Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

For the quarterly period ended October 31, 2007

OR

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)

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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨

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

The number of shares outstanding of the registrant’s common stock was 30,020,894 (net of 8,791,386 shares held in treasury) as of November 30, 2007.

Table of Contents

JACKSON HEWITT TAX SERVICE INC.

TABLE OF CONTENTS

Table of Contents

PART 1 — FINANCIAL INFORMATION

JACKSON HEWITT TAX SERVICE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except per share amounts)

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

- 1 -

Table of Contents

JACKSON HEWITT TAX SERVICE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

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

- 2 -

Table of Contents

JACKSON HEWITT TAX SERVICE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

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

- 3 -

Table of Contents

JACKSON HEWITT TAX SERVICE INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BACKGROUND AND BASIS OF PRESENTATION

Description of Business

Jackson Hewitt Tax Service Inc. provides computerized preparation of federal, state and local individual income tax returns in the United States through a nationwide network of franchised and company-owned 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 or stockholders’ equity.

Comprehensive Loss

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

- 4 -

Table of Contents

Computation of loss per share

Basic loss per share is calculated as net loss available to the Company’s common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted loss per share is calculated by dividing net loss available to the Company’s common stockholders by an adjusted weighted average number of common shares outstanding during the period assuming conversion of potentially dilutive securities arising from stock options outstanding. The following securities were considered antidilutive and therefore were excluded from the computation of diluted loss per share:

Dividends declared per share

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

On May 31, 2006, the Company’s Board of Directors declared a quarterly cash dividend of $0.12 per share of common stock that was paid on July 14, 2006. This quarterly cash dividend declaration was included in Dividends Declared per Share for the three and six months ended October 31, 2006 in the Condensed Consolidated Statements of Operations.

On December 4, 2007, the Company’s Board of Directors declared a quarterly cash dividend of $0.18 per share of common stock, payable on January 15, 2008, to common stockholders of record on December 28, 2007.

2. RECENT ACCOUNTING PRONOUNCEMENTS

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

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

3. FINANCIAL PRODUCT AGREEMENTS

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

- 5 -

Table of Contents

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.

During tax season 2008, HSBC, Republic and SBBT 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.

The Company recognizes revenues on the fixed annual fees during the tax season in the third and fourth fiscal quarters. The fees earned by the Company under these Agreements are expected to have a similar impact on total revenues as compared to the prior year.

4. GOODWILL AND OTHER INTANGIBLE ASSETS

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

Other intangible assets consisted of:

- 6 -

Table of Contents

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

Amortization expense relating to other intangible assets was as follows:

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

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 $4.0 million and $5.2 million in the three and six months ended October 31, 2007, respectively, and $1.0 million and $1.8 million in the three and six months ended October 31, 2006, respectively, in connection with the vesting of employee stock options. The associated income tax benefit recognized was $1.5 million and $2.0 million in the three and six months ended October 31, 2007, respectively, and $0.4 million and $0.7 million in the three and six months ended October 31, 2006, respectively. These amounts include stock compensation

- 7 -

Table of Contents

expense of $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 and associated income tax benefit recognized of $1.1 million during the three months ended October 31, 2007.

The weighted average grant date fair value for each Jackson Hewitt stock option granted during the six months ended October 31, 2007 and October 31, 2006 was $8.87 and $11.50, respectively. The fair value of each option award was estimated on the date of grant using the Black-Scholes option-pricing model. The Company used the method permitted under SEC Staff Accounting Bulletin No. 107, “Share-Based Payment” to determine the expected holding period and will continue to do so through December 31, 2007 at which point the Company will have accumulated a reasonably consistent history of exercised options since its IPO in order to make a more refined estimate. Expected volatility was based on the Company’s historical publicly-traded stock price. The risk-free interest rate assumption was determined using the Federal Reserve nominal rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected holding period of the award being valued.

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

The aggregate intrinsic value ascribed to the stock options exercised during the six months ended October 31, 2007 and October 31, 2006 was $7.7 million and $1.2 million, respectively.

Outstanding stock options as of October 31, 2007 had an aggregate intrinsic value of $22.7 million and an average remaining contractual life of 7.7 years. Exercisable stock options as of October 31, 2007 had an aggregate intrinsic value of $14.7 million and an average remaining contractual life of 6.6 years. As of October 31, 2007, there were 2,828,544 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 $23.64, aggregate intrinsic value of $22.3 million and an average remaining contractual life of 7.7 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 October 31, 2007, which would have been received by the option holders had all in-the-money option holders exercised their options as of that date.

- 8 -

Table of Contents

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

As of October 31, 2007, there was $8.5 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average period of 3.5 years. The total fair value of stock options vested during the six months ended October 31, 2007 and October 31, 2006 was $4.3 million and $2.8 million, respectively.

Restricted Stock

During the three months ended October 31, 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 three months ended October 31, 2007, the Company incurred stock-based compensation expense of $12,000 in connection with the vesting of the restricted stock.

Restricted Stock Units

The Company incurred stock-based compensation expense of $0.1 million and $0.2 million in the three and six months ended October 31, 2007, respectively, and $0.1 million in both the three and six months ended October 31, 2006 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 six months ended October 31, 2007, the Company granted 6,521 RSUs at an average grant price of $29.11 resulting in 52,369 RSUs outstanding as of October 31, 2007 with a weighted average grant price of $23.79.

Share Repurchases

During the six months ended October 31, 2007, the Company repurchased 1,837,841 shares of its common stock totaling $55.0 million under the current $200.0 million multi-year share repurchase program. As of October 31, 2007, the Company had repurchased 3,932,430 shares of its common stock totaling $122.3 million under its $200.0 million multi-year share repurchase program and had $77.7 million remaining available under this program. During the six months ended October 31, 2006, the Company repurchased 2,467,059 shares of the Company’s common stock totaling $79.6 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 October 31, 2007.

- 9 -

Table of Contents

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 future flexibility for additional borrowing capacity given the seasonal nature of the tax return preparation business. As of October 31, 2007, the Company had $285.0 million outstanding under the Amended and Restated $450 Million Credit Facility. As of October 31, 2007, 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 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 will operate 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 Sheet as of October 31, 2007. 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 purchase price allocation for the Acquisitions is preliminary and is dependent on the completion of an analysis of the fair values of the fixed assets acquired. The settlement loss from unfavorable franchise rights, included in the accompanying Condensed Consolidated Statements of Operations for the periods ended October 31, 2007, was recognized in accordance with Emerging Issues 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 October 31, 2007.

In addition to the above acquisitions, in the six months ended October 31, 2007, the Company acquired five other tax return preparation businesses for a total purchase price of $1.2 million, of which $0.7 million was paid at closings and $0.4 million was included in accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheet as of October 31, 2007.

In the six months ended October 31, 2006, the Company acquired two tax return preparation businesses for a total purchase price of $0.6 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. INCOME TAXES

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

- 10 -

Table of Contents

The Company adopted the provisions of FIN No. 48 on May 1, 2007. Upon the adoption of FIN No. 48, the Company had no cumulative effect adjustment to retained earnings and no liability for unrecognized tax benefits. As of and for the three and six months ended October 31, 2007, 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.

9. SEGMENT INFORMATION

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

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.

- 11 -

Table of Contents

10. COMMITMENTS AND CONTINGENCIES

Guarantees

As of October 31, 2007, 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 $2.0 million as of October 31, 2007. Historically, no surety bonds have been drawn upon and there is no future expectation that these surety bonds will be drawn upon.

The Company, through TSA, provides customers of company-owned offices with a guarantee in connection with the preparation of tax returns that may require in certain circumstances the Company to pay penalties and interest assessed by a taxing authority. The Company recognized a liability of $0.1 million as of October 31, 2007 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 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.

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.

- 12 -

Table of Contents

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 April 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. On October 30, 2006, the Company filed a notice removing the complaint to the United States District Court for the Northern District of Ohio, Eastern Division. On November 6, 2006, the Company filed a motion to dismiss, and a motion to stay proceedings and to compel arbitration. On December 8, 2006, plaintiff filed a motion to remand the case to the Ohio Court of Common Pleas, Cuyahoga County, which the Company opposed on January 16, 2007. On February 27, 2007 the Court entered an order remanding the case to the Cuyahoga County Court of Common Pleas, without ruling on the other pending motions. On March 6, 2007, the Company filed for permission to appeal the remand decision with the United States Court of Appeals for the Sixth Circuit. On September 7, 2007, the Court denied the Company’s petition. On September 21, 2007 the Company filed a petition with the United States Court of Appeals for the Sixth Circuit to request a rehearing by the Court panel that denied the petition and to request that the full Court hear the matter. A decision by the Court is currently pending. The Company believes it has meritorious defenses and is contesting this matter vigorously.

On October 30, 2006, Linda Hunter brought a purported class action complaint against the Company in the United States District Court, Southern District of West Virginia, on behalf of West Virginia customers who obtained RALs facilitated by the Company, seeking damages for an alleged breach of fiduciary duty, for breach of West Virginia’s Credit Service Organization Act, for breach of contract, and for unfair or deceptive acts or practices in connection with the Company’s RAL facilitation activities. On November 22, 2006, the Company filed a motion to dismiss. 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.

- 13 -

Table of Contents

On June 22, 2007, James Chapman brought a purported class action complaint against Jackson Hewitt Inc. and certain unknown franchisees in the United States District Court, District of New Jersey, on behalf of customers whose returns were deemed improper by the IRS and then were denied Gold Guarantee claims for violations of the New Jersey Consumer Fraud Act and the Racketeering and Corrupt Organizations Act as well as breach of contract and unjust enrichment. On October 31, 2007, the Court approved a joint stipulation of dismissal without prejudice.

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.

- 14 -

Table of Contents

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.

- 15 -

Table of Contents

OVERVIEW

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

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

Seasonality of Operations

Given the seasonal nature of the tax return preparation business, we have historically generated and expect to continue to generate substantially all of our revenues during the period from January 1 through April 30. In fiscal 2007, we earned 93% of our revenues during this period. We historically operate at a loss through the first eight months of each fiscal year, during which we incur costs associated with preparing for the upcoming tax season. 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 second quarter of fiscal 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 us 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 of our internal tax return preparation compliance systems and processes resulted in recommendations which are currently being implemented for the 2008 tax season to enhance 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 will operate those stores as company-owned locations beginning in the 2008 tax season. 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, which generated approximately $14 million in revenues for the franchisee last year, will be accretive to our earnings in the current fiscal year.

- 16 -

Table of Contents

Financial Product Agreements

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

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.

During tax season 2008, HSBC, Republic and SBBT will 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.

The fees earned by us under these Agreements are expected to have a similar impact on total revenues as compared to the prior year.

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. Mr. Heimbouch remains Interim Chief Financial Officer until a successor is named. 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.

- 17 -

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

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

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

Total Revenues

Total revenues decreased $0.6 million, or 9%, primarily due to lower territory sales largely offset by an increase in financial product fees due to the cumulative growth and higher pricing related to sales of the Gold Guarantee^® product. Please see Franchise Results of Operations and Company-Owned Office Results of Operations for additional highlights.

Total Expenses

Total operating expenses increased $11.8 million, or 40%. The more notable highlights were as follows:

Cost of franchise operations: Cost of franchise operations increased $0.7 million, or 9%, primarily due to a charge related to the termination of franchise agreements in connection with the acquisition of a former franchisee’s businesses in Atlanta, Chicago and Detroit and higher technology related personnel costs.

- 18 -

Table of Contents

Marketing and advertising: Marketing and advertising expenses increased $1.1 million, or 32%, primarily due to a previously disclosed change in contractual arrangements under which the related advertising extends throughout the fiscal year rather than primarily during the tax season as under the prior agreement.

Cost of company-owned office operations: Cost of company-owned office operations increased $1.0 million, or 17%, primarily due to higher planned off-season occupancy and personnel costs associated with operating the increased number of offices that were opened in the 2007 tax season and those acquired from a former franchisee in October 2007.

Selling, general and administrative: The increase in selling, general and administrative of $8.7 million, or 95%, was primarily due to (i) a one-time $5.7 million severance charge (including $2.9 million in non-cash stock-based compensation due to the accelerated vesting of stock options) related to the departure of the Company’s former Chief Executive Officer; (ii) Internal Review expenses of $2.2 million which included a $1.5 million voluntary compliance payment to the IRS as well as professional fees; and (iii) higher personnel-related expenses of $0.6 million. Partially offsetting the overall increase was lower commission expense of $0.3 million due to the decrease in the number of territories sold.

Other Income/(Expense)

Interest expense: Interest expense increased $1.0 million, or 40%, primarily due to higher average debt outstanding related to the cumulative effect of our share repurchase programs.

Six Months Ended October 31, 2007 as Compared to Six Months Ended October 31, 2006

Total Revenues

Total revenues decreased $0.5 million, or 4%, primarily due to the same reasons discussed in the three month comparison.

Total Expenses

Total operating expenses increased $21.4 million, or 38%, primarily due to the following:

Cost of franchise operations: Cost of franchise operations increased $2.1 million, or 13%, primarily due to the same reasons discussed in the three month comparison.

Marketing and advertising: Marketing and advertising expenses increased $2.4 million, or 38%, primarily due to the same reasons discussed in the three month comparison.

Cost of company-owned office operations: Cost of company-owned office operations increased $1.8 million, or 17%, primarily due to the same reasons discussed in the three month comparison.

Selling, general and administrative: The increase in selling, general and administrative of $14.5 million, or 86%, was primarily due to (i) management severance of $6.1 million including a one-time $5.7 million charge related to the departure of our former Chief Executive Officer; (ii) Internal Review expenses of $5.6 million which includes $4.1 million in professional fees and a $1.5 million voluntary compliance payment to the IRS; (iii) higher personnel-related expenses of $0.9 million; (iv) higher legal-related expenses of $0.9 million; (v) higher stock-based compensation of $0.5 million due to additional stock options granted in the six months ended October 31, 2007; and (vi) higher technology related expenses of $0.4 million. Partially offsetting the overall increase was lower commission expense of $0.6 million due to the decrease in the number of territories sold.

Other Income/(Expense)

Interest expense: Interest expense increased $2.7 million, or 69%, primarily due to the same reasons discussed in the three month comparison.

- 19 -

Table of Contents

Segment Results and Corporate and Other

Franchise Operations