UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
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 0-22324
JACKSON HEWITT INC.
(Exact name of small business issuer as specified in its charter)
Virginia 54-1349705
(State of organization) (I.R.S. Employer Identification No.)
4575 Bonney Road, Virginia Beach, Virginia 23462
(Address of principal executive office)
(757) 473-3300
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed
by Section 12, 13 or 15(d) of the Exchange Act during the past 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.
[X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date: 4,552,797
Transitional Small Business Issuer Format (check one): [ ] Yes [X] No
JACKSON HEWITT INC.
Quarterly Report on Form 10-QSB
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of October 31, 1996 (unaudited) and
April 30, ......................................................................... 3
Condensed Consolidated Statements of Operations for the
Three Months Ended October 31, 1996 and 1995 and for the
Six Months Ended October 31, 1996 and 1995
(unaudited)........................................................................ 5
Condensed Consolidated Statement of Shareholders' Equity for the Six Months
Ended October 31, 1996 (unaudited)................................................. 6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
October 31, 1996 and 1995 (unaudited).............................................. 7
Notes to Condensed Consolidated Financial Statements............................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations... 12
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Condensed Consolidated Balance Sheets
Jackson Hewitt Inc.
October 31, April 30,
1996 1996
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $527,291 $3,557,861
Receivables (notes 2 and 7):
Trade accounts 885,666 3,171,035
Notes receivable, current portion 3,831,501 4,376,338
Allowance for doubtful accounts (1,319,767) (1,366,250)
Interest 853,264 328,049
----------- -------------
Total receivables, net 4,250,664 6,509,172
----------- -------------
Tax benefit (note 4) 1,379,790 -
Prepaid expenses and supplies 377,505 259,591
Deferred income taxes 754,000 828,000
----------- -------------
Total current assets 7,289,250 11,154,624
----------- -------------
Property and equipment, at cost
Property and equipment 3,981,835 3,956,475
Computer software 903,692 877,139
----------- -------------
4,885,527 4,833,614
Less accumulated depreciation and amortization 2,131,922 1,802,689
----------- -------------
2,753,605 3,030,925
Intangible assets, net (notes 5 and 7):
Customer lists, net 2,617,426 1,366,409
Other, net 696,389 162,215
----------- -------------
3,313,815 1,528,624
Notes receivable, less current portion (notes 2 and 7) 11,026,545 9,797,258
Other assets 305,618 444,430
----------- -------------
11,332,163 10,241,688
----------- -------------
$24,688,833 $25,955,861
=========== =============
Condensed Consolidated Balance Sheets (continued)
Jackson Hewitt Inc.
October 31, April 30,
1996 1996
(Unaudited)
Liabilities, Redeemable Convertible Preferred Stock
and Shareholders' Equity
Current liabilities:
Line of credit agreement (note 6) $5,798,870 -
Current installments of notes payable (note 7) 1,394,827 $462,166
Current installments of capital lease obligations 658,944 582,645
Accounts payable and other liabilities 1,650,482 3,108,570
Accrued payroll and related liabilities 321,500 936,158
Income taxes payable 87,166 1,138,202
Deferred franchise fees 572,911 207,500
----------- -----------
Total current liabilities 10,484,700 6,435,241
Notes payable, excluding current installments (note 7) 1,822,596 1,480,873
Capital lease obligations, excluding current
installments 491,744 599,044
Convertible notes 762,750 762,750
----------- -----------
3,077,090 2,842,667
Stock purchase warrants (note 6) - 609,492
Deferred credits:
Income taxes, net 910,000 1,059,000
Minority interest 134,927 1,902,420
----------- -----------
Total liabilities 14,606,717 12,848,820
Series A redeemable convertible preferred stock,
no par value; 1,000,000 shares authorized;
504,950 shares issued and outstanding 3,484,828 3,277,792
Shareholders' equity:
Common stock, $.02 par value:
Authorized shares - 10,000,000
Issued and outstanding shares -
4,552,797 as of October 31, 1996 and
4,408,056 as of April 30, 1996 91,056 88,161
Additional capital 7,730,919 7,180,038
Retained earnings (20,712) 3,765,025
Stock subscription receivable (1,203,975) (1,203,975)
----------- -----------
Shareholders' equity 6,597,288 9,829,249
Commitments, contingencies and subsequent event
(notes 6 and 8)
----------- -----------
$24,688,833 $25,955,861
=========== ===========
See notes to condensed consolidated financial statements.
Condensed Consolidated Statements of Operations (Unaudited)
Jackson Hewitt Inc.
Three Months Ended October 31 Six Months Ended October 31
1996 1995 1996 1995
Revenue $1,216,140 $1,154,953 $2,196,081 $1,913,211
Selling, general, and administrative expenses 3,105,800 3,680,336 6,161,593 6,902,519
----------- ---------- ----------- ------------
Loss from operations (1,889,660) (2,525,383) (3,965,512) (4,989,308)
----------- ---------- ----------- ------------
Other income (expenses):
Interest income 391,428 412,076 850,330 884,798
Interest expense (239,961) (440,172) (560,555) (655,730)
Gain (loss) on sale of intangible assets
and property and equipment (64,367) 26,769 (79,578) 136,582
Minority interest (14,852) (1,625) (29,789) (5,472)
----------- ---------- ----------- ------------
72,248 (2,952) 180,408 360,178
----------- ---------- ----------- ------------
Loss before provision for income taxes
and extraordinary item (1,817,412) (2,528,335) (3,785,104) (4,629,130)
Income tax benefit (note 4) (808,976) (929,820) (1,454,791) (1,704,256)
----------- ---------- ----------- ------------
Net loss before extraordinary item (1,008,436) (1,598,515) (2,330,313) (2,924,874)
----------- ---------- ----------- ------------
Extraordinary loss on early extinguishment of stock
purchase warrant obligation (note 6) - - (1,248,388) -
----------- ---------- ----------- ------------
Net loss (1,008,436) (1,598,515) (3,578,701) (2,924,874)
----------- ---------- ----------- ------------
Dividends accrued on Series A redeemable convertible
preferred stock (83,342) (82,592) (165,935) (157,685)
Accretion of preferred stock to estimated liquidation (20,628) (20,020) (41,101) (39,891)
----------- ---------- ----------- ------------
Net loss attributable to common shareholders ($1,112,406) ($1,701,127) ($3,785,737) ($3,122,450)
============ ========== =========== ============
Net loss per common share (note 3):
Net loss before extraordinary item ($0.24) ($0.32) ($0.56) ($0.59)
============ ========== =========== ============
Net loss ($0.24) ($0.32) ($0.83) ($0.59)
============ ========== =========== ============
Weighted average shares outstanding 4,585,509 5,330,554 4,534,420 5,332,450
============ ========== =========== ============
See notes to condensed consolidated financial statements.
Condensed Consolidated Statement of Shareholders' Equity (unaudited)
Jackson Hewitt Inc.
For the Six Months Ended October 31, 1996
Stock Total
Common Stock Additional Retained Subscription Shareholders'
Shares Amount Capital Earnings Receivable Equity
Balance at April 30, 1996 4,408,056 $88,161 $7,180,038 $3,765,025 ($1,203,975) $9,829,249
Shares issued 37,991 760 65,241 - - 66,001
Dividends accrued on redeemable
convertible preferred stock - - - (165,935) - (165,935)
Accretion of preferred stock to
estimated liquidation value - - - (41,101) - (41,101)
Stock purchase warrants (note 6 - - 7,400 - - 7,400
Net shares issued in acquisition
of franchisee (note 7) 106,750 2,135 478,240 - - 480,375
Net loss - - - (3,578,701) - (3,578,701)
---------------------------------------------------------------------------------
Balance at October 31, 1996 4,552,797 $91,056 $7,730,919 ($20,712) ($1,203,975) $6,597,288
=================================================================================
Condensed Consolidated Statements of Cash Flows (unaudited)
Jackson Hewitt Inc.
Six Months Ended October 31
1996 1995
Net cash used in operating activities ($7,176,099) ($5,073,544)
Investing activities:
Notes receivable financing of franchisees (7,000) (498,376)
Payments received from franchisees 52,404 352,259
Purchases of customer lists and other asset (74,495) (16,917)
Proceeds from disposal of property and
equipment - 8,723
Proceeds from sales of customer lists and
other assets 128,378 -
Purchases of property and equipment (35,980) (12,807)
--------- -----------
Net cash used in investing activities 63,307 (167,118)
--------- -----------
Financing activities:
Net borrowings under lines of credit 5,798,870 4,337,079
Repayments of long-term debt (60,549) (139,630)
Proceeds from debt 452,500 114,638
Repayments of obligations under capital leases (298,633) (293,643)
Exercise of stock options 66,001 -
Retirement of stock purchase warrant
obligation (1,875,967) -
----------- -----------
Net cash provided by financing activities 4,082,222 4,018,444
----------- -----------
Net decrease in cash ($3,030,570) ($1,222,218)
============ ============
See notes to condensed consolidated financial statements.
Jackson Hewitt Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
October 31, 1996
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 310
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of adjustments of a normal recurring nature) considered necessary for a fair
presentation have been included. Operating results for the six month period
ended October 31, 1996 are not necessarily indicative of the results that may be
expected for the year ended April 30, 1997. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Jackson Hewitt Inc. annual report on Form 10-KSB for the year ended April 30,
1996.
2. Notes Receivable
At October 31, 1996, the Company had an investment in notes and related interest
receivable of approximately $1,744,000 which had recorded values that exceeded
the fair value of the underlying collateral by approximately $269,000. In
addition, the Company had trade accounts receivable due from these business
partners of approximately $132,000 at October 31, 1996. The Company has
reflected an allowance of $401,000 for this impairment in the accompanying
consolidated balance sheet. Activity in the allowance for doubtful accounts for
the six months ended October 31, 1996 is summarized as follows:
Year to Date
-------------
Beginning balance $1,366,250
Additions charged to expense 566,662
Write-offs (613,145)
=============
Ending balance $1,319,767
=============
The Company's average investment in impaired notes receivable during the six
months ended October 31, 1996 was approximately $2,008,000. Interest income
related to these notes of approximately $67,000 has been included in the
accompanying consolidated statements of operations.
3. Net Loss Per Common Share
Net loss per common share is based on the weighted average number of shares of
common stock outstanding during the period, including the dilutive effects of
stock options and warrants. Net loss is adjusted for dividends accrued on Series
A Redeemable Convertible Preferred Stock and accretion of preferred stock
issuance costs to arrive at net loss per common share. The Company's convertible
notes and redeemable convertible preferred stock are excluded from the
calculation of net loss per common share because they are not common stock
equivalents.
4. Income Taxes
The Company's business is seasonal with anticipated losses during the first
three quarters. The Company anticipates taxable income for the fiscal year and,
therefore, has provided a benefit for income taxes.
Jackson Hewitt Inc.
Notes to Condensed Consolidated Financial Statements (continued)
5. Acquisition of Franchise Assets
During the six months ended October 31, 1996, the Company acquired the client
lists and other assets of 25 Jackson Hewitt franchises for a total purchase
price of $1,649,690. The Company gave the franchise owners cash of $74,495,
canceled notes and accounts receivable of $1,458,892, gave the previous owners
notes totaling $90,335, and assumed lease obligations totaling $25,968 to
complete these transactions.
The purchase price is allocated among the assets acquired based on the relative
fair value of the underlying assets. The portion allocated to customer lists is
generally based on a percentage of gross revenue generated by the respective
franchises. The purchase price was allocated among the assets purchased as
follows:
2nd Quarter Year to Date
------------- -------------
Customer lists $898,531 $1,330,122
Other intangible assets, primarily goodwill 42,345 65,340
Property and equipment 5,000 5,000
Amounts charged against allowance
for doubtful accounts 47,303 249,228
============= =============
Total $993,179 $1,649,690
============= =============
6. Line of Credit and Extraordinary Item
In June 1996, the Company's lender renewed the Company's revolving capital
facility (the Facility) through July 31, 1997. In September 1996, the Company's
lender amended the Facility to increase the amount available under that
Facility. Under the terms of the amendment, amounts which can be borrowed under
the Facility vary from $2,000,000 to $7,900,000 throughout the year. The
Facility bears interest, which is payable monthly, at prime plus 0.5% on the
first $6,500,000 and at prime plus 1.25% on amounts in excess of $6,500,000. The
Facility contains certain maintenance and restrictive covenants, including but
not limited to a total liabilities to tangible net worth ratio and a current
ratio. At October 31, 1996, the Company had borrowed $5,798,870 against the
Facility.
In conjunction with the renewal of the Facility, in June 1996 the Company agreed
to repurchase the put option on all of the warrants and purchase 572,549 of the
582,549 warrants held by the lender for $1,875,967. The Company financed the
purchase using amounts available under the Facility. A loss of approximately
$1,248,000 associated with the early extinguishment of the put warrant liability
is reflected as an extraordinary item in the accompanying condensed consolidated
statement of operations for the six months ended October 31, 1996. The value of
the remaining outstanding purchase warrants has been included in additional
capital in the accompanying condensed consolidated balance sheet.
Jackson Hewitt Inc.
Notes to Condensed Consolidated Financial Statements (continued)
7. Acquisition
On July 31, 1996, the Company completed an exchange of 106,750 shares of the
Company's common stock, net of shares retired, for all of the outstanding stock
of Oden Inc., a franchisee. The total purchase price, based upon the market
value of the Company's stock at July 31, 1996, was $480,375. The transaction was
accounted for as a purchase and the resulting goodwill will be amortized over 15
years. Assets acquired and liabilities assumed in the purchase are as follows:
Assets acquired:
Cash $5,195
Accounts receivable 55,587
Notes and interest receivable 645,693
Prepaid expenses 1,480
Fixed assets 22,295
Customer lists 837,911
Goodwill 575,785
Other assets 9,016
-----------
Total assets 2,152,962
-----------
Liabilities assumed:
Accounts payable 483,176
Notes and interest payable 1,009,031
Deferred income taxes 180,380
-----------
Total liabilities 1,672,587
-----------
Purchase price $480,375
===========
Included in accounts payable and notes and interest payable are amounts due to
the Company of $464,821 and $182,970, respectively, which have been eliminated
in consolidation from the accompanying consolidated balance sheet as of July 31,
1996. The remaining notes payable are due to former Oden shareholders and are
due in varying installments from February 1997 to February 1998.
The following unaudited pro forma financial information combines the results of
operations of the Company and Oden as if the acquisition occurred at the
beginning of fiscal 1997 and 1996, respectively, after giving effect to certain
adjustments, including the depreciation and amortization of assets based on
their fair values and intercompany eliminations. The unaudited pro forma
information does not purport to represent what the results of operations of the
Company would have been if such transactions had in fact occurred on such dates
or to project the Company's results of operations for any future period.
Six months ended Year ended
October 31, 1996 April 30, 1996
----------------- ------------
(unaudited)
Revenue $2,168,009 $25,723,168
Net income (loss) before extraordinary item (2,212,327) 2,308,500
Net income (loss) ($3,460,715) $2,308,500
Net income (loss) per common share:
Net income (loss) before extraordinary item ($0.53) $0.38
Net income (loss) ($0.81) $0.38
</Table.
Jackson Hewitt Inc.
Notes to Condensed Consolidated Financial Statements (continued)
8. Stock Subscription Receivable
The stock subscription receivable reflected in the accompanying unaudited
condensed consolidated balance sheets was due from the Company's former Chairman
of the Board of Directors on April 30, 1996. On September 9, 1996, John Hewitt
informed the Company of his intention to resign from the Company effective
immediately. After negotiations regarding Mr. Hewitt's severance were terminated
in early November 1996, the Company filed suit against Mr. Hewitt in Norfolk
Circuit Court on November 12, 1996 to obtain payment on the note. See "Item 5 -
Other Information."
JACKSON HEWITT INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company operates in one industry segment with two lines of
business: franchised and Company-owned stores. The Company does not currently
allocate costs or determine profitability by lines of business. However, it has
developed limited profitability analyses related to the franchise fee component
of total franchise revenue, as further discussed below.
Seasonality
Historically, the Company has generated substantially all of its
revenue during January through April of each year. During 1996, the Company
generated 89% of its revenue during this period. Therefore, the Company operates
at a loss during the first three quarters of each fiscal year, during which it
incurs costs associated with preparing for the following tax season.
Results of Operations
The Company's total revenue for the second quarter of 1997 was
unchanged at $1.2 million as compared to the second quarter of 1996 (all
references in this section of the discussion are to the Company's fiscal years).
Total revenue for the first six months of 1997 increased $0.3 million to $2.2
million from $1.9 million for the first six months of 1996, primarily due to an
increase in sales of new franchises. Operating losses from sales of franchises,
defined as franchise fees less the Company's estimated costs of securing such
sale (e.g. payroll allocations of its franchise department, legal department,
training department and allocations of appropriate indirect costs) approximated
$0.2 million for both the second quarter of 1997 and 1996. Sales of franchises
for the six months ended October 31, 1996 generated operating profits of $0.1
million, while the same period in 1996 generated a loss of $0.1 million. The
Company had anticipated operating losses from the sale of franchises for each
respective interim period.
Selling, general and administrative ("SG&A") expenses decreased
18.5% to $3.1 million for the second quarter of fiscal 1997 from $3.7 million
for the second quarter of fiscal 1996. For the first six months of 1997, these
expenses decreased 12.0% or $0.7 million to $6.2 million from $6.9 million for
the first six months of 1996. SG&A expenses increased $0.1 million in corporate
administrative functions primarily due to increased travel and entertainment
expenses from open houses held for prospective franchisees. Field operations
expenses decreased $0.8 million in the first six months of 1997 as a result of
the Company's decision to focus on its base tax preparation business and
substantially curtail its operations of Copy Pack & Ship stores.
Other income and expense increased to $0.1 million for the second
quarter of 1997, but decreased to $0.2 million from $0.4 million for the six
months ended October 31, 1996. The increase for the quarter was caused primarily
by decreased interest expense. The decrease for the six month period is
primarily attributable to a decrease in the gain on sale of intangible assets
and property and equipment.
Liquidity and Capital Resources
In June 1996, the Company's lender renewed the Company's revolving
capital facility (the Facility) through July 31, 1997. On September 10, 1996,
the Company's lender amended the Facility to increase the amount available under
that Facility. Under the terms of the amendment, amounts which can be borrowed
under the Facility vary from $2.0 million to $7.9 million throughout the year.
The Facility bears interest, payable monthly, at prime plus 0.5% on the first
$6.5 million and at prime plus 1.25% on amounts in excess of $6.5 million. The
Facility contains certain maintenance and restrictive covenants, including but
not limited to a total liabilities to tangible net worth ratio and a current
ratio. At October 31, 1996, the Company had borrowed $5.8 million against the
Facility.
In conjunction with the renewal of the Facility, on June 7, 1996,
the Company agreed to repurchase the put option on all of the warrants and
retire 572,549 of the 582,549 outstanding warrants held by the lender for
approximately $1.9 million. The Company financed the transaction using amounts
available under the Facility. A loss of approximately $1.2 million associated
with the early extinguishment of the put warrant liability is reflected as an
extraordinary item in the Company's results of operations for the six months
ended October 31, 1996.
At July 31, 1996, the Company was not in compliance with the total
liabilities to tangible net worth covenant in the agreement governing the
Facility. In September 1996, the lender amended the covenant to resolve the
instance of noncompliance.
Cash flows from the Company's operating, investing and financing
activities are disclosed in the accompanying condensed consolidated statement of
cash flows. In the six months ended October 31, 1996, the Company used $7.2
million in operations as compared with $5.1 million used in the six months ended
October 31, 1995. The increase is primarily attributable to a partnership
minority interest withdrawal of $1.8 million in May and increased income tax
payments of $0.7 million in the first six months of 1997.
The Company's investing activities provided $0.1 million in 1997 as
compared with $0.2 million used in 1996. The increase is primarily the result of
a $0.5 decrease in loans made to franchisees net of a $0.3 decrease in notes
receivable payments from franchisees.
The Company's financing activities for the six months ended October
31, 1996 provided $4.1 million compared with $4.0 million provided in the six
months ended October 31, 1995. The increase is primarily attributable to
proceeds from the exercise of stock options totaling $0.1 million.
The Company's current assets at October 31, 1996 were $7.3 million
compared to $11.2 million at April 30, 1996. The decrease resulted primarily
from a decrease of $3.1 million in cash which is discussed above, a $2.3 million
decrease in accounts receivable and a $0.6 million decrease in current notes
receivable resulting from the refinancing of franchisee notes as well as normal
payments. These decreases were partially offset by an increase in the income tax
receivable due to losses generated in the first six months of 1997 expected to
be recovered in the fourth quarter.
During the six months ended October 31, 1996, the Company acquired
the client lists and other assets of 25 franchises for a total purchase price of
$1.7 million. As consideration for these acquisitions, the Company canceled
notes and accounts receivable of $1.5 million and gave the previous franchise
owners cash and notes totaling $0.2 million.
In July 1996, the Company completed an exchange of 106,750 shares,
net of shares retired, of the Company's common stock for ownership in Oden Inc.
The acquisition was accounted for as a purchase and as a result, all of the
assets and liabilities were adjusted to their fair values with the excess
purchase price allocated to goodwill.
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Shareholders Meeting of Jackson Hewitt was held
on October 7, 1996 to consider five matters of business. The matters brought
before the shareholders and the voting results are as follows:
1. Approval of amendment to the Company's Articles of
Incorporation to create a classified Board of Directors:
Broker
For Against Abstain Non-Votes
1,415,737 723,425 63,620 885,837
This amendment did not pass as it required approval from 2/3
of all outstanding shares.
2. Election of Directors:
For Withhold
Class A Directors:
Susan E. Ventresca 1,847,736 1,240,883
William P. Veillette 2,604,154 484,465
Class B Directors:
Keith E. Alessi 2,598,174 490,445
John T. Hewitt 1,826,157 1,262,462
Preferred Shareholders Director:
Harry S. Gruner 504,950 0
3. Approval of the amendment to the Jackson Hewitt 1994 Long-Term
Incentive Plan:
Broker
For Against Abstain Non-Votes
2,084,496 596,256 26,980 885,837
4. Ratification of KPMG Peat Marwick, LLP as independent auditors
for the fiscal year ending April 30, 1997:
Broker
For Against Abstain Non-Votes
3,550,642 30,847 12,080 0
5. Act upon shareholder proposal regarding future amendments to
the Company's bylaws:
Broker
For Against Abstain Non-Votes
388,697 2,145,333 173,702 885,837
Item 5. Other Information
On November 12, 1996, following the termination of
negotiations regarding the terms by which Mr. John Hewitt would repay his then
due outstanding indebtedness to the Company, the Company filed suit against Mr.
Hewitt in Norfolk Circuit Court to obtain repayment of this debt. On December
12, 1996, the Company and Mr. Hewitt agreed to settle this suit. Under this
settlement, Mr. Hewitt executed a $1,276,057 promissory note, which represents
all amounts then due the Company, including accrued interest. This note bears
interest at 6.9% per year and is due and payable in one lump sum on April 30,
1999. To secure this recourse note, Mr. Hewitt pledged 145,050 shares of Company
stock to the Company, and granted the Company a proxy to vote this stock until
his obligation is repaid in full. In return for a monthly payment by the Company
to Mr. Hewitt of approximately $22,000, Mr. Hewitt also executed a covenant not
to compete with the Company in the United States through April 30, 1999, and
agreed not to solicit Company employees, conduct a solicitation of proxies or
disparage the Company or its officers and directors during the same period. In
addition, the Company forgave a $99,000 (plus accrued interest) obligation of
Mr. Hewitt to the Company, which was to have fallen due and payable on April 30,
1997. The Company agreed to dismiss the lawsuit against Mr. Hewitt and mutual
releases were executed by Mr. Hewitt and the Company. Mr. Hewitt also agreed to
resign from the Company's Board of Directors.
SIGNATURE
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed by the undersigned, thereunto duly
authorized.
Jackson Hewitt Inc.
By /s/ Christopher Drake
Christopher Drake
Controller &
Chief Financial Officer
November 13, 1996