##### 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 January 31, 2008

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

Large accelerated filer  x    Accelerated filer   ̈

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 28,425,740 (net of 10,440,491 shares held in treasury) as of February 29, 2008.









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##### Table of Contents

JACKSON HEWITT TAX SERVICE INC.

TABLE OF CONTENTS



|                               |  |                                                                                                       |  |     
|------------------------------ |  | ----------------------------------------------------------------------------------------------------- |  | ----
|                               |  |                                                                                                       |  | Page
|PART 1 - FINANCIAL INFORMATION
|                               |  |                                                                                                      
|Item 1.                        |  | Financial Statements (Unaudited):                                                                     |  | 1   
|                               |  |                                                                                                      
|                               |  | Condensed Consolidated Balance Sheets                                                                 |  | 1   
|                               |  |                                                                                                      
|                               |  | Condensed Consolidated Statements of Operations                                                       |  | 2   
|                               |  |                                                                                                      
|                               |  | Condensed Consolidated Statements of Cash Flows                                                       |  | 3   
|                               |  |                                                                                                      
|                               |  | Notes to Condensed Consolidated Financial Statements                                                  |  | 4   
|                               |  |                                                                                                      
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                 |  | 15  
|                               |  |                                                                                                      
|Item 3.                        |  | Quantitative and Qualitative Disclosures about Market Risk                                            |  | 28  
|                               |  |                                                                                                      
|Item 4.                        |  | Controls and Procedures                                                                               |  | 28  
|                              
|PART II - OTHER INFORMATION   
|                               |  |                                                                                                      
|Item 1.                        |  | Legal Proceedings                                                                                     |  | 29  
|                               |  |                                                                                                      
|Item 1A.                       |  | Risk Factors                                                                                          |  | 29  
|                               |  |                                                                                                      
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities |  | 29  
|                               |  |                                                                                                      
|Item 3.                        |  | Defaults Upon Senior Securities                                                                       |  | 29  
|                               |  |                                                                                                      
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                                   |  | 29  
|                               |  |                                                                                                      
|Item 5.                        |  | Other Information                                                                                     |  | 29  
|                               |  |                                                                                                      
|Item 6.                        |  | Exhibits                                                                                              |  | 30  
|                               |  |                                                                                                      
|                               |  | Signatures                                                                                            |  | 30  



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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           |         
|                                                                                                                      |  | January 31,2008 |          |   | April 30,2007 |  
|Assets                                                                                                                |  |                 |          |   |               |   |          |  
|Current assets:                                                                                                       |  |                 |          |   |               |   |          |  
|Cash and cash equivalents                                                                                             |  | $               | 510      |   |               | $ | 1,693    |  
|Accounts receivable, net of allowance for doubtful accounts of $2,568 and $1,279, respectively                        |  |                 | 64,206   |   |               |   | 17,519   |  
|Notes receivable, net                                                                                                 |  |                 | 7,277    |   |               |   | 5,544    |  
|Prepaid expenses and other                                                                                            |  |                 | 20,307   |   |               |   | 11,421   |  
|Deferred income taxes                                                                                                 |  |                 | 559      |   |               |   | 1,933    |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total current assets                                                                                                  |  |                 | 92,859   |   |               |   | 38,110   |  
|                                                                                                                      |  |                
|Property and equipment, net                                                                                           |  |                 | 33,838   |   |               |   | 35,194   |  
|Goodwill                                                                                                              |  |                 | 414,911  |   |               |   | 393,208  |  
|Other intangible assets, net                                                                                          |  |                 | 86,810   |   |               |   | 84,793   |  
|Notes receivable, net                                                                                                 |  |                 | 9,767    |   |               |   | 5,001    |  
|Other non-current assets, net                                                                                         |  |                 | 17,302   |   |               |   | 17,235   |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total assets                                                                                                          |  | $               | 655,487  |   |               | $ | 573,541  |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Liabilities and Stockholders Equity                                                                                  |  |                 |          |   |               |   |          |  
|Current liabilities:                                                                                                  |  |                 |          |   |               |   |          |  
|Accounts payable and accrued liabilities                                                                              |  | $               | 55,151   |   |               | $ | 31,452   |  
|Income taxes payable                                                                                                  |  |                 | 14,860   |   |               |   | 58,905   |  
|Deferred revenues                                                                                                     |  |                 | 8,414    |   |               |   | 10,038   |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total current liabilities                                                                                             |  |                 | 78,425   |   |               |   | 100,395  |  
|                                                                                                                      |  |                
|Long-term debt                                                                                                        |  |                 | 351,000  |   |               |   | 127,000  |  
|Deferred income taxes                                                                                                 |  |                 | 27,925   |   |               |   | 31,206   |  
|Other non-current liabilities                                                                                         |  |                 | 11,496   |   |               |   | 11,450   |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total liabilities                                                                                                     |  |                 | 468,846  |   |               |   | 270,051  |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Commitments and Contingencies (Note 11)                                                                               |  |                 |          |   |               |   |          |  
|Stockholders equity:                                                                                                 |  |                 |          |   |               |   |          |  
|Common stock, par value $0.01; Authorized: 200,000,000 shares; Issued: 38,865,844 and 38,069,726 shares, respectively |  |                 | 388      |   |               |   | 381      |  
|Additional paid-in capital                                                                                            |  |                 | 381,839  |   |               |   | 359,469  |  
|Retained earnings                                                                                                     |  |                 | 105,680  |   |               |   | 146,962  |  
|Accumulated other comprehensive income (loss)                                                                         |  |                 | (2,755   | ) |               |   | 348      |  
|Less: Treasury stock, at cost: 10,260,691 and 6,953,545 shares, respectively                                          |  |                 | (298,511 | ) |               |   | (203,670 | )
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total stockholders equity                                                                                            |  |                 | 186,641  |   |               |   | 303,490  |  
|                                                                                                                      |  |                 |          |   |               |   |          |  
|Total liabilities and stockholders equity                                                                            |  | $               | 655,487  |   |               | $ | 573,541  |  
|                                                                                                                      |  |                 |          |   |               |   |          |  

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 EndedJanuary 31, |        |   | Nine Months EndedJanuary 31, |  
|                                                      |  | 2008                          |        |   | 2007                         |   |         | 2008 |  |   | 2007    |  
|Revenues                                              |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Franchise operations revenues:                        |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Royalty                                               |  | $                             | 27,132 |   |                              | $ | 32,017  |      |  | $ | 28,464  |   |  | $ | 33,359  |  
|Marketing and advertising                             |  |                               | 12,161 |   |                              |   | 14,338  |      |  |   | 12,736  |   |  |   | 14,934  |  
|Financial product fees                                |  |                               | 24,451 |   |                              |   | 30,019  |      |  |   | 29,777  |   |  |   | 34,506  |  
|Other                                                 |  |                               | 3,170  |   |                              |   | 3,833   |      |  |   | 6,554   |   |  |   | 8,565   |  
|Service revenues from company-owned office operations |  |                               | 30,641 |   |                              |   | 34,239  |      |  |   | 31,545  |   |  |   | 35,098  |  
|                                                      |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Total revenues                                        |  |                               | 97,555 |   |                              |   | 114,446 |      |  |   | 109,076 |   |  |   | 126,462 |  
|                                                      |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Expenses                                              |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Cost of franchise operations                          |  |                               | 8,135  |   |                              |   | 8,220   |      |  |   | 26,197  |   |  |   | 24,173  |  
|Marketing and advertising                             |  |                               | 22,620 |   |                              |   | 25,030  |      |  |   | 31,330  |   |  |   | 31,327  |  
|Cost of company-owned office operations               |  |                               | 20,727 |   |                              |   | 19,264  |      |  |   | 33,242  |   |  |   | 29,963  |  
|Selling, general and administrative                   |  |                               | 8,509  |   |                              |   | 10,018  |      |  |   | 39,789  |   |  |   | 26,822  |  
|Depreciation and amortization                         |  |                               | 3,352  |   |                              |   | 3,134   |      |  |   | 9,946   |   |  |   | 9,100   |  
|                                                      |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Total expenses                                        |  |                               | 63,343 |   |                              |   | 65,666  |      |  |   | 140,504 |   |  |   | 121,385 |  
|                                                      |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Income (loss) from operations                         |  |                               | 34,212 |   |                              |   | 48,780  |      |  |   | (31,428 | ) |  |   | 5,077   |  
|Other income/(expense):                               |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Interest and other income                             |  |                               | 421    |   |                              |   | 639     |      |  |   | 1,369   |   |  |   | 1,305   |  
|Interest expense                                      |  |                               | (4,621 | ) |                              |   | (3,576  | )    |  |   | (11,112 | ) |  |   | (7,416  | )
|                                                      |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Income (loss) before income taxes                     |  |                               | 30,012 |   |                              |   | 45,843  |      |  |   | (41,171 | ) |  |   | (1,034  | )
|Provision for (benefit from) income taxes             |  |                               | 11,765 |   |                              |   | 18,305  |      |  |   | (16,139 | ) |  |   | (413    | )
|                                                      |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Net income (loss)                                     |  | $                             | 18,247 |   |                              | $ | 27,538  |      |  | $ | (25,032 | ) |  | $ | (621    | )
|                                                      |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Earnings (loss) per share:                            |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Basic                                                 |  | $                             | 0.61   |   |                              | $ | 0.84    |      |  | $ | (0.83   | ) |  | $ | (0.02   | )
|                                                      |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Diluted                                               |  | $                             | 0.61   |   |                              | $ | 0.83    |      |  | $ | (0.83   | ) |  | $ | (0.02   | )
|                                                      |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Weighted average shares outstanding:                  |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Basic                                                 |  |                               | 29,690 |   |                              |   | 32,614  |      |  |   | 30,041  |   |  |   | 33,710  |  
|                                                      |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Diluted                                               |  |                               | 30,061 |   |                              |   | 33,235  |      |  |   | 30,041  |   |  |   | 33,710  |  
|                                                      |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  
|Cash dividends declared per share:                    |  | $                             | 0.18   |   |                              | $ | 0.12    |      |  | $ | 0.54    |   |  | $ | 0.36    |  
|                                                      |  |                               |        |   |                              |   |         |      |  |   |         |   |  |   |         |  

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



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JACKSON HEWITT TAX SERVICE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



|                                                                            |  |                              |          |   |      |   |          |  
|--------------------------------------------------------------------------- |  | ---------------------------- | -------- | - | ---- | - | -------- | -
|                                                                            |  | Nine Months EndedJanuary 31, |         
|                                                                            |  | 2008                         |          |   | 2007 |  
|Operating activities:                                                       |  |                              |          |   |      |   |          |  
|Net loss                                                                    |  | $                            | (25,032  | ) |      | $ | (621     | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                              |          |   |      |   |          |  
|Depreciation and amortization                                               |  |                              | 9,946    |   |      |   | 9,100    |  
|Amortization of Gold Guarantee product                                      |  |                              | (1,837   | ) |      |   | (1,825   | )
|Amortization of development advances                                        |  |                              | 1,190    |   |      |   | 952      |  
|Provision for uncollectible receivables, net                                |  |                              | 1,360    |   |      |   | 1,255    |  
|Stock-based compensation                                                    |  |                              | 6,468    |   |      |   | 3,065    |  
|Deferred income taxes                                                       |  |                              | 1,374    |   |      |   | (417     | )
|Excess tax benefits on stock options exercised                              |  |                              | (3,881   | ) |      |   | (974     | )
|Other                                                                       |  |                              | 152      |   |      |   | 225      |  
|Changes in assets and liabilities, excluding the impact of acquisitions:    |  |                              |          |   |      |   |          |  
|Accounts receivable                                                         |  |                              | (48,997  | ) |      |   | (47,549  | )
|Notes receivable                                                            |  |                              | (1,729   | ) |      |   | (2,699   | )
|Prepaid expenses and other                                                  |  |                              | (11,142  | ) |      |   | (7,205   | )
|Accounts payable, accrued and other liabilities                             |  |                              | 1,122    |   |      |   | (932     | )
|Income taxes payable                                                        |  |                              | (46,548  | ) |      |   | (24,612  | )
|Deferred revenues                                                           |  |                              | 2,332    |   |      |   | 3,987    |  
|                                                                            |  |                              |          |   |      |   |          |  
|Net cash used in operating activities                                       |  |                              | (115,222 | ) |      |   | (68,250  | )
|                                                                            |  |                              |          |   |      |   |          |  
|Investing activities:                                                       |  |                              |          |   |      |   |          |  
|Capital expenditures                                                        |  |                              | (5,163   | ) |      |   | (7,920   | )
|Funding provided to franchisees, net of repayments                          |  |                              | (8,532   | ) |      |   | (5,769   | )
|Cash paid for acquisitions                                                  |  |                              | (17,101  | ) |      |   | (3,828   | )
|                                                                            |  |                              |          |   |      |   |          |  
|Net cash used in investing activities                                       |  |                              | (30,796  | ) |      |   | (17,517  | )
|                                                                            |  |                              |          |   |      |   |          |  
|Financing activities:                                                       |  |                              |          |   |      |   |          |  
|Common stock repurchases                                                    |  |                              | (94,841  | ) |      |   | (104,541 | )
|Borrowings under revolving credit facilities                                |  |                              | 412,000  |   |      |   | 240,000  |  
|Repayment of borrowings under revolving credit facilities                   |  |                              | (188,000 | ) |      |   | (37,000  | )
|Dividends paid to stockholders                                              |  |                              | (16,226  | ) |      |   | (11,996  | )
|Proceeds from stock options exercised                                       |  |                              | 12,004   |   |      |   | 2,800    |  
|Excess tax benefits on stock options exercised                              |  |                              | 3,881    |   |      |   | 974      |  
|Debt issuance costs                                                         |  |                              | (110     | ) |      |   | (561     | )
|Change in cash overdrafts                                                   |  |                              | 16,127   |   |      |   |         |  
|                                                                            |  |                              |          |   |      |   |          |  
|Net cash provided by financing activities                                   |  |                              | 144,835  |   |      |   | 89,676   |  
|                                                                            |  |                              |          |   |      |   |          |  
|Net increase/(decrease) in cash and cash equivalents                        |  |                              | (1,183   | ) |      |   | 3,909    |  
|Cash and cash equivalents, beginning of period                              |  |                              | 1,693    |   |      |   | 15,150   |  
|                                                                            |  |                              |          |   |      |   |          |  
|Cash and cash equivalents, end of period                                    |  | $                            | 510      |   |      | $ | 19,059   |  
|                                                                            |  |                              |          |   |      |   |          |  

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



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JACKSON HEWITT TAX SERVICE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BACKGROUND AND BASIS OF PRESENTATION

Description of
Business

Jackson Hewitt Tax Service Inc. provides computerized preparation
of federal, state and local individual income tax returns in the United States through a nationwide network of franchised and company-owned tax offices operating under the brand name Jackson Hewitt Tax Service®. The Company provides its customers with convenient, fast, and 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 to be the parent corporation in connection with the Companys June 2004 initial public offering (IPO) pursuant to which Cendant Corporation, now known as Avis Budget Group, Inc.
(Cendant), divested 100% of its ownership interest in Jackson Hewitt Tax Service Inc. Jackson Hewitt Inc. (JHI) is a wholly-owned subsidiary of Jackson Hewitt Tax Service Inc. Jackson Hewitt Technology Services LLC is a
wholly-owned subsidiary of JHI that supports the technology needs of the Company. Company-owned office operations are conducted by Tax Services of America, Inc. (TSA), which is a wholly-owned subsidiary of JHI. The Condensed Consolidated
Financial Statements include the accounts and transactions of Jackson Hewitt and its subsidiaries.

Basis of Presentation

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

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

Certain prior
period amounts have been reclassified to conform to the current period presentation with no effect on previously reported net income (loss) or stockholders equity.

Comprehensive Income (Loss)

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



|                                     |  |                               |        |                              |      |   |        |  |   |         |   |  |   |      |  
|------------------------------------ |  | ----------------------------- | ------ | ---------------------------- | ---- | - | ------ |  | - | ------- | - |  | - | ---- | -
|                                     |  | Three Months EndedJanuary 31, |        | Nine Months EndedJanuary 31, |     
|                                     |  | 2008                          |        |                              | 2007 |   | 2008   |  |   | 2007    |  
|                                     |  | (in thousands)                |        | (in thousands)               |     
|Net income (loss)                    |  | $                             | 18,247 |                              |      | $ | 27,538 |  | $ | (25,032 | ) |  | $ | (621 | )
|Changes in fair value of derivatives |  |                               | (2,792 | )                            |      |   | 218    |  |   | (3,103  | ) |  |   | (224 | )
|                                     |  |                               |        |                              |      |   |        |  |   |         |   |  |   |      |  
|Total comprehensive income (loss)    |  | $                             | 15,455 |                              |      | $ | 27,756 |  | $ | (28,135 | ) |  | $ | (845 | )
|                                     |  |                               |        |                              |      |   |        |  |   |         |   |  |   |      |  



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Computation of earnings (loss) per share

Basic earnings (loss) per share is calculated as net income (loss) divided by the weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share is calculated by dividing net income (loss) by an adjusted weighted average number of common shares outstanding during the period assuming conversion of potentially dilutive securities arising from unvested
restricted stock and stock options outstanding. The effect of dilutive securities is computed using the treasury stock method and average market prices during the period.

At January 31, 2008, there were 1,136,700 outstanding stock options that had exercise prices higher than the average market price for the third quarter of fiscal 2008 and were thus excluded from the computation
of diluted loss per share. For the three months ended January 31, 2007, no securities were considered antidilutive (and excluded from the computation of diluted loss per share) as no outstanding stock options at January 31, 2007 had
exercise prices higher than the average market price.

For the nine months ended January 31, the following securities were considered
antidilutive and therefore were excluded from the computation of diluted loss per share:



|                                                                            |  |           |  |          
|--------------------------------------------------------------------------- |  | --------- |  | ---------
|                                                                            |  | 2008      |  | 2007     
|Number of antidilutive stock options outstanding at January 31              |  | 1,354,999 |  | 2,786,203
|                                                                            |  |          
|Number of antidilutive shares of restricted stock outstanding at January 31 |  | 22,651    |  |         
|                                                                            |  |           |  |          
|                                                                            |  |          
|Total                                                                       |  | 1,377,650 |  | 2,786,203
|                                                                            |  |           |  |          

2. RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB
Staff Position (FSP) FAS 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2). FSP FAS 157-2 defers the implementation of SFAS No. 157 for all non-financial assets and non-financial liabilities, except
those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The remainder of SFAS No. 157 is effective for the Company beginning May 1, 2009. The aspects that have been
deferred by FSP FAS 157-2 will be effective for the Company beginning May 1, 2010. The Company is currently assessing the potential impact on its Consolidated Financial Statements of adopting SFAS 157.

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

In December 2007,
the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interests in the acquiree, and the goodwill acquired. SFAS 141R also establishes disclosure requirements which will enable users to evaluate the nature and
financial effects of the business combination. SFAS 141R is effective for the Company as of the beginning of fiscal 2009 and will then be applied prospectively to business combinations that have an acquisition date on or after May 1, 2009. The
Company is currently assessing the potential impact on its Consolidated Financial Statements of adopting SFAS 141R.

3. FINANCIAL PRODUCT AGREEMENTS

In September and October 2007, the Company entered into the following agreements:



| |  |  | Program Agreement (the Republic Program Agreement), dated September 19, 2007, with Republic Bank & Trust Company (Republic);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | Technology Services Agreement (the Republic Technology Agreement), dated September 19, 2007, with Republic;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | Amended and Restated Program Agreement (the Amended and Restated SBBT Program Agreement), dated September 21, 2007, with Santa Barbara
Bank & Trust (SBBT);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



5



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##### Table of Contents

| |  |  | Amended and Restated Technology Services Agreement (the Amended and Restated SBBT Technology Agreement), dated September 21, 2007, with SBBT;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Amended and Restated Program Agreement (the Amended and Restated HSBC Program Agreement), dated October 8, 2007, with HSBC Taxpayer Financial
Services Inc. (HSBC); and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Amended and Restated Technology Services Agreement (the Amended and Restated HSBC Technology Agreement), dated October 8, 2007, with HSBC.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------

The Republic Program Agreement, the Amended and Restated SBBT Program Agreement and the Amended and Restated HSBC
Program Agreement are collectively referred to as the Program Agreements. The Republic Technology Agreement, the Amended and Restated SBBT Technology Agreement and the Amended and Restated HSBC Technology Agreement are collectively
referred to as the Technology Agreements.

Under the Program Agreements, Republic, SBBT and HSBC will offer, process and
administer certain financial products, including refund anticipation loans, to customers of certain of the Companys Jackson Hewitt Tax Service locations. In connection with the Program Agreements, each financial product provider will pay the
Company a fixed annual fee. Pursuant to the Technology Agreements, the Company will provide certain technology services and related support in connection with these programs. Under the Technology Agreements, the Company will receive a fixed annual
fee as well as variable payments tied to growth in the programs.

The Company recognizes revenues on the fixed annual fees during the tax
season in the third and fourth fiscal quarters, as well as variable fees upon the attainment of certain contractual growth thresholds. During tax season 2008, Republic, SBBT and HSBC will collectively provide financial products to the entire network
of Jackson Hewitt Tax Service offices. The Company expects that, in accordance with the terms of their respective agreements, that during tax seasons 2009 and 2010, Republic and SBBT will collectively provide financial products to the entire network
of Jackson Hewitt Tax Service offices. SBBT will provide a majority of the financial products in each of the tax seasons 2008 through 2010.

4. 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, 2007   |  | $                   | 336,767 |                               | $ | 56,441 |  | $ | 393,208
|Additions (Note 7)             |  |                     |        |                               |   | 21,703 |  |   | 21,703 
|                               |  |                     |         |                               |   |        |  |   |        
|Balance as of January 31, 2008 |  | $                   | 336,767 |                               | $ | 78,144 |  | $ | 414,911
|                               |  |                     |         |                               |   |        |  |   |        



6



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##### Table of Contents

Other intangible assets consisted of:



|                                            |  |                        |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|------------------------------------------- |  | ---------------------- | ------ | ----------------------- | - | ------- | ----------------- |  | ------------------- | ------ | ----------------------- | - | ------ | ----------------- | - | ------- | - |  | - | ------
|                                            |  | As of January 31, 2008 |        | As of April 30, 2007   
|                                            |  | GrossCarryingAmount    |        | AccumulatedAmortization |   |         | NetCarryingAmount |  | GrossCarryingAmount |        | AccumulatedAmortization |   |        | NetCarryingAmount
|                                            |  | (In thousands)        
|Amortizable other intangible assets:        |  |                        |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Franchise agreements(a)                     |  | $                      | 16,052 |                         | $ | (15,473 | )                 |  | $                   | 579    |                         | $ | 16,052 |                   | $ | (14,394 | ) |  | $ | 1,658 
|Customer relationships(b)                   |  |                        | 10,759 |                         |   | (7,553  | )                 |  |                     | 3,206  |                         |   | 8,913  |                   |   | (6,778  | ) |  |   | 2,135 
|                                            |  |                        |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Total amortizable other intangible assets   |  | $                      | 26,811 |                         | $ | (23,026 | )                 |  |                     | 3,785  |                         | $ | 24,965 |                   | $ | (21,172 | ) |  |   | 3,793 
|                                            |  |                        |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Unamortizable other intangible assets:      |  |                        |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Jackson Hewitt trademark                    |  |                        |        |                         |   |         |                   |  |                     | 81,000 |                         |   |        |                   |   |         |   |  |   | 81,000
|Reacquired franchise rights (Note 7)        |  |                        |        |                         |   |         |                   |  |                     | 2,025  |                         |   |        |                   |   |         |   |  |   |      
|                                            |  |                        |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Total unamortizable other intangible assets |  |                        |        |                         |   |         |                   |  |                     | 83,025 |                         |   |        |                   |   |         |   |  |   | 81,000
|                                            |  |                        |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       
|Total other intangible assets, net          |  |                        |        |                         |   |         |                   |  | $                   | 86,810 |                         |   |        |                   |   |         |   |  | $ | 84,793
|                                            |  |                        |        |                         |   |         |                   |  |                     |        |                         |   |        |                   |   |         |   |  |   |       



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

|(b) | Consists of customer lists and non-compete agreements, which are amortized over a period of two to seven years.
|--- | ---------------------------------------------------------------------------------------------------------------

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



|                               |  |                     |        |   |                               |   |       |       |  |   |        |  
|------------------------------ |  | ------------------- | ------ | - | ----------------------------- | - | ----- | ----- |  | - | ------ | -
|                               |  | FranchiseOperations |        |   | Company-OwnedOfficeOperations |   |       | Total | 
|                               |  | (In thousands)      |       
|Balance as of April 30, 2007   |  | $                   | 82,658 |   |                               | $ | 2,135 |       |  | $ | 84,793 |  
|Additions (Note 7)             |  |                     | 2,025  |   |                               |   | 1,846 |       |  |   | 3,871  |  
|Amortization                   |  |                     | (1,079 | ) |                               |   | (775  | )     |  |   | (1,854 | )
|                               |  |                     |        |   |                               |   |       |       |  |   |        |  
|Balance as of January 31, 2008 |  | $                   | 83,604 |   |                               | $ | 3,206 |       |  | $ | 86,810 |  
|                               |  |                     |        |   |                               |   |       |       |  |   |        |  

Amortization expense relating to other intangible assets was as follows:



|                       |  |                               |     |                              |   |      |  |      |       |  |   |      
|---------------------- |  | ----------------------------- | --- | ---------------------------- | - | ---- |  | ---- | ----- |  | - | -----
|                       |  | Three Months EndedJanuary 31, |     | Nine Months EndedJanuary 31,
|                       |  | 2008                          |     | 2007                         |   | 2008 |  | 2007
|                       |  | (In thousands)               
|Franchise agreements   |  | $                             | 275 |                              | $ | 401  |  | $    | 1,079 |  | $ | 1,203
|Customer relationships |  |                               | 312 |                              |   | 271  |  |      | 775   |  |   | 826  
|                       |  |                               |     |                              |   |      |  |      |       |  |   |      
|Total                  |  | $                             | 587 |                              | $ | 672  |  | $    | 1,854 |  | $ | 2,029
|                       |  |                               |     |                              |   |      |  |      |       |  |   |      



7



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##### Table of Contents

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



|                                      |  |                |      
|------------------------------------- |  | -------------- | -----
|                                      |  | Amount        
|                                      |  | (In thousands)
|Remaining three months in fiscal 2008 |  | $              | 337  
|2009                                  |  |                | 1,184
|2010                                  |  |                | 881  
|2011                                  |  |                | 680  
|2012                                  |  |                | 449  
|2013 and thereafter                   |  |                | 254  
|                                      |  |                |      
|Total                                 |  | $              | 3,785
|                                      |  |                |      

5. CAPITAL STOCK

Stock Options

Under the Jackson Hewitt Tax Service Inc. Amended and Restated 2004 Equity and Incentive Plan
(the Amended and Restated Plan), stock options are granted, with the exception of certain stock options granted at the time of the Companys IPO, with an exercise price equal to the market price of a share of common stock on the
date of grant and have a contractual term of ten years. All stock options granted through April 30, 2007 become exercisable with respect to 25% of the shares on each of the first four anniversaries of the date of grant, subject to continued
employment on the vesting date. Stock options granted in and after May 2007 become exercisable with respect to 20% of the shares on each of the first five anniversaries of the date of grant, subject to continued employment on the vesting date. 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.

The Company incurred stock compensation expense of $1.0 million and $6.2 million in the three and nine months ended January 31, 2008, respectively,
and $1.0 million and $2.8 million in the three and nine months ended January 31, 2007, respectively, in connection with the vesting of employee stock options. For the nine months ended January 31, 2008, stock-based compensation expense
includes $2.9 million related to the accelerated vesting of 415,894 stock options attributed to the departure of the Companys former Chief Executive Officer.

The weighted average grant date fair value for each Jackson Hewitt stock option granted during the nine months ended January 31, 2008 and January 31, 2007 was $8.86 and $11.50, respectively. The fair value
of each option award was estimated on the date of grant using the Black-Scholes option-pricing model. The Company uses the method permitted under SEC Staff Accounting Bulletin (SAB) No. 110, which amends SAB No. 107,
Share-Based Payment, 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 from the date of the Companys initial
public offering in June 2004 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.



8



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##### Table of Contents

The following table sets forth the weighted average assumptions used to determine compensation cost for
stock options granted during the nine months ended January 31, 2008 and January 31, 2007, respectively:



|                                   |  |                               |   |  |      |  
|---------------------------------- |  | ----------------------------- | - |  | ---- | -
|                                   |  | Nine Months Ended January 31, |  
|                                   |  | 2008                          |   |  | 2007 |  
|Expected holding period (in years) |  | 6.50                          |   |  | 6.25 |  
|Expected volatility                |  | 30.7                          | % |  | 32.0 | %
|Dividend yield                     |  | 2.4                           | % |  | 1.5  | %
|Risk-free interest rate            |  | 4.7                           | % |  | 5.0  | %

The following table summarizes information about stock option activity for the nine months ended January 31,
2008:



|                                   |  |                       |   |  |                              |      
|---------------------------------- |  | --------------------- | - |  | ---------------------------- | -----
|                                   |  | Number ofStockOptions |   |  | WeightedAverageExercisePrice
|Balance as of April 30, 2007       |  | 2,777,511             |   |  | $                            | 20.86
|Granted                            |  | 732,262               |   |  | $                            | 29.64
|Exercised                          |  | (773,467              | ) |  | $                            | 15.52
|Forfeited                          |  | (244,101              | ) |  | $                            | 25.91
|Expired                            |  | (506                  | ) |  | $                            | 17.00
|                                   |  |                       |   |  |                              |      
|Balance as of January 31, 2008     |  | 2,491,699             |   |  | $                            | 24.61
|                                   |  |                       |   |  |                              |      
|Exercisable as of January 31, 2008 |  | 978,879               |   |  | $                            | 20.52
|                                   |  |                       |   |  |                              |      

The aggregate intrinsic value ascribed to the stock options exercised during the nine months ended
January 31, 2008 and January 31, 2007 was $12.7 million and $3.2 million, respectively.

Outstanding stock options as of
January 31, 2008 had an aggregate intrinsic value of $4.5 million and an average remaining contractual life of 7.4 years. Exercisable stock options as of January 31, 2008 had an aggregate intrinsic value of $3.3 million and an average
remaining contractual life of 5.9 years. As of January 31, 2008, there were 2,378,238 outstanding stock options vested or expected to vest (the awards, net of estimated forfeitures, for which compensation cost is being recognized) which had a
weighted average exercise price of $24.48, aggregate intrinsic value of $4.4 million and an average remaining contractual life of 7.4 years. The aggregate intrinsic values discussed in this paragraph represent the total pre-tax intrinsic value based
on the Companys stock price as of January 31, 2008, which would have been received by the option holders had all in-the-money option holders exercised their options as of that date.

The following table summarizes information about unvested stock option activity for the nine months ended January 31, 2008:



|                                |  |                        |   |  |                                               |     
|------------------------------- |  | ---------------------- | - |  | --------------------------------------------- | ----
|                                |  | Number ofStock Options |   |  | Weighted AverageGrant DateFair
ValuePer Share
|Unvested as of April 30, 2007   |  | 1,642,519              |   |  | $                                             | 8.02
|Granted                         |  | 732,262                |   |  | $                                             | 8.86
|Vested                          |  | (617,860               | ) |  | $                                             | 7.37
|Forfeited                       |  | (244,101               | ) |  | $                                             | 8.41
|                                |  |                        |   |  |                                               |     
|Unvested as of January 31, 2008 |  | 1,512,820              |   |  | $                                             | 8.63
|                                |  |                        |   |  |                                               |     

As of January 31, 2008, there was $8.3 million of total unrecognized compensation cost
related to unvested stock options, which is expected to be recognized over a weighted average period of 3.4 years. The total fair value of stock options vested during the nine months ended January 31, 2008 and January 31, 2007 was $4.6
million and $2.8 million, respectively.



9



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##### Table of Contents

Restricted Stock

In October 2007, the Company granted 22,651 shares of restricted stock to certain key employees. Compensation expense related to the fair value of these awards is recognized on a straight-line basis over the requisite
service period based on those restricted stock grants that are expected to ultimately vest. The fair value was measured by the New York Stock Exchange closing price of the Companys common stock on the date of grant. One third of the shares of
restricted stock will vest on each of the first three anniversaries of the date of grant, subject to continued employment on the vesting date. In the nine months ended January 31, 2008, the Company incurred stock-based compensation expense of
$0.1 million in connection with the vesting of the restricted stock.

Restricted Stock Units

The Company incurred stock-based compensation expense of $0.1 million and $0.3 million in the three and nine months ended January 31, 2008,
respectively, and $0.1 million and $0.2 million in the three and nine months ended January 31, 2007 in connection with the issuance of fully vested and non-forfeitable restricted stock units (RSUs) to certain non-employee directors
that are payable in shares of the Companys common stock as a one-time distribution upon termination of services. In the nine months ended January 31, 2008, the Company granted 10,803 RSUs at an average grant price of $26.44 resulting in
56,651 RSUs outstanding as of January 31, 2008 with a weighted average grant price of $23.68.

Share Repurchases

During the nine months ended January 31, 2008, the Company repurchased 3,307,146 shares of its common stock totaling $94.8 million under the current
$200.0 million multi-year share repurchase program. As of January 31, 2008, the Company had repurchased 5,401,735 shares of its common stock totaling $162.2 million under its $200.0 million multi-year share repurchase program and had $37.8
million remaining available under this program. During the nine months ended January 31, 2007, the Company repurchased 3,168,459 shares of the Companys common stock totaling $104.5 million under the current and previous repurchase
programs.

The Company uses the cost method to account for such repurchases, which to date have been made in the open market. None of the
Companys repurchased shares have been retired as of January 31, 2008.

6. CREDIT FACILITY

On October 31, 2007, the Company amended its five-year unsecured credit facility (the Amended and Restated $450 Million Credit Facility)
to revise the calculation of the maximum consolidated leverage ratio, which is the ratio of consolidated debt to consolidated Earnings Before Interest, Taxes, Depreciation and Amortization, each as defined in the Amended and Restated $450 Million
Credit Facility. As amended, consolidated debt will now be measured on a trailing four-quarter basis as opposed to using the most recent quarter-end debt figure in the calculation. This change provides the Company with additional borrowing capacity
at the Companys seasonal borrowing peak. As of January 31, 2008, the Company had $351.0 million outstanding under the Amended and Restated $450 Million Credit Facility. As of January 31, 2008, the Company is not aware of any
instances of non-compliance with the financial or restrictive covenants contained in the Amended and Restated $450 Million Credit Facility.

7.
ACQUISITIONS

Assets acquired and liabilities assumed in business combinations were recorded on the Condensed 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.

On October 4, 2007, the Company acquired substantially all of the assets of the tax return preparation businesses in the Atlanta, Chicago, and
Detroit markets (collectively, the Acquisitions) from a former franchisee and began operating those stores as company-owned locations beginning in the 2008 tax season. Total consideration that the Company will pay for the Acquisitions is
$19.1 million in cash, with fifty percent paid at closing and the remainder to be paid nine months after the closing date of which $9.5 million is included in accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets as
of January 31, 2008. The total consideration includes a $0.4 million charge related to the termination of franchise agreements with 12% royalty rates and $18.7 million for the aggregate purchase price, which has been allocated (i) $1.3
million to fixed assets, (ii) $1.5 million to reacquired rights under franchise agreements, and (iii) $15.9 million to goodwill. The settlement loss from unfavorable franchise rights, included in the accompanying Condensed Consolidated
Statements of Operations for the nine months ended January 31, 2008, was recognized in accordance with Emerging Issues



10



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##### Table of Contents

Task Force Issue 04-1 that requires any preexisting business relationship between parties to a business combination be evaluated and accounted for
separately. Under this accounting guidance, the franchise agreements acquired in the Acquisitions with royalty rates below the current 15% royalty rate that the Company receives on new franchise agreements were required to be valued and recognized
as an expense and excluded from the purchase price paid for the Acquisitions. The amount charged to expense represents the estimated amount by which the 12% royalty rate is lower than the 15% royalty rate over the remaining life of the respective
franchise agreements. The reacquired franchise rights represent the exclusive right to operate the tax return preparation businesses under the Jackson Hewitt brand that the Company had granted to the former franchisee. The life of these reacquired
rights was determined to be commensurate with the life of the Companys existing trade name. The amount allocated to the reacquired rights represents the current fair market value and has been recorded as an indefinite-lived intangible asset on
the Condensed Consolidated Balance Sheet as of January 31, 2008.

In addition to the above acquisitions, in the nine months ended
January 31, 2008, the Company acquired 12 other tax return preparation businesses for a total purchase price of $8.6 million, of which $6.3 million was paid at the closings. The total purchase prices have been allocated (i) $0.3 million to
fixed assets, (ii) $2.4 million to intangible assets (including $0.6 million in reacquired franchise rights) and (iii) $5.9 million to goodwill. Payment of $0.4 million in accrued purchase price obligations includes the requirement that
the acquired entities achieve specified revenue levels during the 2008 tax season.

In the nine months ended January 31, 2007, the
Company acquired five tax return preparation businesses for a total purchase price of $4.3 million.

The Companys acquisitions in the
periods presented were not significant to the Companys financial position, results of operations or cash flows either individually or in the aggregate. All goodwill associated with the acquisitions was allocated to the company-owned office
operations segment and is deductible for tax purposes.

8. INTEREST RATE HEDGES

In November 2007, the Company entered into interest rate swap agreements with financial institutions to convert an additional notional amount of $50.0
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, which became effective in November 2007 and expire in October 2011,
the Company receives a floating interest rate based on the three-month LIBOR (in arrears) and pays a fixed interest rate averaging 4.5%. These interest rate swap agreements were determined to be cash flow hedges in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities as amended by SFAS No. 137, No. 138 and No. 149. Since inception, no amounts have been recognized in the results of operations due to ineffectiveness of any of
the interest rate hedges.

9. INCOME TAXES

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

The Company adopted the provisions of FIN
48 on May 1, 2007. Upon the adoption of FIN 48, the Company had no cumulative effect adjustment to retained earnings and no liability for unrecognized tax benefits. As of and for the three and nine months ended January 31, 2008,
respectively, the Company had no liability for unrecognized tax benefits nor any interest or penalties recognized related to unrecognized tax benefits. The Company does not expect any significant changes to the total amount of unrecognized tax
benefits within twelve months of the current reporting date. In accordance with its policy, the Company recognizes any interest and penalties related to uncertain tax positions as a component of income tax expense.

The Company is subject to United States federal income tax, as well as income tax in multiple state and local jurisdictions. The Company is no longer
subject to United States federal income tax examinations for all years through calendar 2002. The Companys income tax returns for calendar 2003 and 2004 are currently under examination by the Internal Revenue Service as part of the audit of
Cendant, and separately under audit for calendar 2005. With only a few exceptions, all state and local income tax examination matters have been concluded through calendar 2003. The Company does not anticipate any material adjustments from any
ongoing examinations.



11



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##### Table of Contents

10. SEGMENT INFORMATION

The Company manages and evaluates the operating results of the business in two reportable 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 January 31, 2008 |  |                     |        |                               |   |                        |  |   |         |   |  |   |        
|Revenues                            |  | $                   | 66,914 |                               | $ | 30,641                 |  | $ |        |   |  | $ | 97,555 
|                                    |  |                     |        |                               |   |                        |  |   |         |   |  |   |        
|Income (loss) before income taxes   |  | $                   | 35,405 |                               | $ | 5,716                  |  | $ | (11,109 | ) |  | $ | 30,012 
|                                    |  |                     |        |                               |   |                        |  |   |         |   |  |   |        
|Three months ended January 31, 2007 |  |                     |        |                               |   |                        |  |   |         |   |  |   |        
|Revenues                            |  | $                   | 80,207 |                               | $ | 34,239                 |  | $ |        |   |  | $ | 114,446
|                                    |  |                     |        |                               |   |                        |  |   |         |   |  |   |        
|Income (loss) before income taxes   |  | $                   | 46,721 |                               | $ | 10,853                 |  | $ | (11,731 | ) |  | $ | 45,843 
|                                    |  |                     |        |                               |   |                        |  |   |         |   |  |   |        



|                                   |  |                     |        |                               |   |        |                        |  |   |         |   |  |   |         |  
|---------------------------------- |  | ------------------- | ------ | ----------------------------- | - | ------ | ---------------------- |  | - | ------- | - |  | - | ------- | -
|                                   |  | FranchiseOperations |        | Company-OwnedOfficeOperations |   |        | Corporateand Other (a) |  |   | Total   |  
|                                   |  | (In thousands)      |       
|Nine months ended January 31, 2008 |  |                     |        |                               |   |        |                        |  |   |         |   |  |   |         |  
|Revenues                           |  | $                   | 77,531 |                               | $ | 31,545 |                        |  | $ |        |   |  | $ | 109,076 |  
|                                   |  |                     |        |                               |   |        |                        |  |   |         |   |  |   |         |  
|Income (loss) before income taxes  |  | $                   | 13,300 |                               | $ | (9,761 | )                      |  | $ | (44,710 | ) |  | $ | (41,171 | )
|                                   |  |                     |        |                               |   |        |                        |  |   |         |   |  |   |         |  
|Nine months ended January 31, 2007 |  |                     |        |                               |   |        |                        |  |   |         |   |  |   |         |  
|Revenues                           |  | $                   | 91,364 |                               | $ | 35,098 |                        |  | $ |        |   |  | $ | 126,462 |  
|                                   |  |                     |        |                               |   |        |                        |  |   |         |   |  |   |         |  
|Income (loss) before income taxes  |  | $                   | 29,842 |                               | $ | (2,709 | )                      |  | $ | (28,167 | ) |  | $ | (1,034  | )
|                                   |  |                     |        |                               |   |        |                        |  |   |         |   |  |   |         |  



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

11. COMMITMENTS AND CONTINGENCIES

Guarantees

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

The Company is required to provide various types
of surety bonds, such as tax return preparer bonds and performance bonds, which are irrevocable undertakings by the Company to make payment in the event the Company fails to perform certain of its obligations to third parties. These bonds vary in
duration although most are issued and outstanding from one to two years. If the Company fails to perform under its obligations, the maximum potential payment under these surety bonds is $1.9 million as of January 31, 2008. Historically, no
surety bonds have been drawn upon and there is no future expectation that these surety bonds will be drawn upon.

The Company, through TSA,
provides customers of company-owned offices with a guarantee in connection with the preparation of tax returns that may require in certain circumstances the Company to pay penalties and interest assessed by a taxing authority. The Company has a
liability of $0.1 million as of January 31, 2008 and April 30, 2007, respectively, for the fair value of the obligation undertaken in issuing the guarantee. Such liabilities were included in accounts payable and



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accrued liabilities on the Condensed Consolidated Balance Sheets. In addition, the Company may be required to pay additional tax (or refund shortfall)
assessed by a taxing authority for all customers that purchase the Companys Gold Guarantee® product. The Company may incur a liability to the extent that the total customer Gold
Guarantee claims exceed maximum thresholds pursuant to the contract between the Company and the third party program provider. There have been no amounts paid by the Company under this arrangement in the past relating to such potential liability and
the Company does not expect to be required to make payment in the future.

The transitional agreement with Cendant 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. See Footnote 8 for additional information.

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

Legal Proceedings

On March 18, 2003, Canieva Hood and Congress of California Seniors brought a purported class action suit against Santa Barbara Bank & Trust
(SBB&T) and the Company in the Superior Court of California (Santa Barbara, following a transfer from San Francisco) seeking declaratory relief in connection with the provision of RALs, as to the lawfulness of the practice of
cross-lender debt collection, as to the validity of SBB&Ts cross-lender debt collection provision and as to whether the method of disclosure to customers with respect to the provision is unlawful or fraudulent, and seeking injunctive
relief, restitution, disgorgement, compensatory damages, statutory damages, punitive damages, attorneys fees, and expenses. The Company is a party in the action for allegedly collaborating, and aiding and abetting, in the actions of SBB&T.
The trial court granted a motion for judgment on the pleadings by SBB&T and third-party bank defendants on federal preemption grounds, and stayed all other proceedings pending appeal. The California Court of Appeal reversed the trial
courts preemption decision. The California Supreme Court denied review. SBB&T and third-party banks moved in the California Court of Appeal to stay a return to the lower Court pending a decision by the United States Supreme Court to hear
the matter. On June 4, 2007, the United States Supreme Court denied the motion to hear the matter, and the purported class action suit is proceeding in the trial court. A class certification hearing has been scheduled for July 30, 2008.
The Company believes it has meritorious defenses and is contesting this matter vigorously. On December 18, 2003, Ms. Hood also filed a separate suit against the Company in the Ohio Court of Common Pleas (Montgomery County) and is seeking
to certify a class in the action. The allegations of negligence, breach of fiduciary duty, and violation of certain Ohio law relate to the same set of facts as the California action. Plaintiff seeks equitable and declaratory relief, damages,
attorneys fees, and expenses. The case is in its discovery and pretrial stage. The Company believes it has meritorious defenses and is contesting this matter vigorously.

On September 26, 2006, Willie Brown brought a purported class action complaint against the Company in the Ohio Court of Common Pleas, Cuyahoga
County, on behalf of Ohio customers who obtained RALs facilitated by the Company, for an alleged failure to comply with Ohios Credit Services Organization Act, and for alleged unfair and deceptive acts in violation of Ohios Consumer
Sales Practices Act, and seeking damages and injunctive relief. The Company believes it has meritorious defenses and is contesting this matter vigorously.



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On October 30, 2006, Linda Hunter brought a purported class action complaint against the Company in
the United States District Court, Southern District of West Virginia, on behalf of West Virginia customers who obtained RALs facilitated by the Company, seeking damages for an alleged breach of fiduciary duty, for breach of West Virginias
Credit Service Organization Act, for breach of contract, and for unfair or deceptive acts or practices in connection with the Companys RAL facilitation activities. On November 22, 2006, the Company filed a motion to dismiss. On
November 6, 2007, the Court partially granted the Companys motion to dismiss. On November 21, 2007, the Company answered the complaint. The case is in its discovery stage. The Company believes it has meritorious defenses and is
contesting this matter vigorously.

On April 20, 2007, Brent Wooley brought a purported class action complaint against the Company and
certain unknown franchisees in the United States District Court, Northern District of Illinois. The complaint, which was 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. On August 1, 2007, the Company filed a motion to dismiss which, on September 5, 2007, was denied without prejudice to permit
the plaintiff to further amend the complaint. On October 5, 2007, plaintiff filed a second amended complaint to add additional parties. On November 20, 2007, the Company filed a motion to dismiss the second amended complaint. 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. The Division is undertaking an investigation to determine whether to commence an administrative hearing. The Company believes it has meritorious defenses and is contesting this matter vigorously in the investigative process and in any
administrative hearing that will occur in the Division.

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

12. SUBSEQUENT EVENT

Declaration of Dividend

On March 6, 2008, the Companys Board of Directors declared a quarterly cash dividend of $0.18 per share of common stock, payable on
April 15, 2008, to common stockholders of record on March 28, 2008.



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##### Table of Contents

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

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

FORWARD-LOOKING STATEMENTS

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

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

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



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OVERVIEW

We manage and evaluate the operating results of our business in two reportable 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). As of January 31, 2008, our network consisted of 6,788 franchised and company-owned offices and prepared
1.21 million returns year-to-date. Our revenues consist of fees paid by our franchisees, service revenues earned at company-owned offices and financial product fees. Jackson Hewitt, the Company, we,
our, and us are used interchangeably in this report to refer to Jackson Hewitt Tax Service Inc. and its subsidiaries, appropriate to the context.

Seasonality of Operations

Given the seasonal nature of the tax return preparation business,
we have historically generated and expect to continue to generate substantially all of our revenues during the period from January 1 through April 30. In fiscal 2007, we earned 93% of our revenues during this period. We historically
operate at a loss through the first eight months of each fiscal year, during which we incur costs associated with preparing for the upcoming tax season. Additionally, the net loss in these off-season months typically increases each year as a result
of our prior year office expansion in the company-owned segment, anticipated growth in the business and the cumulative effect of our share repurchase programs on interest expense.

Recent Developments

We concluded the following notable events during the nine months ended
January 31, 2008:

Internal Review

On April 3, 2007, the Department of Justice (DOJ) announced it had filed civil injunction suits against a franchisee and other named defendants operating in four states based upon allegations involving fraudulent tax return
preparation (DOJ Lawsuits). We were not named as a defendant in these suits. We retained outside counsel to conduct an internal review to investigate the allegations set forth in the DOJ Lawsuits and to examine our policies, practices
and procedures in connection with such tax return preparation activities (Internal Review). The Internal Review determined that there was no corporate involvement in the allegations made against the franchisee. The DOJ Lawsuits have
since been resolved and that franchisee has since exited the Jackson Hewitt system.

Additionally, we cooperated fully with the IRS in its
examination of our internal tax return preparation compliance systems and processes and on September 20, 2007, we reached an agreement with the IRS resolving its audit of us. In connection with closing the audit, we agreed to make a voluntary
compliance payment of $1.5 million, which is included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

The Internal Reviews examination resulted in recommendations which were implemented for the 2008 tax season and enhanced certain systems and processes, including the development of additional compliance
requirements such as enhanced monitoring tools and increased training of franchisees and tax return preparers.

Acquisitions

On October 4, 2007, we acquired substantially all of the assets of the tax return preparation businesses in the Atlanta, Chicago, and Detroit markets
(collectively, the Acquisitions) from the franchisee named in the DOJ Lawsuits and we are operating these stores as company-owned locations. Total consideration for the Acquisitions is $19.1 million in cash, with fifty percent paid at
closing and the remainder to be paid nine months after the closing date. We expect that these businesses,



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which generated approximately $14 million in revenues for the franchisee last year, will be accretive to our earnings in the current fiscal year.

In addition to the above acquisitions, in the nine months ended January 31, 2008, we acquired 12 other tax return preparation businesses for a
total purchase price of $8.6 million.

Financial Product Agreements

In September and October 2007, we entered into the following agreements:



| |  |  | Program Agreement (the Republic Program Agreement), dated September 19, 2007, with Republic Bank & Trust Company (Republic);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | Technology Services Agreement (the Republic Technology Agreement), dated September 19, 2007, with Republic;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | Amended and Restated Program Agreement (the Amended and Restated SBBT Program Agreement), dated September 21, 2007, with Santa Barbara
Bank & Trust (SBBT);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Amended and Restated Technology Services Agreement (the Amended and Restated SBBT Technology Agreement), dated September 21, 2007, with SBBT;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Amended and Restated Program Agreement (the Amended and Restated HSBC Program Agreement), dated October 8, 2007, with HSBC Taxpayer Financial
Services Inc. (HSBC); and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Amended and Restated Technology Services Agreement (the Amended and Restated HSBC Technology Agreement), dated October 8, 2007, with HSBC.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------

The Republic Program Agreement, the Amended and Restated SBBT Program Agreement and the Amended and Restated HSBC
Program Agreement are collectively referred to as the Program Agreements. The Republic Technology Agreement, the Amended and Restated SBBT Technology Agreement and the Amended and Restated HSBC Technology Agreement are collectively
referred to as the Technology Agreements.

Under the Program Agreements, Republic, SBBT and HSBC will offer, process and
administer certain financial products, including refund anticipation loans, to customers of certain of our locations. In connection with the Program Agreements, each financial product provider will pay us a fixed annual fee. Pursuant to the
Technology Agreements, we will provide certain technology services and related support in connection with these programs. Under the Technology Agreements, we will receive a fixed annual fee as well as variable payments tied to growth in the
programs.

For tax season 2008, Republic, SBBT and HSBC collectively provide financial products to the entire network of Jackson Hewitt Tax
Service offices. During tax seasons 2009 and 2010, Republic and SBBT will collectively provide financial products to the entire network of Jackson Hewitt Tax Service offices. SBBT will provide a majority of the financial products in each of the tax
seasons 2008 through 2010.

Management Changes

On October 9, 2007, the employment of Michael D. Lister, formerly Chief Executive Officer and Chairman of the Board of Directors, was terminated without cause. Upon termination, Mr. Lister also resigned as a
director and Chairman of the Board. Michael Yerington, formerly President and Chief Operating Officer, was promoted to President and Chief Executive Officer and Mark Heimbouch, formerly Chief Financial Officer, was promoted to Chief Operating
Officer. In order to fill the vacancy created by Mr. Listers departure, our Board of Directors elected Mr. Yerington as a Class III director to serve until the annual meeting of our stockholders in 2010 or until his successor is
elected and duly qualified or until his earlier resignation or removal. The Board of Directors separated the roles of Chairman and Chief Executive Officer. Margaret Richardson, former Commissioner of Internal Revenue and current member of the
Companys Board of Directors, was named Non-Executive Chair of the Board.

Effective January 2, 2008, Daniel P. OBrien was
hired as our Executive Vice President, Chief Financial Officer and Treasurer.



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##### Table of Contents

RESULTS OF OPERATIONS

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

Consolidated Results of Operations



|                                                      |                |                               |        |                |                              |   |         |   |  |      |         |   |  |   |         |  
|----------------------------------------------------- | -------------- | ----------------------------- | ------ | -------------- | ---------------------------- | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                      |                | Three Months EndedJanuary 31, |        |                | Nine Months EndedJanuary 31, |  
|                                                      | 2008           |                               |        | 2007           |                              |   | 2008    |   |  | 2007 |        
|                                                      | (in thousands) |                               |        | (in thousands) |                             
|Revenues                                              |                |                               |        |                |                              |   |         |   |  |      |         |   |  |   |         |  
|Franchise operations revenues:                        |                |                               |        |                |                              |   |         |   |  |      |         |   |  |   |         |  
|Royalty                                               |                | $                             | 27,132 |                |                              | $ | 32,017  |   |  | $    | 28,464  |   |  | $ | 33,359  |  
|Marketing and advertising                             |                |                               | 12,161 |                |                              |   | 14,338  |   |  |      | 12,736  |   |  |   | 14,934  |  
|Financial product fees                                |                |                               | 24,451 |                |                              |   | 30,019  |   |  |      | 29,777  |   |  |   | 34,506  |  
|Other                                                 |                |                               | 3,170  |                |                              |   | 3,833   |   |  |      | 6,554   |   |  |   | 8,565   |  
|Service revenues from company-owned office operations |                |                               | 30,641 |                |                              |   | 34,239  |   |  |      | 31,545  |   |  |   | 35,098  |  
|                                                      |                |                               |        |                |                              |   |         |   |  |      |         |   |  |   |         |  
|Total revenues                                        |                |                               | 97,555 |                |                              |   | 114,446 |   |  |      | 109,076 |   |  |   | 126,462 |  
|                                                      |                |                               |        |                |                              |   |         |   |  |      |         |   |  |   |         |  
|Expenses                                              |                |                               |        |                |                              |   |         |   |  |      |         |   |  |   |         |  
|Cost of franchise operations                          |                |                               | 8,135  |                |                              |   | 8,220   |   |  |      | 26,197  |   |  |   | 24,173  |  
|Marketing and advertising                             |                |                               | 22,620 |                |                              |   | 25,030  |   |  |      | 31,330  |   |  |   | 31,327  |  
|Cost of company-owned office operations               |                |                               | 20,727 |                |                              |   | 19,264  |   |  |      | 33,242  |   |  |   | 29,963  |  
|Selling, general and administrative                   |                |                               | 8,509  |                |                              |   | 10,018  |   |  |      | 39,789  |   |  |   | 26,822  |  
|Depreciation and amortization                         |                |                               | 3,352  |                |                              |   | 3,134   |   |  |      | 9,946   |   |  |   | 9,100   |  
|                                                      |                |                               |        |                |                              |   |         |   |  |      |         |   |  |   |         |  
|Total expenses                                        |                |                               | 63,343 |                |                              |   | 65,666  |   |  |      | 140,504 |   |  |   | 121,385 |  
|                                                      |                |                               |        |                |                              |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) from operations                         |                |                               | 34,212 |                |                              |   | 48,780  |   |  |      | (31,428 | ) |  |   | 5,077   |  
|Other income/(expense):                               |                |                               |        |                |                              |   |         |   |  |      |         |   |  |   |         |  
|Interest income                                       |                |                               | 421    |                |                              |   | 639     |   |  |      | 1,369   |   |  |   | 1,305   |  
|Interest expense                                      |                |                               | (4,621 | )              |                              |   | (3,576  | ) |  |      | (11,112 | ) |  |   | (7,416  | )
|                                                      |                |                               |        |                |                              |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) before income taxes                     |                |                               | 30,012 |                |                              |   | 45,843  |   |  |      | (41,171 | ) |  |   | (1,034  | )
|Provisions for (benefit from) income taxes            |                |                               | 11,765 |                |                              |   | 18,305  |   |  |      | (16,139 | ) |  |   | (413    | )
|                                                      |                |                               |        |                |                              |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss)                                     |                | $                             | 18,247 |                |                              | $ | 27,538  |   |  | $    | (25,032 | ) |  | $ | (621    | )
|                                                      |                |                               |        |                |                              |   |         |   |  |      |         |   |  |   |         |  



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The following table presents selected key operating statistics for our franchise and company-owned office operations.



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ----------------------------- | ------- | ---- | ---------------------------- | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      | Three Months EndedJanuary 31, |         |      | Nine Months EndedJanuary 31, |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 2008 |                               |         | 2007 |                              |   | 2008    |   |  | 2007 |        
|Offices:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|Franchise operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |      |                               | 5,786   |      |                              |   | 5,802   |   |  |      | 5,786   |   |  |   | 5,802   |  
|Company-owned office operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      |                               | 1,002   |      |                              |   | 724     |   |  |      | 1,002   |   |  |   | 724     |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|Total officessystem                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |      |                               | 6,788   |      |                              |   | 6,526   |   |  |      | 6,788   |   |  |   | 6,526   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|Tax returns prepared (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|Franchise operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |      |                               | 996     |      |                              |   | 1,174   |   |  |      | 1,051   |   |  |   | 1,237   |  
|Company-owned office operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      |                               | 151     |      |                              |   | 154     |   |  |      | 155     |   |  |   | 158     |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|Total tax returns preparedsystem                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |      |                               | 1,147   |      |                              |   | 1,328   |   |  |      | 1,206   |   |  |   | 1,395   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|Average revenues per tax return prepared:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|Franchise operations (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |      | $                             | 203.48  |      |                              | $ | 203.59  |   |  | $    | 202.02  |   |  | $ | 201.22  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|Company-owned office operations (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |      | $                             | 203.51  |      |                              | $ | 222.49  |   |  | $    | 203.78  |   |  | $ | 221.42  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|Average revenues per tax return preparedsystem                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      | $                             | 203.49  |      |                              | $ | 205.78  |   |  | $    | 202.24  |   |  | $ | 203.51  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|Financial products (in thousands) (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |      |                               | 1,157   |      |                              |   | 1,353   |   |  |      | 1,181   |   |  |   | 1,383   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|Average financial product fees per financial product (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |      | $                             | 21.13   |      |                              | $ | 22.19   |   |  | $    | 25.22   |   |  | $ | 24.95   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|(1)    Calculated as total revenues earned by our franchisees, which does not represent revenues earned by us, divided by the number of tax returns prepared by our franchisees (see calculation
below). We earn royalty and marketing and advertising revenues, which represent a percentage of the revenues received by our franchisees. (2)    Calculated as tax preparation revenues and related fees earned by company-owned offices (as reflected in the Condensed Consolidated Statements of Operations) divided by the number of tax
returns prepared by company-owned offices. (3)    Consists of refund anticipation loans,
assisted refunds and Gold Guarantee products. (4)    Calculated as revenues earned from
financial product fees (as reflected in the Condensed Consolidated Statements of Operations) divided by the number of financial products.  Calculation of average revenues per tax return prepared in Franchise Operations: |     
|(dollars in thousands, except per tax return data)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |      | Three Months EndedJanuary 31, |         |      | Nine Months EndedJanuary 31, |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 2008 |                               |         | 2007 |                              |   | 2008    |   |  | 2007 |        
|Total revenues earned by our franchisees (A)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |      | $                             | 202,672 |      |                              | $ | 238,960 |   |  | $    | 212,261 |   |  | $ | 248,897 |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|Average royalty rate (B)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |      |                               | 13.39   | %    |                              |   | 13.40   | % |  |      | 13.41   | % |  |   | 13.40   | %
|Marketing and advertising rate (C)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |      |                               | 6.00    | %    |                              |   | 6.00    | % |  |      | 6.00    | % |  |   | 6.00    | %
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|Combined royalty and marketing and advertising rate (B plus C)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |                               | 19.39   | %    |                              |   | 19.40   | % |  |      | 19.41   | % |  |   | 19.40   | %
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|Royalty revenues (A times B)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |      | $                             | 27,132  |      |                              | $ | 32,017  |   |  | $    | 28,464  |   |  | $ | 33,359  |  
|Marketing and advertising revenues (A times C)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |                               | 12,161  |      |                              |   | 14,338  |   |  |      | 12,736  |   |  |   | 14,934  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|Total royalty and marketing and advertising revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |      | $                             | 39,293  |      |                              | $ | 46,355  |   |  | $    | 41,200  |   |  | $ | 48,293  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|Number of tax returns prepared by our franchisees (D)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |      |                               | 996     |      |                              |   | 1,174   |   |  |      | 1,051   |   |  |   | 1,237   |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  
|Average revenues per tax return prepared by our franchisees (A divided by D)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |      | $                             | 203.48  |      |                              | $ | 203.59  |   |  | $    | 202.02  |   |  | $ | 201.22  |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                               |         |      |                              |   |         |   |  |      |         |   |  |   |         |  

Amounts may not recalculate precisely due to rounding differences.



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Three Months Ended January 31, 2008 as Compared to Three Months Ended January 31, 2007

Total Revenues

Total revenues
decreased $16.9 million, or 15%, in part due to a decrease of 0.2 million, or 14%, in the number of tax returns prepared. The decrease in the number of tax returns prepared was primarily attributable to (i) a general long-term shift in
consumer behavior to later filing, (ii) the lack of a pre-season product which drove customer demand to other tax preparation companies that were willing to electronically file tax returns with paystub information, as opposed to the legally
required Form W-2; and (iii) the continued references in the media to last years Department of Justice matter involving a former franchisee. Financial product fees decreased $5.6 million principally due to lower product counts. The fixed
fee component of the financial product agreements are accounted for on a percentage of completion method over the tax season. The percentage of customers receiving a financial product during the quarter remained the same as in the prior year period.
Furthermore, service revenues from company owned operations decreased $3.6 million, or 11%, in part due to a decrease in tax return volumes and the absence of revenue generated in the November/December time period. Partially offsetting the decrease
in service revenues was revenue generated from the acquisition of approximately 150 offices from a former franchisee prior to tax season.

Please see Franchise Results of Operations and Company-Owned Office Results of Operations for additional highlights.

Total Expenses

Total operating expenses decreased $2.3 million, or 4%. The more notable highlights were as follows:

Marketing and advertising: Marketing and advertising expenses decreased $2.4 million, or 10%, due to a reallocation of spending to later in the tax
season.

Cost of company-owned office operations: Cost of company-owned office operations increased $1.5 million, or 8%, primarily
due to increased labor and facilities expenses incurred to support the new offices opened during the past year. These costs were partially offset by lower expenses due to the later timing of store openings during the pre-season period.

Selling, general and administrative: Selling, general and administrative expenses decreased $1.5 million, or 15%, primarily due to the absence
of $1.9 million in litigation related expenses in connection with the settlement of the California Attorney General and Pierre Brailsford matters regarding the origination of RALs between 2001 and 2005. Partially offsetting the overall decrease were
consulting fees of $0.6 million incurred to support the Companys strategic initiatives.

Other Income/(Expense)

Interest expense: Interest expense increased $1.0 million, or 29%, primarily due to a higher average debt balance resulting from the cumulative
impact of share repurchase programs. Our average cost of debt was 5.6% and 6.0% in the three months ended January 31, 2008 and 2007, respectively.

Nine Months Ended January 31, 2008 as Compared to Nine Months Ended January 31, 2007

Total Revenues

Total revenues decreased $17.4 million, or 14%, primarily due to the reasons discussed in the three month comparison. The number of tax returns prepared
by our network decreased 14% as compared to the same period last year. Please see Franchise Results of Operations and Company-Owned Office Results of Operations for additional highlights.

Total Expenses

Total operating expenses increased
$19.1 million, or 16%. The more notable highlights were as follows:

Cost of franchise operations: Cost of franchise operations
increased $2.0 million, or 8%, primarily due to (i) higher technology related expenses of $0.6 million; (ii) the cumulative growth in the Gold Guarantee program of $0.6 million; and (iii) a $0.4 million charge related to the
termination of franchisee agreements in connection with the acquisition of a former franchisees businesses in Atlanta, Chicago, and Detroit.

Marketing and advertising: Marketing and advertising expenses remained essentially unchanged. Contributing to this was an increase in spending due to a previously disclosed change in contractual agreements under which advertising
extends throughout the fiscal year rather than primarily during the tax season as under the prior agreement. Offsetting this increase was a reallocation of spending to later in the tax season based on a general long-term shift in customer behavior
to later filing.



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Cost of company-owned office operations: Cost of company-owned office operations increased $3.3
million, or 11%, primarily due to the reasons discussed in the three month comparison.

Selling, general and administrative: The
increase in selling, general and administrative expenses of $13.0 million, or 48%, was primarily due to (i) management severance of $6.1 million including a $5.7 million charge related to the departure of our former Chief Executive Officer;
(ii) Internal Review expenses of $5.8 million which includes $4.3 million in professional fees and a $1.5 million voluntary compliance payment to the IRS; (iii) higher personnel related expenses of $1.0 million; (iv) higher consulting
fees of $0.9 million incurred to support our strategic initiatives; (v) higher legal-related expenses of $0.7 million; (vi) higher stock-based compensation of $0.5 million due to additional equity awards granted in the nine months ended
January 31, 2008; and (vii) higher technology related expenses of $0.4 million. These expenses were partially offset by the absence of a $1.9 million in litigation related expenses and lower commission expense of $0.9 million resulting
from the decrease in the number of territories sold.

Other Income/(Expense)

Interest expense: Interest expense increased $3.7 million, or 50%, for the reasons discussed in the three month comparison. Our average cost of
debt was 5.9% and 6.1% in the nine months ended January 31, 2008 and 2007, respectively.

Segment Results and Corporate and Other

Franchise Operations

Results of Operations



|                                    |                |                               |                |                              |      |        |      |   |        |  |   |       
|----------------------------------- | -------------- | ----------------------------- | -------------- | ---------------------------- | ---- | ------ | ---- | - | ------ |  | - | ------
|                                    |                | Three Months EndedJanuary 31, |                | Nine Months EndedJanuary 31,
|                                    | 2008           |                               | 2007           |                              | 2008 |        | 2007
|                                    | (in thousands) |                               | (in thousands)
|Revenues                            |                |                               |                |                              |      |        |      |   |        |  |   |       
|Royalty                             |                | $                             | 27,132         |                              | $    | 32,017 |      | $ | 28,464 |  | $ | 33,359
|Marketing and advertising           |                |                               | 12,161         |                              |      | 14,338 |      |   | 12,736 |  |   | 14,934
|Financial product fees              |                |                               | 24,451         |                              |      | 30,019 |      |   | 29,777 |  |   | 34,506
|Other                               |                |                               | 3,170          |                              |      | 3,833  |      |   | 6,554  |  |   | 8,565 
|                                    |                |                               |                |                              |      |        |      |   |        |  |   |       
|Total revenues                      |                |                               | 66,914         |                              |      | 80,207 |      |   | 77,531 |  |   | 91,364
|                                    |                |                               |                |                              |      |        |      |   |        |  |   |       
|Expenses                            |                |                               |                |                              |      |        |      |   |        |  |   |       
|Cost of operations                  |                |                               | 8,135          |                              |      | 8,220  |      |   | 26,197 |  |   | 24,173
|Marketing and advertising           |                |                               | 20,260         |                              |      | 22,357 |      |   | 28,461 |  |   | 28,092
|Selling, general and administrative |                |                               | 1,057          |                              |      | 1,025  |      |   | 3,080  |  |   | 3,274 
|Depreciation and amortization       |                |                               | 2,411          |                              |      | 2,443  |      |   | 7,587  |  |   | 6,974 
|                                    |                |                               |                |                              |      |        |      |   |        |  |   |       
|Total expenses                      |                |                               | 31,863         |                              |      | 34,045 |      |   | 65,325 |  |   | 62,513
|                                    |                |                               |                |                              |      |        |      |   |        |  |   |       
|Income from operations              |                |                               | 35,051         |                              |      | 46,162 |      |   | 12,206 |  |   | 28,851
|Other income/(expense):             |                |                               |                |                              |      |        |      |   |        |  |   |       
|Interest income                     |                |                               | 354            |                              |      | 559    |      |   | 1,094  |  |   | 991   
|                                    |                |                               |                |                              |      |        |      |   |        |  |   |       
|Income before income taxes          |                | $                             | 35,405         |                              | $    | 46,721 |      | $ | 13,300 |  | $ | 29,842
|                                    |                |                               |                |                              |      |        |      |   |        |  |   |       

Three Months Ended January 31, 2008 as Compared to Three Months Ended January 31, 2007

Total Revenues

Total revenues
decreased $13.3 million, or 17%. The more notable highlights were as follows:

Royalty and marketing and advertising:Royalty
revenues decreased $4.9 million, or 15%, and marketing and advertising revenues decreased $2.2 million, or 15%, both primarily due to a 0.2 million, or 15%, decrease in the number of tax returns prepared by our franchisees. The average revenues
earned per tax return prepared remained relatively unchanged as compared to the same quarter last year.

Financial product fees:Financial product fees decreased $5.6 million, or 19%, principally due to lower financial product counts as compared to the same quarter last year. The fixed fee component of the financial product agreements are accounted for on a percentage of
completion method over the tax season. The percentage of customers receiving a financial product during the quarter remained the same as in the prior year period. In the three months ended January 31, 2008, under



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the agreements executed in the second quarter of this year, we recognized revenues of $22.0 million compared to $27.7 in the same period last year.

Other revenues: Other revenues decreased $0.7 million, or 17%, primarily due to a decrease of $0.3 million in electronic filing
fees that resulted from the decrease in the number of tax returns prepared by the franchisees. Other revenues included the sale of 30 territories as compared to 32 in the same period last year.

Total Expenses

Total operating expenses decreased
$2.2 million, or 6%. The more notable highlights were as follows:

Marketing and advertising: Marketing and advertising expenses
decreased $2.1 million, or 9%, for the reasons discussed in the Consolidated Results of Operations.

Nine Months Ended January 31, 2008 as
Compared to Nine Months Ended January 31, 2007

Total Revenues

Total revenues decreased $13.8 million, or 15%. The more notable highlights were as follows:

Royalty and marketing and advertising:Royalty revenues decreased $4.9 million, or 15%, and marketing and advertising revenues decreased $2.2
million, or 15%, primarily due to the same reasons discussed in the three month comparison.

Financial product fees:Financial
product fees decreased $4.7 million, or 14%, primarily due to the reasons discussed in the three month comparison. In the nine months ended January 31, 2008, financial product fees under the financial product agreements executed in the second
quarter of this year were $22.3 million as compared to $27.6 million in the same period last year.

Other revenues: Other revenues
decreased $2.0 million, or 23%, primarily due to a decrease of $1.4 million in territory sales as compared in the same period last year and a decrease of $0.3 million in electronic filing fees that resulted from the decrease in the number of tax
returns prepared by the franchisees. Other revenues included the sale of 123 territories as compared to 183 in the same period last year.

Total
Expenses

Total operating expenses increased $2.8 million, or 5%. The more notable highlights were as follows:

Cost of operations: Cost of operations increased $2.0 million, or 8%, for the reasons discussed in the Consolidated Results of Operations.

Marketing and advertising: Marketing and advertising expenses increased $0.4 million, or 1%, for the reasons discussed in the
Consolidated Results of Operations. Franchise Operations recognized marketing and advertising expenses equal to 6% of total revenues earned by our franchisees.

Selling, general and administrative: Selling, general and administrative decreased $0.2 million, or 6%, primarily due to lower sales commission of $1.0 million related to the decrease in territory sales
partially offset by higher personnel related costs of $0.8 million.

Depreciation and amortization:Depreciation and amortization
increased $0.6 million, or 9%, primarily due to cumulative growth in capital expenditures.



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##### Table of Contents

Company-Owned Office Operations

Results of Operations



|                                    |                |                               |                |                              |      |        |  |      |        |   |  |   |        |  
|----------------------------------- | -------------- | ----------------------------- | -------------- | ---------------------------- | ---- | ------ |  | ---- | ------ | - |  | - | ------ | -
|                                    |                | Three Months EndedJanuary 31, |                | Nine Months EndedJanuary 31, |     
|                                    | 2008           |                               | 2007           |                              | 2008 |        |  | 2007 |       
|                                    | (in thousands) |                               | (in thousands) |                             
|Revenues                            |                |                               |                |                              |      |        |  |      |        |   |  |   |        |  
|Service revenues from operations    |                | $                             | 30,641         |                              | $    | 34,239 |  | $    | 31,545 |   |  | $ | 35,098 |  
|                                    |                |                               |                |                              |      |        |  |      |        |   |  |   |        |  
|Expenses                            |                |                               |                |                              |      |        |  |      |        |   |  |   |        |  
|Cost of operations                  |                |                               | 20,727         |                              |      | 19,264 |  |      | 33,242 |   |  |   | 29,963 |  
|Marketing and advertising           |                |                               | 2,360          |                              |      | 2,673  |  |      | 2,869  |   |  |   | 3,235  |  
|Selling, general and administrative |                |                               | 897            |                              |      | 758    |  |      | 2,836  |   |  |   | 2,483  |  
|Depreciation and amortization       |                |                               | 941            |                              |      | 691    |  |      | 2,359  |   |  |   | 2,126  |  
|                                    |                |                               |                |                              |      |        |  |      |        |   |  |   |        |  
|Total expenses                      |                |                               | 24,925         |                              |      | 23,386 |  |      | 41,306 |   |  |   | 37,807 |  
|                                    |                |                               |                |                              |      |        |  |      |        |   |  |   |        |  
|Income (loss) from operations       |                |                               | 5,716          |                              |      | 10,853 |  |      | (9,761 | ) |  |   | (2,709 | )
|                                    |                |                               |                |                              |      |        |  |      |        |   |  |   |        |  
|Income (loss) before income taxes   |                | $                             | 5,716          |                              | $    | 10,853 |  | $    | (9,761 | ) |  | $ | (2,709 | )
|                                    |                |                               |                |                              |      |        |  |      |        |   |  |   |        |  

Three Months Ended January 31, 2008 as Compared to Three Months Ended January 31, 2007

Revenues

Service revenues from
operations decreased $3.6 million, or 11%, in part due to lower tax return volumes and the absence of revenues previously generated in the November/December time period. Partially offsetting the decrease in service revenues were revenues generated
from the acquisition of approximately 150 offices from a former franchisee prior to tax season. The average revenue earned per tax return was $203.51 as compared to $222.49 during the same quarter last year.

Total Expenses

Total operating expenses increased
$1.5 million, or 7%. The more notable highlights were as follows:

Cost of company-owned office operations:Cost of company owned
operations increased $1.5 million, or 8%, for the reasons discussed in the Consolidated Results of Operations.

Marketing and
advertising: Marketing and advertising decreased $0.3 million or 12%, due to the reallocation of spending to later in the tax season based on a general long-term shift in customer behavior to later filing.

Nine Months Ended January 31, 2008 as Compared to Nine Months Ended January 31, 2007

Revenues

Service revenues from operations decreased
$3.6 million, or 10%, for the reasons discussed in the three month comparison.

Total Expenses

Expenses increased $3.5 million, or 9%. The more notable highlights were as follows:

Cost of company-owned office operations:Cost of company owned operations increased $3.3 million, or 11%, for the reasons discussed in the three
month comparison.

Marketing and advertising: Marketing and advertising decreased $0.4 million or 11%, for the reasons discussed in
the three month comparison.



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##### Table of Contents

Corporate and Other

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



|                            |                |                               |         |                |                              |   |         |   |  |      |         |   |  |   |         |  
|--------------------------- | -------------- | ----------------------------- | ------- | -------------- | ---------------------------- | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                            |                | Three Months EndedJanuary 31, |         |                | Nine Months EndedJanuary 31, |  
|                            | 2008           |                               |         | 2007           |                              |   | 2008    |   |  | 2007 |        
|                            | (in thousands) |                               |         | (in thousands) |                             
|Expenses (a)                |                |                               |         |                |                              |   |         |   |  |      |         |   |  |   |         |  
|General and administrative  |                | $                             | 5,205   |                |                              | $ | 5,289   |   |  | $    | 18,361  |   |  | $ | 16,127  |  
|Stock-based compensation    |                |                               | 1,093   |                |                              |   | 1,073   |   |  |      | 3,559   |   |  |   | 3,065   |  
|Internal Review             |                |                               | 257     |                |                              |   |        |   |  |      | 5,845   |   |  |   |        |  
|Severance                   |                |                               |        |                |                              |   |        |   |  |      | 6,108   |   |  |   |        |  
|Litigation related expenses |                |                               |        |                |                              |   | 1,873   |   |  |      |        |   |  |   | 1,873   |  
|                            |                |                               |         |                |                              |   |         |   |  |      |         |   |  |   |         |  
|Total expenses              |                |                               | 6,555   |                |                              |   | 8,235   |   |  |      | 33,873  |   |  |   | 21,065  |  
|                            |                |                               |         |                |                              |   |         |   |  |      |         |   |  |   |         |  
|Loss from operations        |                |                               | (6,555  | )              |                              |   | (8,235  | ) |  |      | (33,873 | ) |  |   | (21,065 | )
|Other income/(expense):     |                |                               |         |                |                              |   |         |   |  |      |         |   |  |   |         |  
|Interest income             |                |                               | 67      |                |                              |   | 80      |   |  |      | 275     |   |  |   | 314     |  
|Interest expense            |                |                               | (4,621  | )              |                              |   | (3,576  | ) |  |      | (11,112 | ) |  |   | (7,416  | )
|                            |                |                               |         |                |                              |   |         |   |  |      |         |   |  |   |         |  
|Loss before income taxes    |                | $                             | (11,109 | )              |                              | $ | (11,731 | ) |  | $    | (44,710 | ) |  | $ | (28,167 | )
|                            |                |                               |         |                |                              |   |         |   |  |      |         |   |  |   |         |  



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

Three Months Ended January 31, 2008 as Compared to Three Months Ended January 31, 2007

Loss from
Operations

Loss from operations decreased $1.7 million, or 20%, primarily due to the absence of $1.9 million in litigation related
expenses, as discussed in the Consolidated Results of Operations.

Other income/(expense)

Interest expense increased for the reasons discussed in Consolidated Results of Operations.

Nine Months Ended January 31, 2008 as Compared to Nine Months Ended January 31, 2007

Loss from
Operations

Loss from operations increased $12.8 million, or 61%, primarily due to (i) management severance of $6.1 million
including a $5.7 million charge related to the departure of our former Chief Executive Officer; (ii) Internal Review expenses of $5.8 million which includes $4.3 million in professional fees and a $1.5 million voluntary compliance payment to
the IRS; (iii) higher personnel-related expenses of $1.0 million; (iv) higher legal-related expenses of $0.7 million; (v) higher consulting fees of $0.6 million; (vi) higher stock-based compensation of $0.5 million due to
additional equity awards granted in the nine months ended January 31, 2008; and (vii) higher technology related expenses of $0.4 million. These expenses were partially offset by the absence of $1.9 million in litigation related expenses
and a decrease of $0.4 million in other administrative expenses, including insurance.

Other income/(expense)

Interest expense increased for the reasons discussed in 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



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business is generally not capital intensive and has historically generated strong operating cash flow from operations on an annual basis.

Credit Facility

On
October 31, 2007, we amended our five-year unsecured credit facility (the Amended and Restated $450 Million Credit Facility) to revise the calculation of the maximum consolidated leverage ratio, which is the ratio of consolidated
debt to consolidated Earnings Before Interest, Taxes, Depreciation and Amortization, each as defined in the Amended and Restated $450 Million Credit Facility. Consolidated debt will now be measured on a trailing four-quarter basis as opposed to
using the most recent quarter-end debt figure in the calculation. This change provides us with additional borrowing capacity at our seasonal borrowing peak. As of January 31, 2008, we are not aware of any instances of non-compliance with the
financial or restrictive covenants contained in the Amended and Restated $450 Million Credit Facility.

Borrowings under the Amended and
Restated $450 Million Credit Facility are used to finance working capital needs, general corporate purposes, acquisitions and repurchases of our common stock. We may also use the Amended and Restated $450 Million Credit Facility to issue letters of
credit for general corporate purposes. As of January 31, 2008, the Company had $351.0 million outstanding under the Amended and Restated $450 Million Credit Facility. There was a $0.5 million irrevocable letter of credit outstanding under the
Amended and Restated $450 Million Credit Facility as of January 31, 2008. The requirement to maintain this irrevocable letter of credit will terminate in May 2008 as provided under our lease agreement for our corporate headquarters in
Parsippany, New Jersey.

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

Sources and Uses of Cash

Operating
activities

In the nine months ended January 31, 2008, net cash used in operating activities increased $47.0 million as
compared to the nine months ended January 31, 2007 due to the following:



| |  |  | Lower revenues due to the decrease in the number of tax returns prepared which was attributable to (i) the general long-term shift in consumer behavior to
later filing; (ii) the lack of a pre-season product; and (iii) the continued references in the media to last years Department of Justice matter involving a former franchisee;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Payments of $5.8 million in connection with the Internal Review including $4.3 million in professional fees and a $1.5 million voluntary compliance payment to the
IRS;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Higher payments of $3.6 million related to incremental labor and facilities to support the new company-owned offices opened during the past year;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Payment of $3.5 million in severance costs primarily attributable to our former Chief Executive Officers departure from the Company; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Higher interest payments on our credit facility of $3.2 million due to increased borrowings.
| | - |  | --------------------------------------------------------------------------------------------

Partially offsetting the factors discussed above were:



| |  |  | Lower incentive plan compensation payments as we paid $8.3 million in the nine months ended January 31, 2008 (accrued in fiscal 2007) as compared to $15.8
million in the same period last year (accrued in fiscal 2006); and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lower litigation settlement related payments as we paid $5.7 million in January 2007 ($3.8 million accrued in fiscal 2006) as previously disclosed.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



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Investing activities

In the nine months ended January 31, 2008, net cash used in investing activities increased $13.3 million as compared to the nine months ended
January 31, 2007 due to the following:



| |  |  | Cash paid for the acquisition of tax return preparation businesses increased $13.3 million; and
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | Net funding provided to franchisees increased $2.8 million.
| | - |  | -----------------------------------------------------------

Partially offsetting the overall increase in net cash used in investing activities were lower capital expenditures of $2.8 million as the same prior year period included leasehold improvements and new equipment
purchases associated with the relocation of our technology headquarters to a new building and lower capitalized software development costs.

Financing activities

In the nine months ended January 31, 2008, net cash provided by financing activities
increased $55.2 million as compared to the nine months ended January 31, 2007 primarily due to the following:



| |  |  | Higher net borrowings under our Amended and Restated $450 Million Credit Facility of $21.0 million;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | Change in cash overdrafts of $16.1 million;
| | - |  | -------------------------------------------



| |  |  | Reduced spending on the repurchase of shares of our common stock of $9.7 million; and
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Higher proceeds of $9.2 million resulting from the exercises of stock options.
| | - |  | ------------------------------------------------------------------------------

Partially offsetting the overall increase in net cash provided by financing activities were higher quarterly dividend payments of $4.2 million to
stockholders for which the quarterly payments were increased to $0.18 per share in fiscal 2008 as compared to $0.12 per share in fiscal 2007.

Future
Cash Requirements and Sources of Cash

Future Cash Requirements

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

For the remainder of fiscal 2008, our primary cash requirements are expected to be as follows:



| |  |  | Operating expenses including cost of franchise operations, marketing and advertising and selling, general and administrative expensesMarketing and
advertising expenses include national, regional and local campaigns designed to increase brand awareness and attract both early season and late season customers. We receive marketing and advertising payments from franchisees to fund our budget for
most of these expenses.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Expenses to operate company-owned officesOur company-owned offices complement our franchise system and expenses to operate such offices peak during the
fourth fiscal quarter primarily due to the labor costs related to our seasonal employees who provide tax return preparation services to our customers.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Repurchase of shares of our common stockIn February 2008 we repurchased 179,800 shares of our common stock totaling $4.1 million and as of
February 29, 2008, we had repurchased 5,581,535 shares of our common stock totaling $166.2 million under our previously authorized $200.0 million multi-year share repurchase program. Such repurchases to date have been made in open market
purchases. In the future, repurchases may be made through open market purchases or privately negotiated transactions and would depend on our assessment of the prevailing market conditions, our liquidity requirements, contractual restrictions and
other factors.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Repayment of outstanding borrowings under the Amended and Restated $450 Million Credit FacilityAs of February 29, 2008, we had $298 million
outstanding under our Amended and Restated $450 million Credit Facility. We anticipate generating operating cash flow during the remainder of the current tax season to partially repay these outstanding borrowings.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Quarterly dividendOn March 6, 2008, our Board of Directors declared a quarterly cash dividend of $0.18 per share of common stock, payable on
April 15, 2008, to common stockholders of record on March 28, 2008.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Future Sources of Cash

For the remainder of fiscal 2008, we expect our primary source of cash to be cash provided by operating activities, primarily from
royalty and marketing advertising fees from franchisees, service revenues earned at company owned offices and financial product fees. We borrow against our credit facility to fund operations with increases particularly during the first nine months
of the fiscal year.

Critical Accounting Policies

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

Goodwill

We test
goodwill for impairment annually in our fourth fiscal quarter, or more frequently if circumstances indicate impairment may have occurred. We review the carrying value of our goodwill by comparing the carrying value of our reporting units to their
fair value. When determining fair value, we utilized various assumptions, including projections of future cash flows. A change in these underlying assumptions would cause a change in the results of the tests and, as such, could cause fair value to
be less than the respective carrying amount. In such event, we would then be required to record a charge, which would impact results. An adverse change to our business would impact our consolidated results and may result in an impairment of our
goodwill. The aggregate carrying value of our goodwill was $414.9 million as of January 31, 2008. See Part I. Item 1Financial StatementsNotes to Condensed Consolidated Financial StatementsNote 4Goodwill and
Other Intangible Assets for more information on goodwill.

Other Intangible Assets

We test indefinite-lived intangible assets for impairment annually in our fourth fiscal quarter, or more frequently if circumstances
indicate impairment may have occurred. Indefinite-lived intangible assets are carried at the lower of cost or fair value. If the fair value of the indefinite-lived intangible asset is less than the carrying amount, an impairment loss would be
recognized in an amount equal to the difference. An adverse change to our business would impact our consolidated results and may result in an impairment of our indefinite-lived intangible assets. The aggregate carrying value of our indefinite-lived
intangible assets was $83.0 million as of January 31, 2008. See Part I. Item 1Financial StatementsNotes to Condensed Consolidated Financial StatementsNote 4Goodwill and Other Intangible Assets for more
information on indefinite-lived intangible assets.

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

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB
Staff Position (FSP) FAS 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2). FSP FAS 157-2 defers the implementation of SFAS No. 157 for all non-financial assets and non-financial liabilities, except
those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The remainder of



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SFAS No. 157 is effective for us beginning May 1, 2009. The aspects that have been deferred by FSP FAS 157-2 will be effective for us beginning
May 1, 2010. We are currently assessing the potential impact on our Consolidated Financial Statements of adopting SFAS 157.

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

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations
(SFAS 141R). SFAS 141R establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any
noncontrolling interests in the acquiree, and the goodwill acquired. SFAS 141R also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for us
as of the beginning of fiscal 2009 and will then be applied prospectively to business combinations that have an acquisition date on or after May 1, 2009. We are currently assessing the potential impact on our Consolidated Financial Statements
of adopting SFAS 141R.



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

In November 2007, we entered into interest rate swap agreements with financial institutions to convert an additional notional amount of $50.0 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, which became effective in November 2007 and expire in October 2011, we receive a floating interest rate based on the three-month LIBOR
(in arrears) and pay a fixed interest rate averaging 4.5%. These interest rate swap agreements were determined to be cash flow hedges in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities as
amended by SFAS No. 137, No. 138 and No. 149. Since inception, no amounts have been recognized in the results of operations due to ineffectiveness of any of our interest rate hedges.

A 1% change in the interest rate on our floating-rate borrowings outstanding as of January 31, 2008, excluding our $100.0 million of hedged
borrowings whereby we fixed the interest rate, would result in an increase or decrease in interest expense of $2.5 million annually.



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

(a) Evaluation of
Disclosure Controls and Procedures.

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

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

(b) Changes in Internal Control over Financial Reporting.

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



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##### Table of Contents

PART II  OTHER INFORMATION



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

See Part
1Item 1-Note 11  Commitments and Contingencies, to our Condensed Consolidated Financial Statements, which is incorporated by reference herein.



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

The information presented below
includes any material changes to the description of the risk factors affecting our business as previously disclosed in Item 1A. to Part 1 of our Annual Report on Form 10-K for the fiscal year ended April 30, 2007.

Federal and state legislators and regulators have increasingly taken an active role in regulating financial products such as RALs, and the continuation of this trend
could impede our ability to facilitate these financial products and reduce demand for our services and harm our business.

From time to
time, government officials at the federal and state levels introduce and enact legislation and regulations proposing to regulate the facilitation of RALs and other financial products. Certain of the proposed legislation and regulations could, if
adopted, increase costs to us, our franchisees and the financial institutions that provide our financial products, or could negatively impact or eliminate the ability of financial institutions to provide RALs and other financial products through tax
return preparation offices, which could cause our revenues or profitability to decline. The federal government and certain states currently have proposed legislation that could further this initiative.

On January 3, 2008, the IRS issued an Advanced Notice of Proposed Rulemaking (ANPR) concerning RALs. In this ANPR, the IRS stated that it is
considering proposing a rule that would prohibit the sharing of taxpayer information for the purpose of marketing RALs in connection with the preparation of a tax return. If such a rule were adopted, it could negatively impact the manner in which
RALs are provided, which could cause our revenues or profitability to decline.

Many states have statutes regulating, through licensing and
other requirements, the activities of brokering loans and providing credit repair services to consumers as well as local usury laws. Certain state regulators are interpreting these laws in a manner that could adversely affect the manner in which
RALs and other financial products are facilitated or result in fines or penalties to us or our franchisees. Additional states may interpret these laws in a manner that is adverse to how we currently conduct our business or how we have conducted our
business in the past and we may be required to change business practices or otherwise comply with these statutes or it could result in fines or penalties or other payments related to past conduct.

We from time to time receive inquiries from various state regulatory agencies regarding the facilitation of RALs and other financial products. We have in
certain states paid fines, penalties and other payments to resolve these matters. In addition, consumer advocacy groups have increasingly called for a legislative and regulatory response to the perceived inequity of these types of financial
products. Increased regulatory activity in this area could have a material adverse effect on our business, financial condition and results of operations.

Delays in the passage of tax laws and their implementation by the federal or state governments could harm our business.

The enactment of tax legislation occurring late in the calendar year could result the beginning of tax filing season being delayed. Any such delays could impact our revenues and profitability in any given quarter or fiscal year.

The federal government passed tax legislation relating to the Alternative Minimum Tax (AMT) late in the 2007 calendar year resulting in a
delay in the beginning of the 2008 tax season for certain tax filers. If the federal government passes AMT legislation late in future calendar years, it could result in a delay in the beginning of the subsequent tax season for certain tax filers
which could impact our revenues and profitability in any given quarter or fiscal year.



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|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 January 31, 2008.

Issuer Purchases of Equity Securities:



|                                    |  |                                   |  |                                                    |       |                                                                       |           |                                                                                                |   |             
|----------------------------------- |  | --------------------------------- |  | -------------------------------------------------- | ----- | --------------------------------------------------------------------- | --------- | ---------------------------------------------------------------------------------------------- | - | ------------
|Period of settlement date           |  | Total Number ofShares Repurchased |  | Average Price Paid perShare (includingCommissions) |       | Total Number of SharesRepurchased as Part ofPublicly AnnouncedProgram |           | Approximate DollarValue of Shares that MayYet Be Repurchased UnderProgram at end of Period (a)
|November 1-30, 2007                 |  |                                  |  |                                                    |      |                                                                       |          |                                                                                                | $ | 77.7 million
|December 1-31, 2007                 |  | 223,499                           |  | $                                                  | 31.04 |                                                                       | 223,499   |                                                                                                | $ | 70.7 million
|January 1-31, 2008                  |  | 1,245,806                         |  | $                                                  | 26.41 |                                                                       | 1,245,806 |                                                                                                | $ | 37.8 million
|                                    |  |                                   |  |                                                    |       |                                                                       |           |                                                                                                |   |             
|Three months ended January 31, 2008 |  | 1,469,305                         |  | $                                                  | 27.12 |                                                                       | 1,469,305 |                                                                                                | $ | 37.8 million
|                                    |  |                                   |  |                                                    |       |                                                                       |           |                                                                                                |   |             



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



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

There were no
defaults upon senior securities during the three months ended January 31, 2008.



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

There were no submissions of matters to a vote of security holders during the three months ended January 31, 2008.



|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:



|            |  |                                                                                                    
|----------- |  | ---------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                            
|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.

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 March 10, 2008.



JACKSON HEWITT TAX SERVICE INC.By:/s/ MICHAEL C. YERINGTONMichael C. YeringtonPresident and Chief Executive Officer(Principal Executive Officer)/s/ DANIEL P. OBRIENDaniel P. OBrienExecutive Vice President and Chief Financial Officer(Principal Financial Officer and Principal Accounting Officer)




30