UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended April 30, 2019
	or
o	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: 001-35588

Liberty Tax, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	27-3561876 (I.R.S. Employer Identification No.)
1716 Corporate Landing Parkway, Virginia Beach, Virginia (Address of principal executive offices)	23454 (Zip Code)

Registrant's telephone number, including area code: (757) 493-8855

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $0.01 per share (Title of Class) OTC Market (Name of Exchange on which registered)

Securities to be registered pursuant to Section 12(g) of the Act:

None

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o    NO ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. YES o    NO ý

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 ý    NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ý    NO 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer ý Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company ý

 Emerging growth company o

 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o    NO ý

The aggregate market value of the shares of common stock held by non-affiliates of the registrant computed based on the last reported sale price of $10.80 on October 31, 2018 was $75,371,213.

The number of shares of the registrant's common stock outstanding as of June 20, 2019 was 14,100,093.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Definitive Proxy Statement for the 2019 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

Table of Contents

Part I
Item 1.	Business	6
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	30
Item 2.	Properties	30
Item 3.	Legal Proceedings	30
Item 4.	Mine Safety Disclosures	30
Part II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	31
Item 6.	Selected Financial Data	33
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	36
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 8.	Financial Statements and Supplementary Data	48
	Report of Independent Registered Public Accounting Firm	F-1
	Consolidated Balance Sheets	F-5
	Consolidated Statements of Operations	F-6
	Consolidated Statements of Comprehensive Operations	F-7
	Consolidated Statements of Stockholders' Equity	F-8
	Consolidated Statements of Cash Flows	F-11
	Notes to Consolidated Financial Statements	F-13
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	48
Item 9A.	Controls and Procedures	48
Item 9B.	Other Information	50
Part III
Item 10.	Directors, Executive Officers, and Corporate Governance	51
Item 11.	Executive Compensation	51
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	51
Item 13.	Certain Relationships and Related Transactions and Director Independence	51
Item 14.	Principal Accounting Fees and Services	51
Part IV
Item 15.	Exhibits and Financial Statement Schedules	52
Item 16.	Form 10-K Summary	56
Signatures		56

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements concerning our business, operations, and financial performance and condition as well as our plans, objectives, and expectations for our business operations and financial performance and condition. Any statements contained herein that are not of historical facts may be deemed to be forward-looking statements. You can identify these statements by words such as "aim," "anticipate," "assume," "believe," "could," "due," "estimate," "expect," "goal," "intend," "may," "objective," "plan," "predict," "potential," "positioned," "should," "target," "will," "would," and other similar expressions that are predictions of or indicate future events and future trends. These forward-looking statements are based on current expectations, estimates, forecasts, and projections about our business and the industry in which we operate and our management's beliefs and assumptions. They are not guarantees of future performance or development and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. Additionally, other factors may cause actual results to differ materially from those indicated in any forward-looking statement. Factors that may cause such differences include, but are not limited to, the risks described under "Item 1A—Risk Factors," including:

• our inability to grow on a sustainable basis;

• the seasonality of our business;

• departures of key executives or directors;

• our ability to attract additional talent to our senior management team;

• our delisting by The Nasdaq Global Select Market (“Nasdaq”) and our ability to regain listing;

• our ability to maintain an active trading market for our common stock on the Over-The-Counter Market;

• our inability to secure reliable sources of the tax settlement products we make available to our customers;

• government regulation and oversight, including the regulation of tax preparers or settlement products such as refund transfers and loan settlement products;

• government initiatives that simplify tax return preparation, improve the timing and efficiency of processing tax returns, limit payments to tax preparers, or decrease the number of tax returns filed or the size of the refunds;

• government initiatives to pre-populate income tax returns;

• the effect of regulation of the products and services that we offer, including changes in laws and regulations;

• the possible characterization of refund transfers as a form of loan or extension of credit;

• changes in the tax settlement products offered to our customers that make our services less attractive to customers or more costly to us;

• our ability to maintain relationships with our tax settlement product service providers;

• any potential non-compliance, fraud or other misconduct by our franchisees or employees;

• our ability and the ability of our franchisees to comply with legal and regulatory requirements;

• failures by our franchisees and their employees to comply with their contractual obligations to us and with laws and regulations, to the extent these failures affect our reputation or subject us to legal risk;

• the ability of our franchisees to open new territories and operate them successfully;

• the ability of our franchisees to generate sufficient revenue to repay their indebtedness to us;

• our ability to manage Company-owned offices;

• our exposure to litigation and any governmental investigations;

• our ability and our franchisees' ability to protect customers' personal information, including from a cyber-security incident;

• the impact of identity-theft concerns on customer attitudes toward our services;

• our ability to access the credit markets and satisfy our covenants to lenders;

• challenges in deploying accurate tax software in a timely way each tax season;

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• delays in the commencement of the tax season attributable to Congressional action affecting tax matters and the resulting inability of federal and state tax agencies to accept tax returns on a timely basis, or other changes that have the effect of delaying the tax refund cycle;

• competition in the tax preparation market;

• the effect of federal and state legislation that affects the demand for paid tax preparation, such as the Affordable Care Act and potential immigration reform;

• our reliance on technology systems and electronic communications;

• our ability to effectively deploy software in a timely manner and with all the features our customers require;

• the impact of any acquisitions or dispositions, including our ability to integrate acquisitions and capitalize on their anticipated synergies; and

• other factors, including the risk factors discussed in this annual report.

Potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on the forward-looking statements. These forward-looking statements speak only as of the date of this annual report. Unless required by law, we do not intend to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. A potential investor or other vendor should, however, review the factors and risks we describe in the reports we will file from time to time with the U.S. Securities and Exchange Commission ("SEC") after the date of this annual report.

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PART I

Item 1.    Business.

Company Information

We were incorporated in Delaware in September 2010 as JTH Holding, Inc. In July 2014, our corporate name was changed to Liberty Tax, Inc. in order to better reflect our primary business and to eliminate confusion among stockholders and potential investors seeking information about us. We are the holding company for JTH Tax, Inc. d/b/a Liberty Tax Service, our largest subsidiary, which was incorporated in Delaware in October 1996.

References in this report to "years" are to our fiscal years, which end on April 30 unless otherwise noted, and all references to "tax season" refer to the period between January 1 and April 30 of the referenced year. Unless the context requires otherwise, the terms "Liberty Tax," "Liberty Tax Service," "we," the "Company," "us," and "our" refer to Liberty Tax, Inc. and its consolidated subsidiaries. A complete list of our subsidiaries can be found in Exhibit 21.1 to this report.

Financial Information about Segments

The majority of our revenue is earned through our United States operations; however, during our fiscal years 2019, 2018, and 2017, we earned $7.9 million, $8.1 million, and $7.0 million, respectively, from our Canadian operations. Due to the similarity in the nature of products and services, production process, type of customer, distribution methods, future prospects, and regulatory environment, we combine our United States operations and our Canadian operations into one reportable segment.

Our Business

We are one of the leading providers of tax preparation services in the United States and Canada. Although we operate a limited number of Company-owned offices each tax season, our tax preparation services and related tax settlement products are offered primarily through franchised locations. The majority of our offices are operated under the Liberty Tax Service or SiempreTax+ brands. We also provide an online digital Do-It-Yourself ("DIY") tax program in the United States.

Our business involves providing retail federal and state income tax preparation services and related tax settlement products in the United States and Canada. Our focus is on growing the number of Liberty Tax and SiempreTax+ offices, increasing the number of tax returns prepared by those offices, and enhancing profitability by offering services and products that continue to build both brands.

The tax return preparation market is divided into two primary distinct sectors: paid tax preparation and DIY preparation. Approximately 56% of U.S. e-filed returns during the 2019 tax season were prepared by paid preparers. Through our franchise and Company-owned offices, we offer tax preparation services and related financial products to our tax customers. The services and products are designed to provide streamlined tax preparation services for taxpayers who, for reasons of complexity, convenience, or the need for prompt tax refunds, seek assisted tax preparation services. In the 2019 tax season, we and our franchisees accounted for 1.3 million tax returns filed through our U.S. retail offices, 0.4 million through our Canadian retail offices, and 0.1 million through our online tax programs.

We expect to benefit from anticipated industry consolidation as we believe many independent tax preparers will look to exit the industry as they confront increased costs, regulatory requirements and demands to provide tax settlement products. We believe we will be a beneficiary of this consolidation because we are able to more efficiently address changing regulatory requirements due to our scale and also because we have succeeded in providing a fully competitive mix of financial products we believe to be attractive to our customers.

Our Franchise Model

We rely on a franchise model for our growth. Although our competitors rely on a mix of franchise locations and Company-owned offices or operate a majority of Company-owned offices, we have historically operated relatively few Company-owned stores and have determined that we can best grow our Company by increasing our franchisee base, and the number of offices operated by franchisees. Under our franchise model, we are able to focus on marketing, franchisee coaching and support, financial product development and other initiatives that drive our overall success. In addition, our franchise model allows us to grow our tax system with minimal capital expenditures or fixed cost investments.

We have included in our franchisee model the sale of AD areas. Under the AD model, we make large clusters of territories available to an AD who is responsible for marketing the available franchise territories within the larger AD area in order to help us fill gaps in our franchise system. As described below, when we utilize an AD to assist us in franchise sales, we

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receive revenue from the sale of the AD area but sacrifice a portion of the franchise fees and the royalty stream from the franchises within the AD area.

Franchise territories. We have divided the United States into approximately 10,000 potential franchise territories. We attempt to draw territory boundaries such that each territory has a target population of approximately 30,000 people. Franchisees are permitted to open more than one office in a territory.

Franchise sales process. We engage in an active marketing process, both directly and through our ADs, in order to sell additional franchise territories. Our sales process includes sales to new franchisees, as well as the sale of additional territories to existing franchisees willing to expand into additional territories. For new franchisees, the process includes multiple steps that culminate in a week-long training session that we call Effective Operations Training. In addition, from time to time, we offer special franchise purchase programs, which are designed to allow existing franchisees to acquire additional territories or to encourage independent tax preparers to become franchisees.

Our franchise agreements. Under the terms of our standard franchise agreement, each franchisee receives the right to operate a tax return preparation business under the Liberty Tax Service brand and/or SiempreTax+ brand within a designated geographic area. Similarly, our agreements with ADs permit ADs to market franchise territories within a designated multi-territory area. Franchise agreements have an initial term of five years and are renewable. The agreements impose various performance requirements on franchisees, require franchisees to use our proprietary software and equipment designated by us, and obligate our franchisees to operate in their offices in accordance with standards we establish. These standards include specified in-season and out-of-season opening hours, criteria for the location of franchise offices, requirements related to tax preparers and other office employees, and minimum performance standards. Our agreements also require our franchisees to comply with applicable state and federal legal requirements. Although we do not control and are not responsible for any compliance issues that could be caused by our franchisees or their tax preparers, we provide guidance to our franchisees regarding their compliance obligations, including the provision of standard advertising templates, training materials that include detailed compliance information, and systems that alert them to unusual activity. We also use a variety of means in an attempt to identify potential franchise and tax law compliance issues and require franchisees to address any concerns, including the continued enhancement of a Compliance Department which helps to examine and prevent non-compliance, fraud and other misconduct among our franchisees and employees.

Each year, we terminate a number of franchisees and other franchisees voluntarily relinquish their territories, sometimes in exchange for our forbearance on the remaining indebtedness owed to us in connection with the franchise territory. In order to protect our competitive position, we regularly take actions to enforce the non-competition obligations and restrictions regarding customer lists and our trademarks and service marks contained in our franchise agreements.

AD areas. Our fees for AD areas vary based on our assessment of the revenue potential of each AD area, and also depend on the performance of any existing franchisees within the AD area. Our ADs generally receive 50% of both the franchise fee and royalties collected from franchises located in their AD areas and are required to provide marketing and operational support.

Company-owned offices. We intentionally operate relatively few Company-owned offices. During the 2019 tax season we operated 140 Company-owned offices in the U.S. and Canada, 7 of which were seasonal offices. We focus primarily on growing through the opening of new franchise locations, and most of the Company-owned offices we operate are offices that have been previously owned by former franchisees who have ceased operations or failed to meet our performance standards. Rather than close offices that we believe have the potential to be successful, we may resell or operate them as Company-owned offices. In future periods, the number of Company-owned offices may increase if the Company reacquires more offices from existing franchisees and elects to operate the store as a Company-owned office.

Franchise fees and royalties. Franchisees presently have several options for acquiring a new undeveloped territory. The typical franchise fee is $40,000. We may offer special financing programs. Our franchise agreement requires franchisees to pay us a base royalty equal to 14% of the franchisee's tax preparation revenue, subject to certain specified minimums. Franchisees are also required to pay us an advertising fee of 5% of their tax preparation revenue.

Franchisee loans. We provide a substantial amount of lending to our franchisees and ADs. In addition to allowing franchisees to finance a portion of their franchise fees, which they pay over time, we also offer our franchisees working capital loans to fund their operations.

This indebtedness generally takes one of the following forms:

• The unpaid portion of franchise and AD fees, which does not represent a cash advance by us to the franchisee or AD, but a financing of the franchise or AD fee, generally payable over four years for territory franchise fees and six years for AD fees.

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• Amounts due to us in connection with the purchase of a Company-owned office. The notes for these amounts are generally payable over five years following the acquisition.

• Annual working capital loans made available to qualified franchisees between May 1 and January 31 each year, which are repayable to us generally by the end of February.

Fee intercept. We have the ability to collect these amounts from our franchisees through a "fee intercept" mechanism. Our franchise agreement allows us to obtain repayment of amounts due to us from our franchisees through an electronic fee intercept program before our franchisees receive the net proceeds from tax preparation and other fees they have charged to their customers who have received a tax settlement product. Therefore, we are able to reduce the nonpayment risk associated with amounts outstanding from franchisees by obtaining direct electronic payment in the ordinary course throughout the tax season. Our credit risk associated with amounts outstanding from ADs is also mitigated by our electronic fee intercept program, which enables us to obtain repayments of amounts that would otherwise flow through to ADs as their share of franchise fee and royalty payments, to the extent of an AD's indebtedness to us.

Tax software. Our current proprietary tax software programs offer an interactive question-and-answer format that is easy for our retail office tax preparers to use, facilitating tax preparer training. A substantial number of changes are made each year to federal and state tax laws, regulations, and forms that require us to expend substantial resources every year to develop and maintain tax preparation software. We also offer an online digital DIY tax software in the United States.

Franchisee support. We provide substantial support to our franchisees in a variety of ways. Our franchise agreement requires our franchisees to adhere to certain minimum standards, including the use of tax preparation software we provide, the use of computers and other equipment that we select (but that we do not sell to them), training requirements, and other criteria. We make substantial training opportunities available to our franchisees and their prospective employees, and we require each franchisee to send representatives to a week-long Effective Operations Training seminar before they are allowed to operate a franchise location. We also make intermediate and advanced training available to our franchisees, offer "Tax School" classes for franchisees and prospective tax preparers, and provide substantial phone and internet-based support, particularly during the tax season. During the tax season, we maintain a fully-staffed operations center, with extended hours, at our corporate headquarters in Virginia Beach, Virginia. During the peak tax season, we hold daily conference calls in which we share and allow other franchisees to share recommendations and techniques for improving office performance, and in which we emphasize the importance of implementing the marketing plan that we recommend as part of our franchisee training.

Our Financial Products

We expend considerable effort to ensure that our franchisees are able to offer a complete range of tax settlement products to our customers, and to provide our customers choices in these products. We offer these products because we believe that a substantial portion of our prospective customer base places significant value on the ability to monetize their expected income tax refund more quickly than they would be able to do if they were to file their tax return without utilizing the services of a paid tax preparer. We offer two types of tax settlement products: refund transfer products and refund-based loans.

Refund transfer products. Many of our tax customers seek products that will enable them to obtain access to their tax refunds more quickly than they might otherwise be able to receive those funds. We believe that many of our customers are unbanked, in that they do not have access to a traditional banking account, and therefore, cannot make such an account available to the IRS and other tax authorities for the direct deposit of their tax refunds. Additionally, customers may have access to a traditional banking account, but for personal reasons, may prefer not to utilize that account for the deposit of their tax refunds.

A refund transfer product involves direct deposit of the customer's tax refund into a newly established temporary bank account in the customer's name that we establish with one of our banking partners that have contracted with one of our subsidiaries, JTH Financial, LLC ("JTH Financial"). The balance of the customer’s refund, after payment of tax preparation and other fees will be delivered to the customer by paper check, prepaid card or a direct deposit into a customer’s existing bank account. When the prepaid card option is elected, the card is issued through one of our financial product partners and is branded with the Liberty Tax logo. When we deliver a physical refund check to a customer, we are generally able to print the check in one of our retail tax offices on check stock paper within a matter of hours after the electronic deposit of the customer's refund has been made to the customer's temporary account. We also enter into check-cashing arrangements with a number of retail establishments, which facilitate the ability of our customers to monetize their check even when they do not have traditional banking relationships.

We believe the continued availability of refund transfers will enable us to continue to offer an adequate mix of tax settlement products to our customers. The number of customers in our U.S. offices receiving our refund transfer products, which we call our "attachment rate," has varied from 46.1% for the 2019 and 2018 tax season compared to 47.6% for the 2017 tax season.

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Refund-based loans. During the past few seasons, we partnered with banks to make available a refund-based loan to customers ("Refund Advance"). Approved customers were charged no fees or interest for Refund Advances up to $1,500. There were no additional requirements for the customer to pay for any additional products, such as a refund transfer, to receive a Refund Advance.

Online Tax Preparation

Although online tax preparation, through our digital online tax services, represents a small portion of tax returns prepared and associated revenue, we believe there is a market for customers who wish to prepare their own tax returns using moderately priced online tax preparation products, and the continued availability of these products may be a part of our long-term growth, particularly if we are able to successfully integrate our online and retail tax services.

Intellectual Property

We regard our intellectual property as critical to our success and we rely on trademark, copyright, and trade secret laws in the United States to protect our proprietary rights. We pursue the protection of our service mark and trademarks by applying to register key trademarks in the United States. The initial duration of federal trademark registrations is 10 years. Most registrations can be renewed perpetually at 10-year intervals. In addition, we seek to protect our proprietary rights through the use of confidentiality agreements with employees, consultants, vendors, advisors, and others. The primary marks we believe to be of material importance to our business include our Lady Liberty logo and the brands "Liberty Tax," "Liberty Tax Service," "Liberty Income Tax," "Liberty Canada," and "SiempreTax+."

Seasonality

The tax return preparation business is highly seasonal, and we historically generate most of our revenues during the period from January 1 through April 30. For example, in fiscal 2019 and 2018, we earned 25% and 28% of our revenues during our fiscal third quarter ended January 31, respectively, and 89% and 91% of our revenues during the combined fiscal third and fourth quarters of 2019 and 2018, respectively. We generally operate at a loss during the period from May 1 through December 31, during which we incur costs associated with preparing for the upcoming tax season.

Available Financing

We use our available financing to fund operations between tax seasons and have minimal outstanding indebtedness at the end of each fiscal year. At April 30, 2019 and 2018, for example, we had no outstanding balance under our revolving credit facility. Our term loan had outstanding balances of $12.0 million and $14.9 million at April 30, 2019 and 2018, respectively. See “Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Overview of factors affecting our liquidity-Credit facility.”

Competition

The paid tax preparation market is highly competitive. We compete with tens of thousands of paid tax return preparers, including H&R Block, Jackson Hewitt, regional and local tax return preparation companies, most of which are independent and some of which are franchised, regional and national accounting firms, and financial service institutions that prepare tax returns as part of their businesses.

We also face increased competitive challenges from the online and software self-preparer market, including the Free File Alliance ("FFA"), a consortium of the IRS and online preparation services that provides free online tax return preparation, and from volunteer and certain state organizations that prepare tax returns at no cost for low-income and other qualified taxpayers. Our ability to compete in the tax return preparation business depends on our product mix, price for services, customer service, the specific site locations of our offices, local economic conditions, quality of on-site office management, the ability to file tax returns electronically with the IRS, and the availability of tax settlement products to offer to our customers.

We also compete for the sale of tax return preparation franchises with H&R Block, Jackson Hewitt, and other regional franchisors. In addition, we compete with franchisors of other high-margin services outside of the tax preparation industry that attract entrepreneurs seeking to become franchisees. Our ability to continue to sell franchises is dependent on our brand image, the products and services to be provided through the network, the relative costs of financing and start-up costs, our reputation for quality, and our marketing and advertising support. However, we believe that there is no existing smaller competitor in the retail tax preparation market that could challenge our market position on a national scale due to the expense and length of time required to develop the infrastructure, systems and software necessary to create and support a nationwide network of tax preparation offices. As a result, we believe that it would be difficult for an additional national competitor to emerge in our market for the foreseeable future.

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Our online tax business also competes with a number of companies. Intuit, Inc., the maker of Turbo Tax, is the largest supplier of tax preparation software for online tax preparation services. H&R Block and Blucora, Inc., the owner of TaxAct, also have substantial online and software-based products.

Regulation

We and our franchisees must comply with laws and regulations relating to our businesses. Regulations and related regulatory matters specific to our businesses are described below.

Federal tax return preparation regulation. Federal law requires tax preparers to, among other things, set forth their signatures and identification numbers on all tax returns prepared by them and retain for three years all tax returns prepared. Federal laws also subject tax preparers to accuracy-related penalties in connection with the preparation of tax returns. Preparers may be enjoined from further acting as tax preparers if they continually or repeatedly engage in specified misconduct. Additionally, all authorized IRS e-file providers must adhere to IRS e-file rules and requirements to continue participation in IRS e-file. Adherence to all rules and regulations is expected of all providers regardless of where published and includes, but is not limited to, those described in IRS Publication 1345, Handbook for Authorized IRS e-file Providers. Various IRS regulations also require tax return preparers to comply with certain due diligence requirements to investigate factual matters in connection with the preparation of tax returns. The IRS conducts audit examinations of authorized IRS e-file providers and tax return preparers, reviewing samples of prepared tax returns to ensure compliance with regulations in connection with tax return preparation activities. From time to time, certain of our franchisees and Company-owned offices are the subject of IRS audits to review their tax return preparation activities.

We engage in significant efforts to enhance tax compliance by our franchisees and their preparers, including the use of a franchisee alert system that identifies anomalous patterns, compliance audits of selected offices and returns, additional training requirements and actions taken against problematic preparers (including blacklisting to prevent their hiring by other franchisees and reporting to the IRS).

The IRS published final regulations in 2010 that would have imposed mandatory tax return preparer regulations, but federal courts have ruled that the IRS did not have authority to implement those regulations. The IRS has created a voluntary tax preparer certification regime.

During fiscal 2016, the United States Department of Justice (“DOJ”) announced two law suits against certain of our former larger franchisees and two lawsuits against then-existing franchisees. Allegations involved claims of fraudulent tax preparation. We were not named as a defendant in these suits, which concluded in fiscal 2017. Further, in fiscal 2017, the State of Maryland, Office of the Comptroller suspended the processing of electronic and paper returns of one franchisee who owned two offices in that state. We retained outside counsel to conduct internal reviews (the “Internal Review”) of our compliance practices, policies and procedures in connection with tax return preparation activities. The Internal Review’s examination made certain recommendations, many of which have been implemented including enhanced monitoring tools and increased training of franchisees and their preparers. We have continued to actively cooperate with the applicable government authorities in connection with their investigations and to enhance our Compliance Department to examine and prevent non-compliance, fraud and other misconduct among our franchisees and their employees. In fiscal 2018, the DOJ filed suit against one former and two then active franchisees in Florida based upon their alleged preparation of fraudulent tax returns. Also during fiscal 2018, the DOJ indicted four Milwaukee tax preparers based upon their alleged filing of fraudulent tax returns.

The DOJ has been conducting an investigation of our policies, practices and procedures in connection with our tax return preparation activities. We are in discussions with the DOJ to resolve that investigation. Based on such discussions, in April 2019, we accrued $2.5 million in “Accounts payable and accrued expense” on our consolidated balance sheets and “Selling, general and administrative expense” in our consolidated statements of operations. However, such amount may increase materially based on the outcome of discussions with the DOJ, and there can be no assurance that we will be able to reach an agreement with the DOJ. In connection with a potential agreement with the DOJ, we expect to incur increased costs to enhance our compliance program that could exceed $1.0 million per year over several years, in addition to any costs necessary to settle the investigation.

State tax return preparation regulation. We are also subject to tax return preparation regulation at the state level. The scope and substance of these regulations vary from state to state, but states also conduct examinations and take enforcement action against tax return preparers. From time to time, certain of our franchisees and Company-owned offices are the subject of state-level audits to review their tax preparation activities. In addition, particularly in the absence of effective IRS regulations imposing mandatory tax return preparer requirements, several states have begun to fill this void by imposing state-level preparer regulatory requirements. We believe our in-house certification program exceeds these regulatory requirements.

Financial privacy regulation. The Gramm-Leach-Bliley Act and related FTC regulations require income tax return preparers to adopt and disclose customer privacy policies and provide customers a reasonable opportunity to opt-out of having

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personal information disclosed to unaffiliated third parties for marketing purposes. Some states have adopted or proposed stricter opt-in requirements in connection with use or disclosure of consumer information. Federal and state law also requires us and our franchisees to safeguard the privacy and security of our customers' data, including financial information, to prevent the compromise or breach of our security that would result in the unauthorized release of customer data. Breaches of information security that affect us or our franchisees require compliance with customer notification requirements imposed at the state and local level, and in addition, may subject us to regulatory review by the FTC and other federal and state agencies. For example, in connection with a burglary that occurred at a single franchise office, both we and the affected franchisee were required to respond to a document request issued by the FTC. Additional restrictions on disclosure are imposed by the IRS, which prohibits the use or disclosure by tax preparers of income tax return information without the prior written consent of the taxpayer. The IRS may continue to consider further regulations concerning disclosures or uses of tax return information.

Financial product regulation. Federal and state statutes and regulations govern the facilitation of refund-based loans and other tax settlement financial products. These laws require us, among other things, to provide specific loan disclosures and advertise loans in a certain manner. In addition, we are subject to federal and state laws that prohibit deceptive claims and require that our marketing practices are fair and not misleading. Federal law also limits the annual percentage rate on loans for active duty service members and their dependents. There are also many states that have statutes regulating, through licensing and other requirements, the activities of brokering loans and offering credit repair services to consumers, as well as local usury laws which could be applicable to our business in certain circumstances. From time to time, we receive inquiries from various state regulators regarding our and our franchisees' facilitation of refund-based loans and other tax settlement products. We have in certain states paid fines, penalties, and other payments as well as agreed to injunctive relief, in connection with resolving these types of inquiries.

Potential regulation of refund transfer products or treatment of refund transfer products as loans or extensions of credit. Our refund transfer products may be subject to additional regulation because of potential regulatory changes as well as litigation asserting that refund transfer products constitute a loan or extension of credit because many customers who receive refund transfer products elect to defer paying their tax preparation fees until their tax refund is received. With respect to possible new regulation, the broad authority of the Consumer Financial Protection Bureau ("CFPB") may enable that agency to pursue initiatives that negatively impact our ability to offer tax settlement products by imposing disclosure requirements or other limitations that make the products more difficult to offer or reduce their acceptance by potential customers. See "Item 1A—Risk Factors—Risk Related to Regulation of Our Industry—Federal and state regulators may impose new regulations on non-loan tax settlement products that would make those products more expensive for us to offer or more difficult for our customers to obtain."

We have previously been subject to class action litigation asserting that the refund transfer product is a loan or extension of credit, and should therefore be subject to loan-related federal and state disclosure requirements, which litigation was settled in January 2016. We are also subject to an injunction in California that treats our refund transfer product as an extension of credit. If we are subject to an adverse decision in future litigation that affects our offering of refund transfer products in other states, our refund transfer products would be subject to additional regulatory requirements in those states, including federal truth-in-lending disclosure obligations, and possible compliance with statutes and regulations governing refund anticipation loans that have been adopted in numerous states. This additional regulation would not prohibit us from offering refund transfer products but might require us to make interest rate and other disclosures to customers because of the characterization of the refund transfer product as a loan or extension of credit that would make it more difficult to market the refund transfer product to potential customers or reduce their acceptance by potential customers, and might adversely affect fees charged related to refund transfer products because of limitations on fees imposed by state refund anticipation loans statutes and regulations. See "Item 1A—Risk Factors—Risks Related to Regulation of Our Industry—Federal and state regulators may impose new regulations on non-loan tax settlement products that would make those products more expensive for us to offer or more difficult for our customers to obtain" and "—We may be unsuccessful in litigation that characterizes refund transfer products as loans, which could subject us to damages and additional regulation, and which could adversely affect our ability to offer tax settlement products and have a material adverse effect on our operations and financial results."

Franchise regulations. Our franchising activities are subject to the rules and regulations of the FTC and various state agencies regulating the offer and sale of franchises. These laws require that we furnish to prospective franchisees a franchise disclosure document describing the requirements for purchasing and operating a franchise. In a number of states in which we are currently franchising, we are required to be registered to sell franchises. Several states also regulate the franchisor/franchisee relationship particularly with respect to the duration and scope of non-competition provisions, the ability of a franchisor to terminate or refuse to renew a franchise, and the ability of a franchisor to designate sources of supply. Bills have been introduced in Congress from time to time that would provide for federal regulation of the franchisor/franchisee relationship in certain respects.

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Telephone Consumer Protection Act. Maintaining contact with customers is an essential component of the efforts by our franchisees, and by us in Company-owned offices, to retain tax customers from year-to-year. In addition, we utilize a variety of contact methods to solicit new franchisees. The Telephone Consumer Protection Act ("TCPA") imposes substantial restrictions on the manner in which persons may be contacted, by telephone calls or text, on mobile telephones. We are required to comply with these restrictions in the telephone calls and text messages that we send, and we also make available tools intended to assist our franchisees in ensuring that telephone calls they make and text messages they send are compliant with the TCPA. Violations of the TCPA may result in per-call and per-message penalties of $500 to $1,500, and frequently result in class action litigation. The Federal Communications Commission ("FCC"), which is responsible for regulations relating to the TCPA, has been asked to clarify certain aspects of their regulations that have led to a substantial increase in TCPA litigation, but it is not clear that any significant changes to those regulations will be implemented in the foreseeable future.

Tax course regulations. Our tax courses are subject to regulation under proprietary school laws and regulations in many states. Under these regulations, our tax courses may need to be registered and may be subject to other requirements relating to facilities, instructor qualifications, contributions to tuition guaranty funds, bonding, and advertising.

Foreign regulations. We are subject to a variety of other regulations in the Canadian markets, including anti-corruption laws and regulations. Foreign regulations and laws potentially affecting our business are evolving rapidly. We rely on external counsel in Canada to advise us regarding compliance with applicable laws and regulations.

Employees

As of April 30, 2019, we employed 795 employees, consisting of 414 employees in our corporate operations, primarily located in Virginia Beach, Virginia and 381 employees at our Company-owned offices. Many of our employees are seasonal and, by contrast, we had 474 corporate employees and 582 employees at our Company-owned offices as of February 15, 2019. As of May 31, 2019, we employed 313 corporate employees and 148 employees at our Company-owned offices. We consider our relationships with our employees to be good.

Available Information

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed with or furnished to the SEC are available, free of charge, through our website at www.libertytax.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC. The SEC maintains a website at www.sec.gov containing reports, proxy and information statements and other information regarding issuers who file electronically with the SEC.

Item 1A.    Risk Factors.

In addition to the other information contained in this annual report, the following risk factors should be considered carefully in evaluating our business. If any of the risks or uncertainties described below were to occur, our business, financial condition, and results of operations may be materially and adversely affected. Additional risks not presently known to us or that we currently deem immaterial may also impair our business and operations.

Risks Related to Our Business

Recent turnover in our senior management could have a material adverse effect on our business.

In June 2019, Nicole Ossenfort resigned as the our President and Chief Executive Officer and the Board of Directors appointed M. Brent Turner as Interim President and Chief Executive Officer. Ms. Ossenfort had served as Chief Executive Officer since February 2018, when the Board of Directors appointed her to replace Edward Brunot. Mr. Brunot succeeded our founder and former President and Chief Executive Officer, John T. Hewitt, when Mr. Hewitt was terminated by our Board of Directors in September 2017. In addition, we have experienced a significant amount of turnover in senior management since September 2017. Since that time, we made several significant hires; however, this turnover in senior management could cause operational disruptions and create uncertainty for management, employees, franchisees, customers and stockholders.

Senior management turnover may also disrupt our operations, our strategic focus or our ability to drive stockholder value. In addition, these changes and the failure to retain and recruit key employees, including senior management, could have a material adverse effect on our operations and ability to manage day-to-day aspects of our business, as well as our ability to continue to grow our business. Our future success will depend in part upon our ability to attract and retain senior management personnel having the experience and skills necessary to assist us. We face competition for personnel from numerous other

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entities, including competing tax return preparation firms, some of which have significantly greater resources than us. We can provide no assurances that turnover in senior management will not have a material adverse effect on our business.

Recent turnover with our Board of Directors may disrupt our operations, our strategic focus or our ability to drive stockholder value.

In addition to changes to our senior management, there also have been significant changes to our Board of Directors since September 2017, as previously reported in our periodic filings. In May 2018, four Class A directors - G. William Minner, Jr., Thomas Herskovits, Patrick A. Cozza and Lawrence Miller - were elected by our Class A stockholders to the Board of Directors. As a result of these changes, the Board of Directors appointed new independent members to its Nominating & Corporate Governance Committee.

Additionally, in connection with the sale of his Class A and Class B common stock to unaffiliated third parties, Mr. Hewitt agreed to tender his resignation to our Board of Directors and agreed to cause the five Class B directors previously appointed by Mr. Hewitt to tender their resignations, in each case, effective upon the closing of the sale. On August 9, 2018, we received a written consent executed by a majority of the outstanding shares of our Class A common stock electing the following five persons as directors of the Company to serve until our next annual meeting of stockholders and until their successors are duly elected and qualified: Brian R. Kahn, Andrew M. Laurence, Matthew Avril, Bryant R. Riley and Kenneth M. Young. At our annual meeting of stockholders held in December 2018, each of the nominees for director was duly elected by the holders of our common stock to serve until the next annual meeting of stockholders or until a respective successor is elected and qualified.

Turnover among our Board of Directors may disrupt our operations, our strategic focus or our ability to drive stockholder value. If we fail to attract and retain new skilled personnel for our Board of Directors and senior management positions, our business and growth prospects could disrupt our operations and have a material adverse effect on our operations and business.

Because much of our growth in prior years has been achieved through rapidly opening new offices, we may not achieve the same level of growth in revenues and profits in future years.

Historically our growth has been driven by selling franchises and entering into agreements with ADs who have assisted us in expanding our geographic reach. However, our success depends, in part, on retaining operational offices which contribute to our growth. Slowed growth in expanding office count and closures of Company-owned and franchisee operations could adversely affect our business, our consolidated financial position, results of operation and cash flows.

Our future viability, profitability, and growth will depend upon our ability to successfully operate and continue to expand our operations in the United States and Canada. Furthermore, in prior years, our business experienced rapid growth in the number of franchisees and office locations in large geographic markets, and our continued growth in those markets may not continue at the same pace. Our ability to continue to grow our business will be subject to a number of risks and uncertainties and will depend in large part on:

• adding new customers and retaining existing customers;

• innovating new products and services to meet the needs of our customers;

• finding new opportunities in our existing and new markets;

• remaining competitive in the tax return preparation industry;

• our ability to offer directly and to facilitate through others the sale of tax settlement products;

• attracting and retaining capable franchisees and ADs;

• maintaining a reputation for quality tax preparation services sufficient to attract and retain customers and franchisees;

• our success in replacing independent preparers with franchisees;

• hiring, training, and retaining skilled managers and seasonal employees; and

• expanding and improving the efficiency of our operations and systems.

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There can be no assurance that any of our efforts will prove successful or that we will continue to achieve growth in revenues and profits.

The highly seasonal nature of our business presents a number of financial risks and operational challenges which, if we fail to meet, could materially affect our business.

Our business is highly seasonal, with the substantial portion of our revenue earned in the January through April “tax season” in the United States and Canada each year. The concentration of our revenue-generating activity during this relatively short period presents a number of challenges for us and our franchisees, including:

• cash and resource management during the first eight months of our fiscal year, when we generally operate at a loss and incur fixed costs and costs of preparing for the upcoming tax season;

• compliance with financial covenants under our credit facility, particularly if the timing of our revenue generation deviates from our typical revenue patterns;

• the availability of seasonal employees willing to work for our franchisees for at or near the minimum wage, with minimal benefits, for periods of less than a year;

• the success of our franchisees in hiring, training, and supervising these employees and dealing with turnover rates;

• accurate forecasting of revenues and expenses because we may have little or no time to respond to changes in competitive conditions, markets, pricing, and new product offerings by competitors, which could affect our position during the tax season;

• disruptions in one tax season, including any customer dissatisfaction issues, which may not be discovered until the following tax season; and

• ensuring optimal uninterrupted operations during peak season.

If we experience significant business disruptions during the tax season or if we or our franchisees are unable to meet the challenges described above, we could experience a loss of business, which could have a material adverse effect on our business, financial condition, and results of operations.

Our future success will depend in part upon the continued success of our senior management, as well as our ability to attract and retain capable middle management.

Failure to maintain the continued services of senior management personnel or to attract and maintain capable middle management could have a material adverse effect on us. If senior management were to leave the Company, it could be difficult to replace them, and our operations and ability to manage day to day aspects of our business as well as our ability to continue to grow our business may be materially adversely affected. Our future success will also depend in part upon our ability to attract and retain capable middle management, such as regional directors, consultants for franchised offices, training directors, tax advisors, and technology personnel, having the specific executive skills necessary to assist us and our franchisees. We face competition for personnel from numerous other entities, including competing tax return preparation firms, some of which have significantly greater resources than we do.

Because we are not a financial institution, we can only facilitate the sale of financial products through our arrangements with financial institutions and other financial partners and, if these arrangements are terminated for any reason, we may not be able to replace them on acceptable terms or at all.

Revenue derived from our facilitation of the sale of financial products provided to our customers by financial institutions and providers is approximately 25% to 30% of our total annual revenue. Our tax return preparation business is also, to some extent, dependent on our ability to facilitate the sale of these products, because our customers are often attracted to our business by the expectation that these products will be available. Financial products that monetize future tax refunds are specialized financial products, and if our arrangements with the financial institutions and other partners that provide our tax settlement products were to terminate and we were unable to secure an alternative relationship on acceptable terms, or at all, our financial results could be materially adversely affected. In addition, any changes in our contractual terms with these financial institutions and other partners that result in a reduction in our fee income, if not offset by customer growth associated with lower fees, could adversely affect our profitability. See “-Risks Related to Regulation of Our Industry-We may be unsuccessful in litigation

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that characterizes refund transfer products as loans, which could subject us to damages and additional regulation, and which could adversely affect our ability to offer tax settlement products and have a material adverse effect on our operations and financial results.”

We face significant competition in the tax return preparation business and face a competitive threat from software providers and internet businesses that enable and encourage taxpayers to prepare their own tax returns.

The tax return preparation industry is characterized by intense competition. We compete with H&R Block, which is larger and more widely recognized than we are, Jackson Hewitt and with other national and regional tax services and smaller independent tax return preparation services, small franchisors, regional tax return preparation businesses, accounting firms, and financial service institutions that prepare tax returns as part of their business. Additionally, we believe that many taxpayers in our target market prepare their own returns and in light of recent tax legislation enacted by the US government and any proposed modifications to the Internal Revenue Code which simplify tax preparation, may result in even more taxpayers preparing their own returns. The availability of these alternative options may reduce demand for our products and limit the fees our franchisees can charge, and competitors may develop or offer more attractive or lower cost products and services than ours, which could erode our consumer base.

We also face increased competitive challenges from the online and software self-preparer market, including the FFA, a consortium of the IRS, online preparation services that provides free online tax return preparation, and assistance from volunteer organizations that prepare tax returns at no cost for low-income taxpayers. In addition, many of our direct competitors offer certain free online tax preparation and electronic filing options, and limited in-office promotions of free or nominal cost tax preparation services. Government tax authorities, volunteer organizations, and direct competitors may elect to expand free and reduced cost offerings in the future. Intense price competition, including offers of free service, could result in a loss of market share, lower revenues, or lower margins. Our ability to compete in the tax return preparation business depends on our product offerings, price for services, customer service, the specific site locations of our offices, local economic conditions, quality of on-site office management, the ability to file tax returns electronically with the IRS, and the availability of tax settlement products to our customers.

We rely on our own proprietary tax preparation software, and any difficulties in deploying or utilizing our software each tax season could adversely affect our business.

We utilize our own tax preparation software, with which we have experienced some difficulties during the past tax season. If we are unable to resolve such difficulties or our tax preparation software was to experience technical failure or development delay in the future, this could have a material adverse effect on our business. Additionally, tax changes made by the federal and state governments each year and changes in tax forms require us to make substantial changes to our software before the beginning of each tax season. See “-Risks Related to Changes in Tax Laws and Regulations-New or revised tax regulations could have a material effect on our financial results.” Although we engage in extensive testing of our software before deploying it in our franchisees' tax preparation offices and online, any delays in the availability of IRS forms or instructions or problems with the rollout of the new software each season could delay the ability to file tax returns at the beginning of the tax season and could adversely affect our business. We also may outsource a significant portion of our tax preparation software, and any difficulties in deploying or utilizing such outsourced software each tax season could similarly adversely affect our business.

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Our Company-owned offices may not be as successful as our franchised offices.

Historically, almost all Liberty Tax offices have been owned by franchisees, and most of the Company-owned offices we have operated during a tax season have been offices previously operated by former franchisees. Our Company-owned offices may be less successful than our typical franchisee-owned offices because they often represent offices transitioned from a less successful franchisee. For this reason, we are not able to obtain the continuity of staffing in Company-owned offices that we expect to experience in our franchisee-owned offices. As part of our business strategy, we may also take back offices previously operated by franchisees who have elected to exit the system and these offices may face operational and financial challenges which could negatively impact the success of the offices. However, the delisting of our common stock on Nasdaq has affected our ability to sell franchises in our fiscal year ending April 30, 2019.

The provision of health insurance and other insurance products to customers by our franchisees and their preparers may subject us and our franchisees to additional claims from customers, as well as increased regulatory risk.

As part of our effort to make information about health insurance options available to tax office customers, we have encouraged our franchisees to make licensed insurance agents available in tax offices. A significant number of our franchisees have become or arranged for the availability of insurance agents and participated in the writing of health insurance policies for customers. The provision of these insurance services subjects our franchisees to a complex regulatory environment, and to potential claims by customers who may become dissatisfied with the insurance products they obtain. Any failure by our franchisees or their employees to comply with applicable insurance laws and regulations could have an adverse effect on our business and subject our franchisees and us to regulatory complaints, and any failure by our franchisees to provide satisfactory insurance services to customers may adversely affect our customer relationships and our business.

Our failure to protect our intellectual property rights may harm our competitive position, and litigation to protect our intellectual property rights or defend against third-party allegations of infringement may be costly.

We regard our intellectual property as critical to the success of our business. Third parties may infringe or misappropriate our trademarks or other intellectual property rights, which could have a material adverse effect on our business, financial condition, or operating results. The actions we take to protect our trademarks and other proprietary rights may not be adequate. Litigation may be necessary to enforce our intellectual property rights, protect our trade secrets, or determine the validity and scope of the proprietary rights of others. There are no assurances that we will be able to prevent infringement of our intellectual property rights or misappropriation of our proprietary information. Any infringement or misappropriation could harm any competitive advantage we currently derive or may derive from our proprietary rights. In addition, third parties may assert infringement claims against us. Any claims and any resulting litigation could subject us to significant liability for damages. An adverse determination in any litigation of this type could require us to design around a third party's patent or to license alternative technology from another party. Litigation is time-consuming and expensive to defend and could result in the diversion of our time and resources. Any claims from third parties may also result in limitations on our ability to use the intellectual property subject to these claims.

Our business relies on technology systems and electronic communications, which, if disrupted, could materially affect our business.

Our ability to file tax returns electronically and to facilitate tax settlement products depends on our ability to electronically communicate with all of our offices, the IRS, state tax agencies, and the financial institutions that provide the tax settlement products. Our electronic communications network is subject to disruptions of various magnitudes and durations, such as a data breach or server disruption. Any data breach or severe disruption of our network or electronic communications, especially during the tax season, could impair our ability to complete our customers' tax filings, to provide tax settlement products from financial institutions, or to maintain our operations, which, in turn, could have a material adverse effect on our business, financial condition, and results of operations.

Additionally, in the course of our business, we collect, use, and retain large amounts of our clients’ personal information, including tax return information and social security numbers. It is critical to our business strategy that our infrastructure, products and services remain secure and are perceived by customers, clients and partners to be secure. See “-If we fail to protect or fail to comply with laws and regulations related to our customers' personal information, we may face significant fines, penalties, or damages and our brand and reputation may be harmed.”

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We are dependent on our financing sources and any loss of financing could materially and adversely affect our operating results and our ability to expand our business.

We recently entered into a new credit facility, the continued availability of which, we are dependent upon in order to fund our seasonal needs and for the further expansion of our business. If we were to default on our financing or otherwise lose access to our sources of credit, our ability to provide financing to our franchisees would be significantly impaired and may result in certain offices closing if our franchisees are not able to secure alternative financing for their working capital needs. In addition, our ability to expand our business would be impaired. We may need to obtain new credit arrangements and other sources of financing to continue to provide financing to our franchisees, to meet future obligations, and to fund our future growth. Our ability to maintain or refinance our debt and fund other obligations depends on our successful financial and operating performance and the availability of funds from credit markets. There is no assurance that when our credit facility matures in 2020, we will be able to renew or refinance our debt or enter into new credit arrangements on terms similar to those of our existing loans. See “Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Overview of factors affecting our liquidity-Credit facility.”

Our credit facility contains restrictive covenants and other requirements that may limit our business flexibility by imposing operating and financial restrictions on our operations.

Our credit facility is secured by substantially all of our assets, including the assets of our subsidiaries. We are subject to a number of covenants that could potentially restrict how we carry out our business or that require us to meet certain periodic tests in the form of financial covenants. The restrictions we consider to be material to our ongoing business include the following:

• We must satisfy a “leverage ratio” test that is based on our outstanding indebtedness at the end of each fiscal quarter.

• We must satisfy a “fixed charge coverage ratio” test at the end of each fiscal quarter.

• We must reduce the outstanding balance under our revolving loan to zero for a period of at least 30 consecutive days each fiscal year.

• We must also maintain a minimum net worth requirement, measured at April 30 of each year.

Our credit facility also contains customary affirmative and negative covenants, including limitations on indebtedness; limitations on liens and negative pledges; delivery of financial statements and other information requirements; limitations on investments, loans, and acquisitions; limitations on mergers, consolidations, liquidations, and dissolutions; limitations on sales of assets; limitations on certain restricted payments; and limitations on transactions with affiliates; among others.

A breach of any of these covenants, tests, or mandatory payments could limit our ability to borrow funds under the revolving loan or result in a default under our loans. In addition, these covenants may prevent us from incurring additional indebtedness to expand our operations and execute our business strategy, including making acquisitions. We may also from time to time seek to refinance all or a portion of our debt or incur additional debt in the future. Any such future debt or other contracts could contain covenants more restrictive than those in our existing credit facility. Our ability to comply with the covenants, tests, or mandatory payments in our credit facility may be affected by events beyond our control, including prevailing economic, financial, and industry conditions or our ability to make tax settlement products available to our customers. See “Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Overview of factors affecting our liquidity-Credit facility.”

We are dependent on the timing of the tax filing season, and disruptions in the opening of the tax season may have a material adverse effect on our results of operations and liquidity.

Historically, the federal tax filing season has begun in mid-January, and both we and our franchisees have begun to prepare tax returns in early January with the ability to electronically file those returns beginning in mid-January. For both the 2013 and 2014 tax seasons, the IRS postponed the first date on which it generally accepts electronic filings until the end of January, and in 2013, also delayed the availability of a significant number of tax forms. These delays at the beginning of the tax season were also replicated at the state level in 2013, because of the reliance of states on tax forms that are dependent upon or subject to changes in federal tax forms. The change in the start of the 2013 and 2014 tax filing seasons materially affected our revenue during the fiscal quarter ended January 31 of both years, and also required us to engage in additional borrowing to support both our operations and those of our franchisees because of the delay in receipt of revenue associated with tax filings. Similarly, the Protecting Americans from Tax Hikes Act of 2015 (the “PATH Act”), enacted in 2015 came into effect in 2017, in

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which the IRS was required to wait until at least February 15, 2017 to issue refunds to taxpayers who claim the Earned Income Tax Credit or the Additional Child Tax Credit. In addition, due to tax reform and the IRS’ modification of forms such as the 1040 and attached schedules, there is the possibility that the IRS’ acceptance of tax returns may face, as of now undetermined, delays. In December 2018 the U.S. government experienced the longest shutdown in history. As a result, IRS funding of tax refunds and refund products were delayed. Substantial delays in the opening of the tax filing season or the funding of processed returns, in future years would likely have an adverse effect on our revenue and liquidity.

Our floating rate debt financing exposes us to interest rate risk.

We may borrow amounts under our credit facility that bear interest at rates that vary with prevailing market interest rates. Accordingly, if we do not adequately hedge our interest rate risk, a rise in market interest rates will adversely affect our financial results. We expect to draw most heavily on our revolving loan from July through January of each year and then repay substantially all of the borrowings by the end of each tax season. Therefore, a significant rise in interest rates during our off-season could have a disproportionate impact on our financial results during these months.

The lines of business in which we operate involve substantial litigation, and such litigation may damage our reputation or result in material liabilities and losses.

We have been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions, and other litigation arising in connection with our various business activities. We are currently involved in a class action lawsuit, in which we are vigorously defending ourselves. There can be no assurance, however, that we will not have to pay significant damages or amounts in settlement above insurance coverage. Adverse outcomes related to litigation could result in substantial damages and could cause our net income to decline or may require us to alter our business operations. Negative public opinion can also result from our actual or alleged conduct in such claims, possibly damaging our reputation, which could negatively impact our financial performance and could cause the value of our stock to decline. See "Note 15 - Commitments and Contingencies" in the Notes to the Consolidated Financial Statements.

If we fail to protect or fail to comply with laws and regulations related to our customers' personal information, we may face significant fines, penalties, or damages and our brand and reputation may be harmed.

Privacy concerns relating to the disclosure of consumer financial information have drawn increased attention from federal and state governments in the United States. The IRS generally prohibits the use or disclosure by tax return preparers of taxpayers' information without the prior written consent of the taxpayer. In addition, the Gramm-Leach-Bliley Act and other Federal Trade Commission (“FTC”) regulations require financial service providers, including tax return preparers, to adopt and disclose consumer privacy policies and provide consumers with a reasonable opportunity to opt out of having personal information disclosed to unaffiliated third parties for advertising purposes.

We and our franchisees manage highly sensitive client information in our operations, and although we have established security procedures to protect against identity theft and require our franchisees to do the same, a security incident resulting in breaches of our customers' privacy may occur. Our computer systems are subject to penetration and our data protection measures may not prevent unauthorized access to sensitive client information. Threats to our systems, our franchisees systems, or associated third parties' systems can derive from human error, fraud, or malice on the part of employees or third parties, or may result from accidental technological failure. If the measures we have taken prove to be insufficient or inadequate or if our franchisees fail to meet their obligations in this area, we and our franchisees may become subject to litigation or administrative sanctions, which could result in significant fines, penalties, or damages and harm to our brand and reputation, which in turn could negatively impact our ability to retain our customers. Moreover, although we have some insurance that may defray the cost, the cost of remediating any breach resulting from a cybersecurity incident or other breach of the privacy of customer information would likely be substantial. Furthermore, we may be required to invest additional resources to protect us against damages caused by these actual or perceived disruptions or security breaches in the future. We could also suffer harm to our reputation from a security breach or inappropriate disclosure of customer information. Changes in these federal and state regulatory requirements could result in more stringent requirements and could result in a need to change business practices, including how information is disclosed. These changes could have a material adverse effect on our business, financial condition, and results of operations. Moreover, a significant security breach or disclosure of customer information could so damage our brand and reputation that demand for the services that are provided by us and our franchisees may be reduced.

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If our business or the tax industry generally is perceived as a source of identity theft, our reputation may be harmed, and our financial performance could be materially adversely affected.

Identity theft and privacy concerns relating to customer information disclosure has been the subject of attention in recent years, including the substantial publicity around identity theft problems involving at least one of our competitors. Further, in May 2015, the IRS announced a significant breach of its data security that resulted in the potential theft of personally identifiable tax information involving more than 100,000 taxpayers. If the use of electronic tax filing becomes perceived by customers as subjecting them to unacceptable identity theft risk, or if we experience a breach of security that subjects a number of our customers to potential identity theft, customers may eschew our services or assisted tax preparation generally, in favor of self-preparation and the avoidance of electronic filing. In such an event, our reputation may be harmed, and we may experience a material adverse effect on our business, financial condition and results of operation.

If we or our franchisees fail to comply with the Telephone Consumer Protection Act, we may face significant damages.

The retention of customers by our franchisees, and our ability to attract additional franchisees, depends on the use of telephone calls and text messaging to contact customers and potential franchisees. However, the Telephone Consumer Protection Act (“TCPA”) imposes significant restrictions on the ability to utilize telephone calls and text messages to mobile telephone numbers as a means of communication, when the prior consent of the person being contacted has not been obtained. In fiscal 2015, we settled one lawsuit related to the manner in which a contractor for us previously contacted potential franchisees. Violations of the TCPA may be enforced by individual customers through class actions, and statutory penalties for TCPA violations range from $500 to $1,500 per violation. If we fail to ensure that our own telemarketing and telemarketing efforts are TCPA compliant, or if our franchisees fail to do so and we are held responsible for their behavior, we may incur significant damages.

If we and our franchisees are unable to attract and retain qualified employees, our financial performance could be materially adversely affected.

Both we and our franchisees depend on the ability to hire a substantial number of seasonal employees for each tax season. We require seasonal employees in order to staff our franchises and customer call centers and Company-owned offices, and our franchisees require employees to implement marketing programs, to act as tax preparers, and to otherwise staff their offices. The ability of our franchisees and us to meet our labor needs is subject to many external factors, including competition for qualified personnel, unemployment levels in each of the markets in which we have offices, prevailing wage rates, minimum wage laws, and workplace regulation. Our franchisees require a substantial number of employees who are willing to become trained as tax preparers, and who have the ability to engage in temporary, seasonal employment. Moreover, in addition to our seasonal employees, we hire a substantial number of full-time employees who are required to have the technical skills necessary to participate in software development, database management, and other highly technical tasks. If we and our franchisees are not able to hire a sufficient supply of qualified seasonal employees, or if we are not able to secure employees with the technical skills we require for other purposes, our ability to serve our customers in our offices, to deploy our marketing programs, and to maintain the services that our franchisees require may be compromised and have a material adverse effect on our business.

Failure to maintain sound business and contractual relationships with our franchisees may have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.

Our financial success depends in significant part on our ability to maintain sound business relationships with our franchisees. The support of our franchisees is also critical for the success of our marketing programs and any new strategic initiatives we seek to undertake. Deterioration in our relationships with our franchisees or the failure of our franchisees to support our marketing programs and strategic initiatives could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows. In addition, the failure of our franchisees to timely renew their franchise agreements could have a material adverse effect on our business and our ability to enforce the franchisees contractual obligations.

An increase in the minimum wage may adversely affect the operations of our franchisees.

Many of the seasonal employees hired by our franchisees for each tax season receive compensation at or near the minimum wage. If our franchisees experience increases in payroll expenses as a result of government-mandated increases in the minimum wage or overtime requirements, their costs of operation may increase at a rate greater than their ability to raise the prices of the services they offer. If this occurs, our franchisees may not be able to maintain seasonal employment at levels that will provide an optimal level of customer service and marketing support, their marketing and advertising programs may be less

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effective, and their results of operations may be adversely affected, which could, in turn, adversely affect our results of operations.

If credit market volatility affects our financial partners or franchisees, our business and financial performance could be adversely affected.

In recent years, the credit markets experienced unprecedented volatility and disruption, causing many lenders and institutional investors to cease providing funding to even the most creditworthy borrowers or to other financial institutions. If additional credit market volatility prevents our financial partners from providing tax settlement products to our customers, limits the products offered, or results in us having to incur further financial obligations to support our financial partners, our revenues or profitability could decline. The cost and availability of funds has also adversely impacted our franchisees' ability to grow and operate their businesses, which could cause our revenues or profitability to decline. In addition, future disruptions in the credit markets could adversely affect our ability to sell territories to new or existing franchisees, causing our revenues or profitability to decline.

Because the tax season is relatively short and straddles two quarters, our quarterly results may not be indicative of our performance.

We experience quarterly variations in revenues and operating income as a result of many factors, including the highly seasonal nature of the tax return preparation business, the timing of off-season activities, and the hiring of personnel. Due to the foregoing factors, our quarter-to-quarter results vary significantly. In addition, because our peak period straddles the third and fourth quarters, any delay or acceleration in the number of tax returns processed in January may make our year-to-year quarterly comparisons not as meaningful as year-to-year tax season comparisons. To the extent our quarterly results vary significantly from year to year, our stock value may be subject to significant volatility.

Risks Related to Our Common Stock

Our corporate actions could be substantially influenced by our principal stockholders and affiliated entities.

As of June 24, 2019, our principal stockholders and their affiliated entities owned over 50% of our outstanding common stock. These stockholders, acting individually or as a group, could exert substantial influence over matters, such as electing directors and approving mergers or other business combination transactions. In addition, because of the percentage of ownership and voting concentration in these principal stockholders and their affiliated entities, elections of our Board of Directors will generally be within the control of these stockholders and their affiliated entities. While all of our stockholders are entitled to vote on matters submitted to our stockholders for approval, the concentration of shares and voting control presently lies with these principal stockholders and their affiliated entities. As such, it would be difficult for stockholders to propose and have approved proposals not supported by management. There can be no assurance that matters voted upon by our principal stockholders and their affiliated entities will be viewed favorably by all stockholders of the Company.

Our common stock is currently quoted on the OTC Market, which may have an unfavorable impact on our stock price and liquidity.

Effective at the open of business on August 2, 2018, our common stock was suspended from trading on The Nasdaq Global Select Market. We appealed the delisting determination of the Nasdaq Hearings Panel (the "Panel"), however on February 5, 2019, we received formal notice that the Panel had determined to delist our common stock from Nasdaq based upon our non-compliance with the filing requirements set forth in Nasdaq Listing Rule 5250(c)(1). Since then, our common stock has been quoted on the OTC Market and trading under the symbol "TAXA". The OTC Market is a significantly more limited trading market than Nasdaq. The quotation of our shares of common stock on the OTC Market may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.

Our stock price has been extremely volatile, and investors may be unable to resell their shares at or above their acquisition price or at all.

Our stock price has been, and may continue to be, subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including, but not limited to:

• actual or anticipated variations in our operating results from quarter to quarter;

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• actual or anticipated variations in our operating results from the expectations of securities analysts and investors;

• actual or anticipated variations in our operating results from our competitors;

• fluctuations in the valuation of companies perceived by investors to be comparable to us;

• sales of common stock or other securities by us or our stockholders in the future;

• changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;

• certain non-compliance, fraud and other misconduct by our franchisees and/or employees;

• departures of key executives or directors;

• resignation of our auditors;

• delisting of our common stock from Nasdaq and our continued listing on the OTC Market;

• announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, financing efforts or capital commitments;

• delays or other changes in our expansion plans;

• involvement in litigation or governmental investigations or enforcement activity;

• stock price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

• general market conditions in our industry and the industries of our customers;

• general economic and stock market conditions;

• regulatory or political developments; and

• terrorist attacks or natural disasters.

Furthermore, the capital markets experience extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political, and market conditions such as recessions, interest rate changes, or international currency fluctuations may negatively impact our stock price. Trading price fluctuations may also make it more difficult for us to use our common stock as a means to make acquisitions or to use options to purchase our common stock to attract and retain employees. If our stock price does not exceed the price at which stockholders acquired their shares, investors may not realize any return on their investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We currently are, and may be in the future, the target of this type of litigation. See “-We are named in federal securities class action lawsuits and derivative complaints; if we are unable to resolve these matters favorably, then our business, operating results and financial condition may be adversely affected.”

A significant portion of our outstanding shares of common stock may be sold into the market, which could adversely affect our stock price.

Although our common stock is currently quoted on the OTC Market, sales of a substantial number of shares of our common stock in the public market could occur at any time, subject to certain securities law restrictions. Sales of shares of our common stock or the perception in the market that the holders of a large number of shares of common stock intend to sell shares could reduce our stock price.

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Our stock price and trading volume could decline if securities or industry analysts do not publish research or reports about our business or if they publish misleading or unfavorable research or reports about our business.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. The number of securities or industry analysts that commence or maintain coverage of our common stock could adversely impact the trading price and liquidity for our shares. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our stock or publishes misleading or unfavorable research about our business, our stock price could decline. If one or more of these analysts ceases to cover us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price or trading volume to decline.

As a public company, we are subject to reporting and other compliance requirements, which may result in increased costs and focus of our management's attention.

As a company with public equity, we incur significant legal, accounting, and other expenses. In addition, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), as well as related rules implemented by the SEC, impose various requirements on companies with public equity. As a public company, we are required to:

• prepare and distribute periodic public reports and other stockholder communications in compliance with our obligations under the federal securities laws,

• create or expand the roles and duties of our Board of Directors and committees of the Board of Directors,

• institute more comprehensive financial reporting and disclosure compliance functions,

• supplement our internal accounting and auditing function,

• enhance and formalize closing procedures at the end of our accounting periods,

• enhance our investor relations function,

• establish new or enhanced internal policies, including those relating to disclosure controls and procedures, and

• involve and retain to a greater degree outside counsel and accountants in the activities listed above.

Our management and other personnel have devoted a substantial amount of time to these compliance matters. Also, these rules and regulations have increased our legal and financial compliance costs and have made some activities more time consuming and costly than would be the case for a private company. For example, these rules and regulations have made it more expensive for us to maintain director and officer liability insurance. As a result, it may be more difficult for us to recruit and retain qualified individuals to serve on our Board of Directors or as our executive officers. See “-Risks Related to Our Business-Recent turnover in our senior management could have a material adverse effect on our business.” and “-Risks Related to Our Business-Recent turnover with our Board of Directors may disrupt our operations, our strategic focus or our ability to drive stockholder value.”

In addition, as a public company, we are subject to financial reporting, internal controls over financial reporting and other requirements. Our failure to maintain adequate internal controls over financial reporting has adversely affected investor confidence in the accuracy of our financial statements which has had an unfavorable impact on the value of our common stock. In addition, our failure to timely comply with reporting requirements has resulted our inability to complete franchise sales and to provide current financial information to our investors. See “-Our Class A common stock is quoted on the OTC Market, which may have an unfavorable impact on our stock price and liquidity.”

We are named in federal securities class action lawsuits and derivative complaints; if we are unable to resolve these matters favorably, then our business, operating results and financial condition may be adversely affected.

We are currently involved in securities and derivative litigation in the Court of Chancery of the State of Delaware, United States District Court for the Eastern District of New York and the United States District Court in the Eastern District of Virginia. See "Note 15 - Commitments and Contingencies" in the Notes to the Consolidated Financial Statements. While we are in process of settling the Delaware and Virginia matters we cannot at this time predict the outcome of these matters or reasonably determine the probability of a material adverse result or reasonably estimate range of potential exposure, if any, that

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these matters might have on us, our business, our financial condition or our results of operations, although such effects could be materially adverse. In addition, in the future, we may need to record litigation reserves with respect to these matters. Further, regardless of how these matters proceed, it could divert our management’s attention and other resources away from our business.

As a smaller reporting company, we are subject to scaled disclosure requirements that may make it more challenging for investors to analyze our results of operations and financial prospects.

As a smaller reporting company, we are subject to scaled disclosure requirements that may make it more challenging for investors to analyze our results of operations and financial prospects. As a “smaller reporting company,” we may elect to provide simplified executive compensation disclosures in our filings and take advantage of other decreased disclosure obligations in our filings with the SEC, including being required to provide only two years of audited financial statements in our annual reports. Consequently, it may be more challenging for investors to analyze our results of operations and financial prospects. We will remain a smaller reporting company until the beginning of a fiscal year in which we have a public float of $250 million held by non-affiliates as of the last business day of the second quarter of the prior fiscal year, assuming our common stock is registered under Section 12 of the Exchange Act on the applicable evaluation date.

Although we may desire to continue to pay dividends in the future, our financial condition, debt covenants, or Delaware law may prohibit us from doing so.

Beginning in April 2015 through July 2018, we announced a $0.16 per share quarterly cash dividend. We have not declared a dividend since July 2018 and may not continue to pay cash dividends in the future. The payment of dividends will be at the discretion of our Board of Directors and will depend, among other things, on our earnings, capital requirements, and financial condition. Our ability to pay dividends will also be subject to compliance with financial covenants that are contained in our credit facility and may be restricted by any future indebtedness that we incur or issuances of preferred stock. In addition, applicable law requires our Board of Directors to determine that we have adequate surplus prior to the declaration of dividends. We cannot provide an assurance that we will continue to pay dividends at any specific level or at all.

Anti-takeover provisions in our charter documents, Delaware law, and our credit facility could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management, and adversely affect the value of our common stock.

Provisions in our second amended and restated certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and bylaws also include provisions that:

• authorize our Board of Directors to issue, without further action by the stockholders, up to approximately 3.0 million shares of undesignated preferred stock;

• specify that special meetings of our stockholders can be called only by our Board of Directors, the Chair of our Board of Directors, or holders of at least 20% of the shares that will be entitled to vote on the matters presented at such special meeting;

• establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our Board of Directors; and

• do not provide for cumulative voting in the election of directors.

In addition, our credit facility contains covenants that may impede, discourage, or prevent a takeover of us. For instance, upon a change of control, we would default on our credit facility. As a result, a potential takeover may not occur unless sufficient funds are available to repay our outstanding debt.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors, which is responsible for appointing the members of our management. Any provision of our amended and restated certificate of incorporation and bylaws or our debt documents that has the effect of delaying or deterring a change of control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect our stock value if they are viewed as discouraging takeover attempts in the future.

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Risks Related to Our Franchise Business

Our success is tied to the growth and operations of our franchises, and their operations could adversely affect our business.

Our financial success depends on our franchisees and the manner in which they operate and develop their offices. We do not exercise direct control over the day-to-day operations of our franchises, and our franchisees may not operate their offices in a manner consistent with our philosophy and standards and may not increase the level of revenues generated compared to prior tax seasons. Our growth and revenues may, therefore, be adversely affected. There can be no assurance that the training programs and quality control procedures we have established will be effective in enabling franchisees to run profitable tax preparation businesses or that we will be able to identify problems or take corrective action quickly enough. In addition, failure by a franchisee to provide service at acceptable levels may result in adverse publicity that can materially adversely affect our reputation and ability to compete in the market in which the franchisee is located. Further, franchisees are required to prepare tax returns solely through the use of our authorized software. Franchisees’ failure to use the authorized software or conversely, the use of alternative software, prevents us from monitoring tax returns prepared by a franchisee for accuracy and may also prevent us from the opportunity to collect revenue such as royalties.

If our franchisees fail to open offices in new territories or if they are not successful in operating their new offices, our franchise-related revenue and results of operation will be adversely affected.

Each year, we anticipate adding offices to our franchise system, but the opening of these offices depends on the purchase of additional territories by our franchisees and on the opening of offices in territories previously purchased and newly purchased. Many factors go into opening a new office, including obtaining a suitable office location, the availability of sufficient start-up capital, and the ability to recruit tax preparers and other personnel to work in new offices. If a significant number of offices that we expect to be open in a tax season fail to open, are delayed, or open in unsuitable locations or with insufficient personnel, the revenue we expect to receive from royalty payments and the repayment of indebtedness to us by our franchisees will be adversely affected. Because we utilize an almost exclusive franchise business model, we do not have the same flexibility to open new offices as our competitors who make greater use of Company-owned offices. Additionally, our failure to timely comply with our periodic reporting requirements has resulted in the delisting of our common stock on Nasdaq, which affected our ability to sell franchises in our fiscal year ended April 30, 2019.

Our operating results may be adversely affected by the default of our franchisees and ADs on loans made by us or third parties.

We extend financing to certain franchisees for initial franchise fees as cash advances for their working capital needs and for other purposes. The financing is in the form of promissory notes payable to us. There can be no assurance that any franchisee will generate revenue sufficient to repay any or all amounts due nor is there any assurance that any franchisee will be able to repay any amounts due through other means. We also extend financing to ADs from time-to-time for a portion of their area development fees. Any failure by the franchisees and ADs to pay these amounts, if the amounts are not recoverable by us through other means, could have a material adverse effect on our financial performance.

Moreover, in some cases, we may be liable for office leases or other contractual obligations that have been assumed by purchasers of Company-owned offices and acquired tax practices. If the franchisees default on third-party obligations for which we continue to have liability, our operating results will be adversely affected.

We may be held responsible by third parties, regulators, or courts for the action of, or failure to act, by our franchisees and be exposed to possible fines, other liabilities, and bad publicity.

We grant our franchisees a limited license to use our registered service marks and, accordingly, there is risk that one or more of the franchisees may be identified as being controlled by us. Third parties, regulators, or courts may seek to hold us responsible for the actions or failures to act by our franchisees. The extent to which franchisors should be held responsible for the behavior of their franchisees has become a more significant issue in recent years, with some government agencies taking the position that the extent to which a franchise system establishes requirements for franchisees may justify treating the franchisor as if it “controls” the franchisee’s behavior. Thus, the failure of our franchisees to comply with laws and regulations may expose us to liability and damages that may have an adverse effect on our business.

The Liberty Tax brand could be impaired due to actions taken by our franchisees, their employees or otherwise.

We believe the Liberty Tax brand is one of our most valuable assets in that it provides us with a competitive advantage, particularly over our competitors that do not have a national presence. Our franchisees operate their businesses under our brand.

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Because our franchisees are independent third parties with their own financial objectives, actions taken by them, including breaches of their contractual obligations, and negative publicity associated with these actions, could adversely affect our reputation and brand more broadly. Any actions as a result of conduct by our franchisees, their employees or otherwise which negatively impacts our reputation and brand may result in fewer customers and lower revenues and profits for us.

Our tax return preparation compliance program may not be successful in detecting all problems in our franchisee network, and franchisee non-compliance, fraud and other misconduct and related enforcement action may damage our reputation and adversely affect our business.

Although our tax return preparation compliance program seeks to monitor the activities of our franchisees, it is unlikely to detect every problem. While we have implemented a variety of measures to enhance tax return preparation compliance as well as our monitoring of these activities, there can be no assurance that franchisees and tax preparers will follow these procedures. From time to time, the federal and/or state authorities may take adverse action against franchisees or preparers related to tax compliance issues, seeking injunctions, damages or even criminal sanctions with respect to such behavior. Failure to detect and prevent tax return preparation compliance issues could expose us to the risk of government investigation or litigation, result in bad publicity and reputational harm, and could subject us to remedies and loss of customers that could cause our revenues or profitability to decline. See “-Risks Related to Our Business-If we fail to protect or fail to comply with laws and regulations related to our customers' personal information, we may face significant fines, penalties, or damages and our brand and reputation may be harmed.”

In fiscal 2016, the DOJ announced two lawsuits against certain of our former franchisees and two lawsuits against then-existing franchisees, which concluded in fiscal 2017. Allegations involved claims of fraudulent tax preparation. We were not named as a defendant in these suits. Further, in fiscal 2017, the state of Maryland, Office of the Comptroller suspended the processing of electronic and paper returns of one franchisee and two offices in that state. In fiscal 2018, the DOJ filed suit against one former and two then active franchisees in Florida based upon their alleged preparation of fraudulent tax returns. Also during fiscal 2018, the DOJ indicted four Milwaukee tax preparers based upon their alleged filing of fraudulent tax returns. We are cooperating with the applicable governmental authorities in connection with their investigations. We have continued to enhance our Compliance Department tasked with examining and preventing non-compliance, fraud and other misconduct among our franchisees and their employees. Nonetheless, there can be no assurance that our Compliance Department, the tax return preparation compliance program, or other efforts will be effective in eliminating non-compliance, fraud and other misconduct among our franchisees and/or employees. Accordingly, any such non-compliance, fraud or other misconduct may have a material adverse effect on our reputation, financial condition and results of operations.

Disputes with our franchisees may have a material adverse effect on our business.

From time to time, we engage in disputes with some of our franchisees, and some of these disputes result in litigation or arbitration proceedings. Disputes with our franchisees may require us to incur significant legal fees, subject us to damages, and occupy a disproportionate amount of management's time. A material increase in the number of these disputes, or unfavorable outcomes in these disputes, may have a material adverse effect on our business. To the extent we have disputes with our franchisees, our relationships with our franchisees could be negatively impacted, which could hurt our growth prospects or negatively impact our financial performance.

Our operating results depend on the effectiveness of our marketing and advertising programs and franchisee support of these programs.

Our revenues are heavily influenced by brand marketing and advertising. If our marketing and advertising programs are unsuccessful, we may fail to retain existing customers and attract new customers, which could limit the growth of our revenues or profitability or result in a decline in our revenues or profitability. Moreover, because franchisees are required to pay us marketing and advertising fees based on a percentage of their revenues, our marketing fund expenditures are dependent upon sales volumes of our franchisees.

The support of our franchisees is critical for the success of our marketing programs and any new strategic initiatives we seek to undertake. While we can mandate certain strategic initiatives through enforcement of our franchise agreements, we need the active support of our franchisees if the implementation of our marketing programs and strategic initiatives is to be successful. Although certain actions are required of our franchisees under the franchise agreements, there can be no assurance that our franchisees will continue to support our marketing programs and strategic initiatives. The failure of our franchisees to support our marketing programs and strategic initiatives would adversely affect our ability to implement our business strategy and could have a material adverse effect on our business, financial condition, and results of operations.

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Our launch of a new franchise brand or other business ventures may be unsuccessful and consume significant management and financial resources.

During fiscal 2015, we launched a new franchise brand, SiempreTax+, designed to enable our franchisees to better serve Hispanic customers and to assist us in building out our franchise network. The launch of a new nationwide brand involves substantial risks and uncertainties, and the interest of prospective franchisees and customers in the new brand may not be sufficient to permit us to grow the brand as rapidly as we hope. We expended significant management time and start-up expenses during the first year of this brand, and if the brand is not successful or falls short of anticipated growth, we may be adversely affected by continued expenses and the diversion of management time to this initiative at the expense of our core Liberty Tax brand. In the future, we may also launch additional business brands or initiatives which could negatively impact our financial performance if unsuccessful or underperforming.

Risks Related to Regulation of Our Industry

Federal and state regulators may impose new regulations on non-loan tax settlement products that would make those products more expensive for us to offer or more difficult for our customers to obtain.

Consumer advocacy organizations and some government officials have asserted that non-loan tax settlement products, such as the refund transfer products we offer, should be treated as loan products or otherwise be more heavily regulated. These groups assert that refund transfer products and similar products are loans because most customers complete the payment for their tax preparation and related fees at the time their refund is disbursed, and therefore, the customer has received an extension of credit because of a purported deferral of the tax preparation fees until the refund is received. We are subject to a judgment in the State of California that treats refund transfer product products that we provide in that state as if they were extensions of credit. In addition, certain litigation discussed below involving us and others in the tax industry include claims that refund transfer products and similar products constitute loans or extensions of credit. If other state or federal courts or agencies successfully require us to treat refund transfer products as if they are loans or extensions of credit, we may be subject to the cost of additional regulation, including disclosure requirements that could reduce the demand for these products by potential customers and may be subject to limitations on our ability to offer these products, which could materially adversely affect our operations. See "Note 15 - Commitments and Contingencies" in the Notes to the Consolidated Financial Statements.

We may be unsuccessful in litigation that characterizes refund transfer products as loans, which could subject us to damages and additional regulation, and which could adversely affect our ability to offer tax settlement products and have a material adverse effect on our operations and financial results.

We were sued in November 2011 in four states, and additional lawsuits have been filed in five other states since the initial filings. These cases have now been consolidated before a single judge in federal court in the Northern District of Illinois. The consolidated complaint alleges violations of state-specific refund anticipation loan and other consumer statutes alleging that a refund transfer product represents a form of refund anticipation loan because the taxpayer is “loaned” the tax preparation fee, and that a refund transfer product is, therefore, subject to federal truth-in-lending disclosure and state law requirements regulating refund anticipation loans. We are aware that virtually identical lawsuits were filed against three of our competitors. In June 2015, we entered into a settlement agreement in this case in order to minimize the expense of litigation and the risk attendant to the litigation. Although this case was resolved through a settlement, the underlying issue may be the subject of additional regulation and litigation. We may also become subject to existing state regulations governing refund anticipation loans (in the states that have such regulations) and the costs of additional regulation, including disclosure requirements, and we may be subject to limitations on our ability to offer these products. These additional disclosure requirements could reduce the demand for these products by potential customers, and the possible application of state lending and other refund anticipation loan-related statutes and regulations might adversely affect our fee income to the extent those statutes or regulations impose limitations on fees that we now charge in connection with refund transfer products. If it becomes more difficult for us and our franchisees to offer these products to taxpayers, or if we are subject to damages in future litigation, it could materially and adversely affect our operations and financial results. See “Item 1-Business-Regulation-Potential regulation of refund transfer products or treatment of refund transfer products as loans or extensions of credit.”

The failure by us, our franchisees, the financial institutions, and other lenders that provide tax settlement products to our customers through us and our franchisees, to comply with legal and regulatory requirements, including with respect to tax return preparation or tax settlement products, could result in substantial sanctions against us or require changes to our business practices that could harm our profitability and reputation.

Our tax return preparation business, including our franchise operations and facilitation of tax settlement products, are subject to extensive regulation and oversight in the United States by the IRS, the FTC, and by federal and state regulatory and

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law enforcement agencies and similar entities in Canada. The profitability of our future operations will, therefore, depend in large part on our continued ability to comply with federal and state franchise regulations, and in Canada, on our continued ability to comply with Canadian and provincial franchise regulations. If governmental agencies with jurisdiction over our operations were to conclude that our business practices, the practices of our franchisees, or those of financial institutions and other lenders with which we conduct our business violate applicable laws, we could become subject to sanctions that could have a material adverse effect on our business, financial condition, and results of operations. These sanctions may include, without limitation:

• civil monetary damages and penalties,

• criminal penalties, and

• injunctions or other restrictions on the manner in which we conduct our business.

In addition, the financial institutions and other providers of tax settlement products to our customers are also subject to significant regulation and oversight by federal and state regulators, including banking regulators. The failure of these providers to comply with the regulatory requirements of federal and state government regulatory bodies, including banking and consumer protection laws, could affect their ability to continue to provide tax settlement products to our customers, which could have a material adverse effect on our business, financial condition, and results of operations.

Our customers' inability to obtain tax settlement products through our tax return preparation offices could cause our revenues or profitability to decline. We also may be required to change business practices, which could alter the way tax settlement products are facilitated and could cause our revenues or profitability to decline.

Federal and state legislators and regulators have taken an active role in regulating tax settlement products and, because our ability to offer these products in future tax seasons may be limited, demand for our services may be reduced, we may be exposed to additional credit risk, and our business may be harmed.

Financial institutions that provide or otherwise facilitate tax settlement products are subject to significant regulation and oversight by federal and state regulators, including banking regulators.  Federal and state laws and regulations govern numerous matters relating to the offering of consumer loan products, such as Refund Advances and consumer deposit products such as refund transfers.  From time to time, government officials at the federal and state levels may introduce and enact legislation and regulations proposing to further regulate or prevent the facilitation of refund-based loans and other tax settlement products and take other actions that have the effect of restricting the availability of these products. In July 2011, the Consumer Financial Protection Bureau (“CFPB”) was created by the Dodd-Frank Act to administer and enforce consumer protection laws and regulation in the financial sector. Certain proposed legislation, regulations, and activities by CFPB or other regulators could increase costs to us, our franchisees, the financial institutions, and other parties that provide our tax settlement products or could negatively impact or eliminate the ability of financial institutions to provide or facilitate tax settlement products through tax return preparation offices.

Even if we were to develop relationships that allow our customers to obtain refund-related loans through non-bank lenders, the laws and regulations that apply to those financial institutions and us may make these products more expensive to offer or limit their availability to our customers. In addition, many states have statutes regulating through licensing and other requirements the activities of brokering loans and providing credit services to consumers as well as payday loan laws and local usury laws. Some state regulators are interpreting these laws in a manner that could adversely affect the manner in which tax settlement products are facilitated, or permitted, or result in fines or penalties to us or our franchisees. Some states are introducing and enacting legislation that would seek to directly apply such laws to the facilitators of refund-based loans. 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 and could be subject to fines, penalties, or other payments related to past conduct.

If our financial product service providers become unable or unwilling to enable us to offer refund transfer products, we may be unable to offer tax settlement products to our customers.

Our ability to offer refund transfer products (as well as other tax settlement products that require the creation of a customer bank account) is dependent on the ability and willingness of our financial product service providers to make available to our customers the bank accounts into which their tax refunds are deposited. If any of the federal or state regulatory authorities with the power to regulate these service providers prevents or makes it more difficult for our service providers to make these bank accounts available to our customers or if the service providers determine that they no longer wish to

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participate in these transactions, we may be unable to find alternative service providers that will be willing to provide the required number of bank accounts to our customers. If we are unable to make bank accounts available for refund transfer products, we will not be able to enable our customers to utilize these accounts for the direct deposit of their federal and state tax returns, which would materially affect our ability to offer tax settlement products to those customers. In addition, statutes applicable to acceptable refund transfer fees are state specific which may adversely affect how we currently conduct or have conducted our business in the past and may require change to such business practices to otherwise comply with these statutes and could be subject to fines, penalties, or other payments related to past conduct.

Regulatory actions could have an adverse effect on our business and our consolidated financial position, results of operations, and cash flows.

We are subject to additional federal, state, local, and foreign laws and regulations, including, without limitation, in the areas of franchise, labor, immigration, advertising, consumer protection, financial services and products, payment processing, privacy, anti-competition, environmental, health and safety, insurance, and healthcare. There have been significant new regulations and heightened focus by the government in some of these areas, including, for example, healthcare, consumer financial services and products, and labor, including overtime and exemption regulations and state and local laws on minimum wage and other labor-related issues. There may be additional regulatory actions or enforcement priorities, or new interpretations of existing requirements that differ from ours. These developments could impose unanticipated limitations or require changes to our business, which may make elements of our business more expensive, less efficient, or impossible to conduct, and may require us to modify our current or future services or products, which effects may be heightened given the nature, broad geographic scope, and seasonality of our business.

Increased regulation of tax return preparers could make it more difficult to find qualified tax preparers and could harm our business.

From time to time, the federal government and various states consider regulations regarding the education, testing, licensing, certification, and registration of tax return preparers. Although the IRS’ effort to implement a new model for tax return preparer regulation has been declared invalid by a federal appeals court, Congressional action authorizing mandatory regulation may be adopted in the future, and various states have begun to fill the void created by the absence of federal tax return preparer regulation by proposing new or enhanced regulatory requirements at the state level. Although we believe that our training for preparers already exceeds the requirements the IRS had proposed and that states have adopted or have proposed, regulation of tax return preparers could impact our ability to find an adequate number of tax return preparers to meet the demands of our customers and impose additional costs on us and our franchisees to train tax return preparers, which could cause our revenues and profitability to decline.

Immigration reform may lead our customers to seek our assistance with matters related to immigration reform and may subject us to additional regulatory risk.

We believe that any material immigration reform, whether implemented by executive action or by Congress, will necessarily involve the use of prior tax returns as a means by which undocumented immigrants may demonstrate their presence in the United States and compliance with federal and state tax laws. We anticipate that any additional customers we might obtain because of this opportunity to prepare additional tax returns may also seek our assistance in their efforts to comply with whatever processes are implemented to enable undocumented immigrants to take advantage of the benefits of any immigration reform initiatives. We and our franchisees may be subject to state restrictions on the unauthorized practice of law, and other federal and state restrictions regarding who may advise individuals with respect to immigration matters, and failure to comply with these regulatory restrictions may subject us and our franchisees to enforcement action and adversely affect our business.

Risks Related to Changes in Tax Laws and Regulations

New or revised tax regulations could have a material effect on our financial results.

The tax environment in which we operate is evolving rapidly with the recent enactment of sweeping corporate tax changes. The President of the United States signed into law tax legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”) on December 22, 2017. The Tax Act, among other things, contains significant changes to corporate taxation, including: (1) a reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%; (2) a limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses); (3) a limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks; (4) immediate deductions for certain new investments (instead of deductions for depreciation expense over time); (5) limitations of certain executive compensation deductions; and (6) limitations or repeals of many business deductions and credits. In addition

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to cutting the corporate tax rate, the Tax Act also lowers individual income tax rates and increases the standard deduction, making it easier for many individuals to file their own taxes or use our online, digital “Do It Yourself” tax program.

The effect of the Tax Act on us may also be affected by future regulations and interpretations of the IRS regarding the Tax Act and the long-term effect is difficult to predict. Additionally, we operate in many states and are subject to the tax laws of those states. We are unable to predict how we may be affected by changes, or lack of changes, to state tax laws that may be made in response to the Tax Act by the states in which we operate. Accordingly, the risk exists that the Tax Act, IRS regulations and interpretations of the Tax Act and changes in, or lack of changes in, state tax laws could materially and adversely affect our business cash flows, results of operations and financial condition.

Because demand for our products is related to the complexity of tax return preparation and the frequency of tax law changes, government initiatives that simplify tax return preparation, reduce the need for a third-party tax return preparer, or lower the number of returns required to be filed may decrease demand for our services and financial products.

Many taxpayers seek assistance from paid tax return preparers such as Liberty Tax Service because of the level of complexity involved in tax return preparation and filing and frequent changes in the tax laws. From time to time politicians and government officials propose measures seeking to simplify the preparation and filing of tax returns. The passage of any measures that significantly simplify tax return preparation or reduce the need for third-party tax return preparers may be highly detrimental to our business. In addition, any changes or other initiatives that result in a decrease in the number of tax returns filed or reduce the size of tax refunds could reduce demand for our products and services causing our revenues or profitability to decline.

For example, several members of Congress have proposed legislation that would authorize or require the IRS to allow taxpayers to access web-based tax preparation tools that would include “pre-populated” tax return forms that would presumably include data provided to the IRS from other government agencies, such as the Social Security Administration. If these or similar proposals are enacted, many tax customers might elect those services rather than paid tax preparation or the use of fee-based tax software or online tax preparation.

Initiatives that improve the timing and efficiency of processing tax returns could reduce the attractiveness of the tax settlement products offered to our customers and demand for our services.

Our performance depends on our ability to offer access to tax settlement products that increase the speed and efficiency by which our customers can receive their refunds. The federal government and various state and local municipalities have, from time to time, announced initiatives designed to modernize their operations and improve the timing and efficiency of processing tax returns. For example, during a prior tax season, the U.S. Department of Treasury introduced a prepaid debit card pilot program designed to facilitate the refund process. If tax authorities are able to significantly increase the speed and efficiency with which they process tax returns, the value and attractiveness of the tax settlement products offered to our customers and demand for our services could be reduced.

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

The enactment of tax legislation occurring late in the calendar year could result in the beginning of tax filing season being delayed or make it difficult for us to make necessary changes on a timely basis to the software used by our franchisees to prepare tax returns. Any such delays could impact our revenues and profitability in any given year.

Proposals to make fundamental changes in the way tax refunds are processed or to impose price limitations on tax preparation, if enacted, could result in substantial losses of customers and other risks.

Some regulators have suggested that it would be appropriate to allow taxpayers to “split” their tax refunds, in a manner that would separate the payment of tax preparation fees from the balance of a customer's refund. In describing these proposals, some advocates have called for a cap on tax preparation fees that would adversely affect the ability of tax preparers to charge market prices for tax services and could reduce income to our franchisees, and therefore, to us. Other proposals have been advanced that would attempt to reduce tax refund fraud by significantly postponing the speed with which refunds are processed, or even postponing the processing of refunds until after the April 15 federal tax filing deadline. Such a change would likely have the effect of devaluing services that allow tax customers in the early portion of the tax season to receive their refunds on a more expedited basis that is available when electronic filing is not used and could therefore reduce the demand for the services we and our franchisees provide.

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There can be no assurance that these proposals will be enacted at all or in their present form but if enacted, our growth and revenues could be adversely affected.

Our participation in government programs designed to speed access to tax refunds may result in customer loss when the IRS fails to perform.

The IRS has responded to the increase in electronic filing by developing programs designed to reduce a taxpayer's wait to receive a tax refund. In the past, we participated in some programs offered by the IRS that did not perform as expected, resulting in significant delays in processing refunds for some of our customers. Although we continue to seek to give our customers quicker access to their refunds, doing so involves the risk of customer dissatisfaction and injury to our reputation in the market if the IRS fails to perform, which is outside our control.

Item 1B.    Unresolved Staff Comments.

None.

Item 2.    Properties.

We own our corporate headquarters, located in four buildings, totaling approximately ninety-six thousand square feet. Our principal executive office is located at 1716 Corporate Landing Parkway, Virginia Beach, Virginia 23454. We also own additional properties in Ohio, New York, Tennessee, and Virginia, which are used as Company-owned offices or leased to franchisees. The remainder of our Company-owned offices are operated under leases. We believe that our offices are in good condition and sufficient to meet our present and anticipated future needs.

Item 3.    Legal Proceedings.

For information regarding legal proceedings, please see "Note 15 - Commitments and Contingencies" in the Notes to the Consolidated Financial Statements, which information is incorporated herein by reference.

Item 4.    Mine Safety Disclosures.

Not applicable.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.

Market and Stock Information

Effective at the open of business on August 2, 2018, our Class A common stock was suspended from trading on Nasdaq. Since then, our Class A common stock has been quoted on the OTC Market and is currently traded under the symbol “TAXA.” Prior to the suspension, our Class A common stock had traded on Nasdaq under the symbol "TAX" since July 2, 2012. The following table sets forth for the periods indicated the high and low sale prices of our Class A common stock on both the OTC Market and Nasdaq.

	2019				2018
	Sales Price				Sales Price
	High		Low		High		Low
First Quarter	$	12.05	$	8.92	$	15.00	$	10.88
Second Quarter	12.50		9.25		14.70		11.75
Third Quarter	12.00		8.10		14.00		9.90
Fourth Quarter	10.95		7.95		10.80		7.75

As of April 30, 2019, our stockholders' equity consisted of the 14,048,528 shares of common stock. As of April 30, 2019, options to acquire 796,244 shares of common stock were outstanding, 141,730 of which were immediately exercisable. Pursuant to certain transactions which occurred in July 2018, no shares of our Class B common stock, special voting preferred stock, or exchangeable shares remain outstanding. Accordingly, in December 2018, our amended and restated certificate of incorporation was further amended and restated to delete obsolete provisions related to the designation, rights and preferences of these series of stock and delete obsolete provisions related to our prior dual class common stock structure.

Holders of Record

As of June 20, 2019, we had approximately 177 registered record holders of our common stock. The reported closing price of our common stock on June 20, 2019 was $9.50, Equiniti is the transfer agent and registrar for our common stock.

Dividends

Beginning in April 2015 through July 2018, we announced a $0.16 per share quarterly cash dividend. We have not declared a dividend since July 2018 and may not continue to pay cash dividends in the future. The payment of dividends will be at the discretion of our Board of Directors and will depend, among other things, on our earnings, capital requirements, and financial condition. Our ability to pay dividends will also be subject to compliance with financial covenants that are contained in our credit facility and may be restricted by any future indebtedness that we incur or issuances of preferred stock. In addition, applicable law requires our Board of Directors to determine that we have adequate surplus prior to the declaration of dividends. We cannot provide an assurance that we will pay dividends at any specific level or at all.

Share Repurchases

Our Board of Directors has authorized up to $10.0 million for share repurchases. This authorization has no specific expiration date and cash proceeds from stock option exercises increase the amount of the authorization. In addition, the Board of Directors authorized an AD repurchase program which reduces the amount of the share repurchase authorization on a dollar for dollar basis. Shares repurchased from option exercises and RSUs vesting that are net-share settled by us and shares repurchased in privately negotiated transactions are not considered share repurchases under this authorization.

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Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan	Remaining Maximum Value of Shares that may be Purchased Under the Plan (1) (in thousands)
February 1 through February 28, 2019	—	$	—	—	$	3,061
March 1 through March 31, 2019	—	—		—	3,061
April 1 through April 30, 2019	—	—		—	3,061
Total	—			—

(1) As part of the AD repurchase program, we did not have any repurchases during the quarter.

During fiscal 2019, we did not repurchase any shares of our common stock.

Stock Performance Graph

The graph below compares the cumulative total return provided stockholders on our common stock relative to the cumulative total returns of the Russell 2000 index and the S&P Diversified Commercial & Professional Services index. Returns assume an initial investment of $100 at the market close on May 1, 2014, and then for the periods ended April 30, 2015, 2016, 2017, 2018, and 2019. Dividends, if any, are assumed to have been reinvested.

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Item 6.    Selected Financial Data.

The following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 below and our Consolidated Financial Statements and related notes included in Item 15. We derived the consolidated statements of income data for the years ended April 30, 2019, 2018, and 2017 and the consolidated balance sheet data as of April 30, 2019 and 2018 from our audited consolidated financial statements included in Item 8. The consolidated statements of income data for the years ended April 30, 2016 and 2015 and the consolidated balance sheet data as of April 30, 2017, 2016, and 2015 are derived from our audited consolidated financial statements for such periods, respectively, not included in this annual report. Our historical results are not necessarily indicative of the results that may be expected in the future.

	Fiscal Years Ended and as of April 30,
	2019			2018			2017			2016			2015
	(amounts in thousands, except per share, franchisees, offices, per franchisee amounts, fee per tax return, and per office amounts)
Consolidated Statements of Income Data:
Total revenue	$	132,546		$	174,872		$	173,985		$	173,429		$	162,172
Total operating expenses	(133,405		)	(167,273		)	(150,664		)	(140,941		)	(146,780		)
Income from operations	(859		)	7,599			23,321			32,488			15,392
Net income	$	(2,156	)	$	135		$	13,013		$	19,420		$	8,690

Consolidated Balance Sheet Data:
Amounts due from franchisees and ADs less unrecognized revenue, net of allowances	$	65,455	$	72,405	$	90,728	$	95,226	$	86,680
Property, equipment, and software, net	32,676		38,636		39,789		40,957		36,232
Total assets	160,001		178,003		204,268		193,223		183,994
Long-term obligations, including current installments	15,048		20,383		26,199		23,440		25,245
Total stockholders' equity	103,714		111,502		116,455		111,501		98,862

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	Fiscal Years Ended and as of April 30,
	2019		2018		2017		2016		2015
	(amounts in thousands, except per share, franchisees, offices, per franchisee amounts, fee per tax return, and per office amounts)
Other Financial and Operational Data:
Adjusted EBITDA(1)	$	28,019	$	35,233	$	42,404	$	43,208	$	42,787
Permanent	2,791		3,282		3,710		3,960		3,764
Seasonal	16		24		67		211		262
Processing Centers	29		37		46		54		43
Number of U.S. offices	2,836		3,343		3,823		4,225		4,069
Number of Canadian offices	272		267		254		262		259
Number of offices	3,108		3,610		4,077		4,487		4,328
Number of U.S. franchisees	1,445		1,582		1,753		1,856		1,907
Number of Canadian franchisees	144		138		133		130		125
Number of franchisees	1,589		1,720		1,886		1,986		2,032
Average number of offices per U.S. franchisee(2)	1.89		1.93		2.00		2.14		2.07
Average number of offices per Canadian franchisee(2)	1.60		1.59		1.58		1.62		1.62
Average number of offices per franchisee(2)	1.87		1.90		1.97		2.10		2.04
Number of tax returns filed in U.S. offices	1,334		1,487		1,657		1,832		1,907
Number of tax returns filed in Canadian offices	392		377		359		330		340
Number of tax returns filed online	121		125		138		145		167
Number of tax returns filed	1,847		1,989		2,154		2,307		2,414
Systemwide revenue from U.S. offices(3)	$	341,900	$	366,900	$	386,000	$	417,600	$	413,200
Systemwide revenue from Canadian offices (CN$)(3)	32,700		31,000		28,700		27,400		26,400
Systemwide revenue from Canadian offices (US$)(3)	24,600		24,100		21,500		21,200		21,800
Systemwide revenue per U.S. office(3)(4)	$	120,557	$	109,752	$	100,968	$	98,840	$	101,548
Systemwide revenue per Canadian office (CN$)(3)(4)	120,221		116,105		112,992		104,580		101,931
Systemwide revenue per Canadian office (US$)(3)(4)	90,441		90,262		84,646		80,916		84,170
Net average fee per U.S. tax return filed(4)	$	256	$	247	$	233	$	228	$	217
Net average fee per Canadian tax return filed (CN$)(4)	83		82		80		83		78
Net average fee per Canadian tax return filed (US$)(4)	63		64		60		64		64

______________________________________________________________________________

(1) Adjusted EBITDA is a non-GAAP financial measure, which we define as net income (loss) plus provision for income taxes, interest expense, certain other adjustments, depreciation, amortization, and impairment charges. Please see "Adjusted EBITDA" below for more information and for a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP.

(2) The calculation of the average number of offices per franchisee excludes Company-owned offices.

(3) Our systemwide revenue represents the total tax preparation revenue generated by our franchised and Company-owned offices. It does not represent our revenue because our franchise royalties are derived from the operations of our franchisees. Because we maintain an infrastructure to support systemwide operations, we consider growth in systemwide revenue to be an important measurement.

(4) Systemwide revenue per office and the net average fee per tax return filed reflect amounts for our franchised and Company-owned offices.

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Adjusted EBITDA

To provide additional information regarding our financial results, we have disclosed in the table above and within this annual report Adjusted EBITDA. Adjusted EBITDA represents net income (loss), before income taxes, interest expense, depreciation and amortization, and certain other items specified below. We have provided a reconciliation below of Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure.

We have included Adjusted EBITDA in this annual report because we seek to manage our business to achieve higher levels of Adjusted EBITDA and to improve the level of Adjusted EBITDA as a percentage of revenue. In addition, it is a key basis upon which we assess the performance of our operations and management. We also use Adjusted EBITDA for business planning and the evaluation of acquisition opportunities. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons. We believe the presentation of Adjusted EBITDA enhances an overall understanding of the financial performance of and prospects for our business. Adjusted EBITDA is not a recognized financial measure under GAAP and may not be comparable to similarly titled measures used by other companies in our industry. Adjusted EBITDA should not be considered in isolation from or as an alternative to net income (loss), operating income (loss), or any other performance measures derived in accordance with GAAP.

The following table presents a reconciliation of Adjusted EBITDA for each of the periods indicated.

	Fiscal Years Ended April 30,
	2019			2018		2017			2016		2015
	(dollars in thousands)
Reconciliation of Net Income to Adjusted EBITDA:
Net income (loss)	$	(2,156	)	$	135	$	13,013		$	19,420	$	8,690
Interest expense	3,023			3,181		2,557			2,039		1,889
Income tax (benefit) expense	(1,839		)	4,346		7,754			11,058		4,811
Depreciation, amortization, and impairment charges	14,084			14,416		14,356			10,026		9,900
Impairment of online software and acquired customer lists	—			—		—			—		8,392
Net gain on available-for-sale securities	—			—		(50		)	—		—
CEO Separation and related costs	—			3,503		—			—		—
Executive severance	933			2,965		877			413		1,488
Executive recruitment costs	725			325		—			—		—
Restructuring charge	9,345			4,952		—			—		—
Shareholder litigation costs	472			—		—			—		—
Accrued judgments and settlements, net of estimated recoveries	972			529		2,700			—		7,617
Corporate governance costs	303			—		—			—		—
Unsolicited offer costs	311			—		—			—		—
Divestiture of year-round accounting offices	1,846			—		—			—		—
Compliance Task Force and related costs	—			881		1,197			252		—
Adjusted EBITDA	$	28,019		$	35,233	$	42,404		$	43,208	$	42,787

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

Overview

We are one of the leading providers of tax preparation services in the United States and Canada. Our tax preparation services and related tax settlement products are offered primarily through franchised locations, although we operate a limited number of Company-owned offices each tax season.

Our revenue primarily consists of the following components:

• Franchise Fees: Our standard franchise fee per territory is $40,000, and we offer our franchisees flexible structures and financing options for franchise fees. Franchise fees are recognized as revenue on a straight-line basis over the initial contract term of the franchise agreement, with the cumulative amount of revenue recognized not to exceed the expected amount of cash to be received.

• AD Fees: Our fees for AD areas vary based on our assessment of the revenue potential of each AD area, and also depend on the performance of any existing franchisees within the AD area being sold. Our ADs generally receive 50% of franchise fees, royalties, and a portion of the interest income derived from territories located in their area. AD fees are recognized as revenue on a straight-line basis over the initial contract term of each AD agreement, with the cumulative amount of revenue recognized not to exceed the expected amount of cash to be received.

• Royalties: Our franchise agreements require franchisees to pay us a base royalty typically equal to 14% of the franchisees' tax preparation revenue, subject to certain specified minimums.

• Advertising Fees: Our franchise agreements require all franchisees to pay us an advertising fee of 5% of the franchisees' tax preparation revenue, which we use primarily to fund collective advertising efforts.

• Financial Products: We offer two types of tax settlement financial products: refund transfer products, which involve providing a means by which a customer may receive his or her refund more quickly and conveniently, and refund-based loans. We earn fees from the arranging of the sale of these financial products.

• Interest Income: We earn interest income from our franchisees and ADs related to both indebtedness for the unpaid portions of their franchise and AD fees, and for other loans we extend to our franchisees related to the operation of their territories. We also earn interest on our accounts receivable.

• Assisted Tax Preparation Fees: We earn tax preparation fees, net of discounts, directly from both the operation of Company-owned offices in the U.S. and Canada.

• Electronic Filing Fee: We earn fees for the electronic filing of federal returns prepared in U.S. franchisee owned offices. Each location determines if they want to charge an electronic filing fee.

For purposes of this section and throughout this annual report, all references to "fiscal 2019," "fiscal 2018," and "fiscal 2017" refer to our fiscal years ended April 30, 2019, 2018, and 2017, respectively. For purposes of this section and throughout this annual report, all references to "year" or "years" are the respective fiscal year or years ended April 30 unless otherwise noted in this annual report, and all references to "tax season" refer to the period between January 1 and April 30 of the referenced year.

In evaluating our performance, management focuses on several metrics that we believe are key to our success:

• Net change in permanent office locations. The change in permanent office locations from year to year is a function of the opening of new offices, offset by locations that our franchisees or we close. Opening new permanent offices can be accomplished by the sale of new territories or the opening of permanent offices in previously sold territories. As a result of a reduction in new territory sales, the closure of under-performing offices, as well as the termination of the franchise agreements with several large franchisees, we and our franchisees operated 491 less permanent U.S. locations during the 2019 tax season compared to 2018. In fiscal 2018, on a net basis, we and our franchisees operated 428 less U.S. permanent offices compared to fiscal 2017.

Number of returns prepared. We strive to provide our franchisees with the resources and training needed to grow their own revenue, which is primarily driven by the number of returns prepared. We and our franchisees prepared a total of approximately 1.3 million returns in our U.S. offices in fiscal 2019, which was a decrease of 10.3% from fiscal 2018 primarily due to fewer offices. Our new retail offices typically experience their most rapid growth during the first five years as they develop customer loyalty, operational experience and a referral base within their community.

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	Tax Season 2019 Office Age in Years
	1	2	3	4	5	6+	Total
United States:
Franchised permanent	42	49	70	137	129	2,266	2,693
Franchised seasonal	1	1	—	1	1	11	15
Total U.S. franchised offices	43	50	70	138	130	2,277	2,708
Company-owned permanent	1	—	1	6	6	84	98
Company-owned seasonal	—	—	—	—	—	1	1
Total U.S. Company-owned offices	1	—	1	6	6	85	99
Processing centers	—	—	5	5	6	13	29
Total U.S. offices	44	50	76	149	142	2,375	2,836
Canada:
Franchised permanent	30	23	6	18	10	120	207
Franchised seasonal	3	—	1	1	1	18	24
Total Canadian franchised offices	33	23	7	19	11	138	231
Company-owned permanent	1	2	1	2	—	29	35
Company-owned seasonal	—	1	—	—	1	4	6
Total Canadian Company-owned offices	1	3	1	2	1	33	41
Total Canadian offices	34	26	8	21	12	171	272
Total offices	78	76	84	170	154	2,546	3,108

• Systemwide revenue. Systemwide revenue, which is an operating measure not in accordance with GAAP, includes sales by both Company-owned and franchised offices. We believe systemwide revenue data is useful in assessing consumer demand for our services and products, the overall success of the Liberty Tax brand and, ultimately, the performance of the Company. Our royalty revenue is computed as a percentage of sales made by our franchised offices, less certain deductions. Accordingly, sales by our franchisees have a direct effect on our royalty revenue and profitability. In addition, our systemwide revenue reflects the size of the Liberty Tax system, and because the size of our franchise system drives our management and infrastructure needs, systemwide revenue data helps us assess those needs in comparison to other companies in our industry and other franchise operators.

Our systemwide revenue in the U.S. decreased by 6.8% from fiscal 2018 to fiscal 2019 and decreased 4.9% from fiscal 2017 to fiscal 2018. We experienced a 3.9% increase in average net fee per return filed in the U.S. from $247 in fiscal 2018 to $256 in fiscal 2019 and a decrease of 10.3% in number of tax returns filed in the U.S. processed from 1,487,000 in fiscal 2018 to 1,334,000 in fiscal 2019.

• Tax settlement products obtained by U.S. customers. The total percentage of our U.S. customers obtaining a refund transfer product stayed flat at 46.1% during both fiscal 2019 and 2018. As we have demonstrated our ability to offer products through JTH Financial, we have been successful in obtaining more favorable terms from outside vendors. Each year we analyze available tax settlement product solutions to balance risk and maximize profit per product.

• Company-owned stores. We operate Company-owned offices and may resell them to a qualified franchisee or elect to continue operate them as a Company-owned office. Going forward the number of Company-owned offices may increase if we reacquire more offices from existing franchisees and do not find a suitable buyer to take over the office or elect to operate the office as a Company-owned office. During fiscal 2019 and 2018, we closed Company-owned offices as part of our restructuring initiatives. We will be evaluating additional Company-owned offices after the tax season which may

37

result in the closing of additional offices. We incurred approximately $9.3 million and $5.0 million of expenses related to restructuring initiatives in fiscal 2019 and 2018.

Results of Operations

Fiscal year 2019 compared to fiscal year 2018

Revenues. The table below sets forth the components and changes in our revenue for the years ended April 30, 2019 and 2018.

	Fiscal Years Ended April 30,
					Change
	2019		2018		$			%
	(In thousands)
Franchise fees	$	2,766	$	1,793	$	973		54	%
Area Developers fees	3,146		2,751		395			14	%
Royalties and advertising fees	63,716		68,559		(4,843		)	(7	)%
Financial products	33,478		47,225		(13,747		)	(29	)%
Interest income	8,189		9,895		(1,706		)	(17	)%
Assisted tax preparation fees, net of discounts	14,611		26,645		(12,034		)	(45	)%
Electronic filing fees	2,675		10,772		(8,097		)	(75	)%
Other	3,965		7,232		(3,267		)	(45	)%
Total revenue	$	132,546	$	174,872	$	(42,326	)	(24	)%

Our total revenue decreased by $42.3 million, or 24%, in fiscal 2019 over fiscal 2018. This decrease was primarily due to the following:

• a $13.7 million decrease in financial products related to bank fees reported as a reduction of income in fiscal 2019 and as operating expenses in fiscal 2018 due to contractual changes and the implementation of Accounting Standards Codification ("ASC") 606, “Revenues from Contracts with Customers” ("ASC 606") as well as a reduction in the number of tax returns filed by our franchisees;

• a $12.0 million decrease in assisted tax preparation fees driven by the reduction in the number of U.S. Company-owned offices and the divestiture of our year-round accounting offices;

• a $8.1 million reduction in electronic filing fees primarily due to the recording of franchisee rebates as a deduction of revenue instead of expense due to the implementation of ASC 606 partially offset by an increased adoption rate of the fee in franchisee-owned offices;

• a $4.8 million reduction in royalties and advertising fees due to a reduction in the number of tax returns filed by our franchisees;

• a decrease of $3.3 million in other revenues primarily related to gains recorded in fiscal 2018 on AD and franchisee acquisitions where the consideration was less than the value of the acquired asset, the divestiture of our year-round accounting offices and a reduction in the number of tax returns processed in our online “DIY” business; and

• a decrease of $1.7 million in interest income related to a reduction in working capital loans to franchisees as well as a decrease in the loans due from reacquired ADs and franchisees.

These decreases were offset by a $1.4 million increase in franchise and AD fees primarily due to the implementation of ASC 606.

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Operating expenses. The following table details the amounts and changes in our operating expenses in and from fiscal 2019 and fiscal 2018.

	Fiscal Years Ended April 30,
					Change
	2019		2018		$			%
	(In thousands)
Employee compensation and benefits	$	39,822	$	50,003	$	(10,181	)	(20	)%
Selling, general, and administrative expenses	42,038		69,012		(26,974		)	(39	)%
Area Developers expense	15,584		16,564		(980		)	(6	)%
Advertising expense	12,532		12,326		206			2	%
Depreciation, amortization, and impairment charges	14,084		14,416		(332		)	(2	)%
Restructuring expense	9,345		4,952		4,393			89	%
Total operating expenses	$	133,405	$	167,273	$	(33,868	)	(20	)%

Total operating expenses decreased $33.9 million, or 20%, in fiscal 2019 compared to fiscal 2018. The decrease was primarily attributable to the following:

• a $27.0 million decrease in selling, general and administrative expenses primarily related to bank fee and rebate expenses reported as a reduction of income in fiscal 2019 and as operating expenses in fiscal 2018 due to contractual changes and the implementation of ASC 606, cost reductions related to the decrease in the number of U.S. Company-owned stores and the divestiture of our year-round accounting offices and reduced bad debt expense resulting from fewer franchise terminations, partially offset by increased expenses due to audit and legal costs related to fiscal 2018 and fiscal 2019 SEC filing and costs associated with litigation settlements;

• a $10.2 million decrease in employee compensation and benefits primarily due to lower severance costs compared to fiscal 2018, reductions in head-count in fiscal 2019 and a decrease in the number of Company-owned stores and the divestiture of our year-round accounting offices; and

• a decrease of $1.0 million in AD expense resulting from acquisitions of ADs and a decrease in the number of tax returns filed.

These decreases were partially offset by a $4.4 million increase in restructuring expense primarily due to Company-owned store exit costs.

Income Taxes. The following table sets forth certain information regarding our income taxes for the fiscal years ended April 30, 2019 and 2018.

	Fiscal Years Ended April 30,
							Change
	2019			2018			$			%
	(In thousands)
Income (loss) before income taxes	$	(3,995	)	$	4,481		$	(8,476	)	(189	)%
Income tax (benefit) expense	(1,839		)	4,346			(6,185		)	(142	)%
Effective tax rate	46.0		%	97.0		%

The decrease in our income tax expense in fiscal 2019 compared to fiscal 2018 relates primarily to the decrease in our income before income taxes. The decrease in the effective tax rate is driven by the impact of the one-time transition tax and adjustment of deferred tax assets and liabilities from the Tax Act in 2018.

Net income. In fiscal 2019, we had a net loss of $2.2 million compared to net income of $0.1 million in fiscal 2018, primarily as a result of lower revenues partially offset by lower operating expenses as noted above.

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Fiscal year 2018 compared to fiscal year 2017

Revenues. The table below sets forth the components and changes in our revenue for the years ended April 30, 2018 and 2017.

	Fiscal Years Ended April 30,
					Change
	2018		2017		$			%
	(In thousands)
Franchise fees	$	1,793	$	2,659	$	(866	)	(33	)%
Area Developers fees	2,751		4,177		(1,426		)	(34	)%
Royalties and advertising fees	68,559		74,291		(5,732		)	(8	)%
Financial products	47,225		51,829		(4,604		)	(9	)%
Interest income	9,895		12,955		(3,060		)	(24	)%
Assisted tax preparation fees, net of discounts	26,645		21,600		5,045			23	%
Electronic filing fees	10,772		—		10,772			N/A
Other	7,232		6,474		758			12	%
Total revenue	$	174,872	$	173,985	$	887		1	%

Our total revenue increased by $0.9 million, or 1%, in fiscal 2018 over fiscal 2017. This increase was primarily due to the following:

• a $10.8 million increase in a new optional electronic filing fee related to federal returns prepared in U.S. franchisee owned offices; and

• a $5.0 million increase in assisted tax preparation fees driven by the year-round accounting offices we acquired in late fiscal 2017 as well as an increase in the number of returns prepared in Company-owned offices.

These increases were primarily offset by the following:

• a reduction of $5.7 million in royalty and advertising fees and a decrease of $4.6 million in financial products both related to a decrease in the number of tax returns processed by our franchisees;

• a decline of $3.1 million in interest income related to a reduction in working capital loans to franchisees as well a decrease in the loans due from reacquired ADs and franchisees; and

• a decrease of $1.4 million in AD fees as a result of prior year sales that have been fully recognized over the life of the original agreements.

Operating expenses. The following table details the amounts and changes in our operating expenses in and from fiscal 2018 and fiscal 2017.

	Fiscal Years Ended April 30,
					Change
	2018		2017		$			%
	(In thousands)
Employee compensation and benefits	$	50,003	$	44,615	$	5,388		12	%
Selling, general, and administrative expenses	69,012		58,159		10,853			19	%
Area Developers expense	16,564		22,461		(5,897		)	(26	)%
Advertising expense	12,326		11,073		1,253			11	%
Depreciation, amortization, and impairment charges	14,416		14,356		60			—	%
Restructuring expense	4,952		—		4,952			N/A
Total operating expenses	$	167,273	$	150,664	$	16,609		11	%

Total operating expenses increased by $16.6 million, or 11%, in fiscal 2018 compared to fiscal 2017. The increase was attributable to the following:

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• a $10.9 million increase in selling, general and administrative expenses primarily due to incentives to franchisees for electronic filing charges on U.S. federal returns, bad debt expense resulting from franchisee terminations and increased professional fees related to litigation and management turnover costs;

• an increase in employee compensation and benefits of $5.4 million primarily resulting from executive severance as well as an increase in the compensation related to operating our new year-round accounting offices;

• a $5.0 million increase in restructuring expenses primarily related to Company-store exit costs and the one-time termination of a service provider contract; and

• a $1.3 million increase in advertising expense primarily related to increased franchise sales marketing costs.

These increases were partially offset by:

• a decrease of $5.9 million in AD expense resulting from acquisitions of ADs and a decrease in the number of tax returns filed.

Income Taxes. The following table sets forth certain information regarding our income taxes for the fiscal years ended April 30, 2018 and 2017.

	Fiscal Years Ended April 30,
							Change
	2018			2017			$			%
	(In thousands)
Income before income taxes	$	4,481		$	20,767		$	(16,286	)	(78	)%
Income tax expense	4,346			7,754			(3,408		)	(44	)%
Effective tax rate	97.0		%	37.3		%

The decrease in our income tax expense in fiscal 2018 compared to fiscal 2017 relates primarily to the decrease in our income before income taxes. The increase in the effective rate is driven by the impact of the one-time transition tax and adjustment of deferred tax assets and liabilities from the Tax Act.

Net income. Our net income decreased by 99% in fiscal 2018 over fiscal 2017, due primarily as a result of higher operating expenses and a higher effective tax rate as noted above.

Liquidity and Capital Resources

Overview of factors affecting our liquidity

Seasonality of cash flow. Our tax return preparation business is seasonal, and most of our revenues and cash flow are generated during the period from late January through April 30. Following each tax season, from May 1 through late January of the following year, we rely significantly on excess operating cash flow from the previous season, from cash payments made by franchisees and ADs who purchase new territories and areas prior to the next tax season, and on the use of our credit facility to fund our operating expenses and invest in the future growth of our business. Our business has historically generated a strong cash flow from operations on an annual basis. We devote a significant portion of our cash resources during the off season to finance the working capital needs of our franchisees, and expenditures for property, equipment and software.

Credit facility. On May 16, 2019, we entered into a new credit agreement (the "Credit Agreement") which provides for a $135.0 million senior revolving credit facility (the "Revolving Credit Facility"), a $10.0 million sub-facility for the issuance of letters of credit, and a $20.0 million swingline loan sub-facility. The Revolving Credit Facility will mature on May 31, 2020. Borrowings under the Revolving Credit Facility will, at our option, bear interest at either (i) a rate per annum based on London Interbank Offered Rate ("LIBOR") for an interest period of one, two, three or six months, plus an applicable interest rate margin determined as provided in the Credit Agreement (a "LIBOR Loan"), or (ii) an alternative base rate plus an applicable interest rate margin, each as determined as provided in the Credit Agreement (an "ABR Loan"). The applicable interest rate margin varies from 3.0% per annum to 4.0% per annum for LIBOR Loans, and from 2.0% per annum to 3.0% per annum for ABR Loans, in each case depending on our consolidated leverage ratio, and is determined in accordance with a pricing grid in the Credit Agreement (the "Pricing Grid"). Interest on LIBOR Loans is payable in arrears at the end of each applicable interest period, and interest on ABR Loans is payable in arrears at the end of each calendar quarter. We have agreed in the Credit Agreement to pay a fee on the average daily unused amount of the Revolving Credit Facility during the term. The unused fee is payable in arrears at the end of each calendar quarter and accrues at a rate which varies from 0.25% to 0.5% depending on our consolidated leverage ratio, as determined in accordance with the Pricing Grid. We have also agreed to pay (1) a fee for each outstanding letter of credit at a rate per annum equal to the applicable interest rate margin for LIBOR Loans, as determined in accordance with the Pricing Grid,

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multiplied by the average daily amount available to be drawn under such letter of credit, and (2) a fronting fee which shall accrue at a rate of 0.125% per annum on the average daily amount of the outstanding aggregate letter-of-credit obligations under the Credit Agreement.

Our obligations under the credit agreement are guaranteed by substantially all of the assets of each of our direct and indirect domestic wholly-owned subsidiaries. There are no prepayment penalties in the event we elect to prepay and terminate the Revolving Credit Facility prior to its scheduled maturity date, subject to LIBOR breakage and redeployment costs in certain limited circumstances.

The Credit Agreement includes customary affirmative, negative, and financial covenants, including delivery of financial statements and other reports and maintenance of existence. The negative covenants limit our ability, among other things, to incur debt, incur liens, make investments, sell assets and pay dividends on our capital stock. The financial covenants set forth in the Credit Agreement include a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio, each of which will be tested at the end of our fiscal quarters, and a minimum consolidated net worth ratio tested at the end of our fiscal year. The Credit Agreement provides that, for a period of 30 consecutive days after May 16, 2019, our outstanding obligations under the Credit Agreement will not exceed $12.5 million. Additionally, from April 30, 2020 until the maturity date, our outstanding obligations due will be $0. In addition, the Credit Agreement includes customary events of default.

Our previous credit facility consisted of a $21.2 million term loan and a revolving credit facility that allowed borrowing of up to $170.0 million, as of April 30, 2019, with an accordion feature that permitted us to request an increase in availability of up to an additional $50.0 million. Outstanding borrowings accrued interest, which was paid monthly, at a rate of the one-month LIBOR plus a margin ranging from 1.50% to 2.25% depending on our leverage ratio. At April 30, 2019 and 2018, the interest rate was 4.25% and 3.64%, respectively, and the average interest rate paid during the fiscal year ended April 30, 2019 was 3.97%. A commitment fee that varied from 0.25% to 0.50% depending on our leverage ratio on the unused portion of the credit facility was paid monthly. The indebtedness was collateralized by substantially all the assets of the Company and both loans matured on April 30, 2019 (except as to the commitments of one lender under the revolving credit facility, which matured on September 30, 2017). On May 1, 2019, we repaid the $12.0 million balance under the term loan of our previous credit facility using cash on hand.

Subordinated note. On May 16, 2019, we also entered into a subordinated note (the "Subordinated Note") payable to Vintage Capital Management LLC (“Vintage”). The aggregate principal amount of all loans to be made by Vintage under the Subordinated Note shall not exceed $10.0 million. Any indebtedness owed to Vintage under the Subordinated Note is subordinate to and subject in right and time of payment to the Revolving Credit Facility. We have not made any borrowings under the Subordinated Note at this time. The Subordinated Note will mature on August 31, 2020. Interest will accrue on the unpaid principal amount of the subordinated note outstanding from time to time at a rate per annum based on LIBOR for an interest period of one month, plus 4.0%. We also agreed in the Subordinated Note to pay Vintage a commitment fee, at a rate per annum equal to 0.50%, on the average daily amount in each month by which the stated amount of the Subordinated Note exceeds the aggregate amount of loans made thereunder and not repaid. Such accrued interest and commitment fee are payable in kind (rather than in cash or other consideration), quarterly in arrears, by being added to the outstanding principal balance of the Subordinated Note, with such amounts bearing interest thereafter in the same manner as the unpaid principal amount of the subordinated note.

Franchisee lending and potential exposure to credit loss. A substantial portion of our cash flow during the year is utilized to provide funding to our franchisees. At April 30, 2019, our total balance of loans to franchisees for working capital and equipment loans, representing cash we had advanced to the franchisees, was $9.7 million. In addition, at that date, our franchisees and ADs together owed us an additional $67.5 million, net of unrecognized revenue of $6.6 million, representing unpaid royalties, the unpaid purchase price for franchise territories and other amounts.

Our actual exposure to potential credit loss associated with franchisee loans is less than the aggregate amount of those loans because a significant portion of those loans are to franchisees located within AD areas, where our AD is ultimately entitled to a substantial portion of the franchise fee and royalty revenues represented by some of these loans. For this reason, the amount of indebtedness of franchisees to us is effectively offset in part by our related payable obligation to ADs in respect of franchise fees and royalties. As of April 30, 2019, the total indebtedness of franchisees to us where the franchisee is located in an AD area was $32.5 million but $17.3 million of that total indebtedness represents amounts ultimately payable to ADs as their share of franchise fees and royalties.

Our franchisees make electronic return filings for their customers utilizing our systems. Our franchise agreements allow us to obtain repayment of amounts due to us from our franchisees through an electronic fee intercept program before our franchisees receive the net proceeds from tax preparation and other fees they have charged to their customers on tax returns associated with tax settlement products. Therefore, we are able to minimize the nonpayment risk associated with amounts outstanding from franchisees by obtaining direct electronic payment in the ordinary course throughout the tax season. Our credit risk associated with amounts outstanding to ADs is also mitigated by our electronic fee intercept program, which enables us to obtain repayments of amounts

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that would otherwise flow through to ADs as their share of franchise fee and royalty payments, to the extent of an AD's indebtedness to us.

The unpaid amounts owed to us from our franchisees and ADs are collateralized by the underlying franchise or area and, when the franchise or area owner is an entity, are generally guaranteed by the owners of the respective entity. Accordingly, to the extent a franchisee or AD does not satisfy its payment obligations to us, we may repossess the underlying franchise or area in order to resell it in the future. At April 30, 2019, we had an investment in impaired accounts and notes receivable and related interest receivable of approximately $21.7 million. We consider accounts and notes receivable to be impaired if the amounts due exceed the fair value of the underlying franchise and estimate an allowance for doubtful accounts based on that excess. Amounts due include the recorded value of the accounts and notes receivable reduced by the allowance for uncollected interest, amounts due to ADs for their portion of franchisee receivables, any related unrecognized revenue and amounts owed to the franchisee or AD by us. In establishing the fair value of the underlying franchise, we consider net fees of open territories and the number of unopened territories. At April 30, 2019, our allowance for doubtful accounts for impaired accounts and notes receivable was $9.0 million. There were no significant concentrations of credit risk with any individual franchisee or AD as of April 30, 2019, and we believe that our allowance for doubtful accounts as of April 30, 2019 is adequate for our existing loss exposure. We closely monitor the performance of our franchisees and ADs, and will adjust our allowances as appropriate if we determine that the existing allowances are inadequate to cover estimated losses.

Dividends. See "Item 5—Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities."

Sources and uses of cash

Operating activities

In fiscal 2019, our cash provided from operating activities decreased $10.5 million from the cash provided in fiscal 2018. This decrease was primarily driven by:

• a decrease of $11.6 million in tax preparation fees received due to closures of Company-owned and year-round accounting stores, partially offset by;

• a $4.0 million reduction in executive severance and recruitment payments in fiscal 2019 compared to fiscal 2018.

In fiscal 2018, our cash provided from operating activities decreased $4.8 million from the cash provided in fiscal 2017. This decrease was primarily driven by:

• a $4.2 million increase in executive severance and recruitment payments in fiscal 2018 compared to fiscal 2017; and

• an increase in cash tax payments of $2.3 million in fiscal 2018 compared to fiscal 2017.

Investing activities

In fiscal 2019, we used $6.3 million less in investing activities than in fiscal 2018 primarily due to:

• a $2.7 million decrease in net cash used to acquire Company-owned offices, AD rights and customer lists, net of sales, partially offset by; and

• a $2.4 million decrease in purchases of property, equipment and software.

In fiscal 2018, we used $4.2 million less in investing activities than in fiscal 2017 due to:

• a $3.4 million decrease in net cash used in operating loans to franchisees resulting from an decrease in lending of $20.3 million as well as better collections of operating loans;

• a $6.2 million decrease in net cash used to acquire Company-owned offices, AD rights and customer lists, net of sales, partially offset by; and

• a $5.0 million increase in net cash used resulting from the sale of available-for-sale securities during fiscal 2017.

Financing activities

In fiscal 2019, we used $7.1 million less cash for financing activities compared to fiscal 2018 primarily due to a decrease of $6.7 million in dividends paid.

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In fiscal 2018, we used $4.5 million more cash for financing activities compared to fiscal 2017 primarily due to a decrease of $2.2 million in cash received for mortgage debt and $2.1 million increase in cash paid for repayment of long-term obligations related to AD and franchisee acquisitions.

Future cash needs and capital requirements

Operating cash flow needs. We believe that the Revolving Credit Facility along with cash from operating activities, will be sufficient to support our cash flow needs for the next twelve months.

The maximum balance of the previous revolving credit facility during fiscal 2019 was $114.5 million on February 20, 2019. By April 5, 2019, we paid down the entire balance of the previous revolving credit facility.

Several factors could affect our cash flow in future periods, including the following:

• The extent to which we extend additional operating financing to our franchisees and ADs, beyond the levels of prior periods.

• The extent and timing of capital expenditures.

• The cash flow effect of stock option exercises and the extent to which we engage in stock repurchases.

• Our ability to generate fee and other income related to tax settlement products in light of regulatory pressures on us and our business partners.

• The extent to which we repurchase AD areas, which will involve the use of cash in the short-term, but improve cash receipts in future periods from what would have been the ADs' share of royalties and franchise fees.

• The extent, if any, to which our Board of Directors elects to continue to declare dividends on our common stock.

Effect of the Revolving Credit Facility covenants on our future performance. The Revolving Credit Facility, which was entered into on May 16, 2019, imposes several restrictive covenants, including a covenant that requires us to maintain a "leverage ratio" of not more than 5.25:1 at the end of each fiscal quarter ending January 31 and a ratio of not more than 3:1 at the end of each other fiscal quarter. The higher permitted leverage ratio at the end of the January 31 quarter reflects the fact that as of that date, we have typically extended significant credit to our franchisees for working capital and other needs that is not reflected in revenue that we receive from our franchisees until the period beginning in February each year. At January 31, 2019 and April 30, 2019, we had a leverage ratio of 3.9:1 and 0.5:1, respectively.

Our leverage ratio at April 30, 2019 reflected the fact that we had no balance outstanding on our prior revolving credit facility at that date and a $12.0 million balance under our term loan. The leverage ratio is measured only at the end of each fiscal quarter, and so there may be times at which we exceed the quarter-end leverage ratio during the quarter, which we are permitted to do provided that our leverage ratio is within the allowable ratio at quarter-end.

We continue to be obligated under the Revolving Credit Facility to satisfy a fixed charge coverage ratio test which requires that ratio to be not less than 1.5:1 at the end of every fiscal quarter. At January 31, 2019 and April 30, 2019, our fixed charge coverage ratios were 2.0:1 and 2.1:1, respectively.

We were in compliance with the ratio tests described in this section as of April 30, 2019. We expect to be able to manage our cash flow and our operating activities in such a manner that we will continue to be able to satisfy our obligations under the Revolving Credit Facility for the remainder of the term of the Revolving Credit Facility.

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Seasonality of Operations

Given the seasonal nature of the tax return preparation business, we have historically generated and expect to continue to generate most of our revenues during the period from January 1 through April 30. For example, in fiscal 2019 and fiscal 2018, we earned 25% and 28% of our revenues during our fiscal third quarter ended January 31, respectively, and 89% and 91% of our revenues during the combined fiscal third and fourth quarters, respectively. 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.

Off Balance Sheet Arrangements

From time to time, we have been party to interest rate swap agreements. These swaps effectively changed the variable-rate of our credit facility into a fixed rate credit facility. Under the swaps, we received a variable interest rate based on the one month LIBOR and paid a fixed interest rate. We entered into an interest rate swap agreement in relation to our mortgage payable to a bank, during fiscal 2017. See "Note 8. Derivative Instruments and Hedging Activities" for more information.

We also enter into forward contracts to eliminate exposure related to foreign currency fluctuations in connection with the short-term advances we make to our Canadian subsidiary in order to fund personal income tax refund discounting for our Canadian operations. At April 30, 2019 and 2018, there were no forward contracts outstanding, but we expect to enter into forward contracts in the future during the Canadian tax season.

Commitments and Contingencies

The following table sets forth certain of our contractual obligations as of April 30, 2019.

	Contractual Obligations
	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years
	(In thousands)
Long-term debt obligations(1)	$	15,489	$	13,185	$	530	$	454	$	1,320
Operating lease obligations(2)	9,152		5,164		3,553		384		51
Purchase obligations(3)	4,870		3,930		940		—		—
Net lease payments on closed offices	1,716		457		724		535		—
Total contractual obligations	$	31,227	$	22,736	$	5,747	$	1,373	$	1,371

(1) Amounts include mandatory principal payments on long-term debt as well as estimated interest of $77, $138, $114, and $112 for less than 1 year, 1-3 years, 3-5 years, and more than 5 years, respectively. Interest calculated for future periods was based on the interest rate at April 30, 2019. The actual interest rate will vary based on LIBOR and our leverage ratio.

(2) We sublease most of the office spaces represented by this line item and anticipate sublease receipts from franchisees of $1,593, $993, $204, and $77 for less than 1 year, 1-3 years, 3-5 years, and more than 5 years, respectively.

(3) Amounts are primarily for advertising expense and for software licenses, maintenance, and development.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. The following critical accounting policies may affect reported results.

Revenue Recognition. We recognize franchise fees on a straight-line basis over the initial contract term of each franchise agreement with the cumulative amount of revenue recognized not to exceed the amount of cash estimated to be received and when our obligations to prepare the franchise for operation have been substantially completed.

AD rights have historically been granted for a term of ten years. We have changed future terms of new and renewal AD contracts to six years. AD fees are recognized as revenue on a straight-line basis over the initial contract term of each AD agreement with the cumulative amount of revenue recognized not to exceed the amount of cash estimated to be received. Amounts due to ADs for their services under an area development agreement are expensed as the related franchise fees and royalty revenues are recognized.

Royalties and advertising fees are recognized as franchise territories generate sales.

Tax return preparation fees, financial products, and electronic filing fees revenue are recognized as revenue in the period the related tax return is filed for the customer. Discounts for promotional programs are recorded at the time the return is filed and are recorded as reductions to revenues. Refund advances and electronic filing fees are recorded on a net basis.

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Interest income on notes receivable is recognized based on the outstanding principal note balance less unrecognized revenue unless it is put on non-accrual status. Interest income on the unrecognized revenue portion of notes receivable is recognized when received. For accounts receivable, interest income is recognized based on the outstanding receivable balance over 30 days old, net of an allowance.

Gains on sales of Company-owned offices are recognized when cash is received. Losses on sales of Company-owned offices are recognized immediately.

Long-Lived Assets. We review our long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We measure recoverability by comparison of the carrying value of an asset to its estimated undiscounted future cash flows expected to be generated by the asset. We recognize and measure potential impairment at the lowest level where cash flows are individually identifiable. If the carrying amount of an asset exceeds its estimated future cash flows, we recognize an impairment charge equal to the amount by which the carrying value of the asset exceeds the fair value of the asset. We determine fair value through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals. If assets are to be disposed of, we separately present these assets in the balance sheet and report them at the lower of the carrying amount or fair value less selling costs, and no longer depreciate them. When we have assets classified as held for sale, we present them separately in the appropriate asset section of the balance sheet.

Allowance for Doubtful Accounts. Our allowance for doubtful accounts represents our best estimate of the amount of probable credit losses in our existing accounts receivable and notes receivable. Because the repayment of accounts receivable and notes receivable are dependent on the performance of the underlying franchises, at the end of each reporting period we estimate the amount of the allowance for uncollectible accounts based on a comparison of amounts due to the estimated fair value of the underlying franchise which collateralize such receivables.

Office Closing Costs. We provide for closed office liabilities on the basis of the present value of estimated remaining non-cancellable lease payments, net of estimated subtenant income. We estimate the net lease liability using a discount rate to calculate the present value of the remaining net rent payments on closed offices. We usually pay closed office lease liabilities over the lease terms associated with the closed offices, which generally have remaining terms ranging from one to seven years.

Stock Compensation Expense. For employee stock-based compensation, we record costs of our employee stock-based compensation based on the grant-date fair value of awards using the Black-Scholes-Merton option pricing model. We recognize compensation costs for an award that has a graded vesting schedule on a straight-line basis over the service period for the entire length of the stock option award.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and the related disclosures. We base our assumptions, estimates, and judgments on historical experience, current trends, and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates, and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

Our significant accounting policies are discussed in Note 1 of the Notes to our Consolidated Financial Statements. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective, or complex judgments resulting from the need to make estimates about the effect of matters that are inherently uncertain. We have reviewed these critical accounting estimates and related disclosures with the Audit Committee of our Board of Directors.

46

Description	Judgments and Uncertainties	Effect if Actual Results Differ From Assumptions
Allowance for doubtful accounts
We establish our allowance for doubtful accounts for our trade accounts receivable and notes receivable based on a comparison of the amount due to the estimated fair value of the underlying franchise. In establishing the fair value of the underlying franchise, management considers net fees of open offices and the number of unopened offices.	Our calculation of the allowance requires management to make assumptions regarding the fair value of the franchise to which the account relates and the historical performance of the franchise. The estimated fair value of the underlying franchise, consideration is given to a variety of factors, including, recent comparable sales of Company-owned stores, sales between franchisees, the net fees of open offices, and the number of unopened offices.	A 10% decrease in the fair value of franchise territories at April 30, 2019 would have increased our allowance for doubtful accounts by approximately $1.2 million at that date.
Long-lived assets and AD Rights
Long-lived assets other than goodwill and indefinite-lived intangible assets, which are separately tested for impairment, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. When evaluating long-lived assets for potential impairment, we first compare the carrying value of the asset to the asset's estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset's estimated fair value, which may be based on estimated future cash flows (discounted and with interest charges). We recognize an impairment loss if the amount of the asset's carrying value exceeds the asset's estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining useful life of that asset.	Our calculation of impairment, if any, requires management to make assumptions regarding the fair value of the long-lived asset.	We have not made any material changes in the accounting methodology we use to assess impairment loss during the past three fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses. However, if actual results are not consistent with our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to losses that could be material. For AD rights, a 10% decrease in the estimated future cash flows would not result in any incremental loss. For assets acquired from franchisees, and held for sale, a 10% decrease in the fair value would increase our impairment by approximately $0.1 million.

Recently Issued Accounting Standards

Refer to "Note 1 - Description of Business and Summary of Significant Accounting Policies", in our consolidated financial statements.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.

Foreign exchange risk

We are subject to inherent risks attributed to operating in more than one country. Most of our revenues, expenses, and borrowings are denominated in U.S. dollars. Our operations in Canada, including the advances we make to our Canadian subsidiary, are denominated in Canadian dollars, and are, therefore, subject to foreign currency fluctuations. For fiscal 2019, a

47

5% change in the exchange rate of the Canadian dollar relative to the U.S. dollar would have had less than a $0.1 million impact on our net income and a $0.6 million impact on our total assets at April 30, 2019. We use, and may continue to use in the future, derivative financial instruments, such as forward contracts, to manage foreign currency exchange rate risks. See "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations—Off Balance Sheet Arrangements."

Interest rate risk

We are subject to interest rate risk in connection with the Revolving Credit Facility and Subordinated Note, which provides for borrowings of up to a total of $145.0 million and bears interest at variable rates. Assuming the Revolving Credit Facility and Subordinated Note are fully drawn, a ten basis point change in interest rates would result in a $0.1 million change in annual interest expense on our outstanding borrowings. From time to time, we have entered into hedging instruments involving the exchange of floating for fixed rate interest payments to reduce interest rate volatility. See "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations—Off Balance Sheet Arrangements."

Item 8.    Financial Statements and Supplementary Data.

Our financial statements and supplementary financial information required by this Item 8 are contained in this report in "Item 15. Exhibits and Financial Statements."

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.    Controls and Procedures.

The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, including, without limitation, that such information is accumulated and communicated to Company management, including the Company’s principal executive and financial officer, as appropriate, to allow timely decisions regarding required disclosures.

Evaluation of Disclosure Controls and Procedures

The Company, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of April 30, 2019. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of April 30, 2019, the Company’s disclosure controls and procedures were not effective due to a material weakness in the Company's internal control over financial reporting as described below.

The Company concluded that, notwithstanding the material weakness in the Company's internal control over financial reporting, the consolidated financial statements included in this report fairly present, in all material respects, the Company’s financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.

Management’s Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with GAAP.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

48

Management assessed the effectiveness of the Company’s internal control over financial reporting as of April 30, 2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In connection with management’s assessment of our internal control over financial reporting described above, management has identified the following deficiency that constituted individually, or in the aggregate, a material weakness in our internal control over financial reporting as of April 30, 2019.

The control environment, risk assessment, control activities, information and communication, and monitoring controls were not effective. “Tone at the top” issues contributed to an ineffective control environment. The deficiencies aggregating to this material weakness are set forth below.

Control Environment - control deficiencies contributing to the material weakness relating to: (i) commitment to integrity and ethical values, (ii) the ability of the Board of Directors to effectively exercise oversight of the development and performance of internal control, as a result of failure to communicate relevant information within the organization and, in some cases, withholding information, (iii) appropriate organizational structure, reporting lines, and authority and responsibilities in pursuit of objectives, (iv) commitment to attract, develop, and retain competent individuals, and (v) holding individuals accountable for their internal control related responsibilities.

Risk Assessment - control deficiencies contributing to the material weakness relating to: (i) identifying, assessing, and communicating appropriate objectives, (ii) identifying and analyzing risks to achieve these objectives, (iii) contemplating fraud risks, and (iv) identifying and assessing changes in the business that could impact the system of internal controls.

Control Activities - control deficiencies contributing to the material weakness relating to: (i) selecting and developing control activities and information technology that contribute to the mitigation of risks and support achievement of objectives and (ii) deploying control activities through policies that establish what is expected and procedures that put policies into action.

Information and Communication - control deficiencies contributing to the material weakness relating to: (i) obtaining, generating, and using relevant quality information to support the function of internal control, and (ii) communicating accurate information internally and externally, including providing information pursuant to objectives, responsibilities, and functions of internal control.

Monitoring - control deficiencies contributing to the material weakness relating to: (i) selecting, developing, and performing ongoing evaluation to ascertain whether the components of internal controls are present and functioning, and (ii) evaluating and communicating internal control deficiencies in a timely manner to those parties responsible for taking corrective action. The inability to remediate previously identified internal control deficiencies in the current year contributed to the material weakness.

Because of this material weakness, management has concluded that the Company did not maintain effective internal control over financial reporting as of April 30, 2019.

The effectiveness of the Company’s internal control over financial reporting as of April 30, 2019 has been audited by Cherry Bekaert LLP, an independent registered public accounting firm, and an adverse opinion was issued as stated in their report which appears herein.

Remediation Efforts to Address Material Weakness

The Company's management has worked, and continues to work, to strengthen the internal control over financial reporting. The Company is committed to ensuring that such controls are designed and operating effectively. Since identifying the material weakness in the internal controls over financial reporting relating to the Company's former CEO and Chairman of the Board and his control of the Board of Directors through his ownership of Class B common stock, the Company has developed and implemented remediation plans to address these control failures. The Company's Board of Directors and management take internal controls over financial reporting and the integrity of the Company’s financial statements seriously and believe that the remediation steps described below, including with respect to personnel changes, were and are essential steps to maintaining strong and effective internal controls over financial reporting and a strong internal control environment.

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The Company took significant steps to address the material weakness set forth above. The Company believes that making the following changes were critical steps toward addressing the “tone at the top” concerns that contributed to the material weakness it identified. The following steps were among the measures that were implemented:     

• On July 24, 2018, the Company's former President and Chief Executive Officer and Chairman of the Board of Directors, John T. Hewitt, entered into a stock purchase agreement to sell all of his shares of the Company’s Class A common stock and Class B common stock owned directly and indirectly by him. As a result of this transaction, Mr. Hewitt resigned as Chairman of the Board.

• In addition to the resignation of Mr. Hewitt as Chairman of the Board, all remaining Class B directors previously appointed by Mr. Hewitt tendered their resignation to the Board.

• In February 2018, the Board of Directors appointed Nicole Ossenfort as the Company's new President and Chief Executive Officer. Ms. Ossenfort brought expertise and leadership to the Company and helped establish open lines of communication with her internal business unit leaders and the finance and accounting team.

• In June 2018, the Company hired a new Chief Financial Officer, Michael S. Piper, who has brought expertise and leadership to the Company and its finance and accounting team.

• In August 2018, the Company elected five new Class A directors through written consent executed by stockholders representing a majority of the outstanding shares of the Company’s Class A common stock.

• The Board of Directors has elected Andrew M. Laurence as the Chairman of our Board of Directors.

• The Company engaged Ernst & Young to conduct a review of its corporate governance practices and has substantially implemented most of the recommendations.

The Company is committed to maintaining a strong internal control environment, and believe that these remediation actions represent significant improvements in its controls. Additional remediation measures continue to be considered and will be implemented as appropriate. The Company will continue to assess the effectiveness of its remediation efforts in connection with its evaluations of internal control over financial reporting.

Changes in Internal Control over Financial Reporting

Other than the ongoing remediation efforts of the material weakness disclosed above, there were no changes in our internal control over financial reporting during the quarter ended April 30, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.    Other Information.

None.

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PART III

Item 10.    Directors, Executive Officers, and Corporate Governance.

The information required by this item will be provided by being incorporated herein by reference to the Company’s definitive proxy statement for its 2019 Annual Meeting of Stockholders.

Item 11.    Executive Compensation.

The information required by this item will be provided by being incorporated herein by reference to the Company’s definitive proxy statement for its 2019 Annual Meeting of Stockholders.

Item 12.    Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters.

The information required by this item will be provided by being incorporated herein by reference to the Company’s definitive proxy statement for its 2019 Annual Meeting of Stockholders.

Item 13.    Certain Relationships and Related Transactions, and Director Independence.

The information required by this item will be provided by being incorporated herein by reference to the Company’s definitive proxy statement for its 2019 Annual Meeting of Stockholders.

Item 14.    Principal Accounting Fees and Services.

The information required by this item will be provided by being incorporated herein by reference to the Company’s definitive proxy statement for its 2019 Annual Meeting of Stockholders.

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PART IV

Item 15.    Exhibits and Financial Statement Schedules.

(a) Financial Statements.

The following financial statements of the Company are included in Item 8 of this Annual Report on Form 10-K:

Audited Financial Statements for the Years Ended April 30, 2019, 2018, and 2017

	Page
Reports of Independent Registered Public Accounting Firms		F-1
Consolidated Balance Sheets as of April 30, 2019 and 2018		F-5
Consolidated Statements of Operations for the Years Ended April 30, 2019, 2018 and 2017		F-6
Consolidated Statements of Comprehensive Operations for the Years Ended April 30, 2019, 2018 and 2017		F-7
Consolidated Statements of Stockholders' Equity for the Years Ended April 30, 2019, 2018 and 2017		F-8
Consolidated Statements of Cash Flows for the Years Ended April 30, 2019, 2018 and 2017		F-11
Notes to Consolidated Financial Statements		F-13

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(b) Exhibits.

Exhibit Number	Exhibit Description
3.1	Amended and Restated Certificate of Incorporation of JTH Holding, Inc. (incorporated by reference to Exhibit 3.1 to Form S-1, File No. 333-176655 filed on September 2, 2011).
3.2	Certificate of Amendment to the Amended and Restated Certificate of Incorporation of JTH Holding, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K, File No. 001-35588 filed on July 15, 2014).
3.3	Second Amended and Restated Certificate of Incorporation of Liberty Tax, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K, File No. 001-35588 filed on December 19, 2018).
3.4	Second Amended and Restated Bylaws of Liberty Tax, Inc. (incorporated by reference to Exhibit 3.2 to Form 8-K, File No. 001-35588 filed on July 15, 2014).
4.1	Specimen Common Stock Certificate of Liberty Tax, Inc. (incorporated by reference to Exhibit 4.6 to Form 8-K, File No. 001-35588 filed on September 3, 2014).
4.2	Form of Indenture with respect to Senior Debt Securities (incorporated by reference to Exhibit 4.2 to Form S-3, File No. 333-199579 filed on October 23, 2014).
4.3	Form of Indenture with respect to Subordinated Debt Securities (incorporated by reference to Exhibit 4.4 to Form S-3, File No. 333-199579 filed on October 23, 2014).
10.1#	JTH Holding, Inc. 2011 Equity and Cash Incentive Plan (incorporated by reference to Exhibit 10.1 to Amendment No. 3 to Form S-1, File No. 333-176655 filed on February 3, 2012).
10.2#	JTH Tax, Inc. Stock Option Plan dated as of May 1, 1998 (incorporated by reference to Exhibit 10.2 to Form S-1, File No. 333-176655 filed on September 2, 2011).
10.3#	Form of Stock Option Agreement under Stock Option Plan (incorporated by reference to Exhibit 10.3 to Form S-1, File No. 333-176655 filed on September 2, 2011).
10.4#	Form of Incentive Stock Option Agreement for Employees via JTH Holding, Inc. 2011 Equity and Cash Incentive Plan (incorporated by reference to Exhibit 10.7 to Amendment No. 5 to Form S-1, File No. 333-176655 filed on October 15, 2012).
10.5#	Form of Restricted Stock Unit Agreement for Employees via JTH Holding, Inc. 2011 Equity and Cash Incentive Plan (incorporated by reference to Exhibit 10.5 to Form 10-K, File No. 001-35588 filed on October 1, 2013).
10.6	Revolving Credit and Term Loan Agreement dated as of April 30, 2012 among JTH Holding, Inc. and SunTrust Bank (incorporated by reference to Exhibit 10.7 to Amendment No. 1 to Form 10, File No. 000-54660 filed on May 18, 2012).
10.7	Security Agreement among JTH Holding, Inc. and certain of its subsidiaries and SunTrust Bank dated as of April 30, 2012 (incorporated by reference to Exhibit 10.8 to Amendment No. 1 to Form 10, File No. 000-54660 filed on May 18, 2012).
10.8	Pledge Agreement among JTH Holding, Inc. and certain of its subsidiaries and SunTrust Bank dated as of April 30, 2012 (incorporated by reference to Exhibit 10.9 to Amendment No. 1 to Form 10, File No. 000-54660 filed on May 18, 2012).
10.9	Subsidiary Guaranty Agreement among certain subsidiaries of JTH Holding, Inc. and SunTrust Bank dated April 30, 2012 (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to Form 10, File No. 000-54660 filed on May 18, 2012).
10.10	Waiver and Amendment to Revolving Credit and Term Loan Agreement dated as of December 19, 2012 among JTH Holding, Inc., SunTrust Bank and other parties thereto (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed on December 26, 2012).
10.11	Supplement and Joinder Agreement dated as of December 28, 2012 among JTH Holding, Inc., SunTrust Bank and other parties thereto (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed on December 28, 2012).
10.12	Waiver to Revolving Credit and Term Loan Agreement dated March 8, 2013 among JTH Holding, Inc., SunTrust Bank as Administrative Agent and other parties thereto (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed on March 12, 2013).
10.13	Waiver to Revolving Credit and Term Loan Agreement among Liberty Tax, Inc., SunTrust Bank as Administrative Agent and other parties thereto dated as of August 29, 2013 (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed on August 29, 2013).
10.14	Second Amendment to Revolving Credit and Term Loan Agreement among Liberty Tax, Inc., SunTrust Bank and other parties thereto dated October 3, 2014 (incorporated by reference to Exhibit 10.2 to Form 8-K, File No. 001-35588 filed on October 6, 2014).

53

Exhibit Number	Exhibit Description
10.15	Third Amendment to Revolving Credit and Term Loan Agreement dated as of September 2, 2015 among Liberty Tax, Inc. SunTrust Bank and other parties thereto (incorporated by reference to Exhibit 10.1 to Form 10-Q, File No. 001-35588 filed on September 3, 2015).
10.16	Fourth Amendment to Revolving Credit and Term Loan Agreement dated as of August 18, 2016 among Liberty Tax, Inc., SunTrust Bank and other parties thereto (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed on August 24, 2016).
10.17	Supplement and Joinder Agreement among Liberty Tax, Inc., SunTrust Bank and other parties thereto dated October 3, 2014 (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed on October 6, 2014).
10.18	Form of Franchise Agreement for United States Franchisees (incorporated by reference to Exhibit 10.17 to Form 10-K, File No. 001-35588 filed on July 1, 2015).
10.19	Form of Area Developer Agreement for United States Area Developers (incorporated by reference to Exhibit 10.18 to Form 10-K, File No. 001-35588 filed on July 1, 2015).
10.20#	Second Amended and Restated Employment Agreement for John T. Hewitt dated July 1, 2016 (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed on July 8, 2016).
10.21#	Employment Agreement for Edward L. Brunot dated April 30, 2017 (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed on May 25, 2017).
10.22#	Retention Bonus and Restricted Stock Unit Agreement via 2011 Equity and Cash Incentive Plan for Kathleen Donovan dated September 6, 2017 (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed on September 6, 2017).
10.23#	Retention Bonus and Restricted Stock Unit Agreement via 2011 Equity and Cash Incentive Plan for Vanessa Szajnoga dated September 6, 2017 (incorporated by reference to Exhibit 10.2 to Form 8-K File No. 001-35588 filed on September 6, 2017).
10.24#	Retention Bonus and Restricted Stock Unit Agreement via 2011 Equity and Cash Incentive Plan for Richard Artese dated September 6, 2017 (incorporated by reference to Exhibit 10.3 to Form 8-K, File No. 001-35588 filed on September 6, 2017).
10.25#	Employment Agreement for Nicholas Bates dated December 12, 2017 (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed on December 14, 2017).
10.26#	Employment Agreement for Vanessa M. Szajnoga dated December 12, 2017 (incorporated by reference to Exhibit 10.2 to Form 8-K, File No. 001-35588 filed on December 14, 2017).
10.27#	Employment Agreement for Richard Artese dated December 12, 2017 (incorporated by reference to Exhibit 10.3 to Form 8-K, File No. 001-35588 filed on December 14, 2017).
10.28#	Independent Contractor Consultant Agreement for Kathleen E. Donovan dated December 12, 2017 (incorporated by reference to Exhibit 10.4 to Form 8-K, File No. 001-35588 filed on December 14, 2017).
10.29#	Release Agreement for Kathleen E. Donovan dated December 12, 2017 (incorporated by reference to Exhibit 10.5 to Form 8-K, File No. 001-35588 filed on December 14, 2017).
10.30#	Employment Agreement for Nicole Ossenfort dated June 1, 2018 (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed on June 6, 2018).
10.31#	Employment Agreement for Shaun York dated June 1, 2018 (incorporated by reference to Exhibit 10.2 to Form 8-K, File No. 001-35588 filed on June 6, 2018).
10.32#	Employment Agreement for Ryan Dodson dated June 1, 2018 (incorporated by reference to Exhibit 10.3 to Form 8-K, File No. 001-35588 filed on June 6, 2018).
10.33#	Employment Agreement for Michael S. Piper dated June 15, 2018 (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed on June 18, 2018).
10.34#	Consent and Sixth Amendment to Revolving Credit and Term Loan Agreement dated as of July 18, 2018 among Liberty Tax, Inc. SunTrust Bank and other parties thereto (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed on July 24, 2018).
10.35#	Credit Agreement dated as of May 16, 2019 among Liberty Tax, Inc. Citizen Bank, N.A and other parties (incorporated by reference to Exhibit 10.1 to Form 8-K, File No. 001-35588 filed on May 16, 2019).
10.36#	Pledge and Security Agreement dated as of May 16, 2019 among Liberty Tax Inc., certain of Liberty Tax Inc's direct and indirect subsidiaries, Citizen Bank, N.A and other parties (incorporated by reference to Exhibit 10.2 to Form 8-K, File No. 001-35588 filed on May 16, 2019).
10.37#	Guarantee Agreement dated as of May 16, 2019 among Liberty Tax, Inc. certain of Liberty Tax Inc's direct and indirect subsidiaries, Citizen Bank, N.A and other parties (incorporated by reference to Exhibit 10.3 to Form 8-K, File No. 001-35588 filed on May 16, 2019).

54

Exhibit Number	Exhibit Description
10.38#	Subordinated Delayed Draw Note dated as of May 16, 2019 given by Liberty Tax, Inc in favor or Vintage Capital Management, LLC (incorporated by reference to Exhibit 10.4 to Form 8-K, File No. 001-35588 filed on May 16, 2019).
21.1*	Subsidiaries of Liberty Tax, Inc.
23.1*	Consent of Cherry Bekaert LLP
23.2*	Consent of KPMG LLP
24.1*	Power of Attorney (included on signature page)
31.1**	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
31.2**	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32.1**	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002
32.2**	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002
101	The following materials from the Registrant's Annual Report on Form 10-K for the year ended April 30, 2019, are formatted in XBRL (eXtensible Business Reporting Language):(i) Consolidated Balance Sheets at April 30, 2019 and 2018, (ii) Consolidated Statements of Income for the years ended April 30, 2019, 2018 and 2017, (iii) Consolidated Statements of Comprehensive Income for the years ended April 30, 2019, 2018 and 2017, (iv) Consolidated Statement of Stockholders' Equity for the years ended April 30, 2019, 2018 and 2017, (v) Consolidated Statements of Cash Flows for the years ended April 30, 2019, 2018 and 2017, and (vi) Notes to Audited Consolidated Financial Statements.

*    Filed herewith.

**    Furnished herewith.

#    Indicates management contract or compensatory plan

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Item 16.    Form 10-K Summary.

None.

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.

	LIBERTY TAX, INC. (Registrant)
Date: June 27, 2019	By:	/s/ M. BRENT TURNER
		M. Brent Turner President and Chief Executive Officer (Principal Executive Officer)
Date: June 27, 2019	By:	/s/ MICHAEL S. PIPER
		Michael S. Piper Chief Financial Officer (Principal Financial and Accounting Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS that each of the undersigned whose signature appears below constitutes and appoints M. Brent Turner and Michael S. Piper, his true and lawful attorneys-in-fact, with full power of substitution and resubstitution for him and on his behalf, and in his name, place, and stead, in any and all capacities to execute and sign any and all amendments to this Annual Report on Form 10-K and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof and the registrant hereby confers like authority on its behalf.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: June 27, 2019	By:	/s/ M. BRENT TURNER
		M. Brent Turner President and Chief Executive Officer (Principal Executive Officer)
Date: June 27, 2019	By:	/s/ MICHAEL S. PIPER
		Michael S. Piper Chief Financial Officer (Principal Financial and Accounting Officer)
Date: June 27, 2019	By:	/s/ ANDREW M. LAURENCE
		Andrew M. Laurence Chairman of the Board
Date: June 27, 2019	By:	/s/ MATTHEW AVRIL
		Matthew Avril Director
Date: June 27, 2019	By:	/s/ PATRICK A. COZZA
		Patrick A. Cozza Director

56

Date: June 27, 2019	By:	/s/ THOMAS HERSKOVITS
		Thomas Herskovits Director
Date: June 27, 2019	By:	/s/ BRIAN R. KAHN
		Brian R. Kahn Director
Date: June 27, 2019	By:	/s/ LAWRENCE MILLER
		Lawrence Miller Director
Date: June 27, 2019	By:	/s/ G. WILLIAM MINNER, JR.
		G. William Minner, Jr. Director
Date: June 27, 2019		/s/ BRYANT R. RILEY
		Bryant R. Riley Director
Date: June 27, 2019	By:	/s/ KENNETH M. YOUNG
		Kenneth M. Young Director

57

LIBERTY TAX, INC. AND SUBSIDIARIES

Consolidated Financial Statements

As of April 30, 2019 and 2018 and for the fiscal years ended April 30, 2019, 2018, and 2017

(With Reports of Independent Registered Public Accounting Firms Thereon)

58

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and

Stockholders of Liberty Tax, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Liberty Tax, Inc. and Subsidiaries (the “Company”) as of April 30, 2019 and 2018, and the related consolidated statements of operations, comprehensive operations, stockholders’ equity, and cash flows for each of the years in the two year period ended April 30, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two year period ended April 30, 2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of April 30, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organization of the Treadway Commission (COSO), and our report dated June 27, 2019, expressed an adverse opinion.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Adoption of New Accounting Standard

As discussed in Note 1 to the consolidated financial statements, the Company changed its method for accounting for revenue as a result of the adoption of the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) effective May 1, 2018. Our opinion is not modified with respect to that matter.

/s/ CHERRY BEKAERT LLP

We have served as the Company's auditor since 2018.

Virginia Beach, Virginia

June 27, 2019

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and

Stockholders of Liberty Tax, Inc.:

Adverse Opinion on Internal Control over Financial Reporting

We have audited Liberty Tax, Inc. and Subsidiaries (the Company’s) internal control over financial reporting as of April 30, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, because of the effect of the material weakness described in the following paragraph on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of April 30, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. The control environment, risk assessment, control activities, information and communication, and monitoring controls were not effective. “Tone at the top” issues contributed to an ineffective control environment. The deficiencies aggregating to this material weakness are set forth below.

Control Environment - control deficiencies contributing to the material weakness relating to: (i) commitment to integrity and ethical values, (ii) the ability of the board of directors to effectively exercise oversight of the development and performance of internal control, as a result of failure to communicate relevant information within the organization and, in some cases, withholding information, (iii) appropriate organizational structure, reporting lines, and authority and responsibilities in pursuit of objectives, (iv) commitment to attract, develop, and retain competent individuals, and (v) holding individuals accountable for their internal control related responsibilities.

Risk Assessment - control deficiencies contributing to the material weakness relating to: (i) identifying, assessing, and communicating appropriate objectives, (ii) identifying and analyzing risks to achieve these objectives, (iii) contemplating fraud risks, and (iv) identifying and assessing changes in the business that could impact the system of internal controls.

Control Activities - control deficiencies contributing to the material weakness relating to: (i) selecting and developing control activities and information technology that contribute to the mitigation of risks and support achievement of objectives and (ii) deploying control activities through policies that establish what is expected and procedures that put policies into action.

Information and Communication - control deficiencies contributing to the material weakness relating to: (i) obtaining, generating, and using relevant quality information to support the function of internal control, and (ii) communicating accurate information internally and externally, including providing information pursuant to objectives, responsibilities, and functions of internal control.

Monitoring - control deficiencies contributing to the material weakness relating to: (i) selecting, developing, and performing ongoing evaluation to ascertain whether the components of internal controls are present and functioning, and (ii) evaluating and communicating internal control deficiencies in a timely manner to those parties responsible for taking corrective action. The inability to remediate previously identified internal control deficiencies in the current year contributed to the material weakness.

This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 consolidated financial statements, and this report does not affect our report dated June 27, 2019, on those consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets and the related statements of operations, comprehensive operations, stockholders’ equity, and cash flows of the Company, and our report dated June 27, 2019, expressed an unqualified opinion.

F-2

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report of Internal Control over Financial Reporting included in Item 9A - Controls and Procedures in the Company’s 2019 Annual Report on Form 10-K. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Disclaimer on Additional Information in Management’s Report

We do not express an opinion or any other form of assurance on management’s statements, included in the accompanying Management’s Report on Internal Control over Financial Reporting, referring to corrective actions taken after April 30, 2019, relative to the aforementioned material weakness in internal control over financial reporting.

/s/ CHERRY BEKAERT LLP

We have served as the Company's auditor since 2018.

Virginia Beach, Virginia

June 27, 2019

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Liberty Tax, Inc.:

We have audited the accompanying consolidated statements of operations, comprehensive operations, stockholders' equity, and cash flows of Liberty Tax, Inc. and subsidiaries (the Company) for the year ended April 30, 2017. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Liberty Tax, Inc. and subsidiaries for the year ended April 30, 2017, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Norfolk, Virginia

July 7, 2017

F-4

LIBERTY TAX, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

As of April 30, 2019 and 2018

(In thousands, except share data)

	2019			2018
Assets
Current assets:
Cash and cash equivalents	$	22,983		$	18,522
Receivables:
Accounts receivable	47,011			52,517
Notes receivable - current	21,097			24,295
Interest receivable, net of uncollectible amounts	1,718			1,526
Allowance for doubtful accounts - current	(11,183		)	(11,522		)
Total current receivables, net	58,643			66,816
Bank products receivable	7,277			4,025
Assets held for sale	—			8,941
Other current assets	2,405			1,404
Income tax receivable	1,784			—
Total current assets	93,092			99,708
Property, equipment, and software, net	32,676			38,636
Notes receivable - non-current	7,445			6,554
Allowance for doubtful accounts - non-current	(633		)	(965		)
Total non-current notes receivables, net	6,812			5,589
Goodwill	6,566			8,640
Other intangible assets, net	19,161			22,837
Deferred income taxes	315			343
Other assets	1,379			2,250
Total assets	$	160,001		$	178,003
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term obligations	$	13,108		$	18,113
Accounts payable and accrued expenses	13,672			14,521
Due to Area Developers (ADs)	17,282			17,906
Income taxes payable	447			4,511
Deferred revenue - current	3,679			2,021
Total current liabilities	48,188			57,072
Long-term obligations, excluding current installments, net	1,940			2,270
Deferred revenue and other - non-current	5,622			4,692
Deferred income tax liability	537			1,397
Long-term income taxes payable	—			1,070
Total liabilities	56,287			66,501
Commitments and contingencies
Stockholders' equity:
Special voting preferred stock, $0.01 par value per share, 0 and 10 shares authorized, issued, and outstanding, respectively	—			—
Class A common stock, $0.01 par value per share, 22,000,000 and 21,200,000 shares authorized, 14,048,528 and 12,823,020 shares issued and outstanding at April 30, 2019 and 2018, respectively	140			128
Class B common stock, $0.01 par value per share, 0 and 1,000,000 shares authorized, 0 and 200,000 shares issued and outstanding at April 30, 2019 and 2018, respectively	—			2
Exchangeable shares, $0.01 par value, 0 and 1,000,000 shares authorized, 0 and 1,000,000 issued and outstanding, respectively	—			10
Additional paid-in capital	12,552			11,570
Accumulated other comprehensive loss, net of taxes	(1,910		)	(1,347		)
Retained earnings	92,932			101,139
Total stockholders' equity	103,714			111,502
Total liabilities and stockholders' equity	$	160,001		$	178,003

See accompanying notes to consolidated financial statements.

F-5

LIBERTY TAX, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Years ended April 30, 2019, 2018, and 2017

(In thousands, except per share data)

	2019			2018			2017
Revenue:
Franchise fees	$	2,766		$	1,793		$	2,659
Area Developer fees	3,146			2,751			4,177
Royalties and advertising fees	63,716			68,559			74,291
Financial products	33,478			47,225			51,829
Interest income	8,189			9,895			12,955
Assisted tax preparation fees, net of discounts	14,611			26,645			21,600
Electronic filing fees	2,675			10,772			—
Other revenues	3,965			7,232			6,474
Total revenues	132,546			174,872			173,985
Operating expenses:
Employee compensation and benefits	39,822			50,003			44,615
Selling, general, and administrative expenses	42,038			69,012			58,159
Area Developer expense	15,584			16,564			22,461
Advertising expense	12,532			12,326			11,073
Depreciation, amortization, and impairment charges	14,084			14,416			14,356
Restructuring expense	9,345			4,952			—
Total operating expenses	133,405			167,273			150,664
Income from operations	(859		)	7,599			23,321
Other (expense) income:
Foreign currency transaction (loss) gain	(113		)	63			(47		)
Gain on sale of available-for-sale securities	—			—			50
Interest expense	(3,023		)	(3,181		)	(2,557		)
(Loss) income before income taxes	(3,995		)	4,481			20,767
Income tax (benefit) expense	(1,839		)	4,346			7,754
Net (loss) income	(2,156		)	135			13,013
Less: Net (loss) income attributable to participating securities	—			(10		)	(936		)
Net (loss) income attributable to Class A and Class B common stockholders	$	(2,156	)	$	125		$	12,077
Net (loss) income per share attributable to Class A and Class B common stockholders:
Basic	$	(0.16	)	$	0.01		$	0.94
Diluted	(0.16		)	0.01			0.94
Weighted-average shares used to compute net income (loss) per share attributable to Class A and Class B common stockholders:
Basic	13,800,884			12,928,762			12,895,561
Diluted	13,800,884			13,977,748			13,916,908
Cash dividends declared per share of common stock and common stock equivalents	$	0.16		$	0.64		$	0.64

See accompanying notes to consolidated financial statements.

F-6

LIBERTY TAX, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Operations

Years ended April 30, 2019, 2018, and 2017

(In thousands)

	2019			2018		2017
Net (loss) income	$	(2,156	)	$	135	$	13,013
Unrealized gain on available-for-sale securities, net of taxes of $0, $0, and $345, respectively	—			—		580
Reclassified loss on sale of available-for-sale securities included in income, net of taxes of $0, $0, and $20, respectively	—			—		(30		)
Foreign currency translation adjustment	(527		)	679		(911		)
Unrealized (loss) gain on interest rate swap agreement, net of taxes of ($23), $22, and $16, respectively	(36		)	58		(25		)
Comprehensive (loss) income	$	(2,719	)	$	872	$	12,627

See accompanying notes to consolidated financial statements.

F-7

LIBERTY TAX, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders' Equity

Year ended April 30, 2019

(In thousands)

	Class A				Class B					Special voting preferred stock
	Common stock				Common stock
	Shares		Amount		Shares		Amount			Shares	Amount
Balance at May 1, 2018	12,823		$	128	200		$	2		—	$	—
Exercise of stock options	14		—		—		—			—	—
Vesting of restricted stock	21		—		—		—			—	—
Repurchase of common stock	(9	)	—		—		—			—	—
Converted Class B shares to Class A shares	1,200		12		(200	)	(2		)	—	—
Balance at April 30, 2019	14,049		$	140	—		$	—		—	$	—

	Exchangeable shares					Additional paid-in capital			Accumulated other comprehensive loss, net			Retained earnings
	Shares		Amount												Total
Balance at May 1, 2018	1,000		$	10		$	11,570		$	(1,347	)	$	101,139		$	111,502
Non-cash adjustments due to ASC 606	—		—			—			—			(3,794		)	(3,794		)
Exercise of stock options	—		—			153			—			—			153
Vested restricted stock including tax impact	—		—			(83		)	—			—			(83		)
Cancellation of common stock						(87		)							(87		)
Conversion of preferred stock to common stock	(1,000	)	(10		)	—			—			—			—
Stock-based compensation expense	—		—			999			—			—			999
Net income	—		—			—			—			(2,156		)	(2,156		)
Cash dividends ($0.16 per share)	—		—			—			—			(2,257		)	(2,257		)
Foreign currency translation adjustment	—		—			—			(527		)	—			(527		)
Unrealized loss on interest rate swap agreement, net of taxes	—		—			—			(36		)	—			(36		)
Balance at April 30, 2019	—		$	—		$	12,552		$	(1,910	)	$	92,932		$	103,714

See accompanying notes to consolidated financial statements.

F-8

LIBERTY TAX, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders' Equity

Year ended April 30, 2018

(In thousands)

	Class A			Class B			Special voting preferred stock
	Common stock			Common stock
	Shares	Amount		Shares	Amount		Shares	Amount
Balance at May 1, 2017	12,683	$	127	200	$	2	—	$	—
Exercise of stock options	9	—		—	—		—	—
Vesting of restricted stock	131	1		—	—		—	—
Balance at April 30, 2018	12,823	$	128	200	$	2	—	$	—

	Exchangeable shares			Additional paid-in capital			Accumulated other comprehensive loss, net			Retained earnings
	Shares	Amount											Total
Balance at May 1, 2017	1,000	$	10	$	8,371		$	(2,084	)	$	110,029		$	116,455
Exercise of stock options	—	—		95			—			—			95
Repurchase of common stock	—	—		(576		)	—			—			(575		)
Stock-based compensation expense	—	—		3,680			—			—			3,680
Net income	—	—		—			—			135			135
Cash dividends ($0.64 per share)	—	—		—			—			(9,025		)	(9,025		)
Foreign currency translation adjustment	—	—		—			679			—			679
Unrealized gain on interest rate swap agreement, net of taxes	—	—		—			58			—			58
Balance at April 30, 2018	1,000	$	10	$	11,570		$	(1,347	)	$	101,139		$	111,502

See accompanying notes to consolidated financial statements.

F-9

LIBERTY TAX, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders' Equity

Year ended April 30, 2017

(In thousands)

	Class A				Class B					Special voting preferred stock
	Common stock				Common stock
	Shares		Amount		Shares		Amount			Shares	Amount
Balance at May 1, 2016	11,993		$	120	900		$	9		—	$	—
Shares issued	6		—		—		—			—	—
Repurchase of common stock	(33	)	—		—		—			—	—
Vesting of restricted stock	17		—		—		—
Converted Class B shares to Class A shares	700		7		(700	)	(7		)	—	—
Balance at April 30, 2017	12,683		$	127	200		$	2		—	$	—

	Exchangeable shares			Additional paid-in capital			Accumulated other comprehensive loss, net			Retained earnings
	Shares	Amount											Total
Balance at May 1, 2016	1,000	$	10	$	7,153		$	(1,698	)	$	105,907		$	111,501
Exercise of stock options	—	—		—			—			—			—
Repurchase of common stock	—	—		(420		)	—			—			(420		)
Stock-based compensation expense	—	—		2,016			—			—			2,016
Tax impact of stock option activity	—	—		(378		)	—			—			(378		)
Net income	—	—		—			—			13,013			13,013
Cash dividends ($0.64 per share)	—	—		—			—			(8,891		)	(8,891		)
Foreign currency translation adjustment	—	—		—			(911		)	—			(911		)
Unrealized gain on available-for-sale securities, net of taxes	—	—		—			580			—			580
Reclassified loss on sale of available-for-sale securities included in income, net of taxes	—	—		—			(30		)	—			(30		)
Unrealized loss on interest rate swap agreement, net of taxes	—	—		—			(25		)	—			(25		)
Balance at April 30, 2017	1,000	$	10	$	8,371		$	(2,084	)	$	110,029		$	116,455

See accompanying notes to consolidated financial statements.

F-10

LIBERTY TAX, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended April 30, 2019, 2018, and 2017

(In thousands)

	2019			2018			2017
Cash flows from operating activities:
Net (loss) income	$	(2,156	)	$	135		$	13,013
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Provision for doubtful accounts	8,738			12,396			10,378
Depreciation and amortization	13,631			11,454			8,325
Amortization of deferred financing costs	38			155			526
Impairment of goodwill and other assets	453			2,962			6,031
Other loss (gain) including sale of property, equipment, and software	5,833			5,261			(387		)
Stock-based compensation expense related to equity classified awards	999			3,680			2,016
Loss (gain) on bargain purchases and sales of Company-owned offices	694			(2,401		)	(1,100		)
Gain on sale of available-for-sale securities	—			—			(50		)
Equity in gain of affiliate	(63		)	(71		)	(11		)
Deferred tax expense (benefit)	586			(2,369		)	129
Changes in:
Accounts, notes, and interest receivable and deferred revenue	(913		)	(3,360		)	(10,437		)
Bank products receivable and other assets	(3,487		)	921			125
Accounts payable and accrued expenses	(785		)	1,126			556
Due to ADs	447			(1,446		)	845
Income taxes payable (receivable)	(6,886		)	(798		)	2,487
Net cash provided by operating activities	17,129			27,645			32,446
Cash flows from investing activities:
Issuance of operating loans to franchisees and ADs	(68,283		)	(73,796		)	(94,133		)
Payments received on operating loans to franchisees and ADs	67,556			72,647			89,562
Purchases of Company-owned offices, AD rights, and acquired customer lists	(229		)	(2,926		)	(10,049		)
Proceeds from sale of Company-owned offices and AD rights	1,229			451			1,339
Proceeds from sale of available-for-sale securities	—			—			5,049
Purchases of property, equipment, and software	(2,939		)	(5,388		)	(5,022		)
Net cash used in investing activities	(2,666		)	(9,012		)	(13,254		)
Cash flows from financing activities:
Proceeds from the exercise of stock options	153			95			—
Repurchase of common stock and tax impact of stock compensation	(88		)	1			(420		)
Dividends paid	(2,244		)	(8,922		)	(8,891		)
Repayment of other long term-obligations	(7,502		)	(7,432		)	(1,541		)
Repayment of mortgages and term loan	—			—			(3,740		)
Borrowings under revolving credit facility	123,615			178,251			151,400
Repayments under revolving credit facility	(123,615		)	(178,251		)	(151,400		)
Proceeds from mortgage debt	—			—			2,200
Payment for debt issue costs	—			—			(35		)
Tax impact of stock option activity	—			—			60
Cash paid for taxes on exercises/vesting of stock-based compensation	(83		)	(576		)	—
Net cash used in financing activities	(9,764		)	(16,834		)	(12,367		)
Effect of exchange rate changes on cash, net	(238		)	296			(304		)
Net increase in cash and cash equivalents	4,461			2,095			6,521
Cash and cash equivalents at beginning of year	18,522			16,427			9,906
Cash and cash equivalents at end of year	$	22,983		$	18,522		$	16,427

See accompanying notes to consolidated financial statements.

F-11

LIBERTY TAX, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

Years ended April 30, 2019, 2018, and 2017

(In thousands)

	2019			2018			2017
Cash paid for interest, net of capitalized interest of $29, $443, and $235	$	2,734		$	3,383		$	2,187
Cash paid for taxes, net of refunds	4,031			7,393			5,058
Accrued capitalized software costs included in accounts payable	—			—			55
During the years ended April 30, 2019, 2018, and 2017, the Company acquired certain assets from franchisees, ADs, and third parties as follows:
Fair value of assets purchased	$	2,476		$	12,428		$	29,732
Receivables applied, net of amounts written-off, due ADs and related deferred revenue	(488		)	(6,229		)	(10,465		)
Bargain purchase gains	(225		)	(1,350		)	(809		)
Long-term obligations and accounts payable issued	(1,534		)	(1,923		)	(8,409		)
Cash paid to franchisees, ADs, and third parties	$	229		$	2,926		$	10,049
During the years ended April 30, 2019, 2018, and 2017, the Company sold certain assets to franchisees and ADs as follows:
Book value of assets sold	$	5,641		$	1,127		$	7,555
Gain (loss) on sale - gain (loss) recognized	—			88			(107		)
Gain (loss) on sale - revenue deferred	(1,230		)	18			618
Notes received	(3,182		)	(782		)	(6,727		)
Cash received from franchisees and ADs	$	1,229		$	451		$	1,339

See accompanying notes to consolidated financial statements.

F-12

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

(1) Description of Business and Summary of Significant Accounting Policies

Description of Business

Liberty Tax, Inc. (the "Company"), a Delaware corporation, is a holding company engaged through its subsidiaries as a franchisor and, to a lesser degree, an operator of a system of income tax preparation offices located in the United States of America (the "U.S.") and Canada. The Company's principal operations are conducted through JTH Tax, Inc. (d/b/a Liberty Tax Service), the Company's largest subsidiary. Through this system of income tax preparation offices, the Company also facilitates refund-based tax settlement financial products, such as Refund Transfer products in the U.S. and personal income tax refund discounting in Canada. The Company also offers online tax preparation services.

The Company provides a substantial amount of lending to its franchisees and area developers ("ADs"). The Company allows franchisees and ADs to defer a portion of the franchise fee and AD fee, which are paid over time. The Company also offers its franchisees working capital loans to assist in funding their operations between tax seasons.

Basis of Presentation

The consolidated financial statements include the accounts of Liberty Tax, Inc. and its wholly-owned subsidiaries. Assets and liabilities of the Company's Canadian operations have been translated into U.S. dollars using the exchange rate in effect at the end of the year. Revenues and expenses have been translated using the average exchange rates in effect each month of the year. Foreign exchange transaction gains and losses are recognized when incurred. The Company consolidates any entities in which it has a controlling interest, the usual condition of which is ownership of a majority voting interest. The Company also considers for consolidation an entity in which the Company has certain interest where a controlling financial interest may be achieved through arrangements that do not involve voting interests. Such an entity, known as a variable interest entity ("VIE"), is required to be consolidated by its primary beneficiary. The Company does not possess any ownership interests in franchisee entities; however, the Company may provide financial support to franchisee entities. Because the Company's franchise arrangements provide franchisee entities the power to direct the activities that most significantly impact their economic performance, the Company does not consider itself the primary beneficiary of any such entity that might be a VIE. Based on the results of management's analysis of potential VIEs, the Company has not consolidated any franchisee entities. The Company's maximum exposure to loss resulting from involvement with potential VIEs is attributable to accounts and notes receivables and future lease payments due from franchisees. When the Company does not have a controlling interest in an entity but exerts significant influence over the entity, the Company applies the equity method of accounting. Material intercompany balances and transactions have been eliminated in consolidation.

The audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP"). In the opinion of management, all adjustments necessary for a fair presentation of such financial statements in accordance with GAAP have been recorded.

F-13

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

Office Count

The following table shows the U.S. office activity, the number of processing centers and Canadian offices, and a breakdown of Company-owned and franchised offices for the 2019, 2018, and 2017 tax seasons.

	Tax Season
	2019		2018		2017
U.S. Office Locations:
Permanent Office Locations:
Operated during the prior tax season	3,282		3,710		3,960
Offices opened	56		65		172
Offices closed	(547	)	(493	)	(422	)
Operated during the current tax season	2,791		3,282		3,710
Seasonal Office Locations:
Operated during the prior tax season	24		67		211
Offices opened	1		2		37
Offices closed	(9	)	(45	)	(181	)
Operated during the current tax season	16		24		67
Processing Centers	29		37		46
Total U.S. Office Locations	2,836		3,343		3,823
Canada Office Locations	272		267		254
Total Office Locations	3,108		3,610		4,077
Additional Office Information:
Company-owned offices	140		344		362
Franchised offices	2,968		3,266		3,715
Total office locations	3,108		3,610		4,077

Territory Sales

The Company sold 44, 61, and 73 new territories during fiscal 2019, 2018 and 2017, respectively. New territories include territories sold to new franchisees and additional territories sold to existing franchisees.

Significant Accounting Policies

Cash and Cash Equivalents - The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents are maintained in bank deposit accounts, which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on its cash and cash equivalents balances.

Accounts Receivable - Accounts receivable are recorded at the invoiced amount net of an allowance for doubtful accounts and accrue finance charges at a 12% annual rate, compounded monthly, if unpaid after 30 days. Account balances are charged off against the allowance after all possible means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its accounts receivable.

Notes Receivable - Notes receivable are recorded less unrecognized revenue, net of an allowance for doubtful accounts. Unrecognized revenue relates to the financed portion of franchise fees and AD fees and, in the case of sales of Company-owned offices, the financed portion of gains related to such sales in each case where revenue has not yet been recognized. Interest income is accrued on the unpaid principal balance. The Company puts notes receivable on non-accrual status and provides an

F-14

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

allowance against accrued interest if it is determined the likelihood of collecting substantially all of the note and accrued interest is not probable. Generally, payments received on notes receivable on non-accrual status are applied to the principal note balance until the note is current and then to interest income. Notes are written off against the allowance when all possible means of collection have been exhausted and the potential for recovery is considered remote.

Concentrations of Credit Risk - Financial instruments that could potentially subject the Company to concentrations of credit risk consist of accounts and notes receivable with its franchisees. The Company manages such risk by evaluating the financial position and value of the franchisees as well as obtaining the personal guarantee of the individual franchisees. At April 30, 2019 and 2018, there were no significant concentrations of credit risk associated with any individual franchisee or group of franchisees.

Allowance for Doubtful Accounts - The allowance for doubtful accounts includes the Company's best estimate of the amount of probable credit losses in the Company's existing accounts and notes receivable. Because the repayment of accounts and notes receivable is dependent on the performance of the underlying franchises, management estimates the amount of the allowance for doubtful accounts based on a comparison of amounts due to the estimated fair value of the underlying franchises which collateralize such receivables. Management believes the allowance is adequate to cover the Company's credit loss exposure. If the carrying amount exceeds the fair value, the receivable is considered impaired.

Available-for-sale Securities - From time to time, the Company purchases corporate equity securities that are classified as available-for-sale; changes in fair value of such securities are recognized, net of tax, in accumulated other comprehensive loss in the stockholders' equity section of the balance sheet. Cash flows for the purchase and sale of these investments are classified as investing activities.

Assets Held for Sale - The Company discontinued its use of assets held for sale in the third quarter of fiscal 2019 and all Company-owned offices are classified as held for use and depreciated and amortized as of the acquisition date. Prior to the discontinuation, assets held for sale consist of Company-owned offices that the Company intends to sell to a new or existing franchisee within one year. Assets held for sale are recorded at the lower of the carrying value or the estimated sales price, less costs to sell, and are evaluated for impairment at least annually. If in the opinion of management, the Company will not be able to sell such offices, within two years from their acquisition dates, the carrying amount is reclassified to held for use and a cumulative adjustment is recorded to depreciation and amortization expense.

Property, Equipment, and Software - Property, equipment, and software are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets, generally three to five years for computer equipment, three to seven years for software, five to seven years for furniture and fixtures, and twenty to thirty years for buildings. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful lives of the assets. Certain allowable costs of software developed or obtained for internal use are capitalized and typically amortized over the estimated useful life of the software.

Goodwill - Goodwill represents the excess of costs over fair value of assets of businesses acquired. The reporting unit for the acquisition of assets from various franchisees is considered to be the franchise territory, and these assets are operated as Company-owned offices. Goodwill is not amortized, but instead tested for impairment at least annually. Goodwill is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. The Company performed its annual impairment testing as of April 30, 2019.

Revenue Recognition - The Company earns revenue from the sales of franchises and granting of AD rights. Additionally, the Company earns revenue from royalties and advertising fees and other products and services. Typically, franchise rights are granted to franchisees for a term of five years with an option to renew at no additional cost. In exchange for franchise fees and royalties and advertising fees, the Company is obligated by its franchise agreements to provide training, an operations manual, site selection guidance, tax preparation software, operational assistance, tax and technical support, the ability to perform electronic filing, and marketing and advertising. Franchise fee revenue for the sales of individual territories is recognized as revenue on a straight-line basis over the initial contract term when the obligations of the Company to prepare the franchisee for operation are substantially complete, not to exceed the estimated amount of cash to be received.

AD rights have historically been granted for a term of ten years. The Company changed the term of new AD contracts to six years in fiscal 2015. AD fees are recognized as revenue on a straight-line basis over the initial contract term of each AD agreement with the cumulative amount of revenue recognized not to exceed the estimated amount of cash to be received. Amounts due to ADs for their services under an AD agreement are expensed as the related franchise fees and royalty revenues are recognized.

F-15

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

Royalties and advertising fees are recognized as franchise territories generate sales. Tax return preparation fees and financial products revenue are recognized as revenue in the period the related tax return is filed for the customer. Discounts for promotional programs are recorded at the time the return is filed and are recorded as reductions to revenues.

Interest income on notes receivable is recognized based on the outstanding principal note balance less unrecognized revenue unless it is put on non-accrual status. Interest income on the unrecognized revenue portion of notes receivable is recognized when received. For accounts receivable, interest income is recognized based on the outstanding receivable balance over 30 days old, net of an allowance.

Gains on sales of Company-owned offices are recognized when cash is received. Losses on sales of Company-owned offices are recognized immediately.

Deferred Revenue - Deferred revenue represents the expected amount of cash to be received for AD and franchise fees in excess of the revenue recognized to date.

Derivative Instruments and Hedging Activities - The Company recognizes all derivative instruments as either assets or liabilities in the balance sheet at their respective fair values. For derivatives designated in hedging relationships, changes in fair value are either offset through earnings against the change in fair value of the hedged item attributable to the risk being hedged or recognized in accumulated other comprehensive loss to the extent the derivative is effective at offsetting the changes in cash flows being hedged until the hedged item affects earnings.

The Company only enters into a derivative contract when it intends to designate the contract as a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). For all hedging relationships, the Company formally documents the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the hedged transaction, the nature of the risk being hedged, how the hedging instrument's effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method used to measure ineffectiveness. The Company also formally assesses, both at the inception of the hedging relationship and on an ongoing basis, whether the derivatives that are used in hedging relationships are highly effective in offsetting changes in cash flows of hedged transactions. For derivative instruments that are designated and qualify as part of a cash flow hedging relationship, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

The Company discontinues hedge accounting prospectively when it determines that the derivative is no longer effective in offsetting cash flows attributable to the hedged risk; the derivative expires or is sold, terminated, or exercised; the cash flow hedge is de-designated because a forecasted transaction is not probable of occurring; or management determines to remove the designation of the cash flow hedge.

In all situations in which hedge accounting is discontinued and the derivative remains outstanding, the Company continues to carry the derivative at its fair value on the balance sheet and recognizes any subsequent changes in its fair value in earnings. When it is no longer probable that a forecasted transaction will occur, the Company discontinues hedge accounting and recognizes immediately in earnings gains and losses that were accumulated in other comprehensive loss related to the hedging relationship.

Please see "Note 8 - Derivative Instruments and Hedging Activities" for a description of the cash flow hedge the Company entered into during fiscal 2019.

Deferred Income Taxes - In December 2017, the U.S. enacted the Tax Cuts & Jobs Act, which made significant changes to U.S. federal income tax law, including a reduction of the statutory federal corporate income tax rate from 35.0% to 21.0% and changes or limitations to certain deductions. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities, which are shown on our consolidated balance sheets, are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company has elected to classify interest charged on a tax settlement in interest expense, and accrued penalties, if any, in selling, general, and administrative expenses.

F-16

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

The determination of the Company's provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items.  The Company records unrecognized tax benefit liabilities for known or anticipated tax issues based on an analysis of whether, and the extent to which, additional taxes will be due.

Intangible Assets and Asset Impairment - Amortization of intangible assets is calculated using the straight-line method over the estimated useful lives of the assets, generally from two to ten years. Long-lived assets, such as property, equipment, and software, and other purchased intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. Recognition and measurement of a potential impairment is performed for these assets at the lowest level where cash flows are individually identifiable. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. Assets expected to be sold within one year are no longer depreciated or amortized. These assets are classified as held-for-sale and are presented separately in the appropriate section of the consolidated balance sheets at the lower of their carrying amount or fair value less estimated cost to sell.

Comprehensive Income - Comprehensive income consists of net income, foreign currency translation adjustments, reclassified gain on sale of available-for-sale securities, net of taxes, and the unrealized gains or losses on equity securities available for sale and derivatives determined to be cash flow hedges, net of taxes.

Advertising Expenses - Advertising costs, which consists primarily of direct mail, radio, print media and online advertisements intended to attract new franchisees and customers, are expensed in the period incurred.

Office Closing Costs - Closed office liabilities are provided on the basis of the present value of estimated remaining non-cancellable lease payments, net of estimated subtenant income. The Company estimates the net lease liability using a discount rate to calculate the present value of the remaining net rent payments on closed offices. Closed office lease liabilities are paid over the lease terms associated with the closed offices, which generally have remaining terms ranging from one to seven years.

Stock-Based Compensation - The Company records the cost of its employee stock-based compensation as compensation expense in its consolidated statements of income. Compensation costs related to stock options are based on the grant-date fair value of awards using the Black-Scholes-Merton option pricing model and considering forfeitures. Compensation costs related to restricted stock units are based on the grant-date fair value and are amortized on a straight-line basis over the vesting period. The Company recognizes compensation costs for an award that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award. The Company reflects the excess tax benefits related to stock option exercises as additional paid-in capital on its consolidated balance sheets and as financing cash flows on its consolidated statements of cash flows.

Lease Accounting - The Company leases its store locations under operating leases. The Company recognizes minimum rent expense beginning when possession of the property is taken from the landlord. When a lease contains a predetermined fixed escalation of the minimum rent, the Company recognizes the related rent expense on a straight-line basis and records the difference between the recognized rental expense and the amounts payable under the lease as deferred rent. 

Use of Estimates

Management has made a number of estimates and assumptions related to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period to prepare these consolidated financial statements and accompanying notes in conformity with GAAP. Actual results could differ from those estimates.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. Specifically, the Company reclassified amounts in the consolidated statements of cash flows between the operating activity lines titled "Accounts payable and accrued expenses" and "Bank products receivable and other assets" for fiscal 2018. This reclassification had no impact on the total operating activities balance.

F-17

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842) and subsequent amendments, which replace existing lease accounting guidance in GAAP and require lessees to recognize right-of-use assets and corresponding lease liabilities on the balance for all in-scope leases with a term of greater than 12 months and require disclosure of certain quantitative and qualitative information pertaining to an entity's leasing arrangements. The Company will adopt the requirements of the standard in the first quarter of fiscal 2020, using the optional effective transition method provided by accounting pronouncement, ASU No. 2018-11, "Leases (Topic 842): Targeted Improvements." ASU 2018-11 allows entities to initially apply ASU 2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the Company's reporting for comparative periods presented in the year of adoption will continue to be in according with ASC 840, "Leases (Topic 840)." The Company expects to elect the package of practical expedients permitted under the transition guidance within the new standard, which among other things, permits the Company to carry forward the historical lease classification for leases that commenced before the effective date of the new standard. The Company expects to elect to not separate non-lease components from lease components for all classes of assets except for asset classes related to store leases and certain Information Technology equipment. The Company anticipates electing to adopt the practical expedient to not separate leases and non-lease components when the Company is a lessor. The Company anticipates not electing the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of right-of-use assets. The Company has implemented lease accounting software to facilitate the calculations of the accounting entries and disclosures in accordance with the standard and is finalizing the impact of the standard on its accounting policies, processes, disclosures and internal control over financial reporting. The Company expects to record operating lease liabilities of $8.0 million to $9.0 million, based upon the present value of the remaining minimum rental payment using discount rates as of the effective date of the new standard. The Company expects to record corresponding right-of-use assets of $6.1 million to $7.1 million, based upon the operating lease liabilities adjusted for deferred rent, lease incentives and impairment for lease loss liabilities as of May 1, 2019. The Company expects the adoptions of this standard to have a material effect on its financial statements. The Company is substantially complete with its implementation and believes the most significant effects of this standard will relate to the recognition of additional new right-of-use assets and lease liabilities on its balance sheet.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230)", which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The update is intended to reduce the existing diversity in practice and became effective for the Company beginning with its first quarterly filing in fiscal year 2019. The Company adopted the update for all periods beginning on or after May 1, 2018.

In June 2016, the FASB issued ASU No. 2016-13, "Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which changes how companies will measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The standard replaces the "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost (which generally will result in the earlier recognition of allowances for losses) and requires companies to record allowances for available-for-sale debt securities, rather than reduce the carrying amount. In addition, companies will have to disclose significantly more information, including information used to track credit quality by year of origination, for most financing receivables. The ASU should be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the standard is effective. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein. The ASU is effective for the Company beginning in the first quarter of fiscal year 2021. The Company is currently evaluating the impact of the adoption of this newly issued standard to its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business", which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The ASU became effective for the Company beginning in the first quarter of fiscal year 2019. The Company adopted the update for all periods beginning on or after May 1, 2018, and it did not have a material impact on the Company's current accounting for business combinations.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This new standard eliminates Step 2 from the goodwill impairment test. Instead, an entity should compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by

F-18

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The standard will be effective for the Company in the first quarter of fiscal year 2021. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this newly issued standard to its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, “Revenues from Contracts with Customers(Topic 606)", which amends the guidance in ASC 605, “Revenue Recognition.” The core principle of this new standard is to recognize revenue when control of the promised goods or services is transferred to customers in an amount that reflects the consideration expected to be received for those goods or services. ASC 606 also requires additional disclosures around the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

The adoption of this new standard did not materially impact the Company’s recognition of revenues generated from the following:

• Assisted tax preparation fees, net of discounts, which are recorded at the time the return is filed. The related discounts are recorded as reductions to revenues

• Financial products, which are recorded at the time the return is filed. As a result of ASC 606, refund transfer products and refund-based loans revenues are now recorded net instead of gross.

• Royalties and advertising fees, which are based on a percentage of the franchisees’ sales are recognized at the time the underlying sales occur. The Company has elected to use the right to invoice practical expedient for recognition of minimum royalties.

• Interest income on notes receivable, which is recognized based on the outstanding principal note balance unless it is put on non-accrual status. Interest income on notes receivable that are placed on a non-accrual basis is recognized when cash is received. Interest income on accounts receivable is recognized based on the outstanding receivable balance over 30 days old, net of an allowance.

• Gains on sales of Company-owned offices, which are recognized when cash is received. Losses on sales of Company-owned offices are recognized immediately.

The details of the significant changes in revenue recognition and quantitative impact of the changes are discussed below.

Initial Franchise Fees

Typically, franchise rights are granted to franchisees for an initial term of five years with an option to renew at no additional cost. In exchange for initial franchise fees, royalties and advertising fees, the Company is obligated by its franchise agreements to provide training, an operations manual, site selection guidance, tax preparation software, operational assistance, tax and technical support, the ability to perform electronic filing, and marketing and advertising. Under the previous revenue recognition guidance, revenues from initial franchise fees were recognized when the obligations of the Company to prepare the franchisee for operation were substantially complete, up to the amount of cash received.

Under the new guidance, the standard requires that the transaction price received from customers be allocated to each separate and distinct performance obligation. The transaction price attributable to each separate and distinct performance obligation is then recognized as the performance obligations are satisfied. The services that the Company provides related to the initial franchise fees the Company receives from franchisees do not contain separate and distinct performance obligations from the franchise right. Accordingly, under the new standard, initial franchise fees, as constrained for amounts the Company does not expect to collect, will be recognized over the initial term of the franchise agreement, which is generally five years.

AD Fees

Historically, the rights to develop a new territory were granted to an AD for an initial term of six or ten years with an option to renew at no additional cost. Under the previous revenue recognition guidance, AD fees were recognized as revenue on a straight-line basis over the initial contract term of each AD agreement with the cumulative amount of revenue recognized not

F-19

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

to exceed the amount of cash received. Under the new guidance, the standard requires the Company to recognize AD fees, as constrained for amounts not expected to be collected, over the initial term of the AD agreement.

The Company also sells a developed territory and simultaneously grants the right to operate as the exclusive AD in such developed territory to a new AD for an initial term of six years or ten years. Under the previous revenue recognition guidance, gains on sales of developed territories were recognized as revenues over the initial term, with the cumulative amount of revenues recognized not to exceed the amount of cash received. Losses on sales of developed territories were recognized immediately. Such gains and losses represented the difference between the transaction price and the net book value of the intangible asset recorded upon the Company’s reacquisition of the developed territory as of the date of the sale. Under the new guidance, the transaction price, as constrained for amounts the Company does not expect to collect, is recognized as revenues over the initial term of the AD agreement. The net book value of the intangible asset is charged to operating expenses at the date of the sale.

Electronic Filing Fees

Electronic filing fees are recorded in the period the tax return is electronically filed. Under the previous revenue recognition guidance, the electronic filing fees and the franchisees’ share in such fees were recorded as revenues and expense in the consolidated income statement, respectively. Under the new guidance, the electronic filing fees, net of the franchisees’ share in such fees, will be recorded as revenues in the consolidated statements of operations.

Transition Method

The Company applied the new guidance on all contracts that were not completed as of May 1, 2018 using the modified retrospective method, whereby the cumulative effect of initially adopting the guidance was recognized as an adjustment to the opening balance of retained earnings at May 1, 2018 in the amount of $3.8 million, net of tax, with corresponding increases in deferred revenue and notes receivable. Therefore, the results of operations from the comparative period have not been adjusted and continue to be reported under the previous revenue recognition guidance.

Impacts on the Consolidated Financial Statements

The following tables summarize the impacts of adopting ASC 606 on the Company’s consolidated financial statements as of fiscal 2019:

Consolidated Balance Sheet	As Reported			ASC 606 Adjustment			Balances Without Adoption of ASC 606
	(In thousands)
Notes receivable, current	$	21,097		$	1,416		$	19,681
Allowance for doubtful accounts - current	(11,183		)	703			(11,886		)
Notes receivable, non-current	7,445			(157		)	7,602
Intangible assets, net	19,161			(169		)	19,330
Total assets	160,001			1,793			158,208
Deferred revenue, current	3,679			1,545			2,134
Deferred revenue and other, non-current	5,622			2,589			3,033
Deferred income tax liability	537			(1,369		)	1,906
Total liabilities	56,287			2,765			53,522
Retained earnings	92,932			(972		)	93,904
Total stockholders' equity	103,714			(972		)	104,686
Total liabilities and stockholders’ equity	$	160,001		$	1,793		$	158,208

F-20

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

Consolidated Statement of Operations	As Reported			ASC 606 Adjustment			Balances Without Adoption of ASC 606
	(In thousands)
Franchise fees	$	2,766		$	1,496		$	1,270
Area Developer fees	3,146			1,225			1,921
Financial products	33,478			(5,982		)	39,460
Electronic filing fees	2,675			(15,441		)	18,116
Other revenues	3,965			132			3,833
Total revenues	132,546			(18,570		)	151,116
Selling, general, and administrative expenses	42,038			(21,424		)	63,462
Total operating expenses	133,405			(21,424		)	154,829
Loss from operations	(859		)	2,855			(3,714		)
Loss before income taxes	(3,995		)	2,855			(6,850		)
Income tax benefit	(1,839		)	1,752			(3,591		)
Net loss	$	(2,156	)	$	1,103		$	(3,259	)

There have been no other significant changes in the Company's consolidated balance sheets or statements of operations and cash flows as a result of the adoption of ASC 606.

Contract Balances

The following table provides information about receivables and contract liabilities (deferred revenue) from contracts with customers:

	April 30, 2019		April 30, 2018
	(In thousands)
Notes receivable (a)	$	28,542	$	30,849
Deferred revenue (b)	8,654		5,667

(a) Notes receivable increased by $1.7 million as of May 1, 2018 due to the change in the Company's revenue recognition policy for initial franchise and AD fees upon adoption of ASC 606.

(b) Deferred revenue increased $6.9 million as of May 1, 2018 due to the cumulative effect of adopting ASC 606.

Significant changes in deferred franchise and AD fees are as follows:

	Twelve Months Ended
	April 30, 2019
	(In thousands)
Deferred franchise and AD fees at beginning of period	$	5,667
ASC 606 deferred franchise and AD fees adoption	6,940
Revenue recognized during the period	(5,912		)
New deferrals of franchise and AD fees	1,959
Deferred franchise and AD fees at end of period	$	8,654

Anticipated Future Recognition of Deferred Franchise and AD Fees

The following table reflects the estimated franchise and AD fees expected to be recognized in the future related to performance obligations that are unsatisfied at the end of the period:

F-21

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

	Estimate for Fiscal Year
	(In thousands)
2020	$	3,488
2021	2,568
2022	1,562
2023	750
2024	255
Thereafter	31
Total	$	8,654

The Company has applied the optional exemption, as provided for under ASC 606, which allows the Company not to disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty.

Segment Reporting

Management has identified two operating segments, U.S. operations and Canadian operations. Although there are two operating segments, each segment is engaged in providing tax return preparation and related services and products. These two operating segments, which have similar gross margin and sales trends, have been aggregated into a single reporting segment because both segments are similar in the nature of services offered, production process, type of customer, the distribution methods, and the regulatory environment in which they operate. Canadian operations contributed $7.9 million, $8.1 million, and $7.0 million in revenues for the years ended April 30, 2019, 2018, and 2017, respectively.

(2) Notes and Accounts Receivable

The Company provides select financing to franchisees and ADs for the purchase of franchises, areas and Company-owned offices, and operating loans for working capital and equipment needs. The franchise-related notes generally are payable over five years and the operating loans generally are due within one year. Most notes bear interest at 12%.

Notes and interest receivable, net of unrecognized revenue, as of April 30, 2019 and 2018 are presented in the consolidated balance sheets as follows:

	2019		2018
	(In thousands)
Notes receivable - current	$	21,097	$	24,295
Notes receivable - non-current	7,445		6,554
Interest receivable, net of uncollectible amounts	1,718		1,526
Total notes and interest receivable, net of unrecognized revenue	$	30,260	$	32,375

Most of the notes receivable are due from the Company's franchisees and ADs and are collateralized by the underlying franchise and, when the franchise or AD is an entity, are guaranteed by the owners of the respective entity. The debtors' ability to repay the notes is dependent upon both the performance of the tax preparation industry as a whole and the individual franchisees' or ADs' areas.

The table above does not include unrecognized revenue. Unrecognized revenue relates to the portion of franchise fees and AD fees that the Company has not yet recognized, in the case of sales of Company-owned offices, the financed portion of gains related to these sales in each case where revenue has not yet been recognized. For gains related to the sale of Company-owned offices, revenue is recorded as note payments are received by the Company. The Company evaluates the amount it anticipates to collect for AD and franchise fees on a periodic basis. In fiscal 2015 the Company changed the term of new AD contracts to six years from ten years and the revenue for these contracts will be recognized over that period. Unrecognized revenue was $6.6 million and $12.5 million at April 30, 2019 and 2018, respectively.

F-22

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

Allowance for Doubtful Accounts

The adequacy of the allowance for doubtful accounts is assessed on a quarterly basis and adjusted as deemed necessary. Management believes the recorded allowance is adequate based upon its consideration of the estimated value of the franchises and AD areas, which collateralize the receivables. Any adverse change in the tax preparation industry or the individual franchisees' or ADs' areas could affect the Company's estimate of the allowance.

Activity in the allowance for doubtful accounts for the years ended April 30, 2019, 2018, and 2017 was as follows.

	2019			2018			2017
	(In thousands)
Balance at beginning of year	$	12,487		$	12,020		$	8,850
Provision for doubtful accounts	8,738			12,396			10,378
Write-offs	(9,322		)	(12,024		)	(7,119		)
Foreign currency adjustment	(87		)	95			(89		)
Balance at end of year	$	11,816		$	12,487		$	12,020

Management considers specific accounts and notes receivable to be impaired if the net amounts due exceed the fair value of the underlying franchise at the time of the annual valuation and estimates an allowance for doubtful accounts based on that excess. In establishing the fair value of the underlying franchise, management considers a variety of factors including recent sales of Company-owned stores, recent sales between franchisees, net fees of open offices earned during the most recently completed tax season, and the number of unopened offices. While not specifically identifiable as of the balance sheet date, the Company's experience also indicates that a portion of other accounts and notes receivable are also impaired and therefore reserved, because management does not expect to collect all principal and interest due under the current contractual terms. Net amounts due include contractually obligated accounts and notes receivable plus accrued interest, net of unrecognized revenue, reduced by the allowance for uncollected interest, amounts due to ADs, related deferred revenue, and amounts owed to the franchisee by the Company.

F-23

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

The allowance for doubtful accounts at April 30, 2019 and 2018 was allocated as follows.

	2019			2018
	(In thousands)
Impaired:
Accounts receivable	$	13,326		$	13,891
Notes and interest receivable, net of unrecognized revenue	8,385			11,654
Less amounts due to ADs and franchisees	(1,616		)	(1,907		)
Amounts receivable less amounts due to ADs and franchisees	$	20,095		$	23,638
Allowance for doubtful accounts for impaired accounts and notes receivable	$	9,004		$	10,322
Non-impaired:
Accounts receivable	$	33,685		$	38,626
Notes and interest receivable, net of unrecognized revenue	21,875			20,721
Less amounts due to ADs and franchisees	(15,856		)	(11,722		)
Amounts receivable less amounts due to ADs and franchisees	$	39,704		$	47,625
Allowance for doubtful accounts for non-impaired accounts and notes receivable	$	2,812		$	2,165
Total:
Accounts receivable	$	47,011		$	52,517
Notes and interest receivable, net of unrecognized revenue	30,260			32,375
Less amounts due to ADs and franchisees	(17,472		)	(13,629		)
Amounts receivable less amounts due to ADs and franchisees	$	59,799		$	71,263
Total allowance for doubtful accounts	$	11,816		$	12,487

The Company's average investment in impaired notes receivable during the fiscal years ended April 30, 2019, 2018, and 2017 was $10.0 million, $13.2 million, and $11.3 million, respectively. Interest income recognized related to performing impaired notes was $0.5 million, $5.7 million, and $1.2 million for the fiscal years ended April 30, 2019, 2018, and 2017, respectively.

F-24

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

Analysis of Past Due Receivables

The breakdown of accounts and notes receivable past due at April 30, 2019 and 2018 was as follows.

	2019
	Past due		Current		Interest receivable, net		Total receivables
	(In thousands)
Accounts receivable	$	20,787	$	26,224	$	—	$	47,011
Notes and interest receivable, net	15,561		12,981		1,718		30,260
Total accounts, notes, and interest receivable, net	$	36,348	$	39,205	$	1,718	$	77,271

	2018
	Past due		Current		Interest receivable, net		Total receivables
	(In thousands)
Accounts receivable	$	24,477	$	28,040	$	—	$	52,517
Notes and interest receivable, net	13,647		17,202		1,526		32,375
Total accounts, notes, and interest receivable, net	$	38,124	$	45,242	$	1,526	$	84,892

Accounts receivable are considered to be past due if unpaid 30 days after billing and notes receivable are considered past due if unpaid 90 days after due date. If it is determined the likelihood of collecting substantially all of the note and accrued interest is not probable the notes are put on non-accrual status. The Company's investment in notes receivable on nonaccrual status at April 30, 2019 and 2018 was $15.6 million and $13.6 million, respectively. Payments received on notes in nonaccrual status are applied to the principal note balance until the note is current and then to interest income. Nonaccrual notes that are paid current are moved back into accrual status during the next annual review.

(3) Restructuring Expense

In fiscal 2018, the Company began restructuring initiatives involving a review of Company-owned stores and service providers to improve the Company's overall long-term profitability. The Company incurred approximately $9.3 million and $5.0 million of expenses for the fiscal years ended April 30, 2019 and 2018 related to these initiatives. The expenses incurred are presented in the restructuring expense line item in the accompanying consolidated statements of income. The restructuring initiatives were completed in October 2018. The composition of the restructuring expenses incurred for the fiscal years ended April 30, 2019 and 2018 were as follows:

	2019
Expense	Cash		Accrued Expenses		Non-cash		Total Expense
	(In thousands)
Contract termination costs - maintenance	$	37	$	—	$	—	$	37
Property and intangible impairments and exit costs	2,282		1,467		5,559		9,308
Total	$	2,319	$	1,467	$	5,559	$	9,345

F-25

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

	2018
Expense	Cash		Accrued Expenses		Non-cash		Total Expense
	(In thousands)
Contract termination costs - maintenance	$	715	$	1,359	$	—	$	2,074
Contract termination costs - impairment	—		—		549		549
Property and intangible impairments and exit costs	254		—		1,866		2,120
Employee termination costs	209		—		—		209
Total	$	1,178	$	1,359	$	2,415	$	4,952

The property and intangible impairments and exit costs, which were primarily recorded in assets held for sale, were comprised of expenses related to lease obligations and non-cash charges associated with intangible write-downs. The accrued restructuring expenses of $1.5 million for fiscal year 2019 are included in "Accounts payable and accrued expenses" in the accompanying consolidated balance sheets. The accrued restructuring expenses of $1.4 million for fiscal year 2018 were related to maintenance contract termination costs of which $0.7 million was included in "Accounts payable and accrued expenses" and $0.7 million was included in "Deferred revenue and other - non-current" lines in the accompanying consolidated balance sheets.

A summary of the activity in accrued expenses related to restructuring initiatives for the fiscal years ended April 30, 2019 and 2018 is as follows:

	2019
	Contract termination costs			Property and intangible impairments and exit costs			Total accrued expenses
	(In thousands)
Balance at beginning of period	$	1,359		$	—		$	1,359
Additions accrued against the liability	—			3,749			3,749
Cash payments	(669		)	(2,282		)	(2,951		)
Balance at end of period	$	690		1,467			$	2,157

	2018
	Contract termination costs			Property and intangible impairments and exit costs		Total accrued expenses
	(In thousands)
Balance at beginning of period	$	—		$	—	$	—
Additions accrued against the liability	2,074			—		2,074
Cash payments	(715		)	—		(715		)
Balance at end of period	$	1,359		—		$	1,359

F-26

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

(4) Property, Equipment, and Software, Net

Property, equipment, and software at April 30, 2019 and 2018 was as follows:

	2019		2018
	(In thousands)
Land and land improvements	$	1,413	$	1,464
Buildings and building improvements	8,206		8,142
Leasehold improvements	120		124
Furniture, fixtures, and equipment	5,656		6,171
Software	56,554		54,274
Capital lease asset	45		—
Property, equipment, and software, gross	71,994		70,175
Less accumulated depreciation and amortization	39,318		31,539
Property, equipment, and software, net	$	32,676	$	38,636

The software included above includes both internally developed software and purchased software. Included in software are $0.1 million and $0.1 million of assets that had not been placed into service at April 30, 2019 and 2018, respectively.

Total depreciation and amortization expense on property, equipment, and software was $8.4 million, $5.6 million, and $4.2 million for the years ended April 30, 2019, 2018, and 2017, respectively.

The Company is obligated under various operating leases for office space that expire at various dates. At April 30, 2019, future minimum lease payments under non-cancelable operating leases with initial or remaining lease terms in excess of one year, together with amounts due from franchisees under subleases, were as follows:

	Lease payments		Sublease receipts
	(In thousands)
Year ending April 30:
2020	$	5,164	$	1,593
2021	2,387		673
2022	1,166		320
2023	352		180
2024	32		24
Thereafter	51		77
Total minimum lease payments	$	9,152	$	2,867

Total rent expense for operating leases, net of subleases, was $3.9 million, $8.4 million, and $7.7 million for the years ended April 30, 2019, 2018, and 2017, respectively.

F-27

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

(5) Goodwill and Intangible Assets

Changes in the carrying amount of goodwill for the years ended April 30, 2019 and 2018 were as follows:

	2019			2018
	(In thousands)
Balance at beginning of year	$	8,640		$	8,576
Acquisitions of assets from franchisees and third parties	370			1,846
Disposals and foreign currency changes, net	(5,042		)	(641		)
Impairments	(353		)	(109		)
Purchase price reallocation	—			(1,032		)
Transfers	2,951			—
Balance at end of year	$	6,566		$	8,640

The Company performed its annual impairment review of goodwill and recorded impairment of $0.4 million and $0.1 million for the years ended April 30, 2019 and 2018, respectively.

The impairment recorded above was determined using the fair value of the underlying franchise, and where appropriate a discounted cash flow model, and is included in the depreciation, amortization and impairment charges in the accompanying consolidated statements of income.

Components of amortizable intangible assets as of April 30, 2019 and 2018 were as follows:

	April 30, 2019
	Weighted average amortization period	Gross carrying amount		Accumulated amortization			Net carrying amount
	(In thousands)
Customer lists acquired from unrelated third parties	5 years	$	1,027	$	(1,027	)	$	—
Tradenames	3 years	108		(52		)	56
Assets acquired from franchisees:
Customer lists	4 years	2,015		(1,288		)	727
Reacquired rights	2 years	1,660		(1,380		)	280
AD rights	9 years	32,271		(14,173		)	18,098
Total intangible assets		$	37,081	$	(17,920	)	$	19,161

	April 30, 2018
	Weighted average amortization period	Gross carrying amount		Accumulated amortization			Net carrying amount
	(In thousands)
Customer lists acquired from unrelated third parties	5 years	$	3,187	$	(1,555	)	$	1,632
Tradenames	3 years	431		(172		)	259
Non-compete agreements	2 years	241		(145		)	96
Assets acquired from franchisees:
Customer lists	4 years	1,842		(1,427		)	415
Reacquired rights	2 years	1,436		(1,393		)	43
AD rights	9 years	30,907		(10,515		)	20,392
Total intangible assets		$	38,044	$	(15,207	)	$	22,837

For the years ended April 30, 2019 and 2018 the Company recorded intangible assets of $0.6 million, and $0.3 million, respectively, from acquisitions of various franchises and third parties. During fiscal 2019, assets acquired from franchisees and third parties were recorded as intangible assets. During fiscal 2018, the majority of assets acquired in the U.S. were recorded as

F-28

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

assets held for sale, while assets acquired in Canada were recorded as intangible assets. All franchise acquisitions were accounted for as business combinations.

The purchase price of assets acquired from franchisees and third parties and recorded as customer lists, reacquired rights, and goodwill and held for use during fiscal 2019 and 2018, was allocated as follows.

	2019		2018
	(In thousands)
Customer lists	$	143	$	65
Reacquired rights	119		52
Goodwill	370		119
Purchase price of assets acquired from franchisees	$	632	$	236

During the years ended April 30, 2019 and 2018, an impairment analysis was performed for amortizable intangible assets. Write-downs of assets acquired from franchisees relate to Company-owned offices that were subsequently closed and impairment of the fair value of existing assets of Company-owned offices. As a result, the carrying values of assets acquired from franchisees were reduced by $0.4 million, $0.1 million and $0.1 million for the fiscal years ended April 30, 2019, 2018, and 2017, respectively. These amounts were included in depreciation, amortization and impairment charges, in the accompanying consolidated statements of income. The Company estimated the fair value of assets associated with Company-owned offices based on various models.

For the years ended April 30, 2019, 2018, and 2017, amortization expense was $5.2 million, $5.7 million, and $4.1 million, respectively. Annual amortization expense for the next five years is estimated to be as follows:

Year ending April 30:	(In thousands)
2020	$	3,698
2021	3,352
2022	3,070
2023	2,658
2024	2,170
Thereafter	4,213
Total estimated amortization expense	$	19,161

During fiscal 2019, the Company sold the assets of six unrelated offices of smaller regional or local accounting firms for $3.5 million of which $1.4 million is contingent and recorded a loss on sale of $1.3 million. These offices performed year-round accounting services. The following table summarizes the assets that were sold as of April 30, 2019.

	April 30, 2019
	(In thousands)
Accounts receivable	$	(139	)
Property, equipment and software, net	154
Customer lists	1,201
Tradenames	169
Non-compete agreements	21
Goodwill	3,461
Total asset value	$	4,867

F-29

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

(6) Assets Held for Sale

In the third quarter of fiscal 2019, the Company reclassified all assets associated with its U.S. Company-owned offices from assets held for sale to reacquired rights, customer lists, and goodwill. Amortization expense was recorded on a cumulative basis for reacquired rights and customer lists. Prior to the third quarter of fiscal 2019, assets acquired from U.S. franchisees were classified as assets held for sale. During fiscal 2019, the Company acquired $0.9 million in assets from U.S. franchisees and third parties that were first accounted for as business combinations, comprised of customer lists and reacquired rights of $0.5 million and goodwill of $0.4 million which are recorded as assets held for sale. During fiscal 2018, the Company acquired $7.1 million in assets from U.S. franchisees and third parties that were first accounted for as business combinations, with the value allocated to customer lists and reacquired rights of $3.6 million and goodwill of $3.5 million prior to being recorded as assets held for sale. The acquired businesses are operated as Company-owned offices until a buyer is located and a new franchise agreement is entered into. During fiscal 2019, the Company sold, terminated, or impaired $4.9 million in assets from U.S. franchisees, of which $3.7 million was included in the Company's restructuring initiative.

Changes in the carrying amounts of assets held for sale for the fiscal years ended April 30, 2019 and 2018 were as follows:

	2019			2018
	(In thousands)
Balance at beginning of year	$	8,941		$	11,989
Reacquired and acquired from third parties	945			7,102
Sold or terminated, and impairments	(4,886		)	(6,640		)
Reclassification to reacquired rights, customer lists, and goodwill	(5,000		)	(3,510		)
Balance at end of year	$	—		$	8,941

During fiscal 2018, the Company reviewed assets held for sale for assets that were deemed unlikely to be sold in the next 12 months. Assets totaling $3.5 million, comprised of $1.0 million of customer lists, $0.8 million of reacquired rights and $1.7 million of goodwill, were identified and transferred to assets held for use. Amortization expense was recorded on a cumulative basis for customer lists and reacquired rights for $0.8 million and less than $0.1 million, respectively.

(7) Long-Term Obligations

The Company's previous credit agreement that expired on April 30, 2019, consisted of a term loan with original principal of $21.2 million and a revolving credit facility that allowed borrowing of up to $170.0 million with an accordion feature that permitted the Company to request an increase in availability of up to an additional $50.0 million. Outstanding borrowings accrued interest, which was paid monthly, at a rate of the one-month London Interbank Offered Rate ("LIBOR") plus a margin ranging from 1.50% to 2.25% depending on the Company's leverage ratio. At April 30, 2019 and 2018, the interest rate was 4.25% and 3.64%, respectively, and the average interest rate paid during the fiscal year ended April 30, 2019 was 3.97%. A commitment fee was paid monthly that varied from 0.25% to 0.50% depending on the Company's leverage ratio on the unused portion of the credit facility. The indebtedness was collateralized by substantially all the assets of the Company and both loans matured on April 30, 2019. (except as to the commitments of one smaller lender under the revolving credit facility, which matured on September 30, 2017).

The credit facility contained certain financial covenants that the Company was required to meet, including leverage and fixed-charge coverage ratios as well as minimum net worth requirements. In addition, the Company was required to reduce the outstanding balance under its revolving loan to zero for a period of at least 45 consecutive days each fiscal year. At April 30, 2019 and 2018, the Company had no outstanding borrowings under its revolving credit facility.

F-30

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

Debt at April 30, 2019 and 2018 was as follows:

	2019		2018
	(In thousands)
Term loan payable in quarterly principal installments of 3.13% of the original amount borrowed for the year ended April 30, 2019, respectively; on April 30, 2019 a balloon payment of $11,958 was payable. The Company received a waiver to allow payment of the balance on May 1, 2019.	$	11,958	$	14,855
Mortgage note payable to a bank in monthly installments ranging from $10 to $14 including interest at LIBOR plus 1.85%, which was 4.34% at April 30, 2019, through December 1, 2026; at that time a balloon payment of $779 is payable; subject to a prepayment penalty; collateralized by land and building.	1,912		2,038
Amounts due to former ADs, franchisees and third parties at zero percent interest; due May 2019 through May 2022.	1,133		3,490
Other	45		—
Total long-term obligations	15,048		20,383
Less current installments	13,108		18,113
Total long-term obligations, excluding current installments, net	$	1,940	$	2,270

On May 16, 2019, the Company entered into a new Credit Agreement (the "Credit Agreement") that provides for a $135.0 million senior revolving credit facility (the "Revolving Credit Facility"), with a $10.0 million sub-facility for the issuance of letters of credit, and a $20.0 million swingline loan sub-facility. The Company’s obligations under the Credit Agreement are guaranteed by each of the Company’s direct and indirect domestic wholly-owned subsidiaries. None of the Company’s direct or indirect foreign subsidiaries has guaranteed the Revolving Credit Facility. The Company’s obligations under the Credit Agreement are secured by substantially all of the assets (other than existing real property) of Liberty Tax and each guarantor (including all or a portion of the equity interests in certain of the Company’s domestic and foreign subsidiaries). The Credit Agreement replaces the Company’s prior credit facility.

The Revolving Credit Facility will mature on May 31, 2020. Borrowings under the Revolving Credit Facility will, at the option of the Company, bear interest at either (i) a rate per annum based on LIBOR for an interest period of one, two, three or six months, plus an applicable interest rate margin determined as provided in the Credit Agreement (a “LIBOR Loan”), or (ii) an alternative base rate plus an applicable interest rate margin, each as determined as provided in the Credit Agreement (an “ABR Loan”). The applicable interest rate margin varies from 3.0% per annum to 4.0% per annum for LIBOR Loans, and from 2.0% per annum to 3.0% per annum for ABR Loans, in each case depending on the Company’s consolidated leverage ratio, and is determined in accordance with a pricing grid set forth in the Credit Agreement (the “Pricing Grid”). Interest on LIBOR Loans is payable in arrears at the end of each applicable interest period, and interest on ABR Loans is payable in arrears at the end of each calendar quarter. There are no prepayment penalties in the event the Company elects to prepay and terminate the Revolving Credit Facility prior to its scheduled maturity date, subject to LIBOR breakage and redeployment costs in certain limited circumstances. The Company agrees in the Credit Agreement to pay a fee on the average daily unused amount of the Revolving Credit Facility during the term thereof. Such unused fee is payable in arrears at the end of each calendar quarter and accrues at a rate which varies from 0.25% to 0.5% depending on the Company’s consolidated leverage ratio, as determined in accordance with the Pricing Grid. The Company also agrees to pay (x) a fee for each outstanding letter of credit at a rate per annum equal to the applicable interest rate margin for LIBOR Loans, as determined in accordance with the Pricing Grid, multiplied by the average daily amount available to be drawn under such letter of credit, and (y) to the letter-of-credit issuer, a fronting fee which shall accrue at a rate of 0.125% per annum on the average daily amount of the outstanding aggregate letter-of-credit obligations under the Credit Agreement.

The Credit Agreement includes customary affirmative, negative, and financial covenants binding on the Company, including delivery of financial statements and other reports and maintenance of existence. The financial covenants set forth in the Credit Agreement include a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio, each of which will be tested at the end of each fiscal quarter of the Company, and a minimum consolidated net worth ratio tested at the end of each fiscal year of the Company. The Credit Agreement provides that, for a period of 30 consecutive days after May 16, 2019, our outstanding obligations under the Credit Agreement will not exceed $12.5 million. Additionally, from April 30, 2020 until the maturity date, our outstanding obligations due will be $0. In addition, the Credit Agreement includes customary events of default. The Company was in compliance with all covenants of the Credit Agreement as of April 30, 2019 if the Credit Agreement had been in effect at such time.

F-31

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

On May 16, 2019, the Company also entered into a Subordinated Note (the “Subordinated Note”) payable to Vintage Capital Management LLC (“Vintage”). The aggregate principal amount of all loans to be made by Vintage under the Subordinated Note shall not exceed $10.0 million. Any indebtedness owed to Vintage under the Subordinated Note is subordinate to and subject in right and time of payment to the Revolving Credit Facility. The Company has not made any borrowings under the Subordinated Note at this time. The Subordinated Note will mature on August 31, 2020. Interest will accrue on the unpaid principal amount of the Subordinated Note outstanding from time to time at a rate per annum based on LIBOR for an interest period of one month, plus 4.0%. The Company also agrees in the Subordinated Note to pay Vintage a commitment fee, at a rate per annum equal to 0.50%, on the average daily amount in each month by which the stated amount of the Subordinated Note exceeds the aggregate amount of loans made thereunder and not repaid. Such accrued interest and commitment fee are payable in kind (rather than in cash or other consideration), quarterly in arrears, by being added to the outstanding principal balance of the Subordinated Note, with such amounts bearing interest thereafter in the same manner as the unpaid principal amount of the Subordinated Note.

Aggregate maturities of long-term debt at April 30, 2019 were as follows:

Year ending April 30:	(In thousands)
2020	$	13,108
2021	194
2022	199
2023	189
2024	151
Thereafter	1,207
Total long-term debt	$	15,048

(8) Derivative Instruments and Hedging Activities

From time to time, the Company uses interest-rate-related derivative financial instruments to manage its exposure related to changes in interest rates on its variable-rate line of credit and forward contracts to manage its exposure to foreign currency fluctuation related to short-term advances made to its Canadian subsidiary. The Company does not speculate using derivative instruments nor does it enter into derivative instruments for any purpose other than cash flow hedging.

By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company money, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty money, and therefore, the Company is not exposed to the counterparty's credit risk in those circumstances. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with high-quality counterparties. The derivative instruments entered into by the Company do not contain credit-risk-related contingent features.

Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. The market risk associated with interest rates is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.

The Company assesses interest rate risk by continually identifying and monitoring changes in interest rates that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company maintains risk management control systems to monitor interest rate risk attributable to both the Company's outstanding or forecasted debt obligations and forecasted revenues as well as the Company's offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates and foreign currency rates on the Company's future cash flows.

Interest rate swap agreements. In December 2016, in connection with obtaining a mortgage payable to a bank, the Company entered into an interest rate swap agreement, with a notional amount of $2.2 million, equal to the mortgage amount, which allows it to manage fluctuations in cash flow resulting from changes in the interest rate on the mortgage. This swap effectively changes the variable-rate of the Company's mortgage into a fixed rate of 4.12%.The Company has designated this

F-32

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

swap agreement as a cash flow hedge. At April 30, 2019, the fair value of the interest rate swap is less than $0.1 million and is included in "Accounts payable and accrued expenses" on the accompanying consolidated balance sheets. The interest rate swap expires in December 2026.

Forward contracts related to foreign currency exchange rates. In connection with short-term advances made to its Canadian subsidiary related to personal income tax refund discounting, the Company entered into forward contracts to eliminate the exposure related to foreign currency fluctuations. Under the terms of the forward currency contracts, the exchange rate for repayments is fixed at the time advance is made and the advances are repaid prior to April 30 of each year. These forward contracts are designated as cash flow hedges. At April 30, 2019 and 2018, there were no remaining forward contracts outstanding. During the years ended April 30, 2019, 2018, and 2017, these foreign currency hedges were effective and, therefore, no amounts were recognized in the consolidated statements of income.

At April 30, 2019, there were no deferred gains related to forward contracts for foreign currency exchange rates accumulated in other comprehensive income.

(9) Stockholders' Equity

In July 2018, the holder of the Company's Class B common stock entered into a stock purchase agreement to sell all of his outstanding shares of the Company's Class A common stock and Class B common stock owned directly and indirectly by him. In connection with the sale, the shares of the Company’s Class B common stock converted into shares of the Company’s Class A common stock on a one-for-one basis and for no additional consideration. As of April 30, 2019, no shares of the Company’s Class B common stock remained outstanding. In addition, the sole holder of the Company’s exchangeable shares elected to exchange all of the exchangeable shares held by it for shares of the Company’s Class A common stock on a one-for-one basis and for no additional consideration. In connection with such exchange, the Company redeemed all ten of its outstanding shares of special voting preferred stock for a price of $1.00 per share. In December 2018, the Company's stockholders approved the Company’s Second Amended and Restated Certificate of Incorporation, which among other things, eliminated the Company's dual class structure. The Company currently has only one class of common stock outstanding. As of April 30, 2019, no shares of the Company’s exchangeable shares or special voting preferred stock remained outstanding or authorized to issue.

Preferred Stock

The Company has 3,000,000 shares of authorized preferred stock with a par value of $0.01, of which none were issued and outstanding at April 30, 2019 and 2018. The Company no longer has any shares of special voting preferred stock authorized, issued and outstanding at April 30, 2019.

Common Stock

The Company is authorized to issue 22,000,000 shares of common stock, par value $0.01 per share. Common stock holders are entitled to one vote for each share of common stock owned.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss at April 30, 2019 and 2018 are as follows.

	2019			2018
	(In thousands)
Foreign currency adjustment	$	(1,908	)	$	(1,381	)
Interest rate swap agreements, net of tax	(2		)	34
Total accumulated other comprehensive loss	$	(1,910	)	$	(1,347	)

Net Income (loss) per Share

Prior to fiscal 2019, due to the Company having Class A and Class B common stock, net income (loss) per share was computed using the two-class method. Basic net income (loss) per share is computed by allocating undistributed earnings to common shares and participating securities (Class A preferred stock and exchangeable shares) and using the weighted-average

F-33

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

number of common shares outstanding during the period. Undistributed losses are not allocated to participating securities because they do not meet the required criteria for such allocation.

Diluted net income (loss) per share is computed using the weighted-average number of common shares and, if dilutive, the potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and vesting of restricted stock units. The dilutive effect of outstanding stock options and restricted stock units is reflected in dilutive earnings per share by application of the treasury stock method. Additionally, the computation of diluted net income (loss) per share of Class A common stock assumes the conversion of Class B common stock and exchangeable shares, if dilutive, while the diluted net income per share of Class B common stock does not assume conversion of those shares.

The rights, including liquidation and dividend rights, of the holders of Class A and Class B common stock are identical, with the exception of the election of directors. As a result, the undistributed earnings for each year are allocated based on the contractual participation rights of the Class A and Class B common stock as if the earnings for the year had been distributed. Participating securities have dividend rights that are identical to Class A and Class B common stock.

The computation of basic and diluted net income per share for the years ended April 30, 2019, 2018, and 2017 is as follows.

	2019
	Common stock
	(In thousands, except for share and per share amounts)
Basic net loss per share:
Numerator:
Allocation of undistributed loss	$	(2,156	)
Net loss attributable to common stockholders	$	(2,156	)
Denominator:
Weighted-average common shares outstanding	13,800,884
Basic and diluted net loss per share	$	(0.16	)

F-34

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

	2018
	Class A common stock			Class B common stock
	(In thousands, except for share and per share amounts)
Basic net income per share:
Numerator:
Allocation of undistributed earnings	$	133		$	2
Amounts allocated to participating securities:
Exchangeable shares	(10		)	—
Net income attributable to common stockholders	$	123		$	2
Denominator:
Weighted-average common shares outstanding	12,728,762			200,000
Basic net income per share	$	0.01		$	0.01
Diluted net income per share:
Numerator:
Allocation of undistributed earnings for basic computation	$	123		$	2
Reallocation of undistributed earnings as a result of assumed conversion of:
Class B common stock to Class A common stock	2			—
Exchangeable shares to Class A common stock	10			—
Net income attributable to stockholders	$	135		$	2
Denominator:
Number of shares used in basic computation	12,728,762			200,000
Weighted-average effect of dilutive securities:
Class B common stock to Class A common stock	200,000			—
Exchangeable shares to Class A common stock	1,000,000			—
Employee stock options and restricted stock units	48,986			703
Weighted-average diluted shares outstanding	13,977,748			200,703
Diluted net income per share	$	0.01		$	0.01

F-35

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

	2017
	Class A common stock			Class B common stock
	(In thousands, except for share and per share amounts)
Basic net income per share:
Numerator:
Allocation of undistributed earnings	$	12,745		$	268
Amounts allocated to participating securities:
Exchangeable shares	(917		)	(19		)
Net income attributable to common stockholders	$	11,828		$	249
Denominator:
Weighted-average common shares outstanding	12,630,356			265,205
Basic net income per share	$	0.94		$	0.94
Diluted net income per share:
Numerator:
Allocation of undistributed earnings for basic computation	$	11,828		$	249
Reallocation of undistributed earnings as a result of assumed conversion of:
Class B common stock to Class A common stock	249			—
Exchangeable shares to Class A common stock	936			—
Net income attributable to stockholders	$	13,013		$	249
Denominator:
Number of shares used in basic computation	12,630,356			265,205
Weighted-average effect of dilutive securities:
Class B common stock to Class A common stock	265,205			—
Exchangeable shares to Class A common stock	1,000,000			—
Employee stock options and restricted stock units	21,347			407
Weighted-average diluted shares outstanding	13,916,908			265,612
Diluted net income per share	$	0.94		$	0.94

Diluted net income per share excludes the impact of shares of potential common stock from the exercise of options and vesting of restricted stock units to purchase 524,649, 1,213,252 and 1,320,162 shares for the years ended April 30, 2019, 2018, and 2017, respectively, because the effect would be anti-dilutive.

(10) Stock Compensation Plan

Stock Options

In August 2011, the Board of Directors approved the JTH Holding, Inc. 2011 Equity and Cash Incentive Plan. Employees and outside directors are eligible to receive awards and a total of 2,500,000 shares of Class A common stock were authorized for grant under the plan. At April 30, 2019, 1,442,641 shares of Class A common stock remained available for grant.

F-36

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

The following table summarizes the information for options granted in the years ended April 30, 2019, 2018, and 2017.

	2019	2018	2017
Weighted-average fair value of options granted	$2.18	$3.16	$2.45
Dividend yield	5.3% - 7.2%	4.5% - 5.9%	5.0% - 6.1%
Expected volatility	38.3% - 44.7%	36.8% - 51.3%	32.8% - 35.4%
Expected terms	5 - 6 years	5 - 6 years	5 - 6 years
Risk-free interest rates	2.7% - 2.8%	1.9% - 2.1%	1.2% - 2.1%

Stock option activity during the years ended April 30, 2019, 2018, and 2017 was as follows:

	Number of options		Weighted average exercise price
Outstanding at April 30, 2016	1,264,562		$	19.77
Granted	512,119		12.61
Forfeited or expired	(389,350	)	16.59
Outstanding at April 30, 2017	1,387,331		18.02
Granted	272,502		13.25
Exercised	(9,000	)	10.51
Forfeited or expired	(1,178,330	)	17.22
Outstanding at April 30, 2018	472,503		17.41
Granted	704,514		10.20
Exercised	(14,069	)	10.90
Forfeited or expired	(366,704	)	17.99
Outstanding at April 30, 2019	796,244		$	10.88

Intrinsic value is defined as the fair value of the stock less the cost to exercise. The total intrinsic value of options exercised in fiscal 2019 and 2018 was less than $0.1 million. The total intrinsic value of options exercised was $0.0 million during the year ended April 30, 2017. The total intrinsic value of stock options outstanding at April 30, 2019 was less than $0.1 million. Stock options vest from the date of grant to five years after the date of grant and expire from four to seven years after the vesting date.

Nonvested stock options (options that had not vested in the period reported) activity during the years ended April 30, 2019, 2018, and 2017 was as follows:

	Nonvested options		Weighted average exercise price
Outstanding at April 30, 2016	389,053		$	24.76
Granted	512,119		12.61
Vested	(223,054	)	23.88
Outstanding at April 30, 2017	678,118		15.88
Granted	272,502		13.25
Vested	(563,118	)	14.61
Forfeited	(120,069	)	20.73
Outstanding at April 30, 2018	267,433		14.27
Granted	704,514		10.20
Vested	(92,207	)	9.49
Forfeited	(225,226	)	14.22
Outstanding at April 30, 2019	654,514		$	10.35

F-37

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

At April 30, 2019, unrecognized compensation cost related to non-vested stock options was $0.8 million. These costs are expected to be expensed through fiscal 2022.

The following table summarizes information about stock options outstanding and exercisable at April 30, 2019.

	Options outstanding				Options exercisable
Range of Exercise Prices	Number of options outstanding	Weighted average exercise price		Weighted average remaining contractual life (in years)	Number of options exercisable	Weighted average exercise price
0.00 - 10.89	572,569	$	9.78	5.9	50,000	$	8.30
10.90 - 16.38	196,345	12.00		4.1	64,400	11.96
16.39 - 26.17	18,858	22.57		1.3	18,858	22.57
26.18 - 33.38	8,472	33.38		0.4	8,472	33.38
	796,244	$	10.88		141,730	$	13.36

Restricted Stock Units

The Company has awarded restricted stock units to its non-employee directors and certain employees. Restricted stock units are valued at the closing stock price the day preceding the grant date. Compensation costs associated with these restricted shares are amortized on a straight-line basis over the vesting period and recognized as an increase in additional paid-in capital. At April 30, 2019, unrecognized compensation cost related to restricted stock units was $1.1 million. These costs are expected to be recognized through fiscal 2022.

Restricted stock activity during the years ended April 30, 2019, 2018 and 2017 was as follows.

	Number of RSUs		Weighted Average Fair Value at Grant Date
Balance at April 30, 2016	42,792		$	26.10
Granted	165,454		12.62
Vested	(17,118	)	24.58
Forfeited	(14,732	)	25.94
Balance at April 30, 2017	176,396		13.61
Granted	192,560		12.21
Vested	(187,364	)	13.04
Forfeited	(54,562	)	13.34
Balance at April 30, 2018	127,030		12.48
Granted	147,991		10.40
Vested	(28,029	)	13.47
Forfeited	(78,200	)	12.31
Balance at April 30, 2019	168,792		$	10.56

F-38

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

(11) Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities subject to fair value measurements are classified according to a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. Valuation methodologies for the fair value hierarchy are as follows.

• Level 1—Quoted prices for identical assets and liabilities in active markets.

• Level 2—Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-based valuations in which all significant inputs are observable in the market.

• Level 3—Unobservable inputs in which little or no market data exists, therefore, requiring an entity to develop its own assumptions.

The Company measures or monitors certain of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for those assets and liabilities for which fair value is the primary basis of accounting. Other assets and liabilities are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustment in certain circumstances, such as when there is evidence of impairment.

F-39

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

The following tables present, for each of the fair value hierarchy levels, the assets and liabilities that are measured at fair value on a recurring and nonrecurring basis at April 30, 2019 and 2018.

			April 30, 2019 Fair value measurements using
	Total		Level 1		Level 2		Level 3
	(In thousands)
Recurring assets:
Cash equivalents	$	15,772	$	15,772	$	—	$	—
Total recurring assets	15,772		15,772		—		—
Nonrecurring assets:
Impaired accounts and notes receivable, net of unrecognized revenue	12,707		—		—		12,707
Contingent consideration for sale of accounting offices	1,120		—		—		1,120
Impaired goodwill	178		—		—		178
Impaired fixed assets	39		—		—		39
Total nonrecurring assets	14,044		—		—		14,044
Total recurring and nonrecurring assets	$	29,816	$	15,772	$	—	$	14,044
Recurring liabilities
Contingent consideration included in obligations due former ADs, franchisees and others	$	816	$	—	$	—	$	816
Interest rate swap agreement	3		—		3		—
Total recurring liabilities	$	819	$	—	$	3	$	816

			April 30, 2018 Fair value measurements using
	Total		Level 1		Level 2		Level 3
	(In thousands)
Recurring assets:
Cash equivalents	$	12,056	$	12,056	$	—	$	—
Interest rate swap agreement	57		—		57		—
Total recurring assets	12,113		12,056		57		—
Nonrecurring assets:
Impaired accounts and notes receivable, net of unrecognized revenue	15,223		—		—		15,223
Impaired goodwill	109		—		—		109
Impaired customer lists	4		—		—		4
Assets held for sale	8,941		—		—		8,941
Total nonrecurring assets	24,277		—		—		24,277
Total recurring and nonrecurring assets	$	36,390	$	12,056	$	57	$	24,277
Recurring liabilities
Contingent consideration included in obligations due former ADs, franchisees and others	$	1,545	$	—	$	—	$	1,545
Total recurring liabilities	$	1,545	$	—	$	—	$	1,545

F-40

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

The Company's policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 1 or 2 recurring fair value measurements for the years ended April 30, 2019 and 2018.

The following methods and assumptions are used to estimate the fair value of our financial instruments.

Cash equivalents: The carrying amounts approximate fair value because of the short maturity of these instruments. Cash equivalent financial instruments consist of money market accounts.

Impaired accounts and notes receivable: Accounts and notes receivable are considered to be impaired if the net amounts due exceed the fair value of the underlying franchise or if management considers it probable that all principal and interest will not be collected when contractually due. In establishing the estimated fair value of the underlying franchise, consideration is given to a variety of factors, including, recent comparable sales of Company-owned stores, sales between franchisees, the net fees of open offices, and the number of unopened offices.

Impaired goodwill, reacquired rights, and customer lists: Goodwill, reacquired rights, and customer lists associated with a Company-owned office are considered to be impaired if the net carrying amount exceeds the fair value of the underlying office. In establishing the fair value of the underlying office, consideration is given to the related net fees, subjected to a floor of the value of a new franchise.

Assets held for sale: The Company discontinued its use of assets held for sale in the third quarter of fiscal 2019. Prior to the discontinuation, assets held for sale are recorded at the lower of the carrying value or the expected sales price, less costs to sell, which approximates fair value. The expected sales price is generally calculated as a percentage of the prior year's net fees.

Contingent consideration included in long-term obligations: Contingent consideration is carried at fair value. The fair value of these obligations was determined based upon the estimated future net revenues of the acquired businesses.

Interest rate swap agreement: Value of interest rate swap on variable rate mortgage debt. The fair value of this instrument was determined based on third-party market research.

Other Fair Value Measurements

Accounting standards require the disclosure of the estimated fair value of financial instruments that are not recorded at fair value. For the financial instruments not recorded at fair value, estimates of fair value are made at a point in time based on relevant market data and information about the financial instrument. No readily available market exists for a significant portion of the Company's financial instruments. Fair value estimates for these instruments are based on current economic conditions, interest rate risk characteristics, and other factors. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. Therefore, the calculated fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. In addition, changes in assumptions could significantly affect these fair value estimates. The following methods and assumptions were used by the Company in estimating the fair value of these financial instruments.

Receivables other than notes, other current assets, accounts payable and accrued expenses, and due to ADs: The carrying amounts approximate fair value because of the short maturity of these instruments (Level 1).

Notes receivable: The carrying amount approximates fair value because the interest rate charged by the Company on these notes approximates rates currently offered by local lending institutions for loans of similar terms to individuals/entities with comparable credit risk (Level 3).

Long-term debt: The carrying amount approximates fair value because the interest rate paid has a variable component (Level 2).

(12) Employee 401(k) Plan

The Company sponsors a defined-contribution 401(k) profit sharing plan. Under the plan, employees who are 18 years of age and have completed 90 days of service are eligible to make voluntary contributions to the plan. The Company matches 50% of each employee's contribution up to 3% of the employee's salary. Total compensation expense related to these contributions was $0.5 million for each of the three years ended April 30, 2019, 2018, and 2017.

F-41

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

(13) Income Taxes

The Tax Act was enacted in the U.S. on December 22, 2017. The Tax Act reduced the U.S. federal corporate income tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign-sourced earnings. Under the applicable accounting guidance, the Company accounted for the effects of the changes in the U.S. tax law in the period in which they were enacted, which was the third quarter of fiscal 2018. Due to the complexities associated with understanding and applying various aspects of the new law, the SEC issued guidance in SAB 118 allowing a measurement period of no more than one year from the date of enactment of the new law to complete all adjustments to amounts recorded on a provisional basis.

SAB 118 measurement period

The Company applied the guidance in SAB 118 when accounting for the enactment-date effects of the Tax Act throughout 2018. As of January 31, 2018, the Company recorded provision amounts for all the enactment-date income tax effects of the Tax Act under ASC 740, Income Taxes, for the remeasurement of deferred tax assets and liabilities and a one-time transition tax. As of January 31, 2019, the Company completed its accounting for all of the enactment-date income tax effects of the Tax Act. As further discussed below, during 2018 and the first month of 2019, the Company recognized adjustments to the provisional amounts initially recorded at January 31, 2018 and included these adjustments as a component of income tax expense from continuing operations.

One-time transition tax

The one-time transition tax is based on the Company’s total post-1986 earnings and profits, the tax on which the Company previously deferred from U.S. income taxes under U.S. law. The Company recorded a provisional amount for its one-time transition tax liability for each of its foreign subsidiaries, resulting in a transition tax liability of $1.2 million at January 31, 2018. Upon further analyses of the Tax Act and notices and regulations issued and proposed by the U.S. Department of the Treasury and the Internal Revenue Service, the Company finalized its calculations of the transition tax liability during 2018. The Company increased its January 31, 2018 provisional amount by $0.2 million, which is included as a component of income tax expense from continuing operations. The Company elected to pay its transition tax over the eight-year period provided in the Tax Act.

Deferred tax assets and liabilities

As January 31, 2018, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future (which was generally 21%), by recording a provisional income tax benefit of $1.6 million. Upon further analysis of certain aspects of the Tax Act and refinement of its calculations during the 12 months ended April 30, 2019, the Company adjusted its provisional amount by increasing the income tax benefit by $1.2 million, which is included as a component of income tax expense from continuing operations.

Global intangible low-taxed income (GILTI)

The Tax Act subjects a U.S. shareholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. After further consideration in the current year, the Company elected to account for GILTI in the year the tax is incurred as a period cost.

F-42

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

Components of income tax expense for the fiscal years ended April 30, 2019, 2018, and 2017 were as follows:

	2019			2018			2017
	(In thousands)
Current:
Federal	$	(2,400	)	$	4,895		$	6,125
State	(648		)	1,097			1,160
Foreign	623			723			293
Current Tax expense	(2,425		)	6,715			7,578
Deferred:
Federal	545			(2,125		)	315
State	(29		)	(69		)	(183		)
Foreign	70			(175		)	44
Deferred tax expense (benefit)	586			(2,369		)	176
Total income tax expense (benefit)	(1,839		)	4,346			7,754

For the years ended April 30, 2019, 2018, and 2017, income before taxes consisted of the following:

	2019			2018		2017
	(In thousands)
U.S. operations	$	(6,229	)	$	3,176	$	19,558
Foreign operations	2,234			1,305		1,209
Income (loss) before income taxes	$	(3,995	)	$	4,481	$	20,767

Income tax expense (benefit) differed from the amounts computed by applying the U.S. federal income tax rate of 21% to pre-tax income from continuing operations as a result of the following for years ended April 30, 2019, 2018 and 2017 are as follows:

F-43

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

	2019			2018			2017
	(In thousands)
Computed "expected" income tax expense (benefit)	$	(839	)	$	1,362		$	7,269
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal benefit	(677		)	66			634
Nondeductible expenses	280			367			211
Tax credits	—			—			(140		)
Domestic production deduction	—			(133		)	(158		)
Stock compensation expense	69			2,060			58
Foreign tax rate differential	128			(50		)	(86		)
Rate change	—			—			(64		)
Remeasurement of deferreds	(1,189		)	(695		)	—
Transition tax	185			1,223			—
FIN48 (uncertain tax position)	—			153			—
FY18 other return to provisions	85			—			—
Other	119			(7		)	30
Total income tax expense (benefit)	$	(1,839	)	$	4,346		$	7,754

The tax effect of temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities that give rise to significant portions of deferred tax assets and liabilities as of April 30, 2019 and 2018 are as follows:

	2019			2018
	(In thousands)
Deferred tax assets:
Unexercised nonqualified stock options	$	237		$	259
Goodwill, intangible assets, and assets held for sale	4,695			3,773
Allowance for doubtful accounts	3,488			4,149
Deferred revenue	2,184			4,493
Accounts payable and accrued expense	602			968
Net operating loss	317			203
Property, equipment and software (Canada)	118			133
Unvested restricted stock units	201			167
Unrealized gain/loss	148			173
Total deferred tax assets (before valuation allowance)	11,990			14,318
Valuation allowance	(14		)	—
Total deferred tax assets (after valuation allowance)	11,976			14,318
Deferred tax liabilities
Property, equipment and software (U.S.)	(7,708		)	(9,128		)
Deferred contingencies	—			(99		)
Other current assets	(529		)	(350		)
Section 481 (a) adjustment - change in accounting method	(2,696		)	(5,663		)
Intangible assets	(1,265		)	(132		)
Total deferred tax liabilities	(12,198		)	(15,372		)
Net deferred tax liability	$	(222	)	$	(1,054	)

F-44

LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

In assessing the realizability of the gross deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the benefits of these deductible differences will be realized except for certain state net operating losses.

The Company adopted the accounting and disclosure requirements for uncertain tax positions, which require a two-step approach to evaluate tax positions. This approach involves recognizing any tax positions that are more likely than not to occur and then measuring those positions to determine the amounts to be recognized in the financial statements. The Company determined no reserves for uncertain tax positions were required as of April 30, 2019 or 2018 for the U.S. However, the Company maintained its position of $0.2 million related to its Canadian entity’s treatment of franchise losses.

A reconciliation of the beginning and ending balance of the gross liability for uncertain tax positions for the fiscal years ended April 30, 2019, 2018 and 2017, is as follows:

	2019		2018		2017
	(In thousands)
Liability for uncertain tax positions, beginning of year	$	153	$	—	$	—
Addition: related to Canadian tax positions for fiscal 2015 through fiscal 2017	—		153		—
Liability for uncertain tax positions, end of year	$	153	$	153	$	—

The Company and its subsidiaries file a U.S. federal consolidated income tax return, as well as returns in several U.S. states and Canada. As of April 30, 2019, the Company's earliest open tax year for U.S. federal income tax purposes was its fiscal year ended April 30, 2016.     

(14) Related Party Transactions

The Company considers directors and their affiliated companies as well as executive officers and their immediate family to be related parties. For the years ended April 30, 2019, 2018, and 2017, the Company repurchased common stock from related parties as follows.

	2019		2018		2017
	(In thousands)
Common stock:
Shares repurchased	—		—		30
Amount	$	—	$	—	$	378

During fiscal 2015, the Company entered into a multi-year contract to purchase a license for the use of Canadian tax software at a price of $0.7 million from a company in which it has an investment accounted for under the equity method. One of the former members of the Company's Board of Directors is affiliated with the Company providing this service. This contract expired during the second quarter of fiscal 2017. At that same time, the Company entered into a new three-year contract with the same company at a price of $0.9 million.

Nicole Ossenfort’s (Chief Executive Officer through June 9, 2019) franchise agreement

The Company is or was a participant in the following related party transactions with Ms. Ossenfort since the beginning of fiscal 2019:

Ossenfort Franchise. Ms. Ossenfort, together with her husband, Scott Ossenfort (together, with Ms. Ossenfort, the “Ossenforts”), jointly own a Company franchise through JL Enterprises. JL Enterprises occasionally borrows operating funds

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LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

for working capital to operate the franchise each year.  During fiscal 2019, JL Enterprises did not borrow any operating funds for working capital to operate the franchise. In fiscal 2019, the Company has recorded $200,137 of accounts receivable from the Ossenforts for royalties, advertising and financial product charges, of which a balance of $0 remained outstanding and payable to the Company as of April 30, 2019.

Shaun York’s (Chief Operating Officer) franchises and AD agreements

The Company is or was a participant in the following related party transactions with Mr. York since the beginning of fiscal 2019:

York Franchises.  Mr. York owns ten Company franchises through S&P Tampa Tax LLC, and My Business Group LLC (the “York Franchise Entities”).  The York Franchise Entities borrow operating funds from the Company for working capital to operate the franchises each year. 

During fiscal 2019, the York Franchise Entities borrowed operating funds in the amount of $287,290, of which $22,015 remained outstanding and payable to the Company as of April 30, 2019.  In addition, during fiscal 2019, the Company recorded$192,833 of accounts receivable from the York Franchise Entities for royalties, advertising and financial product charges, of which $46,616 remained outstanding and payable to the Company as of April 30, 2019.

York AD. Mr. York has Area Development arrangements with the Company that are conducted through Yorkompany LLC and S&P Tampa Development LLC (the “York AD Entities”). The York AD Entities were acquired by Mr. York through various transactions with the Company and through third party agreements with AD sellers.  In connection with those transactions, the York AD Entities financed a total of $4,059,460 through the Company to acquire the Area Development territories and associated rights.  The loans are payable by the York AD Entities in annual installments at 12% interest. As of April 30, 2019, the aggregate outstanding principal balance owed by the York AD Entities on the notes was $1,780,000.

In fiscal 2019, the Company recorded $9,749 of accounts receivable from the York AD Entities for new franchise leads and interest, of which $1,094 remains unpaid as of April 30, 2019.  The York AD Entities earned $517,069 for their portion of franchise fees, royalties and interest in fiscal 2019.

York Debt Guarantees.  Mr. York also has entered into multiple guarantee agreements with the Company whereby Mr. York has guaranteed all or a portion of the indebtedness owed by other franchisees and ADs to the Company as related to certain financial transactions for which Mr. York had an interest.  The indebtedness owed by these franchisees and ADs as of April 30, 2019 is approximately $2,249,811.

M. Brent Turner's (Interim Chief Executive Officer as of June 9, 2019) Consulting Agreement

Turner Consulting. Mr. Turner entered into a Consulting Agreement on September 20, 2019 commencing on October 1, 2018 and in effect until September 30, 2019 (the "Consulting Agreement"). The Consulting Agreement paid a fee at a monthly rate of $65,000 with a total of $455,000 being paid in fiscal 2019. Mr. Turner entered into an Employment Agreement with the Company on June 9, 2019 upon his appointment as Interim Chief Executive Officer (the “Employment Agreement”). The Employment Agreement made the Consulting Agreement void and of no effect.

(15) Commitments and Contingencies

In the ordinary course of operations, the Company may become a party to legal proceedings. Based upon information currently available, management believes that such legal proceedings, individually or in the aggregate, will not have a material adverse effect on the Company's business, financial condition, cash flows, or results of operations except as provided below.

Delaware Derivative Litigation

Asbestos Workers’ Philadelphia Pension Fund, derivatively on behalf of Liberty Tax, Inc., v. John Hewitt, Defendant, and Liberty Tax, Inc., Nominal Defendant, Case No. 2017-0883, filed in the Court of Chancery of the State of Delaware on December 12, 2017. The Plaintiff alleges that the Company's former CEO, John T. Hewitt (“Hewitt”), breached his fiduciary duties as an officer based upon certain allegations of misconduct on his part. The Plaintiff also alleges breach of fiduciary duty

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LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

against Hewitt in his capacity as a director of the Company. The Complaint seeks compensatory damages and attorney’s fees. No claim or relief is asserted against the Company, which is named solely as a Nominal Defendant.

Erie County Employees Retirement System, derivatively on behalf of Liberty Tax, Inc., v. John T. Hewitt, Defendant, and Liberty Tax, Inc., Nominal Defendant, Case No. 2017-0914, brought a second derivative suit filed in the Court of Chancery of the State of Delaware on December 22, 2017. The Plaintiff also alleges that Hewitt breached his fiduciary duties as an officer based upon certain allegations of misconduct on his part. The Plaintiff also alleges breach of fiduciary duty against Hewitt in his capacity as a director of the Company. The Complaint seeks to enjoin Hewitt from managing the Company's business operations, and seeks compensatory damages and attorney’s fees.

On December 27, 2017, the two above-referenced shareholder matters were consolidated into the case with the caption In Re: Liberty Tax, Inc. Stockholder Litigation, C.A. No. 2017-0883(the "Delaware Action"). On April 17, 2018, the Plaintiffs filed an amended complaint (the "Amended Complaint"). The Amended Complaint added former directors, Gordon D’Angelo, Ellen McDowell, Nicole Ossenfort, and John Seal, with Hewitt as individual defendants (the “Individual Defendants”) and asserted class action allegations. The Plaintiffs seek (i) a declaration that the Individual Defendants have breached the Company's Nominating Committee Charter (now the Nominating & Corporate Governance Committee Charter); (ii) a declaration that the Individual Defendants have breached their fiduciary duties; (iii) an award to the Plaintiffs and the Class in the amount of damages sustained as a result of the Individual Defendants' breaches; (iv) certification of the action as a class action; (v) an award to the Company in the amount of damages sustained as a result of the Individual Defendants’ breaches of their fiduciary duties; (vi) a grant of further appropriate equitable relief to remedy the Individual Defendants’ breaches, including injunctive relief; (vii) an award to the Plaintiffs of the costs and disbursements of this action, including reasonable attorneys’ fees, accountants’ and experts’ fees, costs and expenses; and (viii) such further relief as the Court deems just and proper. The Company has answered the Amended Complaint and discovery is underway. The Individual Directors have filed a notice of motion to dismiss. No briefing schedule has been set on the motion. A mediation took place on November 12, 2018 but did not result in a resolution.

RSL Senior Partners LLC, derivatively and on behalf of Liberty Tax, Inc. v. Edward L. Brunot, John T. Hewitt, Kathleen E. Donovan, Gordon D’Angelo, John Garel, Thomas Herskovits, Robert M. Howard, Ross N. Longfield. Steven Ibbotson, Ellen M. McDowell, Nicole Ossenfort, George Robson and John Seal (Individual Defendants) and Liberty Tax. Inc. (Nominal Defendant),Case No. 18 cv 127, filed on March 7, 2018 in the United States District Court for the Eastern District of Virginia (the “Virginia Action”). This purported shareholder derivative action was filed on behalf of the Company seeking to address the alleged wrongs of the Company’s directors and officers. The Complaint, which contains allegations that are substantially similar to the allegations in the Delaware Action, claims that certain conduct created an inappropriate tone at the top, resulting in the loss of key executives, employees, directors and otherwise harmed the Company. The Complaint asserts claims under Section 14(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), Section 10(b) and Rule 10b-5 and Section 20(a) of the Exchange Act, breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. The Complaint seeks the following relief: (a) declaring that the Plaintiff may maintain this action on behalf of the Company, and that the Plaintiff is an adequate representative of the Company; (b) declaring that the Individual Defendants have breached and/or aided and abetted the breach of their fiduciary duties to the Company; (c) determining and awarding to the Company the damages sustained by it as a result of the violations set forth above from each of the Individual Defendants, jointly and severally, together with pre-judgment and post-judgment interest thereon;  (d) directing the Company and the Individual Defendants to take all necessary actions to reform and improve its corporate governance and internal procedures to comply with applicable laws and to protect the Company and its shareholders from a repeat of the damaging events (e) awarding the Company restitution from Individual Defendants; and (f) awarding the Plaintiff the costs and disbursements of the action, including reasonable attorneys’ and experts’ fees, costs, and expenses.

No claim or relief is asserted against the Company, which is named solely as a Nominal Defendant.

On July 30, 2018, various motions were filed: (i) Defendants Hewitt, McDowell, Ossenfort and Seal collectively moved to dismiss the Complaint; (ii) Defendants Garel, Herskovits, Howard, Ibbotson, Longfield, and Robson collectively moved to dismiss the Complaint; (iii) Defendants Brunot and Donovan collectively moved to dismiss the Complaint; (iv) the Company moved to stay the action pending resolution of parallel state (Delaware) and/or federal (New York) proceedings (in which the Individual Defendants joined). Briefing on the motions is complete.

The Delaware and Virginia Actions are in the process of being settled. On January 25, 2019, the Company along with the named Individual Defendants entered into a Memorandum of Understanding (the “MOU”) with the Plaintiffs, regarding settlement of the Delaware Action which will result in certain enhancements to the Company’s code of conduct and training of employees, and disclosure of Nasdaq’s appeal ruling delisting the Company’s common stock from Nasdaq which is furnished as

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LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

Exhibit 99.1 herein. The Plaintiffs have agreed that the settlement, which is subject to the execution of a definitive settlement agreement and court approval, will include a dismissal of the lawsuits with prejudice and a release of all claims against the Company and the Individual Defendants asserted in the Delaware Action and the Virginia Action. If the parties to the MOU execute a stipulation of settlement, a hearing will be held at which the Delaware Court of Chancery will consider the fairness, reasonableness and adequacy of the settlement. In connection with the settlement, the Company will negotiate in good faith the amount of reasonable legal fees and expenses of the Plaintiffs’ counsel which will ultimately be paid by the Company and/or its insurance carrier. No agreement has been reached on the amount of the fees and expenses, which is subject to court approval.

On March 15, 2019, the parties entered into a stipulation of settlement. On March 26, 2019, the Delaware Court of Chancery entered a scheduling order. Under the Order the Company provided the required notice of the proposed settlement and provided the date and time of the hearing, which is scheduled for June 28, 2019.

On June 7, 2019 the Plaintiffs in the Delaware Matter filed their opening brief in support of final approval of settlement and for award of attorney’s fees and expenses. On June 18, 2019 the Company filed a brief in support of the settlement and in opposition to Plaintiffs’ Application for award of attorneys’ fees and expenses.

The parties to the Virginia Action have also agreed that all claims in the Virginia Action have been settled and that the parties will seek to stay the Virginia Action pending the settlement proceedings in Delaware. The parties to the Virginia Action have agreed to dismiss the Virginia Action with prejudice within five business days of the settlement of the Delaware Action becoming final. The Company has agreed that it (and/or its insurance carrier) will pay $295,000 in fees and expenses to Plaintiffs' counsel in the Virginia Action in connection with settlement of the Virginia Action. The parties to the Virginia Action provided a joint status update to the Virginia court on February 27, 2019. On March 15, 2019 the parties filed a joint motion to stay the action. By an Order dated March 15, 2019, the Court granted the motion to stay the case for 90 days. On May 3, 2019, the Court entered an order setting schedule, including the date for the fee approval and approved notice to shareholders. The Order set a fairness hearing for the Virginia Settlement for September 11, 2019.

Settlement of the Virginia and Delaware Actions are expressly not to be construed as an admission of wrongdoing or liability by any defendant. The defendants have vigorously denied, and continue to vigorously deny, any wrongdoing or liability with respect to the facts and claims asserted, or which could have been asserted, in the Delaware and Virginia Actions, including that they have committed any violations of law or breach of fiduciary duty, aided and abetted any violations of law or breaches of fiduciary duty, acted improperly in any way or have any liability or owe any damages of any kind to the Plaintiffs or to the purported Class.  Nothing in this report shall be deemed an admission of the legal necessity or materiality under the federal securities laws, state fiduciary law or any other law, statute, rule or regulation of any of the disclosures set forth herein.

Eastern District of New York Securities Litigation

Rose Mauro, individually and on behalf of all others similarly situated v. Liberty Tax, Inc., Edward L. Brunot, John T. Hewitt, and Kathleen E. Donovan, filed in the United States District Court for the Eastern District of New York on January 12, 2018, Case No. 18 CV 245. The Plaintiff filed a securities class action asserting violations of Section 10(b) of the Exchange Act and Rule 10b-5 against all defendants and a second count for violations of Section 20(a) of the Exchange Act against the individual defendants. According to the complaint, throughout the class period, the Company allegedly issued materially false and misleading statements and/or failed to disclose that: (1) Hewitt created an inappropriate tone at the top; (2) the inappropriate tone at the top led to ineffective entity level controls over the organization; and (3) as a result, defendants’ statements about the operations and prospects were materially false and misleading and/or lacked a reasonable basis at all relevant times.

Patrick Beland, individually and on behalf of all others similarly situated vs. Liberty Tax, Inc., Edward L. Brunot, John T. Hewitt, and Kathleen E. Donovan, filed in the United States District Court for the Eastern District of New York on December 15, 2017, case number 17 CV 7327. The Plaintiff filed a securities class action asserting violations of Section 10(b) of the Exchange Act and Rule 10b-5 against all defendants and a second count for violations of Section 20(a) of the Exchange Act against the individual defendants. According to the complaint, throughout the class period, the Company allegedly issued materially false and misleading statements and/or failed to disclose that: (1) Hewitt created an inappropriate tone at the top; (2) the inappropriate tone at the top led to ineffective entity level controls over the organization; and (3) as a result, defendants’ statements about the business, operations and prospects were materially false and misleading and/or lacked a reasonable basis at all relevant times.

These actions were consolidated with the caption In Re Liberty Tax, Inc. Securities Litigation, Case No. 27 CV 07327 and IBEW Local 98 Pension Fund was appointed the Lead Plaintiff (the "Lead Plaintiff"). On June 12, 2018, the Lead Plaintiff filed

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LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

its Consolidated Amended Class Action Complaint, which removed Brunot as a defendant, and added additional securities claims based on Section 14(a) of the Exchange Act and Rules 14a-3 and 14a-9. The Consolidated Amended Class Action Complaint, among other things, asserts that the Company’s SEC filings over a multi-year period failed to disclose the alleged misconduct of the individual defendants and that disclosure of the alleged misconduct caused the Company’s stock price to drop and, thereby harm the purported class of shareholders. The Class Period is alleged to be October 1, 2013 through February 23, 2018. The defendants filed a joint motion to dismiss the Consolidated Amended Class Action Complaint on September 17, 2018. The Lead Plaintiff served their opposition on November 1, 2018 and the defendants filed their reply brief on November 27, 2018. A mediation took place on November 12, 2018 but did not result in a resolution. The motion to dismiss is still pending before the Court.

Franchise Litigation

JTH Tax, Inc. and SiempreTax LLC v. Gregory Aime, Aime Consulting, LLC, Aime Consulting, Inc. and Wolf Ventures, Inc. The Company filed suit in the United States District Court for the Eastern District of Virginia against the defendants, former Company franchisees, on June 9, 2016, as amended on June 22, 2016, claiming the defendants breached the purchase and sale agreement (the “PSA”) entered between the parties on January 21, 2016 and that the defendants had failed to comply with the post termination obligations of the franchise agreements (together with the PSA, the “Aime Agreements”). The Company sought damages in an amount equal to three times the defendants’ earnings and profits, as well as injunctive relief to enforce the defendants to comply with the post termination obligations of the Aime Agreements, to be determined by the trier of fact. The Company specifically sought, in part, to enjoin the defendants from continued operation of a tax preparation business using the Company’s protected trademarks, enforcement of the non-compete provision of the Aime Agreements, and an order that the defendants assign all of the leases related to the franchised businesses to the Company. On July 1, 2016, the Magistrate Judge issued a report and recommendation finding a likelihood of success on the merits and recommending entry of the requested temporary restraining order (the “TRO”) in favor of the Company, which was adopted in part on August 3, 2016. On September 9, 2016, the defendants filed an answer and counterclaim against the Company, alleging breach of the PSA, breach of the implied covenant of good faith and fair dealing and fraud and seeking approximately $2.4 million in damages, plus future loss profits, punitive damages and other expenses.  After a three-day bench trial, on January 13, 2017, the court vacated the TRO, finding in favor of the defendants.  On February 15, 2017, the court issued its written opinion and order granting the defendants’ breach of contract and breach of the implied covenant of good faith and fair dealing claims, denying the Company’s claims against the defendants and finding certain post termination obligations to be unenforceable. Judgment was entered in favor of the defendants for approximately $2.7 million. The Company accrued $2.7 million as of the fourth quarter of fiscal 2017 in connection with the judgment, which is recorded in "Accounts payable and accrued expense" in the accompanying consolidated balance sheets. The Company filed an appeal of the judgment with the Fourth Circuit Court of Appeals.

On August 8, 2018, the Fourth Circuit Court of Appeals issued an unpublished opinion affirming in part, vacating in part, and remanding to the District Court with instructions via the opinion. The Court of Appeals affirmed the District Courts finding that the Company breached the PSA first, however, the Court of Appeals concluded the District Court erred as a matter of law when it determined that the defendants were entitled to lost profits based on the purported extension of the PSA buyback deadline. The Court of Appeals held the alleged extension was not supported by independent consideration and thus not enforceable. It remanded the case for the District Court to recalculate damages consistent with said opinion.

On August 22, 2018, the defendants filed a petition for rehearing of the Fourth Circuit's decision. On September 5, 2018 the Fourth Circuit issued an order denying the petition for rehearing. On September 13, 2018 the Fourth Circuit issued a mandate that the judgment of the Fourth Circuit entered August 8, 2018 takes effect as of the same date of said filing. The matter has now officially been sent back to the District Court to recalculate damages consistent with the Fourth Circuit’s decision. The District Court entered an order on October 18, 2018 ordering Aime to provide the Court with a brief on damages within ten days of the entry of the Order and the Company has ten days to respond after the filing of the defendants' brief. The parties have filed their respective briefs and the Court held a hearing on damages on November 28, 2018. On November 29, 2018, the Court issued an order awarding Aime approximately $0.3 million in damages.

Before the District Court on remand, the parties briefed the question of what damages remained in place after the Court of Appeals’ ruling. On November 30, 2018, the District Court ruled that the Company remained liable to Aime for $0.3 million in damages. The court also ordered return of the Company's appeal bond. As a result of this ruling, the Company reduced the liability from $2.7 million to $0.3 million in the third quarter of fiscal 2019.

Aime filed a petition for certiorari in the United States Supreme Court on December 4, 2018. On January 7, 2019 the Supreme Court denied certiorari.

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LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

On December 28, 2018, Aime filed a motion for reconsideration of the District Court’s November 30, 2018 Order. On January 11, 2019 the Company filed its opposition to Aime’s motion for reconsideration. On January 17, 2019 Aime filed his reply memorandum in further support of his motion for reconsideration. The motion for reconsideration is fully briefed and pending before the court. On April 9, 2019, the Court entered judgment for an amount of $0.3 million, however, Aime’s motion for reconsideration is still pending. On April 12, 2019 Aime filed a motion to amend the judgment, to increase it by $0.1 million. The Company filed its opposition papers to said motion on April 26, 2019. On May 2, 2019 Aime filed his rely brief. On June 13, 2019 the Court held a hearing on the motion for reconsideration and motion to amend. The Court denied the motion for reconsideration, but granted the motion to amend and increased the amount of the judgment to include the $0.1 million. The Company expects the Court to issue a written opinion explaining the reasons for the findings in more detail. Once the Court issues its opinion, the Company plans to explore all options in regard to the Court’s opinion including, but not limited to, a motion for reconsideration and/or appeal.

The ultimate outcome of this action and the timing of such outcome is uncertain and there can be no assurance that the Company will benefit financially from such litigation.

Class Action Litigation

Rene Labrado v. JTH Tax, Inc. (Case BC 715076). On July 3, 2018, a class action complaint was filed in the Superior Court of California, County of Los Angeles by a former employee for herself and on behalf of all other “similarly situated” persons. The Complaint alleges, among other things, that the Company allegedly violated various provisions of the California Labor Code, including: unpaid overtime, unpaid meal period premiums, unpaid rest premiums, unpaid minimum wages, final wages not timely paid, wages not timely paid, non-compliant wage statements, failure to keep pay records, unreimbursed business expenses and violation of California Business and Profession Code Section 17200. The Complaint seeks actual, consequential and incidental losses and damages, injunctive relief and other damages. The Company highly disputes the allegations set forth in the Complaint and filed a motion to dismiss. On May 29, 2019 the Court denied the Company’s motion to dismiss, but granted the Company leave to file a motion to strike, which the Company plans on filing. The Company intends to defend the case vigorously.

Department of Justice and IRS Matters

The DOJ has been conducting an investigation of the Company’s policies, practices and procedures in connection with its tax return preparation activities. The Company is in discussions with the DOJ to resolve that investigation. Based on such discussions, in April 2019, the Company accrued $2.5 million in “Accounts payable and accrued expense” on its consolidated balance sheets and “Selling, general and administrative expense” in its consolidated statements of operations. However, such amount may increase materially based on the outcome of discussions with the DOJ, and there can be no assurance that the Company will be able to reach an agreement with the DOJ. In connection with a potential agreement with the DOJ, the Company expects that it will incur increased costs to enhance its compliance program that could exceed $1.0 million per year over several years, in addition to any costs necessary to settle the investigation.

From time to time, certain of the Company's franchisees and Company-owned offices are the subject of IRS investigations to review their tax return preparation activities, and in certain cases the DOJ has sought injunctions and other remedies with respect to some of the Company's former franchisees or ADs. The Company is cooperating fully with the government in connection with these matters, including by providing documents and other information. The Company is unable to predict what action, if any, might be taken in the future as a result of these matters or the impact, if any, of the cost of responding to the government or any potential remedies as a result of these matters could have on the Company. It is possible, however, that any such remedies could have a material adverse impact on the Company's consolidated results of operations, financial position, or cash flows.

The Company is also party to claims and lawsuits that are considered to be ordinary, routine litigation incidental to the business, including claims and lawsuits concerning the preparation of customers' income tax returns, the fees charged to customers for various products and services, relationships with franchisees, intellectual property disputes, employment matters, and contract disputes. Although the Company cannot provide assurance that it will ultimately prevail in each instance, it believes the amount, if any, it will be required to pay in the discharge of liabilities or settlements in these claims will not have a material adverse impact on its consolidated results of operations, financial position, or cash flows.

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LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

(16) Quarterly Financial Data (Unaudited)

	Three Months Ended
	April 30, 2019		January 31, 2019			October 31, 2018			July 31, 2018
	(In thousands, except per share amounts)
Revenue	$	85,723	$	32,884		$	6,776		$	7,163
Net income (loss)	$	30,399	$	(310	)	$	(12,874	)	$	(19,371	)
Weighted-average basic shares outstanding	14,056,672		14,043,218			14,033,895			13,078,091
Weighted-average dilutive shares outstanding	14,122,753		14,043,218			14,033,895			13,078,091
Net income (loss) per share of Class A and Class B common stock:
Basic	$	2.16	$	(0.02	)	$	(0.92	)	$	(1.48	)
Diluted	$	2.16	$	(0.02	)	$	(0.92	)	$	(1.48	)
Cash dividends declared per share of common stock and common stock equivalents	$	—	$	—		$	—		$	0.16

	Three Months Ended
	April 30, 2018		January 31, 2018			October 31, 2017			July 31, 2017
	(In thousands, except per share amounts)
Revenue	$	110,669	$	48,244		$	7,771		$	8,188
Net income (loss)	$	24,518	$	(1,522	)	$	(13,103	)	$	(9,758	)
Weighted-average basic shares outstanding	12,996,125		12,934,941			12,903,626			12,882,550
Weighted-average dilutive shares outstanding	14,015,096		12,934,941			12,903,626			12,882,550
Net income (loss) per share of Class A and Class B common stock:
Basic	$	1.75	$	(0.11	)	$	(1.02	)	$	(0.76	)
Diluted	$	1.75	$	(0.11	)	$	(1.02	)	$	(0.76	)
Cash dividends declared per share of common stock and common stock equivalents	$	0.16	$	0.16		$	0.16		$	0.16

Because most of the Company's customers file their tax returns during the period from January through April of each year, most of the Company's revenues are earned during this period. As a result, the Company generally operates at a loss through the first eight months of the fiscal year.

(17) Subsequent Events

On May 6, 2019, the Company received an unsolicited and non-binding recapitalization proposal from Vintage Capital Management, LLC ("Vintage"), which would allow stockholders, at their election, to receive $12.00 per share in cash. The Company also announced that its Board of Directors formed an independent Special Committee of the Board to commence a review of the Vintage recapitalization proposal and other available alternatives. The Special Committee is reviewing and evaluating the recapitalization proposal and other available alternatives with its financial and legal advisors to determine the course of action it believes to be in the best interests of the Company and its shareholders.

On May 16, 2019, the Company entered into the Revolving Credit Facility. On May 16, 2019, the Company also entered into the Subordinated Note. Please see "Note 7 - Long Term Obligations" for additional information on the Credit Agreement.

On June 9, 2019, the Company’s Board of Directors appointed M. Brent Turner as Interim Chief Executive Officer of the Company, effective immediately. Mr. Turner succeeds Nicole Ossenfort, who resigned as President and Chief Executive Officer of the Company effective June 9, 2019. In connection with her resignation, Ms. Ossenfort entered into a release agreement with the Company on June 9, 2019 (the “Release Agreement”), which provides for Ms. Ossenfort to receive the termination payments and benefits set forth in Section 5(c) of her previously disclosed employment agreement with the Company, dated as

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LIBERTY TAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

April 30, 2019 and 2018

of June 1, 2018 and effective as of February 19, 2018. The Release Agreement is substantially in the form attached to Ms. Ossenfort’s employment agreement. In connection with his appointment as Interim Chief Executive Officer of the Company, Mr. Turner entered into an Employment Agreement with the Company on June 9, 2019. The term of the Employment Agreement is month-to-month, commencing on June 9, 2019, continuing on the first day of each successive month, unless Mr. Turner or the Company provides written notice at least 15 calendar days prior to the end of the applicable month to the other of his or its intention not to renew the employment. Under the Employment Agreement, Mr. Turner is entitled to a monthly base salary of $41,667. Mr. Turner also is entitled to employee and executive benefits, reimbursement of expenses and vacation consistent with the benefits provided to executive officers and as otherwise set forth in the Employment Agreement.

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