FC US Equity☆

ITEM 1A. RISK FACTORS

Our business environment, current domestic and international economic conditions, ongoing impacts from the COVID-19 pandemic, geopolitical circumstances, and other specific risks may affect our future business decisions and financial

performance. The matters discussed below may cause our future results to differ from past results or those described in forward-looking statements and could have a material effect on our business, financial condition, liquidity, results of

operations, and stock price, and should be considered in evaluating our Company.

The risks included here are not exhaustive. Other sections of this report may include additional risk factors which could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing

global environment. New risk factors emerge from time to time and it is not possible for 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 factor, or

combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a

prediction of actual results.

COVID-19 Pandemic Risks

Our results of operations have been adversely affected and could be materially impacted in the future by the COVID-19, or coronavirus, pandemic.

The global spread of COVID-19 has created significant volatility, uncertainty, and economic disruption during fiscal 2020. The extent to which the COVID-19 pandemic impacts our business, operations, and financial results will depend on

numerous evolving factors that we may not be able to accurately predict, including: the duration, scope, and severity of the pandemic; the ability to create effective vaccines and effective therapeutic treatments; governmental, business, and

individuals’ actions that have been taken, and continue to be taken, in response to the pandemic; the impact of the pandemic on worldwide economic activity and actions taken in response; the effect on our clients, including educational

institutions, and client demand for our services; our ability to sell and provide our services and solutions, including the impact of travel restrictions and from people working from home; the ability of our clients to pay for our services on a

timely basis or at all; the ability to maintain sufficient liquidity and to access credit and capital markets as needed; and any closure of our offices. Any of these events, or related conditions, could cause or contribute to the risks and

uncertainties described in this section of our Annual Report and could materially adversely affect our business, financial condition, results of operations, cash flows, and stock price.

Training Industry and Related Risks

We operate in an intensely competitive industry and our competitors may develop programs, services, or courses that adversely affect our ability to sell our offerings.

The training and consulting services industry is intensely competitive with relatively easy entry. Competitors continually introduce new programs, services, and delivery methods that may compete directly with our offerings, or that may make our

offerings uncompetitive or obsolete. Larger competitors may have superior abilities to compete for clients and skilled professionals, reducing our ability to deliver quality work to our clients. Some of our competitors may have greater financial

and other resources than we do. In addition, one or more of our competitors may develop and implement training courses or methodologies that may adversely affect our ability to sell our offerings and products to new clients. Any one of these

circumstances could have an adverse effect on our ability to obtain new business and successfully deliver our services.

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Our results of operations could be adversely affected by economic and political conditions and the effects of these conditions on our clients’ businesses and their levels of business activity.

Global economic and political conditions affect our clients’ businesses and the markets in which they operate. Our financial results are somewhat dependent on the amount that current and prospective clients budget for training. A serious

and/or prolonged economic downturn combined with a negative or uncertain political climate could adversely affect our clients’ financial condition and the amount budgeted for training by our clients. These conditions may reduce the demand for our

services or depress the pricing of those services and have an adverse impact on our results of operations. Changes in global economic conditions may also shift demand to services for which we do not have competitive advantages, and this could

negatively affect the amount of business that we are able to obtain. Such economic, political, and client spending conditions are influenced by a wide range of factors that are beyond our control and that we have no comparative advantage in

forecasting. If we are unable to successfully anticipate these changing conditions, we may be unable to effectively plan for and respond to those changes, and our business could be adversely affected.

Our business success also depends in part upon continued growth in the use of training and consulting services and the renewal of existing contracts by our clients. In challenging economic environments, our clients may reduce or defer their

spending on new services and consulting solutions in order to focus on other priorities. At the same time, many companies have already invested substantial resources in their current means of conducting their business and they may be reluctant or

slow to adopt new approaches that could disrupt existing personnel and/or processes. If growth in the general use of training and consulting services in business or our clients’ spending on these items declines, or if we cannot convince our

clients or potential clients to embrace new services and solutions, our results of operations could be adversely affected.

In addition, our business tends to lag behind economic cycles and, consequently, the benefits of an economic recovery following a period of economic downturn may take longer for us to realize than other segments of the economy.

We have only a limited ability to protect our intellectual property rights, which are important to our success.

Our financial success is partially dependent on our ability to protect our proprietary offerings and other intellectual property. The existing laws of some countries in which we provide services might offer only limited protection of our

intellectual property rights. To protect our intellectual property, we rely upon a combination of confidentiality policies, nondisclosure and other contractual arrangements, as well as copyright and trademark laws. The steps we take in this

regard may not be adequate to prevent or deter infringement or other misappropriation of our intellectual property, and we might not be able to detect unauthorized use of, or take appropriate and timely steps to enforce, our intellectual property

rights, especially in foreign jurisdictions.

The loss of proprietary content or the unauthorized use of our intellectual property may create greater competition, loss of revenue, adverse publicity, and may limit our ability to reuse that intellectual property for other clients. Any

limitation on our ability to provide a service or solution could cause us to lose revenue-generating opportunities and require us to incur additional expenses to develop new or modified solutions for future engagements.

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We depend on key personnel, the loss of whom could harm our business.

Our future success will depend, in part, on the continued service of key executive officers and personnel. The loss of the services of any key individuals could harm our business. Our future success also depends on our ability to identify,

attract, and retain additional qualified senior personnel. Competition for such individuals in our industry is intense, and we may not be successful in attracting and retaining such personnel.

If we are unable to attract, retain, and motivate high-quality employees, including sales personnel and training consultants, we may not be able to grow our business as projected or may not be able to compete

effectively.

Our success and ability to grow are partially dependent on our ability to hire, retain, and motivate sufficient numbers of talented people with the increasingly diverse skills needed to serve our clients and grow our business. Competition for

skilled personnel is intense at all levels of experience and seniority. There is a risk that we will find it difficult to hire and retain a sufficient number of employees with the skills or backgrounds we require, or that it will prove difficult

to retain them in a competitive labor market. If we are unable to hire and retain talented sales and delivery employees with the skills, and in the locations, we require, we might not be able to grow our business at projected levels or may not be

able to effectively deliver our content and services. If we need to hire additional personnel to maintain a specified number of sales personnel or are required to re-assign personnel from other geographic areas, it could increase our costs and

adversely affect our profit margins. In addition, the inability of newly hired sales personnel to achieve projected sales levels may inhibit our ability to attain anticipated growth.

Our work with governmental clients exposes us to additional risks that are inherent in the government contracting process.

Our clients include national, state, provincial, and local governmental entities, and our work with these governmental entities has various risks inherent in the governmental contracting process. These risks include, but are not limited to, the

following:

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The occurrences or conditions described above could affect not only our business with the particular governmental agency involved, but also our business with other agencies of the same or other governmental entities. Additionally, because of

their visibility and political nature, governmental contracts may present a heightened risk to our reputation. Any of these factors could have an adverse effect on our business or our results of operations.

Cybersecurity and Information Technology Risks

The All Access Pass and Leader in Me online service are internet-based platforms, and as such we are subject to increased risks of cyber-attacks and other security breaches that could have a material adverse effect on

our business.

As part of selling subscription-based services, we collect, process, and retain a limited amount of sensitive and confidential information regarding our customers. Because our subscription services are internet-based platforms, our facilities

and systems may be vulnerable to external or internal security breaches, acts of vandalism, computer viruses, misplaced or lost data, stolen intellectual property, programming or human errors, or other similar events.

The access by unauthorized persons to, or the improper disclosure by us of, confidential information regarding our customers or our own proprietary information, software, methodologies, and business secrets could result in significant legal and

financial exposure, damage to our reputation, or a loss of confidence in the security of our systems, products, and services, which could have a material adverse effect on our business, financial condition, or results of operations. To the extent

we are involved in any future cyber-attacks or other breaches, our brand and reputation could be affected, and these conditions could also have a material adverse effect on our business, financial condition, or results of operations.

We could incur additional liabilities or our reputation could be damaged if we do not protect client data or if our information systems are breached.

We are dependent on information technology networks and systems to process, transmit, and store electronic information and to communicate between our locations around the world and with our clients. Security breaches of this infrastructure

could lead to shutdowns or disruptions of our systems and potential unauthorized disclosure of confidential information. We are also required at times to manage, utilize, and store sensitive or confidential client or employee data. As a result,

we are subject to numerous U.S. and foreign jurisdiction laws and regulations designed to protect this information, such as the various U.S. federal and state laws governing the protection of individually identifiable information. If any person,

including any of our associates, negligently disregards or intentionally breaches our established controls with respect to such data or otherwise mismanages or misappropriates that data, we could be subject to monetary damages, fines, and/or

criminal prosecution. Unauthorized disclosure of sensitive or confidential client or employee data, whether through systems failure, employee negligence, fraud, or misappropriation could damage our reputation and cause us to lose clients.

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Legal requirements relating to the collection, storage, handling, and transfer of personal data continue to evolve. For example, the European Union and the U.S. formally entered into a new framework in July 2016 that provided a mechanism for

companies to transfer data from European Union member states to the U.S. On July 16, 2020, the Court of Justice of the European Union (the Court of Justice) invalidated the E.U.-U.S. Privacy Shield Framework on the grounds that the Privacy Shield

failed to offer adequate protections to E.U. personal data transferred to the United States. On August 10, 2020, the U.S. Department of Commerce and the European Commission announced new discussions to evaluate the potential for an enhanced

E.U.-U.S. Privacy Shield framework to comply with the July 16 judgment of the Court of Justice. The Privacy Shield and other data protection mechanisms face a number of legal challenges by both private parties and regulators, which may lead to

uncertainty about the legal basis for data transfers across the Atlantic. Ongoing legal reviews may result in burdensome or inconsistent requirements affecting the location and movement of our customer and internal employee data as well as the

management of that data. Compliance may require changes in services, business practices, or internal systems that may result in increased costs, lower revenue, reduced efficiency, or greater difficulty in competing with foreign-based firms.

Failure to comply with existing or new rules may result in significant penalties or orders to stop the alleged noncompliant activity.

In addition, during May 2018 the new General Data Protection Regulation (GDPR) became effective in the European Union. The GDPR imposes strict requirements on the collection, use, security, and transfer of personal information in and from

European Union member states. The GDPR is designed to unify data protection within the European Union under a single law, which may result in significantly greater compliance burdens and costs related to our European Union operations and

customers. Under GDPR, fines of up to 20 million Euros or up to four percent of the annual global revenues of the infringer, whichever is greater, could be imposed. Although GDPR applies across the European Union, local data protection

authorities still have the ability to interpret GDPR, which may create inconsistencies in application on a country-by-country basis. Furthermore, as the United Kingdom transitions out of the European Union, we may encounter additional complexity

with respect to data privacy and data transfers from the United Kingdom. We have implemented new controls and procedures, including a team dedicated to data protection, to comply with the Privacy Shield and the requirements of GDPR, which were

effective for us in May 2018. However, these new procedures and controls may not be completely effective in preventing unauthorized breaches of personal data.

Other governmental authorities throughout the U.S. and around the world are considering similar types of legislative and regulatory proposals concerning data protection. For example, in June 2018, the State of California enacted the California

Consumer Privacy Act of 2018 (the CCPA), which was effective on January 1, 2020. The CCPA requires companies that process information on California residents to make new disclosures to consumers about their data collection, use and sharing

practices, and allows consumers to opt out of certain data sharing with third parties and provides a new cause of action for data breaches. However, legislators have stated that they intend to propose amendments to the CCPA, and it remains unclear

what, if any, modifications will be made to the CCPA or how it will be interpreted. Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the

online collection, use, dissemination and security of data. Each of these privacy, security, and data protection laws and regulations could impose significant limitations, require changes to our business, or restrict our use or storage of personal

information, which may increase our compliance expenses and make our business more costly or less efficient to conduct.

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We employ global best practices in securing and monitoring code, applications, systems, processes and data, and our security practices are regularly reviewed and validated by an external auditing firm. However, these efforts may be insufficient

to protect sensitive information against illegal activities and we may be exposed to additional liabilities from the various data protection laws enacted within the jurisdictions where we operate.

Our business is becoming increasingly dependent on information technology and will require additional cash investments in order to grow and meet the demands of our clients.

Since the introduction of our subscription services, our dependence on the use of sophisticated technologies and information systems has increased. Moreover, our technology platforms will require continuing cash investments by us to expand

existing offerings, improve the client experience, and develop complementary offerings. Our future success depends in part on our ability to adapt our services and infrastructure while continuing to improve the performance, features, and

reliability of our services in response to the evolving demands of the marketplace. Failure to adapt and improve these areas could have an adverse effect on our business, including our results of operations, financial position, and cash flows.

Liquidity and Capital Resource Risks

We may not be able to generate sufficient cash to service our indebtedness, and we may be forced to take other actions to satisfy our payment obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our indebtedness depends on our future performance, including the performance of our subsidiaries, which will be affected by financial, business and economic conditions, competition, and

other factors. We are unable to control many of these factors, such as the general economy, economic conditions in the industries in which we operate, and competitive pressures. Our cash flow may not be sufficient to allow us to pay principal and

interest on our indebtedness and to meet our other obligations. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures or to sell

assets, seek additional capital, or restructure or refinance our indebtedness. These alternative measures may be unsuccessful and we may not meet our scheduled debt service obligations. In addition, the terms of existing or future debt

agreements, including our 2019 Credit Facility and subsequent modifications, may restrict us from pursuing any of these alternatives.

In the event that we need to refinance all or a portion of our outstanding indebtedness before maturity or as it matures, we may not be able to obtain terms as favorable as the terms of our existing indebtedness or refinance our existing

indebtedness at all. If interest rates or other factors existing at the time of refinancing result in higher interest rates upon refinancing, we will incur higher interest expense. Furthermore, if any rating agency changes our credit rating or

outlook, our debt and equity securities could be negatively affected, which could adversely affect our financial condition and financial results.

Failure to comply with the terms and conditions of our credit facility may have an adverse effect upon our business and operations.

Our secured credit agreement and subsequent modifications require us to be in compliance with customary non-financial terms and conditions as well as specified financial ratios. Failure to comply with these terms and conditions or maintain

adequate financial performance to comply with specific financial ratios entitles the lender to certain remedies, including the right to immediately call due any amounts owed on the credit agreement. Such events would have an adverse effect upon

our business and operations as there can be no assurance that we may be able to obtain other forms of financing or raise additional capital on terms that would be acceptable to us.

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We may need additional capital in the future, and this capital may not be available to us on favorable terms or at all.

We may need to raise additional funds through public or private debt offerings or equity financings in order to:

• Develop new services, programs, or offerings

• Take advantage of opportunities, including business acquisitions

• Respond to competitive pressures

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 facility and other financing alternatives, if necessary, for these

expenditures. We obtained a new credit agreement in August 2019 with our existing lender that expires in August 2024. We expect to regularly renew or amend our lending agreement in the future to maintain the availability 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.

Any additional capital raised through the sale of equity could dilute current shareholders’ ownership percentage in us. Furthermore, we may be unable to obtain the necessary capital on terms or conditions that are favorable to us, or at all.

Public Company Risks

We may fail to meet analyst expectations, which could cause the price of our stock to decline.

Our common stock is publicly traded on the NYSE, and at any given time various securities analysts follow our financial results and issue reports on us. These periodic reports include information about our historical financial results as well

as the analysts’ estimates of our future performance. The analysts’ estimates are based on their own opinions and are often different from our estimates or expectations. If our operating results are below the estimates or expectations of public

market analysts and investors, our stock price could decline. If our stock price is volatile, we may become involved in securities litigation following a decline in price. Any litigation could result in substantial costs and a diversion of

management’s attention and resources that are needed to successfully run our business.

Our business performance may not be sufficient for us to meet the financial guidance that we provide publicly.

We may provide financial guidance to the public based upon expectations regarding our financial performance. While we believe that our annual financial guidance provides investors and analysts with insight into our view of the Company’s future

performance, such financial guidance is based on assumptions that may not always prove to be accurate and may vary from actual results. If we fail to meet the full-year financial guidance that we provide, or if we find it necessary to revise such

guidance during the year, the market value of our common stock could be adversely affected.

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Our future quarterly operating results are subject to factors that can cause fluctuations in our stock price.

Historically, our stock price has experienced significant volatility. We expect that our stock price may continue to experience volatility in the future due to a variety of potential factors that may include the following:

• Fluctuations in our quarterly results of operations and cash flows

• Increased overall market volatility

• Variations between our actual financial results and market expectations

• Changes in our key balances, such as cash and cash equivalents

• Currency exchange rate fluctuations

• Unexpected asset impairment charges

• Increased or decreased analyst coverage

These factors may have an adverse effect upon our stock price in the future.

General Business Risks

Recent developments in international trade may have a negative effect on global economic conditions and our business, financial results, and financial condition.

The United States recently proposed and enacted certain tariffs. In addition, there have been ongoing discussions and activities regarding changes to other U.S. trade policies and treaties. In response, some countries in which we operate,

including China, are threatening to implement or have already implemented tariffs on U.S. imports or otherwise imposed non-tariff barriers. These developments may have a material adverse effect on global economic conditions and the stability of

global financial markets, and they may significantly reduce global trade and, in particular, trade between China and the United States. Any of these factors could depress economic activity, create anti-American consumer sentiment, restrict our

access to suppliers or customers, and have a material adverse effect on our business, financial condition, and results of operations. In addition, any actions by non-U.S. markets to implement further trade policy changes, including limiting

foreign investment or trade, increasing regulatory scrutiny or taking other actions which impact U.S. companies’ ability to obtain necessary licenses or approvals could negatively impact our business.

Our global operations pose complex management, foreign currency, legal, tax, and economic risks, which we may not adequately address.

We have sales offices in Australia, China, Japan, Germany, Switzerland, Austria, and the United Kingdom. We also have licensed operations in numerous other foreign countries. As a result of these foreign operations and their impact upon our

financial statements, we are subject to a number of risks, including:

• Restrictions on the movement of cash

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• Political instability

• Currency exchange rate fluctuations

• Longer payment cycles

• Price controls or restrictions on exchange of foreign currencies

For instance, on June 23, 2016, the United Kingdom held a referendum in which a majority of voters chose to exit the European Union, commonly referred to as “Brexit.” The outcome of this referendum produced significant currency exchange rate

fluctuations and volatility in global stock markets. The British government has commenced negotiations to determine the terms of Brexit, but the terms have not yet been determined and the process and effects of such separation remain uncertain.

Given the lack of comparable precedent, the implications of Brexit or how such implications might affect us are unclear. Brexit could, among other things, disrupt trade and the free movement of data, goods, services, and people between the United

Kingdom and the European Union or other countries as well as create legal and global economic uncertainty. These and other potential implications of Brexit could adversely affect our business and financial results.

Our global operations expose us to numerous and sometimes conflicting legal and regulatory requirements, and violation of these regulations could harm our business.

Because we provide services to clients in many countries, we are subject to numerous, and sometimes conflicting, regulations on matters as diverse as import/export controls, content requirements, trade restrictions, tariffs, taxation,

sanctions, government affairs, internal and disclosure control obligations, data privacy, and labor relations. Violations of these regulations in the conduct of our business could result in fines, criminal sanctions against us or our officers,

prohibitions on doing business, and damage to our reputation. Violations of these regulations in connection with the performance of our obligations to our clients also could result in liability for monetary damages, fines, unfavorable publicity,

and allegations by our clients that we have not performed our contractual obligations. Due to the varying degrees of development of the legal systems of the countries in which we operate, local laws may be insufficient to protect our rights.

In many parts of the world, including countries in which we operate, practices in the local business community might not conform to international business standards and could violate anticorruption regulations, including the United States

Foreign Corrupt Practices Act, which prohibits giving anything of value intended to influence the awarding of government contracts. Although we have policies and procedures to ensure legal and regulatory compliance, our employees, licensee

operators, and agents could take actions that violate these requirements. Violations of these regulations could subject us to criminal or civil enforcement actions, including fines and suspension or disqualification from United States federal

procurement contracting, any of which could have an adverse effect on our business.

We have significant intangible assets, goodwill, and long-term asset balances that may be impaired if cash flows from related activities decline.

Due to the nature of our business, we have significant amounts of intangible assets, including goodwill, resulting from events such as the acquisition of businesses and the licensing of content. Our intangible assets are evaluated for

impairment based on qualitative factors or upon cash flows and estimated royalties from revenue streams (indefinite-lived intangible assets) if necessary. Our goodwill is evaluated through qualitative factors and by comparing the fair value of the

reporting units to the carrying value of our net assets if necessary. Although our current sales, cash flows, and market capitalization are sufficient to support the carrying basis of these long-lived assets, if our sales, cash flows, or common

stock price decline, we may be faced with significant asset impairment charges that would have an adverse impact upon our results of operations.

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The Company’s use of accounting estimates involves judgment and could impact our financial results.

Our most critical accounting estimates are described in Management’s Discussion and Analysis found in Item 7 of this report under the section entitled “Use of Estimates and Critical Accounting Policies.” In addition, as discussed in various

footnotes to our financial statements as found in Item 8, we make certain estimates for loss contingencies, including decisions related to legal proceedings and reserves. Because, by definition, these estimates and assumptions involve the use of

judgment, our actual financial results may differ from these estimates. If our estimates or assumptions underlying such contingencies and reserves prove incorrect, we may be required to record additional adjustments or losses relating to such

matters, which would negatively affect our financial results.

Ineffective internal controls could impact our business and operating results.

Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal

controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved

controls, or if we experience difficulties in their implementation, our business and operating results may be harmed and we could fail to meet our financial reporting obligations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM 2. PROPERTIES

As of August 31, 2020, our principal executive offices in Salt Lake City, Utah occupy approximately 84,000 square feet of leased office space that is accounted for as a financing arrangement, which expires in 2025. This facility accommodates

our executive team and corporate administration, as well as other professionals. The master lease agreement on our principal executive offices contains six five-year renewal options that may be exercised at our discretion. Additionally, we occupy

leased sales and administrative offices both in the United States and various countries around the world as shown below. These leased facilities are accounted for as operating leases.

We consider our existing facilities to be in good condition and suitable for our current and expected level of operations in the upcoming fiscal year and in future periods.

U.S./Canada Sales Office

Columbus, Ohio

International Sales Offices

Banbury, England

Tokyo, Japan

China: Beijing, Shanghai, Guangzhou, and Shenzhen

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are the subject of certain legal actions, which we consider routine to our business activities. At August 31, 2020, we were not party to any litigation or legal proceeding that, in the current opinion of management, could

have a material adverse effect on our financial position, liquidity, or results of operations. However, due to the risks and uncertainties inherent in legal proceedings, actual results could differ from current expectations.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed and traded on the New York Stock Exchange (NYSE) under the symbol “FC.”

We did not pay or declare dividends on our common stock during the fiscal years ended August 31, 2020 or 2019. Any determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon our results of

operations, financial condition, terms of our financing arrangements, and such other factors as the board deems relevant. We currently anticipate that we will retain all available funds to repay our liabilities, finance future growth and business

opportunities, and to repurchase outstanding shares of our common stock.

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As of October 31, 2020, we had 14,025,413 shares of common stock outstanding, which were held by 523 shareholders of record. A number of our shareholders hold their shares in street name; therefore, we believe that there are substantially more

beneficial owners of our common stock.

Purchases of Common Stock by the Issuer

We did not have any purchases of our common stock during the fourth quarter of fiscal 2020.

On November 15, 2019, our Board of Directors approved a new plan to repurchase up to $40.0 million of our 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. Through August 31, 2020, we have purchased 5,000 shares of our common stock for $0.2 million under the terms of this Board approved plan.

The actual timing, number, and value of common shares repurchased under this plan will be determined at our discretion and will depend on a number of factors, including, among others, general market and business conditions, the trading price of

common shares, and applicable legal requirements. We have no obligation to repurchase any common shares under the authorization, and the repurchase plan may be suspended, discontinued, or modified at any time for any reason.

Performance Graph

The following graph demonstrates a five-year comparison of cumulative total returns for Franklin Covey Co. common stock, the S&P SmallCap 600 Index, and the S&P 600 Commercial & Professional Services Index. The graph assumes an

investment of $100 on August 31, 2015 in each of our common stock, the stocks comprising the S&P SmallCap 600 Index, and the stocks comprising the S&P 600 Commercial & Professional Services Index. Each of the indices assumes that all

dividends were reinvested.

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The stock performance shown on the performance graph above is not necessarily indicative of future performance. The Company will not make or endorse any predictions as to our future stock performance.

The performance graph above is being furnished solely to accompany this Annual Report on Form 10-K pursuant to Item 201(e) of Regulation S-K, and is not being filed for purposes of Section 18 of the Exchange Act, as amended, and is not to be

incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data presented below should be read in conjunction with our consolidated financial statements and related footnotes as found in Item 8 of this Annual Report on Form 10-K.

In thousands, except per-share data

Income Statement Data:

Earnings (loss) per share:

Basic and diluted $ (.68 ) $ (.07 ) $ (.43 ) $ (.52 ) $ .47

Balance Sheet Data:

_______________________

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, contractual obligations, 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 concepts of adjusted earnings before interest, income taxes, depreciation, and amortization (Adjusted EBITDA) and “constant currency,” which are non-GAAP measures. 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. Constant currency is a non-GAAP financial measure that removes the impact of fluctuations in foreign currency exchange rates and is calculated by translating the current period’s

financial results at the same average exchange rates in effect during the prior year and then comparing this amount to the prior year.

We reference these non-GAAP financial measures in our decision making because they provide supplemental information that facilitates consistent internal comparisons to the historical operating performance of prior periods and we believe they

provide investors with greater transparency to evaluate operational activities and financial results. For a reconciliation of our segment Adjusted EBITDA to net loss, a comparable 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 whose hallmarks are 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.

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

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We hold ourselves responsible for and measure ourselves by our clients’ achievement of transformational results.

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, 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 2020, fiscal 2019, and fiscal 2018 refer to the twelve-month periods ended August 31, 2020, 2019, 2018, and so forth.

Impact of COVID-19 Pandemic on Fiscal 2020

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 has surfaced in nearly all regions around the world and has 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 and school closures. In particular, these closures

impacted our third and fourth quarters of fiscal 2020 as described throughout this Annual Report on Form 10-K for fiscal 2020.

After strong financial performance during the first two quarters of fiscal 2020, our financial results in the third and fourth quarters of fiscal 2020 were adversely impacted by the COVID-19 pandemic and the resulting closure of offices and

educational institutions throughout the United States and in the countries where we operate direct offices and contract with licensee partners to deliver our offerings. We closed our corporate offices and restricted travel to protect the health

and safety of our associates and clients in an effort to slow the spread of the pandemic. Our international direct offices also followed the same pattern of closures and restrictions on associate travel and delivery of our offerings. These

actions, and similar steps taken by most of our clients, resulted in decreased sales during the third and fourth quarters as previously scheduled onsite events, client-facilitated presentations, and coaching days were postponed or canceled.

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Despite the difficult economic environment in the second half of fiscal 2020, we were pleased with the continued strength of our subscription sales 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. To be

successful in our industry, it is important to create effective learning environments for our clients and students, and we believe our previous investments in digital and remote delivery modalities are key to surviving and then thriving in the

current environment. According to the Training magazine 2020 Training Industry Report, most companies expect to retain at least some aspects of remote learning after the COVID-19 pandemic is over. We

believe our ability to deliver content and offerings over a broad array of 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 and will generate increased opportunities in future periods. However, our recovery from the COVID-19 pandemic is dependent upon a number of factors, many of which are not within our control, such as the timing of re-opening national,

state, and local economies; continuing effects of the pandemic on client operations; and other governmental responses to address the impacts of the pandemic. We will continue to monitor these developments 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 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 2020 consolidated financial statements.

Financial Overview

Our fiscal 2020 financial results are a tale of two halves. After strong financial performance during the first two quarters of fiscal 2020, our financial results in the third and fourth quarters of fiscal 2020 were adversely impacted by the

COVID-19 pandemic. Financial results in the first two quarters of fiscal 2020 showed strong growth in revenues, operating results, and cash flows over the prior year. Consolidated sales through February 29, 2020 grew 8 percent, with Enterprise

Division sales increasing $5.0 million, or 6 percent, and Education Division revenues increasing $1.9 million, or 10 percent, compared with the prior year. Cash flows from operating activities increased 30 percent over the first two quarters of

fiscal 2019. Then, as the COVID-19 outbreak expanded in March 2020 and developed into a global pandemic, most of the world’s governments enacted strict measures to prevent people from gathering or meeting in person. While we were able to continue

to deliver content through our digital modalities and recognize subscription revenues, the in-person meeting restrictions had a significant impact on all of our segment operations during the third and fourth quarters of fiscal 2020 as our clients

transitioned to remote learning environments and previously scheduled training and coaching events were postponed or canceled.

Although the second half of fiscal 2020 was a difficult economic environment, our revenues were favorably impacted by the continued strength of our subscription business, including the All Access Pass (AAP) in the Enterprise Division and the Leader in Me membership in the Education Division. Throughout the pandemic, our AAP sales have been strong and resilient as new pass sales and multi-year contract sales increased over the prior year. During

the third and fourth quarters of fiscal 2020, All Access Pass sales grew 15 percent compared with the prior year. All Access Pass revenue retention remained strong and was over 90 percent for fiscal 2020. Following the initial impact of the

pandemic, our U.S.\Canada and governmental clients quickly transitioned to our digital delivery options, and by July our booking pace for add-on coaching and services was equal to that achieved in the prior year and then exceeded last year’s pace

through August. We remain optimistic that sales and revenue retention for All Access Pass subscription sales, and the booking pace for AAP-related add-on services will continue to be strong in future periods. Our China and Japan direct offices

and many of our licensee partners had just started to sell the All Access Pass and had not developed a strong base of subscription revenue at the onset of the pandemic. These operations were highly dependent on the delivery of in-person training

and stay-at-home restrictions made it necessary to reschedule nearly all of their training and coaching events. As a result, sales declined disproportionately at these operations compared with our U.S./Canada operations. However, these foreign

offices are beginning to recover and we are optimistic that international momentum will continue to rebuild in fiscal 2021. We were also encouraged by the performance of the Education Division in the third and fourth quarters of fiscal 2020.

Despite the significant uncertainties in educational funding as a result of the pandemic, nearly 2,200 schools renewed their Leader in Me memberships (a higher number than in fiscal 2019) and the Company

added 320 new schools to the Leader in Me program. We believe this performance from the Education Division was remarkable in the current education and economic environment.

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Our subscription revenue grew 16 percent in fiscal 2020 compared with the prior year. At August 31, 2020, we had $68.9 million of deferred revenue compared with $65.8 million at August 31, 2019. Consolidated deferred revenue reported above at

August 31, 2020 and August 31, 2019 includes $2.2 million and $3.6 million, respectively, of deferred revenue that was classified as long-term based on expected recognition. At August 31, 2020, our unbilled deferred revenue grew 32 percent to

$39.6 million compared with $29.9 million at the end of fiscal 2019. At August 31, 2020, our deferred subscription revenue plus unbilled deferred subscription revenue totaled $100.2 million. Unbilled deferred revenue represents business that is

contracted, but unbilled and therefore excluded from our balance sheet.

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

Enterprise Division:

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, materials used in the

production of training products and related assessments, assembly, manufacturing labor costs, and freight. Gross profit may be affected by, among other things, the mix of services sold to clients, prices of materials, labor rates, changes in

product discount levels, and freight costs. Consolidated cost of sales in fiscal 2020 totaled $53.1 million compared with $66.0 million in fiscal 2019. The decrease was primarily due to decreased sales in fiscal 2020 resulting from the COVID-19

pandemic as described above. Our gross profit for the fiscal year ended August 31, 2020 was $145.4 million, compared with $159.3 million in fiscal 2019. Our gross margin, which is gross profit as a percent of sales, increased to 73.3 percent

compared with 70.7 percent primarily due to increased subscription and digital delivery revenues when compared with the prior year.

Our operating expenses in fiscal 2020 decreased $14.3 million compared with fiscal 2019. The decrease was primarily due to a $10.6 million decrease in selling, general, and administrative (SG&A) expenses, and a $5.4 million decrease in

stock-based compensation expense. These decreases were partially offset by $1.6 million of restructuring costs. Decreased SG&A expense was primarily related to decreased variable compensation such as commissions, bonuses, and incentives;

decreased travel and entertainment; decreased contingent consideration liability expense; and cost savings from various areas of the Company’s operations in response to the pandemic-related reduction in sales. 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 the third quarter of fiscal 2020, which resulted in a $0.6 million net credit to stock-based compensation for the

year. During the fourth quarter of fiscal 2020 we restructured certain areas of our operations to reflect changes in our strategy and client needs. The restructuring costs totaled $1.6 million, which were comprised of severance costs for impacted

personnel.

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Our fiscal 2020 income from operations improved to $3.1 million compared with $2.7 million in fiscal 2019. Fiscal 2020 pre-tax income was $0.8 million compared with $0.6 million in fiscal 2019, reflecting the items noted above.

Our effective income tax rate for fiscal 2020 was approximately 1,284 percent compared with an effective tax rate of approximately 273 percent in fiscal 2019. The increased effective tax rate in fiscal 2020 was primarily due to $11.3 million

of additional income tax expense from an increase in the valuation allowance against our deferred income tax assets, which was partially offset by a tax benefit resulting from the exercise of stock options by our CEO and CFO. Our near break-even

pre-tax income during fiscal years 2020 and 2019 greatly amplified the effect of non-temporary items on our effective tax rate in those years.

Net loss for the year ended August 31, 2020 was $(9.4) million, or $(.68) per share, compared with a loss of $(1.0) million, or $(.07) per share, in fiscal 2019. Our Adjusted EBITDA in fiscal 2020 totaled $14.3 million compared with $20.6

million in fiscal 2019, reflecting the above-noted factors. In constant currency, our fiscal 2020 Adjusted EBITDA was $14.7 million.

Further details regarding these items can be found in the comparative analysis of fiscal 2020 with fiscal 2019 as discussed within this management’s discussion and analysis.

Our liquidity, financial position, and capital resources remained strong during fiscal 2020. At August 31, 2020, we had $27.1 million of cash, with no borrowings on our $15.0 million revolving credit facility, compared with $27.7 million of

cash at August 31, 2019. Cash flows from operating activities remained strong and totaled $27.6 million for fiscal 2020. 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 2019 compared with fiscal 2018, refer to Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations in our

fiscal 2019 Form 10-K, which was filed with the United States Securities and Exchange Commission on November 14, 2019.

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 2021 and beyond:

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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.

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).

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Selling, general, and administrative 65.5 62.4 65.9

Stock-based compensation (0.3 ) 2.1 1.4

Restructuring costs 0.8 - -

Income (loss) from operations 1.6 1.2 (1.6 )

Interest expense (1.2 ) (1.0 ) (1.2 )

Discount accretion on related party receivables - 0.1 0.2

Income (loss) before income taxes 0.4 0.3 (2.6 )

FISCAL 2020 COMPARED WITH FISCAL 2019 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, Germany, Switzerland, and Austria; our government

services office; and other groups such as our coaching operations and books and audio media sales. The following comparative information is for our Direct Offices segment for the periods indicated (in thousands):

Sales. Our Direct Office segment had a strong start to fiscal 2020 in the first and second quarters of the fiscal year. For the first two quarters of fiscal 2020, our U.S./Canada sales grew by $4.0

million, or 9 percent; government sales increased by $1.2 million, or 18 percent; and international direct office revenue grew by $0.3 million, or two percent, despite the early closure of our offices in China at the onset of COVID-19. During the

third and fourth quarters of fiscal 2020, our Direct Office segment sales were adversely impacted by the COVID-19 pandemic and restrictions on in-person training and gatherings. However, sales of the Company’s AAP subscription service remained

strong and increased 15 percent in the third and fourth quarters of fiscal 2020 compared with the prior year, and revenue retention remained above 90 percent for fiscal 2020. We were very encouraged by sales of the All Access Pass in the second

half of fiscal 2020 as clients were able to successfully utilize the digital delivery options available through the AAP. Our foreign direct offices were significantly impacted by the COVID-19 pandemic as each of our foreign offices were closed for

portions of the third and fourth quarters as mandated by their national governments. As previously mentioned, our China and Japan offices had just started to sell AAP and had not built a significant base of deferred subscription revenue. As a

result, these offices were highly impacted by the closure of offices and restrictions on in-person gatherings and were a disproportionate share of the Direct Office decreased sales. For fiscal 2020, our foreign direct office sales decreased $10.8

million or 28 percent, compared with the prior year and foreign exchange rates had a $0.3 million unfavorable impact on our direct office sales during the fiscal year. We anticipate the events of fiscal 2020 will accelerate our Direct Offices’

transition to the All Access Pass in future periods, especially in China and Japan. While we are optimistic about the future of our direct office channel and AAP revenues, our future financial performance is highly dependent upon economic recovery

from the COVID-19 pandemic and the opening of national and regional economies.

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Gross Profit. Gross profit decreased due to sales activity during fiscal 2020 as described above. Direct Office gross margin increased primarily due to the mix of services and products sold during

fiscal 2020, which featured increased subscription sales as a percent of total sales and decreased onsite and facilitator sales.

SG&A Expenses. Direct Office operating expenses decreased primarily due to reduced variable associate costs, including commissions, incentives, and bonuses on lower sales and reduced travel costs

during the second half of the year. These reductions were partially offset by associate costs from new sales and support personnel during the year. Foreign exchange rates had a $0.1 million adverse impact on our direct office segment operating

results during fiscal 2020.

International Licensees Segment

In countries or 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):

Sales. International licensee revenues are primarily comprised of royalty revenues received from our licensee partners. For fiscal 2020, our licensee revenues were impacted by the COVID-19 pandemic,

which significantly reduced sales in the second half of the year as many licensee countries enacted economic and social restrictions that prohibited in-person presentations. Prior to the full onset of the pandemic, our international licensee

royalty revenue during the first two quarters of fiscal 2020 increased by $0.2 million compared with the prior year. Many of our international licensees had just started to sell the All Access Pass at the onset of the pandemic and did not have a

substantial base of deferred subscription revenue as these operations were primarily dependent upon live onsite training and coaching. Due to the benefits of the All Access Pass, including its digital delivery platform and high revenue retention

rates, we believe that our licensees will accelerate their transition to the All Access Pass in future periods, which we believe will provide significant benefits for our licensee partners and their clients.

Gross Profit.Gross profit decreased due to an overall decrease in licensee revenues during fiscal 2020 as described above. Licensee gross margin remained strong

in fiscal 2020 and was consistent with the prior year.

SG&A Expenses. International licensee SG&A expenses increased primarily due to additional bad debt expense related to expected collection issues in the wake of the COVID-19 pandemic. Foreign

exchange rates had an insignificant impact on our licensee sales and results of operations during fiscal 2020.

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Education Division

Our Education Division is comprised of our domestic and international Education practice operations (focused on sales to educational institutions) and includes our widely acclaimed Leader in Me program.

The following comparative information is for our Education Division in the periods indicated (in thousands):

Sales. Growth in our Education Division during the first half of fiscal 2020 was offset by decreased sales during the third and fourth quarters, which are generally the busiest months for our Education

Division, resulting from the COVID-19 pandemic. Despite the significant headwinds faced by educational institutions during the third and fourth quarters as schools closed, teaching moved online, and budgets were constrained, nearly 2,200 existing

Leader in Me schools renewed their Leader in Me subscriptions (a number higher than in fiscal 2019) and 320 new schools became Leader

in Me schools. We believe these were remarkable achievements in the current education and economic environment. During fiscal 2020, Leader in Me subscription revenues increased 11 percent

compared with the prior year and our coaches delivered two percent more coaching days as clients pivoted to live on-line delivery of these days. Although pandemic-related issues slowed the growth of new schools entering into Leader in Me agreements in fiscal 2020, we are optimistic that continued demand for the Leader in Me program will drive sales growth in future periods. As of August 31,

2020, the Leader in Me program is used in over 4,200 schools and in over 50 countries.

Gross Profit. Education segment cost of sales and gross profit decreased primarily due to sales activity as previously described. Education Division gross margin remained strong at 62.4 percent and was

consistent with the prior year’s 62.1 percent.

SG&A Expenses. Education division SG&A expense increased primarily due to investments in additional sales and sales-related personnel in late fiscal 2019 and early fiscal 2020 to fuel growth that

was eventually dampened by the continuing COVID-19 pandemic, and increased bad debt expense. These increased costs were partially offset by reduced travel and commission expense resulting from travel restrictions and reduced revenues. Education

Division results of operations were adversely impacted by $0.2 million of unfavorable exchange rates compared with the prior year.

Other Expenses

Restructuring Costs – During the fourth quarter of fiscal 2020 we restructured certain information technology, corporate operational, and marketing functions. We incurred $1.6 million

of severance costs related to these restructuring activities. At August 31, 2020, we had $1.2 million of remaining accrued restructuring costs, which are expected to be paid during fiscal 2021.

Depreciation – Depreciation expense increased $0.3 million compared with fiscal 2019 primarily due to the addition of new assets and investments

in technology during fiscal 2020 and in prior years. Based on previous property and equipment acquisitions, and expected capital additions during fiscal 2021, we expect depreciation expense will total approximately $6.5 million in fiscal 2021.

Amortization – Our amortization expense decreased $0.4 million compared with the prior year primarily due to the full amortization of certain intangible assets. We expect the

amortization of intangible assets will total approximately $4.5 million during fiscal 2021.

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Income Taxes

Our effective income tax rate for fiscal 2020 was approximately 1,284 percent compared with an effective tax rate of approximately 273 percent in fiscal 2019. The increased effective tax rate in fiscal 2020 was primarily due to $11.3 million of

additional income tax expense from an increase in the valuation allowance against our deferred income tax assets, which was partially offset by the tax benefit resulting from the exercise of stock options by our CEO and CFO. Our near break-even

pre-tax income during fiscal years 2020 and 2019 greatly amplified the effect of non-temporary items on our effective tax rate in those years.

Although we paid $2.1 million in cash for income taxes during fiscal 2020, 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 as we utilize available net

operating loss 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, 2020 and 2019. 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, 2020 (unaudited)

Restructuring costs - - - 1,636

Net income (loss) per share:

Basic and diluted $ (.04 ) $ .08 $ (.79 ) $ .07

YEAR ENDED AUGUST 31, 2019 (unaudited)

Net income (loss) per share:

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, 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 the introduction of new offerings, pandemics and other natural disasters, business acquisitions, the addition

of new organizational customers, and the elimination of underperforming offerings.

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.

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LIQUIDITY AND CAPITAL RESOURCES

Introduction

Our cash balance at August 31, 2020 totaled $27.1 million, with no borrowings on our $15.0 million revolving credit facility. Of our $27.1 million in cash at August 31, 2020, $12.2 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 in the

normal course of business and available proceeds from our credit facility. Our primary uses of liquidity include payments for operating activities, capital expenditures (including curriculum development), debt payments, contingent consideration

payments from the prior acquisition of businesses, 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):

Total cash provided by (used for):

Effect of exchange rates on cash 297 (101 ) (319 )

Increase (decrease) in cash and cash equivalents $ (562 ) $ 17,546 $ 1,229

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 the 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

Original 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 the uncertainty of 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 is to provide temporary alternative borrowing covenants for the fiscal quarters ending August 31, 2020 through May 31, 2021. These new covenants consist of the following:

QUARTER ENDING AMOUNT

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Adjusted EBITDA for purposes of this calculation is not the same as generally reported by the Company in its quarterly earnings. The amounts in the table above exclude amortization of capitalized development costs

which is classified in cost of sales.

In addition to the new financial covenants described above, we are prohibited from making certain restricted payments, including dividend payments on our common stock and open-market purchases of our common stock until we have been in compliance

with the previously existing financial covenants for two consecutive quarters.

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, 2020, we believe that we were in compliance with the terms and covenants applicable to the 2019 Credit Agreement and the First Modification Agreement.

The previously existing financial covenants on the 2019 Credit Agreement, which include (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 remain in effect except for the quarterly periods covered by the First Modification Agreement.

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 leasing obligations, refer to the notes to our consolidated financial

statements as presented in Item 8 of this 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, 2020.

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. For the fiscal year ended August 31, 2020, our cash

provided by operating activities was $27.6 million compared with $30.5 million in fiscal 2019. The decrease was primarily due to changes in working capital balances during fiscal 2020. Our collection of accounts receivable remained strong during

fiscal 2020, despite the COVID-19 pandemic, and provided a significant amount of cash to support operations, pay our obligations, and make critical investments. Although we defer the recognition of AAP and other subscription revenues over the

lives of the underlying contracts, we invoice the annual contract amount and collect the associated receivable at the inception of the agreement.

Cash Flows from Investing Activities and Capital Expenditures

Our cash used for investing activities during the fiscal year ended August 31, 2020 totaled $11.9 million. The primary uses of cash for investing activities included additional investments in the development of our offerings, purchases of

property and equipment in the normal course of business, and the purchase of a note receivable from a bank used as consideration for an amended license agreement with FC Organizational Products (FCOP).

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We spent $5.1 million during fiscal 2020 on the development of various content and offerings. During fiscal 2020 we developed additional offerings for our Education Division and leadership content based on the best-selling book Multipliers, by Liz Wiseman. The new Multipliers content was launched in August 2020. We believe continued investment in our content and offerings is critical to our

future success and we anticipate that our capital spending for curriculum development will total $4.5 million during fiscal 2021.

Our purchases of property and equipment totaled $4.2 million in fiscal 2020, and consisted primarily of computer hardware, new furnishings to replace assets destroyed by a flood at our corporate headquarters, software, and leasehold improvements

on leased office space. Our previous and ongoing investments in our digital delivery modalities, including the AAP and Leader in Me subscription services proved valuable as many of our clients have moved

to remote workplaces due to the COVID-19 pandemic. We will continue to invest in hardware and software to improve our digital delivery modalities, and currently anticipate that our purchases of property and equipment will total approximately $2.8

million in fiscal 2021.

In November 2019, we purchased $2.6 million of notes payable from a bank that were the obligations of FCOP. We exchanged $3.2 million of receivables from FCOP, including the note payable purchased from the bank, to modify the term and royalty

provisions of a long-term licensing agreement that is expected to increase our cash flows over the duration of the license agreement. The licensing arrangement was assumed by Franklin Planner Corp., a new unrelated entity that purchased

substantially all of the assets of FCOP in November 2019 (Refer to Note 17 to our consolidated financial statements for more information).

Cash Flows from Financing Activities

During the fiscal year ended August 31, 2020, we used $16.6 million of net cash for financing activities. Our primary uses of financing cash during fiscal 2020 included $14.0 million for purchases of our common stock for treasury, $7.3 million

for principal payments on our term loans and financing obligation, and $1.3 million of cash used to pay contingent consideration liabilities from previous business acquisitions. These uses of cash were partially offset by proceeds from a $5.0

million term loan which was available on our 2019 Credit Agreement, and $1.0 million of proceeds from participants in our employee stock purchase plan.

In December 2019, we purchased 284,608 shares of our common stock from Knowledge Capital for $10.1 million prior to the distribution of Knowledge Capital assets to its investors. This purchase of shares from Knowledge Capital was completed

under a separate Board of Directors authorization and is not included in the November 15, 2019 authorized purchase plan described below. We also purchased 109,896 shares of our common stock that were withheld for statutory income taxes on

stock-based compensation instruments, primarily stock options, which were exercised during fiscal 2020. These withheld shares were valued at the market price on the date that the shares were distributed to participants. The total fair value of

the withheld shares was $3.7 million.

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 2021 are expected to include required payments on our term loans and financing obligation, 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.

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Sources of 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 2021 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, 2020, 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 and 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. 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.

Contractual Obligations

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. Required contractual payments

primarily consist of repayment of term loan obligations; lease payments on our corporate headquarters campus (reported as a financing obligation); short-term purchase obligations for inventory items and other products and services used in the

ordinary course of business; expected contingent consideration payments from business acquisitions; and minimum lease payments. At August 31, 2020, our expected payments on these obligations over the next five fiscal years and thereafter are as

follows (in thousands):

Fiscal Fiscal Fiscal Fiscal Fiscal

Purchase obligations 4,761 - - - - - 4,761

RGP contingent consideration payments(2) 816 - - - - - 816

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Our contractual obligations presented above exclude uncertain tax positions totaling $1.6 million for which we cannot make a reasonably reliable estimate of the amount and period of payment. For further information regarding our uncertain tax

positions, refer to the notes to our consolidated financial statements as presented in Part II, Item 8 of this report on Form 10-K.

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 Annual Report on 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 stand-alone selling price.

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 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.

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The analysis of our LTIP awards contains uncertainties because we are required to make assumptions and judgments about the timing and 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, 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 the third quarter of 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, 2020 would decrease our reported income from operations by approximately $0.4 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 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 an 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.

Due to the impact of COVID-19, we tested goodwill for impairment during the third quarter of fiscal 2020 and at August 31, 2020 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 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 2020, we