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OFFON

FRANKLIN COVEY CO.

(FC)
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FRANKLIN COVEY CO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

11/12/2021 | 03:33pm EST
The following management's discussion and analysis is intended to provide a
summary of the principal factors affecting the results of operations, liquidity
and capital resources, and the critical accounting policies of Franklin Covey
Co. (also referred to as we, us, our, the Company, and Franklin Covey) and
subsidiaries. This discussion and analysis should be read together with the
accompanying consolidated financial statements and related notes contained in
Item 8 of this Annual Report on Form 10-K (Form 10-K) and the Risk Factors
discussed in Item 1A of this Form 10-K. Forward-looking statements in this
discussion are qualified by the cautionary statement under the heading "Safe
Harbor Statement Under the Private Securities Litigation Reform Act Of 1995"
contained later in Item 7 of this Form 10-K.

Non-GAAP Measures


This management's discussion and analysis includes the concept of adjusted
earnings before interest, income taxes, depreciation, and amortization (Adjusted
EBITDA) which is a non-GAAP measure. We define Adjusted EBITDA as net income or
loss excluding the impact of interest expense, income taxes, intangible asset
amortization, depreciation, stock-based compensation expense, and certain other
items such as adjustments to the fair value of expected contingent consideration
liabilities arising from business acquisitions.

We reference this non-GAAP financial measure in our decision making because it
provides supplemental information that facilitates consistent internal
comparisons to the historical operating performance of prior periods and we
believe it provides investors with greater transparency to evaluate operational
activities and financial results. For a reconciliation of our segment Adjusted
EBITDA to net income or loss, a related GAAP measure, please refer to Note 16
Segment Information to our consolidated financial statements as presented in
Item 8 of this Form 10-K.

EXECUTIVE SUMMARY

General Overview

Franklin Covey Co. is a global company focused on individual and organizational
performance improvement. Our mission is to "enable greatness in people and
organizations everywhere," and our worldwide resources are organized to help
individuals and organizations achieve sustained superior performance through
changes in human behavior. We believe that our content and services create the
connection between capabilities and results. We believe that our clients are
able to utilize our content to create cultures with high-performing,
collaborative individuals, led by effective, trust-building leaders who execute
with excellence and deliver measurably improved results for all of their key
stakeholders.


?

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In the training and consulting marketplace, we believe there are three important characteristics that distinguish us from our competitors.


1.World Class Content - Our content is based on timeless principles of human
effectiveness and is designed to help people change both their mindset and
behavior. When our content is applied consistently in an organization, we
believe the culture of that organization will change to enable the organization
to get desired results and achieve its own great purposes.

2.Breadth and Scalability of Delivery Options - We have a wide range of content
delivery options, including: the All Access Pass, the Leader in Me membership,
and other intellectual property licenses, digital online learning, on-site
training, training led through certified facilitators, blended learning, and
organization-wide transformational processes, including consulting and coaching.
We believe our investments in digital delivery modalities over the past few
years have enabled us to deliver our content to clients in a high-quality
learning environment whether those clients are working remotely or in a
centralized location.

3.Global Capability - We have sales professionals in the United States and
Canadawho serve clients in the private sector, in government, and in
educational institutions; wholly owned subsidiaries in Australia, China, Japan,
the United Kingdom, Germany, Switzerland, and Austria; and we contract with
independent licensee partners who deliver our content and provide services in
150 countries and territories around the world.

We have some of the best-known offerings in the training industry, including a
suite of individual-effectiveness and leadership-development training content
based on the best-selling books, The 7 Habits of Highly Effective People, The
Speed of Trust, Multipliers, and The 4 Disciplines of Execution, and proprietary
content in the areas of Execution, Sales Performance, Productivity, Customer
Loyalty, Leadership, and Education. We believe that our offerings help
individuals, teams, and entire organizations transform their results through
achieving systematic, sustainable, and measurable changes in human behavior. Our
offerings are described in further detail at www.franklincovey.com. The
information contained in, or that can be accessed through, our website does not
constitute a part of this Annual Report on Form 10-K, and the descriptions found
therein should not be viewed as a warranty or guarantee of results.

Our fiscal year ends on August 31, and unless otherwise indicated, fiscal 2021,
fiscal 2020, and fiscal 2019 refer to the twelve-month periods ended August 31,
2021, 2020, 2019, and so forth.

Fiscal 2021 Financial Overview


We were pleased with our fiscal 2021 financial results, which featured increased
sales, improved gross margin, increased income from operations, and improved
liquidity compared with fiscal 2020, despite the continuing challenges from the
COVID-19 pandemic. Our growth during fiscal 2021 compared with fiscal 2020 was
substantially driven by increased subscription and subscription services sales.
Total subscription revenue in fiscal 2021 increased 15 percent over fiscal 2020,
and subscription and subscription service sales increased 21 percent compared
with fiscal 2020. Including the impact of subscription and subscription service
sales, our financial performance during fiscal 2021 reflects four key trends
that have been evident throughout the ongoing COVID-19 pandemic. These trends
include:

?First, the strong growth of All Access Pass subscription sales. All Access Pass
subscription sales increased 18 percent during fiscal 2021 and 27 percent in the
fourth quarter when compared with the prior year.

?Second, the growth of All Access Pass subscription services, which increased 38
percent over fiscal 2020, and grew 76 percent in the fourth quarter when
compared with the same quarter of fiscal 2020. Sales of AAP subscription
services strengthened in fiscal 2021, reflecting the strong bookings of
subscription services, and the Company's capabilities to deliver subscription
services live-online and through other digital modalities.


?

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?Third, sales in our international direct offices and through many of our
international licensee partners strengthened during fiscal 2021. In the fourth
quarter of fiscal 2021, all of our international direct office sales increased
compared with the fourth quarter of fiscal 2020, and for the full fiscal year
our international direct office sales increased 13 percent compared with fiscal
2020. In fiscal 2021, our international licensee revenues grew seven percent
compared with the prior year.

?Fourth, booking and delivery trends in the Education Division strengthened in
the fourth quarter, as Education Division subscription revenue grew 52 percent
in the fourth quarter and increased seven percent for the full fiscal year.
During fiscal 2021, the Education Division added 574 new Leader in Me schools, a
79% increase over fiscal 2020, and retained over 92% of its existing Leader in
Me schools.

We believe the momentum from strong financial results in the fourth quarter and
in fiscal 2021 will carry over into fiscal 2022 and generate additional growth.
As the global economy continues to recover, we believe the strength of our
subscription-based offerings and services will provide a solid foundation for
earnings and cash flow growth in fiscal 2022 and in subsequent years.

Our consolidated revenue for fiscal 2021 year grew 13 percent, or $25.7 million,
and totaled $224.2 million compared with $198.5 million in fiscal 2020. Our
fiscal 2021 sales increased primarily due to strong sales of subscription and
subscription services. Despite the challenging economic and operating
environment in fiscal 2021, our All Access Pass and Education Division
subscription revenues increased compared with the prior year. Our revenue growth
in fiscal 2021 was primarily driven by contract renewals and new customers, as
price increases did not have a material impact on our sales growth over the
prior year. Enterprise Division sales for the year increased 14 percent, or
$20.4 million, to $168.6 million compared with $148.2 million in the prior year,
and were driven primarily by increased AAP revenues and recovering international
direct office and licensee sales. All Access Pass subscription revenues grew 18
percent compared with the prior year and subscription and subscription services
revenues increased 24 percent over fiscal 2020. Education Division revenues
increased 13 percent, or $5.5 million, to $48.9 million compared with
$43.4 million in fiscal 2020. Ongoing disruptions to school operating
environments reduced the delivery of coaching, consulting, and training days to
educational institutions in early fiscal 2021 as educators dealt with changing
and uncertain schedules. However, a significant number of the coaching,
consulting, and training days not able to be delivered during early fiscal 2021
were contractual, and were able to be delivered and recognized in the third and
fourth quarters. Education Division subscription revenue, which primarily
consists of the Leader in Me online service and consulting days invoiced with
the Leader in Me online service, increased seven percent compared with fiscal
2020, and material sales and consulting days not included in subscription
revenue also increased compared with fiscal 2020.

At August 31, 2021, we had $88.6 million of deferred revenue compared with
$68.9 million at August 31, 2020. Our deferred revenue noted above at August 31,
2021 and August 31, 2020 includes $2.7 million and $2.2 million, respectively,
of deferred revenue that was classified as long-term based on expected
recognition. Deferred subscription revenue increased 27 percent, or
$16.5 million, to $77.0 million at August 31, 2021. Our unbilled deferred
revenue at August 31, 2021 grew 27 percent to $50.4 million compared with
$39.6 million at the end of fiscal 2020. At August 31, 2021, the sum of our
deferred subscription revenue plus unbilled deferred subscription revenue grew
27 percent, or $27.2 million, to $127.4 million compared with $100.2 million at
August 31, 2020. Unbilled deferred revenue represents business that is
contracted, but unbilled and therefore excluded from our balance sheet.


?

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The following table sets forth our consolidated net sales by division and by reportable segment for the fiscal years indicated (in thousands):


YEAR ENDED                            %                  %
AUGUST 31,                   2021   Change      2020   Change      2019
Enterprise Division:
Direct offices           $ 159,608     14   $ 139,780    (11)  $ 157,754

International licensees 9,036 7 8,451 (34) 12,896

                           168,644     14     148,231    (13)    170,650
Education Division          48,902     13      43,405    (11)     48,880
Corporate and other          6,622     (3)      6,820     17       5,826
Consolidated sales       $ 224,168     13   $ 198,456    (12)  $ 225,356


Gross profit consists of net sales less the cost of services provided or the
cost of goods sold. Our cost of sales includes the direct costs of delivering
content onsite at client locations, including presenter costs; amortization of
previously capitalized curriculum development costs; content royalties;
materials used in the production of training products and related assessments;
manufacturing labor costs; and freight. Gross profit may be affected by, among
other things, the mix of services sold to clients, prices of materials, travel,
labor rates, changes in product discount levels, and freight costs. Consolidated
cost of sales in fiscal 2021 totaled $51.3 million compared with $53.1 million
in fiscal 2020. Our gross profit for the fiscal year ended August 31, 2021 was
$172.9 million, compared with $145.4 million in fiscal 2020 and increased
primarily due to increased sales as described above. Our gross margin in fiscal
2021 improved 388 basis points to 77.1 percent of sales compared with 73.3
percent in the prior year, reflecting an increase in subscription revenues in
the mix of overall sales and the impact of increased sales on fixed cost of sale
elements such as salaried Education Division coaches and capitalized curriculum
amortization expense.

Our operating expenses in fiscal 2021 increased $22.5 million compared with
fiscal 2020 primarily due to a $15.0 million increase in selling, general, and
administrative (SG&A) expenses and a $9.2 million increase in stock-based
compensation expense. Increased SG&A expense was primarily due to increased
variable compensation, including commissions, bonuses, and incentives resulting
from increased sales and improved operating results during fiscal 2021;
increased associate costs from additional sales and sales support employees; and
increased content and product development expense. We reevaluate our stock-based
compensation instruments at each reporting date. Due to the adverse impact of
COVID-19 and uncertainties related to the expected recovery, we determined that
certain tranches of previously granted performance awards would not vest prior
to their expiration. Based on our analyses, we reversed previously recognized
stock-based compensation expense for these tranches during fiscal 2020, which
resulted in a $(0.6) million net credit to stock-based compensation in fiscal
2020. These stock-based compensation awards were modified in the first quarter
of fiscal 2021 and we recognized the corresponding compensation expense on these
awards following the modification date.

Our fiscal 2021 income from operations improved 165 percent, or $5.0 million, to
$8.1 million compared with $3.1 million in fiscal 2020. Fiscal 2021 pre-tax
income was $6.1 million compared with $0.8 million in fiscal 2020, reflecting
the items noted above.

Our effective income tax benefit rate for fiscal 2021 was approximately 124
percent compared with an effective tax rate of approximately 1,284 percent in
fiscal 2020. Our income tax expense in fiscal 2020 was primarily the result of
increasing our valuation allowance against deferred income tax assets due to
three-year cumulative pre-tax losses combined with expected disruptions and
negative impacts to our business resulting from the COVID-19 pandemic, and
uncertainties related to the recovery from the pandemic. However, during fiscal
2021 the Company's performance exceeded expectations, which returned us to
three-year cumulative pre-tax income, and we expect continued strong performance
in future periods. After consideration of these circumstances and the relevant
accounting literature, we reduced the valuation allowance against our deferred
tax assets, which primarily accounts for the income tax benefit we recorded for
the fiscal year ended August 31, 2021.

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Net income for the year ended August 31, 2021 was $13.6 million, or $0.96 per
diluted share, compared with a net loss of $(9.4) million, or $(.68) per share,
in fiscal 2020. Our Adjusted EBITDA in fiscal 2021 increased 96 percent, or
$13.7 million, to $28.0 million compared with $14.3 million in fiscal 2020,
reflecting the above-noted factors.

Further details regarding these items can be found in the comparative analysis
of fiscal 2021 with fiscal 2020 as discussed within this management's discussion
and analysis.

Our liquidity, financial position, and capital resources remained strong during
fiscal 2021. At August 31, 2021, we had $47.4 million of cash, with no
borrowings on our $15.0 million revolving credit facility, compared with
$27.1 million of cash, and no borrowings on our revolving credit facility, at
August 31, 2020. Cash flows from operating activities remained strong and
increased 68 percent to $46.2 million for fiscal 2021 compared with
$27.6 million in the prior year. For further information regarding our liquidity
and cash flows, refer to the Liquidity and Capital Resources discussion found in
this management's discussion and analysis.

For a discussion of the results of operations and changes in financial condition
for fiscal 2020 compared with fiscal 2019, refer to Part II, Item 7 Management's
Discussion and Analysis of Financial Condition and Results of Operations in our
fiscal 2020 Form 10-K, which was filed with the United States Securities and
Exchange Commission on November 16, 2020.

Impact of COVID-19 Pandemic on Fiscal 2021


COVID-19 was first identified in China during December 2019, and subsequently
declared a pandemic by the World Health Organization. Since its discovery,
COVID-19 and its variants have surfaced in nearly all regions around the world
and have resulted in government-imposed travel restrictions and business
slowdowns or shutdowns in affected areas. As a result, COVID-19 has impacted our
business globally, including our licensees, through office, government, and
school closures. These closures had a significant adverse impact on our business
beginning in the third quarter of fiscal 2020 and the effects of the ongoing
pandemic were felt by us throughout fiscal 2021.

During fiscal 2021, we were pleased with the continued strength of our
subscription business and the quick pivot to delivering content live-online and
through our other digital modalities. Our subscription service clients are able
to access content and programs from remote locations, which allows continued
engagement of personnel and students during long periods of displacement from
normal working or classroom conditions. According to the Training magazine 2021
Training Industry Report, most companies were able to transition the reception
of their training to blended online and virtual classroom environments. We
expect that most companies will retain aspects of remote learning after the
COVID-19 pandemic is over. We also believe our ability to deliver content and
offerings over a broad array of online and other digital modalities to suit a
client's needs will prove to be a valuable strategic advantage, and we believe
these capabilities will accelerate our recovery from the effects of the
pandemic.

The COVID-19 pandemic presented especially difficult conditions for our
international direct offices and licensee partners during fiscal 2021 as
countries enacted a variety of measures to contain the spread of the virus.
These measures included the closure of offices, schools, and other meeting
spaces. While our content is able to be presented digitally and is translated
into numerous languages, the technology base differs significantly among
countries, which may impede the smooth delivery of content to remote work
locations. We remain optimistic about the future as we saw signs of economic
recovery in the United States and many of the other countries in which we
operate as companies, schools, and individuals are adapting, and the positive
effect of vaccinations and therapeutics are enabling certain economies to open
and recover. However, certain countries where we do business have enacted strict
lockdown measures during fiscal 2021 and parts of fiscal 2020, and may continue
to implement additional lockdowns in future periods. We will continue to monitor
developments related to the COVID-19 pandemic, including supply chain issues,
and their actual and potential impacts on our financial position, results of
operations, and liquidity.

On March 27, 2020, in response to COVID-19, the United States government enacted
the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The
CARES Act is a relief package consisting of various stimulus measures, such as
tax payment deferrals, various business incentives, and makes certain technical
corrections to the U.S. Tax Cuts

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and Jobs Act of 2017. While beneficial to the economy and business overall, the
enactment of the CARES Act and similar legislation in other countries throughout
the world did not have a material impact on our fiscal 2021 or fiscal 2020
consolidated financial statements.

Key Growth Objectives


As economies and businesses reopen and recover from the COVID-19 pandemic, we
are optimistic that opportunities for growth and expansion will return both
domestically and internationally. In addition to recovery from the pandemic, we
believe the following key factors will drive our growth in fiscal 2022 and
beyond:

?Best in Class Content and Solutions - We believe that our offerings are based
on best-in-class content driven by best-selling books and world-class thought
leadership. Our content is focused on performance improvement through
behavior-changing outcome oriented training. These offerings are designed to
build great and enduring organizations, build winning cultures, promote
execution on major strategic initiatives, build leaders at all levels of an
organization, and increase the individual and interpersonal effectiveness of
people. Our vision is to profoundly impact the way billions of people throughout
the world live, work, and achieve their own great purposes. We believe ongoing
investment in our existing and new content will allow us to achieve this vision.

?New Subscription Service Sales and the Renewal of Existing Client Contracts -
Even prior to the onset of the COVID-19 pandemic, we invested heavily in the
digital delivery of our content through our All Access Pass and Leader in Me
subscription services. These digital delivery platforms allow our content and
offerings to be accessible at scale in a wide variety of organizations and
schools, and provide compelling value propositions to our clients. We believe
our ongoing investment in digital delivery enables us to deliver content to
clients in a high-quality learning environment whether those clients are working
remotely or in a centralized location. As organizations implement and utilize
the content on the AAP and schools realize the benefits of the Leader in Me
program, we believe that we create durable strategic relationships with our
clients that encourage the renewal of subscription contracts. We are focused on
building strategic relationships with both new and existing clients to provide
new subscription sales opportunities and renewal or expansion of existing
subscription services with current clients.

?Expand our Global Reach and Distribution - We are focused on consistently
increasing the number of new client partners, consultants, coaches, and
implementation specialists to increase our global reach and sales opportunities.
We believe adding client partners is a key driver of future growth as our model
is designed to have new client partners at or near breakeven during their first
year, and then make significant contributions to sales growth thereafter. At
August 31, 2021, we had 273 client partners compared with 254 at the end of
fiscal 2020.

?Most Impactful Thought Leadership - We believe that our offerings address some
of the most significant challenges that organizations and individuals face.
However, we are not comfortable resting on past successes and we seek to engage
individuals who can provide timely and impactful thought leadership on a variety
of topics. Over the past couple of years we have released six new bestselling
books, including Get Better, Everyone Deserves a Great Manager, and Leading
Loyalty. During fiscal 2020 we developed and released new offerings based on the
bestselling book Multipliers, by Liz Wiseman. To increase the visibility of our
thought leadership, we seek to publish new books each year and we have
significantly expanded our presence in podcasts, relevant white papers, and
digital media. We believe our ongoing efforts to strengthen our thought
leadership will provide added opportunities in the training marketplace.

Other key factors that influence our operating results include: the number of
organizations that are active customers; the number of people trained within
those organizations; the continuation or renewal of existing services contracts,
especially subscription renewals; the availability of budgeted training spending
at our clients and prospective clients, which, in certain content categories,
can be significantly influenced by general economic conditions; client
satisfaction with our offerings and services; the number and productivity of our
international licensee operations; and our ability to manage operating costs
necessary to develop and provide meaningful offerings and related products to
our clients.

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Results of Operations

The following table sets forth, for the fiscal years indicated, the percentage
of total sales represented by the line items through income or loss before
income taxes in our consolidated statements of operations. This table should be
read in conjunction with the accompanying discussion and analysis, the
consolidated financial statements, and the related notes to the consolidated
financial statements (amounts in percentages).

YEAR ENDED
AUGUST 31,                             2021    2020    2019
Sales                                 100.0   100.0   100.0
Cost of sales                          22.9    26.7    29.3
Gross profit                           77.1    73.3    70.7

Selling, general, and administrative   64.7    65.5    62.4
Stock-based compensation                3.8    (0.3)    2.1
Restructuring costs                        -    0.8        -
Depreciation                            2.8     3.4     2.8
Amortization                            2.2     2.3     2.2
Total operating expenses               73.5    71.7    69.5
Income from operations                  3.6     1.6     1.2
Interest income                            -       -       -
Interest expense                       (0.9)   (1.2)   (1.0)
Discount accretion on related
party receivables                          -       -    0.1
Income before income taxes              2.7     0.4     0.3

FISCAL 2021 COMPARED WITH FISCAL 2020 RESULTS OF OPERATIONS

Enterprise Division

Direct Offices Segment


The Direct Office segment includes our sales personnel that serve clients in the
United States and Canada; our directly owned international offices in Japan,
China, the United Kingdom, Australia, and our offices in Germany, Switzerland,
and Austria; and other groups such as our government services office and books
and audio sales. The following comparative information is for our Direct Offices
segment for the periods indicated (in thousands):

                  Fiscal Year Ended           Fiscal Year Ended
                     August 31,      % of        August 31,      % of
                        2021        Sales           2020        Sales     Change
Sales           $          159,608  100.0   $          139,780  100.0   $ 19,828
Cost of sales               30,192   18.9               31,636   22.6     (1,444)
Gross profit               129,416   81.1              108,144   77.4     21,272
SG&A expenses              101,468   63.6               90,450   64.7     11,018
Adjusted EBITDA $           27,948   17.5   $           17,694   12.7   $ 10,254


Sales at our direct offices in the U.S. and Canada, including government sales,
increased 16 percent, or $16.3 million during fiscal 2021, which was primarily
driven by increased AAP subscription revenues. During fiscal 2021 our All Access
Pass subscription revenues remained strong and increased 18 percent over the
prior year, while annual AAP revenue retention remained above 90 percent for the
year. Our AAP subscription and subscription services revenue increased 24
percent compared with fiscal 2020. We believe the continued increase in invoiced
AAP sales, which are initially recognized on the balance sheet, provide a solid
base for continued revenue growth in fiscal 2022 and in future periods. In
addition to the increase in invoiced AAP sales, the number of multi-year
contracts is increasing as well. As of August 31, 2021, more than 40 percent of
all AAP contracts are now multi-year contracts. We continue to be encouraged by
the durability of AAP sales as clients have transitioned to and effectively
utilized the digital delivery options available through the All Access Pass. As
a result of this successful transition, our invoiced subscription services are
recovering and were strong during fiscal 2021. We believe the strength and
durability of our All Access Pass platform, and ongoing improvements to the
platform such as those that will be enabled by fiscal 2021 acquisition of Strive
Talent, Inc. will lead to continued success in our U.S. and Canada direct office
operations in fiscal 2022 and in the future.

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Our foreign direct offices continued to be impacted by the COVID-19 pandemic as
governmental mandates limited gatherings, business activity, and training
opportunities during fiscal 2021. However, these operations have been steadily
improving since the third quarter of fiscal 2020. After a slow start to fiscal
2021, international direct office sales increased $3.5 million or 13 percent,
compared with fiscal 2020. We remain confident that our international direct
offices will continue to recover during fiscal 2021 and will strengthen in
future periods. Foreign exchange rates had a $1.9 million favorable impact on
our Direct Office sales and a $0.3 million favorable impact on operating income
during fiscal 2021. As a result of the COVID-19 pandemic, we expect that our
foreign Direct Offices will accelerate their transition to the All Access Pass
in future periods. While we are optimistic about the future of our direct office
channel and AAP revenues, our future Direct Office financial performance is
highly dependent upon economic recovery from the pandemic, including the opening
of national and regional economies and other factors which may not be within in
our control.

Gross Profit. Gross profit increased primarily due to increased sales and
recognition of previously deferred subscription services revenues in the mix of
overall sales, which also increased Direct Office gross margin percentage when
compared with the prior year.

SG&A Expense. Increased Direct Office SG&A expense was primarily due to variable
associate costs, including increased commissions, bonuses, and incentives
resulting from increased sales and improved operating results, and increased
headcount from new sales and sales support personnel. These increases were
partially offset by reduced travel and entertainment expense and cost savings
from initiatives which were implemented as a result of the pandemic.

International Licensees Segment


In foreign locations where we do not have a directly owned office, our training
and consulting services are delivered through independent licensees. The
following comparative information is for our international licensee operations
for the periods indicated (in thousands):

                  Fiscal Year Ended           Fiscal Year Ended
                     August 31,      % of        August 31,      % of
                        2021        Sales           2020        Sales     Change
Sales           $            9,036  100.0   $            8,451  100.0   $   585
Cost of sales                1,309   14.5                1,772   21.0      (463)
Gross profit                 7,727   85.5                6,679   79.0     1,048
SG&A expenses                4,141   45.8                4,273   50.6      (132)
Adjusted EBITDA $            3,586   39.7   $            2,406   28.5   $ 1,180


Sales. International licensee revenues are primarily comprised of royalty
revenues. Our licensee revenues increased compared with the prior year primarily
due to increased licensee sales as the economies in many of the countries where
our licensees operate continue to recover. During fiscal 2021, our royalty
revenues increased 13 percent compared to the prior year and licensee sales of
AAP contracts continues to strengthen. We receive additional revenue from the
international licensees for AAP sales to cover a portion of the costs of
operating the AAP portal. Partially offsetting these increases were decreased
product sales to the licensees. Despite the ongoing difficulties associated with
the pandemic and the varying impacts on each country's business environment, we
continue to be encouraged by the recovery of our licensee operations as they are
adapting to conditions, improving digital delivery capabilities, and increasing
sales of the All Access Pass subscription. The continued recovery of our
licensee segment is highly dependent upon the re-opening of foreign economies,
the ability or willingness of people to travel and meet together in groups, and
increasing AAP sales to clients. We have translated AAP content into multiple
languages and we believe the electronic availability of our offerings through
this platform may accelerate the recovery of licensee operations if they can
effectively market, adapt, and sell this online technology to their clients.
However, if pandemic conditions continue to linger, our recovery to pre-pandemic
sales levels may take longer than previously anticipated. Foreign exchange rates
had a $0.1 million favorable impact on international licensee sales and
operating results during fiscal 2021.

Gross Profit. Gross profit increased due to increased sales as previously
described. Gross margin improved primarily due to the mix of revenue recognized
during fiscal 2021, which included more royalty revenues and less product sales
than in fiscal 2020.

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SG&A Expense. International licensee SG&A expenses decreased primarily due to
cost savings initiatives implemented during late fiscal 2020 and in fiscal 2021.
These improvements were partially offset by increased variable associate costs,
such as bonuses and incentives, resulting from increased revenue and improved
profitability.

Education Division

Our Education Division is comprised of our domestic and international Education
practice operations, which are focused on sales to educational institutions, and
includes our widely acclaimed Leader in Me program designed for students
primarily in K-6 elementary schools. The following comparative information is
for our Education Division in the periods indicated (in thousands):

                  Fiscal Year Ended           Fiscal Year Ended
                     August 31,      % of        August 31,      % of
                        2021        Sales           2020        Sales     Change
Sales           $           48,902  100.0   $           43,405  100.0   $ 5,497
Cost of sales               16,131   33.0               16,306   37.6      (175)
Gross profit                32,771   67.0               27,099   62.4     5,672
SG&A expenses               27,953   57.2               27,189   62.6       764
Adjusted EBITDA $            4,818    9.9   $              (90)  (0.2)  $ 4,908


Sales. Education Division sales during fiscal 2021 grew 13 percent, or
$5.5 million, primarily due to increased material sales, increased coaching days
delivered, and increased Leader in Me membership revenues. For fiscal 2021, the
Education Division added 574 new Leader in Me schools in the United States and
Canada, a 79% increase over fiscal 2020, and retained over 92% of its existing
Leader in Me schools. Education Division subscription revenue increased seven
percent compared with the prior year and featured very strong growth in our
fourth quarter. Total coaching and consulting days delivered in fiscal 2021
increased eight percent compared with fiscal 2020. Despite an educational
environment which has continued to be very challenging, we have been encouraged
by strengthening trends in our Education business during the fourth quarter and
throughout fiscal 2021. Foreign exchange rates had a $0.1 million unfavorable
impact on Education Division sales and operating income during fiscal 2021. As
of August 31, 2021, the Leader in Me program is used in nearly 2,900 schools in
the United States and Canada, compared with over 2,500 schools at August 31,
2020.

Gross Profit. Education Division gross profit increased primarily due to
increased sales as previously described. Education segment gross margin improved
compared with the prior year primarily due to increased coaching and consulting
sales with little variable cost increase as most coaches are salaried, and by an
increase in high-margin material sales in the overall mix of services and
products sold.

SG&A Expenses. Education SG&A expenses increased primarily due to increased variable compensation, including commissions, bonuses and incentives, and from additional headcount compared with the prior year. These increases were partially offset by various cost cutting initiatives implemented in the Education Division during the pandemic.

Other Operating Expense Items


Depreciation - Depreciation expense decreased $0.5 million compared with fiscal
2020 primarily due to the full depreciation of certain assets during the fiscal
year. We currently expect depreciation expense will total approximately
$5.8 million in fiscal 2022.

Amortization - Amortization expense increased $0.4 million compared with the
prior year primarily due to the acquisition of Strive during the third quarter
of fiscal 2021. We currently expect amortization expense will total $5.3 million
during fiscal 2022.

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Income Taxes

Our effective income tax benefit rate for the fiscal year ended August 31, 2021
was approximately 124 percent, compared with an income tax expense rate of
approximately 1,284 percent in fiscal 2020. The income tax benefit recognized in
fiscal 2021 was primarily due to a $10.5 million decrease in the valuation
allowance against our deferred income tax assets and a $0.5 million tax benefit
from the exercise of stock options, which were partially offset by a
$0.8 million reduction in foreign tax credit carryforwards. The income tax
expense in fiscal 2020 was primarily due to an $11.3 million increase in the
valuation allowance against our deferred income tax assets that was partially
offset by a $1.8 million income tax benefit from the exercise of stock options
in fiscal 2020.

We paid $1.8 million in cash for income taxes during fiscal 2021. We anticipate
that our total cash paid for income taxes over the coming three to five years
will be less than our total income tax provision to the extent we are able to
utilize net operating loss carryforwards, foreign tax credit carryforwards, and
other deferred income tax assets.

QUARTERLY RESULTS


The following tables set forth selected unaudited quarterly consolidated
financial data for the fiscal years ended August 31, 2021 and 2020. The
quarterly consolidated financial data reflects, in the opinion of management,
all normal and recurring adjustments necessary to fairly present the results of
operations for such periods. Results of any one or more quarters are not
necessarily indicative of continuing trends (in thousands, except for per-share
amounts).

YEAR ENDED AUGUST 31, 2021
                                         November 30     February 28      May 31      August 31,
Net sales                              $     48,324$     48,162$  58,736$    68,945
Gross profit                                 36,386          37,340       45,907         53,268
Selling, general, and administrative         33,683          33,623       40,132         46,166
Depreciation                                  1,741           1,740        1,423          1,286
Amortization                                  1,131           1,133        1,238          1,503
Income (loss) from operations                  (169)            844        3,114          4,313
Income (loss) before income taxes              (713)            320        2,605          3,864
Net income (loss)                              (892)            (46)      12,754          1,807

Net income (loss) per share:
Basic and diluted                      $      (0.06)$      (0.00)$    0.90$      0.13

YEAR ENDED AUGUST 31, 2020
                                         November 30     February 29      May 31      August 31,
Net sales                              $     58,613$     53,745$  37,105$    48,994
Gross profit                                 42,029          38,666       26,821         37,854
Selling, general, and administrative         39,399          36,221       24,150         29,636
Restructuring costs                                -               -            -         1,636
Depreciation                                  1,619           1,653        1,652          1,739
Amortization                                  1,170           1,170        1,164          1,102
Income (loss) from operations                  (159)           (378)        (145)         3,741
Income (loss) before income taxes              (760)           (922)        (748)         3,226
Net income (loss)                              (544)          1,097      (10,968)           980

Net income (loss) per share:
Basic and diluted                      $      (0.04)$       0.08$   (0.79)$      0.07


In normal operating years, our fourth quarter typically has higher sales and
operating income than other fiscal quarters primarily due to increased revenues
in our Education Division (when school administrators and faculty have
professional development days) and from increased sales that typically occur
during that quarter resulting from year-end incentive programs. Overall,
subscription service and training sales are moderately seasonal because of the
timing of corporate training, which is not typically scheduled as heavily during
holiday and certain vacation periods. Quarterly fluctuations may also be
affected by other factors including increased subscription sales, the
introduction of new offerings, pandemics and other natural disasters, business
acquisitions, the addition of new organizational customers, and the elimination
of underperforming offerings.

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For more information on our quarterly results of operations, refer to our quarterly reports on Form 10-Q as filed with the SEC. Our quarterly reports for the periods indicated are available free of charge at www.sec.gov.

LIQUIDITY AND CAPITAL RESOURCES

Introduction


Our cash balance at August 31, 2021 totaled $47.4 million, with no borrowings on
our $15.0 million revolving credit facility. Of our $47.4 million in cash at
August 31, 2021, $14.5 million was held outside the U.S. by our foreign
subsidiaries. We routinely repatriate cash from our foreign subsidiaries and
consider cash generated from foreign activities a key component of our overall
liquidity position. Our primary sources of liquidity are cash flows from the
sale of services and products in the normal course of business and available
proceeds from our credit facility. Our primary uses of liquidity include
payments for operating activities, debt payments, business acquisitions, capital
expenditures (including curriculum development), contingent payments from
previous business acquisitions, working capital expansion, and purchases of our
common stock.

The following table summarizes our cash flows from operating, investing, and financing activities for the past three years (in thousands):


YEAR ENDED
AUGUST 31,                             2021        2020       2019
Total cash provided by (used for):
Operating activities               $  46,177$  27,563$ 30,452
Investing activities                 (14,315)    (11,865)    (6,873)
Financing activities                 (11,479)    (16,557)    (5,932)

Effect of exchange rates on cash (103) 297 (101) Increase (decrease) in cash and cash equivalents

                   $  20,280$    (562)$ 17,546

Our Current Credit Agreement


On August 7, 2019, we entered into a new credit agreement (the 2019 Credit
Agreement) with our existing lender, which replaced our amended and restated
credit agreement dated March 2011. The 2019 Credit Agreement provides up to
$25.0 million in term loans and a $15.0 million revolving line of credit, which
expires in August 2024. Upon entering into the 2019 Credit Agreement, we
borrowed $20.0 million through a term loan and used the proceeds to repay all
indebtedness under the previous credit agreement. During November 2019, we
borrowed the remaining $5.0 million term loan available on the 2019 Credit
Agreement.

In anticipation of potential covenant compliance issues associated with the
COVID-19 pandemic and uncertainties associated with the economic recovery, on
July 8, 2020, we entered into the First Modification Agreement to the 2019
Credit Agreement. The primary purpose of the First Modification Agreement was to
provide temporary alternative borrowing covenants for the fiscal quarters ending
August 31, 2020 through May 31, 2021. In connection with the acquisition of
Strive Talent, Inc. in April 2021, we entered into a Consent and Second
Modification Agreement to the 2019 Credit Agreement. The primary purposes of the
Consent and Second Modification Agreement were to:

?Consent to the purchase of Strive.

?Reinstate the original debt covenants of the 2019 Credit Agreement which were temporarily replaced by alternate debt covenants in the First Modification Agreement to the 2019 Credit Agreement.


?Reduce the interest rate for borrowings from LIBOR plus 3.0 percent to LIBOR
plus 1.85 percent, which was the original rate on the 2019 Credit Agreement. The
unused credit commitment fee also returns to the previously established 0.2
percent.

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The Consent and Second Modification Agreement did not change any repayment or credit availability terms on the 2019 Credit Agreement.


At August 31, 2021, our reinstated debt covenants consist of the following: (i)
a Funded Indebtedness to Adjusted EBITDAR Ratio of less than 3.00 to 1.00; (ii)
a Fixed Charge Coverage ratio not less than 1.15 to 1.00; (iii) an annual limit
on capital expenditures (excluding capitalized curriculum development costs) of
$8.0 million; and (iv) consolidated accounts receivable of not less than 150% of
the aggregate amount of the outstanding borrowings on the revolving line of
credit, the undrawn amount of outstanding letters of credit, and the amount of
unreimbursed letter of credit disbursements. In the event of noncompliance with
these financial covenants and other defined events of default, the lender is
entitled to certain remedies, including acceleration of the repayment of any
amounts outstanding on the 2019 Credit Agreement. At August 31, 2021, we believe
that we were in compliance with the terms and covenants applicable to the 2019
Credit Agreement and subsequent modifications.

In addition to our term loan obligations, we have a long-term lease on our
corporate campus that is accounted for as a financing obligation. For further
information on our debt and leasing obligations, refer to the notes to our
consolidated financial statements as presented in Item 8 of this Annual Report
on Form 10-K.

The following discussion is a description of the primary factors affecting our
cash flows and their effects upon our liquidity and capital resources during the
fiscal year ended August 31, 2021.

Cash Flows from Operating Activities


Our primary source of cash from operating activities was the sale of services
and products to our customers in the normal course of business. The primary uses
of cash for operating activities were payments for selling, general, and
administrative expenses; payments for direct costs necessary to conduct training
programs; payments to suppliers for materials used in training manuals sold; and
to fund working capital needs. Despite the ongoing operating difficulties
resulting from the COVID-19 pandemic in fiscal 2021, our cash provided by
operating activities increased 68 percent to $46.2 million compared with
$27.6 million in fiscal 2020. The increase was primarily due to increased income
from operations and favorable changes in working capital during fiscal 2021.
Despite pandemic conditions, our collection of accounts receivable remained
strong during fiscal 2021 and provided the necessary cash to support our
operations, pay our obligations, and make critical investments.

Cash Flows from Investing Activities and Capital Expenditures


Our cash used for investing activities during the fiscal year ended August 31,
2021 totaled $14.3 million. The primary uses of cash for investing activities in
fiscal 2021 included the purchase of Strive for $10.2 million (net of cash
acquired), additional investment in our offerings and content, and purchases of
property and equipment in the normal course of business.

We spent $2.5 million during fiscal 2021 on the development of various content
and offerings. Our previous and ongoing investments in content and digital
delivery capabilities have proved to be valuable during the ongoing pandemic as
we were able to quickly transition our onsite presentations to "live online"
presentations. We believe continued investment in our offerings and delivery
capabilities is critical to our future success and we anticipate that our
capital spending for curriculum development will total $5.0 million during
fiscal 2022.

Our purchases of property and equipment during fiscal 2021 consisted primarily
of computer software and hardware. We expect to continue our investing in our
content and delivery modalities, including the AAP and Leader in Me subscription
services, and currently anticipate that our spending for property and equipment
will total approximately $4.9 million in fiscal 2022.


?

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Cash Flows from Financing Activities


During the fiscal year ended August 31, 2021, we used $11.5 million of net cash
for financing activities. Our primary uses of financing cash included
$7.6 million used for principal payments on our term loans and financing
obligation, $3.0 million for purchases of our common stock for treasury, and
$2.0 million of cash used to pay contingent consideration liabilities from
previous business acquisitions. Our purchases of common stock during fiscal 2021
were solely for shares withheld to pay income taxes on stock-based compensation
awards which were distributed in fiscal 2021. Partially offsetting these uses of
cash were $1.1 million of proceeds from ESPP participants to purchase shares of
stock during fiscal 2021.

On November 15, 2019, our Board of Directors approved a new plan to repurchase
up to $40.0 million of the Company's outstanding common stock. The previously
existing common stock repurchase plan was canceled and the new common share
repurchase plan does not have an expiration date. Our uses of financing cash
during fiscal 2022 are expected to include required payments on our term loans,
notes payable from the acquisition of Strive, financing obligation, and
contingent consideration payments from previous business acquisitions, and may
include purchases of our common stock for treasury. However, the timing and
amount of common stock purchases is dependent on a number of factors, including
available resources, and we are not obligated to make purchases of our common
stock during any future period.

Sources of Cash and Liquidity


We expect to meet our projected capital expenditures, repay amounts borrowed on
our 2019 Credit Agreement, service our existing financing obligation, and meet
other working capital requirements during fiscal 2022 from current cash
balances, future cash flows from operating activities, and available borrowings
from our revolving line of credit. Going forward, we will continue to incur
costs necessary for the day-to-day operation and potential growth of the
business and may use our available revolving line of credit and other financing
alternatives, if necessary, for these expenditures. At August 31, 2021, we had
$15.0 million of available borrowing capacity on our revolving line of credit.
Our 2019 Credit Agreement expires in August 2024 and we expect to renew or amend
the 2019 Credit Agreement on a regular basis to maintain the long-term borrowing
capacity of this credit facility. Additional potential sources of liquidity
available to us include factoring receivables, issuance of additional equity, or
issuance of debt from public or private sources. If necessary, we will evaluate
all of these options and select one or more of them depending on overall capital
needs and the associated cost of capital. The COVID-19 pandemic has created
uncertainty in capital markets, which may limit our ability to access liquidity
on terms favorable to us, or at all.

We believe that our existing cash and cash equivalents, cash generated by
operating activities, and availability of external funds as described above,
will be sufficient for us to maintain our operations over the next 12 months.
However, our ability to maintain adequate capital for our operations in the
future is dependent upon a number of factors, including sales trends,
macroeconomic activity, our ability to contain costs, levels of capital
expenditures, collection of accounts receivable, and other factors. Some of the
factors that influence our operations are not within our control, such as
general economic conditions and the introduction of new offerings or technology
by our competitors.

During the periods presented within this Annual Report, inflation has not had a
material effect on our operations. However, economic conditions indicate that
future inflationary pressure may have an impact on a variety of our operating
costs, including associate compensation, benefit costs, travel costs, and the
price of materials used in the production of training products and related
accessories, including paper and related raw materials. We may not be able to
pass on such increased costs to our customers.

We will continue to monitor our liquidity position and may pursue additional
financing alternatives, as described above, to maintain sufficient resources for
future growth and capital requirements. However, there can be no assurance such
financing alternatives will be available to us on acceptable terms, or at all.


?

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Material Cash Requirements

We do not operate any manufacturing, mining, or other capital-intensive facilities, and we have not structured any special purpose entities, or participated in any commodity trading activities, which would expose us to potential undisclosed liabilities or create adverse consequences to our liquidity. However, we have cash expenditures and are subject to various contractual obligations that are required to run our business. As discussed above, general economic conditions indicate that future inflationary pressure may affect these expenditures. Our material cash requirements include the following:


?Associate and Consultant Compensation - Associate and consultant compensation
is our largest recurring use of cash. Our compensation plans for associates and
delivery consultants include fixed (salaried) and variable (commissions,
bonuses, etc.) elements as well as the cost of benefits, and may fluctuate with
sales, financial results, and hiring/retention activity. During fiscal 2021, we
expensed approximately $140 million for associate and delivery consultant cash
compensation. Associate compensation expense is included in SG&A expense and
consultant compensation is included in our cost of sales.

?Information Technology - Our business is reliant on computer software and
hardware. Our subscription service portals require ongoing development,
recurring maintenance, and utilize various software. In addition, we utilize
various software programs to run our business, including applications for
customer resource management, general ledger, cybersecurity, spreadsheets, word
processing, e-mail, etc. Including capitalized hardware and software, we spent
approximately $7 million for information technology software and hardware during
fiscal 2021. We expect spending related to our subscription service portals to
increase in future years.

?Content Development - We believe that ongoing investment in our content and
offerings is key to our future success. Our innovations group is responsible for
the development of new content as well as refreshing and maintaining our
existing content. Including capitalized development, we spent approximately
$6 million (excluding compensation discussed above) for the development and
maintenance of our offerings and content in fiscal 2021.

?Income Taxes - We are required to pay income taxes in the various jurisdictions
where we operate. During fiscal 2021, we paid $1.8 million in cash for income
taxes during fiscal 2021. Our use of cash for income taxes depends upon our
profitability and our ability to utilize tax assets such as net operating loss
carryforwards and foreign income tax credits.

?Contractual Obligations - In addition to the expenses described above, which we
believe are required to successfully run our business, we have other longer-term
contractual obligations, which require additional cash payments. We have
summarized our significant contractual obligations at August 31, 2021 in the
following table (in thousands):

                         Fiscal      Fiscal      Fiscal      Fiscal     

Fiscal

Description               2022        2023        2024        2025       2026      Thereafter      Total
Term loans payable     $  5,289$  5,171$  5,054    $      -   $      -   $          -   $ 15,514
to bank(1)
Required lease
payments on
corporate campus          3,874       3,952       4,031      3,301           -              -     15,158
Strive contingent
compensation(2)(3)          620       1,650         680        700        740               -      4,390
Strive note payable         835         835         835        835        835                      4,175
Purchase obligations      3,853            -           -          -          -              -      3,853
Minimum operating
lease
payments                    707         610         456        110         15               -      1,898
Jhana contingent
consideration
payments(2)               1,318         484            -          -          -              -      1,802
                       $ 16,496$ 12,702$ 11,056$ 4,946$ 1,590    $          -   $ 46,790

(1)Payment amounts shown include interest at 2.4 percent, which is the current rate on our term loan obligations under the 2019 Credit Agreement and the Consent and Second Modification Agreement.


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(2)The payment of contingent consideration resulting from prior business
acquisitions is based on current estimates and projections. We reassess the fair
value of estimated contingent consideration payments each quarter based on
available information. The actual payment of contingent consideration amounts
may differ in amount and timing from those shown in the table.

(3)Contingent compensation from the acquisition of Strive Talent, Inc. is based
on current estimates and projections and includes a $1.0 million bonus payable
to Strive employees that are employed 18 months from the acquisition date. The
actual payment of Strive contingent compensation amounts may differ in amount
and timing from those shown in the table.

USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES


Our consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America. The
significant accounting policies that we used to prepare our consolidated
financial statements are outlined primarily in Note 1 and in Note 2 (revenue
recognition policies) to the consolidated financial statements, which are
presented in Part II, Item 8 of this Form 10-K. Some of those accounting
policies require us to make assumptions and use judgments that may affect the
amounts reported in our consolidated financial statements. Management regularly
evaluates its estimates and assumptions and bases those estimates and
assumptions on historical experience, factors that are believed to be reasonable
under the circumstances, and requirements under accounting principles generally
accepted in the United States of America. Actual results may differ from these
estimates under different assumptions or conditions, including changes in
economic and political conditions and other circumstances that are not within
our control, but which may have an impact on these estimates and our actual
financial results.

The following items require the most significant judgment and often involve complex estimates:

Revenue Recognition


We account for revenue in accordance with Accounting Standards Update No.
2014-09, Revenue from Contracts with Customers (Topic 606). For the All Access
Pass, judgment is required to determine whether the intellectual property and
web-based functionality and content are considered distinct and accounted for
separately, or not distinct and accounted for together.

We have determined to account for the AAP as a single performance obligation and
recognize the associated transaction price ratably over the term of the
underlying contract beginning on the commencement date of each contract, which
is the date the Company's platforms and resources are made available to the
customer. This determination was reached after considering that our web-based
functionality and content, in combination with our intellectual property, each
represent inputs that transform into a combined output that represents the
intended outcome of the AAP, which is to provide a continuously accessible,
customized, and dynamic learning and development solution only accessible
through the All Access Pass platform.

Judgment is required to determine the stand-alone selling price (SSP) for each
distinct performance obligation in a revenue contract. Where we have more than
one distinct performance obligation, we must allocate the transaction price to
each performance obligation based on its relative SSP. The SSP is the price
which we would sell a promised product or service separately to a customer. In
determining the SSP, we consider the size and volume of transactions, price
lists, historical sales, and contract prices. We may modify our pricing from
time-to-time in the future, which could result in changes to the SSP.

Stock-Based Compensation


Our shareholders have approved performance-based long-term incentive plans
(LTIPs) that provide for grants of stock-based performance awards to certain
managerial personnel and executive management as directed by the Organization
and Compensation Committee of the Board of Directors. The number of common
shares that are vested and issued to LTIP

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participants is variable and is based upon the achievement of specified
performance objectives during defined service periods. Due to the variable
number of common shares that may be issued under the LTIP, we reevaluate our
LTIP grants on a quarterly basis and adjust the expected vesting dates and
number of shares expected to be awarded based upon actual and estimated
financial results of the Company compared with the performance goals set for the
award. Adjustments to the number of shares awarded, and to the corresponding
compensation expense, are made on a cumulative basis at the adjustment date
based upon the new estimated probable number of common shares to be awarded.

The analysis of our LTIP awards contains uncertainties because we are required
to make assumptions and judgments about the timing and/or the eventual number of
shares that will vest in each LTIP grant. The assumptions and judgments that are
essential to the analysis include forecasted sales and operating income levels
during the LTIP service periods. These forecasted amounts may be difficult to
predict over the life of the LTIP awards due to changes in our business, such as
from the introduction of subscription-based services, or other external factors,
such as the COVID-19 pandemic, and their impact on our financial results. Events
such as these may leave some previously approved performance measures obsolete
or unattainable. The evaluation of LTIP performance awards and the corresponding
use of estimated amounts may produce additional volatility in our consolidated
financial statements as we record cumulative adjustments to the estimated
service periods and number of common shares to be awarded under the LTIP grants
as described above. For example, uncertainties associated with the impact of and
expected recovery from the COVID-19 pandemic resulted in a significant reversal
of previously recognized performance award stock-based compensation expense
during fiscal 2020.

Accounts Receivable Valuation


Trade accounts receivable are recorded at the invoiced amount and do not bear
interest. Our allowance for doubtful accounts calculations contain uncertainties
because the calculations require us to make assumptions and judgments regarding
the collectability of customer accounts, which may be influenced by a number of
factors that are not within our control, such as the financial health of each
customer. We regularly review the collectability assumptions of our allowance
for doubtful accounts calculation and compare them against historical
collections. Adjustments to the assumptions may either increase or decrease our
total allowance for doubtful accounts and may adversely impact our financial
results. For example, a 10 percent increase to our allowance for doubtful
accounts at August 31, 2021 would decrease our reported income from operations
by approximately $0.5 million.

For further information regarding the calculation of our allowance for doubtful
accounts, refer to the notes to our financial statements as presented in Item 8
of this Annual Report on Form 10-K.

Valuation of Indefinite-Lived Intangible Assets and Goodwill


Intangible assets that are deemed to have an indefinite life and goodwill
balances are not amortized, but rather are tested for impairment on an annual
basis, or more often if events or circumstances indicate that a potential
impairment exists. The Covey trade name intangible asset originated from the
merger with the Covey Leadership Center in 1997 and has been deemed to have an
indefinite life. This intangible asset is quantitatively tested for impairment
using the present value of estimated royalties on trade name related revenues,
which consist primarily of training seminars and related products, and
international licensee royalties.

Goodwill is recorded when the purchase price for a business acquisition exceeds
the estimated fair value of the net tangible and identified intangible assets
acquired. Under current accounting guidance, an annual or interim goodwill
impairment test is performed by comparing the fair value of a reporting unit
with its carrying amount, and an impairment charge is recognized for the amount
by which the carrying amount exceeds the reporting unit's fair value.

We tested goodwill for impairment at August 31, 2021 at the reporting unit level
using a quantitative approach. The estimated fair value of each reporting unit
was calculated using a combination of the income approach (discounted cash
flows) and the market approach (using market multiples derived from a set of
companies with comparable market characteristics). The estimated fair values of
the reporting units from these approaches were weighted in the determination of
the total fair value.

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On an interim basis, we consider whether events or circumstances are present that may lead to the determination that goodwill may be impaired. These circumstances include, but are not limited to, the following:

?significant underperformance relative to historical or projected future operating results;

?significant change in the manner of our use of acquired assets or the strategy for the overall business;

?significant change in prevailing interest rates;

?significant negative industry or economic trend;

?significant change in market capitalization relative to book value; and/or

?significant negative change in market multiples of the comparable company set.


If, based on events or changing circumstances, we determine it is more likely
than not that the fair value of a reporting unit does not exceed its carrying
value, we would be required to test goodwill for impairment.

Determining the fair value of a reporting unit is judgmental in nature and
involves the use of significant estimates and assumptions. These estimates and
assumptions include revenue growth rates and operating margins used to calculate
projected future cash flows, risk-adjusted discount rates, future economic and
market conditions, and determination of appropriate market comparables. We base
our fair value estimates on assumptions we believe to be reasonable, but that
are unpredictable and inherently uncertain. Actual future results may differ
from those estimates. In addition, we make certain judgments and assumptions in
allocating shared assets and liabilities to determine the carrying values for
each of our reporting units. The timing and frequency of our goodwill impairment
tests are based on an ongoing assessment of events and circumstances that would
indicate a possible impairment. Based on the results of our goodwill impairment
testing during fiscal 2021, we determined that no impairment existed at
August 31, 2021, as each reportable operating segment's estimated fair value
exceeded its carrying value. We will continue to monitor our goodwill and
intangible assets for impairment and conduct formal tests when impairment
indicators are present.

Impairment of Long-Lived Assets


Long-lived tangible assets and finite-lived intangible assets are reviewed for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. We use an estimate of
undiscounted future net cash flows of the assets over their remaining useful
lives in determining whether the carrying value of the assets is recoverable. If
the carrying values of the assets exceed the anticipated future cash flows of
the assets, 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 upon discounted cash flows over the estimated remaining
useful life of the asset. If we recognize an impairment loss, the adjusted
carrying amount of the asset becomes its new cost basis, which is then
depreciated or amortized over the remaining useful life of the asset. Impairment
of long-lived assets is assessed at the lowest levels for which there are
identifiable cash flows that are independent from other groups of assets.

Our impairment evaluation calculations contain uncertainties because they
require us to make assumptions and apply judgment in order to estimate future
cash flows, forecast the useful lives of the assets, and select a discount rate
that reflects the risk inherent in future cash flows. Although we have not made
any recent material changes to our long-lived assets impairment assessment
methodology, if forecasts and assumptions used to support the carrying value of
our long-lived tangible and finite-lived intangible assets change in the future,
significant impairment charges could result that would adversely affect our
results of operations and financial condition.

Acquisitions and Contingent Consideration Liabilities


We record acquisitions resulting in the consolidation of an enterprise using the
purchase method of accounting. Under this method, the acquiring company records
the assets acquired, including intangible assets that can be identified and
named, and liabilities assumed based on their estimated fair values at the date
of acquisition. The purchase price in excess of the fair value of the assets
acquired and liabilities assumed is recorded as goodwill. If the assets
acquired, net of liabilities assumed, are greater than the purchase price paid,
then a bargain purchase has occurred and the Company will recognize the gain
immediately in earnings. Among other sources of relevant information, we use
independent appraisals

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or other valuations to assist in determining the estimated fair values of the
assets and liabilities. Various assumptions are used in the determination of
these estimated fair values including discount rates, market and volume growth
rates, product or service selling prices, cost structures, royalty rates, and
other prospective financial information.

Additionally, we are required to reassess the fair value of contingent
consideration liabilities resulting from business acquisitions at each reporting
period. Although subsequent changes to the contingent consideration liabilities
do not affect the goodwill generated from the acquisition transaction, the
valuation of expected contingent consideration often requires us to estimate
future sales and/or profitability. These estimates require the use of numerous
assumptions, many of which may change frequently and lead to increased or
decreased operating income in future periods. For instance, during fiscal 2021
we recorded $0.2 million of net increases to the fair value of our contingent
consideration liabilities compared with approximately $49,000 of decreases
during fiscal 2020. Changes to the fair value of contingent consideration
liabilities are recorded as a component of selling, general, and administrative
expenses.

Income Taxes

We regularly evaluate our United States federal and various state and foreign
jurisdiction income tax exposures. We account for certain aspects of our income
tax provision using the provisions of ASC 740-10-05, which addresses the
determination of whether tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements. We may recognize the tax
benefit from an uncertain tax position only if it is more likely than not that
the tax position will be sustained upon examination by the taxing authorities,
based on the technical merits of the position. The tax benefits recognized in
the financial statements from such a position are measured based on the largest
benefit that has a greater than 50 percent likelihood of being realized upon
final settlement. The provisions of ASC 740-10-05 also provide guidance on
de-recognition, classification, interest, and penalties on income taxes,
accounting for income taxes in interim periods, and require increased disclosure
of various income tax items. Taxes and penalties are components of our overall
income tax provision.

We record previously unrecognized tax benefits in the financial statements when
it becomes more likely than not (greater than a 50 percent likelihood) that the
tax position will be sustained. To assess the probability of sustaining a tax
position, we consider all available evidence. In many instances, sufficient
positive evidence may not be available until the expiration of the statute of
limitations for audits by taxing jurisdictions, at which time the entire benefit
will be recognized as a discrete item in the applicable period.

Our unrecognized tax benefits result from uncertain tax positions about which we
are required to make assumptions and apply judgment to estimate the exposures
associated with our various tax filing positions. The calculation of our income
tax provision or benefit, as applicable, requires estimates of future taxable
income or losses. During the course of the fiscal year, these estimates are
compared to actual financial results and adjustments may be made to our tax
provision or benefit to reflect these revised estimates. Our effective income
tax rate is also affected by changes in tax law and the results of tax audits by
various jurisdictions. Although we believe that our judgments and estimates
discussed herein are reasonable, actual results could differ, and we could be
exposed to losses or gains that could be material.

We establish valuation allowances for deferred tax assets when we estimate it is
more likely than not that the tax assets will not be realized. The determination
of whether valuation allowances are needed on our deferred income tax assets
contains uncertainties because we must project future income, including the use
of tax-planning strategies, by individual tax jurisdictions. Changes in industry
and economic conditions and the competitive environment may impact the accuracy
of our projections. We regularly assess the likelihood that our deferred tax
assets will be realized and determine if adjustments to our valuation allowance
are necessary. These evaluations may produce additional volatility in our tax
provision or benefit, net income or loss, and earnings or loss per share. For
example, in consideration of the relevant accounting guidance, we reevaluated
our deferred tax assets during fiscal 2020 and considered both positive and
negative evidence in determining whether it is more likely than not that some
portion or all of our deferred tax assets will be realized. Because of the
cumulative pre-tax losses over the past three fiscal years, combined with the
expected continued disruptions and negative impact to our business resulting
from uncertainties related to the recovery from the pandemic, we were unable to
overcome accounting guidance indicating that it is more-likely-than-not that
insufficient taxable income will be available to realize all of our deferred tax
assets before they expire, which are primarily foreign tax credit

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carryforwards and a portion of our net operating loss carryforwards. Accordingly, we increased the valuation allowance against our deferred tax assets in fiscal 2020. Due to better-than-expected results in fiscal 2021, we reversed a substantial portion of these valuation allowances.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to Note 1 to the consolidated financial statements for information on recent accounting pronouncements.

REGULATORY COMPLIANCE


We are registered in states in which we do business that have a sales tax and we
collect and remit sales or use tax on sales made in these jurisdictions.
Compliance with environmental laws and regulations (including new laws and
regulations relating to climate change) has not had a material effect on our
operations. We believe we are in compliance with applicable governmental
regulations in the United States and the countries in which we operate.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995


Certain statements made by the Company in this report are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and Section 21E of the Securities Exchange Act of 1934 as amended (the
Exchange Act). Forward-looking statements include, without limitation, any
statement that may predict, forecast, indicate, or imply future results,
performance, or achievements, and may contain words such as "believe,"
"anticipate," "expect," "estimate," "project," or words or phrases of similar
meaning. In our reports and filings we may make forward-looking statements
regarding, among other things, our expectations about future sales levels and
financial results, expected effects from the COVID-19 pandemic, including
effects on how we conduct our business and our results of operations, the timing
and duration of the recovery from the COVID-19 pandemic, future training and
consulting sales activity, expected benefits from the All Access Pass and the
electronic delivery of our content, anticipated renewals of subscription
offerings, the impact of new accounting standards on our financial condition and
results of operations, the amount and timing of capital expenditures,
anticipated expenses, including SG&A expenses, depreciation, and amortization,
future gross margins, the release of new services or products, the adequacy of
existing capital resources, our ability to renew or extend our line of credit
facility, the amount of cash expected to be paid for income taxes, our ability
to maintain adequate capital for our operations for at least the upcoming 12
months, the seasonality of future sales, future compliance with the terms and
conditions of our line of credit, the ability to borrow on our line of credit,
expected collection of accounts receivable, estimated capital expenditures, and
cash flow estimates used to determine the fair value of long-lived assets.
These, and other forward-looking statements, are subject to certain risks and
uncertainties that may cause actual results to differ materially from the
forward-looking statements. These risks and uncertainties are disclosed from
time to time in reports filed by us with the SEC, including reports on Forms
8-K, 10-Q, and 10-K. Such risks and uncertainties include, but are not limited
to, the matters discussed in Item 1A of this annual report on Form 10-K for the
fiscal year ended August 31, 2021, entitled "Risk Factors." In addition, such
risks and uncertainties may include unanticipated developments in any one or
more of the following areas: cybersecurity risks; unanticipated costs or capital
expenditures; delays or unanticipated outcomes relating to our strategic plans;
dependence on existing products or services; the rate and consumer acceptance of
new product introductions, including the All Access Pass; competition; the
impact of foreign exchange rates; the number and nature of customers and their
product orders, including changes in the timing or mix of product or training
orders; pricing of our products and services and those of competitors; adverse
publicity; and other factors which may adversely affect our business.

The risks included here are not exhaustive. Other sections of this report may
include additional factors that could adversely affect our business and
financial performance. Moreover, we operate in a very competitive and rapidly
changing environment. New risk factors may emerge and it is not possible for our
management to predict all such risk factors, nor can we assess the impact of all
such risk factors on our business or the extent to which any single factor, or
combination of factors, may cause actual results to differ materially from those
contained in forward-looking statements. Given these risks and uncertainties,
investors should not rely on forward-looking statements as a prediction of
actual results.

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The market price of our common stock has been and may remain volatile. In
addition, the stock markets in general have experienced increased volatility.
Factors such as quarter-to-quarter variations in revenues and earnings or losses
and our failure to meet expectations could have a significant impact on the
market price of our common stock. In addition, the price of our common stock can
change for reasons unrelated to our performance. Due to our relatively low
market capitalization, the price of our common stock may also be affected by
conditions such as a lack of analyst coverage and fewer potential investors.

Forward-looking statements are based on management's expectations as of the date
made, and the Company does not undertake any responsibility to update any of
these statements in the future except as required by law. Actual future
performance and results will differ and may differ materially from that
contained in or suggested by forward-looking statements as a result of the
factors set forth in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in our filings with the SEC.

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