Management's discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations and are subject to various uncertainties and changes in circumstances. Important factors that could cause actual results to differ materially from those described in forward-looking statements are set forth below under the heading "Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995."

We suggest that the following discussion and analysis be read in conjunction with the Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended August 31, 2012.

RESULTS OF OPERATIONS

Overview

Our first fiscal quarter includes the months of September, October, and November. The first quarter of fiscal 2013, which ended on December 1, 2012, was the strongest first quarter ever for our current business model, and continued the growth and favorable momentum that we experienced during fiscal 2012 as sales increased in all of our major delivery channels compared with the prior year. Our consolidated sales increased to $44.1 million in the first quarter of fiscal 2013 compared with $39.5 million in the first quarter of fiscal 2012. Our income from operations for the quarter improved to $5.3 million compared with $3.7 million in the first quarter of fiscal 2012 and our income before income taxes also increased to $4.7 million compared with $3.1 million in the prior year. These improvements flowed through to net income, which increased to $2.9 million, or $.15 per diluted share, compared with $1.7 million, or $.09 per diluted share, in the first quarter of fiscal 2012.

The primary factors that influenced our operating results for the quarter ended December 1, 2012 were as follows:

· Sales - Our consolidated sales increased to $44.1 million compared with $39.5 million in the first quarter of fiscal 2012. Sales increased at all of our U.S./Canada direct offices, including our government services office, at all of our direct international offices, at many of our international licensees, from our national account practices, and from increased leasing revenues on our corporate campus.

· Gross Profit - Our gross profit totaled $29.6 million compared with $26.5 million in the first quarter of fiscal 2012 due to increased sales. Our consolidated gross margin, which is gross profit as a percentage of sales, remained strong and was consistent with the prior year at 67.1 percent of sales.

· Operating Expenses - Our operating expenses increased by $1.4 million compared with the first quarter of the prior year, which was primarily due to a $1.6 million increase in selling, general, and administrative expenses. The increase in selling, general, and administrative expense was primarily due to increased associate expenses related to new sales-related personnel hired and additional commissions on increased sales. Increased selling, general, and administrative expense was partially offset by decreased depreciation and amortization expenses.

The following table sets forth sales data from continuing operations by category and by our primary delivery channels (in thousands):

                                                       Quarter Ended
                                    December 1,       November 26,
                                       2012               2011           Percent Change
Sales by Category:
Training and consulting services   $      41,063     $       36,382                   13
Products                                   1,943              2,463                  (21 )
Leasing                                    1,055                695                   52
                                   $      44,061     $       39,540                   11

Sales by Channel:
U.S./Canada direct                 $      21,759     $       18,398                   18
International direct                       8,431              7,573                   11
International licensees                    4,330              3,921                   10
National account practices                 6,172              5,479                   13
Self-funded marketing                      1,493              2,926                  (49 )
Other                                      1,876              1,243                   51
                                   $      44,061     $       39,540                   11

Further details regarding these factors and their impact on our operating results and liquidity are provided throughout the following management's discussion and analysis.

Quarter Ended December 1, 2012 Compared to the Quarter Ended November 26, 2011

Sales

We offer a variety of training courses, consulting services, and training related products that are focused on solving organizational problems that require a change in human behavior. Our training and consulting solutions are provided both domestically and internationally through our sales force, facilitators, international licensees, and through the internet on various web-based delivery platforms. The following sales analysis for the quarter ended December 1, 2012 is based on activity through our primary delivery channels:

U.S./Canada Direct - This channel includes our four regional field offices that serve our clients in the United States and Canada and our government services group. During the first quarter of fiscal 2013, sales increased at all of our U.S./Canada direct offices, including our government services office. Sales increases through our regional offices were generally broad based across our practices and were favorably impacted by increased facilitator sales during the quarter. We believe that our pipeline of awarded revenue continues to remain strong and our outlook for the remainder of fiscal 2013 is encouraging for continued growth over the prior year.

International Direct - Our directly owned international offices are located in Australia, Japan, and the United Kingdom. Sales increased at all three of our international direct offices and were primarily attributable to a $0.6 million increase in Japan and a $0.2 million increase in Australia when compared with the prior year. Sales increased slightly at our office in the United Kingdom. The improvement in sales was attributable to both increased publishing and training revenues during the quarter. Partially offsetting these increases was a $0.2 million unfavorable impact of translating foreign sales to U.S. dollars.

International Licensees - In countries or foreign locations where we do not have a directly owned office, our training and consulting services are delivered through independent licensees, which may translate and adapt our curriculum to local preferences and customs, if necessary. During the quarter ended December 1, 2012, many of our foreign licensees had increased training sales compared with the prior year, which resulted in increased licensee royalty revenues compared with the prior year. We believe that our increased efforts to support our

licensees through additional program training, international branding, and the introduction of new products has had a favorable impact on their sales growth and we expect future growth from our licensees during fiscal 2013.

National Account Practices - Our national account practices are comprised of programs that are not typically offered in our regional field offices and include Helping Clients Succeed from the sales performance group, The Leader In Me curriculum designed for students from our education practice, and Winning Customer Loyalty from our customer loyalty practice. The increase in national account practice sales was due to increased sales from our education practice, which increased by $1.4 million compared with the prior year. Increased education practice sales were partially offset by decreased sales performance practice sales and decreased customer loyalty practice sales.

Self-Funded Marketing - This group includes our public programs, book and audio sales, and speeches. The decrease in self-funded marketing sales was primarily due to book and audio distribution royalties received in the first quarter of fiscal 2012 which did not repeat in the current year. We expect to continue to release new publications in future periods and believe that these new publications will continue to show strong performance in the marketplace.

Other - Our other sales are comprised primarily of leasing and shipping and handling revenues. The increase in other sales was primarily due to increased leasing revenues resulting from new lease contracts at our corporate headquarters. We continue to have vacant space available for lease at our corporate headquarters campus and we are actively seeking new tenants for this available property.

Gross Profit

Gross profit consists of net sales less the cost of services provided or the cost of products sold. For the quarter ended December 1, 2012, our consolidated gross profit increased to $29.6 million compared with $26.5 million in the first quarter of fiscal 2012. The increase in gross profit was attributable to increased sales as described above. Our gross margin for the quarter ended December 1, 2012 remained consistent with the prior year at 67.1 percent of sales. Decreased high-margin book royalty revenues were offset by increased higher margin facilitator and licensee sales during the quarter ended December 1, 2012.

Operating Expenses

Selling, General and Administrative - Our selling, general, and administrative (SG&A) expenses increased $1.6 million compared to the prior year as we continue to make investments in the business that we believe will improve our financial results in future periods. However, as a percent of sales, SG&A expenses decreased to 52.1 percent of sales in the first quarter of fiscal 2013 compared with 54.1 percent of sales in the prior year. The increase in SG&A expenses was primarily due to 1) a $2.3 million increase in associate costs primarily related to the addition of new sales-related personnel and increased commissions on higher sales; and 2) a $0.3 million increase in advertising and promotional costs that were primarily related to new strategic initiatives that we believe had a favorable impact on the current quarter's sales. These increases were partially offset by a $0.7 million decrease in non-cash share-based compensation, due to the full amortization of awards granted in prior periods, and decreases in various other expense categories.

Depreciation - Depreciation expense decreased by $0.1 million compared to the same quarter of fiscal 2012 primarily due to certain assets becoming fully depreciated. Based on acquisitions that occurred during the quarter ended December 1, 2012 and expected capital asset activity during the remainder of fiscal 2013, we expect depreciation expense to total approximately $2.8 million for fiscal 2013.

Interest Income

The increase in interest income was primarily attributable to the accretion of interest on previously discounted long-term receivables from FC Organizational Products (FCOP). Interest income is

computed using the effective interest method using an effective rate of 15 percent, which was the discount rate at which these receivables were marked to estimated net present value (refer to the discussion below).

Discount on Related Party Receivable

We record receivables from FCOP for reimbursement of certain operating costs, such as warehousing and distribution costs, which are billed to us by third party providers, and for working capital and other advances that we make, even though we are not contractually required to make advances or absorb the losses of FCOP. Based on expected payment, some of these receivables are recorded as long-term receivables by us that are required to be recorded at net present value. We discounted the long-term portion of the FCOP receivable based on forecasted repayments at a discount rate of 15 percent, which was the estimated risk-adjusted borrowing rate of FCOP. The impact of this discount on long-term receivables added in the quarter ended December 1, 2012 was $0.1 million.

Income Taxes

Our effective tax rate for the quarter ended December 1, 2012 was approximately 38 percent compared with approximately 46 percent for the first quarter of fiscal 2012. Our effective rate decreased primarily due to increased pre-tax income (which reduces the unfavorable impact on the effective rate of certain permanent items), reduced tax on income subject to both U.S. and foreign taxation, reduced taxable income on outstanding management stock loans, and the recognition of tax benefits following the completion of a routine Internal Revenue Service audit.

We anticipate that our cash paid for income taxes will remain less than our income tax provision during the foreseeable future as we utilize domestic net operating loss carryforwards and other deferred income tax assets. For instance, during the quarter ended December 1, 2012, we paid $1.3 million of cash for income taxes. After utilization of these deferred tax assets, we expect our cash paid for income taxes to increase and approximate our income tax provision.

LIQUIDITY AND CAPITAL RESOURCES

At December 1, 2012 our liquidity position continued to remain strong as we had $7.3 million of cash and cash equivalents, with no borrowings on our line of credit, compared with $11.0 million at August 31, 2012. Our net working capital (current assets less current liabilities) increased to $30.1 million at December 1, 2012 compared with $27.5 million at August 31, 2012. Of our $7.3 million in cash and cash equivalents at December 1, 2012, $3.5 million was held at our foreign subsidiaries. We routinely repatriate cash from our foreign subsidiaries and consider foreign cash 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 proceeds from our available $10.0 million revolving line of credit when needed. Our primary uses of liquidity include payments for operating activities, capital expenditures, working capital expansion, potential acquisition earn outs, and debt repayment.

We may use our line of credit facility for general corporate purposes as well as for other transactions, unless prohibited by the terms of the line of credit agreement. The line of credit also contains customary representations and guarantees as well as provisions for repayment and liens. Our existing line of credit agreement expires in March 2015. In addition to customary non-financial terms and conditions, our line of credit requires us to be in compliance with specified financial covenants, including (i) a funded debt to EBITDAR ratio requirement of less than 3.00 to 1.00; (ii) a fixed charge coverage ratio requirement in excess of 1.5 to 1.0; and (iii) a minimum net worth of at least $67.0 million. We believe that we were in compliance with the terms and covenants of the line of credit agreement for the quarter ended December 1, 2012.

In addition to our $10.0 million revolving line of credit facility, we have $2.1 million remaining on a term note payable, and we have a long-term lease on our corporate campus that is accounted for as a long-term financing obligation.

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 quarter ended December 1, 2012.

Cash Flows From Operating Activities

Our primary source of cash from operating activities was the sale of goods and services 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 products sold, and to fund working capital needs. Our cash used for operating activities totaled $0.3 million for the quarter ended December 1, 2012 compared with $0.6 million of cash provided by operating activities in the same quarter of the prior year. The decrease in cash flows from operating activities was primarily attributable to payments to reduce seasonally high accrued liabilities (primarily accrued bonuses and commissions) and accounts payable. These uses of cash were partially offset by continued improvements in our operations. We believe that our continued efforts to improve working capital balances and improve income from operations will improve our cash flows from operating activities during future periods of fiscal 2013. However, the success of these efforts, and their eventual contribution to our cash flows, is dependent upon numerous factors, many of which are not within our control.

Cash Flows From Investing Activities and Capital Expenditures

During the quarter ended December 1, 2012 we used $1.5 million of cash for investing activities. Our primary uses of cash for investing activities were the purchase of property and equipment in the normal course of business and additional spending on curriculum development. Our purchases of property and equipment, which totaled $1.0 million, consisted primarily of computer hardware, leasehold improvements, and computer software. We spent $0.5 million during the first quarter of fiscal 2013 to develop various new curriculums and offerings.

Cash Flows From Financing Activities

Our net cash used for financing activities totaled $1.9 million, which consisted primarily of $1.2 million used to repurchase shares of common stock (including shares withheld for statutory taxes on share-based compensation awards), $0.6 million for principal payments on our term loan and $0.2 million for principal payments on our financing obligation. Partially offsetting these uses of cash was $0.1 million of cash received from participants in our employee stock purchase plan.

During fiscal 2012 we announced the approval of a plan to repurchase up to $10.0 million of our common stock. We intend to use cash in excess of $10.0 million, provided we have no balance outstanding on our line of credit, for the purchases. Through December 1, 2012, we have purchased a total of 73,320 shares of our common stock for $0.8 million. We anticipate that the purchases of our common stock under this approved plan will increase the use of cash for financing activities in future periods provided that we maintain adequate liquidity to allow for the purchases.

Sources of Liquidity

We expect to meet our projected capital expenditures, service our existing financing obligation and term loan payable, and meet other working capital requirements during fiscal 2013 through current cash balances and future cash flows from operating activities. 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 line of credit and other financing alternatives, if necessary, for these expenditures. We extended the maturity date on our line of credit during fiscal 2012 to March

2015 and we expect to renew the line of credit on an annual basis to maintain the three-year 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.

Considering the foregoing, we anticipate that our existing capital resources should be adequate to enable us to maintain our operations for at least the upcoming twelve 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 curriculums and 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

The Company has 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 1) lease payments resulting from the sale of our corporate campus (financing obligation); 2) payments to HP Enterprise Services for outsourcing services related to information systems, warehousing, and distribution services; 3) minimum rent payments for office and warehouse space; 4) the repayment of our note payable obligation; and 5) short-term purchase obligations for inventory items and other products and services used in the ordinary course of business. There have been no significant changes to our expected required contractual obligations from those disclosed at August 31, 2012.

FC Organizational Products is contractually obligated to pay us for rented warehouse and office space, a portion of the fixed costs for warehousing and distribution facilities, and is primarily liable for leasing costs at its retail stores. As of December 1, 2012 we remain secondarily liable for $0.2 million of retail store leasing costs, most of which will be paid by February 2013. In the event that FCOP is unable to pay these items, our liquidity, cash flows, and operating results may be adversely affected.

Other Items

The Company is the creditor for a loan program that provided the capital to allow certain management personnel the opportunity to purchase shares of our common stock. For further information regarding our management common stock loan program, refer to the notes to our consolidated financial statements in our annual report on Form 10-K for the fiscal year ended August 31, 2012. The inability of the Company to collect all, or a portion, of these receivables could have an adverse impact upon our financial position and future cash flows compared to full collection of the loans.

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 polices used to prepare our consolidated financial statements are outlined primarily in Note 1 of the consolidated financial statements presented in Part II, Item 8 of our annual report on Form 10-K for the fiscal year ended August 31, 2012. Some of those accounting policies require us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements. We regularly evaluate our estimates and assumptions and base 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 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 significant judgment and often involve complex estimates:

Revenue Recognition

We derive revenues primarily from the following sources:

· Training and Consulting Services - We provide training and consulting services to both organizations and individuals.

· Products - We sell books, audio media, training accessories, and other related products.

We recognize revenue when: 1) persuasive evidence of an agreement exists, 2) delivery of product has occurred or services have been rendered, 3) the price to the customer is fixed or determinable, and 4) collectability is reasonably assured. For training and service sales, these conditions are generally met upon presentation of the training seminar or delivery of the consulting services. For product sales, these conditions are generally met upon shipment of the product to the customer.

Some of our training and consulting contracts contain multiple element deliverables that include training along with other products and services. For transactions that contain more than one element, we recognize revenue in accordance with the guidance for multiple element arrangements using the relative selling price method.

Our international strategy includes the use of licensees in countries where we do not have a wholly-owned operation. Licensee companies are unrelated entities that have been granted a license to translate our content and curriculum, adapt the content and curriculum to the local culture, and sell our training seminars and products in a specific country or region. Licensees are required to pay us royalties based upon a percentage of their sales to clients. We recognize royalty income each period based upon the sales information reported to us from our licensees. International royalty revenue is reported as a component of training and consulting service sales in our consolidated income statements.

Revenue is recognized as the net amount to be received after deducting estimated amounts for discounts and product returns.

Share-Based Compensation

Our shareholders have approved a performance based long-term incentive plan (LTIP) that provides for grants of share-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 entirely upon the achievement of specified financial performance objectives during a defined performance period. 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 number of shares expected to be awarded based upon actual and estimated financial results of the Company compared to 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 estimated probable number of common shares to be awarded.

The analysis of our LTIP awards contains uncertainties because we are required to make assumptions and judgments about the 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. 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 number . . .