diluted net income (loss) per share................ $ 0.08 $ (0.04)
======= ========
Shares used in computing diluted net
income (loss) per share........................ 12,869 12,056
======= ========
</TABLE>
See accompanying notes.
F-22
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
SCA
Tier SCA Pro Forma Pro Forma
for the Three for the Three Business for the Three
Months Ended Months Ended Combination Months Ended
December 31, December 31, Adjustments December 31,
1999 1999 (3) Combined (2) 1999
------- -------- --------- ----- -------
<S> <C> <C> <C> <C> <C>
Revenues........................................... $24,613 $ 4,042 $28,655 $ -- $28,655
Cost of revenues................................... 14,847 3,287 18,134 (142) 17,992
------- -------- ------- ----- -------
Gross profit....................................... 9,766 755 10,521 142 10,663
Costs and expenses:
Selling and marketing............................. 1,488 727 2,215 (9) 2,206
General and administrative........................ 5,609 904 6,513 (289) 6,224
Other nonrecurring charges........................ 1,750 -- 1,750 -- 1,750
Compensation charge related to business
combinations.................................. 60 -- 60 -- 60
Depreciation and amortization..................... 1,258 21 1,279 435 1,714
------- -------- ------- ----- -------
Income (loss) from operations...................... (399) (897) (1,296) 5 (1,291)
Interest income (expense), net..................... 237 27 264 (31) 233
------- -------- ------- ----- -------
Loss before income taxes........................... (162) (870) (1,032) (26) (1,058)
Provision (benefit) for income taxes............... 548 -- 548 (372) 176
------- -------- ------- ----- -------
Net loss........................................... $ (710) $ (870) $(1,580) $ 346 $(1,234)
======= ======== ======= ===== =======
Basic net loss per share........................... $ (0.06) $ (0.10)
======= =======
Shares used in computing basic net loss per share.. 12,230 12,230
======= =======
Diluted net loss per share......................... $ (0.06) $ (0.10)
======= =======
Shares used in computing diluted net loss per share 12,230 12,230
======= =======
</TABLE>
See accompanying notes.
F-23
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Pro forma adjustments for the consolidated balance sheet as of December 31,
1999 and the consolidated statements of operations for the twelve months ended
September 30, 1999 and three months ended December 31, 1999, are as follows:
(1) The pro forma balance sheet reflects the recording of intangible assets
acquired in the SCA acquisition of approximately $16.2 million. Amounts
exclude contingent payments of up to $8.0 million in cash based on the
achievement of certain revenue and earnings performance targets over the
next three years. It is anticipated that these payments may result in
additional goodwill. The pro forma balance sheet reflects the acquisition
of certain assets and liabilities of SCA as if the acquisition occurred as
of December 31, 1999. The allocation of the purchase price for pro forma
purposes is as follows (in thousands):
Cash paid ................................................ $ 4,686
Cash to be paid .......................................... 11,310
Estimated acquisition costs .............................. 200
--------
$ 16,196
========
Tangible assets ........................................... $ 491
Intangible assets ......................................... 16,219
Liabilities assumed ....................................... (514)
--------
$ 16,196
========
The pro forma balance sheet reflects the accounting adjustment to record
acquired intangibles of approximately $16.2 million, accrual of purchase
price payable of $11.3 million, estimated acquisition costs of $200,000,
and the reversal of SCA's shareholders' deficit. The pro forma balance
sheet also reflects the elimination of assets not acquired and liabilities
not assumed as part of the SCA acquisition. Assets not acquired consists of
cash and cash equivalents of $732,000, certain accounts receivable of $1.0
million, and prepaid expenses and other current assets of $38,000.
Liabilities not assumed consist of borrowings of $2.0 million, accounts
payable of $398,000, accrued subcontractor expenses of $62,000, and certain
accrued compensation and related liabilities of $819,000.
(2) The pro forma statements of operations reflect the impact on operations as
if the acquisition occurred at the beginning of the respective periods.
Cost of revenues, selling and marketing, and general and administrative
adjustments result from reductions in personnel, and changes in acquired
employees' compensation and benefits. Depreciation and amortization
adjustment results from the amortization over the entire respective period
of intangible assets of approximately $16.2 million with useful lives
ranging from six to ten years. The pro forma financial statements do not
include the amortization which may result from payment of contingent
amounts described above in Note 1. The adjustment to interest income
(expense), net results from the reversal of interest expense on liabilities
not assumed. The adjustment to provision (benefit) for income taxes
reflects the tax provision at the effective tax rate of 39% for the twelve
months ended September 30, 1999 and 41.5% for the three months ended
December 31, 1999.
(3) The results of operations for SCA for the three months ended December 31,
1999 are included in the statement of operations for the twelve months
ended September 30, 1999 and the statement of operations for the three
months ended December 31, 1999.
(4) The periods combined to determine pro forma operations for the twelve
months ended September 30, 1999 are the twelve months ended September 30,
1999 for Tier and the twelve months ended December 31, 1999 for SCA.
F-24
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
2.1* Agreement for the Purchase and Sale of Assets dated as of March
9, 2000 by and between The SCA Group, Inc. and Tier Technologies,
Inc. (the schedules to the Business Purchase Agreement have been
omitted as permitted by the rules and regulations of the
Securities and Exchange Commission (SEC) but will be provided
supplementally to the SEC upon request).
2.2* Amendment to Agreement for the Purchase and Sale of Assets dated
as of March 29, 2000 by and between The SCA Group, Inc. and Tier
Technologies, Inc.
2.3* Amendment #2 to Agreement for the Purchase and Sale of Assets
dated as of March 30, 2000 by and between The SCA Group, Inc. and
Tier Technologies, Inc.
2.4* Agreement for the Purchase and Sale of Assets dated as of March
25, 2000 by and between Harris Chapman and Tier Technologies,
Inc. (the schedules to the Business Purchase Agreement have been
omitted as permitted by the rules and regulations of the
Securities and Exchange Commission (SEC) but will be provided
supplementally to the SEC upon request).
2.5* Amendment #3 to Agreement for the Purchase and Sale of Assets
dated as of May 15, 2000 by and between The SCA Group, Inc. and
Tier Technologies, Inc.
2.6* Amendment #1 to Agreement for the Purchase and Sale of Assets
dated as of May 15, 2000 by and between Harris Chapman and
Richard E. Kristensen and Tier Technologies, Inc.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants.
* Previously filed.
