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Article by DailyStocks_admin    (12-19-08 07:27 AM)

Filed with the SEC from Dec 04 to Dec 10:

Tier Technologies (TIER)
Discovery Group I plans to nominate two directors for election to Tier Technologies' board at the company's 2009 annual meeting. The nominees will be Daniel J. Donoghue and Michael R. Murphy. Discovery said it believes that Tier's shares are trading at a "significant discount to the company's true value, and that the discount is due to investors' lack of confidence in the current board's ability to deliver value to shareholders." Discovery and its affiliates currently own 1,957,563 shares (9.9% of the total outstanding).

BUSINESS OVERVIEW

GENERAL

Tier Technologies, Inc., or Tier, is a leading provider of biller direct electronic payment solutions. We provide federal, state and local government, educational institutions, utility companies and other public sector clients with electronic payment and other transaction processing services, as well as software and systems integration services. The demand for our services has been driven by an increasing preference of consumers and governmental agencies to make payments electronically, increased acceptance of interactive voice response systems and contact management solutions, as well as by legislative mandates. Originally incorporated in 1991 in California, we reincorporated in Delaware effective July 15, 2005. We are headquartered in Reston, Virginia. As of September 30, 2008, our 412 employees and contractors provided services to nearly 3,700 clients nationwide, including over 3,300 customers served by our core Electronic Payment Processing business.

SEGMENT INFORMATION

Fiscal year 2008 continued to be a transitional year for our company. During fiscal 2007 we undertook a strategic initiative designed to enhance our profitability and overall shareholder value. This initiative led to the decision to focus on our Electronic Payment Processing, or EPP, business. Portions of our operations were classified as held-for-sale during fiscal 2007 concurrent with the decision to seek buyers for portions of our operations. As of September 30, 2008 we have successfully sold our Government Business Process Outsourcing, or GBPO, operation, including our Health and Human Services and Call Center operations, and portions of our former Packaged Software Systems Integration, or PSSI, operations including our State Systems Integration and Independent Validation and Verification operations. In November 2008 we sold our Financial Management Systems, another operation within our PSSI operation. We have one remaining PSSI operation for which we continue to seek a buyer—our Unemployment Insurance Systems, or UI, operation. We continue to operate UI as efficiently and effectively as possible in order to maximize the proceeds that we expect to receive from its disposition.

We manage and report our business under two major categories: Continuing Operations and Discontinued Operations. Our Continuing Operations includes our EPP operations, certain Wind-down Operations and our Corporate Operations. Our Discontinued Operations includes portions of our operations that have already been sold or for which we are seeking buyers and includes our former GBPO and PSSI operations. All financial information presented in this report for historical periods has been reclassified to conform to our current organizational structure.

CONTINUING OPERATIONS

Our Continuing Operations are separated into three major categories: EPP, Wind-down and Corporate. In addition to the discussion below, Note 11—Segment Information to our Consolidated Financial Statements provides detailed information about the profitability of each of these three major categories.

Electronic Payment Processing, or EPP. EPP provides government, educational institutions, utility companies and public-sector clients with electronic payment processing alternatives for collecting taxes, fees and other obligations. In fiscal year 2008, our client base included the U.S. Internal Revenue Service, 25 states, the District of Columbia and over 3,300 local governments and other public sector clients. EPP revenues represented 95.5% of our revenues from Continuing Operations. EPP has a large number of clients; however, during fiscal 2008, our contract with the U.S. Internal Revenue Service generated 26.6% of our revenues from Continuing Operations.

Clients who use our electronic payment processing services can offer their customers the ability to pay government obligations, tuition and utility bills with a credit or debit card or an electronic check. Our secure electronic payment processing services help our clients reduce the cost of processing payments, increase collection speed and provide convenient payment alternatives to their constituents.

During the last decade, increased consumer acceptance of electronic media, such as interactive voice response systems and the Internet, have led to greater reliance on “cashless” payment methods, including credit and debit cards and electronic checks. However, many government entities, educational institutions and utility companies have neither the technical expertise nor the personnel to develop, implement and maintain electronic payment processes or to accept Internet or telephonic originated payments. As a result, they rely on external service providers, such as Tier, to perform this function.

During fiscal year 2008, we processed 10.3 million transactions, representing nearly $5.9 billion of payments collected in the following market segments, which we refer to as "verticals":

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Federal, state and local governments;

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Property tax;

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Education;

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Insurance;

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Utilities;

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Court fees and fines; and

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Property management .

The revenues we receive for payment services are transaction-based. Increases and decreases in these revenues typically represent changes in the volume of transactions and associated dollars that we process. This volume, in turn, reflects the size of our client base, the level of customer acceptance of electronic payment processing alternatives, the number and type of complementary partnership relationships and the variety of payment alternatives offered. Typically, EPP revenues are higher in the second and third quarters of our fiscal year as a result of the seasonal surge in income tax payments in March and April.

Wind-down Operations. Our Wind-down Operations consist of two businesses from our former GBPO and PSSI segments whose operations are neither compatible with our long-term strategic direction nor complementary with the other business units that we were divesting. We have decided to complete, and in some cases extend, the term of existing contracts for these businesses. We believe that these two businesses will be phased out within four years. The businesses included in our Wind-down Operations include: (1) our Voice and Systems Automation business, or VSA, which provides interactive voice response systems and support services, including customization, installation and maintenance and (2) our Public Pension Administration Systems practice, which provides services to support the design, development and implementation of pension applications for state, county and city governments. Our Wind-down business units serve approximately 300 customers, primarily served by our VSA business. In fiscal year 2008, VSA revenues represented 90.4% of our revenues from Wind-down Operations.

Corporate Operations. Our Corporate Operations represent those functions in the company that support our corporate governance, including the costs associated with our Board of Directors and executive management team, as well as accounting, finance, legal and the costs of maintaining our corporate headquarters in Reston, Virginia. In addition, corporate costs include functions that provide shared-services that have supported operations throughout the company, such as information technology and business development. As we continue to streamline our focus on our EPP business and divest the two remaining business operations, we expect that the size and associated costs to operate our corporate functions will decline significantly in the future. See Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information associated with our Corporate Operations.

DISCONTINUED OPERATIONS

Our Discontinued Operations consist of two business operations from our former PSSI segment that are currently held-for-sale and operations within our former GBPO and PSSI segments that have been divested. Additional information can be found in Note 14—Discontinued Operations to our Consolidated Financial Statements about the profitability and total assets of these held-for-sale operations.

HELD-FOR-SALE

Our two remaining business operations held-for-sale as of September 30, 2008 include the following former PSSI operations:

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Financial Management Systems —develops, implements and supports financial management and purchasing systems for state and local governments; and

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Unemployment Insurance Systems —provides software application, development and integration services to state governments that are reforming unemployment insurance systems.

In November 2008 we completed the sale of our Financial Management Systems operations. We expect to sell our Unemployment Insurance Systems operation in early fiscal 2009. These business operations are reported as Discontinued Operations for all periods presented.

The revenues generated by these former PSSI operations are driven primarily by the size of its customer base, the addition of new service offerings and new partner relationships with complementary service and technology providers. During fiscal 2008, these held-for-sale operations provided services to 63 clients nationwide. During fiscal year 2008, these held-for-sale operations contributed $16.9 million, or 37.8% to revenues from our Discontinued Operations, of which one contract generated 12.2%. Revenues recognized by these former PSSI operations reflect the specific contract deliverables and are not influenced by seasonal changes.

DIVESTED OPERATIONS

Government Business Process Outsourcing, or GBPO. During fiscal year 2008 we sold our GBPO operation which focused on child support payment processing, child support financial institution data match services, or FIDM, and call center support services. During fiscal 2008, these divested GBPO operations contributed $20.2 million, or 45.1% to revenues from our Discontinued Operations.

Packaged Software and Systems Integration, or PSSI. During fiscal year 2008 we sold two operations within our former PSSI segment: (1) State Systems Integration, which provided information technology development, integration and maintenance support projects, and (2) Independent Validation and Verification, which provided quality assurance reviews of third-party software. During fiscal 2008 these divested units contributed $7.7 million, or 17.1%, to revenues from our Discontinued Operations.

SALES AND MARKETING

Our sales and marketing objective is to develop relationships with customers and clients that result in repeat long-term and cross-sale engagements. In fiscal 2008, we made the transition to a sales and marketing organization that was dedicated to the EPP business.

In fiscal 2009, we will focus our future sales efforts on growing our EPP business. In addition to our sales force, we also rely on the business development capabilities of our senior EPP executives as a supplemental sales and delivery resource. Additionally, we look to partner with systems integrators and tax software developers. Members of our executive team have a wide range of industry contacts and established reputations in the electronic payments industry. They play a key role in developing, selling and managing major engagements. As a result of our market-focused sales approach, we believe that we are able to identify and qualify for opportunities quickly and cost-effectively.

We strive to generate new business by increasing brand awareness and recognition of our biller direct offerings using a variety of media. Our most significant marketing and advertising program involves the promotion of electronic payment solutions offered by our subsidiary Official Payments Corporation, or OPC. We work with our clients to publicize our services through advertisements in payment invoices, publications and web sites, typically at little or no cost to us. We also enter into cooperative advertising and marketing arrangements with our card partners (e.g. American Express, Discover, MasterCard, Visa) and leading card-issuing banks. In fiscal 2008, we used national and regional media including newspapers, magazines, radio, internet and public relations campaigns. These broad scale awareness efforts were supplemented with online and offline targeted promotion via email, direct mail, statement inserts, online statements, newsletters and other direct-to-customer marketing channels.

COMPETITION

The biller direct payments category is highly competitive and served by a wide array of organizations involved in transaction processing markets including Link2Gov, BillMatrix, Online Resources, Govolution, SallieMae, EDS, and TouchNet Information Systems, Inc. We believe that the principal competitive factors in our markets include reputation, industry expertise, client breadth, speed of development and implementation, technical expertise, effective marketing programs, competitive pricing and the ability to deliver results.

INTELLECTUAL PROPERTY RIGHTS

Our success depends, in part, on our protection of our methodologies, solutions and intellectual property rights. We rely upon a combination of nondisclosure, licensing and other contractual arrangements, as well as trade secret, copyright and trademark laws to protect our proprietary rights and the proprietary rights of third parties from whom we license intellectual property. The remaining life of our trademarks is four-to-five years. We enter into nondisclosure agreements with all our employees, subcontractors and parties with whom we team. In addition, we control and limit distribution of proprietary information. We cannot assure that these steps will be adequate to deter the misappropriation of proprietary information or that we will be able to detect unauthorized use of this information and take appropriate steps to enforce our intellectual property rights.

We have developed and acquired proprietary software that is licensed to clients pursuant to license agreements and other contractual arrangements. We use intellectual property laws, including copyright and trademark laws, to protect our proprietary rights. Part of our business also develops software applications for specific client engagements and customizes existing software products for specific clients. Ownership of developed software and customizations to existing software is subject to negotiation with individual clients and is typically assigned to the client. In some situations, we may retain ownership or obtain a license from our client, which permits us or a third party to use and market the developed software or the customizations for the joint benefit of the client and us or for our sole benefit.

AVAILABLE INFORMATION

Our Internet address is www.tier.com. There we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports, as soon as reasonably practicable after we electronically file such material with or furnish it to the Securities and Exchange Commission, or SEC. Our SEC reports can be accessed through the Investor Relations section of our Web site. The information found on our Web site is not part of this or any other report we file with or furnish to the SEC.

MANAGEMENT DISCUSSION FROM LATEST 10K

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements. We have based these forward-looking statements on our current plans, expectations and beliefs about future events. Our actual performance could differ materially from the expectations and beliefs reflected in the forward-looking statements in this section and throughout this report, as a result of the risks, uncertainties and assumptions discussed under Item 1A—Risk Factors of this Annual Report on Form 10-K and other factors discussed in this section. For information regarding what constitutes a forward-looking statement refer to Private Securities Litigation Reform Act Safe Harbor Statement on page 2.

OVERVIEW

We provide federal, state and local government, educational institutions, utility companies and other public sector clients with biller direct electronic payment and other transaction processing services, as well as software and systems integration services. As explained more fully in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we are in the process of divesting a number of incompatible businesses and dedicating an increasing amount of effort toward expanding our core business—Electronic Payment Processing, or EPP.

Key Events in Fiscal 2008

Fiscal 2008 continued to be a transitional year for our company. During fiscal 2008 we divested five business units classified as held-for-sale during fiscal 2007: (1) Independent Validation and Verification, (2) Health and Human Services, (3) Call Center, (4) State System Integration and (5) Government Business Process Outsourcing, or GBPO. The results of these operations are classified as (Loss) income from discontinued operations, net in our Consolidated Statement of Operations.

As of September 30, 2008, we continued to seek a buyer for our business operations that were formerly part of our Packaged Software Systems Integration, or PSSI, segment: (1) Financial Management Systems and (2) Unemployment Insurance Systems. In November 2008, we completed the sale of our Financial Management Systems operations. We expect to divest our Unemployment Insurance Systems business in the early part of fiscal 2009.

SUMMARY OF FISCAL 2008 OPERATING RESULTS

Our Continuing Operations consists of our Electronic Payment Processing, or EPP, operations, certain operations we intend to wind down over the next four years and our corporate costs that support our business. Our EPP operations reported net income of $3.2 million in fiscal 2008 as a result of adding over 300 new clients during fiscal 2008 and increasing transaction volume by 27.6%. Our Wind-down operations reported a $0.7 million loss for fiscal 2008. Although we continue to reduce direct costs and general and administrative and selling expenses associated with those operations compared to prior years, the amortization of intangible assets assigned to our Voice Systems Automation, or VSA, operations has caused a net loss for the fiscal year. Our Corporate expenses contributed $14.6 million to the overall net loss for Continuing Operations primarily due to general and administrative labor and labor-related expenses to support our business operations.

Our Discontinued Operations consists of businesses we have divested during fiscal 2008 as well as two business operations for which we continued to seek buyers as of September 30, 2008. The held-for-sale business operations were portions of our former PSSI business. In November 2008, we completed the sale of one of those operations—our Financial Management Systems business. Our Discontinued Operations reported a net loss of $15.4 million for fiscal 2008. During fiscal 2008 we recognized $17.8 million in impairment charges to write down our divested and held-for-sale assets to fair market value.


EXPECTATIONS AND STRATEGY FOR 2009

During fiscal 2009 we expect to complete our transition from a diversified government outsourcing provider to a company focused exclusively on providing electronic payment solutions in the biller direct space. We anticipate minimal revenue growth during fiscal 2009 as we believe the current macroeconomic climate will reduce the average payment size in key vertical categories including federal tax and real property tax payments. Nevertheless for the remainder of fiscal 2009 we expect to see continued transaction growth in our EPP business driven by increasing consumer demand for electronic payment options, as well as pursuing key strategic initiatives that leverage our lead position in the biller direct space and are designed to facilitate the growth and maximize efficiencies. These initiatives include the following:

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Analyze and consolidate our processing platforms and infrastructure to improve efficiency and reduce costs, while providing the capacity for future growth. Based on our current plan, we expect to complete the consolidation of our current EPP technology platforms in fiscal 2009.

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Expand our biller direct services beyond our government, education and utility clients to begin focusing on commercial biller-direct payment categories. We expect to increase client acquisitions by increasing sales and marketing programs and expanded channel selling.

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Increase customer adoption and utilization through increased marketing and promotions, expanded cross-selling capabilities and enhanced My Account functionality.

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Develop and launch new products and payment services.

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Enter new biller direct markets.

In addition, we have completed the consolidation of some of our EPP operations, facilities, departments and positions in San Ramon, California with our operations in Auburn, Alabama. We expect this operations consolidation to increase efficiencies, reduce costs and eliminate duplicative operations and functions. We also intend to right-size our corporate overhead once the disposition of our non-core assets is complete. During the early part of fiscal 2009, we also expect to finalize the divestiture of the held-for-sale businesses and use the proceeds from these dispositions to fund future growth in our EPP business.

Continuing Operations

The Continuing Operations section of our Consolidated Statements of Operations includes the results of operations of our core EPP business, certain businesses that we expect to wind-down over the next four years and general corporate costs. The following table presents the revenues and expenses for our Continuing Operations for fiscal years 2008 and 2007.

EPP Revenues: EPP provides electronic processing solutions, including payment of taxes, fees and other obligations owed to government entities, educational institutions, utilities and other public sector clients. EPP’s revenues reflect the number of contracts with clients, the volume of transactions processed under each contract and the rates that we charge for each transaction that we process. EPP revenues are seasonal in nature, primarily due to federal, state and local mandated due dates for property and income taxes.

EPP generated $117.1 million of revenue during fiscal 2008, a $17.6 million, or 17.7%, increase over fiscal 2007. In fiscal 2008, we processed 27.6% more transactions than we processed in fiscal 2007; representing 24.3% more total dollars. Transaction growth rate during fiscal 2008 ranged from 4.3% to 73.3% for all payment processing markets, except our educational institution market, which incurred an 8.5% decrease, primarily due to the cancellation of one contract. Our property tax processing market grew 73.3% over the same period last year, while our federal income tax processing market grew 4.3%.

During fiscal 2008, our contract with the U.S. Internal Revenue Service, or IRS, provided nearly 27% of our annual revenues from Continuing Operations. Currently we are operating under a contract extension which expires November 30, 2009. In October 2008, the IRS issued a Request for Proposal, or RFP, for a contract period commencing in 2010. As an increasing number of public and private sector entities strive to meet rising consumer demand for electronic payment alternatives, we believe our renewed focus on our core EPP business will continue to produce significant revenue growth for the foreseeable future.

Wind-down Revenues : During fiscal 2008, our Wind-down operations generated $5.9 million in revenues, a $3.3 million, or 36.0%, decrease from fiscal 2007. The overall revenue decrease was due primarily to the completion or near completion of several projects during fiscal 2008 and 2007. Approximately $5.4 million of the revenues reported for fiscal 2008 were generated by our Voice and Systems Automation, or VSA, business. We expect to continue to support and renew existing maintenance contracts; however, we do not expect that we will actively pursue new contracts for the VSA business. The remaining fiscal 2008 Wind-down revenues were generated by our Pension business, which we expect to wind down during fiscal 2009.

Corporate Operations/Eliminations : During fiscal 2008, we eliminated $0.4 million of revenues for transactions processed by EPP for our former GBPO business (which is included in Discontinued Operations). This amount was $46,000 greater than the amount eliminated during 2007, because of a rise in the number of transactions that EPP processed for our former GBPO business.

Direct Costs (Continuing Operations)

Direct costs, which represent costs directly attributable to providing services to clients, include: payroll and payroll-related costs; credit card interchange fees and assessments; travel-related expenditures; amortization of intellectual property; amortization and depreciation of project-related equipment, hardware and software purchases; and the cost of hardware, software and equipment sold to clients. Our EPP business direct costs are seasonal in nature, and consistent with the seasonality of its revenues.

EPP Direct Costs: Consistent with the year-over-year growth in our EPP revenues, EPP’s direct costs rose $14.9 million, or 19.5%, in fiscal 2008. These increases directly reflect interchange and processing fees charged to us to process the previously described increase in the number and volume of electronic payments processed for our electronic payment processing clients. We expect to see continued increases in our EPP direct costs as we strive to grow this business and as more clients move toward electronic payment processing options.

Wind-down Direct Costs: Direct costs from our Wind-down operations decreased $2.3 million, or 37.2%, during fiscal 2008 from fiscal 2007 results. The year-over-year reduction in direct costs during fiscal 2008 reflects the completion and near-completion of contracts, which, in turn, caused a reduction in the level of subcontractor and labor and labor-related costs that we incurred. During fiscal 2008 our Pension operations decreased $1.2 million and our VSA operations costs decreased $1.1 million. As we wind down these operations, we expect that the direct costs of these operations will continue to decrease during fiscal 2009.


MANAGEMENT DISCUSSION FOR LATEST QUARTER

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements. We have based these forward-looking statements on our current plans, expectations and beliefs about future events. Our actual performance could differ materially from the expectations and beliefs reflected in the forward-looking statements in this section and throughout this report, as a result of the risks, uncertainties and assumptions discussed under Item 1A—Risk Factors of this Quarterly Report on Form 10-Q and other factors discussed in this section. For more information regarding what constitutes a forward-looking statement, refer to Private Securities Litigation Reform Act Safe Harbor Statement on page i.

The following discussion and analysis is intended to help the reader understand the results of operations and financial condition of Tier Technologies, Inc. This discussion and analysis is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to the financial statements.

OVERVIEW

We provide federal, state and local government and other public and private sector clients with electronic payment and other transaction processing services, as well as software and systems integration services. During fiscal 2007 we undertook a strategic initiative that evaluated the risks, costs, benefits and growth potential of each of our product lines and services. In addition, we assessed the degree to which incremental investments or managerial changes were needed to maximize the profitability of each product line. Based upon this review, we concluded that we could best maximize our long-term profitability and stockholder value if we focused on our core Electronic Payment Processing, or EPP, business. As a result, in April 2007 we began to seek buyers for the divestiture of the majority of our Government Business Process Outsourcing, or GBPO, operations and our Packaged Systems and Software Integration, or PSSI, operations.

On our Consolidated Balance Sheets, we classified the associated assets and liabilities for each of these businesses as held-for-sale, in accordance with SFAS 144— Accounting for the Impairment or Disposal of Long-Lived Assets , or SFAS 144. In our Consolidated Statements of Operations, we have classified the operations of these businesses as (Loss) income from discontinued operations, net , because we do not expect to have continuing involvement or cash flows from these businesses after the divestitures. All assets and liabilities that are reported in these financial statements as “held-for-sale” are reported at the lower of the carrying cost or fair value less cost to sell. We have divested all but two of our held-for-sale business units during fiscal 2008. The divested businesses are reported as (Loss) income from discontinued operations, net on our Consolidated Statement of Operations. Although we report the two remaining held-for-sale operations as “discontinued” on our Consolidated Statements of Operations, we continue to operate these operations as efficiently and effectively as possible in order to maximize the proceeds that we expect to receive from the eventual disposition of these operations.

We also have a number of businesses within GBPO and PSSI whose operations were neither compatible with our long-term strategic direction nor complementary with other businesses that we were divesting. We decided to complete, and in some cases extend, the term of the existing contracts for these businesses for the near-term. We believe that these businesses will be phased out over the next five years. We continue to report the businesses as continuing operations in our consolidated financial statements, in accordance with SFAS 144.

SUMMARY OF OPERATING RESULTS

For the three months ended June 30, 2008, we reported a net loss of $13.6 million, or $0.69 per fully diluted share, compared with a net loss of $5.7 million, or $0.29 per fully diluted share, for the three months ended June 30, 2007. Our continuing operations reported a loss of $1.3 million, or $0.07 per fully diluted share, while our discontinued operations reported a net loss of $12.3 million, or $0.62 per fully diluted share, for the three months ended June 30, 2008.

For the nine months ended June 30, 2008, we reported a net loss of $18.6 million, or $0.95 per fully diluted share, compared with net income of $0.2 million, or $0.01 per fully diluted share, for the nine months ended June 30, 2007. Our continuing operations reported a loss of $7.1 million, or $0.36 per fully diluted share, while our discontinued operations reported a net loss of $11.5 million, or $0.59 per fully diluted share, for the nine months ended June 30, 2008.

Our continuing operations are composed of our EPP business, certain businesses that we are winding down and corporate costs. On a standalone basis, our EPP business reported income of $2.3 million, or $0.12 per fully diluted share, during the three months ended June 30, 2008, which is a $0.8 million, or 25.5% decrease over the same period last year. For the nine months ended June 30, 2008, our EPP business reported income of $4.8 million, or $0.24 per fully diluted share, which is a $1.3 million, or 20.8% decrease over the same period last year. The results for the nine months ended June 30, 2007 included a one-time legal settlement resulting in a $0.2 million refund of excess interchange fees. While the number of transactions and the total dollars processed by our EPP business rose 29.3% and 24.4%, respectively, the size of the average payment that we processed was 3.8% lower than the nine months ended June 30, 2007. Although EPP provides electronic payment processing services to over 3,000 clients, approximately 34.0% of EPP’s revenues generated during the nine months ended June 30, 2008, resulted from transactions processed for the Internal Revenue Service. Our EPP business is seasonal in nature, primarily due to federal, state and local mandated due dates for property and income taxes. Our revenues and direct costs increase during the periods when these mandated due dates occur.

Our wind-down operations reported net income of $21,000 during the three months ended June 30, 2008, which is a $9.3 million improvement over the same period last year. For the nine months ended June 30, 2008, we reported a loss of $1.0 million, or $0.05 per fully diluted share, which is a $10.0 million, or 91.3% improvement over last year. These improvements are primarily due to the absence of the impairment expense that was recorded during the period ended June 30, 2007 of $8.6 million as well as the absence of one-time contract settlement costs that were reported during the period ended June 30, 2007. As we continue to wind down these operations, we expect that the level of the losses will decline in future quarters. During fiscal 2008, we expect to wind down our Pension business that generated losses totaling $0.3 million during the nine months ended June 30, 2008. Our Voice and Systems Automation business, which reported a $0.7 million loss during the nine months ended June 30, 2008 is expected to be wound down over a five-year period. Our corporate overhead contributed $3.7 million to the overall net loss from continuing operations, or $0.19 per fully diluted share for the three months ended June 30, 2008, and $11.0 million, or $0.56 per fully diluted share for the nine months ended June 30, 2008. This includes a significant portion of costs for shared-services that could not be assigned directly to any business unit. We expect that the need for, and cost of, these shared-services and other corporate costs will diminish after we divest and/or wind down our GBPO and PSSI businesses.

For the three months ended June 30, 2008, our discontinued operations from our held-for-sale GBPO and PSSI operations reported a loss of $12.3 million, or $0.62 per fully diluted share, a decrease of $16.3 million from the same period last year. For the nine months ended June 30, 2008, we reported a net loss of $11.5 million, or $0.59 per fully diluted share, a decrease of $27.1 million over the same period last year. The primary reason for the decrease over the same periods last year is the impairment of certain PSSI operations whose carrying value exceeded its fair value as well as the absence of an income tax reserve reversal relating to our previously disposed Australian operations, which contributed $8.1 million to income from discontinued operations for the nine months ended June 30, 2007. The expiration of two GBPO contracts and the completion of a number of PSSI projects during fiscal 2007, as well as the expiration of another GBPO contract in June 2008, are expected to result in lower earnings in future years.

EXPECTATIONS AND STRATEGY FOR 2008

We expect that fiscal 2008 will continue to be a transition year as we position our company for the long-term growth of the EPP business. In the remainder of fiscal 2008, we expect to see continued revenue growth in our EPP business, driven not only by revenue growth initiatives, but also by increasing consumer demand for electronic payment processing alternatives. Furthermore, we are undertaking two key initiatives designed to facilitate the growth of the EPP business. First, we are analyzing our processing platforms and infrastructure to determine what actions are needed to improve efficiency and reduce costs, while providing the capacity for future growth. Based on our current conclusions, we expect to make new investments to consolidate our current EPP technology in fiscal 2008. Second, we expect to move EPP beyond focusing primarily on governmental clients into the commercial biller-direct payment processing space. To facilitate our EPP strategy, we have developed a five-pronged sales and marketing strategy focusing on the following:

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increasing client acquisition by expanding our existing markets through sales and marketing resources and expanding our channeled selling;

•

increasing customer adoption through increased marketing and promotional efforts;

•

enhance our cross-selling capabilities by making greater use of registered users in the My Account database;

•

development of new products; and

•

entering new markets.

In addition, we are consolidating some of our EPP operations, facilities, departments and positions in San Ramon, California with our EPP operations in Auburn, Alabama, in an effort to save costs and eliminate duplicative operations and functions. We also intend to right-size our corporate overhead once the disposition of our non-core assets is complete. In calendar year 2008, we also expect to finalize the divestiture of the held-for-sale businesses and use the proceeds from these dispositions to fund future growth in our EPP business.

While we expect that certain of these initiatives will produce some cost savings during fiscal 2008, we believe the cost of implementing these initiatives will outweigh those savings during fiscal 2008 and we expect to incur a net loss in fiscal 2008. However, once the implementation of these initiatives is complete, we believe that our company will report long-term, sustainable profitability.

CONTINUING OPERATIONS

The continuing operations section of our Consolidated Statements of Operations includes the results of operations of our core EPP business, certain businesses that we expect to wind down over the next five years and general corporate operations. The following table presents the revenues and expenses for our continuing operations for the three and nine months ended June 30, 2008 and 2007.

EPP Revenues: EPP provides electronic processing solutions, including payment of taxes, fees and other obligations owed to government entities, educational institutions, utilities and other public sector clients. EPP’s revenues reflect the number of contracts with clients, the volume of transactions processed under each contract and the rates that we charge for each transaction that we process. EPP generated $43.4 million of revenues during the three months ended June 30, 2008, a $5.0 million, or 13.1%, increase over the three months ended June 30, 2007. During the three months ended June 30, 2008, we processed 27.9% more transactions than we did in the same period last year, representing 18.4% more dollars. All of our payment processing markets incurred a 20.0% to 86.0% transaction growth rate, except our federal income tax market, which incurred a 2.4% increase and our educational institution market, which incurred a 27.0% decrease, due to the absence of one contract.

During the nine months ended June 30, 2008, EPP generated $95.9 million of revenues, a $14.8 million, or 18.3%, increase over the same period last year. During the nine months ended June 30, 2008, we processed 29.3% more transactions than we did during the nine months ended June 30, 2007, representing 24.4% more dollars. All of our verticals incurred a 16.0% to 68.0% transactional growth rate, with the exception of our federal income tax market which incurred a 5.0% growth and our educational institution market which incurred a 3.8% loss, due to the absence of one contract.

Our contract with the U.S. Internal Revenue Service, or IRS, provided approximately 25% of our annual revenues for fiscal years 2007 and 2006. Currently, we are operating under a contract extension which expires November 30, 2008. Our contract provides two additional extension periods through December 31, 2009. As of June 30, 2008, the IRS has not issued a Request for Proposal, or RFP, for a contract period commencing after November 30, 2008. As an increasing number of public and private sector entities strive to meet rising consumer demand for electronic payment alternatives, we believe our renewed focus on our core EPP business will continue to produce significant revenue growth for the foreseeable future.

Wind-down Revenues: During the three months ended June 30, 2008, our two wind-down operations generated $1.6 million in revenues, a $0.2 million, or 10.5%, decrease from the three months ended June 30, 2008. The completion of maintenance contracts during fiscal 2007 within our Voice and Systems Automation, or VSA, business contributed $0.3 million to the decline in revenues. This decrease was offset by $0.1 million in additional revenue generated by our Pension business as a result of a contract extension. During the nine months ended June 30, 2008, our wind-down operations generated $4.3 million, a $2.5 million or 37.2%, decrease from the nine months ended June 30, 2007. The completion of maintenance projects within our VSA business during fiscal 2007 contributed $1.3 million to the decline. Our Pension business contributed $1.2 million to the overall decline, in which one project contributed $0.6 million to the decline and another contributed $0.5 million. As we wind down these operations, we will continue to see decreased revenues throughout fiscal 2008.

Corporate Operations/Eliminations: During the three and nine months ended June 30, 2008, we eliminated $149,000 and $431,000, respectively, of revenues for transactions processed by EPP for our GBPO business (which is included in discontinued operations). These amounts are $43,000 and $162,000, respectively, greater than the amounts eliminated during the three and nine months ended June 30, 2007, because of a rise in the number of transactions that EPP processed for our GBPO business.

Direct Costs (Continuing Operations)

Direct costs, which represent costs directly attributable to providing services to clients, include: payroll and payroll-related costs; credit card interchange fees and assessments; travel-related expenditures; amortization of intellectual property; amortization and depreciation of project-related equipment, hardware and software purchases; and the cost of hardware, software and equipment sold to clients.

EPP Direct Costs: Consistent with the growth of our EPP revenues, EPP’s direct costs rose $4.8 million, or 15.6%, during the three months ended June 30, 2008 and $12.7 million, or 20.3%, during the nine months ended June 30, 2008, over the same periods last year. This increase directly reflects interchange fees charged to us to process the previously described increase in the number and volume of electronic payments processed for our electronic payment processing clients. In addition, the results that we reported for the nine months ended June 30, 2007 included the one-time recovery of excess interchange fees. We expect to see continued increases in our EPP direct costs as we strive to grow this business and as more clients move toward electronic payment processing options.

Wind-down Direct Costs: Direct costs from our wind-down operations decreased $0.4 million, or 26.2%, for the three months ended June 30, 2008 and $1.9 million, or 38.1%, for the nine months ended June 30, 2008, from the same periods last year. The completion of several Pension projects during fiscal 2007 contributed $0.4 million for the three months ended June 30, 2008 and $1.2 million for the nine months ended June 30, 2008, primarily from the absence of labor and labor-related expenses. The completion of maintenance contracts within our VSA business resulted in $0.7 million for the nine months ended June 30, 2008, primarily from reduced labor and labor-related costs, as well as other costs required to service the contracts. As we wind down these operations, we expect that the direct costs of these operations will continue to decrease during the remainder of fiscal 2008.

General and Administrative (Continuing Operations)

General and administrative expenses consist primarily of payroll and payroll-related costs for general management, administrative, accounting, legal and information systems, as well as fees paid to our directors and auditors.

EPP General and Administrative: During the three months ended June 30, 2008, EPP incurred $2.7 million of general and administrative expenses, a $0.8 million, or 42.5%, increase over the same period last year. These increases are attributable primarily to a $0.4 million increase for labor and labor-related expenses, as a result of a realignment of resources from discontinued operations as well as the shift of staff from our wind-down VSA operations to our EPP operation, to support our strategic growth initiatives. We also incurred a $0.2 million increase for consulting services to develop and implement key strategic initiatives. The remaining $0.2 million increase is attributable to an increase in legal costs in association with applying for money transmitter licenses and other miscellaneous office expenses.

During the nine months ended June 30, 2008, EPP incurred $7.5 million of general and administrative expenses, a $2.6 million, or 54.7%, increase over the same period last year. These increases are attributable primarily to a $1.2 million increase for labor and labor-related expenses, as previously described, and a $0.8 million increase for consulting services to develop and implement key strategic initiatives. In addition, legal costs associated with applying for money transmitter licenses contributed $0.3 million to the overall increase. The remaining $0.3 million increase is attributable to increased bad debt expense and other miscellaneous office and travel expenses.

During the remainder of fiscal 2008, general and administrative expenses for our EPP operations could increase as we move toward establishing a consolidated electronic payment processing platform. We currently process payments on multiple platforms at multiple locations creating redundant costs. Combining our electronic processing platforms, we believe, will improve the long-term efficiency and cost-effectiveness of our EPP operations and will provide the capacity to process significantly more transactions.

Wind-down General and Administrative: During the three months ended June 30, 2008, our wind-down operations incurred $0.1 million of general and administrative expenses, a $0.5 million, or 83.9%, decrease over the same period last year. Labor and labor-related expenses contributed of $0.3 million to the decrease over the same period last year. The remaining $0.2 million variance is primarily attributable to miscellaneous office and bad debt expenses.

During the nine months ended June 30, 2008, our wind-down operations incurred $1.0 million of general and administrative expenses, a $1.8 million, or 66.1%, decrease over the same period last year. During f iscal 2007, we recorded a contract settlement for one of our Pension projects, which contributed $1.3 million to the decrease of expenses in the current period. In addition, the absence of labor and labor-related expenses of $0.6 million contributed to the overall decrease. Offsetting these decreases is an increase of $0.1 million miscellaneous office expense and bad debt expense.

Corporate General and Administrative: Our corporate operations represent those functions that support our corporate governance, including the costs associated with our Board of Directors and executive management team, as well as accounting, finance, legal and the costs of maintaining our corporate headquarters in Reston, Virginia. In addition, corporate costs include functions that provide shared-services that support operations throughout our organization, such as information technology and business development.

During the three months ended June 30, 2008, our corporate operations incurred $3.7 million of general and administrative expenses, a $0.3 million, or 7.1%, decrease over the same period last year. Of the overall decrease, $0.8 million is attributable to the absence of labor and labor-related expenses, of which $0.5 million is attributable to a reduction in work force and $0.3 million is attributable to a reduction in bonus costs. Partially offsetting the decrease in expense is a $0.4 million increase in legal and consulting costs related to our strategic initiative efforts. The remaining $0.1 million increase in expense is related to miscellaneous office supplies.

During the nine months ended June 30, 2008, our corporate operations incurred $12.1 million of general and administrative expenses, a $0.7 million, or 5.5%, decrease over the same period last year. Labor and labor-related expenses contributed $1.1 million to the overall decrease in expenses, primarily due to the absence of $1.4 million in wages and benefits costs as a result of decreased staff and $0.3 million in reduced bonus expense, offset by $0.3 million of additional severance costs, primarily attributable to the departure of one of our executives and $0.3 million of additional share-based payment expense, due to the acceleration of vesting of options to purchase common stock originally issued to several of our Board members in August 2006. In addition, legal fees decreased $0.2 million as a result of the reversal of a reserve accrual associated with the previously mentioned DOJ investigation. Partially offsetting these decreases is an increase of $0.3 million of additional recruiting and consulting services during the nine months ended June 30, 2008, as a result of two executive placement searches and additional support for our legal, human resources and accounting functions. We also incurred an additional $0.3 million in legal and consulting services related to our divestitures.

We believe the anticipated divestitures of the majority of our GBPO and PSSI operations will reduce the need for corporate support. Therefore, during fiscal 2009, we anticipate reductions in corporate general and administrative expenses.

Selling and Marketing (Continuing Operations)

Selling and marketing expenses consist primarily of payroll and payroll-related costs, commissions, advertising and marketing expenditures, and travel-related expenditures. We expect selling and marketing expenses to fluctuate from quarter to quarter due to a variety of factors, such as increased advertising and marketing expenses incurred in anticipation of the April 15th federal tax season.

EPP Selling and Marketing: During the three months ended June 30, 2008, EPP incurred $2.4 million of selling and marketing expenses, a $0.2 million, or 9.5%, increase over the same period last year. Of the overall increase, $0.4 million is attributable to additional labor and labor-related expenses and additional travel costs. Offsetting these increases is a decrease of $0.2 million in strategic partnership costs. During the nine months ended June 30, 2008, EPP incurred $6.0 million of selling and marketing expenses, a $0.6 million, or 11.3%, increase over the nine months ended June 30, 2007 primarily attributable to $0.5 million of additional labor and labor-related expenses, $0.2 million of additional travel costs and $0.1 million in conference, trade show and other miscellaneous expenses. Offsetting these increases is a decrease in strategic partnership costs of $0.2 million. During fiscal 2008, we expect that EPP’s direct sales and marketing expenses will increase as we strive to accelerate the growth of this business.

Wind-down Selling and Marketing: During the three months ended June 30, 2008, the selling and marketing expenses of our wind-down operations decreased $0.3 million, over the same period last year. During the nine months ended June 30, 2008, these expenses decreased $0.6 million, or 77.6%, over the same period last year. The primary factor in these decreases is the absence of labor and labor-related expenses, as our selling and marketing efforts are being redirected to our EPP business. We expect to continue to see a decrease in expenses during fiscal 2008 as we wind down specific businesses.

Corporate Selling and Marketing: As a general rule, we assign labor and labor-related costs incurred by our corporate selling and marketing function directly to individual projects and businesses that benefited from the service. The $0.1 million and $0.4 million, respectively, increase in sales and marketing expenses during the three and nine months ended June 30, 2008 compared to the same periods last year primarily reflects a higher proportion labor and labor-related costs that could not be assigned directly to a specific project.

CONF CALL

Liz Bowman

Good afternoon. My name is Liz Bowman, Tier Technologies’ Director of SEC reporting. At this time, I would like to welcome everyone to the Tier Technologies’ earnings conference call for the year ended September 30th, 2008.

After the market closed today, we issued a press release announcing Tier’s financial results for the fourth quarter and year ended September 30th, 2008. In addition, we issued a copy of the text of today’s call, not including the Q&A, and accompanying presentation which includes charts that will be referenced during this call. A copy of these materials can be found in the Investor Relations section of our website, www.tier.com.

We invite shareholders and analysts who wish to speak to management about the Company and its performance to schedule a meeting by contacting our CFO, Ron Johnston, at 571-382-1333 or rjohnston@tier.com, thank you.

With me on the call are Ron Rossetti, Chairman and Chief Executive Officer and Ron Johnston, Chief Financial Officer. Also in attendance are Nina Vellayan, Chief Operating Officer; Kevin Connell, Senior Vice President Sales and Business Development; and Keith Kendrick, Senior Vice President Strategic Marketing.

A taped replay of this call will be available on the Company’s web site beginning Thursday, December 11, 2008 at noon eastern time until 11:59 PM eastern time on December 24th, 2008. Alternatively, you can hear a replay by dialing 800-642-1687 and entering the conference ID number 76156469.

I want to remind you that various remarks that we make about the Company’s future expectations, plans, and prospects constitute forward-looking statements for purposes of the Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995.

The forward-looking statements discussed on this call represent management’s current expectations about the Company’s future financial performance based on the information available to us today.

This information may change and our actual results may differ materially from these forward-looking statements. We undertake no obligation to update any such forward-looking statements.

There are numerous risks and uncertainties that affect our business and may affect these statements, including but not limited to failure to achieve anticipated gross margin levels due to unanticipated costs incurred and transaction-based projects, increasing competition, timing; the Company’s ability to realize revenues from its business development opportunities, changes in laws and government regulatory compliance requirements, ability to attract and retain qualified personnel and other risk factors that are set forth in our SEC filings.

Tier Technologies, Inc. plans to file with the SEC and furnish to its shareholders a proxy statement in connection with its 2009 Annual Meeting, and advises its security holders to read the proxy statement relating to the 2009 Annual Meeting when it becomes available, because it will contain important information. Security holders may obtain a free copy of the proxy statement and other documents, when available, the Tier files with the SEC at the SEC’s website at www.sec.gov. The proxy statement and these other documents may also be obtained for free from Tier by directing a request to Tier Technologies Inc., Attention Corporate Secretary, Keith Omsberg, 10780 Parkridge Blvd., 4th Floor, Reston, Virginia 20191.

Tier, its directors and named executive officers may be deemed to be participants in the solicitation of Tier’s security holders in connection with its 2009 Annual Meeting. Security holders may obtain information regarding the names, affiliations and interests of such individuals in Tier’s Annul Report on Form 10-K for the year ended September 30th, 2007 and it proxy statement dated January 15, 2008, each of which is on file with the SEC, as well as it upcoming Annual Report on Form 10-K for the year ended September 30th, 2008 and its upcoming proxy statement for the 2009 Annual Meeting when available. To the extent there have been changes in Tier’s directors and executive officers, such changes have been reported on Current Reports on Form 8-K filed with the SEC. To the extent holdings of Tier securities have changed since the amounts printed in the proxy statement dated January 15, 2008, such changes have been or will be reflected on Statements of Change in Beneficial Ownership on Form 4 or Form 5 filed with the SEC.

Now I would like to turn the call over to Ron Rossetti.

Ronald Rossetti

Thank you, Liz, and good afternoon. We are pleased to be here with you to discuss our fourth quarter and year end financial results and the Company’s future direction.

Let me outline the agenda for the call today. First, I will recap the accomplishments of our substantially completed restructuring then I will update you on our perspectives on biller-direct category of the electronic payments processing industry, our Company’s opportunity and the initiatives that we are taking to increase the value of the Company for all stockholders.

Next, Ron Johnston will cover our financial results for the quarter and fiscal year. After Ron’s comments I will make some concluding remarks. Following that, we will be happy to answer as many of your questions as we can.

As you know, shortly after I became CEO, we began a strategic review of Tier Technologies. This initiative led to the decision to focus on our Electronic Payments Processing or EPP, business, and restructure our other operations.

I want to bring you up to date on our progress. The restructuring is now fundamentally complete, and the building of the EPP business is well underway.

I am pleased to announce the completion of the sale of our Financial Management Systems or FMS group in November of this year. The completion of this sale means that we have now sold 6 of the 7 units we had placed in the held-for-sale classification during fiscal year 2007. We are aggressively working to divest the one remaining held-for-sale business. That business is non-strategic operation, is EBITDA and cash flow positive at this time and requires limited corporate overhead to support it.

You can see a summary of the restructuring on chart 5. With these sales, from September 30th, 2006 through the completion of the sale of our FMS business in November 2008, total headcount has been reduced from 958 to 315. We expect to reduce our headcount to 150 by the end of fiscal year 2009.

Although we have generated operating losses on a GAAP basis since the restructuring began, we have increased our cash position by approximately $20 million. This performance has allowed us to end fiscal year 2008 with $87 million in cash and no debt on our balance sheet. The Board and management believe that it is prudent for Tier to preserve an adequate cash position in order to weather the recession that is now facing every US Company.

We are on plan with continued reductions in corporate overhead expense. In fiscal 2008, we reduced corporate overhead expense to $16.8 million. The Company has implemented cost reduction measures which will reduce this expense level to a run rate of $10 million at the end of fiscal year 2009 and approximately $9 million in fiscal year 2010.

Elements of our corporate overhead expense are outlined in chart 6 and 7. It is important to note that some elements of this expense are directly related to operations, while other elements are a result of public company requirements. We will be happy to answer questions about the data during the Q&A section of this call.

In addition to reductions in corporate overhead, we are now making substantial improvements in selling and marketing and general and administrative expenses in EPP. These expenses for EPP are projected to be down $1.6 million or 11% from fiscal year 2008, even though we estimate that transaction volume in EPP will increase by 16.8% from fiscal year 2008 to fiscal year 2009.

We have completed the consolidation of our operations center into Auburn, Alabama and we are reviewing all of our processing platforms and relationships as we seek increased efficiencies. We have closed or reduced the use of real estate space in Reston, Virginia; Duluth, Georgia; San Ramon, California; Albuquerque, New Mexico; and Stamford, Connecticut. The current leasing market will effect how quickly we can sublet unused space.

We are continually reviewing our expense structure in EPP and additional cost savings will come from the implementation of more efficient procedures and technology. We are reviewing all of our partnerships and service providers and are already realizing improvement in gross margin that should offset changes in card mix which can increase our costs of accepting some forms of payment and competitive pricing pressure which can reduce the price we are able to charge biller payors for some transactions.

With the restructuring substantially complete, our target is to operate the total Company, including corporate overhead, all public Company expenses, and wind down expenses on an EBITDA positive basis for fiscal year 2009. We anticipate that the total Company can be EBITDA positive in fiscal year 2009 if EPP revenue grows in the mid-single digit range during fiscal year 2009. The worst case that we currently anticipate is one in which the core EPP business is EBITDA positive in fiscal 2009.

Our ability to operate the total Company on an EBITDA positive basis in fiscal 2009 depends heavily on the rate of growth of our EPP business. As the economy has slowed, the growth in our EPP business has also slowed. We are confident that once the economic turmoil the whole country is facing subsides, we can return to our historic growth rates. Charts 8 and 9 provide detail on the revenue growth rate trend in EPP.

While we would like to be more precise about our revenue forecast, current economic conditions are unprecedented and severe, and we have no historical, factual basis to forecast the coming tax season. We expect to have a more accurate assessment of the 2009 and 2010 situation once we are further along in the upcoming tax season. I do not think a day goes by that you do not read a news report about another state or municipality suffering tax revenue shortfalls.

With that said, our non-government businesses, especially Higher Education, are performing well. Our Higher Education vertical is experiencing year-over-year transaction growth in excess of 60%

Before I update you on our progress on the EPP business strategy, I want to address an area many investors ask me about on a regular basis, and that is our contract with the Internal Revenue Service. In October we received a new request for proposal or RFP from the IRS. We filed a formal response to the RFP on December 1st, 2008, and we are now awaiting an award announcement. The new RFP covers the period commencing with the processing of 2009 taxes payable in 2010. The RFP envisions up to 4 one-year renewal periods through December 31st, 2014. We look forward to updating you on the status and outcome of the RFP process on future calls.

Under the current IRS contract, we will continue to process Federal tax payments for the 2008 tax season beginning in January 2009. We have increased the number of forms that can be paid using our payment services. IRS Forms 941, 943, 944, and 945, these are all forms filed by employers and relate to federal tax and withholding payments made by employers, can now be paid using our payment services. We will launch major new enhancements to the website of our wholly owned subsidiary, Official Payments Corporation, for the 2008 tax season to improve the user experience, and we will continue to promote the functionality of the My Account feature. The My Account feature allows taxpayers to establish a personal profile so that they may save time on their next visit to the site, schedule future tax payments, and register to receive reminders of future tax obligations.

I want to turn now to our corporate strategy. Today, Tier Technologies is a leader in the biller direct services category. You may refer to chart 10, if you wish. This chart provides an overview of the structure of our industry. We serve billers or companies that invoice customers and receive payments, many on a recurring basis, usually monthly. We provide technology solutions that enable billers to present bills and/or accept electronic payments via the Web, interactive voice response or IVR and call centers.

According to Aite Group, an independent research and advisory firm serving financial services firms, the biller direct channel is still a relatively emerging channel for consumers, especially the Web component. As you can see in chart 11, Aite estimates that only about 11% of consumer bill payments in the United States were made through this channel in 2007. By 2010, Aite forecasts that about 17% of consumer bill payments will be made through the biller direct channel, while 14% will be made through bank Web sites.

While this level of growth is strong, the bill payment market lags the overall consumer transition to electronic payments in the general economy. According to Celent, an international financial services consulting firm, more than 50% of all payments in the United States have converted from cash and check to electronic forms of payments. The Celent summary data appears in chart 12. In our opinion, the Aite and Celent data combined with our analysis of electronic payment utilization we experience with our clients, document that the biller direct space, especially in the government market, is one of the best remaining opportunities in the United States for conversion from paper and check to electronic payments.

Tier believes that consumers will continue to migrate away from checks and cash and to electronic forms of payment. Tier believes that the biller direct segment of the electronic payment market is one of the fastest growing segments of that market. This trend is supported by payment card issuers who are promoting one-time and recurring bill payments to consumers as well as payment brand networks that are running broad scale and targeted bill payment marketing campaigns. Broad scale campaigns include print and radio advertising campaigns communicating the value of card payments for bill payments. Card issuers send targeted email and account statement inserts to qualified cardholders to promote card usage in the bill payment category.

We believe that consumers and small businesses are adopting electronic payment forms for four principal reasons: convenience, cash management, rewards, and environmental considerations.

Let me address the last two of these briefly.

Various payment card brands and individual card account issuers offer their cardholders reward points; such as, frequent flyer miles to encourage their cardholders to choose their brand of card over other brands for biller direct payment transactions. On the environment, billers and consumers all have an interest in reducing the environmental impact and the costs they incur from sending paper bills and processing paper checks.

Since processing our first payment transaction in 1994 for Santa Clara County, California, Tier Technologies has grown our payments business to become the leading provider of electronic tax payments solutions for government entities across the nation. Chart 13 provides a pictorial representation of our client coverage.

We are the only service provider to support to Internal Revenue Service continuously since 1999 when we were selected by the IRS to pilot electronic payments for federal taxes.

We process personal income tax payments for 26 states and the District of Columbia. In 22 of the states, we are the exclusive provider of electronic payments. For those of you keeping count, 4 states do not allow card payments and another 9 do not levy personal income taxes. These states and the District of Columbia give us coverage of approximately 75% of the personal state income taxes paid nationally.

We support more than 6,000 different tax, user fees, license, and court payments types for more than 3,000 municipalities nationwide.

We process electronic payments for entities other than governments. We have expanded our franchise to include more than 350 universities and 450 utilities.

In the fourth quarter we signed 114 new EPP accounts, which bring us to 355 new accounts for the year. Some of the larger accounts that were signed in the fourth quarter include the Pennsylvania Department of Labor and the State of Connecticut. For Connecticut, we will process sales and use taxes and other business taxes. Our strong customer satisfaction is confirmed by a number of major account renewals, including the State of New Jersey.

During fiscal 2009 we expect to complete our transition to a Company focused exclusively on providing payment solutions in the biller-direct space. Although we anticipate single-digit percentage minimal revenue growth during fiscal 2009 because of the current economic climate, we expect to see continued growth in the number of transactions we process in our EPP business, driven by increasing consumer demand for electronic payment options. We also expect revenues to resume growing at a mid-20s percent annual rate once the economy stabilizes.

As shown in chart 14, the categories on which Tier focuses its marketing strategy are large, and while we are the clear leader in several markets, which we call verticals, we see significant opportunities to increase utilization of our services. We intend to work with our existing government clients to offer their constituents more products and services, so that we grow our share of the total payments business. For our newer verticals, such as Utilities and Higher Education, our focus is on accelerating the signing of new clients by expanding the product and services we offer, to better serve those markets.

We continue to pursue key strategic initiatives that leverage our lead position in the biller direct space and which are designed to facilitate growth and maximize efficiencies. These initiatives include the following: Leverage our leadership in the government tax space to expand biller direct services to other vertical markets; increase customer adoption and usage; develop and launch new products and payment services; reduce costs; build our senior management team. We are making progress on each of these initiatives.

We continue to expand our biller direct services beyond government clients. Approximately 33.2% of total EPP revenue in fiscal 2008 came from processing IRS transactions. In fiscal year 2009, we expect our EPP revenue from processing IRS transactions to be at or below 30%. This change will accelerate as we show progress in our new verticals. As an example, we signed 56 colleges and universities in our Higher Education vertical for fiscal 2008.

We are also making substantial progress at increasing customer adoption and usage. Our efforts to build customer relationships continue to pay off as we added 44,000 customers in our My Account feature during the fourth quarter, bringing us to more than 800,000 customer account relationships at fiscal year end. We have begun to leverage these online relationships to encourage and cross sell our products and services through email and online marketing initiatives.

Additionally we have made some good progress in developing new products and payment services. We are pleased to be working with Visa, to pilot a flat convenience fee for Federal and State tax payments made on a Visa Consumer debit card. This test is consistent with out long-term strategy of building consumer acceptance and utilization of our services by adding, among other things, new payment options. For example, during fiscal year 2008, more than 200 of our current clients added the ACH payment capability through our service.

Finally, we continue to build our senior management team. At the end of the fourth quarter, Nina Vellayan joined the Company in the position of Senior Vice President and Chief Operating Officer. From 2001 through 2008, Ms. Vellayan served as President of Business Office Solutions, a division of Sallie Mae, which provides e-commerce solutions to universities, colleges, associations, the K-12 and the municipal tax marketplace utilizing web-based and IVR technologies.

Nina joins Ron Johnston, our CFO, and Keith Kendrick, our Senior Vice President of Strategic Marketing, who joined the team over the summer. Kevin Connell, our Senior Vice President of Sales and Business Development, continues to lead the sales team, which we believe has very strong relationships with billers across the country. Short biographies of our new team appear in chart 15 and more detailed information is available on our website at tier.com.

In addition to strengthening our senior management team, we have also added two individuals with experience in the electronic payments industry to our Board of Directors.

David Poe joined our Board on October 1st. David has served as a consultant and director of Edgar, Dunn & Company, a consulting firm that specializes in the global financial services industry and electronic payments. David has been with Edgar, Dunn since March 1980 and from March 1998 to May 2008, he served as that firm’s Chief Executive Officer.

Phil Heasley joined our Board in August. Phil is President and CEO of ACI Worldwide, a publicly-traded firm headquartered in New York City. Phil is a 32-year veteran of the payments and financial services industry.

I look forward to talking more about the year ahead in a few minutes.

For now, I will turn the call over to Ron Johnston to discuss the fourth quarter and year end financial results and then we will open the call for Q&A.

Ronald Johnston

Thanks, Ron.

During this call I will address the status of our Auction Rate Securities, impairment write-offs taken in the quarter, the general consolidated operating results of the fourth quarter and twelve month periods, and cash balance at fiscal year end.

Our investment portfolio includes $31.3 million par value of municipal bonds that are collateralized with student loans. These municipal bonds are bought and sold through a bidding process sometimes referred to as a Dutch Auction. We call these our Auction Rates Securities or ARS. Beginning in February 2008, some of the auctions for these securities were unsuccessful.

In the fourth quarter, we recorded a temporary impairment of $705,000, bringing the total impairment recognized in the fiscal year to $2.5 million. Discussions with UBS and articles in the financial press during the fourth quarter suggest that it may be many months before liquidity returns to the market for these securities.

In November we accepted a Rights Offer initiated by UBS, in which UBS has agreed to purchase our Auction Rate Securities at par starting in June 2010. UBS has also agreed to extend credit to its clients, including Tier, should the clients wish to borrow against their ARS before UBS purchases them.

We believe our cash and cash equivalents balance of $47.7 million at September 30th, 2008 are sufficient and we do not anticipate the lack of liquidity in the credit and capital markets will have a material impact on our cash flows or ability to conduct our business.

ARS impairments are recorded as a contra account to cash and a charge to other comprehensive loss in stockholders’ equity. We provide more details about our ARS in note 3 to our consolidated financial statements, which are included in our Form 10-K.

On a quarterly basis, the Company performs impairment testing as required by SFAS No. 144, accounting for the impairment for disposal of long-lived assets; SFAS No. 142, goodwill and other intangible assets; and SFAS No. 86, accounting for the costs of computer software to be sold, leased, or otherwise marketed. SFAS No. 144 requires that a long-lived asset in a disposal group classified as held-for-sale shall be measured at the lower of its carrying amount or fair value less cost to sell.

SFAS No. 142 requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

SFAS No. 86 requires that the amount by which the unamortized capitalized costs of a computer software product exceed its net realizable value shall be written off. In accordance with the above guidance, Tier analyzed its disposal group.

Impairment testing during the fourth quarter showed that the carrying value, excluding goodwill, exceeded fair value less cost of sale by $300,000. Our SFAS No. 142 testing resulted in no goodwill impairment charges for the fourth quarter. Testing under SFAS No. 86 required a write-down of $1.7 million. Total fiscal year 2008 impairment charges totaled $17.8 million.

Our business is divided into continuing and discontinued operations. Included in our continuing operations are three components: our core EPP business, businesses we are winding down, and corporate shared services. It is important to emphasize the fact that corporate shared services, which we call corporate overhead, support both our continuing and discontinued operations. However, they are accounted for completely in continuing operations only.

Let me give you some information about the fourth quarter and quarter-to-date comparisons. Whenever I refer to this quarter or the quarter without more, I mean the fourth quarter of fiscal year 2008.

Consolidated operating results for the quarter reflected total revenues of $27.6 million, down 24.9% from the same quarter last year. The primary deflator was divested or completed contracts in our GBPO and PSSI segments.

During the quarter, we processed over $960 million of payments, which represents a 25% increase versus the same quarter last year. This increase was driven by a 22.6% increase in transaction volume.

EPP revenues for the quarter were $21.1 million. Revenue growth of 15.4% in EPP was driven by increases in property tax payments, Federal and State Income tax payments, and payments processed for educational institutions. Revenues from our combined educational vertical, which includes both Higher Education and K-12 grew 26.7% and were the single largest contributor to EPP dollar revenue growth. We also experienced double-digit revenue growth in our Utility vertical.

Revenues from our wind-down businesses were $1.6 million for the quarter, compared to $2.4 million for the same period last year. We reported a net income in the fourth quarter for the wind-down units of $200,000.

Consolidated revenues for the quarter exceeded direct cost by 21% compared to 31.6% in the same quarter a year ago. This decrease is primarily due to the completion of previous high margin contracts in PSSI segment, loss of a high margin client in EPP which we have reported on in the past, and the impact of increased processing costs on fixed fee revenue forms.

On the expense side, direct costs for the quarter were $21.8 million, down 13.3% versus the same quarter a year ago. Costs in our EPP business increased 15.8 million primarily due to a $2.1 million addition of interchange fees that resulted from 25% in dollar volumes. Gross margin for continuing operations which we calculate by subtracting our direct cost from our revenues, gross is 24.8% from the quarter which is 1% lower than the same period last year. Gross margin in our EPP business was 23.2%, down approximately 31 basis points from the same period last year.

Some price compression and mix of cards with higher interchange fees used by customers contributed to this decrease. General and administrative expenses from consolidated operations were 11.3% for the quarter, down 6.9% compared to the same quarter last year. The decrease in G&A was attributable primarily to divestiture of non-core asset partially offset by strategic spending on production platform redesign and enhancement. Selling and marketing expenses were $2.3 million for the quarter, down 16.1% primarily due to divesture of non-core assets. Net interest income was $1.4 million for the quarter, about $400,000 or 38.1% more than the same quarter last year which reflects some increase in average balance of cash and investments offset by a decrease in interest rate.

Net loss for continuing operations is $4.9 million or a loss of $0.25 for fully diluted share. Net loss from discontinued operations net income taxes was $4 million in the quarter compared to $300,000 net income in the same quarter a year ago. Our net loss for fully diluted share in the quarter was negative $0.45 compared to a loss of $0.17 per fully diluted share in the same quarter last year. The last part of quarter was influenced by the impairment charges that we are taking.

Financial highlights for the 12 months ended September 30, 2008 are as follows: Revenues from continuing operations were $122.6 million, up $14.3 million or 32.2% from the same period last year. This merit was driven by electronic payments, business whose revenues were $117.1 million, up 17.7% over the same period last year. The 17.7% revenue increase in EPP business versus the same period last year was driven by growth in both the number of transactions and the average size of payments processed. During the year, EPP processed over $10.3 million transactions and $5.9 billion in payment volume, an increase of 27.6% and 24.3% respectively over the same period last year.

Charts 8 and 9 which were on reference earlier provide additional trend data. For the year, we reported a loss from our continuing operations of $12 million or $0.61 per fully diluted share. This compares to the loss from continuing operations of $18.4 million or $0.94 per fully diluted share in fiscal 2007. Now, I would like to briefly discuss the results of our discontinued operations during the fourth quarter.

We reported revenues from discontinued operations of $4.8 million and net loss from discontinued operations of $4 million for the quarter. This translates into a loss of $0.20 per fully diluted share compared with a loss of $0.02 per fully diluted share in the same quarter of fiscal 2007.

Turning to the balance sheet, Ron Rossetti previously mentioned our cash and marketable securities balance of September 30, 2008 of $87 million. That figure comprises cash and cash equivalents and investments in marketable securities of $78.9 million and restricted investments of $7.9 million. Restricted investments included $1.9 million pledge in connection with performance, bonds primarily in our PSSI segment and $6 million pledge that is compensating balances for an ACH banking service relationship in our EPP segment; There was also $200,000 of escrow and is reflected on the balance sheet under Other Assets.

The Company's headcount at September 30, 2008 was 412 personnel composed of 288 employees and 124 contractors compared to 798 total headcount at September 30, 2007. This represents a 48.4% reduction of personnel during the year. Once divestitures are complete, we expect our total headcount to be approximately 150 personnel or a reduction of a total of 81%. Days sales outstanding in September 30 were 35 compared to 56 at September 30, 2007. Collection improvements in revenue mix changes are factors in this decrease in DSO. With the divestures completed, future DSO should be no more than 5 to 10 days.

Lastly, I want to mention that our Form 10-K will be filed before the market opens tomorrow with the Securities and Exchange Commission. We encourage all of you to revenue the statements and notes in order to better understand our current operations.

Now, I would like to turn the call back over to Ronald Rossetti.

Ronald Rossetti

Thanks, Ron. Recently, you may have seen the press release from Discovery Equity Partners, one of our stockholders, indicating that intents to nominate two candidates for the Board of Directors of Tier Technologies at our 2009 annual meeting. In order to comply with applicable Securities and Exchange Commission rules, I cannot comment on Discovery's nomination proposal at this time.

Like many of you, Discovery also raised the issue of the share buyback program. Let me show you that this topic is reviewed regularly by the Board of Directors. To date, the Board has concluded that it would be better for stockholders and the company of capital that we used to expand this business. The Board and management are focused on increasing value for our stockholders. We believe that the value of Tier in the market today is largely the result of the economic environment and does not reflect the ongoing value of our EPP business or its prospects. We are working hard to increase that value. We are implementing the sales and marketing initiatives we have outlined previously and launching new products and payment services. Based on the strength of our balance sheet, we will have the financial resources needed to implement these initiatives.

Even in light of current economic conditions, the press condition of the stock market and pressures on top of this in the financial services industry, there was a standing policy of the Board to carefully evaluate all opportunities that could reasonably be expected to lead to an increasing stockholder value. Nothing is or has ever been off the table. However, we do not and will not comment publicly on these activities.

On summary, what I would like you to take away from this scroll are the following four things; your Board and management are focused on enhancing value for all stockholders by executing on our strategic plan. The Company has fundamentally completed the restructuring program originally announced in early fiscal 2007. We have made significant progress to reducing both corporate and operating expenses and we will continue to work hard to reduce expenses. The Company has developed and is implementing initiatives to aggressively grow our EPP business. We are transforming Tier into a comprehensive, pure play direct company. The management team that we have put in place to build this Company is backed by an expanded Board that includes individuals with significant industry expertise.

All of the second relate to the Company and its stockholders. We believe that the initiatives that we are pursuing are for the best means for increasing the Company's value for our stockholders. As always, I wish to think our long-term investors for your continued support of your Company.

Liz Bowman

We would now like to open up the call for Q&A.

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