##### Table of Contents





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 October 31, 2009

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 preceeding 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 28,769,115 (net of 10,739,447 shares held in treasury) as of
November 30, 2009.









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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):                                                                     |  |     
|                               |  |                                                                                                      
|                               |  | 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                 |  | 20  
|                               |  |                                                                                                      
|Item 3.                        |  | Quantitative and Qualitative Disclosures about Market Risk                                            |  | 32  
|                               |  |                                                                                                      
|Item 4.                        |  | Controls and Procedures                                                                               |  | 32  
|                              
|PART II - OTHER INFORMATION   
|                               |  |                                                                                                      
|Item 1.                        |  | Legal Proceedings                                                                                     |  | 33  
|                               |  |                                                                                                      
|Item 1A.                       |  | Risk Factors                                                                                          |  | 33  
|                               |  |                                                                                                      
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity
Securities |  | 33  
|                               |  |                                                                                                      
|Item 3.                        |  | Defaults Upon Senior Securities                                                                       |  | 33  
|                               |  |                                                                                                      
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                                   |  | 33  
|                               |  |                                                                                                      
|Item 5.                        |  | Other Information                                                                                     |  | 34  
|                               |  |                                                                                                      
|Item 6.                        |  | Exhibits                                                                                              |  | 34  
|                               |  |                                                                                                      
|                               |  | Signatures                                                                                            |  | 36  



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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           |         
|                                                                                                                      |  | October 31,2009 |          |   | April 30,2009 |  
|Assets                                                                                                                |  |                 |          |   |               |   |          |  
|Current assets:                                                                                                       |  |                 |          |   |               |   |          |  
|Cash and cash equivalents                                                                                             |  | $               | 60       |   |               | $ | 306      |  
|Accounts receivable, net of allowance for doubtful accounts of $2,013 and $1,869, respectively                        |  |                 | 12,629   |   |               |   | 24,272   |  
|Notes receivable, net                                                                                                 |  |                 | 7,073    |   |               |   | 6,569    |  
|Prepaid expenses and other                                                                                            |  |                 | 10,548   |   |               |   | 14,195   |  
|Deferred income taxes                                                                                                 |  |                 | 7,613    |   |               |   | 5,601    |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total current assets                                                                                                  |  |                 | 37,923   |   |               |   | 50,943   |  
|                                                                                                                      |  |                
|Property and equipment, net                                                                                           |  |                 | 27,969   |   |               |   | 27,685   |  
|Goodwill                                                                                                              |  |                 | 421,391  |   |               |   | 418,674  |  
|Other intangible assets, net                                                                                          |  |                 | 87,415   |   |               |   | 87,324   |  
|Notes receivable, net                                                                                                 |  |                 | 6,355    |   |               |   | 4,146    |  
|Other non-current assets, net                                                                                         |  |                 | 17,567   |   |               |   | 19,436   |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total assets                                                                                                          |  | $               | 598,620  |   |               | $ | 608,208  |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Liabilities and Stockholders Equity                                                                                  |  |                 |          |   |               |   |          |  
|Current liabilities:                                                                                                  |  |                 |          |   |               |   |          |  
|Accounts payable and accrued liabilities                                                                              |  | $               | 21,268   |   |               | $ | 33,693   |  
|Income taxes payable                                                                                                  |  |                 | 14,580   |   |               |   | 48,305   |  
|Deferred revenues                                                                                                     |  |                 | 8,626    |   |               |   | 10,370   |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total current liabilities                                                                                             |  |                 | 44,474   |   |               |   | 92,368   |  
|                                                                                                                      |  |                
|Long-term debt                                                                                                        |  |                 | 311,000  |   |               |   | 232,000  |  
|Deferred income taxes                                                                                                 |  |                 | 25,307   |   |               |   | 23,589   |  
|Other non-current liabilities                                                                                         |  |                 | 13,654   |   |               |   | 16,587   |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total liabilities                                                                                                     |  |                 | 394,435  |   |               |   | 364,544  |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Commitments and Contingencies (Note 9)                                                                                |  |                 |          |   |               |   |          |  
|Stockholders equity:                                                                                                 |  |                 |          |   |               |   |          |  
|Common stock, par value $0.01; Authorized: 200,000,000 shares; Issued: 39,508,562 and 39,290,418 shares,
respectively |  |                 | 395      |   |               |   | 393      |  
|Additional paid-in capital                                                                                            |  |                 | 389,942  |   |               |   | 388,136  |  
|Retained earnings                                                                                                     |  |                 | 120,666  |   |               |   | 161,988  |  
|Accumulated other comprehensive loss                                                                                  |  |                 | (3,960   | ) |               |   | (4,178   | )
|Less: Treasury stock, at cost: 10,739,447 and 10,527,879 shares, respectively                                         |  |                 | (302,858 | ) |               |   | (302,675 | )
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total stockholders equity                                                                                            |  |                 | 204,185  |   |               |   | 243,664  |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total liabilities and stockholders equity                                                                            |  | $               | 598,620  |   |               | $ | 608,208  |  
|                                                                                                                      |  |                 |          |   |               |   |          |  

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



1



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##### Table of Contents

JACKSON HEWITT TAX SERVICE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)



|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|----------------------------------------------------- |  | ----------------------------- | ------- | - | --------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                      |  | Three Months EndedOctober 31, |         |   | Six Months EndedOctober 31, |  
|                                                      |  | 2009                          |         |   | 2008                        |   |         | 2009 |  |   | 2008    |  
|Revenues                                              |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Franchise operations revenues:                        |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Royalty                                               |  | $                             | 688     |   |                             | $ | 646     |      |  | $ | 1,244   |   |  | $ | 1,273   |  
|Marketing and advertising                             |  |                               | 302     |   |                             |   | 287     |      |  |   | 547     |   |  |   | 564     |  
|Financial product fees                                |  |                               | 2,340   |   |                             |   | 2,452   |      |  |   | 5,660   |   |  |   | 5,074   |  
|Other                                                 |  |                               | 166     |   |                             |   | 1,248   |      |  |   | 502     |   |  |   | 1,597   |  
|Service revenues from company-owned office operations |  |                               | 536     |   |                             |   | 436     |      |  |   | 1,124   |   |  |   | 848     |  
|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Total revenues                                        |  |                               | 4,032   |   |                             |   | 5,069   |      |  |   | 9,077   |   |  |   | 9,356   |  
|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Expenses                                              |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Cost of franchise operations                          |  |                               | 7,037   |   |                             |   | 7,341   |      |  |   | 14,525  |   |  |   | 15,953  |  
|Marketing and advertising                             |  |                               | 3,409   |   |                             |   | 5,440   |      |  |   | 6,424   |   |  |   | 9,609   |  
|Cost of company-owned office operations               |  |                               | 7,281   |   |                             |   | 8,633   |      |  |   | 14,277  |   |  |   | 17,940  |  
|Selling, general and administrative                   |  |                               | 10,761  |   |                             |   | 13,452  |      |  |   | 27,487  |   |  |   | 23,900  |  
|Depreciation and amortization                         |  |                               | 3,709   |   |                             |   | 3,186   |      |  |   | 7,034   |   |  |   | 6,393   |  
|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Total expenses                                        |  |                               | 32,197  |   |                             |   | 38,052  |      |  |   | 69,747  |   |  |   | 73,795  |  
|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Loss from operations                                  |  |                               | (28,165 | ) |                             |   | (32,983 | )    |  |   | (60,670 | ) |  |   | (64,439 | )
|Other income/(expense):                               |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Interest and other income                             |  |                               | 633     |   |                             |   | 380     |      |  |   | 1,231   |   |  |   | 780     |  
|Interest expense                                      |  |                               | (5,408  | ) |                             |   | (4,219  | )    |  |   | (10,437 | ) |  |   | (7,225  | )
|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Loss before income taxes                              |  |                               | (32,940 | ) |                             |   | (36,822 | )    |  |   | (69,876 | ) |  |   | (70,884 | )
|Benefit from income taxes                             |  |                               | 13,462  |   |                             |   | 14,616  |      |  |   | 28,558  |   |  |   | 28,134  |  
|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Net loss                                              |  | $                             | (19,478 | ) |                             | $ | (22,206 | )    |  | $ | (41,318 | ) |  | $ | (42,750 | )
|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Loss per share:                                       |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Basic and Diluted                                     |  | $                             | (0.68   | ) |                             | $ | (0.78   | )    |  | $ | (1.45   | ) |  | $ | (1.50   | )
|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Weighted average shares outstanding:                  |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Basic and Diluted                                     |  |                               | 28,598  |   |                             |   | 28,476  |      |  |   | 28,578  |   |  |   | 28,472  |  
|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Cash dividends declared per share:                    |  | $                             |        |   |                             | $ | 0.18    |      |  | $ |        |   |  | $ | 0.36    |  
|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  

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



2



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##### Table of Contents

JACKSON HEWITT TAX SERVICE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



|                                                                            |  |                             |         |   |      |   |         |  
|--------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                            |  | Six Months EndedOctober 31, |        
|                                                                            |  | 2009                        |         |   | 2008 |  
|Operating activities:                                                       |  |                             |         |   |      |   |         |  
|Net loss                                                                    |  | $                           | (41,318 | ) |      | $ | (42,750 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                             |         |   |      |   |         |  
|Depreciation and amortization                                               |  |                             | 7,034   |   |      |   | 6,393   |  
|Share-based compensation                                                    |  |                             | 2,797   |   |      |   | 2,085   |  
|Amortization of deferred financing costs                                    |  |                             | 950     |   |      |   | 218     |  
|Amortization of development advances                                        |  |                             | 748     |   |      |   | 911     |  
|Provision for uncollectible receivables, net                                |  |                             | 448     |   |      |   | 50      |  
|Deferred income taxes                                                       |  |                             | (798    | ) |      |   | (2,426  | )
|Other                                                                       |  |                             | 19      |   |      |   | (53     | )
|Changes in assets and liabilities, excluding the impact of acquisitions:    |  |                             |         |   |      |   |         |  
|Accounts receivable                                                         |  |                             | 8,697   |   |      |   | 11,249  |  
|Notes receivable                                                            |  |                             | (1,782  | ) |      |   | (1,182  | )
|Prepaid expenses and other                                                  |  |                             | 6,953   |   |      |   | 6,695   |  
|Accounts payable, accruals, and other liabilities                           |  |                             | (13,351 | ) |      |   | (4,313  | )
|Income taxes payable                                                        |  |                             | (34,356 | ) |      |   | (39,148 | )
|Deferred revenues                                                           |  |                             | (3,396  | ) |      |   | (3,961  | )
|                                                                            |  |                             |         |   |      |   |         |  
|Net cash used in operating activities                                       |  |                             | (67,355 | ) |      |   | (66,232 | )
|                                                                            |  |                             |         |   |      |   |         |  
|Investing activities:                                                       |  |                             |         |   |      |   |         |  
|Capital expenditures                                                        |  |                             | (3,784  | ) |      |   | (2,098  | )
|Capital expenditures  equipment leased to franchisees                      |  |                             | (5,729  | ) |      |   |        |  
|Funding provided to franchisees                                             |  |                             | (1,512  | ) |      |   | (2,089  | )
|Proceeds from repayment of franchisee notes                                 |  |                             | 763     |   |      |   | 248     |  
|Cash paid for acquisitions                                                  |  |                             | (2,069  | ) |      |   | (11,707 | )
|                                                                            |  |                             |         |   |      |   |         |  
|Net cash used in investing activities                                       |  |                             | (12,331 | ) |      |   | (15,646 | )
|                                                                            |  |                             |         |   |      |   |         |  
|Financing activities:                                                       |  |                             |         |   |      |   |         |  
|Common stock repurchases                                                    |  |                             | (183    | ) |      |   |        |  
|Borrowings under revolving credit facility                                  |  |                             | 85,000  |   |      |   | 113,000 |  
|Repayments of borrowings under revolving credit facility                    |  |                             | (6,000  | ) |      |   | (23,000 | )
|Dividends paid to stockholders                                              |  |                             | (60     | ) |      |   | (10,228 | )
|Proceeds from issuance of common stock                                      |  |                             |        |   |      |   | 10      |  
|Debt issuance costs                                                         |  |                             | (211    | ) |      |   | (881    | )
|Change in cash overdrafts                                                   |  |                             | 894     |   |      |   | (1,262  | )
|                                                                            |  |                             |         |   |      |   |         |  
|Net cash provided by financing activities                                   |  |                             | 79,440  |   |      |   | 77,639  |  
|                                                                            |  |                             |         |   |      |   |         |  
|Net decrease in cash and cash equivalents                                   |  |                             | (246    | ) |      |   | (4,239  | )
|Cash and cash equivalents, beginning of period                              |  |                             | 306     |   |      |   | 4,594   |  
|                                                                            |  |                             |         |   |      |   |         |  
|Cash and cash equivalents, end of period                                    |  | $                           | 60      |   |      | $ | 355     |  
|                                                                            |  |                             |         |   |      |   |         |  

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



3



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##### Table of Contents

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

Basis of Presentation

The accompanying unaudited interim Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial statements. These interim Condensed Consolidated
Financial Statements should be read in conjunction with the Consolidated Financial Statements and other financial information included in the Companys Annual Report on Form 10-K which was filed with the SEC on July 2, 2009.

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

Management has evaluated all activity of the Company through December 9, 2009 (the issuance date of the Condensed Consolidated Financial Statements) and concluded that no subsequent events have occurred since October 31, 2009 that
would require recognition in the Condensed Consolidated Financial Statements. Please see Note 10-Subsequent Events for a description of the subsequent events that the Company concluded required disclosure in the Notes to Condensed Consolidated
Financial Statements.



4



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##### Table of Contents

Comprehensive Loss

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



|                                     |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|------------------------------------ |  | ----------------------------- | ------- | - | --------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                     |  | Three Months EndedOctober 31, |         |   | Six Months EndedOctober 31, |  
|                                     |  | (in thousands)                |         |   | (in thousands)              |  
|                                     |  | 2009                          |         |   | 2008                        |   |         | 2009 |  |   | 2008    |  
|Net loss                             |  | $                             | (19,478 | ) |                             | $ | (22,206 | )    |  | $ | (41,318 | ) |  | $ | (42,750 | )
|Changes in fair value of derivatives |  |                               | (37     | ) |                             |   | (595    | )    |  |   | 218     |   |  |   | 107     |  
|                                     |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Total comprehensive loss             |  | $                             | (19,515 | ) |                             | $ | (22,801 | )    |  | $ | (41,100 | ) |  | $ | (42,643 | )
|                                     |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  

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 4Share-Based Payments for additional information on the
Companys performance vesting awards.

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 EndedOctober 31, |  | Six Months EndedOctober 31,
|(in thousands)                |  | 2009                          |  | 2008                        |  | 2009 |  | 2008
|Stock options                 |  | 3                             |  | 176                         |  | 2    |  | 70  
|Shares of restricted stock    |  | 10                            |  | 194                         |  | 20   |  | 164 
|                              |  |                               |  |                             |  |      |  |     
|Total antidilutive securities |  | 13                            |  | 370                         |  | 22   |  | 234 
|                              |  |                               |  |                             |  |      |  |     

Also, stock options with exercise prices greater than the average market prices for
the Companys common stock totaled 2.2 million and 2.7 million for the three months ended October 31, 2009 and 2008, respectively, and 2.3 million and 2.8 million for the six months ended October 31, 2009 and 2008,
respectively.

2. 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 six months ended October 31, 2009.

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.



5



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##### Table of Contents

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.

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



|                                       |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|-------------------------------------- |  | -------------------------------- | ----- | -------------------------------------------------------------- | - | ----------------------------------------- |  | --------------------------- | ----- |  | - | -
|                                       |  |                                  |       | Fair Value at Reporting Date Using                            
|                                       |  |                                  |       | (In thousands)                                                
|                                       |  | Fair ValueAs of October 31, 2009 |       | Quoted Prices inActive Marketsfor IdenticalSecurities(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | UnobservableInputs(Level 3)
|Assets                                 |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|Investments held in trust, current     |  | $                                | 158   |                                                                | $ | 6                                         |  | $                           | 152   |  | $ | 
|Investments held in trust, non-current |  |                                  | 86    |                                                                |   | 4                                         |  |                             | 82    |  |   | 
|                                       |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|Total                                  |  | $                                | 244   |                                                                | $ | 10                                        |  | $                           | 234   |  | $ | 
|                                       |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|Liabilities                            |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|Derivative contracts                   |  | $                                | 6,600 |                                                                | $ |                                          |  | $                           | 6,600 |  | $ | 
|                                       |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|Total                                  |  | $                                | 6,600 |                                                                | $ |                                          |  | $                           | 6,600 |  | $ | 
|                                       |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|                                       |  |                                 
|                                       |  |                                  |       | Fair Value at Reporting Date Using                            
|                                       |  |                                  |       | (In thousands)                                                
|                                       |  | Fair ValueAs of April 30, 2009   |       | Quoted Prices inActive Marketsfor IdenticalSecurities(Level 1) |   | SignificantOtherObservableInputs(Level 2) |  | UnobservableInputs(Level 3)
|Assets                                 |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|Investments held in trust, current     |  | $                                | 278   |                                                                | $ | 167                                       |  | $                           | 111   |  | $ | 
|Investments held in trust, non-current |  |                                  | 189   |                                                                |   | 120                                       |  |                             | 69    |  |   | 
|                                       |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|Total                                  |  | $                                | 467   |                                                                | $ | 287                                       |  | $                           | 180   |  | $ | 
|                                       |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|Liabilities                            |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|Derivative contracts                   |  | $                                | 6,963 |                                                                | $ |                                          |  | $                           | 6,963 |  | $ | 
|                                       |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  
|Total                                  |  | $                                | 6,963 |                                                                | $ |                                          |  | $                           | 6,963 |  | $ | 
|                                       |  |                                  |       |                                                                |   |                                           |  |                             |       |  |   |  

3. GOODWILL AND OTHER INTANGIBLE ASSETS

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



|                               |  |                     |         |                               |   |        |  |   |        
|------------------------------ |  | ------------------- | ------- | ----------------------------- | - | ------ |  | - | -------
|                               |  | FranchiseOperations |         | Company-OwnedOfficeOperations |   | Total 
|                               |  | (In thousands)     
|Balance as of April 30, 2009   |  | $                   | 336,767 |                               | $ | 81,907 |  | $ | 418,674
|Additions (Note 6)             |  |                     |        |                               |   | 2,717  |  |   | 2,717  
|                               |  |                     |         |                               |   |        |  |   |        
|Balance as of October 31, 2009 |  | $                   | 336,767 |                               | $ | 84,624 |  | $ | 421,391
|                               |  |                     |         |                               |   |        |  |   |        



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Other intangible assets consisted of:



|                                            |  |                        |        |                         |    |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|------------------------------------------- |  | ---------------------- | ------ | ----------------------- | -- | ------- | ----------------- |  | ------------------- | ------ | ----------------------- | - | ------ | ----------------- | - | ------- | - |  | - | ------
|                                            |  | As of October 31, 2009 |        | As of April 30, 2009   
|                                            |  | GrossCarryingAmount    |        | AccumulatedAmortization |    |         | NetCarryingAmount |  | GrossCarryingAmount |        | AccumulatedAmortization |   |        | NetCarryingAmount
|                                            |  | (In thousands)        
|Amortizable other intangible assets:        |  |                        |        |                         |    |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Franchise agreements(a)                     |  | $                      | 16,052 |                         | $  | (15,666 | )                 |  | $                   | 386    |                         | $ | 16,052 |                   | $ | (15,605 | ) |  | $ | 447   
|Customer relationships(b)                   |  |                        | 12,829 |                         |    | (9,904  | )                 |  |                     | 2,925  |                         |   | 12,449 |                   |   | (9,246  | ) |  |   | 3,203 
|Reacquired franchise rights(c)              |  |                        | 442    |                         |    |        |                   |  |                     | 442    |                         |   |       |                   |   |        |   |  |   |      
|Acquired tradename                          |  |                        | 53     |                         |    | (16     | )                 |  |                     | 37     |                         |   | 53     |                   |   | (4      | ) |  |   | 49    
|                                            |  |                        |        |                         |    |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Total amortizable other intangible assets   |  | $                      | 29,376 |                         | ($ | 25,586  | )                 |  |                     | 3,790  |                         | $ | 28,554 |                   | $ | (24,855 | ) |  |   | 3,699 
|                                            |  |                        |        |                         |    |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|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          |  |                        |        |                         |    |         |                   |  | $                   | 87,415 |                         |   |        |                   |   |         |   |  | $ | 87,324
|                                            |  |                        |        |                         |    |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       



|(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 Accounting Standards Codification (ASC) subtopic 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 subtopic 805.
|--- | --------------------------------------------------------------------------------------------

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, 2009   |  | $                   | 84,072 |   |                               | $ | 3,252 |       |  | $ | 87,324 |  
|Additions (Note 6)             |  |                     | 442    |   |                               |   | 380   |       |  |   | 822    |  
|Amortization                   |  |                     | (61    | ) |                               |   | (670  | )     |  |   | (731   | )
|                               |  |                     |        |   |                               |   |       |       |  |   |        |  
|Balance as of October 31, 2009 |  | $                   | 84,453 |   |                               | $ | 2,962 |       |  | $ | 87,415 |  
|                               |  |                     |        |   |                               |   |       |       |  |   |        |  

Amortization expense relating to other intangible assets was as follows:



|                       |  |                               |     |                             |   |      |  |      |     |  |   |    
|---------------------- |  | ----------------------------- | --- | --------------------------- | - | ---- |  | ---- | --- |  | - | ---
|                       |  | Three Months EndedOctober 31, |     | Six Months EndedOctober 31,
|                       |  | 2009                          |     | 2008                        |   | 2009 |  | 2008
|Franchise agreements   |  | $                             | 34  |                             | $ | 27   |  | $    | 61  |  | $ | 53 
|Customer relationships |  |                               | 334 |                             |   | 305  |  |      | 658 |  |   | 593
|Acquired tradename     |  |                               | 6   |                             |   |     |  |      | 12  |  |   |   
|                       |  |                               |     |                             |   |      |  |      |     |  |   |    
|Total                  |  | $                             | 374 |                             | $ | 332  |  | $    | 731 |  | $ | 646
|                       |  |                               |     |                             |   |      |  |      |     |  |   |    



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##### Table of Contents

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



|                                    |  |                |      
|----------------------------------- |  | -------------- | -----
|                                    |  | Amount        
|                                    |  | (In thousands)
|Remaining six months of fiscal 2010 |  | $              | 789  
|2011                                |  |                | 1,231
|2012                                |  |                | 846  
|2013                                |  |                | 546  
|2014 and thereafter                 |  |                | 378  
|                                    |  |                |      
|Total                               |  | $              | 3,790
|                                    |  |                |      

4. 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 (RSUs), and/or other 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 October 31, 2009, 2.4 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. The Amended and Restated Plan includes nondiscretionary antidilution provisions in case of an equity restructuring.

Share-based payments under the Amended and Restated Plan include 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 IPO, 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 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 since fiscal 2009, with the exception of the Companys June 2009 two-year grant to its new Chief Executive Officer, become exercisable with respect to one-third of the shares on each of the first
three anniversaries of the date of grant. All TVOs granted are subject to continued employment on the vesting date.

The
Company incurred share-based compensation expense of $0.3 million and $0.25 million in the three months ended October 31, 2009 and 2008, respectively, in connection with the vesting of TVOs ($1.65 million and $1.3 million in the six months
ended October 31, 2009 and 2008, respectively). The share-based compensation in the six months ended October 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 six months ended October 31, 2009 and 2008 was $3.41 and $2.98, respectively. The fair value of each TVO award was estimated on the date of grant using the Black-Scholes option-pricing model. The Company uses the method permitted under ASC
subtopic 718



8



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##### Table of Contents

to determine the expected holding period and will continue to do so until the Company is 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. 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.

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



|                                   |  |                             |   |  |      |  
|---------------------------------- |  | --------------------------- | - |  | ---- | -
|                                   |  | Six Months EndedOctober 31, |  
|                                   |  | 2009                        |   |  | 2008 |  
|Expected holding period (in years) |  | 5.94                        |   |  | 6.00 |  
|Expected volatility                |  | 67.5                        | % |  | 39.5 | %
|Dividend yield                     |  |                            | % |  | 5.7  | %
|Risk-free interest rate            |  | 2.7                         | % |  | 3.3  | %

The following table summarizes information about TVO activity for the six months
ended October 31, 2009:



|                                                   |  |              |   |  |                              |      
|-------------------------------------------------- |  | ------------ | - |  | ---------------------------- | -----
|                                                   |  | NumberofTVOs |   |  | WeightedAverageExercisePrice
|Balance as of April 30, 2009                       |  | 2,238,689    |   |  | $                            | 21.04
|Granted                                            |  | 212,667      |   |  | $                            | 5.47 
|Forfeited                                          |  | (127,685     | ) |  | $                            | 17.00
|Expired                                            |  | (206,534     | ) |  | $                            | 24.21
|                                                   |  |              |   |  |                              |      
|Balance as of October 31, 2009                     |  | 2,117,137    |   |  | $                            | 19.41
|                                                   |  |              |   |  |                              |      
|Exercisable as of October 31, 2009                 |  | 1,442,938    |   |  | $                            | 22.48
|                                                   |  |              |   |  |                              |      
|Vested and expected to vest as of October 31, 2009 |  | 2,083,407    |   |  | $                            | 20.16
|                                                   |  |              |   |  |                              |      

As of October 31, 2009, outstanding in-the-money TVOs had an aggregate intrinsic
value of $0.1 million. The aggregate intrinsic value discussed in this paragraph represents the total pre-tax intrinsic value based on the Companys closing stock price on October 31, 2009, which would have been received by the option
holders had all in-the-money TVO holders exercised their TVOs on that date.

As of October 31, 2009, outstanding TVOs had
an average remaining contractual life of 6.7 years. As of October 31, 2009, there were no exercisable in-the-money TVOs. As of October 31, 2009, exercisable TVOs had an average remaining contractual life of 5.6 years.

The following table summarizes information about unvested TVO activity for the first six months of fiscal 2010:



|                                |  |               |   |  |                                               |     
|------------------------------- |  | ------------- | - |  | --------------------------------------------- | ----
|                                |  | Numberof TVOs |   |  | Weighted AverageGrant DateFair ValuePer Share
|Unvested as of April 30, 2009   |  | 979,159       |   |  | $                                             | 5.99
|Granted                         |  | 212,667       |   |  | $                                             | 3.41
|Vested                          |  | (389,942      | ) |  | $                                             | 6.93
|Forfeited                       |  | (127,685      | ) |  | $                                             | 4.62
|                                |  |               |   |  |                                               |     
|Unvested as of October 31, 2009 |  | 674,199       |   |  | $                                             | 4.89
|                                |  |               |   |  |                                               |     



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As of October 31, 2009, there was $2.7 million of total unrecognized compensation cost
related to unvested TVOs, which is expected to be recognized over a weighted average period of 1.6 years. The total fair value of stock options vested in the six months ended October 31, 2009 and 2008 was $2.7 million and $3.2 million,
respectively.

(ii) Performance-Based Vesting Stock Options

In July 2009, the Company granted 148,579 PVOs to certain executives with a $5.95 per share exercise price representing the NYSE closing
price of a share of common stock on the date of grant. PVOs had a grant date fair value of $3.87 per share with a contractual term of ten years. These PVOs will vest after three years provided that the Company achieves a pre-determined Earnings
Before Income Tax, Depreciation 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 six months ended October 31, 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. In both the three and six months ended October 31, 2008,
share-based compensation expense was negligible in connection with the vesting of PVOs granted in July 2008.

The weighted
average grant date fair value for PVOs granted in the six months ended October 31, 2009 and 2008 was $3.87 and $3.70, respectively. The fair value of each PVO award was estimated on the date of grant using the Black-Scholes option-pricing
model. For both the July 2009 and July 2008 grants, the 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 following
periods:



|                                   |  |                             |   |  |      |  
|---------------------------------- |  | --------------------------- | - |  | ---- | -
|                                   |  | Six Months EndedOctober 31, |  
|                                   |  | 2009                        |   |  | 2008 |  
|Expected holding period (in years) |  | 6.50                        |   |  | 6.00 |  
|Expected volatility                |  | 68.4                        | % |  | 39.5 | %
|Dividend yield                     |  |                            | % |  | 5.0  | %
|Risk-free interest rate            |  | 2.8                         | % |  | 3.5  | %

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



|                                   |  |               |   |  |                                |      
|---------------------------------- |  | ------------- | - |  | ------------------------------ | -----
|                                   |  | Number ofPVOs |   |  | Weighted AverageExercise Price
|Outstanding as of April 30, 2009   |  | 186,870       |   |  | $                              | 14.50
|Granted                            |  | 148,579       |   |  | $                              | 5.95 
|Forfeited                          |  | (209,480      | ) |  | $                              | 13.58
|                                   |  |               |   |  |                                |      
|Outstanding as of October 31, 2009 |  | 125,969       |   |  | $                              | 5.95 
|                                   |  |               |   |  |                                |      

No PVOs were exercisable as of October 31, 2009.



10



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On June 30, 2009, the Compensation Committee of the Board of Directors determined that
the performance criteria required for vesting of the July 2008 award had not been achieved and, as a result, all such outstanding PVOs were forfeited.

As of October 31, 2009, there were no outstanding in-the-money PVOs. Outstanding PVOs as of October 31, 2009 had an average remaining contractual life of 9.7 years.

The following table summarizes information about unvested PVO activity for the first six months of fiscal 2010:



|                                |  |               |   |  |                                               |     
|------------------------------- |  | ------------- | - |  | --------------------------------------------- | ----
|                                |  | Numberof PVOs |   |  | Weighted AverageGrant DateFair ValuePer Share
|Unvested as of April 30, 2009   |  | 186,870       |   |  | $                                             | 3.70
|Granted                         |  | 148,579       |   |  | $                                             | 3.87
|Forfeited                       |  | (209,480      | ) |  | $                                             | 3.72
|                                |  |               |   |  |                                               |     
|Unvested as of October 31, 2009 |  | 125,969       |   |  | $                                             | 3.87
|                                |  |               |   |  |                                               |     

(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 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 vesting date.

The Company incurred
share-based compensation expense of $0.2 million in each of the three months ended October 31, 2009 and 2008, respectively, in connection with the vesting of TVRSs ($1.0 million and $0.5 million in the six months ended October 31, 2009 and
2008, respectively). The share-based compensation in the six months ended October 31, 2009 included expense of $0.55 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.

The following table summarizes information about TVRS activity during the six months ended
October 31, 2009:



|                                        |  |               |   |  |                                      |      
|--------------------------------------- |  | ------------- | - |  | ------------------------------------ | -----
|                                        |  | NumberofTVRSs |   |  | Weighted AverageGrant DateFair Value
|Outstanding as of April 30, 2009        |  | 208,068       |   |  | $                                    | 13.41
|Granted                                 |  | 121,504       |   |  | $                                    | 5.56 
|Vested                                  |  | (105,740      | ) |  | $                                    | 14.08
|Forfeited                               |  | (18,271       | ) |  | $                                    | 11.40
|                                        |  |               |   |  |                                      |      
|Outstanding as of October 31, 2009      |  | 205,561       |   |  | $                                    | 8.60 
|                                        |  |               |   |  |                                      |      
|Expected to vest as of October 31, 2009 |  | 195,283       |   |  | $                                    | 8.60 
|                                        |  |               |   |  |                                      |      

As of October 31, 2009, outstanding TVRSs had an aggregate intrinsic value of
$1.0 million.

As of October 31, 2009, there was $1.5 million of total unrecognized compensation cost related to unvested
TVRSs, which is expected to be recognized over a weighted average period of 1.4 years.



11



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(iv) Performance-Based Vesting Shares of Restricted Stock

In July 2009, the Company granted 96,640 PVRSs to certain executives with a grant date fair value of $5.95 per share. These PVRSs will vest
after three years provided that 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 related to the July 2009 PVRS grant was recorded in the six months ended July 31, 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. In both the three and six months ended October 31, 2008,
share-based compensation expense was negligible in connection with the vesting of PVRSs granted in July 2008.

The following
table summarizes information about PVRS activity during the six months ended October 31, 2009:



|                                   |  |               |   |  |                                      |      
|---------------------------------- |  | ------------- | - |  | ------------------------------------ | -----
|                                   |  | NumberofPVRSs |   |  | Weighted AverageGrant DateFair Value
|Outstanding as of April 30, 2009   |  | 143,053       |   |  | $                                    | 14.50
|Granted                            |  | 96,640        |   |  | $                                    | 5.95 
|Forfeited                          |  | (157,759      | ) |  | $                                    | 13.70
|                                   |  |               |   |  |                                      |      
|Outstanding as of October 31, 2009 |  | 81,934        |   |  | $                                    | 5.95 
|                                   |  |               |   |  |                                      |      

On June 30, 2009, the Compensation Committee of the Board of Directors
determined that the performance criteria required for vesting of the July 2008 award had not been achieved and, as a result, all such outstanding PVRSs were forfeited.

As of October 31, 2009, outstanding PVRSs had an aggregate intrinsic value of $0.4 million.

(v) Restricted Stock Units

The Company incurred share-based compensation expense of $0.1 million
in each of the three months ended October 31, 2009 and 2008, 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 ($0.2 million in each of the six month periods ended October 31, 2009 and 2008, respectively). In the six months ended October 31, 2009, the Company granted 32,885 fully vested RSUs
at a weighted-average grant price of $5.40 resulting in 135,100 fully vested RSUs outstanding as of October 31, 2009 with a weighted average grant price of $14.80.

In September 2009, the Company granted 10,730 RSUs at a grant price of $4.66 to its newly elected non-employee director, which will vest with respect to 25% of the award on each of the first four
anniversaries of the date of the grant, subject to continued service on the Board on the vesting date. Share-based compensation expense in connection with this award was negligible for the three months ended October 31, 2009.

5. LEASE TERMINATION ACCRUAL

As part of an overall effort to optimize company-owned store locations and improve profitability, in fiscal 2009, approximately 303 under-performing store locations were either closed, or the Company decided to exit them in connection with
its April 2009 restructuring action.



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The following table summarizes the aggregate activity in the first six months of fiscal 2010
in connection with the Companys lease termination accruals:



|                                                            |  |                |        |  
|----------------------------------------------------------- |  | -------------- | ------ | -
|                                                            |  | (In Thousands) |       
|Accrued lease termination balance as of April 30, 2009(a)   |  | $              | 4,476  |  
|Additional accruals                                         |  |                | 41     |  
|Adjustments, net(b)                                         |  |                | (246   | )
|Cash payments(c)                                            |  |                | (2,451 | )
|                                                            |  |                |        |  
|Accrued lease termination balance as of October 31, 2009(d) |  | $              | 1,820  |  
|                                                            |  |                |        |  



|(a) | The balance as of April 30, 2009 consisted of $3.2 million in accounts payable and accrued liabilities and $1.3 million in other non-current liabilities in the
accompanying Condensed Consolidated Balance Sheet.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | These adjustments were primarily contra-expense during the period as a result favorable negotiations with certain landlords to buy out of leases early.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Cash payments during the period consisted of $1.3 million in cash payments associated with early lease buyouts and $1.2 million associated with monthly contractual
rental payments.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | The balance as of October 31, 2009 consisted of $1.1 million in accounts payable and accrued liabilities and $0.7 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.

6. ACQUISITIONS

Assets acquired and liabilities assumed in business
combinations were recorded on the Consolidated Balance Sheets as of the respective acquisition dates based upon their estimated fair values at such dates. The excess of the purchase price over the estimated fair values of the underlying assets
acquired and liabilities assumed was allocated to goodwill. The results of operations of businesses acquired by the Company have been included in the Condensed Consolidated Statements of Operations since their respective dates of acquisition.

In the six months ended October 31, 2009, the Company acquired substantially all of the assets of three tax return
preparation businesses from franchisees and plans to begin operating these stores as company-owned locations in the 2010 tax season. The total cost of the entities acquired during the six months ended October 31, 2009 was $3.6 million, of which
$1.2 million was paid at the closings, $2.1 million was applied to reduce certain receivables, and $0.3 million was included as a current liability as of October 31, 2009 . The total cost of the acquired entities was allocated (i) $0.1
million to property and equipment, (ii) $0.8 million to intangible assets (including $0.4 million in reacquired franchise rights); and (iii) $2.7 million to goodwill.

All goodwill associated with acquisitions in fiscal 2010 was allocated to the company-owned office operations segment and is deductible for
tax purposes.

7. 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 October 31, 2009,
the Company purchased kiosks totaling $5.7 million, which will be leased to franchisees that chose not to purchase such equipment directly from the manufacturer. The terms of each of the lease agreements approximate two and a half years, and lease
payments are due to the Company in three annual installments at



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February 28thof each year. Lease agreements accrue interest annually up to 7.5%. As of October 31, 2009, executed lease agreements totaling $1.0 million were classified as Lease Receivables-Current and included
in Prepaid and Other Assets and $2.0 million was classified as Lease Receivables-Non-Current and included in Other Assets on the Condensed Consolidated Balance Sheet. Lease receivables will be reviewed periodically for collectability based on the
underlying franchisees 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.

Under an agreement with the supplier of the kiosks, the Company has guaranteed the purchase of a minimum
number of kiosks. If the minimum threshold is not met prior to July 2010, the Company is obligated to pay the supplier an amount equal to 50% of the shortfall in the number of kiosks that were to be purchased. The Company currently estimates that
its maximum shortfall payment obligation would be approximately $0.7 million and anticipates placing orders for the current shortfall kiosk quantity prior to July 2010.

For leases executed through October 31, 2009, the future minimum lease payments to be received by the Company totaled $3.1 million, which includes unearned interest income of $0.1
million. Future minimum lease payments to be received over the term of the leases are as follows:



|                                    |  |                     |       |                 |   |       |  |   |      
|----------------------------------- |  | ------------------- | ----- | --------------- | - | ----- |  | - | -----
|Fiscal Year                         |  | Principal Repayment |       | Interest Income |   | Total
|                                    |  | (In thousands)     
|Remaining six months of fiscal 2010 |  | $                   | 1,002 |                 | $ | 34    |  | $ | 1,036
|2011                                |  |                     | 1,002 |                 |   | 34    |  |   | 1,036
|2012                                |  |                     | 1,002 |                 |   | 34    |  |   | 1,036
|                                    |  |                     |       |                 |   |       |  |   |      
|Total                               |  | $                   | 3,006 |                 | $ | 102   |  | $ | 3,108
|                                    |  |                     |       |                 |   |       |  |   |      

8. SEGMENT INFORMATION

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



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



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

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



|                                    |  |                     |         |   |                               |   |         |                        |  |   |         |   |  |   |         |  
|----------------------------------- |  | ------------------- | ------- | - | ----------------------------- | - | ------- | ---------------------- |  | - | ------- | - |  | - | ------- | -
|                                    |  | FranchiseOperations |         |   | Company-OwnedOfficeOperations |   |         | Corporateand Other (a) |  |   | Total   |  
|                                    |  | (In thousands)      |        
|Three months ended October 31, 2009 |  |                     |         |   |                               |   |         |                        |  |   |         |   |  |   |         |  
|Revenues                            |  | $                   | 3,496   |   |                               | $ | 536     |                        |  | $ |        |   |  | $ | 4,032   |  
|                                    |  |                     |         |   |                               |   |         |                        |  |   |         |   |  |   |         |  
|Loss before income taxes            |  | $                   | (9,918  | ) |                               | $ | (8,730  | )                      |  | $ | (14,292 | ) |  | $ | (32,940 | )
|                                    |  |                     |         |   |                               |   |         |                        |  |   |         |   |  |   |         |  
|Three months ended October 31, 2008 |  |                     |         |   |                               |   |         |                        |  |   |         |   |  |   |         |  
|Revenues                            |  | $                   | 4,633   |   |                               | $ | 436     |                        |  | $ |        |   |  | $ | 5,069   |  
|                                    |  |                     |         |   |                               |   |         |                        |  |   |         |   |  |   |         |  
|Loss before income taxes            |  | $                   | (10,734 | ) |                               | $ | (10,212 | )                      |  | $ | (15,876 | ) |  | $ | (36,822 | )
|                                    |  |                     |         |   |                               |   |         |                        |  |   |         |   |  |   |         |  



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|                                  |  |                     |         |   |                               |   |         |                        |  |   |         |   |  |   |         |  
|--------------------------------- |  | ------------------- | ------- | - | ----------------------------- | - | ------- | ---------------------- |  | - | ------- | - |  | - | ------- | -
|                                  |  | FranchiseOperations |         |   | Company-OwnedOfficeOperations |   |         | Corporateand Other (a) |  |   | Total   |  
|                                  |  | (In thousands)      |        
|Six months ended October 31, 2009 |  |                     |         |   |                               |   |         |                        |  |   |         |   |  |   |         |  
|Revenues                          |  | $                   | 7,953   |   |                               | $ | 1,124   |                        |  | $ |        |   |  | $ | 9,077   |  
|                                  |  |                     |         |   |                               |   |         |                        |  |   |         |   |  |   |         |  
|Loss before income taxes          |  | $                   | (18,414 | ) |                               | $ | (17,161 | )                      |  | $ | (34,301 | ) |  | $ | (69,876 | )
|                                  |  |                     |         |   |                               |   |         |                        |  |   |         |   |  |   |         |  
|Six months ended October 31, 2008 |  |                     |         |   |                               |   |         |                        |  |   |         |   |  |   |         |  
|Revenues                          |  | $                   | 8,508   |   |                               | $ | 848     |                        |  | $ |        |   |  | $ | 9,356   |  
|                                  |  |                     |         |   |                               |   |         |                        |  |   |         |   |  |   |         |  
|Loss before income taxes          |  | $                   | (22,463 | ) |                               | $ | (22,076 | )                      |  | $ | (26,345 | ) |  | $ | (70,884 | )
|                                  |  |                     |         |   |                               |   |         |                        |  |   |         |   |  |   |         |  



|(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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9. 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 maximum potential payment under these surety bonds is $2.6 million as of October 31, 2009. 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 October 31, 2009 for the
fair value of the obligation undertaken in issuing the guarantee, which was included in accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheet. In addition, the Company may be required to pay additional tax (or refund
shortfall) assessed by a taxing authority for all customers that purchase the Companys Gold Guarantee®
product. The Company may incur a liability to the extent that the total customer Gold Guarantee claims exceed maximum thresholds pursuant to the contract between the Company and the third party program provider. There have been no amounts paid by
the Company under this arrangement in the past relating to such potential liability and the Company does not expect to be required to make payment in the future.

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



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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.
Plaintiff subsequently filed a notice of appeal of the Courts decision to stay proceedings and to compel arbitration. On October 1, 2009, Plaintiff filed an appellate brief in the Court of Appeals for the Eighth Appellate District,
Cuyahoga County, seeking reversal of the lower Courts order. On November 20, 2009, the Company filed its opposition. The Company believes it has meritorious arguments in opposing the appeal and will continue to contest this matter
vigorously.

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



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remaining breach of contract claim. The case is in its discovery and pretrial stage. On August 18, 2009, Plaintiff filed a motion seeking leave to file a Fifth Amended Complaint. On
September 14, 2009, the Company filed its opposition to Plaintiffs motion. A decision by the Court is currently pending. 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 thestatus 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 have submitted a stipulation to the Court that provides for maintaining thestatus quo with respect to the administrative proceeding and providing for the completion of briefing on the motions to dismiss and for summary judgment by January 8, 2010. The Company 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. A decision by the District Judge
on the Magistrates Recommendation is currently pending . The Courts claim construction order is currently pending. The Court has set a trial date of May 10, 2010. The case is in its discovery and pretrial phase. 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



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motion to dismiss in all respects, dismissing the Plaintiffs complaint. On July 17, 2009, Plaintiff filed a notice of appeal. A briefing schedule by the Maryland Court of Special
Appeals is currently pending. The Company believes it has meritorious defenses and is contesting 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 the Plaintiffs complaint. Plaintiff has until January 8, 2010 to seek
leave to file an amended complaint. The Company believes it has meritorious defenses and is contesting 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. A decision by the Court is currently pending. The Company believes it has meritorious defenses and is contesting 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. The Company believes it has
meritorious defenses and is contesting this matter vigorously.

The Company is from time to time subject to other legal
proceedings and claims in the ordinary course of business, 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.

10. SUBSEQUENT EVENTS

Amended Financial Product Agreements

MetaBank

On November 16, 2009, the Company entered into the Second
Amended and Restated Marketing Agreement (the Second Amended and Restated Marketing Agreement) with MetaBank d/b/a Meta Payment Systems (MetaBank), and a First Addendum (Addendum) to the Second Amended and
Restated Marketing Agreement with MetaBank dated the same date. The Second Amended and Restated Marketing Agreement amends and supersedes the Amended and Restated Marketing Agreement, dated November 17, 2008, between the Company and MetaBank.
The Second Amended and Restated Marketing Agreement expires on October 31, 2011. The Addendum expires on the later of July 15, 2010 or the date upon which the parties obligations under the Addendum have been fulfilled.

The Second Amended and Restated Marketing Agreement sets forth the terms for the 2010 tax season under which MetaBank is responsible for
issuing and managing the Companys prepaid debit card program and providing line of credit products related to the card. The Company receives payment from MetaBank based on certain levels of revenues and gross profits.

The Addendum provides that in the event MetaBanks loan losses related to one of the line of credit products provided under the Second
Amended and Restated Marketing Agreement significantly exceed MetaBanks projected losses, the Company will make payments to MetaBank to offset such losses. The



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Companys payment obligations will not arise unless MetaBanks actual loan losses are approximately two times the level of MetaBanks projected losses under the program. The
Companys maximum payment obligation is approximately $4 million, which will occur in the event that MetaBanks actual loan losses are approximately two and a half times MetaBanks projected losses. Based on historical experience with
this financial product, the Company currently considers the likelihood to be remote of a material payment having to be made to MetaBank to offset actual loan losses.

Santa Barbara Bank & Trust

On November 23, 2009, the Company
entered into an amendment to the Amended and Restated Program Agreement and the Amended and Restated Technology Agreement, each dated September 21, 2007 with Santa Barbara Bank & Trust (SBBT), a division of Pacific Capital
Bank, N.A. The primary purposes of these amendments are to establish the fees to be paid by SBBT to the Company for the 2010 tax season and the number of Jackson Hewitt Tax Service locations during the 2010 tax season in which SBBT will offer,
process and administer certain financial products, including refund anticipation loans (RAL), to Jackson Hewitt Tax Service customers.

Republic Bank & Trust Company

On November 23, 2009, the
Company entered into a second amendment to the Amended and Restated Program Agreement and the Amended and Restated Technology Agreement, each dated September 21, 2007 with Republic Bank & Trust Company (Republic). The
primary purposes of these amendments are to establish the fees to be paid by Republic to the Company for the 2010 tax season and the number of Jackson Hewitt Tax Service locations during the 2010 tax season in which Republic will offer, process and
administer certain financial products, including RALs, to Jackson Hewitt Tax Service customers. The Republic Agreements provide Republic with the right to withhold certain monies otherwise payable by Republic to the Company in the event that
Republic fails to attain a minimum number of financial products, Republic experiences a RAL delinquency in excess of a designated level or if Republic incurs costs in connection with the Company or any of the Companys franchisees failure
to maintain compliance with Republics policies and procedures.



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|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 filed with the Securities and Exchange Commission (SEC) on July 2, 2009.

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; impairment charges related to goodwill; 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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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. is the second largest paid individual
tax return preparer in the United States based upon the number of individual tax returns prepared and filed with the Internal Revenue Service (IRS). In fiscal 2009, our network consisted of approximately 6,600 franchised and
company-owned offices and prepared 2.96 million tax returns. We estimate our network prepared between 3-4% of all tax returns prepared by a paid tax return preparer. Our revenues consist of fees paid by our franchisees, service revenues earned
at company-owned offices, and financial product fees. Jackson Hewitt, the Company, we, our, and us are used interchangeably in this report to refer to Jackson Hewitt Tax Service Inc.
and its subsidiaries, appropriate to the context.

Seasonality of Operations

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 2009, we earned 95% 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.

Walmart Update

In March 2009, we entered into an agreement with Walmart that grants us the exclusive right to provide tax preparation services within Walmart stores during the 2010 and 2011 tax seasons. Under the
expanded Walmart opportunity, we will be adding a significant number of new Walmart store locations to our overall distribution network, and will work closely with Walmart to jointly drive tax preparation customers and Walmart associates to our
Walmart store locations.

We are currently finalizing all of our Walmart store locations and expect to be in approximately
1,800 to 1,900 Walmart stores in the 2010 tax season, with approximately 85% of these locations operated by Jackson Hewitts franchisees and approximately 15% operated by Jackson Hewitts company-owned offices. This effort will likely be
completed by the end of the calendar year. The range of Walmart stores in which we expect to operate reflects Walmarts initiation of a remodeling effort in its smaller stores, which has resulted in our inability to fit into certain
Walmart store locations. We are continuing to work with Walmart to optimize our opportunity to operate in these smaller stores in future years.

Amended Financial Product Agreements

MetaBank

On November 16, 2009, we entered into the Second Amended and Restated Marketing Agreement (the Second Amended and Restated
Marketing Agreement) with MetaBank d/b/a Meta Payment Systems (MetaBank), and a First Addendum (Addendum) to the Second Amended and Restated Marketing



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Agreement with MetaBank dated the same date. The Second Amended and Restated Marketing Agreement amends and supersedes the Amended and Restated Marketing Agreement, dated November 17, 2008,
between us and MetaBank. The Second Amended and Restated Marketing Agreement expires on October 31, 2011. The Addendum expires on the later of July 15, 2010 or the date upon which the parties obligations under the Addendum have been
fulfilled.

The Second Amended and Restated Marketing Agreement sets forth the terms for the 2010 tax season under which
MetaBank is responsible for issuing and managing our prepaid debit card program and providing line of credit products related to the card. We receive payment from MetaBank based on certain levels of revenues and gross profits.

The Addendum provides that in the event MetaBanks loan losses related to one of the line of credit products provided under the Second
Amended and Restated Marketing Agreement significantly exceed MetaBanks projected losses, we will make payments to MetaBank to offset such losses. Our payment obligations will not arise unless MetaBanks actual loan losses are
approximately two times the level of MetaBanks projected losses under the program. Our maximum payment obligation is approximately $4 million, which will occur in the event that MetaBanks actual loan losses are approximately two and a
half times MetaBanks projected losses. Based on historical experience with this financial product, we currently consider the likelihood to be remote of a material payment having to be made to MetaBank to offset actual loan losses.

Santa Barbara Bank & Trust

On November 23, 2009, we entered into an amendment to the Amended and Restated Program Agreement and the Amended and Restated Technology Agreement, each dated September 21, 2007 with Santa
Barbara Bank & Trust (SBBT), a division of Pacific Capital Bank, N.A. The primary purposes of these amendments are to establish the fees to be paid by SBBT to us for the 2010 tax season and the number of Jackson Hewitt Tax
Service locations during the 2010 tax season in which SBBT will offer, process and administer certain financial products, including refund anticipation loans (RAL), to Jackson Hewitt Tax Service customers.

Republic Bank & Trust Company

On November 23, 2009, we entered into a second amendment to the Amended and Restated Program Agreement and the Amended and Restated Technology Agreement, each dated September 21, 2007 with
Republic Bank & Trust Company (Republic). The primary purposes of the these amendments are to establish the fees to be paid by Republic to us for the 2010 tax season and the number of Jackson Hewitt Tax Service locations during
the 2010 tax season in which Republic will offer, process and administer certain financial products, including RALs, to Jackson Hewitt Tax Service customers. The Republic Agreements provide Republic with the right to withhold certain monies
otherwise payable by Republic to us in the event that Republic fails to attain a minimum number of financial products, Republic experiences a RAL delinquency in excess of a designated level or if Republic incurs costs in connection with our or any
of our franchisees failure to maintain compliance with Republics policies and procedures.

We anticipate that SBBT
and Republic will provide roughly the same proportion of the overall program for financial products in the 2010 tax season as each provided in the 2009 tax season. We further anticipate that the amended agreements with the banks, including our
amendments to the MetaBank agreements, when coupled with related customer and franchisee program changes, will not materially impact our planned 2010 fiscal year income.

Jackson Hewitt Online

We will be offering online tax preparation to
the general public beginning in the 2010 tax season. Revenues will be recognized upon the completion of a paid tax return by the customer.



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Potential Exposure to Credit Losses

As a result of the decline in franchisee profitability in fiscal 2009 and the current difficult economic environment, we have experienced a
significant increase in past due receivables from franchisees as we head into tax season compared to the same period last year. Our balance sheet at October 31, 2009 included past due amounts from franchisees totaling approximately $11.8
million, which includes billed accounts and notes receivable that are classified within current assets. This compares to $3.8 million at October 31, 2008. The allowance for billed accounts and notes receivable was $2.9 million and
$1.2 million at October 31, 2009 and 2008, respectively. Additionally, during the six months ended October 31, 2009, we extended payment terms on receivables due from franchisees, that resulted in a transfer of amounts from Current to
Non-Current on our Condensed Consolidated Balance Sheet of $2.2 million. There were no significant modifications to the original terms of refinanced notes receivable. 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. 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 October 31, 2009. We
believe that our allowances for doubtful accounts as of October 31, 2009 are currently adequate for the Companys existing exposure to loss. We will be closely monitoring the performance of franchisees currently indebted to us in the
upcoming tax season, 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 and elected representatives of our franchisee community have made significant progress on the development of a new franchise agreement and are near completion. The current anticipated completion date is somewhat later than the previously
anticipated completion date, in part due to our recent efforts in amending our financial product agreements for the 2010 tax season. Approximately a third of our existing franchise agreements come up for renewal between now and late calendar year
2010, and we continue to expect that we will achieve a very high renewal rate under this new franchise agreement.

Management Consultant
Engagement Concluded

In August 2009, the management consulting firm that we retained to work jointly with us to more
fully understand the sources of our weak performance in the 2009 tax season concluded their engagement. Some of their findings were not entirely new to us, but the relative impact on our business and what we needed to do differently was more clearly
defined. The following areas represent the principal initiatives we will focus our attention on and we believe will result in improved operational and financial performance in the 2010 tax season:



| |  |  | Put into practice a renewed focus on our core business  tax return preparation with a keen emphasis on client satisfaction and retention;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Improve tax return preparer training and retention;
| | - |  | ---------------------------------------------------



| |  |  | Effectively execute a more impactful pre-season financial product;
| | - |  | ------------------------------------------------------------------



| |  |  | Significantly enhance our overall marketing program with local marketing effectiveness at the forefront;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Employ a more effective pricing strategy;
| | - |  | -----------------------------------------



| |  |  | Improve the performance of our company-owned office operations segment;
| | - |  | -----------------------------------------------------------------------



| |  |  | Effectively execute on our exclusive Walmart arrangement;
| | - |  | ---------------------------------------------------------



| |  |  | Successfully launch our first-ever online tax return preparation product; and
| | - |  | -----------------------------------------------------------------------------



| |  |  | Achieve a more collaborative partnership with our franchise community.
| | - |  | ----------------------------------------------------------------------



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##### Table of Contents

We believe this strategy begins with getting back to basicsour core business of
providing quality, accurate tax return preparationand doing so with a focus on meeting and exceeding the needs of our clients in terms of pricing, value, and their overall experience at Jackson Hewitt.

Management Change

On June 4, 2009, the employment of Michael C. Yerington, formerly our Chief Executive Officer and President, was terminated. Upon termination, Mr. Yerington also resigned as a director of our Board. On the same day, our Board of
Directors announced that Harry W. Buckley was appointed Chief Executive Officer, President and a director on our Board.

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 EndedOctober 31, |         |   | Six Months EndedOctober 31, |  
|                                                      |  | 2009                          |         |   | 2008                        |   |         | 2009 |  |   | 2008    |  
|                                                      |  | (in thousands)                |         |   | (in thousands)              |  
|Revenues                                              |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Franchise operations revenues:                        |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Royalty                                               |  | $                             | 688     |   |                             | $ | 646     |      |  | $ | 1,244   |   |  | $ | 1,273   |  
|Marketing and advertising                             |  |                               | 302     |   |                             |   | 287     |      |  |   | 547     |   |  |   | 564     |  
|Financial product fees                                |  |                               | 2,340   |   |                             |   | 2,452   |      |  |   | 5,660   |   |  |   | 5,074   |  
|Other                                                 |  |                               | 166     |   |                             |   | 1,248   |      |  |   | 502     |   |  |   | 1,597   |  
|Service revenues from company-owned office operations |  |                               | 536     |   |                             |   | 436     |      |  |   | 1,124   |   |  |   | 848     |  
|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Total revenues                                        |  |                               | 4,032   |   |                             |   | 5,069   |      |  |   | 9,077   |   |  |   | 9,356   |  
|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Expenses                                              |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Cost of franchise operations                          |  |                               | 7,037   |   |                             |   | 7,341   |      |  |   | 14,525  |   |  |   | 15,953  |  
|Marketing and advertising                             |  |                               | 3,409   |   |                             |   | 5,440   |      |  |   | 6,424   |   |  |   | 9,609   |  
|Cost of company-owned office operations               |  |                               | 7,281   |   |                             |   | 8,633   |      |  |   | 14,277  |   |  |   | 17,940  |  
|Selling, general and administrative                   |  |                               | 10,761  |   |                             |   | 13,452  |      |  |   | 27,487  |   |  |   | 23,900  |  
|Depreciation and amortization                         |  |                               | 3,709   |   |                             |   | 3,186   |      |  |   | 7,034   |   |  |   | 6,393   |  
|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Total expenses                                        |  |                               | 32,197  |   |                             |   | 38,052  |      |  |   | 69,747  |   |  |   | 73,795  |  
|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Loss from operations                                  |  |                               | (28,165 | ) |                             |   | (32,983 | )    |  |   | (60,670 | ) |  |   | (64,439 | )
|Other income/(expense):                               |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Interest and other income                             |  |                               | 633     |   |                             |   | 380     |      |  |   | 1,231   |   |  |   | 780     |  
|Interest expense                                      |  |                               | (5,408  | ) |                             |   | (4,219  | )    |  |   | (10,437 | ) |  |   | (7,225  | )
|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Loss before income taxes                              |  |                               | (32,940 | ) |                             |   | (36,822 | )    |  |   | (69,876 | ) |  |   | (70,884 | )
|Benefit from income taxes                             |  |                               | 13,462  |   |                             |   | 14,616  |      |  |   | 28,558  |   |  |   | 28,134  |  
|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Net Loss                                              |  | $                             | (19,478 | ) |                             | $ | (22,206 | )    |  | $ | (41,318 | ) |  | $ | (42,750 | )
|                                                      |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  

Given the seasonal nature of the tax return preparation business, approximately 2% of
the total tax returns prepared by our network in fiscal 2009 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.



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Three Months Ended October 31, 2009 as Compared to Three Months Ended October 31, 2008

Total Revenues

Total revenues decreased $1.0 million, or 21%, due to lower territory sales revenues. We sold 116 territories in the three months ended October 31, 2009 (of which 114 were associated with occupying
Walmart store locations) as compared to 61 during the same quarter last year. Walmart territories sold during the current quarter will be recognized over each of the next ten tax seasons beginning in January 2010 and were generally sold at a lower
fee than past territory sales. Revenue recognition for the Walmart territory sales is conditional upon our continued renewal of the Walmart agreement and continued availability to operate within the Walmart territory consistent with the term of the
territory sale promissory note.

Total Expenses

Total operating expenses decreased $5.9 million, or 15%. Highlights were as follows:

Marketing and Advertising: Marketing and advertising expenses decreased $2.0 million, or 37%, primarily due to lower sponsorship-related expenses of $0.9 million and lower media expense of $0.6 million.

Cost of company-owned office operations: Cost of company-owned office operations decreased $1.4 million, or 16%, primarily due
to lower labor costs of $1.0 million and lower occupancy related costs of $0.5 million as a result of fewer employees and store locations.

Selling, general and administrative: Selling, general and administrative expenses decreased $2.7 million, or 20%, primarily due to the absence of a $2.8 million charge related to a legal settlement
incurred during the second quarter of fiscal 2009 and lower compensation-related costs of $0.4 million partially offset by higher employee termination expenses of $0.6 million.

Other income (expense)

Interest expense: Interest expense increased
$1.2 million, or 28%, primarily due to the higher credit spread under our amended credit facility and higher amortization of deferred financing costs of $0.4 million partially offset by lower market interest rates. Our average cost of debt was 7.3%
in the three months ended October 31, 2009 as compared to 5.6% in the three months ended October 31, 2008, respectively.

Six
Months Ended October 31, 2009 as Compared to Six Months Ended October 31, 2008

Total Revenues

Total revenues decreased $0.3 million, or 3%, primarily due to lower territory sale revenues of $1.0 million partially offset by higher
financial product fees of $0.6 million. Please see Franchise Results of Operations and Company-Owned Office Results of Operations for additional highlights.

Total Expenses

Total operating expenses decreased $4.0 million, or 6%.
Highlights were as follows:

Cost of franchise operations: Cost of franchise operations decreased $1.4 million, or 9%,
primarily due to (i) lower compensation-related costs of $0.8 million as a result of fiscal 2009 workforce reductions and other employee departures, (ii) higher capitalized labor costs of $0.5 million associated with the development of
internal use software; (iii) lower conference related costs of $0.6 million; and (iv) lower Gold Guarantee costs of $0.4 million partially offset by higher consulting fees of $0.9 million.

Marketing and advertising: Marketing and advertising expenses decreased $3.2 million, or 33%, primarily due to lower
sponsorship-related expenses of $1.6 million and lower general media expenses of $0.9 million.



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##### Table of Contents

Cost of company-owned office operations: Cost of company-owned office operations
decreased $3.7 million, or 20%, primarily due to (i) the absence of a $1.6 million lease termination charge related to first quarter of fiscal 2009 restructuring initiative; (ii) lower storefront occupancy and seasonal labor costs of
$1.0 million due to fewer locations; and (iii) lower full-time labor and related costs of $1.0 million due to recent workforce reductions.

Selling, general and administrative: Selling, general and administrative expenses increased $3.6 million, or 15%, primarily due to (i) a $4.3 million termination charge related to the
departure of our former Chief Executive Officer in June 2009; (ii) higher external legal fees of $1.8 million; (iii) higher strategy consulting fees of $1.7 million; and (iv) the absence of a $1.5 million insurance recovery related to
a legal settlement. The increase in selling, general and administrative expenses was partially offset by (i) the absence of a $2.8 million legal matter charge; (ii) a decrease in compensation-related expenses of $1.1 million primarily due
to workforce reductions; (iii) lower accrued employee termination expenses (excluding the charge associated with our former CEOs aforementioned departure in June 2009) of $0.8 million; and (iv) lower share-based compensation of $0.7
million.

Other income (expense)

Interest expense: Interest expense increased $3.2 million, or 45%, primarily due to the higher credit spread under our amended credit facility, and higher amortization of deferred financing costs
of $0.8 million partially offset by lower market interest rates. Our average cost of debt was 7.5% and 5.2% in the six months ended October 31, 2009 and 2008, respectively.

Segment Results

Franchise Operations



|                                    |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|----------------------------------- |  | ----------------------------- | ------- | - | --------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                    |  | Three Months EndedOctober 31, |         |   | Six Months EndedOctober 31, |  
|                                    |  | 2009                          |         |   | 2008                        |   |         | 2009 |  |   | 2008    |  
|                                    |  | (in thousands)                |         |   | (in thousands)              |  
|Results of Operations:              |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Revenues                            |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Royalty                             |  | $                             | 688     |   |                             | $ | 646     |      |  | $ | 1,244   |   |  | $ | 1,273   |  
|Marketing and advertising           |  |                               | 302     |   |                             |   | 287     |      |  |   | 547     |   |  |   | 564     |  
|Financial product fees              |  |                               | 2,340   |   |                             |   | 2,452   |      |  |   | 5,660   |   |  |   | 5,074   |  
|Other                               |  |                               | 166     |   |                             |   | 1,248   |      |  |   | 502     |   |  |   | 1,597   |  
|                                    |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Total revenues                      |  |                               | 3,496   |   |                             |   | 4,633   |      |  |   | 7,953   |   |  |   | 8,508   |  
|                                    |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Expenses                            |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Cost of operations                  |  |                               | 7,037   |   |                             |   | 7,341   |      |  |   | 14,525  |   |  |   | 15,953  |  
|Marketing and advertising           |  |                               | 3,276   |   |                             |   | 5,215   |      |  |   | 6,195   |   |  |   | 9,323   |  
|Selling, general and administrative |  |                               | 1,054   |   |                             |   | 1,009   |      |  |   | 1,905   |   |  |   | 2,076   |  
|Depreciation and amortization       |  |                               | 2,657   |   |                             |   | 2,165   |      |  |   | 4,950   |   |  |   | 4,358   |  
|                                    |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Total expenses                      |  |                               | 14,024  |   |                             |   | 15,730  |      |  |   | 27,575  |   |  |   | 31,710  |  
|                                    |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Loss from operations                |  |                               | (10,528 | ) |                             |   | (11,097 | )    |  |   | (19,622 | ) |  |   | (23,202 | )
|Other income/(expense):             |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Interest and other income           |  |                               | 610     |   |                             |   | 363     |      |  |   | 1,208   |   |  |   | 739     |  
|                                    |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Loss before income taxes            |  | $                             | (9,918  | ) |                             | $ | (10,734 | )    |  | $ | (18,414 | ) |  | $ | (22,463 | )
|                                    |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  

Three Months Ended October 31, 2009 as Compared to Three Months Ended October 31,
2008

Total Revenues

Total revenues decreased $1.1 million, or 25%, primarily due to lower territory sale revenues as discussed in the Condensed Consolidated Results of Operations.



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Total Expenses

Total operating expenses decreased $1.7 million, or 11%. Highlights were as follows:

Marketing and Advertising: Marketing and advertising expenses decreased $1.9 million, or 37%, as discussed in the Condensed Consolidated Results of Operations.

Selling, general and administrative: Selling, general and administrative expenses decreased $0.05 million, or 5%, primarily due to
lower compensation-related expenses.

Depreciation and amortization: Depreciation and amortization increased $0.5
million, or 23%, due to additions associated with the development of internal use software.

Six Months Ended October 31, 2009 as
Compared to Six Months Ended October 31, 2008

Total Revenues

Total revenues decreased $0.6 million, or 7%. Highlights were as follows:

Financial product fees:Financial product fees increased $0.6 million, or 12%, principally due to higher revenues of $0.9 million from
our prepaid debit card program partially offset by lower Gold Guarantee revenues of $0.5 million.

Other revenues:Other revenues decreased $1.1 million, or 69%, principally due to the same reasons as discussed in the three month comparison.

Total
Expenses

Total operating expenses decreased $4.1 million, or 13%. Highlights were as follows:

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

Marketing and Advertising: Marketing and advertising expenses decreased $3.1 million, or 34%, as discussed in the Condensed
Consolidated Results of Operations.

Selling, general and administrative: Selling, general and administrative expenses
decreased $0.2 million, or 8%, principally due to lower compensation-related expenses.

Depreciation and amortization:Depreciation and amortization increased $0.6 million, or 14%, principally due to the same reasons as discussed in the three month comparison.

Company-Owned Office Operations



|                                    |  |                               |        |   |                             |   |         |      |  |   |         |   |  |   |         |  
|----------------------------------- |  | ----------------------------- | ------ | - | --------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                    |  | Three Months EndedOctober 31, |        |   | Six Months EndedOctober 31, |  
|                                    |  | 2009                          |        |   | 2008                        |   |         | 2009 |  |   | 2008    |  
|                                    |  | (in thousands)                |        |   | (in thousands)              |  
|Results of Operations:              |  |                               |        |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Revenues                            |  |                               |        |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Service revenues from operations    |  | $                             | 536    |   |                             | $ | 436     |      |  | $ | 1,124   |   |  | $ | 848     |  
|                                    |  |                               |        |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Expenses                            |  |                               |        |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Cost of operations                  |  |                               | 7,281  |   |                             |   | 8,633   |      |  |   | 14,277  |   |  |   | 17,940  |  
|Marketing and advertising           |  |                               | 133    |   |                             |   | 225     |      |  |   | 229     |   |  |   | 286     |  
|Selling, general and administrative |  |                               | 800    |   |                             |   | 769     |      |  |   | 1,695   |   |  |   | 2,663   |  
|Depreciation and amortization       |  |                               | 1,052  |   |                             |   | 1,021   |      |  |   | 2,084   |   |  |   | 2,035   |  
|                                    |  |                               |        |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Total expenses                      |  |                               | 9,266  |   |                             |   | 10,648  |      |  |   | 18,285  |   |  |   | 22,924  |  
|                                    |  |                               |        |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Loss from operations                |  |                               | (8,730 | ) |                             |   | (10,212 | )    |  |   | (17,161 | ) |  |   | (22,076 | )
|                                    |  |                               |        |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Loss before income taxes            |  | $                             | (8,730 | ) |                             | $ | (10,212 | )    |  | $ | (17,161 | ) |  | $ | (22,076 | )
|                                    |  |                               |        |   |                             |   |         |      |  |   |         |   |  |   |         |  



27



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##### Table of Contents

Three Months Ended October 31, 2009 as Compared to Three Months Ended October 31, 2008

Loss from operations

Loss from operations decreased $1.5 million, or 15%, primarily due to the lower Cost of Operations as discussed in the Condensed Consolidated Results of Operations.

Six Months Ended October 31, 2009 as Compared to Six Months Ended October 31, 2008

Loss from operations

Loss
from operations decreased $4.9 million, or 22%, primarily due to the lower Cost of Operations as discussed in the Condensed Consolidated Results of Operations and lower Selling, General and Administrative expenses primarily resulting from a
decrease in accrued employee termination expenses of $0.6 million.

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 EndedOctober 31, |         |   | Six Months EndedOctober 31, |  
|                                          |  | 2009                          |         |   | 2008                        |   |         | 2009 |  |   | 2008    |  
|                                          |  | (in thousands)                |         |   | (in thousands)              |  
|Expenses (a)                              |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|General and administrative                |  | $                             | 7,849   |   |                             | $ | 7,990   |      |  | $ | 17,771  |   |  | $ | 15,145  |  
|Insurance settlement                      |  |                               |        |   |                             |   |        |      |  |   |        |   |  |   | (1,500  | )
|Litigation matter                         |  |                               |        |   |                             |   | 2,833   |      |  |   |        |   |  |   | 2,833   |  
|Employee termination and related expenses |  |                               | 489     |   |                             |   | 183     |      |  |   | 4,745   |   |  |   | 597     |  
|Share-based compensation                  |  |                               | 569     |   |                             |   | 668     |      |  |   | 1,371   |   |  |   | 2,086   |  
|                                          |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Total expenses                            |  |                               | 8,907   |   |                             |   | 11,674  |      |  |   | 23,887  |   |  |   | 19,161  |  
|                                          |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Loss from operations                      |  |                               | (8,907  | ) |                             |   | (11,674 | )    |  |   | (23,887 | ) |  |   | (19,161 | )
|Other income/(expense):                   |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Interest and other income                 |  |                               | 23      |   |                             |   | 17      |      |  |   | 23      |   |  |   | 41      |  
|Interest expense                          |  |                               | (5,408  | ) |                             |   | (4,219  | )    |  |   | (10,437 | ) |  |   | (7,225  | )
|                                          |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  
|Loss before income taxes                  |  | $                             | (14,292 | ) |                             | $ | (15,876 | )    |  | $ | (34,301 | ) |  | $ | (26,345 | )
|                                          |  |                               |         |   |                             |   |         |      |  |   |         |   |  |   |         |  



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

Three Months Ended October 31, 2009 as Compared to Three Months Ended October 31, 2008

Loss from operations

Loss
from operations decreased $2.8 million, or 24%, primarily due to the absence of a legal settlement charge of $2.8 million recorded in the first quarter of fiscal 2009, partially offset by higher accrued employee termination expenses of $0.3 million.

Other income/(expense)

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



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Six Months Ended October 31, 2009 as Compared to Six Months Ended October 31, 2008

Loss from operations

Loss from operations increased $4.7 million, or 25%, primarily due to (i) a $4.3 million termination charge related to the departure of our former Chief Executive Officer in June 2009; (ii) higher external legal fees of $1.8
million; (iii) higher strategy consulting fees of $1.7 million; and (iv) the absence of a $1.5 million insurance recovery related to a legal settlement. The increase in selling, general and administrative expenses was partially offset by
(i) the absence of a $2.8 million legal settlement charge which was recorded in the six months ended October 31, 2008; (ii) lower accrued bonus expense of $0.7 million; and (iii) lower share-based compensation of $0.7 million.

Other income/(expense)

Interest expense:Interest expense increased 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.

Sources and Uses of Cash

In the six months ended October 31, 2009, we used $1.1 million more cash for operations as compared to the six months ended October 31, 2008 due to the following:



| |  |  | Higher external legal fee payments of $2.9 million;
| | - |  | ---------------------------------------------------



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



| |  |  | Higher lease termination payments of $1.5 million;
| | - |  | --------------------------------------------------



| |  |  | The absence of a $1.5 million insurance recovery related to a legal settlement;
| | - |  | -------------------------------------------------------------------------------



| |  |  | Higher employee termination payments of $1.5 million; and
| | - |  | ---------------------------------------------------------



| |  |  | Higher strategy consulting payments of $1.4 million.
| | - |  | ----------------------------------------------------

Partially offsetting the factors discussed above were:



| |  |  | Lower income tax payments of $6.8 million primarily due to the decrease in operating income between years;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | Lower employee payroll payments of $2.6 million primarily due to reductions in workforce in fiscal 2009 and other employee departures; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lower bonus payments for full-time employees as we did not pay a bonus in the six months ended October 31, 2009 (no bonus accrued in fiscal 2009)
as compared to payments of $1.4 million in the six months ended October 31, 2008 (accrued in fiscal 2008).
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Investing activities

In the six months ended October 31, 2009, we used $3.3 million less cash for investing activities as compared to the six months ended
October 31, 2008 primarily due to a $9.6 reduction in cash paid for the acquisition of tax return preparation businesses. Partially offsetting the overall decrease in net cash used for investing activities was $5.7 million paid for kiosks to be
leased to franchisees in support of our expanded Walmart opportunity and higher capital expenditures primarily due to increased computer software development costs.

Financing activities

In the six months ended October 31, 2009,
we received $1.8 million more cash from financing activities as compared to the six months ended October 31, 2008, primarily due to lower dividend payments of $10.2 million partially offset by lower net borrowings under our credit facility of
$11.0 million.

Future Cash Requirements and Sources of Cash

Future Cash Requirements

Over the next 12 months, our primary cash requirements will be the funding of our operating activities (including contractual obligations and commitments), capital expenditure requirements, the funding of
franchisee office expansion, and servicing our debt, 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 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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. 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 2009 Amended and Restated Credit Agreement, we are limited to annual acquisitions of $7.0 million.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Capital expendituresWe anticipate spending between $2 million and $3 million on capital expenditures during the third and fourth quarters
of fiscal 2010 primarily for information technology upgrades, including funding payroll for employees responsible for developing internal use software.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Purchases of kiosksWe anticipate spending between $2 million and $3 million in the third quarter of fiscal 2010 for additional kiosks (for
lease to franchisees and for Company-Owned Operations) in support of our expanded Walmart opportunity.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Franchisee fundingWe anticipate selectively providing franchisees with working capital financing as we look to build a stronger
distribution system.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Debt serviceAs of November 30, 2009, we had $325.0 million outstanding under our April 2009 Amended and Restated Credit Agreement.
Under the terms of the April 2009 amendment, a mandatory payment of $25.0 million is due in April 2010 in connection with the amortizing term loan of $225.0 million. Additionally, we anticipate having to spend between $22 million and $25 million in
interest over the next twelve months.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Severance paymentWe paid severance of $2.3 million in the first week of December 2009 to Michael C. Yerington, formerly our Chief
Executive Officer and President.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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.

Contractual Obligations

In fiscal 2010, we entered into contracts for certain administrative, technology-related, and other services, and for kiosks in connection with our expanded Walmart opportunity, resulting in additional purchase obligations as of October 31,
2009 totaling approximately $3.0 million. Amounts are due in each of the following respective fiscal periods: $1.3 million in the remainder of fiscal 2010 and $1.7 million in fiscal years 2011  2012.

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 have $421.4 million in goodwill as of October 31, 2009.
The recoverability of goodwill is subject to an annual impairment test based on the estimated fair value of our underlying businesses. We test goodwill for impairment annually in our fourth fiscal quarter, which coincides with the development of our
five-year strategic operating plan. Additionally, goodwill is tested for impairment when an event occurs or if circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Significant management judgment is required in assessing whether goodwill is impaired. The carrying value of each reporting unit is
determined by specifically identifying and allocating all of our consolidated assets and liabilities to each reporting unit based on various methods we deemed 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 the business. Factors affecting these future cash flows include, but are not limited to, markets and
market share, tax return sales volumes and prices, cost structure, and working capital changes. Estimates are also used for our weighted average cost of capital in discounting the projected future cash flows and our long-term growth rates. In
addition to the income approach, we corroborated our results with the use of market multiples for comparable companies to our reporting units.

If our estimates of fair value change due to changes in our businesses or other factors, including if we are unable to mitigate the effect on our future cash flows in the 2010 tax season and beyond that
may result from operating in a lower than originally anticipated number of Walmart locations as well as a potential reduction in economics under certain of our financial product agreements, we may determine that an impairment charge is necessary.
Such a non-cash charge would be equal in amount to the excess of the carrying amount of a reporting units goodwill over its implied fair value and would be recognized as a component of operating income in the reporting period identified. We
consider historical experience and all available information at the time the fair value of our reporting units are 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. We concluded as of April 30, 2009, which was the date of our most recent impairment test for goodwill, that the fair value exceeded the net carrying value for each of our reporting units, thereby indicating no
impairment in fiscal 2009. There have not been any significant changes in our underlying business projections, as of October 31, 2009, that would cause us to change our conclusion from the April 30, 2009 evaluation.



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Other Indefinite-Lived Intangible Assets

We have $87.4 million in indefinite-lived intangible assets as of October 31, 2009. Other indefinite-lived intangibles, which consist of
our trademarks and reacquired rights under franchise agreements from acquisitions, are recorded at their fair value as determined through purchase accounting. Our trademarks are 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 trademarks is less than the carrying amount, an impairment
loss would be recognized in an amount equal to the difference.

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 concluded as of April 30, 2009, which was the date of our most recent impairment test for other indefinite-lived intangibles, that the fair value
exceeded the carrying value of our trademarks, thereby indicating no impairment in fiscal 2009. There have not been any changes in our underlying business projections, as of October 31, 2009, that would cause us to change our conclusion from
the April 30, 2009 evaluation.



|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 the amended and restated credit facility in October 2006, we entered into interest rate collar agreements to become effective after the initial interest rate swap agreements terminate. 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 October 31, 2009, excluding our $100.0 million of hedged borrowings whereby we fixed the interest rate, at an average ranging from 4.4% to 4.5%, would result in an annual increase or decrease in income before income
taxes of $2.1 million. The estimated increase or decrease is based upon the level of variable rate debt as of October 31, 2009 and assumes no changes in the volume or composition of debt.



|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



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##### Table of Contents

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 second quarter of fiscal 2010, there were no changes that materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.

PART II  OTHER INFORMATION



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

See
Part 1Item 1Note 9Commitments and Contingencies, to our Condensed Consolidated Financial Statements, which is incorporated by reference herein.



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

During the
six months ended October 31, 2009, 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 for the fiscal year ended April 30, 2009.



|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 October 31, 2009.

Issuer Purchases of Equity Securities:

There were no issuer purchases of equity securities during the three months ended October 31, 2009.



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

There were no defaults upon senior securities during the three months ended October 31, 2009.



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

Our 2009 Annual Meeting of Stockholders was held on September 23, 2009. At that Annual Meeting, our stockholders:



| | 1. | Elected Margaret Milner Richardson, Ulysses L. Bridgeman, Jr., Harry W. Buckley, Rodman L. Drake, Peter F. Reilly, Louis P. Salvatore and James C. Spira to serve as
directors of the Company, to serve for a one-year term until the 2010 Annual Meeting of Stockholders and until their respective successors shall have been elected and have qualified, or until their earlier resignation or removal;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Approved the amendment of the Companys Rights Agreement to accelerate the final expiration date of the Rights Agreement to terminate effective September 28,
2009;
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Voted for the advisory (non-binding) vote on executive compensation; and
| | -- | ------------------------------------------------------------------------



| | 4. | Ratified the appointment of Deloitte & Touche LLP as our auditors for the fiscal year ending April 30, 2010.
| | -- | ------------------------------------------------------------------------------------------------------------



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On August 5, 2009, the record date of the Annual Meeting, we had 28,799,186 shares of
common stock outstanding. At the Annual Meeting, holders of 24,028,869 shares of common stock were present in person or represented by proxy. The following sets forth information regarding the results of the voting at the Annual Meeting.

Proposal IElection of Directors.



|                           |  |                |  |               |  |        
|-------------------------- |  | -------------- |  | ------------- |  | -------
|                           |  | Votes in Favor |  | Votes Against |  | Abstain
|Margaret Milner Richardson |  | 19,656,019     |  | 4,361,944     |  | 10,904 
|Ulysses L. Bridgeman, Jr.  |  | 19,609,781     |  | 4,376,409     |  | 42,676 
|Harry W. Buckley           |  | 22,656,491     |  | 1,982,809     |  | 10,567 
|Rodman L. Drake            |  | 19,112,934     |  | 4,853,022     |  | 62,909 
|Peter F. Reilly            |  | 22,015,943     |  | 1,950,018     |  | 62,904 
|Louis P. Salvatore         |  | 19,576,773     |  | 4,389,039     |  | 63,054 
|James C. Spira             |  | 18,232,244     |  | 5,785,715     |  | 10,904 

Proposal IIWith respect to the amendment to the Companys rights agreement to acceleration
the final expiration date to terminate the rights agreement.



|               |  |               |  |             |  |                 
|-------------- |  | ------------- |  | ----------- |  | ----------------
|Votes in Favor |  | Votes Against |  | Abstentions |  | Broker Non-Votes
|20,083,332     |  | 1,149,210     |  | 10,298      |  | 2,786,029       

Proposal IIIWith respect to the advisory (non-binding) vote on executive compensation.



|               |  |               |  |            
|-------------- |  | ------------- |  | -----------
|Votes in Favor |  | Votes Against |  | Abstentions
|22,095,037     |  | 1,904,674     |  | 29,153     

Proposal IVRatification of Appointment of Auditors.



|               |  |               |  |            
|-------------- |  | ------------- |  | -----------
|Votes in Favor |  | Votes Against |  | Abstentions
|23,895,945     |  | 107,725       |  | 25,198     



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

There
is no other information to be disclosed.



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

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



|      |  |                                                                                                                                                                                                                        
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.1* |  | Second Amended and Restated Marketing Agreement, dated November 16, 2009, between Jackson Hewitt Inc. and Metabank d/b/a Meta Payment Systems.                                                                         
|      | 
|10.2* |  | First Addendum to Second Amended and Restated Marketing Agreement, dated November 16, 2009, between Jackson Hewitt Inc. and Metabank d/b/a Meta Payment Systems.                                                       
|      | 
|10.3* |  | Amendment No. 1 to Amended and Restated Program Agreement, dated November 23, 2009, between Jackson Hewitt Inc. and Santa Barbara Bank & Trust, a division of Pacific Capital
Bank, N.A.                               
|      | 
|10.4* |  | Amendment No. 1 to Amended and Restated Technology Services Agreement, dated November 23, 2009, between Jackson Hewitt Technology Services LLC and Santa Barbara Bank & Trust, a
division of Pacific Capital Bank, N.A.



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##### Table of Contents

|      |  |                                                                                                                                                              
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.5* |  | Second Amendment to Program Agreement, dated November 23, 2009, between Jackson Hewitt Inc. and Republic Bank & Trust Company.                               
|      | 
|10.6* |  | Second Amendment to Technology Services Agreement, dated November 23, 2009, between Jackson Hewitt Technology Services LLC and Republic Bank & Trust Company.
|      | 
|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.                                                          



|* | Confidential treatment has been requested for the redacted portions of this agreement. A complete copy of the agreement, including the redacted portions, has been filed
separately with the Securities and Exchange Commission.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 December 9, 2009.



JACKSON HEWITT TAX SERVICE INC.By:

/s/ HARRY W. BUCKLEYHarry W. BuckleyPresident and Chief Executive Officer (Principal Executive Officer)/s/ DANIEL P. OBRIENDaniel P. OBrienExecutive Vice President and Chief Financial Officer/s/ CORRADO DE PINTOCorrado De PintoVice President and Chief Accounting Officer




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