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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark one)

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

For the quarterly period ended July 31, 2010

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





Jackson Hewitt
Tax Service Inc.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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)





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 has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes.   ̈    No.   ̈

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



|                           |  |                             
|-------------------------- |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer  x        
|Non-accelerated filer   ̈   |  | Smaller reporting company   ̈

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 28,977,467 (net of 10,776,289 shares held in treasury) as of
August 31, 2010.









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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                 |  | 23  
|Item 3.  |  | Quantitative and Qualitative Disclosures about Market Risk                                            |  | 35  
|Item 4.  |  | Controls and Procedures                                                                               |  | 36  
|         |  |                                                                                                      
|         |  | PART IIOTHER INFORMATION                                                                             |  |     
|         |  |                                                                                                      
|Item 1.  |  | Legal Proceedings                                                                                     |  | 37  
|Item 1A. |  | Risk Factors                                                                                          |  | 37  
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity
Securities |  | 37  
|Item 3.  |  | Defaults Upon Senior Securities                                                                       |  | 37  
|Item 4.  |  | (Removed and Reserved)                                                                                |  | 37  
|Item 5.  |  | Other Information                                                                                     |  | 37  
|Item 6.  |  | Exhibits                                                                                              |  | 37  
|         |  | Signatures                                                                                            |  | 38  



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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 31,2010 |          |   | April 30,2010 |  
|Assets                                                                                                                |  |              |          |   |               |   |          |  
|Current assets:                                                                                                       |  |              |          |   |               |   |          |  
|Cash and cash equivalents                                                                                             |  | $            | 1,800    |   |               | $ | 10,846   |  
|Accounts receivable, net of allowance for doubtful accounts of $5,552 and $4,910, respectively                        |  |              | 17,441   |   |               |   | 24,161   |  
|Notes receivable, net                                                                                                 |  |              | 5,078    |   |               |   | 5,827    |  
|Restricted cash                                                                                                       |  |              | 1,360    |   |               |   | 1,195    |  
|Prepaid expenses and other                                                                                            |  |              | 13,190   |   |               |   | 17,447   |  
|Deferred income taxes                                                                                                 |  |              | 2,726    |   |               |   | 2,049    |  
|                                                                                                                      |  |              |          |   |               |   |          |  
|Total current assets                                                                                                  |  |              | 41,595   |   |               |   | 61,525   |  
|Property and equipment, net                                                                                           |  |              | 23,459   |   |               |   | 24,575   |  
|Goodwill                                                                                                              |  |              | 148,873  |   |               |   | 148,873  |  
|Other intangible assets, net                                                                                          |  |              | 86,780   |   |               |   | 87,125   |  
|Notes receivable, net                                                                                                 |  |              | 2,868    |   |               |   | 3,282    |  
|Other non-current assets, net                                                                                         |  |              | 18,639   |   |               |   | 21,044   |  
|                                                                                                                      |  |              |          |   |               |   |          |  
|Total assets                                                                                                          |  | $            | 322,214  |   |               | $ | 346,424  |  
|                                                                                                                      |  |              |          |   |               |   |          |  
|Liabilities and Stockholders Deficit                                                                                 |  |              |          |   |               |   |          |  
|Current liabilities:                                                                                                  |  |              |          |   |               |   |          |  
|Accounts payable and accrued liabilities                                                                              |  | $            | 12,735   |   |               | $ | 16,519   |  
|Current portion of long-term debt                                                                                     |  |              | 30,000   |   |               |   | 30,000   |  
|Income taxes payable                                                                                                  |  |              | 25,162   |   |               |   | 41,056   |  
|Deferred revenues                                                                                                     |  |              | 6,759    |   |               |   | 7,440    |  
|                                                                                                                      |  |              |          |   |               |   |          |  
|Total current liabilities                                                                                             |  |              | 74,656   |   |               |   | 95,015   |  
|Long-term debt                                                                                                        |  |              | 260,637  |   |               |   | 244,000  |  
|Deferred income taxes                                                                                                 |  |              | 18,914   |   |               |   | 19,128   |  
|Other non-current liabilities                                                                                         |  |              | 11,980   |   |               |   | 13,416   |  
|                                                                                                                      |  |              |          |   |               |   |          |  
|Total liabilities                                                                                                     |  |              | 366,187  |   |               |   | 371,559  |  
|                                                                                                                      |  |              |          |   |               |   |          |  
|Commitments and Contingencies (Note 16)                                                                               |  |              |          |   |               |   |          |  
|Stockholders deficit:                                                                                                |  |              |          |   |               |   |          |  
|Common stock, par value $0.01; Authorized: 200,000,000 shares; Issued: 39,753,757 and 39,508,562 shares,
respectively |  |              | 395      |   |               |   | 395      |  
|Additional paid-in capital                                                                                            |  |              | 390,600  |   |               |   | 390,400  |  
|Retained deficit                                                                                                      |  |              | (129,462 | ) |               |   | (110,271 | )
|Accumulated other comprehensive loss                                                                                  |  |              | (2,602   | ) |               |   | (2,801   | )
|Less: Treasury stock, at cost: 10,776,289 and 10,746,683 shares, respectively                                         |  |              | (302,904 | ) |               |   | (302,858 | )
|                                                                                                                      |  |              |          |   |               |   |          |  
|Total stockholders deficit                                                                                           |  |              | (43,973  | ) |               |   | (25,135  | )
|                                                                                                                      |  |              |          |   |               |   |          |  
|Total liabilities and stockholders deficit                                                                           |  | $            | 322,214  |   |               | $ | 346,424  |  
|                                                                                                                      |  |              |          |   |               |   |          |  

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, |        
|                                                      |  | 2010                       |         |   | 2009 |  
|Revenues                                              |  |                            |         |   |      |   |         |  
|Franchise operations revenues:                        |  |                            |         |   |      |   |         |  
|Royalty                                               |  | $                          | 587     |   |      | $ | 556     |  
|Marketing and advertising                             |  |                            | 258     |   |      |   | 245     |  
|Financial product fees                                |  |                            | 2,881   |   |      |   | 3,320   |  
|Other                                                 |  |                            | 163     |   |      |   | 336     |  
|Service revenues from company-owned office operations |  |                            | 533     |   |      |   | 588     |  
|                                                      |  |                            |         |   |      |   |         |  
|Total revenues                                        |  |                            | 4,422   |   |      |   | 5,045   |  
|                                                      |  |                            |         |   |      |   |         |  
|Expenses                                              |  |                            |         |   |      |   |         |  
|Cost of franchise operations                          |  |                            | 9,268   |   |      |   | 7,488   |  
|Marketing and advertising                             |  |                            | 2,372   |   |      |   | 3,015   |  
|Cost of company-owned office operations               |  |                            | 6,562   |   |      |   | 6,996   |  
|Selling, general and administrative                   |  |                            | 9,460   |   |      |   | 16,726  |  
|Depreciation and amortization                         |  |                            | 3,316   |   |      |   | 3,325   |  
|                                                      |  |                            |         |   |      |   |         |  
|Total expenses                                        |  |                            | 30,978  |   |      |   | 37,550  |  
|                                                      |  |                            |         |   |      |   |         |  
|Loss from operations                                  |  |                            | (26,556 | ) |      |   | (32,505 | )
|Other income/(expense):                               |  |                            |         |   |      |   |         |  
|Interest and other income                             |  |                            | 929     |   |      |   | 598     |  
|Interest expense                                      |  |                            | (10,371 | ) |      |   | (5,029  | )
|                                                      |  |                            |         |   |      |   |         |  
|Loss before income taxes                              |  |                            | (35,998 | ) |      |   | (36,936 | )
|Benefit from income taxes                             |  |                            | 16,804  |   |      |   | 15,096  |  
|                                                      |  |                            |         |   |      |   |         |  
|Net loss                                              |  | $                          | (19,194 | ) |      | $ | (21,840 | )
|                                                      |  |                            |         |   |      |   |         |  
|Loss per share:                                       |  |                            |         |   |      |   |         |  
|Basic and Diluted                                     |  | $                          | (0.67   | ) |      | $ | (0.76   | )
|                                                      |  |                            |         |   |      |   |         |  
|Weighted average shares outstanding:                  |  |                            |         |   |      |   |         |  
|Basic and Diluted                                     |  |                            | 28,743  |   |      |   | 28,558  |  
|                                                      |  |                            |         |   |      |   |         |  

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, |        
|                                                                            |  | 2010                       |         |   | 2009 |  
|Operating activities:                                                       |  |                            |         |   |      |   |         |  
|Net loss                                                                    |  | $                          | (19,194 | ) |      | $ | (21,840 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                            |         |   |      |   |         |  
|Depreciation and amortization                                               |  |                            | 3,316   |   |      |   | 3,325   |  
|Share-based compensation                                                    |  |                            | 531     |   |      |   | 2,228   |  
|Amortization of deferred financing costs                                    |  |                            | 1,117   |   |      |   | 475     |  
|Amortization of development advances                                        |  |                            | 436     |   |      |   | 432     |  
|Provision for uncollectible receivables, net                                |  |                            | 3,177   |   |      |   | 253     |  
|Deferred income taxes                                                       |  |                            | (1,364  | ) |      |   | (652    | )
|Other                                                                       |  |                            | 7       |   |      |   |        |  
|Changes in assets and liabilities, excluding the impact of acquisitions:    |  |                            |         |   |      |   |         |  
|Accounts receivable                                                         |  |                            | 5,821   |   |      |   | 8,343   |  
|Notes receivable                                                            |  |                            | 29      |   |      |   |        |  
|Accrued PIK interest                                                        |  |                            | 4,637   |   |      |   |        |  
|Prepaid expenses and other                                                  |  |                            | 3,895   |   |      |   | 4,634   |  
|Accounts payable, accrued, and other liabilities                            |  |                            | (3,705  | ) |      |   | (13,810 | )
|Income taxes payable                                                        |  |                            | (15,885 | ) |      |   | (19,101 | )
|Deferred revenues                                                           |  |                            | (1,838  | ) |      |   | (2,225  | )
|                                                                            |  |                            |         |   |      |   |         |  
|Net cash used in operating activities                                       |  |                            | (19,020 | ) |      |   | (37,938 | )
|                                                                            |  |                            |         |   |      |   |         |  
|Investing activities:                                                       |  |                            |         |   |      |   |         |  
|Capital expenditures                                                        |  |                            | (1,862  | ) |      |   | (4,198  | )
|Restricted cash                                                             |  |                            | (165    | ) |      |   |        |  
|Funding provided to franchisees                                             |  |                            | (153    | ) |      |   | (359    | )
|Proceeds from repayment of franchisee notes                                 |  |                            | 237     |   |      |   | 203     |  
|Cash paid for acquisitions                                                  |  |                            |        |   |      |   | (710    | )
|                                                                            |  |                            |         |   |      |   |         |  
|Net cash used in investing activities                                       |  |                            | (1,943  | ) |      |   | (5,064  | )
|                                                                            |  |                            |         |   |      |   |         |  
|Financing activities:                                                       |  |                            |         |   |      |   |         |  
|Common stock repurchases                                                    |  |                            |        |   |      |   | (183    | )
|Borrowings under revolving credit facility                                  |  |                            | 17,000  |   |      |   | 45,000  |  
|Repayments of borrowings under revolving credit facility                    |  |                            | (5,000  | ) |      |   | (3,000  | )
|Dividends paid to stockholders                                              |  |                            |        |   |      |   | (28     | )
|Restricted stock payments                                                   |  |                            | (69     | ) |      |   |        |  
|Debt issuance costs                                                         |  |                            | (14     | ) |      |   | (211    | )
|Change in cash overdrafts                                                   |  |                            |        |   |      |   | 1,168   |  
|                                                                            |  |                            |         |   |      |   |         |  
|Net cash provided by financing activities                                   |  |                            | 11,917  |   |      |   | 42,746  |  
|                                                                            |  |                            |         |   |      |   |         |  
|Net decrease in cash and cash equivalents                                   |  |                            | (9,046  | ) |      |   | (256    | )
|Cash and cash equivalents, beginning of period                              |  |                            | 10,846  |   |      |   | 306     |  
|                                                                            |  |                            |         |   |      |   |         |  
|Cash and cash equivalents, end of period                                    |  | $                          | 1,800   |   |      | $ | 50      |  
|                                                                            |  |                            |         |   |      |   |         |  

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 offices operating under the brand name Jackson Hewitt Tax
Service®. The Company provides its customers with convenient, fast and quality 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) in the offices where
such financial products are available. 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 as
the parent corporation. 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.

Liquidity

On April 30, 2010 the Company entered into a Fourth Amendment to the Amended and Restated Credit Agreement (the Credit
Agreement) due to the financial impact on its business resulting from a lack of full availability of RALs in all of the tax preparation offices in the Companys network for the 2010 tax season. The amended credit facility contains a
number of events of default which, if breached, would allow the lenders to, among other things, terminate their commitment to lend any additional amounts to the Company and declare all borrowings outstanding, together with accrued and unpaid
interest, to be immediately due and payable (see Note 14Credit Facility).

However, not all of the
conditions that could lead to a default under the Credit Agreement are under the control of Jackson Hewitt. If a default were declared and the amended credit facility were to be terminated, there can be no assurance that any debt or equity financing
alternatives will be available to the Company when needed or, if available at all, on terms which are acceptable to the Company. As such, there can be no assurance that the Company will have sufficient funding to meet its obligations through the
conclusion of the Companys 2011 fiscal year. In this event, the Company may be required to consider restructuring alternatives, including seeking protection from creditors under bankruptcy laws. The Companys financial statements for the
three months ended July 31, 2010 were prepared assuming the Company will continue as a going concern. Given the conditions outlined in Note 14Credit Facility as it relates to meeting certain milestones towards obtaining
funding sources for the Companys RAL program in the upcoming tax season and, specifically, the lenders ability to accelerate borrowings outstanding in the event of default, uncertainty arises that the Company will be able to continue as
a going concern and, therefore, may be unable to realize its assets and settle its liabilities and commitments in the normal course of business. The accompanying unaudited Condensed Consolidated Financial Statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that could result should the Company be unable to continue as a going concern.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial statements



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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/A which was filed with the Securities and Exchange Commission (SEC) on
August 12, 2010.

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 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.

Management has evaluated all activity of the Company and concluded that no subsequent events have occurred since July 31, 2010 that
would require recognition in the Condensed Consolidated Financial Statements. Please see Note 12Internal Revenue Service Announcement and Note 15New York Stock Exchange Notification for a description of the
subsequent events that the Company concluded required disclosure in the Notes to the Condensed Consolidated Financial Statements.

Comprehensive Income (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, were as follows:



|                                     |  |                            |         |   |      |   |         |  
|------------------------------------ |  | -------------------------- | ------- | - | ---- | - | ------- | -
|                                     |  | Three Months EndedJuly 31, |        
|                                     |  | 2010                       |         |   | 2009 |  
|                                     |  | (in thousands)             |        
|Net loss                             |  | $                          | (19,194 | ) |      | $ | (21,840 | )
|Changes in fair value of derivatives |  |                            | 332     |   |      |   | 255     |  
|                                     |  |                            |         |   |      |   |         |  
|Total comprehensive loss             |  | $                          | (18,862 | ) |      | $ | (21,585 | )
|                                     |  |                            |         |   |      |   |         |  

Computation of loss per share

Basic and diluted loss per share are calculated as net loss divided by the weighted average number of common shares and vested shares of
restricted stock outstanding during the period. In net loss periods, basic and diluted loss per share are identical since the effect of potential common shares assuming conversion of potentially dilutive securities arising from stock options
outstanding and shares of unvested restricted stock is anti-dilutive and therefore excluded.

In each reporting period, both
basic and dilutive loss per share computations exclude all performance vesting awards since the performance conditions had not been met for those periods. See Note 8Share-Based Payments for additional information on the
Companys performance vesting awards.



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The following table summarizes the in-the-money securities that were excluded from the
computation of the effect of dilutive securities on loss per share. These securities consisted of stock options and shares of restricted stock that were considered to be anti-dilutive due to all periods presented being net loss periods.



|                              |  |                            |  |     
|----------------------------- |  | -------------------------- |  | ----
|                              |  | Three Months EndedJuly 31,
|                              |  | 2010                       |  | 2009
|                              |  | (in thousands)            
|Stock options                 |  |                           |  | 2   
|Shares of restricted stock    |  | 58                         |  | 30  
|                              |  |                            |  |     
|Total antidilutive securities |  | 58                         |  | 32  
|                              |  |                            |  |     

Also, stock options with exercise prices greater than
the average market prices for the Companys common stock totaled 2.0 million and 2.2 million for the three months ended July 31, 2010 and 2009, respectively.

2. RESTRICTED CASH

Restricted cash as of July 31, 2010 consisted of deposits into a collateral account in connection with an appeal bond required in
Florida to cover compensatory damages, prejudgment interest and interest on the judgment in a legal proceeding and various surety bonds that are issued and outstanding for one year. Funding of an appeal bond in the amount of $940,052 was established
to guarantee that if the Companys appeal in this legal proceeding is unsuccessful, funds would be available to pay the original judgment costs. Additionally, the Company was required by its insurance underwriter to fund $420,000 in surety
bonds, including tax school performance bonds, to secure payment in the event the Company fails to perform certain of its obligations to third parties. In the three months ended July 31, 2010, the Company did not make any distributions from
restricted cash and increased its restricted cash deposits by $165,000 for tax school performance bonds in various other locations.

3.
ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED

In January 2010, the Financial Accounting Standards Board issued
Accounting Standard Update 2010-06, Improving Disclosures about Fair Value Measurements. This standard requires new disclosures on the amount and reason for transfers in and out of Level 1 and 2 recurring fair value measurements. The
standard also requires disclosure of activities on a gross basis, including purchases, sales, issuances, and settlements, in the reconciliation of Level 3 fair value recurring measurements. The standard clarifies existing disclosure requirements on
levels of disaggregation and disclosures about inputs and valuation techniques. The new disclosures regarding Level 1 and 2 fair value measurements and clarification of existing disclosures are effective for periods beginning after December 15,
2009. The disclosures about the reconciliation of information in Level 3 recurring fair value measurements are required for periods beginning after December 15, 2010. This guidance impacts disclosure only and will not have an effect on the
Companys consolidated financial statements. The Companys disclosures about fair value measurements are presented in Note 5Fair Value Measurements.

4. RECEIVABLES ALLOWANCES

As a result of the continued decline in franchisee profitability, including the loss of RALs in fiscal 2010 by the Companys
franchisees served by Santa Barbara Bank & Trust, a division of Pacific Capital Bank, and the current difficult economic environment that has adversely impacted the Companys franchisees ability to grow and operate their businesses
including their ability to pay amounts due to the Company, the Company has experienced a significant increase in past due receivables from franchisees as it heads into the 2011 tax season compared to the same period last year. The
Companys Condensed Consolidated Balance Sheet at July 31, 2010 included past due amounts from franchisees totaling approximately $20.3 million, which includes billed accounts and notes receivable that are classified within current
assets. This compares to $18.5 million at April 30, 2010. The allowance for billed accounts and notes receivable was $8.1 million and $5.7 million at July 31, 2010 and April 30, 2010, respectively.



6



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Additionally, the Company has $4.7 million and $3.9 million in allowances for unbilled notes receivable and development advance notes as of July 31, 2010 and April 30, 2010,
respectively. The Companys allowances for doubtful accounts require managements judgment regarding collectability and current economic conditions to establish an amount considered by management to be adequate to cover estimated losses as
of the balance sheet date. Accordingly, in the three months ended July 31, 2010, the Company recorded a $3.2 million provision for uncollectible receivables in its Statement of Operations in Cost of Franchise Operations. Account balances
are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered unlikely. There were no significant concentrations of credit risk with any individual franchisee or group of
franchisees as of July 31, 2010. The Company believes that its allowances for doubtful accounts as of July 31, 2010 are currently adequate for the Companys existing exposure to loss. The Company will be closely monitoring
the performance of franchisees currently indebted to it, particularly for timely payment of past due and current receivables, and the Company will adjust its allowances accordingly if management determines that existing reserve levels are inadequate
to cover estimated losses.

5. FAIR VALUE MEASUREMENTS

Financial assets and liabilities subject to fair value measurements on a recurring basis are classified according to a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value. Level 1 represents observable inputs such as quoted prices in active markets. Level 2 is defined as inputs other than quoted prices in active markets that are either
directly or indirectly observable. Level 3 is defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. There were no changes to the Companys valuation techniques
used to measure asset and liabilities fair values on a recurring basis during the three months ended July 31, 2010.

The
Companys investments that are held in trust for payment of non-qualified deferred compensation to certain employees consist primarily of investments that are either publicly traded or for which market prices are readily available. These funds
are held in registered investment funds and common/collateral trusts.

The Company uses various hedging strategies including
interest rate swaps and interest rate collar agreements to manage its exposure to changes in interest rates. The Company has designated these derivatives as cash flow hedges to manage the risk related to its floating rate debt. The Companys
derivative contracts represent interest rate swap and collar agreements to convert a notional amount of floating-rate borrowings into fixed rate debt. The fair value of the Companys derivative contracts was derived from third party service
providers utilizing proprietary models based on current market indices and estimates about relevant future market conditions. In connection with such cash flow hedges, the Company records unrealized gains (losses) to other comprehensive income.
There was no amount of unrecognized gain (loss) recorded in the condensed consolidated statement of operations as there was no ineffectiveness for the three months ended July 31, 2010.

The accompanying condensed consolidated balance sheet includes financial instruments that are recorded at fair value as noted below:



|                                       |  |                               |       |                                                                |   |                                           |  |                             |       |  |   |  
|-------------------------------------- |  | ----------------------------- | ----- | -------------------------------------------------------------- | - | ----------------------------------------- |  | --------------------------- | ----- |  | - | -
|                                       |  |                               |       | Fair Value at Reporting Date Using                            
|                                       |  | Fair ValueAs of July 31, 2010 |       | Quoted Prices inActive Marketsfor
IdenticalSecurities(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | UnobservableInputs(Level 3)
|                                       |  |                               |       | (In thousands)                                                
|Assets                                 |  |                               |       |                                                                |   |                                           |  |                             |       |  |   |  
|Investments held in trust, current     |  | $                             | 65    |                                                                | $ | 65                                        |  | $                           |      |  | $ | 
|Investments held in trust, non-current |  |                               | 29    |                                                                |   | 29                                        |  |                             |      |  |   | 
|                                       |  |                               |       |                                                                |   |                                           |  |                             |       |  |   |  
|Total                                  |  | $                             | 94    |                                                                | $ | 94                                        |  | $                           |      |  | $ | 
|                                       |  |                               |       |                                                                |   |                                           |  |                             |       |  |   |  
|Liabilities                            |  |                               |       |                                                                |   |                                           |  |                             |       |  |   |  
|Derivative contracts                   |  | $                             | 4,337 |                                                                | $ |                                          |  | $                           | 4,337 |  | $ | 
|                                       |  |                               |       |                                                                |   |                                           |  |                             |       |  |   |  
|Total                                  |  | $                             | 4,337 |                                                                | $ |                                          |  | $                           | 4,337 |  | $ | 
|                                       |  |                               |       |                                                                |   |                                           |  |                             |       |  |   |  



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|                                       |  |                                |       |                                                                |   |                                           |  |                             |       |  |   |  
|-------------------------------------- |  | ------------------------------ | ----- | -------------------------------------------------------------- | - | ----------------------------------------- |  | --------------------------- | ----- |  | - | -
|                                       |  |                                |       | Fair Value at Reporting Date Using                            
|                                       |  | Fair ValueAs of April 30, 2010 |       | Quoted Prices inActive Marketsfor
IdenticalSecurities(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | UnobservableInputs(Level 3)
|                                       |  |                                |       | (In thousands)                                                
|Assets                                 |  |                                |       |                                                                |   |                                           |  |                             |       |  |   |  
|Investments held in trust, current     |  | $                              | 174   |                                                                | $ | 168                                       |  | $                           | 6     |  | $ | 
|Investments held in trust, non-current |  |                                | 97    |                                                                |   | 93                                        |  |                             | 4     |  |   | 
|                                       |  |                                |       |                                                                |   |                                           |  |                             |       |  |   |  
|Total                                  |  | $                              | 271   |                                                                | $ | 261                                       |  | $                           | 10    |  | $ | 
|                                       |  |                                |       |                                                                |   |                                           |  |                             |       |  |   |  
|Liabilities                            |  |                                |       |                                                                |   |                                           |  |                             |       |  |   |  
|Derivative contracts                   |  | $                              | 4,669 |                                                                | $ |                                          |  | $                           | 4,669 |  | $ | 
|                                       |  |                                |       |                                                                |   |                                           |  |                             |       |  |   |  
|Total                                  |  | $                              | 4,669 |                                                                | $ |                                          |  | $                           | 4,669 |  | $ | 
|                                       |  |                                |       |                                                                |   |                                           |  |                             |       |  |   |  

6. GOODWILL AND OTHER INTANGIBLE ASSETS

There were no changes to the goodwill balance in either the Franchise Operations segment or Company-owned Office Operations segment for
the three months ended July 31, 2010.

Other intangible assets consisted of:



|                                            |  |                     |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|------------------------------------------- |  | ------------------- | ------ | ----------------------- | - | ------- | ----------------- |  | ------------------- | ------ | ----------------------- | - | ------ | ----------------- | - | ------- | - |  | - | ------
|                                            |  | As of July 31, 2010 |        | As of April 30, 2010   
|                                            |  | GrossCarryingAmount |        | AccumulatedAmortization |   |         | NetCarryingAmount |  | GrossCarryingAmount |        | AccumulatedAmortization |   |        | NetCarryingAmount
|                                            |  | (In thousands)     
|Amortizable other intangible assets:        |  |                     |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Franchise agreements(a)                     |  | $                   | 16,052 |                         | $ | (15,737 | )                 |  | $                   | 315    |                         | $ | 16,052 |                   | $ | (15,710 | ) |  | $ | 342   
|Customer relationships(b)                   |  |                     | 13,072 |                         |   | (10,848 | )                 |  |                     | 2,224  |                         |   | 13,072 |                   |   | (10,563 | ) |  |   | 2,509 
|Reacquired franchise rights(c)              |  |                     | 672    |                         |   | (75     | )                 |  |                     | 597    |                         |   | 672    |                   |   | (48     | ) |  |   | 624   
|Acquired tradename                          |  |                     | 53     |                         |   | (34     | )                 |  |                     | 19     |                         |   | 53     |                   |   | (28     | ) |  |   | 25    
|                                            |  |                     |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Total amortizable other intangible assets   |  | $                   | 29,849 |                         | $ | (26,694 | )                 |  |                     | 3,155  |                         | $ | 29,849 |                   | $ | (26,349 | ) |  |   | 3,500 
|                                            |  |                     |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Unamortizable other intangible assets:      |  |                     |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Jackson Hewitt trademark                    |  |                     |        |                         |   |         |                   |  |                     | 81,000 |                         |   |        |                   |   |         |   |  |   | 81,000
|Reacquired franchise rights(d)              |  |                     |        |                         |   |         |                   |  |                     | 2,625  |                         |   |        |                   |   |         |   |  |   | 2,625 
|                                            |  |                     |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Total unamortizable other intangible assets |  |                     |        |                         |   |         |                   |  |                     | 83,625 |                         |   |        |                   |   |         |   |  |   | 83,625
|                                            |  |                     |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Total other intangible assets, net          |  |                     |        |                         |   |         |                   |  | $                   | 86,780 |                         |   |        |                   |   |         |   |  | $ | 87,125
|                                            |  |                     |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       



|(a) | Amortized using the straight-line method over a period of ten years.
|--- | --------------------------------------------------------------------

|(b) | Consists of customer lists and non-compete agreements. Customer lists are amortized using the double declining method over a period of five years and non-compete
agreements are amortized using the straight-line method over a period of two to six years.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Consists of franchise rights reacquired after the Companys adoption of ASC Topic 805, Business Combinations in which amounts are amortized over the
remaining life of the franchise agreement from the date of acquisition.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Consists of franchise rights reacquired prior to the Companys adoption of ASC Topic 805.
|--- | -----------------------------------------------------------------------------------------



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



|                             |  |                     |        |   |                               |   |       |       |  |   |        |  
|---------------------------- |  | ------------------- | ------ | - | ----------------------------- | - | ----- | ----- |  | - | ------ | -
|                             |  | FranchiseOperations |        |   | Company-OwnedOfficeOperations |   |       | Total | 
|                             |  | (In thousands)      |       
|Balance as of April 30, 2010 |  | $                   | 84,591 |   |                               | $ | 2,534 |       |  | $ | 87,125 |  
|Amortization                 |  |                     | (54    | ) |                               |   | (291  | )     |  |   | (345   | )
|                             |  |                     |        |   |                               |   |       |       |  |   |        |  
|Balance as of July 31, 2010  |  | $                   | 84,537 |   |                               | $ | 2,243 |       |  | $ | 86,780 |  
|                             |  |                     |        |   |                               |   |       |       |  |   |        |  

Amortization expense relating to other intangible assets was as follows:



|                                           |  |                            |     |      |   |    
|------------------------------------------ |  | -------------------------- | --- | ---- | - | ---
|                                           |  | Three Months EndedJuly 31,
|                                           |  | 2010                       |     | 2009
|Franchise agreements and reacquired rights |  | $                          | 54  |      | $ | 27 
|Customer relationships                     |  |                            | 285 |      |   | 324
|Acquired tradename                         |  |                            | 6   |      |   | 6  
|                                           |  |                            |     |      |   |    
|Total                                      |  | $                          | 345 |      | $ | 357
|                                           |  |                            |     |      |   |    

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



|                                     |  |                |      
|------------------------------------ |  | -------------- | -----
|                                     |  | Amount        
|                                     |  | (In thousands)
|Remaining nine months of fiscal 2011 |  |                | 1,036
|2012                                 |  |                | 925  
|2013                                 |  |                | 625  
|2014                                 |  |                | 350  
|2015 and thereafter                  |  |                | 219  
|                                     |  |                |      
|Total                                |  | $              | 3,155
|                                     |  |                |      

7. PREPAID EXPENSES AND OTHER



|                                    |  |                    |        |                     |   |       
|----------------------------------- |  | ------------------ | ------ | ------------------- | - | ------
|                                    |  | As of July 31,2010 |        | As of April 30,2010
|                                    |  | (In thousands)    
|Prepaid Gold Guarantee              |  | $                  | 5,901  |                     | $ | 6,483 
|Prepaid rent                        |  |                    | 1,212  |                     |   | 1,118 
|Walmart kiosk lease receivable, net |  |                    | 2,472  |                     |   | 2,833 
|Prepaid franchisee convention costs |  |                    | 50     |                     |   | 104   
|Prepaid insurance                   |  |                    | 411    |                     |   | 810   
|Other prepaid expenses              |  |                    | 1,318  |                     |   | 1,200 
|Investments, at fair value          |  |                    | 65     |                     |   | 174   
|Other receivables, net              |  |                    | 1,761  |                     |   | 4,725 
|                                    |  |                    |        |                     |   |       
|Total prepaid expenses and other    |  | $                  | 13,190 |                     | $ | 17,447
|                                    |  |                    |        |                     |   |       

8. SHARE-BASED PAYMENTS

The Companys amended and restated 2004 Equity and Incentive Plan (the Amended and Restated Plan) makes available for
grant 6.5 million shares of common stock in the form of incentive stock options, nonqualified stock options, stock appreciation rights, shares of restricted stock, restricted stock units, and/or other



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stock or cash-based awards to non-employee directors, officers, employees, advisors, and consultants who are selected by the Companys Compensation Committee for participation in the plan.
As of July 31, 2010, 2.0 million shares remained available for grant. The Amended and Restated Plan provides for accelerated vesting of outstanding awards if there is a change in control and includes nondiscretionary anti-dilution
provisions in case of an equity restructuring.

The Companys share-based payments through July 31, 2010 under the
Amended and Restated Plan included the following:



| | (i) | Time-Based Vesting Stock Options (TVOs);
| | --- | ------------------------------------------



| | (ii) | Performance-Based Vesting Stock Options (PVOs);
| | ---- | -------------------------------------------------



| | (iii) | Time-Based Vesting Shares of Restricted Stock (TVRSs);
| | ----- | --------------------------------------------------------



| | (iv) | Performance-Based Vesting Shares of Restricted Stock (PVRSs); and
| | ---- | -------------------------------------------------------------------



| | (v) | Restricted Stock Units (RSUs).
| | --- | --------------------------------

i) Time-Based Vesting Stock Options

TVOs are granted, with the exception of certain TVOs granted at the time of the Companys Initial Public Offering (IPO)
in June 2004, with an exercise price equal to the New York Stock Exchange (NYSE) closing price of a share of common stock on the date of grant and have a contractual term of ten years. TVOs granted through April 30, 2007 and in
fiscal 2011 become exercisable with respect to 25% of the shares on each of the first four anniversaries of the date of grant. TVOs granted in fiscal 2008 become exercisable with respect to 20% of the shares on each of the first five anniversaries
of the date of grant. TVOs granted in fiscal 2009 and fiscal 2010 become exercisable with respect to one-third of the shares on each of the first three anniversaries of the date of grant, with the exception of the Companys June 2009 two-year
grant to its current Chief Executive Officer. All TVOs granted are subject to continued employment on the vesting date.

The
Company incurred share-based compensation expense of $0.2 million and $1.35 million in the three months ended July 31, 2010 and 2009, respectively, in connection with the vesting of TVOs. The share-based compensation in the three months ended
July 31, 2009 included expense of $0.85 million related to the accelerated vesting of 160,642 TVOs attributed to the departure of the Companys former Chief Executive Officer in June 2009.

The weighted average grant date fair value for TVOs granted in the three months ended July 31, 2010 and 2009 was $0.72 and $3.45,
respectively. The fair value of each TVO award was estimated on the date of grant using the Black-Scholes option-pricing model. In fiscal 2011, the Company began using the mid-point scenario method to determine the expected holding period. The
Company had been previously using the simplified method permitted under FASB ASC Topic 718 to determine the expected holding period until it was able to accumulate a sufficient number of years of employee exercise behavior to make a more refined
estimate of expected term. Expected volatility was based on the Companys historical publicly-traded stock price. In March 2009, the Companys Board of Directors voted to suspend the quarterly common stock dividend. Additionally, over the
remaining term of the April 2010 Amended and Restated Credit Agreement, which expires in October 2011, the Company will not be permitted to pay dividends. 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 expected holding period of the award being valued.



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The following table sets forth the weighted average assumptions used to determine
compensation cost for TVOs granted during the following periods:



|                                   |  |                            |   |  |      |  
|---------------------------------- |  | -------------------------- | - |  | ---- | -
|                                   |  | Three Months EndedJuly 31, |  
|                                   |  | 2010                       |   |  | 2009 |  
|Expected holding period (in years) |  | 5.62                       |   |  | 5.94 |  
|Expected volatility                |  | 69.9                       | % |  | 67.4 | %
|Dividend yield                     |  |                           | % |  |     | %
|Risk-free interest rate            |  | 2.0                        | % |  | 2.7  | %

The following
table summarizes information about TVO activity for the three months ended July 31, 2010:



|                                                |  |               |   |  |                                |      
|----------------------------------------------- |  | ------------- | - |  | ------------------------------ | -----
|                                                |  | Number ofTVOs |   |  | Weighted AverageExercise Price
|Balance as of April 30, 2010                    |  | 1,792,388     |   |  | $                              | 19.27
|Granted                                         |  | 371,000       |   |  | $                              | 1.16 
|Forfeited                                       |  | (19,220       | ) |  | $                              | 16.16
|Expired                                         |  | (19,463       | ) |  | $                              | 18.83
|                                                |  |               |   |  |                                |      
|Balance as of July 31, 2010                     |  | 2,124,705     |   |  | $                              | 16.14
|                                                |  |               |   |  |                                |      
|Exercisable as of July 31, 2010                 |  | 1,370,987     |   |  | $                              | 20.83
|                                                |  |               |   |  |                                |      
|Vested and expected to vest as of July 31, 2010 |  | 2,087,017     |   |  | $                              | 16.30
|                                                |  |               |   |  |                                |      

There were no outstanding in-the-money TVOs as of July 31, 2010 that had an aggregate
intrinsic value. The aggregate intrinsic value discussed in this paragraph represents the total pre-tax intrinsic value based on the Companys stock price as of July 31, 2010, which would have been received by the option holders had all
in-the-money option holders exercised their options as of that date. Outstanding TVOs as of July 31, 2010 had an average remaining contractual life of 6.9 years. There were no exercisable in-the-money TVOs as of July 31, 2010. Exercisable
TVOs as of July 31, 2010 had an average remaining contractual life of 5.0 years.

The following table summarizes
information about unvested TVO activity for the first quarter of fiscal 2011:



|                              |  |               |   |  |                                               |     
|----------------------------- |  | ------------- | - |  | --------------------------------------------- | ----
|                              |  | Number ofTVOs |   |  | Weighted AverageGrant DateFair ValuePer Share
|Unvested as of April 30, 2010 |  | 608,481       |   |  | $                                             | 4.98
|Granted                       |  | 371,000       |   |  | $                                             | 0.72
|Vested                        |  | (206,543      | ) |  | $                                             | 5.80
|Forfeited                     |  | (19,220       | ) |  | $                                             | 5.61
|                              |  |               |   |  |                                               |     
|Unvested as of July 31, 2010  |  | 753,718       |   |  | $                                             | 2.65
|                              |  |               |   |  |                                               |     

As of July 31, 2010, there was $2.0 million of total unrecognized compensation cost related
to unvested TVOs, which is expected to be recognized over a weighted average period of 1.5 years. The total fair value of stock options vested in the three months ended July 31, 2010 and 2009 was $1.2 million and $2.7 million, respectively.

(ii) Performance-Based Vesting Stock Options

The Company did not grant any PVOs in the three months ended July 31, 2010. In the three months ended July 31, 2009, the Company
granted PVOs to certain executives with a contractual term of ten years that will vest after three years provided the Company achieves a pre-determined Earnings Before Income Tax, Depreciation



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and Amortization (EBITDA) target for fiscal 2012. Additionally, vesting is subject to the executive being employed by the Company at the time the Company achieves such financial
target in fiscal 2012, except in the case of the Companys Chief Executive Officer, who needs only to have been employed through the term of his employment agreement, which ends on June 4, 2011.

No compensation expense related to the July 2009 PVO grant was recorded in the three months ended July 31, 2010 or 2009. If, and
when, the Company determines it is probable that the performance condition will be achieved, compensation expense will be recognized cumulatively in such period from the date of grant through the date of the change in estimate for the awards under
which the requisite service period has been rendered. The remaining unrecognized compensation expense for those awards would be recognized prospectively over the remaining requisite service period.

The fair value of each July 2009 PVO award was estimated on the date of grant using the Black-Scholes option-pricing model. The July 2009
grant expected holding period, expected volatility and risk-free interest rate assumptions were determined using the same methodology as the TVO grants discussed earlier.

The following table sets forth the weighted average assumptions used to determine compensation cost for PVOs granted during the three
months ended July 31, 2009:



|                                   |  |                            |  
|---------------------------------- |  | -------------------------- | -
|                                   |  | Three Months EndedJuly 31, |  
|                                   |  | 2009                       |  
|Expected holding period (in years) |  | 6.50                       |  
|Expected volatility                |  | 68.4                       | %
|Dividend yield                     |  |                           | %
|Risk-free interest rate            |  | 2.8                        | %

There were no
outstanding in-the-money PVOs as of July 31, 2010 that had an aggregate intrinsic value. Outstanding PVOs as of July 31, 2010 had an average remaining contractual life of 8.96 years.

The following table summarizes information about unvested PVO activity for the three months ended July 31, 2010:



|                              |  |               |  |                                               |      |                              |   |     
|----------------------------- |  | ------------- |  | --------------------------------------------- | ---- | ---------------------------- | - | ----
|                              |  | Number ofPVOs |  | Weighted AverageGrant DateFair ValuePer Share |      | WeightedAverageExercisePrice
|Unvested as of April 30, 2010 |  | 125,969       |  | $                                             | 3.87 |                              | $ | 5.95
|Granted                       |  |              |  | $                                             |     |                              | $ |    
|Forfeited                     |  |              |  | $                                             |     |                              | $ |    
|                              |  |               |  |                                               |      |                              |   |     
|Unvested as of July 31, 2010  |  | 125,969       |  | $                                             | 3.87 |                              | $ | 5.95
|                              |  |               |  |                                               |      |                              |   |     

(iii) Time-Based Vesting Shares of Restricted Stock

The fair value of each TVRS grant is measured by the NYSE closing price of the Companys common stock on the date of grant.
Compensation expense related to the fair value of TVRSs is recognized on a straight-line basis over the requisite service period based on those restricted stock grants that are expected to ultimately vest. One third of the shares of restricted stock
vest on each of the first three anniversaries of the date of grant, subject to continued employment on the vesting date, except in the case of the June 2009 grant to the Companys Chief Executive Officer and the June 2010 retention grant to
certain employees. In June 2009 the Company granted shares of restricted stock to the Companys Chief Executive Officer, whereby one half of the shares of restricted stock vest on each of the first two anniversaries of the date of grant,
subject to continued employment on the



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vesting date. In June 2010, the Company granted shares of restricted stock to certain employees in connection with a employment retention grant, whereby the shares of restricted stock vest at the
end of fiscal 2011, subject to continued employment on the vesting date.

The Company incurred share-based compensation
expense of $0.2 million and $0.8 million in the three months ended July 31, 2010 and 2009, respectively, in connection with the vesting of TVRSs. The share-based compensation in the three months ended July 31, 2009 included expense of $0.6
million related to the accelerated vesting of 54,616 TVRSs attributed to the departure of the Companys former Chief Executive Officer in June 2009. As of July 31, 2010, there was $1.2 million of total unrecognized compensation cost
related to unvested TVRSs, which is expected to be recognized over a weighted average period of 1.1 years.

The following
table summarizes information about TVRS activity during the three months ended July 31, 2010:



|                                    |  |                |   |  |                                      |     
|----------------------------------- |  | -------------- | - |  | ------------------------------------ | ----
|                                    |  | Number ofTVRSs |   |  | Weighted AverageGrant DateFair Value
|Outstanding as of April 30, 2010 10 |  | 198,325        |   |  | $                                    | 8.60
|Granted                             |  | 245,195        |   |  | $                                    | 1.16
|Vested                              |  | (83,843        | ) |  | $                                    | 9.08
|Forfeited                           |  | (7,996         | ) |  | $                                    | 8.06
|                                    |  |                |   |  |                                      |     
|Outstanding as of July 31, 2010     |  | 351,681        |   |  | $                                    | 3.31
|                                    |  |                |   |  |                                      |     

As of July 31, 2010, outstanding TVRSs had an aggregate intrinsic value of $0.4 million with
those TVRSs expected to vest having an intrinsic value of $0.4 million.

(iv) Performance-Based Vesting Shares of
Restricted Stock

The Company did not grant any PVRSs in the three months ended July 31, 2010. In the three months
ended July 31, 2009, the Company granted PVRS that will vest after three years provided the Company achieves a pre-determined EBITDA target for fiscal 2012. Additionally, vesting is subject to the executive being employed by the Company at the
time the Company achieves such financial target in fiscal 2012, except in the case of the Companys Chief Executive Officer, who needs only to have been employed through the term of his employment agreement, which ends on June 4, 2011.

No compensation expense for the July 2009 PVRS grant was recorded in the three months ended July 31, 2010 or 2009. If,
and when, the Company determines it is probable that the performance condition will be achieved, compensation expense will be recognized cumulatively in such period from the date of grant through the date of the change in estimate for the awards
under which the requisite service period has been rendered. The remaining unrecognized compensation expense for those awards would be recognized prospectively over the remaining requisite service period.

The following table summarizes information about PVRS activity during the three months ended July 31, 2010:



|                                 |  |                |  |                                      |     
|-------------------------------- |  | -------------- |  | ------------------------------------ | ----
|                                 |  | Number ofPVRSs |  | Weighted AverageGrant DateFair Value
|Outstanding as of April 30, 2010 |  | 81,934         |  | $                                    | 5.95
|Granted                          |  |               |  | $                                    |    
|Forfeited                        |  |               |  | $                                    |    
|                                 |  |                |  |                                      |     
|Outstanding as of July 31, 2010  |  | 81,934         |  | $                                    | 5.95
|                                 |  |                |  |                                      |     

As of July 31, 2010, outstanding PVRSs had an aggregate intrinsic value of $0.1 million.



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(v) Restricted Stock Units

The Company incurred share-based compensation expense of $0.1 million in each of the three months ended July 31, 2010 and 2009,
respectively, in connection with the issuance of fully vested and non-forfeitable 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.
Share-based compensation expense in connection with the vesting of a newly elected non-employee director grant in fiscal 2010 was negligible for the three months ended July 31, 2010. In the three months ended July 31, 2010, the Company
granted 64,527 RSUs at a grant price of $1.11 resulting in 294,966 RSUs outstanding as of July 31, 2010 with a weighted average grant price of $7.69.

9. LEASE TERMINATION ACCRUAL

The following table summarizes activity in the accrued lease termination balance during the three months ended July 31, 2010 in
connection with the Companys lease termination actions taken in fiscal 2009:



|                                                           |  |                |       |  
|---------------------------------------------------------- |  | -------------- | ----- | -
|                                                           |  | (In Thousands) |      
|Accrued lease termination balance as of April 30, 2010 (a) |  | $              | 1,208 |  
|Additional accruals                                        |  |                | 21    |  
|Adjustments, net(b)                                        |  |                | (86   | )
|Cash payments(c)                                           |  |                | (291  | )
|                                                           |  |                |       |  
|Accrued lease termination balance as of July 31, 2010 (d)  |  | $              | 852   |  
|                                                           |  |                |       |  



|(a) | The balance as of April 30, 2010 consisted of $0.9 million in accounts payable and accrued liabilities and $0.3 million in other non-current liabilities in the
accompanying Condensed Consolidated Balance Sheet.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | These adjustments were primarily the result of favorable negotiations with certain landlords to buy out of leases early.
|--- | ------------------------------------------------------------------------------------------------------------------------

|(c) | Cash payments during the period consisted of $32,000 in cash payments associated with early lease buyouts and $259,000 associated with monthly contractual rental
payments.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | The balance as of July 31, 2010 consisted of $0.6 million in accounts payable and accrued liabilities and $0.2 million in other non-current liabilities in the
accompanying Condensed Consolidated Balance Sheet.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company expects to continue to adjust the fair value of
this lease termination liability due to the passage of time as an increase in the liability and as an operating expense (accretion) over the remaining terms of the leases. The Company may be required to record an additional accrual in connection
with these lease terminations to the extent that it is not able to buy out of the remaining leases early or sublet the stores according to its original projections.

10. EQUIPMENT LEASES

In March 2009, the Company entered into an agreement with Walmart that grants Jackson Hewitt the exclusive right to
provide tax preparation services within Walmart stores during the 2010 and 2011 tax seasons. In connection with this arrangement, beginning in the 2010 tax season, all franchised and company-owned offices in Walmart locations must operate from a
kiosk meeting certain requirements and specifications. Through July 31, 2010, the Company purchased kiosks totaling $6.1 million, which have been leased to franchisees that chose not to purchase such equipment directly from the manufacturer.
The term of each of the lease agreements approximates two and a half years, and lease payments are due to the Company in three annual installments at
February 28thof each year. Lease agreements accrue
interest annually up to 7.5%. As of July 31, 2010, executed lease agreements totaling $2.5 million were classified as Lease Receivables-Current, net and included in Prepaid Expenses and Other and $1.9 million were classified as Lease
Receivables-Non-Current, net and included in Other Non-Current Assets on the Condensed Consolidated Balance Sheet. The Company has recorded approximately $490,000 as an allowance for uncollectible amounts against such lease receivables as of
July 31, 2010. Lease receivables will be reviewed periodically for collectability based on the underlying franchisees



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payment history and financial status. Payments to be received under the lease agreements are conditional upon the Companys continued renewal of the Walmart agreement and continued
availability to operate within the Walmart territory.

For leases executed through July 31, 2010, the future minimum
lease payments to be received by the Company totaled $4.8 million, which includes unearned interest income of $0.2 million. Future minimum lease payments to be received over the term of the leases are as follows:



|            |  |                    |       |                |   |                |  |   |      
|----------- |  | ------------------ | ----- | -------------- | - | -------------- |  | - | -----
|Fiscal Year |  | PrincipalRepayment |       | InterestIncome |   | Total         
|            |  |                    |       |                |   | (In thousands)
|2011        |  |                    | 2,642 |                |   | 75             |  |   | 2,717
|2012        |  |                    | 2,054 |                |   | 75             |  |   | 2,129
|            |  |                    |       |                |   |                |  |   |      
|Total       |  | $                  | 4,696 |                | $ | 150            |  | $ | 4,846
|            |  |                    |       |                |   |                |  |   |      

Under an agreement with the supplier of the kiosks,
the Company has guaranteed the purchase of a minimum number of kiosks. The minimum threshold was not met prior to July 2010; therefore the Company was obligated to pay the supplier an amount equal to the shortfall in the number of kiosks that were
to be purchased. As of July 31, 2010, the Company has made shortfall payments of approximately $0.7 million, which is recorded in Prepaid expenses and other in the Consolidated Balance Sheet. This prepayment may be applied towards future kiosk
orders provided such is made prior to July 2011.

11. 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 (loss) before income taxes. Intersegment transactions approximate fair market value and are not significant.



|                                 |  |                     |        |   |                               |   |        |                        |  |   |         |   |  |   |         |  
|-------------------------------- |  | ------------------- | ------ | - | ----------------------------- | - | ------ | ---------------------- |  | - | ------- | - |  | - | ------- | -
|                                 |  | FranchiseOperations |        |   | Company-ownedOfficeOperations |   |        | Corporate and Other(a) |  |   | Total   |  
|                                 |  | (In thousands)      |       
|Three months ended July 31, 2010 |  |                     |        |   |                               |   |        |                        |  |   |         |   |  |   |         |  
|Revenues                         |  | $                   | 3,889  |   |                               | $ | 533    |                        |  | $ |        |   |  | $ | 4,422   |  
|                                 |  |                     |        |   |                               |   |        |                        |  |   |         |   |  |   |         |  
|Loss before income taxes         |  | $                   | (9,680 | ) |                               | $ | (7,816 | )                      |  | $ | (18,502 | ) |  | $ | (35,998 | )
|                                 |  |                     |        |   |                               |   |        |                        |  |   |         |   |  |   |         |  
|Three months ended July 31, 2009 |  |                     |        |   |                               |   |        |                        |  |   |         |   |  |   |         |  
|Revenues                         |  | $                   | 4,457  |   |                               | $ | 588    |                        |  | $ |        |   |  | $ | 5,045   |  
|                                 |  |                     |        |   |                               |   |        |                        |  |   |         |   |  |   |         |  
|Loss before income taxes         |  | $                   | (8,496 | ) |                               | $ | (8,431 | )                      |  | $ | (20,009 | ) |  | $ | (36,936 | )
|                                 |  |                     |        |   |                               |   |        |                        |  |   |         |   |  |   |         |  



|(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 share-based compensation and financing costs.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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12. INTERNAL REVENUE SERVICE ANNOUNCEMENT

On August 5, 2010, the Internal Revenue Service (IRS) announced that starting with the upcoming 2011 tax filing season it
will no longer provide tax preparers or RAL providers with the debt indicator (DI), which is used by financial institutions to determine whether to extend credit to a tax payer in connection with the facilitation of a RAL. In eliminating
the DI, the IRS will no longer disclose to financial institutions or tax preparers if a taxpayer owes the federal government any money that will be deducted from the tax payers expected income tax refund. This action will likely cause the financial
institutions that provide RALs to (i) modify their credit underwriting criteria, (ii) change their financial product pricing and (iii) adjust their approval rates to account for anticipated higher loan losses, which may unfavorably
impact the availability or funding of RAL product to the Company for the upcoming tax season. The Company is currently assessing the potential impact that this action may have on its results of operations, financial position and cash flows in
prospective periods.

13. FINANCIAL PRODUCT AGREEMENTS

Republic Program Agreement Amended

On June 30, 2010, the Company entered into the Fourth Amendment (the Fourth Program Agreement Amendment) to the Program
Agreement, originally dated September 19, 2007 (the Republic Program Agreement) with Republic Bank & Trust Company (Republic). The Fourth Program Agreement Amendment extends the date by which Republic, at its
option, may terminate the Republic Program Agreement from June 30, 2010 until September 30, 2010. Republic previously requested this amendment in light of the fact that no decision or guidance had at that point been provided by the IRS
working group with respect to any required changes in the provision of RALs for the upcoming tax season.

During the 2011 tax
season, the Company expects that Republic will provide financial products to 50% of the Jackson Hewitt Tax Service offices. The Companys agreement with Republic expires on October 31, 2012, subject to early termination rights by Republic.
The Company is currently evaluating the impact of the IRSs August 5, 2010 announcement as it pertains to the Companys existing agreement with Republic, if any, and whether this action has any affect on the Companys ability to
secure funding sources and financial institutions to provide RALs and Assisted Refunds to the remaining 50% of Jackson Hewitt Tax Service offices not covered under the Republic agreement.

14. CREDIT FACILITY

As
of July 31, 2010, the Company had an aggregate of $290.6 million in borrowings outstanding under the April 2010 Amended and Restated Credit Agreement (the Credit Agreement), which requires mandatory payments of $30 million on
April 30, 2011 and the remaining balance at maturity on October 6, 2011. As of July 31, 2010, the Company had $16.1 million outstanding under the $105 million revolving credit commitment, the balance of which will continue to be
available to the Company through December 31, 2010 on a revolving basis subject to an availability block. Interest expense for the three months ended July 31, 2010 included $4.6 million of interest that was added to the principal balance
of outstanding borrowings under the Credit Agreement and will be paid at maturity (paid-in-kind interest) in October 2011.

The Credit Agreement added a number of events of default including an adverse regulatory and/or policy statements with respect to the
continuation of the RAL program in a manner acceptable to lenders, an inability to provide RAL product that meet the needs of 100% of the Jackson Hewitt system; failure to present a satisfactory business plan to the lenders; a termination of the
Companys exclusive Walmart kiosk license agreement, which also contains early termination rights if the Company were to receive a notice of default by the lenders under the credit facility; and lack of compliance with the financial covenants
under the credit facility. In addition, the Credit Agreement includes certain events of default related to the continuation and funding of the Companys 2011 RAL program that require the Company to meet certain milestones for the remainder of
2010. These



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milestones include obtaining a proposal letter regarding funding commitments for the Companys RAL program by September 15, 2010 (the Proposal Letters); obtaining a
commitment letter from such funding sources by November 19, 2010; and executing definitive documents for the 2011 RAL program by December 9, 2010.

During the first quarter of fiscal 2011, the Company was notified that its Business Plans, as defined in the Credit Agreement, have been
determined to be acceptable by the administrative agent and lenders in accordance with the terms of the Credit Agreement. The Company has not received any notices from its lenders as a result of the IRSs August 5, 2010 announcement as it
may relate to an adverse regulatory and/or policy statement with respect to the continuation of the Companys RAL program in a manner acceptable to lenders. The Company is in compliance with all terms of the Credit Agreement as of July 31,
2010.

The Company is currently in discussions with RAL providers and funding sources to obtain the Proposal Letters. However,
delays have been caused by the IRSs August 5, 2010 announcement that may prevent the timely completion of this requirement. In this event, the Company would expect to seek a waiver to extend the time period required. There can be no
assurance that the Proposal Letters will be obtained, that the Proposal Letters will be acceptable to the lenders or that the lenders would agree to such an extension.

15. NEW YORK STOCK EXCHANGE NOTIFICATION

On June 21, 2010, the Company was notified by the NYSE that it had fallen below compliance with the NYSE continued listing standards.
The Company is considered below the criteria established by the NYSE for continued listing standards because its average global equity market capitalization fell below $50 million on a trailing 30 consecutive trading-day period, and because its
stockholders equity was below $50 million in its Form 10-Q for the period ended January 31, 2010.

The
Company submitted a plan to the NYSE on August 4, 2010, within the required 45 day time period, in order to demonstrate its ability to regain compliance within 18 months. Upon receipt of the plan, the NYSE has 45 calendar days to review and
determine whether the Company has made a reasonable demonstration of its ability to come into conformity with the relevant standards within the 18-month period. The NYSE will either accept the plan, at which time the Company will be subject to
ongoing monitoring for compliance with this plan, or the NYSE will not accept the plan and the Company will be subject to suspension and delisting proceedings. During the 18-month cure period, the Companys shares will continue to be listed and
traded on the NYSE, subject to its compliance with other NYSE continued listing standards.

On August 31, 2010, the
Company was notified by the NYSE that it failed compliance with a separate listing requirement to maintain an average closing price of the Companys stock above $1.00 per share over a consecutive 30 day trading period. The Company is
required to notify the NYSE within 10 business days of receipt of this notification of the Companys intent to cure the deficiency. In order to regain compliance with this standard, the Company is required at any time during a six-month cure
period to achieve (i) a closing stock price of at least $1.00 on the last trading day of any calendar month and (ii) an average closing stock price of at least $1.00 over a consecutive 30 trading-day period ending on the last trading day
of that month. The NYSE may commence suspension and delisting procedures if the Company is unable to attain these requirements. The Company is evaluating plans to remediate this deficiency within the designated cure period. Additionally, the NYSE
advised the Company that it is subject to the remaining continued listing standard of maintaining an average market capitalization of not less than $15 million over a 30 trading-day period, which is a minimum threshold standard that does not allow
for any plan/cure period.

16. COMMITMENTS AND CONTINGENCIES

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



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maximum potential payment under these surety bonds is $3.5 million, of which $1.4 million has been deposited into a restricted cash collateral account, as of July 31, 2010. Historically, no
surety bonds have been drawn upon and there is no future expectation that these surety bonds will be drawn upon.

The Company 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 had a liability of $0.1 million as of July 31, 2010 for the fair value of the obligation undertaken in
issuing the guarantee. Such liabilities were included in accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets. 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 Corporation, the Companys former parent corporation now known as Avis Budget Group, Inc.
(Cendant) which divested 100% of its ownership in the Company pursuant to the June 2004 IPO, 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 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 sale 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. In addition, from time to time, the Company enters into other
indemnity agreements in connection with the operations of the business.

Legal Proceedings

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 November 10, 2008, the Company filed a motion to dismiss, or alternatively, to stay proceedings and to compel arbitration. On May 5, 2009, the Court granted the
Companys motion to stay proceedings and to compel individual arbitration of Plaintiffs claims, and denied the Companys motion to dismiss. On October 1, 2009, Plaintiff filed an appeal in the Court of Appeals for the Eighth
Appellate District, Cuyahoga County, seeking reversal of the lower Courts order. On June 7, 2010, the parties settled the matter on an individual basis for ade minimis amount, agreed to dismiss the matter with prejudice, and
without any admission of liability or wrongdoing filed a settlement stipulation with the Court of Appeals. On June 9, 2010, the Court dismissed Plaintiffs appeal pursuant to the settlement stipulation.



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On October 30, 2006, Linda Hunter (now substituted by Christian Harper and Elizabeth
Harper as proposed class representatives) 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 alleged breach of West Virginias Credit Service Organization Act, for alleged breach of contract, and for alleged unfair or deceptive acts or practices in connection
with the Companys RAL facilitation activities. On March 13, 2008, the Court granted the Companys partial motion for summary judgment on Plaintiffs breach of contract claim. On July 15, 2008, the Company answered the first
amended complaint. On February 10, 2009, Plaintiffs filed a motion to certify a class. The Company opposed that motion. On February 11, 2009, Plaintiffs filed a motion for partial summary judgment. On February 11, 2009, the Company
filed a motion for summary judgment. On March 6, 2009, the Company opposed Plaintiffs motion for partial summary judgment. On September 29, 2009, the Court denied the summary judgment motions without prejudice. A decision by the
Court on the class certification motion is currently pending. On April 7, 2009, Plaintiffs filed a motion seeking the certifications of four legal questions to the West Virginia Supreme Court of Appeals. On November 12, 2009, the West
Virginia Supreme Court of Appeals ordered the review of those four certified legal questions. The case is in its pretrial stage. Following a decision by the West Virginia Supreme Court of Appeals, the Company will continue to litigate this matter
vigorously in the United States District Court, Southern District of West Virginia.

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 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 Racketeering 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. Following dispositive motions, on December 24, 2008, the
Company answered Plaintiffs fourth amended complaint with respect to the remaining breach of contract claim. On January 29, 2010, Plaintiffs filed a Fifth Amended Complaint. On February 12, 2010, the Company Answered the Fifth
Amended Complaint. On April 14, 2010, Plaintiffs filed a motion for class certification. The Company opposed that motion. A decision by the Court is currently pending. The case is in its pretrial stage. The Company believes it has meritorious
defenses and is contesting this matter vigorously.

On January 17, 2008, an attorney with the New York State Division of
Human Rights (the Division) filed with the Division a Division-initiated administrative complaint against the Company for allegedly marketing loan products to individuals in New York based on their race and military status in violation
of New York States Human Rights Law, and seeking injunctive and other relief. On February 19, 2008, the Company filed a response to the complaint with the Division. On June 30, 2008, the Division issued a determination of probable
cause on the matter and determined that it had jurisdiction. The matter will be set for an administrative hearing. The Company believes that no jurisdiction exists, that it has meritorious defenses and is contesting this matter vigorously. On
October 15, 2008, the Company filed a Complaint in the United States District Court, Southern District of New York against the Commissioner of the Division for injunctive and declaratory relief. On October 20, 2008, the Company filed a
motion for a preliminary injunction against the Commissioner of the Division to prevent the Division from proceeding with its administrative complaint. At the request of the Division, the parties had entered into a number of stipulations to extend
the Divisions response date to the Complaint until August 10, 2009 while maintaining the status quo in the administrative complaint process to permit the parties to engage in further discussions regarding these matters. Due to these
ongoing discussions, on June 25, 2009, at the request of the Court, the Company agreed to withdraw its motion for a preliminary injunction without prejudice and with the understanding that the Company could refile its motion at a future
date. On August 11, 2009, the Division filed a motion to dismiss the Complaint. On October 6, 2009, the Company filed a motion for summary judgment, and opposed the Divisions motion to dismiss. The parties submitted a



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stipulation to the Court that provided for maintaining the status quo with respect to the administrative proceeding pending a decision on the merits of the litigation. On August 26, 2010,
the Court granted the Divisions motion to dismiss the Complaint and denied the Companys motion for summary judgment. The Company believes it has meritorious defenses and is contesting this matter vigorously.

On February 8, 2008, H&R Block Tax Services, Inc. brought a patent infringement action against the Company in the U.S. District
Court for the Eastern District of Texas alleging infringement of two patents (862 and 829) relating to issuing spending vehicles to an individual in exchange for the assignment of at least a portion of a payment that the individual is
entitled to receive from a governmental agency, and seeking damages and injunctive relief. On April 3, 2008, the Company filed an answer denying infringement and asserting counterclaims of non-infringement and invalidity. On
November 14, 2008, Plaintiff moved for leave to amend the action alleging infringement of a third patent (425) relating to providing a loan to a taxpayer prior to the end of the current year, the loan amount being based on the
taxpayers estimated tax refund amount for such year. On December 23, 2008, the Court granted Plaintiffs motion for leave to amend. On January 12, 2009, the Company answered the amended complaint denying infringement and
asserting counterclaims of non-infringement and invalidity. On March 13, 2009, the Company filed a motion for summary judgment of invalidity of all asserted patent claims based on unpatentable subject matter. On August 28, 2009, the
Company filed a motion for summary judgment of indefiniteness of certain of the asserted patent claims. On October 1, 2009, oral argument on the indefiniteness motion took place in connection with the claim construction (Markman)
hearing. On November 10, 2009, the Magistrate Judge issued a Report and Recommendation that the Court hold all asserted claims of the 862 and 425 patents invalid and, in the alternative, indefinite. On December 7, 2009, the
parties filed a joint motion to stay the proceeding pending the United States Supreme Courts decision in In re Bilski. On December 8, 2009, the Magistrate Judge issued the Courts claim construction order. On December 10,
2009, the Court issued an order granting the parties joint motion to stay the proceedings. On June 28, 2010 the Supreme Court of the United States issued its opinion in In re Bilski affirming the holding of the Court of
Appeals for the Federal Circuit. On June 28, 2010 the parties filed a Joint Notice and Request for Status Conference. On June 29, 2010, the Court filed a Notice of Hearing, scheduling a status conference for July 13, 2010. On
July 13, 2010, the Court issued an order setting the briefing schedule for a motion relating to the Bilski decision, ordered the parties to file any objections to the Magistrates Report and Recommendation, and ordered that the
Courts stay of discovery and all other deadlines shall remain in effect. On August 5, 2010, the parties filed objections to the Magistrates Report and Recommendation. On August 5, 2010, the Company filed its supplemental brief
in support of its motion for summary judgment of invalidity of all asserted claims. On August 16, 2010, the parties each filed a response to objections to the Magistrates Report and Recommendation. Decisions by the District Judge on the
Magistrates Report and Recommendations on the Companys motions for summary judgment of invalidity and indefiniteness are currently pending. The Company believes it has meritorious defenses and is contesting this matter vigorously.

On February 16, 2009, Alicia Gomez brought a purported class action complaint against the Company in the Circuit Court
of Maryland, Montgomery County, on behalf of Maryland customers who obtained RALs facilitated by the Company, for an alleged failure to comply with Marylands Credit Services Businesses Act, and for an alleged violation of Marylands
Consumer Protection Act, and seeking damages and injunctive relief. On March 18, 2009, the Company filed a motion to dismiss. On June 18, 2009, the Court granted the Companys motion to dismiss in all respects, dismissing the
Plaintiffs complaint. On July 17, 2009, Plaintiff filed an appeal in the Maryland Court of Special Appeals. The Company believes it has meritorious arguments in opposing the appeal and will continue to contest this matter vigorously.

On April 14, 2009, Quiana Norris brought a purported class action complaint against the Company in the Superior Court of
Indiana, Marion County, on behalf of Indiana customers who obtained RALs facilitated by the Company, for an alleged failure to comply with Indianas Credit Services Organization Act, and seeking damages and injunctive relief. On May 1,
2009, the Company filed a notice removing the complaint to the United States District Court for the Southern District of Indiana. On June 8, 2009 the Company filed a motion to dismiss. On December 7, 2009, the Court granted the
Companys motion to dismiss in all respects, dismissing



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the Plaintiffs complaint. On January 18, 2010, Plaintiff filed a First Amended Complaint. On February 4, 2010, the Company filed a motion to dismiss the First Amended Complaint.
On June 28, 2010, the Court granted the Companys motion to dismiss in all respects, dismissing the Plaintiffs First Amended Complaint with prejudice. On July 28, 2010, Plaintiff filed a notice of appeal. The Company believes it
has meritorious arguments in opposing this appeal and will continue to contest this matter vigorously.

On April 29,
2009, Sherita Fugate brought a purported class action complaint against the Company in the Circuit Court of Missouri, Jackson County, on behalf of Missouri customers who obtained RALs facilitated by the Company, for an alleged failure to comply with
Missouris Credit Services Organization Act, for an alleged violation of Missouris Merchandising Practices Act, and seeking damages and injunctive relief. On May 29, 2009, the Company filed a motion to dismiss. On March 10,
2010, the Court granted the Companys motion to dismiss in all respects, dismissing the Plaintiffs complaint. On April 13, 2010, Plaintiff filed a notice of appeal. The Company believes it has meritorious arguments in opposing this
appeal and will continue to contest this matter vigorously.

On September 2, 2009, Nancee Thomas 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 seeking damages and injunctive relief. On October 15, 2009, the Company filed a motion to dismiss. On December 8, 2009, Plaintiffs filed a First Amended Complaint adding Paul Thomas as an additional plaintiff. On March 25,
2010, the Court granted the Companys motion to dismiss. On April 23, 2010, Plaintiff filed a notice of appeal. The Company believes it has meritorious arguments in opposing the appeal and will continue to contest this matter vigorously.

On April 29, 2010, Cecile Carriere brought a purported class action complaint against the Company in the District Court
for the Parish of St. Tammany, Louisiana, on behalf of Louisiana customers who obtained RALs and other loans facilitated by the Company, for an alleged failure to comply with Louisiana loan broker statutes, for rescission, payment of a thing not
owed, and seeking damages and injunctive and declaratory relief. On June 9, 2010, the Company removed the matter to the United States District Court for the Eastern District of Louisiana. On June 16, 2010, the Company filed a motion to
dismiss. The Company believes it has meritorious defenses and will continue to contest this matter vigorously.

On
January 24, 2007, Ellen and Frank Kaman brought an action against the Company, Daniel Prewett (Prewett), and J.H. Investment Services, Inc. (J.H. Investment) in the Circuit Court for Sarasota County,
Florida. Plaintiffs Third Amended Complaint alleges actual agency, apparent agency and negligence against the Company alleging that the Company allowed J.H. Investment to utilize the Companys name in a manner that caused Plaintiffs
to believe that J.H. Investment was acting as the Companys actual or apparent agent. On August 11, 2009, the Company filed a motion for summary judgment. On October 7, 2009, the Court granted the Companys motion for summary
judgment on Plaintiffs actual agency count and denied the Companys motion for the apparent agency and negligence counts. The case was tried before a jury from February 1, 2010 to February 10, 2010. The jury found the
Company liable to Plaintiffs based on apparent agency and negligence. The jury declined to award punitive damages. The Court established Plaintiffs compensatory damages at $575,000, and awarded an additional $264,332 in
prejudgment interest. On April 16, 2010, the Company filed a notice of appeal in the Florida Second District Court of Appeals. The Company believes that it has meritorious arguments for its appeal, and will continue to contest this matter
vigorously.

In addition to the Kaman matter, thirteen other matters relating to J.H. Investment in which the Company is a
defendant are pending in Sarasota County, Florida. These thirteen other matters allege negligence, actual agency, apparent agency, constructive fraud, and breach of fiduciary duty against the Company, and assert an aggregate of approximately
$18.0 million in damages, in addition to seeking punitive damages. While any final results in the Kaman matter have no collateral estoppel effects on any of these matters, Court rulings on the Companys appeal are likely to affect the
timing of when, and the strength of how, these matters are advanced. The Company believes that it has meritorious defenses and is contesting these matters vigorously.



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The Company is from time to time subject to other legal proceedings and claims in the
ordinary course of business, including matters more properly alleged against other parties (generally, the Companys franchisees), none of which the Company believes is likely to have a material adverse effect on its 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 should be read in conjunction with 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/A filed with the Securities and Exchange Commission (SEC) on August 12, 2010.

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 execute on our strategic plan and reverse our declining profitability, improve our distribution system or reduce our cost structure; 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;
delays in the passage of tax laws and their implementation; 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 or their employees; 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 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 relationship with Walmart or other large 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 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; 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; the delisting of our common stock; 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



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##### Table of Contents

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.

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., with more than 6,400 franchised and
company-owned offices throughout the United States in the 2010 tax season, is an industry leader providing full service individual federal and state income tax return preparation. In fiscal 2010, the Jackson Hewitt system prepared 2.53 million
tax returns. Most offices are independently owned and operated. 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

The tax return preparation business is highly seasonal, and we historically generate substantially all of our revenues
during the period from January 1 through April 30. In fiscal 2010, we earned 94% of our revenues during this period. We operate at a loss during the period from May 1 through December 31, during which we incur costs associated
with preparing for the upcoming tax season.

Internal Revenue Service Announcement

On August 5, 2010, the Internal Revenue Service (IRS) announced that starting with the upcoming 2011 tax filing season it
will no longer provide tax preparers or refund anticipation loan (RAL) providers with the debt indicator (DI), which is used by financial institutions to determine whether to extend credit to a tax payer in connection with
the facilitation of a RAL. In eliminating the DI, the IRS will no longer disclose to financial institutions or tax preparers if a taxpayer owes the federal government any money that will be deducted from the tax payers expected income tax refund.
This action will likely cause the financial institutions that provide RALs to (i) modify their credit underwriting criteria, (ii) change their financial product pricing and (iii) adjust their approval rates to account for anticipated
higher loan losses, which may unfavorably impact the availability or funding of RAL product to us for the upcoming tax season. We are currently assessing the potential impact that this action may have on our results of operations, financial position
and cash flows in prospective periods.

Financial Product Agreements

On June 30, 2010, we entered into the Fourth Amendment (the Fourth Program Agreement Amendment) to the Program Agreement,
originally dated September 19, 2007 (the Republic Program Agreement) with Republic Bank & Trust Company (Republic). The Fourth Program Agreement Amendment extends the date by which Republic, at its option, may
terminate the Republic Program Agreement from June 30, 2010 until September 30, 2010. Republic previously requested this amendment in light of the fact that no decision or guidance had at that point been provided by the IRS working group
with respect to any required changes in the provision of RALs for the upcoming tax season.



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##### Table of Contents

During the 2011 tax season, we expect that Republic will provide financial products to 50%
of the Jackson Hewitt Tax Service offices. Our agreement with Republic expires on October 31, 2012, subject to early termination rights by Republic. We are currently evaluating the impact of the IRSs August 5, 2010 announcement as it
pertains to our existing agreement with Republic, if any, and whether this action has any affect on our ability to secure funding sources and financial institutions to provide RALs and Assisted Refunds to the remaining 50% of Jackson Hewitt Tax
Service offices not covered under the Republic agreement.

Potential Exposure to Credit Losses

As a result of the continued decline in franchisee profitability, including the loss of RALs in fiscal 2010 by our franchisees served by
Santa Barbara Bank & Trust, a division of Pacific Capital Bank, and the current difficult economic environment that has adversely impacted our franchisees ability to grow and operate their businesses including their ability to pay amounts
due to us, we have experienced a significant increase in past due receivables from franchisees as we head into the 2011 tax season compared to the same period last year. Our Condensed Consolidated Balance Sheet at July 31, 2010 included
past due amounts from franchisees totaling approximately $20.3 million, which includes billed accounts and notes receivable that are classified within current assets. This compares to $18.5 million at April 30, 2010. The allowance for
billed accounts and notes receivable was $8.1 million and $5.7 million at July 31, 2010 and April 30, 2010, respectively. Additionally, we have $4.7 million and $3.9 million in allowances for unbilled notes receivable and development
advance notes as of July 31, 2010 and April 30, 2010, respectively. Our allowances for doubtful accounts require managements judgment regarding collectability and current economic conditions to establish an amount considered by
management to be adequate to cover estimated losses as of the balance sheet date. Accordingly, in the three months ended July 31, 2010, we recorded a $3.2 million provision for uncollectible receivables in our Statement of Operations in
Cost of Franchise Operations. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered unlikely. There were no significant concentrations of credit
risk with any individual franchisee or group of franchisees as of July 31, 2010. We believe that our allowances for doubtful accounts as of July 31, 2010 are currently adequate for our existing exposure to loss. We will be
closely monitoring the performance of franchisees currently indebted to us, particularly for timely payment of past due and current receivables, and we will adjust our allowances accordingly if management determines that existing reserve levels are
inadequate to cover estimated losses.

New Franchise Agreement

We have recently finalized our new form of franchise agreement. We intend to offer all franchisees the opportunity to execute this new
form of agreement including the approximately 25% of our existing franchise agreements that are up for renewal by December 2010 as well as the franchise agreements with remaining terms. The more difficult operating circumstances in fiscal 2010 may
impact our success with our renewal program and there can be no assurance regarding the number of franchise agreements that will be renewed. Certain terms of the current franchise agreement will change under this new form of agreement, including
certain operating requirements and economic terms.



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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.

Condensed Consolidated Results of Operations



|                                                      |  |                            |         |   |      |   |         |  
|----------------------------------------------------- |  | -------------------------- | ------- | - | ---- | - | ------- | -
|                                                      |  | Three Months EndedJuly 31, |        
|                                                      |  | 2010                       |         |   | 2009 |  
|                                                      |  | (in thousands)             |        
|Revenues                                              |  |                            |         |   |      |   |         |  
|Franchise operations revenues:                        |  |                            |         |   |      |   |         |  
|Royalty                                               |  | $                          | 587     |   |      | $ | 556     |  
|Marketing and advertising                             |  |                            | 258     |   |      |   | 245     |  
|Financial product fees                                |  |                            | 2,881   |   |      |   | 3,320   |  
|Other                                                 |  |                            | 163     |   |      |   | 336     |  
|Service revenues from company-owned office operations |  |                            | 533     |   |      |   | 588     |  
|                                                      |  |                            |         |   |      |   |         |  
|Total revenues                                        |  |                            | 4,422   |   |      |   | 5,045   |  
|                                                      |  |                            |         |   |      |   |         |  
|Expenses                                              |  |                            |         |   |      |   |         |  
|Cost of franchise operations                          |  |                            | 9,268   |   |      |   | 7,488   |  
|Marketing and advertising                             |  |                            | 2,372   |   |      |   | 3,015   |  
|Cost of company-owned office operations               |  |                            | 6,562   |   |      |   | 6,996   |  
|Selling, general and administrative                   |  |                            | 9,460   |   |      |   | 16,726  |  
|Depreciation and amortization                         |  |                            | 3,316   |   |      |   | 3,325   |  
|                                                      |  |                            |         |   |      |   |         |  
|Total expenses                                        |  |                            | 30,978  |   |      |   | 37,550  |  
|                                                      |  |                            |         |   |      |   |         |  
|Loss from operations                                  |  |                            | (26,556 | ) |      |   | (32,505 | )
|Other income/(expense):                               |  |                            |         |   |      |   |         |  
|Interest and other income                             |  |                            | 929     |   |      |   | 598     |  
|Interest expense                                      |  |                            | (10,371 | ) |      |   | (5,029  | )
|                                                      |  |                            |         |   |      |   |         |  
|Loss before income taxes                              |  |                            | (35,998 | ) |      |   | (36,936 | )
|Benefit from income taxes                             |  |                            | 16,804  |   |      |   | 15,096  |  
|                                                      |  |                            |         |   |      |   |         |  
|Net loss                                              |  | $                          | (19,194 | ) |      | $ | (21,840 | )
|                                                      |  |                            |         |   |      |   |         |  

Given the seasonal nature of the tax return preparation business, approximately 4% of the total tax returns
prepared by our network in fiscal 2010 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, 2010 as Compared to Three Months Ended July 31, 2009

Total Revenues

Total
revenues decreased by $0.6 million, or 12%, due primarily to lower financial product fees and a decrease in other revenues. Please see Franchise Results of Operations and Company-Owned Office Results of Operations for additional highlights.

Total Expenses

Total operating expenses decreased $6.6 million, or 18%. The following factors are some of the more significant items that
contributed to, or partially offset, our overall total decrease in operating expenses.



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##### Table of Contents

Cost of franchise operations: Cost of franchise operations increased $1.8 million, or
24%, primarily due to a higher provision for uncollectible receivables of $2.9 million to increase reserve balances for our current exposure to collection loss. This increase was partially offset by (i) lower compensation-related costs of $0.4
million as a result of 2010 workforce reductions; (ii) a reduction of $0.4 million in conference expenses due to a shift in the timing of our franchisee convention to the second fiscal quarter; and (iii) a decrease in consulting expenses
of $0.3 million related to a shift in workload to internal Technology staff.

Marketing and Advertising: Marketing and
advertising expenses decreased $0.6 million, or 21%, primarily due to a shift in spending of approximately $0.4 million to later in fiscal 2011 and lower compensation-related costs of $0.2 million related to workforce reductions.

Cost of company-owned office operations: Cost of company-owned office operations decreased $0.4 million, or 6%, primarily due
to lower compensation-related costs of $0.2 million resulting from workforce reductions and a reduction in office related expenses of $0.2 million including supplies and maintenance.

Selling, general and administrative: Selling, general and administrative expenses decreased $7.3 million, or 43%, primarily due to
(i) the absence of a $4.3 million severance charge related to the departure of our former Chief Executive Officer in June 2009; (ii) a decrease in external legal fees of $1.6 million, which includes a $0.7 million insurance recovery
related to a legal settlement; (iii) lower consulting costs of $0.8 million for corporate advisory services related to strategic development activities, ongoing credit agreement expenses and other financial advice; and (iv) lower
compensation-related costs of $0.6 million as a result of 2010 workforce reductions.

Other income (expense)

Interest expense: Interest expense increased $5.3 million, or 106%, primarily due to the higher credit spread under our amended
credit facility on a higher outstanding average debt balance and an increase in amortization of deferred financing costs of $0.6 million. Our pre-tax average cost of debt was 14.7% in the three months ended July 31, 2010 as compared to 7.8% in
the same period last year. Interest expense in the three months ended July 31, 2010 included $4.6 million of interest that was added to the principal balance of outstanding borrowings under the Credit Agreement and will be paid at maturity
(paid-in-kind interest) in October 2011.

Benefit from income taxes: Benefit from income taxes increased $1.7 million,
or 11%, due to a larger percentage of taxable earnings in states with higher corporate income tax rates. Our effective tax rate for the three months ended July 31, 2010 and 2009 is 47.6% and 40.9%, respectively. Income tax benefit in each
period also includes state taxes that are not calculated as a percentage of income (loss) before taxes.



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##### Table of Contents

Segment Results

Franchise Operations



|                                    |  |                            |         |   |      |   |        |  
|----------------------------------- |  | -------------------------- | ------- | - | ---- | - | ------ | -
|                                    |  | Three Months EndedJuly 31, |        
|                                    |  | 2010                       |         |   | 2009 |  
|                                    |  | (in thousands)             |        
|Results of Operations:              |  |                            |         |   |      |   |        |  
|Revenues                            |  |                            |         |   |      |   |        |  
|Royalty                             |  | $                          | 587     |   |      | $ | 556    |  
|Marketing and advertising           |  |                            | 258     |   |      |   | 245    |  
|Financial product fees              |  |                            | 2,881   |   |      |   | 3,320  |  
|Other                               |  |                            | 163     |   |      |   | 336    |  
|                                    |  |                            |         |   |      |   |        |  
|Total revenues                      |  |                            | 3,889   |   |      |   | 4,457  |  
|                                    |  |                            |         |   |      |   |        |  
|Expenses                            |  |                            |         |   |      |   |        |  
|Cost of operations                  |  |                            | 9,268   |   |      |   | 7,488  |  
|Marketing and advertising           |  |                            | 2,305   |   |      |   | 2,919  |  
|Selling, general and administrative |  |                            | 556     |   |      |   | 851    |  
|Depreciation and amortization       |  |                            | 2,359   |   |      |   | 2,293  |  
|                                    |  |                            |         |   |      |   |        |  
|Total expenses                      |  |                            | 14,488  |   |      |   | 13,551 |  
|                                    |  |                            |         |   |      |   |        |  
|Loss from operations                |  |                            | (10,599 | ) |      |   | (9,094 | )
|Other income/(expense):             |  |                            |         |   |      |   |        |  
|Interest and other income           |  |                            | 919     |   |      |   | 598    |  
|                                    |  |                            |         |   |      |   |        |  
|Loss before income taxes            |  | $                          | (9,680  | ) |      | $ | (8,496 | )
|                                    |  |                            |         |   |      |   |        |  

Three Months Ended July 31, 2010 as Compared to Three Months Ended July 31, 2009

Total Revenues

Total
revenues decreased $0.6 million, or 13%. Factors contributing to the decrease were as follows:

Financial product fees:
Financial product fees decreased $0.4 million, or 13%, principally due to lower revenues associated with our prepaid debt card program and our Gold Guarantee product of $0.3 million.

Other revenues: Other revenues decreased $0.2 million, or 51%, primarily due to a reduction in carry-over payments related to the
processing of electronically-transmitted tax returns prepared in the 2010 tax season as compared with the prior year.

Total Expenses

Total operating expenses increased $0.9 million, or 7%. The following factors are some of the more significant items that
contributed to, or partially offset, the Franchise Operations total increase in operating expenses.

Cost of
franchise operations: Cost of franchise operations increased $1.8 million, or 24%, as discussed in the Condensed Consolidated Results of Operations.

Marketing and Advertising: Marketing and advertising expenses decreased $0.6 million, or 21%, as discussed in the Condensed
Consolidated Results of Operations.

Selling, general and administrative: Selling, general and administrative expenses
decreased $0.3 million, or 35%, primarily due lower compensation-related costs as a result of fiscal 2010 workforce reductions.



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##### Table of Contents

Company-Owned Office Operations



|                                    |  |                            |        |   |      |   |        |  
|----------------------------------- |  | -------------------------- | ------ | - | ---- | - | ------ | -
|                                    |  | Three Months EndedJuly 31, |       
|                                    |  | 2010                       |        |   | 2009 |  
|                                    |  | (in thousands)             |       
|Results of Operations:              |  |                            |        |   |      |   |        |  
|Revenues                            |  |                            |        |   |      |   |        |  
|Service revenues from operations    |  | $                          | 533    |   |      | $ | 588    |  
|                                    |  |                            |        |   |      |   |        |  
|Expenses                            |  |                            |        |   |      |   |        |  
|Cost of Operations                  |  |                            | 6,562  |   |      |   | 6,996  |  
|Marketing and advertising           |  |                            | 67     |   |      |   | 96     |  
|Selling, general and administrative |  |                            | 763    |   |      |   | 895    |  
|Depreciation and amortization       |  |                            | 957    |   |      |   | 1,032  |  
|                                    |  |                            |        |   |      |   |        |  
|Total expenses                      |  |                            | 8,349  |   |      |   | 9,019  |  
|                                    |  |                            |        |   |      |   |        |  
|Loss from operations                |  |                            | (7,816 | ) |      |   | (8,431 | )
|                                    |  |                            |        |   |      |   |        |  
|Loss before income taxes            |  | $                          | (7,816 | ) |      | $ | (8,431 | )
|                                    |  |                            |        |   |      |   |        |  

Three Months Ended July 31, 2010 as Compared to Three Months Ended July 31, 2009

Total Revenues

Total
revenues decreased marginally as compared to the same period in the prior year.

Total Expenses

Total operating expenses decreased $0.7 million, or 7%. The following factors are some of the more significant items that contributed
to, or partially offset, Company-owned Office Operations total decrease in operating expenses.

Cost of
Operations: Cost of operations decreased $0.4 million, or 6%, as discussed in the Condensed Consolidated Results of Operations.

Selling, general and administrative: Selling, general and administrative expenses decreased $0.1 million, or 15%, primarily due
lower compensation-related costs as a result of fiscal 2010 workforce reductions.



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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 share-based compensation and financing costs.



|                                          |  |                            |         |   |      |   |         |  
|----------------------------------------- |  | -------------------------- | ------- | - | ---- | - | ------- | -
|                                          |  | Three Months EndedJuly 31, |        
|                                          |  | 2010                       |         |   | 2009 |  
|                                          |  | (in thousands)             |        
|Expenses (a)                              |  |                            |         |   |      |   |         |  
|General and administrative                |  | $                          | 5,026   |   |      | $ | 4,983   |  
|Employee termination and related expenses |  |                            |        |   |      |   | 4,256   |  
|Consulting expenses                       |  |                            | 1,487   |   |      |   | 2,268   |  
|External legal fees                       |  |                            | 1,097   |   |      |   | 2,671   |  
|Share-based compensation                  |  |                            | 531     |   |      |   | 802     |  
|                                          |  |                            |         |   |      |   |         |  
|Total expenses                            |  |                            | 8,141   |   |      |   | 14,980  |  
|                                          |  |                            |         |   |      |   |         |  
|Loss from operations                      |  |                            | (8,141  | ) |      |   | (14,980 | )
|                                          |  |                            |         |   |      |   |         |  
|Other income/(expense):                   |  |                            |         |   |      |   |         |  
|Interest and other income                 |  |                            | 10      |   |      |   |        |  
|Interest expense                          |  |                            | (10,371 | ) |      |   | (5,029  | )
|                                          |  |                            |         |   |      |   |         |  
|Loss before income taxes                  |  | $                          | (18,502 | ) |      | $ | (20,009 | )
|                                          |  |                            |         |   |      |   |         |  



|(a) | Included in SG&A in the Condensed Consolidated Statements of Operations.
|--- | ------------------------------------------------------------------------

Three Months Ended July 31, 2010 as Compared to Three Months Ended July 31, 2009

Loss from operations

Loss from operations decreased $6.8 million, or 46%, primarily due to (i) the absence of a $4.3 million severance charge related to
the departure of our former Chief Executive Officer in June 2009; (ii) a decrease in external legal fees of $1.6 million, which includes a $0.7 million insurance recovery related to a legal settlement; and (iii) a reduction of $0.8 million
in consulting expenses including corporate advisory services related to strategic development activities, ongoing credit agreement expenses and other financial advice.

Other income/(expense)

Interest expense: Interest expense increased $5.3 million, or 106%, as discussed in the Condensed 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 generally not capital intensive and has historically generated strong operating cash flow from operations on an
annual basis with the exception of fiscal 2010 during which we experienced a loss of RALs in 50% of our markets. While we expect to continue to generate cash flow from operations during tax season, the level of funds generated during this period
could continue to be significantly reduced to the extent that we are unsuccessful in securing funding sources in fiscal 2011 for the 50% of Jackson Hewitt Tax Service offices that did not have RAL coverage in fiscal 2010.



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Credit Facility

As of July 31, 2010, we had an aggregate of $290.6 million in term loan, non-revolving credit commitment and revolving credit
commitment borrowings outstanding under the April 2010 Amended and Restated Credit Agreement (the Credit Agreement), which requires mandatory payments of $30 million on April 30, 2011 and the remaining balance at maturity on
October 6, 2011. Of these borrowings, we had $16.1 million outstanding under the $105 million revolving credit commitment, the balance of which will continue to be available to us on a revolving basis subject to an availability block. Interest
expense for the three months ended July 31, 2010 included $4.6 million of interest that was added to the principal balance of outstanding borrowings under the Credit Agreement and will be paid at maturity (paid-in-kind-interest) in October 2011.

Sources and Uses of Cash

In the three months ended July 31, 2010, we used $18.9 million less cash for operations as compared to the three months ended
July 31, 2009. Described below are some of the more significant items that contributed to, or partially offset, our net cash used:



| |  |  | Lower payments to vendors and suppliers of $10.0 million;
| | - |  | ---------------------------------------------------------



| |  |  | Lower income tax payments of $4.2 million primarily due to the decrease in operating income between years;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | Absence of a $2.8 million payment related to a previously accrued legal settlement;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | Lower incentive payments to franchisees of $2.0 million;
| | - |  | --------------------------------------------------------



| |  |  | Lower external legal fee payments of $1.7 million;
| | - |  | --------------------------------------------------



| |  |  | Lower employee termination payments of $1.3 million;
| | - |  | ----------------------------------------------------



| |  |  | Lower lease termination payments of $1.1 million;
| | - |  | -------------------------------------------------



| |  |  | Lower consulting expense payments of $0.8 million for corporate advisory services related to strategic development activities.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------

Partially offsetting the factors discussed above were:



| |  |  | Higher interest payments under our credit facility of $4.8 million.
| | - |  | -------------------------------------------------------------------

Investing activities

In the three months ended July 31, 2010, we used $3.1 million less cash for investing activities as compared to the three months
ended July 31, 2009, primarily due to a $0.7 million reduction in cash paid for the acquisition of tax return preparation businesses and lower capital expenditures of $2.3 million primarily due to the absence of Walmart Kiosk purchases that
were made in advance of the fiscal 2010 tax season.

Financing activities

In the three months ended July 31, 2010, we received $30.8 million less cash from financing activities as compared to the three
months ended July 31, 2009, primarily due to a reduction in net borrowings under our credit facility of $30.0 million.



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Future Cash Requirements and Sources of Cash

Future Cash Requirements

Over the remainder of fiscal 2011, our primary cash requirements will be the funding of our operating activities (including contractual
obligations and commitments), capital expenditure requirements, acquisitions, project funding to franchisees, repaying debt outstanding, and making periodic interest payments on our debt outstanding, as described more fully below.



| |  |  | Marketing and advertisingWe receive marketing and advertising payments from franchisees to fund our budget for most of these expenses.
Marketing and advertising expenses include national, regional and local campaigns designed to increase brand awareness and attract both early season and late season customers. Such expenses are seasonal in nature and typically increase in our third
and fourth fiscal quarters when most of our revenues are earned.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 in economically attractive, high growth
markets adjacent to our current operations. Under the terms of the April 2010 Amended and Restated Credit Agreement, we are limited to annual acquisitions of and we will be limited to acquisitions totaling $7 million per year with the cash portion
of any acquisition consideration being limited to $2 million annually. As of July 31, 2010, there were no acquisitions in fiscal 2011. 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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lease termination paymentsWe anticipate spending approximately $1 million over the remainder of fiscal 2011 in connection with lease
termination actions taken in fiscal 2009 (based on certain assumptions and if we are successful in buying out of these lease commitments).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Capital expendituresWe anticipate spending between $6 million and $7 million on capital expenditures in fiscal 2011
predominantly for information technology upgrades, including personnel related payments capitalized for the development of internal use software.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Franchisee fundingWe anticipate spending approximately $1 million to provide project funding to franchisees.
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | Debt serviceAs of August 31, 2010, we had $298.3 million outstanding (inclusive of PIK interest of $6.3 million) under our
April 2010 Amended and Restated Credit Agreement. Under the terms of the April 2010 amendment, a mandatory payment of $30 million is due in April 2011 in connection with the amortizing term loan of $200 million. Additionally, we anticipate
having to spend between $43 million and $45 million on interest in fiscal 2011.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Future Sources of
Cash

We borrow against our amended 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 sources of cash to be royalty and marketing & advertising fees from franchisees, service revenues earned at Company-owned Offices and financial
product fees.

The April 2010 Amended and Restated Credit Agreement (the Credit Agreement) added a number of
events of default including an adverse regulatory and/or policy statements with respect to the continuation of the RAL program in a manner acceptable to lenders, an inability to provide RAL product that meet the needs of 100% of the Jackson Hewitt
system; failure to present a satisfactory business plan to the lenders; a termination of our exclusive Walmart kiosk license agreement, which also contains early termination rights if we were to



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receive a notice of default by the lenders under the credit facility; and lack of compliance with the financial covenants under the credit facility. In addition, the Credit Agreement includes
certain events of default related to the continuation and funding of our 2011 RAL program that require us to meet certain milestones for the remainder of 2010. These milestones include obtaining a proposal letter regarding funding commitments
for our RAL program by September 15, 2010 (the Proposal Letters); obtaining a commitment letter from such funding sources by November 19, 2010; and executing definitive documents for the 2011 RAL program by December 9,
2010.

During the first quarter of fiscal 2011, we were notified that our Business Plans, as defined in the Credit Agreement,
have been determined to be acceptable by the administrative agent and lenders in accordance with the terms of the Credit Agreement. We have not received any notices from our lenders as a result of the IRSs August 5, 2010 announcement as
it may relate to an adverse regulatory and/or policy statement with respect to the continuation of our RAL program in a manner acceptable to lenders.

We are currently in discussions with RAL providers and funding sources to obtain the Proposal Letters. However, delays have been caused
by the IRSs August 5, 2010 announcement that may prevent the timely completion of this requirement. In this event, we would expect to seek a waiver to extend the time period required. There can be no assurance that the Proposal Letters
will be obtained, that the Proposal Letters will be acceptable to the lenders, or that the lenders would agree to such an extension.

As of July 31, 2010, we were not aware of any instances of non-compliance with the financial or restrictive covenants contained in
the Credit Agreement. We believe that the commitment levels under our April 2010 amendment will continue to support our ongoing operations and will provide sufficient liquidity to meet our cash needs during the next 12 months, subject to an earlier
event of default being declared by our lenders. However, not all of the conditions that could lead to a default under the Credit Agreement are under our control. If a default were declared and the amended credit facility were to be terminated, there
can be no assurance that any debt or equity financing alternatives will be available to us when needed or, if available at all, on terms which are acceptable to us. As such, there can be no assurance that we will have sufficient funding to meet our
obligations through the conclusion of our 2011 fiscal year. In this event, we may be required to consider restructuring alternatives, including seeking protection from creditors under bankruptcy laws. Our financial statements for the three months
ended July 31, 2010 were prepared assuming we will continue as a going concern. Given the conditions outlined above and, specifically, the lenders ability to accelerate borrowings outstanding in the event of default, uncertainty arises
that we will be able to continue as a going concern and, therefore, may be unable to realize our assets and settle our liabilities and commitments in the normal course of business. Our accompanying Condensed Consolidated Financial Statements do not
include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that could result should we be unable to continue as a going concern.

Critical Accounting Policies

Our Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United
States, which require us 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 which could lead to variations in our financial results both on an interim and
fiscal year basis.

Goodwill

We evaluate the carrying value of goodwill and recoverability at least annually in our fourth fiscal quarter. We update the test between
annual periods when an event occurs or if circumstances change that would more



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likely than not reduce the fair value of a reporting unit below its carrying value. Determination of impairment requires comparison of the reporting units fair value with the reporting
units carrying value, including goodwill. If this comparison indicates that the fair value is less than the carrying value, then the implied fair value of the reporting units goodwill is compared with the carrying amount of the reporting
units goodwill to determine the impairment loss to be charged to operations.

Significant management judgment is
required in assessing whether goodwill is impaired. The carrying value of our reporting units is determined by specifically identifying and allocating all of our consolidated assets and liabilities to each reporting unit based on various methods we
deem reasonable. Fair value of each reporting unit is estimated using an income approach which discounts future net cash flows to their present value at a rate that reflects the current return requirements of the market and risks inherent in our
business. Estimated future cash flows are impacted by a multitude of factors and is based to a large extent on our internal business plan and adjusted, as appropriate, for our views of market participant assumptions, oversight of the providers of
RAL product and an assessment related to whether these providers will be allowed to continue to offer such product in the future, and the renewal of certain material contracts. Additional factors affecting these future cash flows include, but are
not limited to, franchise agreement renewal and attrition rates, markets and market share data, tax return sales volumes and prices, cost structure, and working capital changes. Estimates are also used for our weighted average cost of capital, which
is adjusted, as appropriate, to account for company specific risk premiums in discounting our projected future cash flows and our long-term growth rate for purposes of determining a terminal value at the end of the forecast period. Our assumptions
and views of these factors continually evolve, and such views and assumptions that we may use in determining the fair value of our reporting units in fiscal 2011 could change significantly from those used in the 2010 annual impairment test. We
believe that the IRSs August 5, 2010 announcement to no longer provide the debt indicator (see Note 12Internal Revenue Service Announcement) will likely cause the financial institutions that provide RALs to
(i) modify their credit underwriting criteria, (ii) change their financial product pricing and (iii) adjust their approval rates to account for anticipated higher loan losses. This action may unfavorably impact the availability or
funding of our RAL program. We will continue to monitor whether such actions will affect our future cash flows in the 2011 tax season and beyond and, as a result, we may determine that an impairment charge is necessary.

We consider historical experience and all available information at the time the fair value of our reporting units is estimated. However,
fair values that could be realized in an actual transaction may differ from those used by us to evaluate the impairment of our goodwill. The fair value of the reporting units is determined using unobservable inputs (i.e., Level 3 inputs) as defined
by the accounting guidance for fair value measurements. As an overall test of reasonableness of the estimated fair values of the reporting units, we reconcile the combined fair value estimates of the reporting units to their market capitalization as
of the end of the reporting period. We perform this reconciliation to confirm that the fair values are reasonably representative of the market views.

These underlying assumptions and estimates are made as of a point in time. Subsequent changes in our estimates of future cash flows could
result in a future impairment charge to goodwill. We continue to remain alert for any indicators that the fair value of a reporting unit could be below book value and will assess goodwill for impairment as appropriate.

Other Indefinite-Lived Intangible Assets

Other indefinite-lived intangibles, which consist of our trademark and reacquired rights under franchise agreements from acquisitions, are
recorded at their fair value as determined through purchase accounting. Our trademark is reviewed for impairment annually in our fourth fiscal quarter. Additionally, we review the recoverability of such assets whenever events or changes in
circumstances indicate that the carrying amount might not be recoverable. If the fair value of our trademark is less than the carrying amount, an impairment loss would be recognized in an amount equal to the difference.



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For purposes of impairment testing, we estimate fair value using the relief from royalty
approach, which is an income based approach. We evaluated our estimates, which are based on historical experience and various other assumptions that are believed to be reasonable, including a fair royalty rate, revenues from our five-year strategic
operating plan, our weighted average cost of capital and long-term growth rate.

A significant downward revision in the
present value of estimated future cash flows for our trademarks could result in an impairment. Such a non-cash charge would be limited to the difference between the carrying amount of the intangible asset and its fair value and would be recognized
as a component of operating income in the reporting period identified. We reevaluate our other indefinite-lived intangibles for impairment in conjunction with our goodwill testing. We will continue to monitor changes in our business, as well as
overall market conditions and economic factors that could require additional impairment tests.

Accounting Standards Issued
but Not Yet Adopted

In January 2010, the Financial Accounting Standards Board issued Accounting Standard Update 2010-06,
Improving Disclosures about Fair Value Measurements. This standard requires new disclosures on the amount and reason for transfers in and out of Level 1 and 2 recurring fair value measurements. The standard also requires disclosure of
activities on a gross basis, including purchases, sales, issuances, and settlements, in the reconciliation of Level 3 fair value recurring measurements. The standard clarifies existing disclosure requirements on levels of disaggregation and
disclosures about inputs and valuation techniques. The new disclosures regarding Level 1 and 2 fair value measurements and clarification of existing disclosures are effective for periods beginning after December 15, 2009. The disclosures about
the reconciliation of information in Level 3 recurring fair value measurements are required for periods beginning after December 15, 2010. This guidance impacts disclosure only and will not have an effect on the Companys consolidated
financial statements. Our disclosures about fair value measurements are presented in Note 5Fair Value Measurements.



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

We have entered into interest rate swap agreements with financial institutions to convert a notional amount of $100.0 million of
floating-rate borrowings into fixed-rate debt, with the intention of mitigating the economic impact of changing interest rates. Under these interest rate swap agreements, the first $50.0 million of which became effective in October 2005 and the
remaining $50.0 million in November 2007, we receive a floating interest rate based on the three-month LIBOR (in arrears) and pay a fixed interest rate averaging from 4.4% to 4.5%. These interest rate swap agreements were determined to be cash flow
hedges in accordance with ASC subtopic 815 Derivatives and Hedging Topic.

In connection with extending the
maturity date under our credit facility in October 2006, we entered into interest rate collar agreements to become effective after the initial interest rate swap agreements terminate, which was in June 2010. The interest rate collar agreements were
entered into with financial institutions to limit the variability of expense/payments on $50.0 million of floating-rate borrowings during the period from July 2010 to October 2011 to a range of 5.5% (the cap) and 4.6% (the floor). These
interest rate collar agreements were determined to be cash flow hedges in accordance with ASC subtopic 815.

We have financial
market risk exposure related primarily to changes in interest rates. As discussed above, we attempt to reduce this risk through the utilization of derivative financial instruments. A hypothetical 1% change in the interest rate on our floating-rate
borrowings outstanding as of July 31, 2010, excluding our $100.0 million of hedged borrowings whereby we fixed the interest rate, as noted above, would result in an annual increase or decrease in income before income taxes of $1.9 million. The
estimated increase or decrease is based upon the level of variable rate debt as of July 31, 2010 and assumes no changes in the volume or composition of debt.



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

(a)
Evaluation of Disclosure Controls and Procedures.

Under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Exchange Act Rule 13a-15(e). Based on this evaluation, our Chief Executive
Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

(b) Changes in Internal Control over Financial Reporting.

During the first quarter of fiscal 2011, there were no changes that materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.



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PART IIOTHER INFORMATION



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

See
Part 1Item 1Note 16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, 2010, there were no material changes from the risk factors as previously disclosed in Item 1A to Part 1 of our Annual Report on Form 10-K/A for the fiscal year ended April 30, 2010.



|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, 2010.

Issuer Purchases of Equity Securities:

There were no issuer purchases of equity securities during the three months ended July 31, 2010.



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

There were no defaults upon senior securities during the three months ended July 31, 2010.



|Item 4. | (Removed and Reserved)
|------- | ----------------------



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

There
is no information to be disclosed.



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

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



|     |  |                                                                                                                         
|---- |  | ------------------------------------------------------------------------------------------------------------------------
|     | 
|10.1 |  | Executive Employment Agreement between Jackson Hewitt Tax Service Inc. and Philip H. Sanford, effective August 25, 2010.
|     | 
|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 8, 2010.



|                                |  |                                                     
|------------------------------- |  | ----------------------------------------------------
|JACKSON HEWITT TAX SERVICE INC.
|                                | 
|By:                             |  | /S/    HARRY W.
BUCKLEY                             
|                                |  | Harry W. Buckley                                    
|                                |  | President and Chief Executive Officer               
|                                |  | (Principal Executive Officer)                       
|                                | 
|                                |  | /S/    DANIEL P.
OBRIEN                            
|                                |  | Daniel P. OBrien                                   
|                                |  | Executive Vice President and Chief
Financial Officer
|                                | 
|                                |  | /S/    CORRADO
DEPINTO                              
|                                |  | Corrado DePinto                                     
|                                |  | Vice President and Chief Accounting Officer         



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