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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark one)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | ----------------------------------------------------------------------------------------

For the quarterly period ended July 31, 2007

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number 1-32215



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Jackson
Hewitt Tax Service Inc.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 20-0779692                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

3 Sylvan Way

Parsippany, New Jersey 07054

(Address of principal executive offices including zip code)

(973) 630-1040

(Registrants telephone number, including area code)



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated
filer  x    Accelerated filer ̈Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes ̈No  x

The number of shares outstanding of the registrants common stock was 30,153,295 (net of 8,014,345 shares held in treasury) as of July 31,
2007.



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##### Table of Contents

JACKSON HEWITT TAX SERVICE INC.

TABLE OF CONTENTS



|         |  |                                                                                                     |  |     
|-------- |  | --------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                     |  | Page
|         |  | PART 1 - FINANCIAL INFORMATION                                                                      |  |     
|         |  |                                                                                                    
|Item 1.  |  | Financial Statements (Unaudited):                                                                   |  | 1   
|         |  |                                                                                                    
|         |  | Condensed Consolidated Balance Sheets.                                                              |  | 1   
|         |  |                                                                                                    
|         |  | Condensed Consolidated Statements of Operations.                                                    |  | 2   
|         |  |                                                                                                    
|         |  | Condensed Consolidated Statements of Cash Flows.                                                    |  | 3   
|         |  |                                                                                                    
|         |  | Notes to Condensed Consolidated Financial Statements.                                               |  | 4   
|         |  |                                                                                                    
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations.              |  | 12  
|         |  |                                                                                                    
|Item 3.  |  | Quantitative and Qualitative Disclosures about Market Risk.                                         |  | 20  
|         |  |                                                                                                    
|Item 4.  |  | Controls and Procedures.                                                                            |  | 20  
|         |  |                                                                                                    
|         |  | PART II - OTHER INFORMATION                                                                         |  |     
|         |  |                                                                                                    
|Item 1.  |  | Legal Proceedings.                                                                                  |  | 21  
|         |  |                                                                                                    
|Item 1A. |  | Risk Factors.                                                                                       |  | 21  
|         |  |                                                                                                    
|Item 2.  |  | Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities. |  | 21  
|         |  |                                                                                                    
|Item 3.  |  | Defaults Upon Senior Securities.                                                                    |  | 21  
|         |  |                                                                                                    
|Item 4.  |  | Submission of Matters to a Vote of Security Holders.                                                |  | 21  
|         |  |                                                                                                    
|Item 5.  |  | Other Information.                                                                                  |  | 21  
|         |  |                                                                                                    
|Item 6.  |  | Exhibits.                                                                                           |  | 21  
|         |  |                                                                                                    
|         |  | Signatures.                                                                                         |  |     



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##### Table of Contents

PART 1  FINANCIAL INFORMATION



|Item 1. | Financial Statements (Unaudited)
|------- | --------------------------------

JACKSON HEWITT TAX SERVICE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands,
except per share amounts)



|                                                                                               |  |               |          |   |                |   |          |  
|---------------------------------------------------------------------------------------------- |  | ------------- | -------- | - | -------------- | - | -------- | -
|                                                                                               |  | As of         |         
|                                                                                               |  | July 31, 2007 |          |   | April 30, 2007 |  
|Assets                                                                                         |  |               |          |   |                |   |          |  
|Current assets:                                                                                |  |               |          |   |                |   |          |  
|Cash and cash equivalents                                                                      |  | $             | 460      |   |                | $ | 1,693    |  
|Accounts receivable, net of allowance for doubtful accounts of $2,104 and $1,279, respectively |  |               | 5,264    |   |                |   | 17,519   |  
|Notes receivable, net                                                                          |  |               | 5,943    |   |                |   | 5,544    |  
|Prepaid expenses and other                                                                     |  |               | 10,282   |   |                |   | 11,421   |  
|Deferred income taxes                                                                          |  |               | 2,235    |   |                |   | 1,933    |  
|                                                                                               |  |               |          |   |                |   |          |  
|Total current assets                                                                           |  |               | 24,184   |   |                |   | 38,110   |  
|                                                                                               |  |              
|Property and equipment, net                                                                    |  |               | 33,228   |   |                |   | 35,194   |  
|Goodwill                                                                                       |  |               | 393,249  |   |                |   | 393,208  |  
|Other intangible assets, net                                                                   |  |               | 84,155   |   |                |   | 84,793   |  
|Notes receivable, net                                                                          |  |               | 5,526    |   |                |   | 5,001    |  
|Other non-current assets, net                                                                  |  |               | 17,523   |   |                |   | 17,235   |  
|                                                                                               |  |               |          |   |                |   |          |  
|Total assets                                                                                   |  | $             | 557,865  |   |                | $ | 573,541  |  
|                                                                                               |  |               |          |   |                |   |          |  
|Liabilities and Stockholders Equity                                                           |  |               |          |   |                |   |          |  
|Current liabilities:                                                                           |  |               |          |   |                |   |          |  
|Accounts payable and accrued liabilities                                                       |  | $             | 16,140   |   |                | $ | 31,452   |  
|Income taxes payable                                                                           |  |               | 35,689   |   |                |   | 58,905   |  
|Deferred revenues                                                                              |  |               | 9,329    |   |                |   | 10,038   |  
|                                                                                               |  |               |          |   |                |   |          |  
|Total current liabilities                                                                      |  |               | 61,158   |   |                |   | 100,395  |  
|                                                                                               |  |              
|Long-term debt                                                                                 |  |               | 210,000  |   |                |   | 127,000  |  
|Deferred income taxes                                                                          |  |               | 30,911   |   |                |   | 31,206   |  
|Other non-current liabilities                                                                  |  |               | 9,427    |   |                |   | 11,450   |  
|                                                                                               |  |               |          |   |                |   |          |  
|Total liabilities                                                                              |  |               | 311,496  |   |                |   | 270,051  |  
|                                                                                               |  |               |          |   |                |   |          |  
|Commitments and Contingencies (Note 8)                                                         |  |               |          |   |                |   |          |  
|Stockholders equity:                                                                          |  |               |          |   |                |   |          |  
|Common stock, par value $0.01; Authorized: 200,000,000 shares;                                 |  |               |          |   |                |   |          |  
|Issued: 38,167,640 and 38,069,726 shares, respectively                                         |  |               | 382      |   |                |   | 381      |  
|Additional paid-in capital                                                                     |  |               | 362,599  |   |                |   | 359,469  |  
|Retained earnings                                                                              |  |               | 116,498  |   |                |   | 146,962  |  
|Accumulated other comprehensive income                                                         |  |               | 557      |   |                |   | 348      |  
|Less: Treasury stock, at cost: 8,014,345 and 6,953,545 shares, respectively                    |  |               | (233,667 | ) |                |   | (203,670 | )
|                                                                                               |  |               |          |   |                |   |          |  
|Total stockholders equity                                                                     |  |               | 246,369  |   |                |   | 303,490  |  
|                                                                                               |  |               |          |   |                |   |          |  
|Total liabilities and stockholders equity                                                     |  | $             | 557,865  |   |                | $ | 573,541  |  
|                                                                                               |  |               |          |   |                |   |          |  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.



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JACKSON HEWITT TAX SERVICE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except
per share amounts)



|                                                      |  |                            |         |   |      |   |         |  
|----------------------------------------------------- |  | -------------------------- | ------- | - | ---- | - | ------- | -
|                                                      |  | Three Months EndedJuly 31, |        
|                                                      |  | 2007                       |         |   | 2006 |  
|Revenues                                              |  |                            |         |   |      |   |         |  
|Franchise operations revenues:                        |  |                            |         |   |      |   |         |  
|Royalty                                               |  | $                          | 658     |   |      | $ | 623     |  
|Marketing and advertising                             |  |                            | 275     |   |      |   | 280     |  
|Financial product fees                                |  |                            | 2,746   |   |      |   | 2,218   |  
|Other                                                 |  |                            | 1,733   |   |      |   | 2,335   |  
|Service revenues from company-owned office operations |  |                            | 508     |   |      |   | 405     |  
|                                                      |  |                            |         |   |      |   |         |  
|Total revenues                                        |  |                            | 5,920   |   |      |   | 5,861   |  
|                                                      |  |                            |         |   |      |   |         |  
|Expenses                                              |  |                            |         |   |      |   |         |  
|Cost of franchise operations                          |  |                            | 9,386   |   |      |   | 7,960   |  
|Marketing and advertising                             |  |                            | 4,140   |   |      |   | 2,834   |  
|Cost of company-owned office operations               |  |                            | 5,617   |   |      |   | 4,792   |  
|Selling, general and administrative                   |  |                            | 13,319  |   |      |   | 7,571   |  
|Depreciation and amortization                         |  |                            | 3,284   |   |      |   | 2,972   |  
|                                                      |  |                            |         |   |      |   |         |  
|Total expenses                                        |  |                            | 35,746  |   |      |   | 26,129  |  
|                                                      |  |                            |         |   |      |   |         |  
|Loss from operations                                  |  |                            | (29,826 | ) |      |   | (20,268 | )
|Other income/(expense):                               |  |                            |         |   |      |   |         |  
|Interest income                                       |  |                            | 440     |   |      |   | 413     |  
|Interest expense                                      |  |                            | (2,860  | ) |      |   | (1,237  | )
|                                                      |  |                            |         |   |      |   |         |  
|Loss before income taxes                              |  |                            | (32,246 | ) |      |   | (21,092 | )
|Benefit from income taxes                             |  |                            | 12,641  |   |      |   | 8,422   |  
|                                                      |  |                            |         |   |      |   |         |  
|Net loss                                              |  | $                          | (19,605 | ) |      | $ | (12,670 | )
|                                                      |  |                            |         |   |      |   |         |  
|Loss per share:                                       |  |                            |         |   |      |   |         |  
|Basic and diluted                                     |  | $                          | (0.65   | ) |      | $ | (0.36   | )
|                                                      |  |                            |         |   |      |   |         |  
|Weighted average shares outstanding:                  |  |                            |         |   |      |   |         |  
|Basic and diluted                                     |  |                            | 30,268  |   |      |   | 34,888  |  
|                                                      |  |                            |         |   |      |   |         |  
|                                                      |  |                           
|Dividends declared per share (Note 1)                 |  | $                          | 0.36    |   |      | $ | 0.12    |  
|                                                      |  |                            |         |   |      |   |         |  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.



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JACKSON HEWITT TAX SERVICE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



|                                                                            |  |                            |         |   |      |   |         |  
|--------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ---- | - | ------- | -
|                                                                            |  | Three Months EndedJuly 31, |        
|                                                                            |  | 2007                       |         |   | 2006 |  
|Operating activities:                                                       |  |                            |         |   |      |   |         |  
|Net loss                                                                    |  | $                          | (19,605 | ) |      | $ | (12,670 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                            |         |   |      |   |         |  
|Depreciation and amortization                                               |  |                            | 3,284   |   |      |   | 2,972   |  
|Amortization of Gold Guarantee product                                      |  |                            | (609    | ) |      |   | (536    | )
|Amortization of development advances                                        |  |                            | 380     |   |      |   | 317     |  
|Stock-based compensation                                                    |  |                            | 1,258   |   |      |   | 923     |  
|Deferred income taxes                                                       |  |                            | (302    | ) |      |   | 842     |  
|Excess tax benefits on stock options exercised                              |  |                            | (259    | ) |      |   | (319    | )
|Other                                                                       |  |                            | 48      |   |      |   | 33      |  
|Changes in assets and liabilities, excluding the impact of acquisitions:    |  |                            |         |   |      |   |         |  
|Accounts receivable                                                         |  |                            | 11,381  |   |      |   | 14,767  |  
|Notes receivable                                                            |  |                            | (569    | ) |      |   | (712    | )
|Prepaid expenses and other                                                  |  |                            | 69      |   |      |   | (1,013  | )
|Accounts payable, accrued and other liabilities                             |  |                            | (18,523 | ) |      |   | (26,456 | )
|Income taxes payable                                                        |  |                            | (23,043 | ) |      |   | (17,148 | )
|Deferred revenues                                                           |  |                            | 80      |   |      |   | 130     |  
|                                                                            |  |                            |         |   |      |   |         |  
|Net cash used in operating activities                                       |  |                            | (46,410 | ) |      |   | (38,870 | )
|                                                                            |  |                            |         |   |      |   |         |  
|Investing activities:                                                       |  |                            |         |   |      |   |         |  
|Capital expenditures                                                        |  |                            | (720    | ) |      |   | (2,300  | )
|Funding provided to franchisees                                             |  |                            | (1,187  | ) |      |   | (428    | )
|Repayment of franchisee notes                                               |  |                            | 169     |   |      |   |        |  
|Cash paid for acquisitions                                                  |  |                            | (1,724  | ) |      |   | (1,205  | )
|                                                                            |  |                            |         |   |      |   |         |  
|Net cash used in investing activities                                       |  |                            | (3,462  | ) |      |   | (3,933  | )
|                                                                            |  |                            |         |   |      |   |         |  
|Financing activities:                                                       |  |                            |         |   |      |   |         |  
|Common stock repurchases                                                    |  |                            | (29,997 | ) |      |   | (34,114 | )
|Borrowings under revolving credit facility                                  |  |                            | 146,000 |   |      |   | 74,000  |  
|Repayment of borrowings under revolving credit facility                     |  |                            | (63,000 | ) |      |   | (9,000  | )
|Dividends paid to stockholders                                              |  |                            | (5,422  | ) |      |   | (4,145  | )
|Proceeds from issuance of common stock                                      |  |                            | 1,605   |   |      |   | 1,043   |  
|Excess tax benefits on stock options exercised                              |  |                            | 259     |   |      |   | 319     |  
|Outstanding checks in excess of funds on deposit                            |  |                            | (806    | ) |      |   |        |  
|                                                                            |  |                            |         |   |      |   |         |  
|Net cash provided by financing activities                                   |  |                            | 48,639  |   |      |   | 28,103  |  
|                                                                            |  |                            |         |   |      |   |         |  
|Net decrease in cash and cash equivalents                                   |  |                            | (1,233  | ) |      |   | (14,700 | )
|Cash and cash equivalents, beginning of period                              |  |                            | 1,693   |   |      |   | 15,150  |  
|                                                                            |  |                            |         |   |      |   |         |  
|Cash and cash equivalents, end of period                                    |  | $                          | 460     |   |      | $ | 450     |  
|                                                                            |  |                            |         |   |      |   |         |  

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.



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JACKSON HEWITT TAX SERVICE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BACKGROUND AND BASIS OF
PRESENTATION

Description of Business

Jackson Hewitt Tax Service Inc. provides computerized preparation of federal, state and local
individual income tax returns in the United States through a nationwide network of franchised and company-owned tax offices operating under the brand name Jackson Hewitt Tax Service®. The
Company provides its customers with convenient, fast and accurate tax return preparation services and electronic filing. In connection with their tax return preparation experience, the Companys customers may select various financial products
to suit their needs, including refund anticipation loans (RALs). Jackson Hewitt, and the Company are used interchangeably in these notes to the Condensed Consolidated Financial Statements to refer to Jackson
Hewitt Tax Service Inc. and its subsidiaries, appropriate to the context.

Jackson Hewitt Tax Service Inc. was incorporated in Delaware in
February 2004 to be the parent corporation in connection with the Companys June 2004 initial public offering (IPO) pursuant to which Cendant Corporation, now known as Avis Budget Group, Inc. (Cendant), divested 100% of
its ownership interest in Jackson Hewitt Tax Service Inc. Jackson Hewitt Inc. (JHI) is a wholly-owned subsidiary of Jackson Hewitt Tax Service Inc. Jackson Hewitt Technology Services LLC is a wholly-owned subsidiary of JHI that
supports the technology needs of the Company. Company-owned office operations are conducted by Tax Services of America, Inc. (TSA), which is a wholly-owned subsidiary of JHI. The Condensed Consolidated Financial Statements include
the accounts and transactions of Jackson Hewitt and its subsidiaries.

Basis of Presentation

The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial statements. These interim Condensed Consolidated Financial
Statements should be read in conjunction with the Consolidated Financial Statements and other financial information included in the Companys Annual Report on Form 10-K which was filed with the SEC on June 29, 2007.

In presenting the Condensed Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and related
disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates. In the opinion of management, the accompanying interim Condensed Consolidated Financial
Statements contain all normal and recurring adjustments necessary for a fair presentation of the Companys financial position, results of operations and cash flows. The results of operations for the interim periods reported are not necessarily
indicative of the results of operations that may be expected for any future interim periods or for the full fiscal year.

Certain prior
period amounts have been reclassified to conform to the current period presentation.

Comprehensive Loss

The Companys comprehensive loss is comprised of net loss from the Companys results of operations and changes in the fair value of derivatives.
The components of comprehensive loss, net of tax, are as follows:



|                                               |  |                            |         |   |      |   |         |  
|---------------------------------------------- |  | -------------------------- | ------- | - | ---- | - | ------- | -
|                                               |  | Three Months EndedJuly 31, |        
|                                               |  | (In thousands)             |        
|                                               |  | 2007                       |         |   | 2006 |  
|Net loss                                       |  | $                          | (19,605 | ) |      | $ | (12,670 | )
|Other comprehensive income (loss), net of tax: |  |                            |         |   |      |   |         |  
|Change in fair value of derivatives            |  |                            | 209     |   |      |   | (6      | )
|                                               |  |                            |         |   |      |   |         |  
|Comprehensive loss                             |  | $                          | (19,396 | ) |      | $ | (12,676 | )
|                                               |  |                            |         |   |      |   |         |  



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Computation of loss per share

Basic loss per share is calculated as net loss available to the Companys common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted loss per share is
calculated by dividing net loss available to the Companys common stockholders by an adjusted weighted average number of common shares outstanding during the period assuming conversion of potentially dilutive securities arising from stock
options outstanding.

Stock options to purchase 2,079,895 and 2,391,148 shares of common stock were not included in the computation of
diluted net loss per share for the three months ended July 31, 2007 and 2006, respectively, because the effect would have been antidilutive.

Dividends declared per share

On May 30, 2007, the Companys Board of Directors declared a quarterly cash
dividend of $0.18 per share of common stock that was paid on July 13, 2007. Additionally, on July 30, 2007, the Companys Board of Directors declared a quarterly cash dividend of $0.18 per share of common stock, payable on
October 15, 2007, to common stockholders of record on September 28, 2007. Both quarterly cash dividends are included in Dividends Declared per Share for the three months ended July 31, 2007 on the Consolidated Statements of
Operations.

On May 31, 2006, the Companys Board of Directors declared a quarterly cash dividend of $0.12 per share of common
stock that was paid on July 14, 2006.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is
effective for the Company beginning May 1, 2008. The Company is currently assessing the potential impact on its Consolidated Financial Statements of adopting SFAS No. 157.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities
(SFAS No. 159) which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 is effective for the Company
beginning May 1, 2008. The Company is currently assessing the potential impact on its Consolidated Financial Statements of adopting SFAS No. 159.

3. GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill by segment were as follows:



|                             |  |                      |         |                                  |   |        |  |   |        
|---------------------------- |  | -------------------- | ------- | -------------------------------- | - | ------ |  | - | -------
|                             |  | Franchise Operations |         | Company- Owned Office Operations |   | Total 
|                             |  | (In thousands)      
|Balance as of April 30, 2007 |  | $                    | 336,767 |                                  | $ | 56,441 |  | $ | 393,208
|Additions                    |  |                      |        |                                  |   | 41     |  |   | 41     
|                             |  |                      |         |                                  |   |        |  |   |        
|Balance as of July 31, 2007  |  | $                    | 336,767 |                                  | $ | 56,482 |  | $ | 393,249
|                             |  |                      |         |                                  |   |        |  |   |        



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Other intangible assets consisted of:



|                                          |  |                       |        |                          |   |         |                     |  |                       |        |                          |   |        |                     |   |         |   |  |   |       
|----------------------------------------- |  | --------------------- | ------ | ------------------------ | - | ------- | ------------------- |  | --------------------- | ------ | ------------------------ | - | ------ | ------------------- | - | ------- | - |  | - | ------
|                                          |  | As of July 31, 2007   |        | As of April 30, 2007    
|                                          |  | Gross Carrying Amount |        | Accumulated Amortization |   |         | Net Carrying Amount |  | Gross Carrying Amount |        | Accumulated Amortization |   |        | Net Carrying Amount
|                                          |  | (In thousands)       
|Amortizable other intangible assets:      |  |                       |        |                          |   |         |                     |  |                       |        |                          |   |        |                     |   |         |   |  |   |       
|Franchise agreements(a)                   |  | $                     | 16,052 |                          | $ | (14,796 | )                   |  | $                     | 1,256  |                          | $ | 16,052 |                     | $ | (14,394 | ) |  | $ | 1,658 
|Customer relationships(b)                 |  |                       | 8,913  |                          |   | (7,014  | )                   |  |                       | 1,899  |                          |   | 8,913  |                     |   | (6,778  | ) |  |   | 2,135 
|                                          |  |                       |        |                          |   |         |                     |  |                       |        |                          |   |        |                     |   |         |   |  |   |       
|Total amortizable other intangible assets |  | $                     | 24,965 |                          | $ | (21,810 | )                   |  |                       | 3,155  |                          | $ | 24,965 |                     | $ | (21,172 | ) |  |   | 3,793 
|                                          |  |                       |        |                          |   |         |                     |  |                       |        |                          |   |        |                     |   |         |   |  |   |       
|Unamortizable other intangible assets:    |  |                       |        |                          |   |         |                     |  |                       |        |                          |   |        |                     |   |         |   |  |   |       
|Jackson Hewitt trademark                  |  |                       |        |                          |   |         |                     |  |                       | 81,000 |                          |   |        |                     |   |         |   |  |   | 81,000
|                                          |  |                       |        |                          |   |         |                     |  |                       |        |                          |   |        |                     |   |         |   |  |   |       
|Total other intangible assets, net        |  |                       |        |                          |   |         |                     |  | $                     | 84,155 |                          |   |        |                     |   |         |   |  | $ | 84,793
|                                          |  |                       |        |                          |   |         |                     |  |                       |        |                          |   |        |                     |   |         |   |  |   |       

---

|(a) | Amortized over a period of 10 years.
|--- | ------------------------------------

|(b) | Amortized over a period of two to seven years.
|--- | ----------------------------------------------

The
changes in the carrying amount of other intangible assets, net, by segment were as follows:



|                             |  |                      |        |   |                                 |   |       |       |  |   |        |  
|---------------------------- |  | -------------------- | ------ | - | ------------------------------- | - | ----- | ----- |  | - | ------ | -
|                             |  | Franchise Operations |        |   | Company-Owned Office Operations |   |       | Total | 
|                             |  | (In thousands)       |       
|Balance as of April 30, 2007 |  | $                    | 82,658 |   |                                 | $ | 2,135 |       |  | $ | 84,793 |  
|Amortization                 |  |                      | (402   | ) |                                 |   | (236  | )     |  |   | (638   | )
|                             |  |                      |        |   |                                 |   |       |       |  |   |        |  
|Balance as of July 31, 2007  |  | $                    | 82,256 |   |                                 | $ | 1,899 |       |  | $ | 84,155 |  
|                             |  |                      |        |   |                                 |   |       |       |  |   |        |  

Amortization expense relating to other intangible assets was as follows:



|                       |  |                            |     |      |   |    
|---------------------- |  | -------------------------- | --- | ---- | - | ---
|                       |  | Three Months EndedJuly 31,
|                       |  | 2007                       |     | 2006
|                       |  | (In thousands)            
|Franchise agreements   |  | $                          | 402 |      | $ | 403
|Customer relationships |  |                            | 236 |      |   | 281
|                       |  |                            |     |      |   |    
|Total                  |  | $                          | 638 |      | $ | 684
|                       |  |                            |     |      |   |    

Estimated amortization expense related to other intangible assets for each of the respective
periods in the fiscal periods ended April 30 is as follows:



|                                     |  |                |      
|------------------------------------ |  | -------------- | -----
|                                     |  | Amount        
|                                     |  | (In thousands)
|Remaining nine months in fiscal 2008 |  | $              | 1,261
|2009                                 |  |                | 646  
|2010                                 |  |                | 484  
|2011                                 |  |                | 389  
|2012                                 |  |                | 235  
|2013 and thereafter                  |  |                | 140  
|                                     |  |                |      
|Total                                |  | $              | 3,155
|                                     |  |                |      



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##### Table of Contents

4. STOCK-BASED COMPENSATION

Under the Jackson Hewitt Tax Service Inc. Amended and Restated 2004 Equity and Incentive Plan (the Amended and Restated Plan), stock options are granted, with the exception of certain stock options granted
at the time of the Companys IPO, with an exercise price equal to the market price of a share of common stock on the date of grant and have a contractual term of ten years. All stock options granted through April 30, 2007 vest based on
four years of continuous service from the date of grant. Stock options granted in the three months ended July 31, 2007 vest based on five years of continuous service from the date of grant. Certain awards provide for accelerated vesting if
there is a change in control. The Amended and Restated Plan includes nondiscretionary antidilution provisions in case of an equity restructuring.

The Company incurred stock-based compensation of $1.2 million and $0.8 million (net of a $0.1 million cumulative effect adjustment related to forfeitures upon adopting SFAS No. 123 (Revised 2004), Share-Based Payment) in
the three months ended July 31, 2007 and July 31, 2006, respectively, in connection with the vesting of employee stock options. The associated income tax benefit recognized was $0.5 million and $0.3 million in the three months ended
July 31, 2007 and July 31, 2006, respectively.

The weighted average grant date fair value for each Jackson Hewitt stock option
granted during the three months ended July 31, 2007 and July 31, 2006 was $8.89 and $11.50, respectively. The fair value of each option award was estimated on the date of grant using the Black-Scholes option-pricing model. The Company used
the method permitted under SEC Staff Accounting Bulletin No. 107, Share-Based Payment to determine the expected holding period and will continue to do so through December 31, 2007 at which point the Company will have
accumulated a reasonably consistent history of exercised options since its IPO in order to make a more refined estimate. Expected volatility was based on the Companys historical publicly-traded stock price. The risk-free interest rate
assumption was determined using the Federal Reserve nominal rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expecting holding period of the award being valued.

The following table sets forth the weighted average assumptions used to determine compensation cost for stock options granted during the three months
ended July 31, 2007 and July 31, 2006, respectively:



|                                   |  |                             |   |  |      |  
|---------------------------------- |  | --------------------------- | - |  | ---- | -
|                                   |  | Three Months Ended July 31, |  
|                                   |  | 2007                        |   |  | 2006 |  
|Expected holding period (in years) |  | 6.25                        |   |  | 6.25 |  
|Expected volatility                |  | 30.7                        | % |  | 32.0 | %
|Dividend yield                     |  | 2.4                         | % |  | 1.5  | %
|Risk-free interest rate            |  | 4.8                         | % |  | 5.0  | %

The following table summarizes information about stock option activity for the three months ended
July 31, 2007:



|                                |  |                       |   |  |  |  |                              |      
|------------------------------- |  | --------------------- | - |  |  |  | ---------------------------- | -----
|                                |  | Number ofStockOptions |   |  |  |  | WeightedAverageExercisePrice
|Balance as of April 30, 2007    |  | 2,777,511             |   |  |  |  | $                            | 20.86
|Granted                         |  | 597,404               |   |  |  |  | $                            | 29.51
|Exercised                       |  | (97,914               | ) |  |  |  | $                            | 16.39
|Forfeited                       |  | (82,449               | ) |  |  |  | $                            | 24.75
|Expired                         |  | (273                  | ) |  |  |  | $                            | 17.00
|                                |  |                       |   |  |  |  |                              |      
|Balance as of July 31, 2007     |  | 3,194,279             |   |  |  |  | $                            | 22.51
|                                |  |                       |   |  |  |  |                              |      
|Exercisable as of July 31, 2007 |  | 1,608,298             |   |  |  |  | $                            | 18.46
|                                |  |                       |   |  |  |  |                              |      

The aggregate intrinsic value under the Black-Scholes option-pricing model ascribed to the stock
options exercised during the three months ended July 31, 2007 and July 31, 2006 was $1.2 million and $1.0 million, respectively.

Outstanding stock options as of July 31, 2007 had an aggregate intrinsic value of $15.0 million and an average remaining contractual life of 7.4 years. Exercisable stock options as of July 31, 2007 had an aggregate intrinsic value
of $14.1 million and an average remaining contractual life of 6.0 years. As of July 31, 2007, there were 3,114,980 outstanding stock options vested or expected to vest (the awards, net of estimated forfeitures, for which compensation cost is
being recognized) which had a weighted average exercise price of $22.41, aggregate intrinsic value of $14.9 million and an average remaining contractual life of 7.3 years. The aggregate intrinsic values discussed in this paragraph represent the
total pre-tax intrinsic value, based on the Companys stock price as of July 31, 2007, which would have been received by the option holders had all option holders exercised their options as of that date.



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##### Table of Contents

The following table summarizes information about unvested stock option activity for the three months
ended July 31, 2007:



|                              |  |                        |   |  |                                                 |     
|----------------------------- |  | ---------------------- | - |  | ----------------------------------------------- | ----
|                              |  | Number ofStock Options |   |  | Weighted AverageGrant Date Fair Value Per
Share
|Unvested as of April 30, 2007 |  | 1,642,519              |   |  | $                                               | 8.02
|Granted                       |  | 597,404                |   |  | $                                               | 8.89
|Vested                        |  | (571,493               | ) |  | $                                               | 7.47
|Forfeited                     |  | (82,449                | ) |  | $                                               | 8.18
|                              |  |                        |   |  |                                                 |     
|Unvested as of July 31, 2007  |  | 1,585,981              |   |  | $                                               | 8.54
|                              |  |                        |   |  |                                                 |     

As of July 31, 2007, there was $11.3 million of total unrecognized compensation cost related
to unvested stock options, which is expected to be recognized over a weighted average period of 3.2 years. The total fair value of stock options vested during the three months ended July 31, 2007 and July 31, 2006 was $4.3 million and $2.7
million, respectively.

Restricted Stock Units

The Company incurred stock-based compensation expense of $0.1 million in each of the three month periods ended July 31, 2007 and 2006, respectively, in connection with the issuance of fully vested and
non-forfeitable restricted stock units (RSUs) to certain non-employee directors that are payable in shares of the Companys common stock as a one-time distribution upon termination of services. In the three months ended
July 31, 2007, the Company granted 3,454 RSUs at a grant price of $27.39 per RSU resulting in 49,302 RSUs outstanding as of July 31, 2007 with a weighted average grant price of $23.34.

5. SHARE REPURCHASES

During the three months ended
July 31, 2007, the Company repurchased 1,060,800 shares of its common stock totaling $30.0 million, including commissions, under a previously authorized $200.0 million multi-year share repurchase program. The Company has repurchased 3,155,389
shares of its common stock totaling $97.3 million, including commissions, under this program through July 31, 2007. During the three months ended July 31, 2006, the Company repurchased 1,090,300 shares of the Companys common stock
totaling $34.1 million, including commissions, under a previous repurchase program. The Company uses the cost method to account for such repurchases, which to date have been made in the open market. None of the Companys repurchased shares have
been retired as of July 31, 2007.

6. INCOME TAXES

In July 2006, the FASB issued Interpretation No. 48 Accounting for Uncertainty in Income TaxesAn Interpretation of FASB Statement No. 109, (FIN No. 48), which clarifies the
accounting for uncertainty in income taxes recognized in an enterprises financial statements. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties.

The Company adopted the provisions of FIN No. 48 on May 1, 2007. Upon the adoption of FIN No. 48, the Company had no cumulative effect adjustment to retained earnings and no liability for unrecognized
tax benefits. As of and for the three months ended July 31, 2007, the Company had no liability for unrecognized tax benefits nor any interest or penalties recognized related to unrecognized tax benefits. The Company does not expect any
significant changes to the total amount of unrecognized tax benefits within twelve months of the current reporting date. In accordance with its policy, the Company recognizes interest and penalties related to uncertain tax positions as a component
of income tax expense.

The Company is subject to United States federal income tax, as well as income tax in multiple state and local
jurisdictions. The Company is no longer subject to United States federal income tax examinations for all years through calendar 2002. The Companys income tax returns for calendar 2003 and calendar 2004 are currently under examination by the
Internal Revenue Service as part of the audit of Cendant. With only a few exceptions, all state and local income tax examination matters have been concluded through calendar 2003. The Company does not anticipate any material adjustments from any
ongoing examinations.



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##### Table of Contents

7. SEGMENT INFORMATION

The Company manages and evaluates the operating results of the business in two segments:



| |  |  | Franchise operationsThis segment consists of the operations of the Companys franchise business, including royalty and marketing and advertising
revenues, financial product fees and other revenues; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Company-owned office operationsThis segment consists of the operations of the company-owned offices for which the Company recognizes service revenues
primarily for the preparation of tax returns.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Management evaluates the operating results of each of its reportable
segments based upon revenues and income before income taxes. Intersegment transactions approximate fair market value and are not significant.



|                                 |  |                     |         |   |                               |   |        |                        |  |   |         |   |  |   |         |  
|-------------------------------- |  | ------------------- | ------- | - | ----------------------------- | - | ------ | ---------------------- |  | - | ------- | - |  | - | ------- | -
|                                 |  | FranchiseOperations |         |   | Company-OwnedOfficeOperations |   |        | Corporateand Other (a) |  |   | Total   |  
|                                 |  | (In thousands)      |        
|Three months ended July 31, 2007 |  |                     |         |   |                               |   |        |                        |  |   |         |   |  |   |         |  
|Revenues                         |  | $                   | 5,412   |   |                               | $ | 508    |                        |  | $ |        |   |  | $ | 5,920   |  
|                                 |  |                     |         |   |                               |   |        |                        |  |   |         |   |  |   |         |  
|Loss before income taxes         |  | $                   | (10,850 | ) |                               | $ | (6,908 | )                      |  | $ | (14,488 | ) |  | $ | (32,246 | )
|                                 |  |                     |         |   |                               |   |        |                        |  |   |         |   |  |   |         |  
|Three months ended July 31, 2006 |  |                     |         |   |                               |   |        |                        |  |   |         |   |  |   |         |  
|Revenues                         |  | $                   | 5,456   |   |                               | $ | 405    |                        |  | $ |        |   |  | $ | 5,861   |  
|                                 |  |                     |         |   |                               |   |        |                        |  |   |         |   |  |   |         |  
|Loss before income taxes         |  | $                   | (8,274  | ) |                               | $ | (5,959 | )                      |  | $ | (6,859  | ) |  | $ | (21,092 | )
|                                 |  |                     |         |   |                               |   |        |                        |  |   |         |   |  |   |         |  

---

|(a) | Corporate and other expenses include unallocated corporate overhead supporting both segments including legal, finance, human resources, real estate facilities and strategic
development activities, as well as stock-based compensation.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8. COMMITMENTS AND CONTINGENCIES

Guarantees

As of July 31, 2007, the
Company had outstanding a $0.5 million irrevocable letter of credit under the $450 Million Credit Facility. The requirement to maintain this irrevocable letter of credit will terminate in May 2008 as provided under the Companys lease agreement
for its corporate headquarters in Parsippany, New Jersey.

The Company is required to provide various types of surety bonds, such as tax
return preparer bonds and performance bonds, which are irrevocable undertakings by the Company to make payment in the event the Company fails to perform certain of its obligations to third parties. These bonds vary in duration although most are
issued and outstanding from one to two years. If the Company fails to perform under its obligations, the maximum potential payment under these surety bonds is $2.1 million as of July 31, 2007. Historically, no surety bonds have been drawn upon
and there is no future expectation that these surety bonds will be drawn upon.

The
Company, through TSA, provides customers of company-owned offices with a guarantee in connection with the preparation of tax returns that may require in certain circumstances the Company to pay penalties and interest assessed by a taxing authority.
The Company recognized a liability of $0.1 million as of July 31, 2007 and April 30, 2007 for the fair value of the obligation undertaken in issuing the guarantee. Such liability was included in accounts payable and accrued
liabilities on the Condensed Consolidated Balance Sheet. In addition, the Company may be required to pay additional tax (or refund shortfall) assessed by a taxing authority for all customers that purchase the Companys Gold Guarantee® product. The Company may incur a liability to the extent that the total customer Gold Guarantee claims exceed maximum thresholds pursuant to the contract between the Company and the third party
program provider. There have been no amounts paid by the Company under this arrangement in the past relating to such potential liability and the Company does not expect to be required to make payment in the future.

The transitional agreement with Cendant provides that the Company continues to indemnify Cendant and its affiliates against potential losses based on,
arising out of or resulting from, among other things, claims by third parties relating to the ownership or the operation of the Companys assets or properties and the operation or conduct of the Companys business, whether in the past or
future, including any currently pending litigation against Cendant and any claims arising out of or relating to the Companys IPO. Additionally, the transitional agreement provides that the Company is responsible for the respective tax
liabilities imposed on or attributable to the Company and any of the Companys subsidiaries relating to all taxable periods. Accordingly, the Company is required to indemnify Cendant and its subsidiaries against any such tax



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##### Table of Contents

liabilities imposed on or attributable to the Company and any of the Companys subsidiaries. While there have not been any indemnification claims
against the Company under these arrangements since the Companys IPO, the Company could be obligated to make payments in the future.

The Company routinely enters into contracts that include indemnification provisions that serve to protect the contracting parties from losses such parties suffer as a result of acts or omissions of the Company and/or its affiliates,
including in particular indemnity obligations relating to (a) tax, legal and other risks related to the purchase of businesses or the provision of services; (b) indemnification of the Companys directors and officers;
(c) indemnities of various lessors in connection with facility leases for certain claims arising from such facility or lease; and (d) third-party claims, including those from franchisees, relating to various arrangements in the normal
course of business. There is no stated maximum payment related to these indemnities, and the term of indemnities may vary and in many cases is limited only by the applicable statute of limitations. The likelihood of any claims being asserted against
the Company and the ultimate liability related to any such claims, if any, is difficult to predict. While there have not been any indemnification claims by the Company under these arrangements in the past, there can be no assurance that the Company
will not be obligated to make payments in the future.

Legal Proceedings

On March 18, 2003, Canieva Hood and Congress of California Seniors brought a purported class action suit against Santa Barbara Bank & Trust
(SBB&T) and the Company in the Superior Court of California (Santa Barbara, following a transfer from San Francisco) seeking declaratory relief in connection with the provision of RALs, as to the lawfulness of the practice of
cross-lender debt collection, as to the validity of SBB&Ts cross-lender debt collection provision and as to whether the method of disclosure to customers with respect to the provision is unlawful or fraudulent, and seeking injunctive
relief, restitution, disgorgement, compensatory damages, statutory damages, punitive damages, attorneys fees, and expenses. The Company is a party in the action for allegedly collaborating, and aiding and abetting, in the actions of SBB&T.
The trial court granted a motion for judgment on the pleadings by SBB&T and third-party bank defendants on federal preemption grounds, and stayed all other proceedings pending appeal. The California Court of Appeal reversed the trial
courts preemption decision. The California Supreme Court denied review. SBB&T and third-party banks moved in the California Court of Appeal to stay remittitur pending certiorari to the United States Supreme Court. On June 4, 2007, the
United States Supreme Court denied certiorari, and the purported class action suit is proceeding in the trial court. A class certification hearing has been scheduled for November 14, 2007. The Company believes it has meritorious defenses and is
contesting this matter vigorously. On December 18, 2003, Ms. Hood also filed a separate suit against the Company in the Ohio Court of Common Pleas (Montgomery County) and is seeking to certify a class in the action. The allegations of
negligence, breach of fiduciary duty, and violation of certain Ohio law relate to the same set of facts as the California action. Plaintiff seeks equitable and declaratory relief, damages, attorneys fees, and expenses. The case is in its
discovery and pretrial stage. The Company believes it has meritorious defenses and is contesting this matter vigorously.

On
September 26, 2006, Willie Brown brought a purported class action complaint against the Company in the Ohio Court of Common Pleas, Cuyahoga County, on behalf of Ohio customers who obtained RALs facilitated by the Company, for an alleged failure
to comply with Ohios Credit Services Organization Act, and for alleged unfair and deceptive acts in violation of Ohios Consumer Sales Practices Act, and seeking damages and injunctive relief. On October 30, 2006, the Company filed a
notice removing the complaint to the United States District Court for the Northern District of Ohio, Eastern Division. On November 6, 2006, the Company filed a motion to dismiss, and a motion to stay proceedings and to compel arbitration. On
December 8, 2006, plaintiff filed a motion to remand the case to the Ohio Court of Common Pleas, Cuyahoga County, which the Company opposed on January 16, 2007. On February 27, 2007 the Court entered an order remanding the case to the
Cuyahoga County Court of Common Pleas, without ruling on the other pending motions. On March 6, 2007, the Company filed for permission to appeal the remand decision with the United States Court of Appeals for the Sixth Circuit. A decision by
the court is currently pending. The Company believes it has meritorious defenses and is contesting this matter vigorously.

On
October 30, 2006, Linda Hunter brought a purported class action complaint against the Company in the United States District Court, Southern District of West Virginia, on behalf of West Virginia customers who obtained RALs facilitated by the
Company, seeking damages for an alleged breach of fiduciary duty, for breach of West Virginias Credit Service Organization Act, for breach of contract, and for unfair or deceptive acts or practices in connection with the Companys RAL
facilitation activities. On November 22, 2006, the Company filed a motion to dismiss. A decision by the Court is currently pending, and during such time the case is in its discovery stage. The Company believes it has meritorious defenses and is
contesting this matter vigorously.

On April 20, 2007, Brent Wooley brought a purported class action complaint against the Company and
certain unknown franchisees in the United States District Court, Northern District of Illinois. The complaint, which was



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##### Table of Contents

subsequently amended, was brought on behalf of customers who obtained tax return preparation services that allegedly included false deductions without
support by the customer that resulted in penalties being assessed by the IRS against the taxpayer for violations of the Illinois Consumer Fraud and Deceptive Practices Act, and the Racketeer and Corrupt Organizations Act, and alleging unjust
enrichment and breach of contract, seeking compensatory and punitive damages, restitution, and attorneys fees. The alleged violations of the Illinois Consumer Fraud and Deceptive Practices Act relate to representations regarding tax return
preparation, Basic Guarantee and Gold Guarantee coverage and denial of Gold Guarantee claims. On August 1, 2007, the Company filed a motion to dismiss which, on September 5, 2007, was denied without prejudice to permit the plaintiff to
further amend the complaint. The Company believes it has meritorious defenses and is contesting this matter vigorously.

On June 22,
2007, James Chapman brought a purported class action complaint against Jackson Hewitt Inc. and certain unknown franchisees in the United States District Court, District of New Jersey, on behalf of customers whose returns were deemed improper by the
IRS and then were denied Gold Guarantee claims for violations of the New Jersey Consumer Fraud Act and the Racketeering and Corrupt Organizations Act as well as breach of contract and unjust enrichment. The Company believes it has meritorious
defenses and is contesting this matter vigorously.

The Company is from time to time subject to other legal proceedings and claims in the
ordinary course of business, none of which the Company believes are likely to have a material adverse effect on the Companys financial position, results of operations or cash flows. However, there can be no assurance that such litigation or
claims, or any future litigation or claims, will not have a material adverse effect on the Companys financial position, results of operations or cash flows.



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion may be understood more fully by reference to the consolidated financial statements, notes to the consolidated financial
statements and Managements Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on June 29, 2007.

FORWARD-LOOKING STATEMENTS

Certain
statements in this report, including, but not limited to, those contained in Part I. Item 1Financial Statements and notes thereto, Part I. Item 2Managements Discussion and Analysis of Financial
Condition and Results of Operations and Part II. Item 1  Legal Proceedings included in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995
with respect to the financial condition, results of operations, cash flows, plans, objectives, future performance and business of Jackson Hewitt Tax Service Inc. All statements in this report, other than statements that are purely historical,
are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that otherwise include the words believes, expects, anticipates, intends, projects,
estimates, plans, may increase, may fluctuate and similar expressions or future or conditional verbs such as will, should, would, may, and
could. These forward-looking statements involve risks and uncertainties.

Actual results may differ materially from those
contemplated (expressed or implied) by such forward-looking statements, because of, among other things, the following potential risks and uncertainties: our ability to achieve the same levels of growth in revenues and profits in the future as we
have in the past; our ability to successfully attract and retain key personnel; government initiatives that simplify tax return preparation or reduce the need for a third party tax return preparer, improve the timing and efficiency of processing tax
returns or decrease the number of tax returns filed; the trend of tax payers filing their tax returns later in the tax season; the success of our franchised offices; our responsibility to third parties, regulators or courts for the acts of, or
failures to act by, our franchisees; government legislation and regulation of the tax return preparation industry and related financial products, including refund anticipation loans, and the failure by us, or the financial institutions which provide
financial products to our customers, to comply with such legal and regulatory requirements; the ongoing Department of Justice lawsuits and Internal Revenue Service examinations; the effectiveness of our tax return preparation compliance program;
increased regulation of tax return preparers; our exposure to litigation; the failure of our insurance to cover all the risks associated with our business; our ability to protect our customers personal and financial information; the
effectiveness of our marketing and advertising programs and franchisee support of these programs; disruptions in our relationships with our franchisees; changes in our relationships with financial product providers that could reduce the
revenues we derive from our agreements with these financial institutions as well as affect our customers ability to obtain financial products through our tax return preparation offices; changes in our relationships with retailers and
shopping malls that could affect our growth and profitability; the seasonality of our business and its effect on our stock price; competition from tax return preparation service providers, volunteer organizations and the government; our ability to
offer innovative new financial products and services; our reliance on technology systems and electronic communications to perform the core functions of our business; our ability to protect our intellectual property rights or defend against any third
party allegations of infringement by us; our reliance on cash flow from subsidiaries; our compliance with credit facility covenants; our exposure to increases in prevailing market interest rates; our quarterly results not being indicative of our
performance as a result of tax season being relatively short and straddling two quarters; our ability to pay dividends in the future; certain provisions that may hinder, delay or prevent third party takeovers; changes in accounting policies or
practices and our ability to maintain an effective system of internal controls; and the effect of market conditions, general conditions in the tax return preparation industry or general economic conditions.

Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements, and the failure of such
other assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond our control. As a result of these
factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur.
You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether
as a result of new information, future events or otherwise.



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OVERVIEW

We manage and evaluate the operating results of our business in two segments:



| |  |  | Franchise operations: This segment consists of the operations of our franchise business, including royalty and marketing and advertising revenues, financial product
fees and other revenues; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Company-owned office operations: This segment consists of the operations of our company-owned offices for which we recognize service revenues primarily for the
preparation of tax returns.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Jackson Hewitt Tax Service Inc. is the second largest paid individual tax return preparer in
the United States based upon the number of individual tax returns prepared and filed with the Internal Revenue Service (IRS). In fiscal 2007, our network consisted of 6,501 franchised and company-owned offices and prepared
3.65 million returns. We estimate our network prepared approximately 4% of all tax returns prepared by a paid tax return preparer. Our revenues consist of fees paid by our franchisees, service revenues earned at company-owned offices and
financial product fees. Jackson Hewitt, the Company, we, our, and us are used interchangeably in this report to refer to Jackson Hewitt Tax Service Inc. and its subsidiaries,
appropriate to the context.

Seasonality of Operations

Given the seasonal nature of the tax return preparation business, we have historically generated and expect to continue to generate substantially all of our revenues during the period from January 1 through
April 30. In fiscal 2007, we earned 93% of our revenues during this period. We historically operate at a loss through the first eight months of each fiscal year, during which we incur costs associated with preparing for the upcoming tax season.

Internal Review

On
April 3, 2007, the Department of Justice (DOJ) announced it had filed civil injunction suits against a franchisee and other named defendants operating in four states based upon allegations involving fraudulent tax return preparation
(DOJ Lawsuits). We retained outside counsel to conduct an internal review to investigate the allegations set forth in the DOJ Lawsuits and to examine our policies, practices and procedures in connection with tax return preparation
activities of our franchisees and company-owned offices (Internal Review).

We have completed our Internal Review of
allegations made in the DOJ Lawsuits. The comprehensive review, which was led by a former IRS Commissioner, did not find evidence of corporate employee participation in, or knowledge of, the allegedly fraudulent tax return preparation activities
described in the DOJ Lawsuits.

The Internal Reviews examination of our internal tax return preparation compliance systems and
processes resulted in recommendations which are currently being implemented to enhance certain systems and processes, including the development of additional compliance requirements such as enhanced monitoring tools, increased training of
franchisees and tax return preparers and increased education to customers about the earned income tax credit. In connection with the implementation, we created a Tax Compliance Office to oversee all aspects of our tax return preparation compliance
programs.

We continue to cooperate fully with the IRS in its examination of us and expect to resolve this matter within the second quarter
of fiscal 2008. Based on our discussions to date, we believe that resolution of this matter will not have a material adverse effect on our business, financial condition or results of operations.

For the fiscal year, we expect to incur approximately $6.0 million, primarily consisting of professional fees, relating to the matters surrounding the
Internal Review, of which $3.4 million was incurred during the three months ended July 31, 2007. We also expect to incur additional costs beginning in the current fiscal year related to enhancements to our compliance programs.

Financial Product Agreements

Our financial
product agreements with HSBC Taxpayer Financial Services Inc. (HSBC) will expire on October 31, 2007 and our agreements with Santa Barbara Bank & Trust (SBB&T), a division of Pacific Capital Bank, N.A., will
expire on October 31, 2008. We are continuing our discussions to extend our relationships with HSBC and SBB&T as well as introducing a third financial product provider for the 2008 and future tax seasons. We expect to execute agreements
with each of these financial product providers, within the second quarter of fiscal 2008.



13



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##### Table of Contents

RESULTS OF OPERATIONS

Our consolidated results of operations are set forth below and are followed by a more detailed discussion of each of our business segments, as well as a detailed discussion of certain corporate and other expenses.

Consolidated Results of Operations



|                                                      |  |                            |         |   |      |   |         |  
|----------------------------------------------------- |  | -------------------------- | ------- | - | ---- | - | ------- | -
|                                                      |  | Three Months EndedJuly 31, |        
|                                                      |  | 2007                       |         |   | 2006 |  
|                                                      |  | (in thousands)             |        
|Revenues                                              |  |                            |         |   |      |   |         |  
|Franchise operations revenues:                        |  |                            |         |   |      |   |         |  
|Royalty                                               |  | $                          | 658     |   |      | $ | 623     |  
|Marketing and advertising                             |  |                            | 275     |   |      |   | 280     |  
|Financial product fees                                |  |                            | 2,746   |   |      |   | 2,218   |  
|Other                                                 |  |                            | 1,733   |   |      |   | 2,335   |  
|Service revenues from company-owned office operations |  |                            | 508     |   |      |   | 405     |  
|                                                      |  |                            |         |   |      |   |         |  
|Total revenues                                        |  |                            | 5,920   |   |      |   | 5,861   |  
|                                                      |  |                            |         |   |      |   |         |  
|Expenses                                              |  |                            |         |   |      |   |         |  
|Cost of franchise operations                          |  |                            | 9,386   |   |      |   | 7,960   |  
|Marketing and advertising                             |  |                            | 4,140   |   |      |   | 2,834   |  
|Cost of company-owned office operations               |  |                            | 5,617   |   |      |   | 4,792   |  
|Selling, general and administrative                   |  |                            | 13,319  |   |      |   | 7,571   |  
|Depreciation and amortization                         |  |                            | 3,284   |   |      |   | 2,972   |  
|                                                      |  |                            |         |   |      |   |         |  
|Total expenses                                        |  |                            | 35,746  |   |      |   | 26,129  |  
|                                                      |  |                            |         |   |      |   |         |  
|Loss from operations                                  |  |                            | (29,826 | ) |      |   | (20,268 | )
|Other income/(expense):                               |  |                            |         |   |      |   |         |  
|Interest income                                       |  |                            | 440     |   |      |   | 413     |  
|Interest expense                                      |  |                            | (2,860  | ) |      |   | (1,237  | )
|                                                      |  |                            |         |   |      |   |         |  
|Loss before income taxes                              |  |                            | (32,246 | ) |      |   | (21,092 | )
|Benefit from income taxes                             |  |                            | 12,641  |   |      |   | 8,422   |  
|                                                      |  |                            |         |   |      |   |         |  
|Net loss                                              |  | $                          | (19,605 | ) |      | $ | (12,670 | )
|                                                      |  |                            |         |   |      |   |         |  

Given the seasonal nature of the tax return preparation business, approximately 2% of the total
tax returns prepared by our network in fiscal 2007 were prepared in the first two fiscal quarters. Consequently, the number of tax returns prepared during the first two fiscal quarters and the corresponding revenues are not indicative of the overall
trends of our business for the fiscal year. Most tax returns prepared in the first two fiscal quarters are related to either tax returns for which filing extensions had been applied for by the customer or amendments to previously filed tax returns.

Three Months Ended July 31, 2007 as Compared to Three Months Ended July 31, 2006

Total Revenues

Total revenues increased $0.1 million, or 1%, primarily due to higher financial product fees of $0.5 million largely offset by a lower number of territories sold. Financial product fees earned in the first and
second quarters primarily relate to sales of the Gold Guarantee® product from prior tax seasons under which revenues are earned ratably over the products 36-month life. Please see
Franchise Results of Operations and Company-Owned Office Results of Operations for additional highlights.

Total Expenses

Total operating expenses increased $9.6 million, or 37%. The more notable highlights were as follows:

Cost of franchise operations: Cost of franchise operations increased $1.4 million, or 18%, primarily due to higher personnel-related costs.

Marketing and advertising: Marketing and advertising expenses increased $1.3 million, or 46%, primarily as a result of a
change in contractual arrangements which began in the third quarter of the prior fiscal year under which the associated expenses are amortized over the term of the agreement rather than primarily during the tax season as in the past.



14



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##### Table of Contents

Cost of company-owned office operations: Cost of company-owned office operations increased
$0.8 million, or 17%, primarily due to higher off-season occupancy costs and other operating costs associated with the increased number of locations opened in the prior tax season.

Selling, general and administrative: The increase in selling, general and administrative of $5.7 million, or 76%, was primarily due to (i)
professional fees of $3.4 million relating to matters surrounding the Internal Review;(ii) higher legal-related expenses of $0.8 million; (iii) higher personnel-related expenses of $0.6 million; (iv) higher stock-based
compensation of $0.3 million due to additional stock options granted in the three months ended July 31, 2007; (v) higher technology-related expenses of $0.7 million; and (vi) a New Jersey business grant credit of $0.4 million that was
recorded in the three months ended July 31, 2006. Partially offsetting the overall increase was lower commission expense of $0.3 million due to the decrease in the number of territories sold.

Other Income/(Expense)

Interest expense:
Interest expense increased $1.6 million, or 131%, primarily due to higher average debt outstanding related to the cumulative effect of our share repurchase programs.

Segment Results and Corporate and Other

Franchise Operations



|                                    |  |                            |         |   |      |   |        |  
|----------------------------------- |  | -------------------------- | ------- | - | ---- | - | ------ | -
|                                    |  | Three Months EndedJuly 31, |        
|                                    |  | 2007                       |         |   | 2006 |  
|                                    |  | (in thousands)             |        
|Results of Operations:              |  |                            |         |  
|Revenues                            |  |                            |         |   |      |   |        |  
|Royalty                             |  | $                          | 658     |   |      | $ | 623    |  
|Marketing and advertising           |  |                            | 275     |   |      |   | 280    |  
|Financial product fees              |  |                            | 2,746   |   |      |   | 2,218  |  
|Other                               |  |                            | 1,733   |   |      |   | 2,335  |  
|                                    |  |                            |         |   |      |   |        |  
|Total revenues                      |  |                            | 5,412   |   |      |   | 5,456  |  
|                                    |  |                            |         |   |      |   |        |  
|Expenses                            |  |                            |         |   |      |   |        |  
|Cost of franchise operations        |  |                            | 9,386   |   |      |   | 7,960  |  
|Marketing and advertising           |  |                            | 3,925   |   |      |   | 2,692  |  
|Selling, general and administrative |  |                            | 728     |   |      |   | 1,086  |  
|Depreciation and amortization       |  |                            | 2,588   |   |      |   | 2,263  |  
|                                    |  |                            |         |   |      |   |        |  
|Total expenses                      |  |                            | 16,627  |   |      |   | 14,001 |  
|                                    |  |                            |         |   |      |   |        |  
|Loss from operations                |  |                            | (11,215 | ) |      |   | (8,545 | )
|Other income/(expense):             |  |                            |         |   |      |   |        |  
|Interest income                     |  |                            | 365     |   |      |   | 271    |  
|                                    |  |                            |         |   |      |   |        |  
|Loss before income taxes            |  | $                          | (10,850 | ) |      | $ | (8,274 | )
|                                    |  |                            |         |   |      |   |        |  

Three Months Ended July 31, 2007 as Compared to Three Months Ended July 31, 2006

Total Revenues

The more
notable highlights were as follows:

Financial product fees:Financial product fees increased $0.5 million, or 24%, primarily due to
$0.3 million in variable fees earned in the three months ended July 31, 2007 under our financial product agreement with HSBC related to growth in the program in fiscal 2007 and an increase in Gold Guarantee revenues of $0.1 million.

Other revenues: Other revenues decreased by $0.6 million, or 26%, due to the sale of 45 territories as compared to the sale of 75 territories
in the same prior year period due to our belief of a desire by existing and prospective franchisees to wait for more clarity regarding the Internal Review before purchasing new territories.

Total Expenses

Total operating expenses increased
$2.6 million, or 19%. The more notable highlights were as follows:

Cost of operations: Cost of operations increased as
discussed in the Consolidated Results of Operations.



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##### Table of Contents

Marketing and advertising: Marketing and advertising expenses increased $1.2 million, or 46%,
primarily as a result of a change in contractual arrangements which began in the third quarter of the prior fiscal year under which the associated expenses are amortized over the term of the agreement rather than primarily during the tax season as
in the past.

Selling, general and administrative: Selling, general and administrative decreased $0.4 million, or 33%, primarily due
to lower commission expense of $0.3 million resulting from a decrease in the number of territories sold.

Company-Owned Office Operations



|                                    |  |                            |        |   |      |   |        |  
|----------------------------------- |  | -------------------------- | ------ | - | ---- | - | ------ | -
|                                    |  | Three Months EndedJuly 31, |       
|                                    |  | 2007                       |        |   | 2006 |  
|                                    |  | (in thousands)             |       
|Results of Operations:              |  |                            |        |  
|Revenues                            |  |                            |        |   |      |   |        |  
|Service revenues from operations    |  | $                          | 508    |   |      | $ | 405    |  
|                                    |  |                            |        |   |      |   |        |  
|Expenses                            |  |                            |        |   |      |   |        |  
|Cost of operations                  |  |                            | 5,617  |   |      |   | 4,792  |  
|Marketing and advertising           |  |                            | 215    |   |      |   | 142    |  
|Selling, general and administrative |  |                            | 888    |   |      |   | 721    |  
|Depreciation and amortization       |  |                            | 696    |   |      |   | 709    |  
|                                    |  |                            |        |   |      |   |        |  
|Total expenses                      |  |                            | 7,416  |   |      |   | 6,364  |  
|                                    |  |                            |        |   |      |   |        |  
|Loss from operations                |  |                            | (6,908 | ) |      |   | (5,959 | )
|                                    |  |                            |        |   |      |   |        |  
|Loss before income taxes            |  | $                          | (6,908 | ) |      | $ | (5,959 | )
|                                    |  |                            |        |   |      |   |        |  

Three Months Ended July 31, 2007 as Compared to Three Months Ended July 31, 2006

Loss before income taxes

Loss
before income taxes increased $0.9 million, or 16%, primarily due to increased off-season occupancy costs and other operating costs associated with the increased number of locations opened for the prior tax season.

Corporate and Other

Corporate and other expenses
include unallocated corporate overhead supporting both segments, including legal, finance, human resources, real estate facilities and strategic development activities, as well as stock-based compensation.



|                           |  |                            |         |   |      |   |        |  
|-------------------------- |  | -------------------------- | ------- | - | ---- | - | ------ | -
|                           |  | Three Months EndedJuly 31, |        
|                           |  | 2007                       |         |   | 2006 |  
|                           |  | (in thousands)             |        
|Expenses (a)               |  |                            |         |   |      |   |        |  
|General and administrative |  | $                          | 7,031   |   |      | $ | 4,841  |  
|Stock-based compensation   |  |                            | 1,258   |   |      |   | 923    |  
|Internal Review expenses   |  |                            | 3,414   |   |      |   |       |  
|                           |  |                            |         |   |      |   |        |  
|Total expenses             |  |                            | 11,703  |   |      |   | 5,764  |  
|Loss from operations       |  |                            | (11,703 | ) |      |   | (5,764 | )
|                           |  |                            |         |   |      |   |        |  
|Other income/(expense):    |  |                            |         |   |      |   |        |  
|Interest income            |  |                            | 75      |   |      |   | 142    |  
|Interest expense           |  |                            | (2,860  | ) |      |   | (1,237 | )
|                           |  |                            |         |   |      |   |        |  
|Loss before income taxes   |  | $                          | (14,488 | ) |      | $ | (6,859 | )
|                           |  |                            |         |   |      |   |        |  

---

|(a) | Included in selling, general and administrative in the Consolidated Statements of Operations.
|--- | ---------------------------------------------------------------------------------------------

Three Months Ended July 31, 2007 as Compared to Three Months Ended July 31, 2006

Loss from operations increased $5.9 million, or 103%, primarily due to (i) professional fees of $3.4 million relating to matters surrounding the Internal Review; (ii) higher legal-related expenses of $0.8 million;
(iii) higher personnel-related expenses of $0.6 million; (iv) higher stock-based compensation of $0.3 million; (v) higher technology-related expenses of $0.7 million; and (viii) a New Jersey business grant credit of $0.4 million
that was recorded in the three months ended July 31, 2006.



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##### Table of Contents

Other income/(expense)

Interest expense: Interest expense increased as discussed in the Consolidated Results of Operations.

Liquidity
and Capital Resources

Historical Sources and Uses of Cash from Operations

Seasonality of Cash Flows

The
tax return preparation business is highly seasonal resulting in substantially all of our revenues and cash flow being generated during the period from January 1 through April 30. Following the tax season, from May 1 through
December 31, we primarily rely on excess operating cash flow from the previous tax season and our credit facility to fund our operating expenses and to reinvest in our business to support future growth. Given the nature of the franchise
business model, our business is not capital intensive and has historically generated strong operating cash flow from operations on an annual basis.

$450 Million Credit Facility

Borrowings under our existing five-year unsecured credit facility (the $450
Million Credit Facility) are used to finance working capital needs, general corporate purposes, potential acquisitions and repurchases of our common stock. We may also use the $450 Million Credit Facility to issue letters of credit for general
corporate purposes. There was a $0.5 million irrevocable letter of credit outstanding under the $450 Million Credit Facility as of July 31, 2007. The requirement to maintain this irrevocable letter of credit will terminate in May 2008 as
provided under our lease agreement for our corporate headquarters in Parsippany, New Jersey.

In the future, we may require additional
financing to meet our capital needs. Our liquidity position may be negatively affected by unfavorable conditions in the market in which we operate. In addition, our inability to generate sufficient profits during tax season may unfavorably impact
our funding requirements.

Sources and Uses of Cash

Operating activities

In the
three months ended July 31, 2007, net cash used in operating activities increased $7.5 million as compared to the three months ended July 31, 2006 due to the following:



| |  |  | Payment of $3.4 million in professional fees related to the Internal Review;
| | - |  | ----------------------------------------------------------------------------



| |  |  | Higher federal and state income tax payments as we paid $11.1 million in the three months ended July 31, 2007 as compared to $7.9 million in the three months
ended July 31, 2006 primarily due to the increase in operating income between tax years;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Higher marketing and advertising payments as we paid $6.2 million in the three months ended July 31, 2007 as compared to $3.9 million in the three months ended
July 31, 2006; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Franchisees paying their tax season related royalty and marketing and advertising fees earlier.
| | - |  | -----------------------------------------------------------------------------------------------

Partially offsetting the factors discussed above were lower bonus payments as we paid $8.3 million in the three months ended July 31, 2007 (accrued
in fiscal 2007) as compared to $15.8 million in the three months ended July 31, 2006 (accrued in fiscal 2006).

Investing
activities

We continue to reinvest capital in our business, primarily for technology upgrades to support our growth, expansion of
our company-owned offices, funding provided to franchisees for expansion and the acquisition of independent tax return preparation offices. In the three months ended July 31, 2007, net cash used in investing activities decreased $0.5 million as
compared to the three months ended July 31, 2006 primarily due to lower capital expenditures of $1.6 million as the same prior year period included leasehold improvements and new equipment purchases associated with the relocation of our
technology headquarters to a new building.

Partially offsetting the overall decrease in net cash used in investing activities was higher
funding provided to franchisees of $0.8 million and higher cash paid for tax return preparation businesses of $0.5 million.



17



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##### Table of Contents

Financing activities

Financing activities primarily relate to borrowings and repayments under our credit facility, share repurchases and dividend payments to stockholders. In
the three months ended July 31, 2007, net cash provided by financing activities increased $20.5 million as compared to the three months ended July 31, 2006 primarily due to the increase in net borrowings under our credit facility of $18.0
million and the reduced spending on the repurchase of shares of our common stock of $4.1 million. We repurchased 1,060,800 shares of our common stock at an average price per share (including commissions) of $28.28 in the three months ended
July 31, 2007 as compared to 1,090,300 shares at an average price per share (including commissions) of $31.29 in the three months ended July 31, 2006.

Partially offsetting the overall increase were higher quarterly dividend payments to stockholders for which the quarterly payments were increased to $0.18 per share in the first quarter of fiscal 2008 as compared to
$0.12 per share in the first quarter of fiscal 2007.

Future Cash Requirements and Sources of Cash

Future Cash Requirements

We
are committed to growing our business while maintaining a flexible capital structure to reinvest in the business as well as to return excess capital to stockholders in the form of share repurchases and dividends. Our primary future cash requirements
will be to fund operating activities, repurchase shares of our common stock, repay outstanding borrowings under the $450 Million Credit Facility, make periodic interest payments on our debt outstanding, fund capital expenditures, pay quarterly
dividends, provide funding to franchisees for office expansion and fund acquisitions. For the remainder of fiscal 2008, our primary cash requirements are expected to be as follows:



| |  |  | Operating expenses including cost of franchise operations, marketing and advertising and selling, general and administrative expensesExpenses preceding
the tax season relate primarily to personnel and facility related costs. Marketing and advertising expenses, as compared to the other categories of expenses, are more seasonal in nature and typically increase in our third and fourth fiscal quarters
when most of our revenues are earned. Marketing and advertising expenses include national, regional and local campaigns designed to increase brand awareness and attract both early season and late season customers. We also receive marketing and
advertising payments from franchisees to fund our budget for most of these expenses. We plan an increase in expenses during the remainder of fiscal 2008 as we expect to grow our business.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Expenses to operate company-owned officesOur company-owned offices complement our franchise system and are focused primarily on organic growth through
the opening of new company-owned offices within existing territories as well as increasing office productivity. We also continue to pursue selective acquisition opportunities for our company-owned office segment. Expenses to operate our
company-owned offices begin to increase during the third fiscal quarter and peak during the fourth fiscal quarter primarily due to the labor costs related to the seasonal employees who provide tax return preparation services to our customers.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Repurchase of shares of our common stockAs of July 31, 2007, we had repurchased 3,155,389 shares of our common stock totaling $97.3
million, including commissions, under our previously authorized $200.0 million multi-year share repurchase program. Such repurchases to date have been made in open market purchases. In the future, repurchases may be made through open market
purchases or privately negotiated transactions and would depend on our assessment of the prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Repayment of outstanding borrowings under the $450 Million Credit FacilityWe anticipate generating operating cash flow next tax season to partially
repay our outstanding borrowings.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Capital expendituresWe anticipate spending $7 to $9 million on capital expenditures over the remainder of fiscal 2008, which will primarily
include (i) leasehold improvements associated with new offices and replacement of legacy equipment in company-owned offices and (ii) information technology upgrades to support our growth.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Quarterly dividendsOn July 30, 2007, our Board of Directors declared a quarterly cash dividend of $0.18 per share of common stock, payable on
October 15, 2007, to common stockholders of record as of September 28, 2007. We currently intend to make quarterly cash dividend payments of $0.18 per common share over the remainder of fiscal 2008.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Future Sources of Cash

We
borrow against our credit facility to fund operations with increases particularly during the first nine months of the fiscal year. Beginning in the fourth fiscal quarter, we expect our primary source of cash to be cash provided by operating
activities, primarily from the collection of accounts receivable from our franchisees and from the providers of financial products to our customers.



18



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##### Table of Contents

Critical Accounting Policies

In presenting our Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States, we are
required to make estimates and assumptions that affect the amounts reported therein. Events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a
significant unfavorable change to current conditions, it could result in a material adverse impact to our consolidated results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our
Condensed Consolidated Financial Statements were the most appropriate at that time. The following critical accounting policies may affect reported results resulting in variations in our financial results both on an interim and fiscal year basis.

Goodwill

We test goodwill for impairment annually in our fourth fiscal quarter, or more frequently if circumstances indicate impairment may have occurred. We review the carrying value of our goodwill by comparing the carrying value of our reporting
units to their fair value. When determining fair value, we utilized various assumptions, including projections of future cash flows. A change in these underlying assumptions would cause a change in the results of the tests and, as such, could cause
fair value to be less than the respective carrying amount. In such event, we would then be required to record a charge, which would impact results. An adverse change to our business would impact our consolidated results and may result in an
impairment of our goodwill. The aggregate carrying value of our goodwill was $393.2 million as of July 31, 2007. See Part I. Item 1Financial StatementsNotes to Condensed Consolidated Financial
StatementsNote 3Goodwill and Other Intangible Assets for more information on goodwill.

Other Intangible Assets

We test indefinite-lived intangible assets for impairment annually in our fourth fiscal quarter, or more frequently if
circumstances indicate impairment may have occurred. Indefinite-lived intangible assets are carried at the lower of cost or fair value. If the fair value of the indefinite-lived intangible asset is less than the carrying amount, an impairment loss
would be recognized in an amount equal to the difference. An adverse change to our business would impact our consolidated results and may result in an impairment of our indefinite-lived intangible assets. The aggregate carrying value of our
indefinite-lived intangible assets was $81.0 million as of July 31, 2007. See Part I. Item 1Financial StatementsNotes to Condensed Consolidated Financial StatementsNote 3Goodwill and Other Intangible
Assets for more information on indefinite-lived intangible assets.

Definite-lived intangible assets and long-lived
assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. We test for impairment based on a comparison of the assets undiscounted cash flows to its carrying value and, if
impaired, written down to fair value based on either discounted cash flows or appraised values.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is
effective for us beginning May 1, 2008. We are currently assessing the potential impact on our Consolidated Financial Statements of adopting SFAS No. 157.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS No. 159) which permits entities to choose to measure
many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 is effective for us beginning May 1, 2008. We are currently assessing the potential impact on our
Consolidated Financial Statements of adopting SFAS No. 159.



19



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##### Table of Contents

|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

A 1% change in the interest rate on our floating-rate borrowings outstanding as of July 31, 2007, excluding our $50.0 million of hedged borrowings whereby we fixed the interest rate, would result in an increase
or decrease in interest expense of $1.6 million annually.



|Item 4. | Controls and Procedures
|------- | -----------------------

(a) Evaluation of
Disclosure Controls and Procedures.

The Companys Management has established disclosure controls and procedures to ensure that
material information relating to us, including our consolidated subsidiaries, is made known to the officers who certify our reports and to other members of senior management and the Board of Directors.

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal
financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by us in reports that we
file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. The Companys disclosure controls are designed to
provide a reasonable level of assurance that the stated objectives are met. The Companys management, including the principal executive officer and principal financial officer, does not expect that the Companys disclosure controls or
internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control
system must also reflect the fact that there are resource constraints, with the benefits of controls considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be prevented or
detected.

(b) Changes in Internal Control over Financial Reporting.

During the first quarter of fiscal 2008, there were no changes that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.



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##### Table of Contents

PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings.
|------- | ------------------

See Part 1 
Item 1  Note 8  Commitments and Contingencies, to our Condensed Consolidated Financial Statements, which is incorporated by reference herein.



|Item 1A. | Risk Factors.
|-------- | -------------

During the three months ended
July 31, 2007, there were no material changes from risk factors as previously disclosed in Item 1A. to Part 1 of our Annual Report on Form 10-K for the fiscal year ended April 30, 2007.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities.
|------- | ------------------------------------------------------------------------------------------------------

Unregistered Sales of Equity Securities and Use of Proceeds:

There were no unregistered sales of equity securities during the three months ended July 31, 2007.

Issuer Purchases of Equity Securities:



|                                 |  |                                   |  |                                                    |       |                                                                     |           |                                                                                               |   |              
|-------------------------------- |  | --------------------------------- |  | -------------------------------------------------- | ----- | ------------------------------------------------------------------- | --------- | --------------------------------------------------------------------------------------------- | - | -------------
|Period of settlement date        |  | Total Number ofShares Repurchased |  | Average Price Paid perShare (includingCommissions) |       | Total Number of SharesPurchased as Part ofPublicly AnnouncedProgram |           | Approximate DollarValue of Shares that May Yet Be Purchased UnderProgram at end of Period (a)
|May 1-31, 2007                   |  | 1,060,800                         |  | $                                                  | 28.28 |                                                                     | 1,060,800 |                                                                                               | $ | 102.7 million
|June 1-30, 2007                  |  |                                  |  | $                                                  |      |                                                                     |          |                                                                                               | $ | 102.7 million
|July 1-31, 2007                  |  |                                  |  | $                                                  |      |                                                                     |          |                                                                                               | $ | 102.7 million
|                                 |  |                                   |  |                                                    |       |                                                                     |           |                                                                                               |   |              
|Three months ended July 31, 2007 |  | 1,060,800                         |  | $                                                  | 28.28 |                                                                     | 1,060,800 |                                                                                               | $ | 102.7 million
|                                 |  |                                   |  |                                                    |       |                                                                     |           |                                                                                               |   |              

---

|(a) | On October 13, 2006, we announced a $200.0 million multi-year share repurchase program.
|--- | ---------------------------------------------------------------------------------------



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------

There were no
defaults upon senior securities during the three months ended July 31, 2007.



|Item 4. | Submission of Matters to a Vote of Security Holders.
|------- | ----------------------------------------------------

There were no submissions of matters to a vote of security holders during the three months ended July 31, 2007.



|Item 5. | Other Information.
|------- | ------------------

There is no other information
to be disclosed.



|Item 6. | Exhibits.
|------- | ---------

Exhibits:We have filed the
following exhibits in connection with this report:



|     |  |                                                                                                    
|---- |  | ---------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|     | 
|31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|     | 
|32.1 |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|     | 
|32.2 |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on September 6, 2007.



JACKSON HEWITT TAX SERVICE INC.By:/s/ MICHAEL D. LISTERMichael D. ListerChief Executive Officer(Principal Executive Officer)/s/ MARK L. HEIMBOUCHMark L. HeimbouchExecutive Vice President and Chief Financial Officer(Principal Financial Officer and Principal Accounting Officer)