Robert Whitman – CEO Stephen Young – CFO Derek Hatch – Corporate Controller

Hamed Khorsand - BWS Financial John Lewis – Osmium Partners Julian Allen – Spitfire Capital John Gruber – Gruber and McBaine Capital

Good afternoon. Before we begin our presentation this afternoon, I’d like to start off with our forward-looking statement slide and the information on it and remind everybody that this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are based upon management’s current expectations, and are subject to various risks and uncertainties but not limited to the ability of the company to stabilize and grow revenues; the ability of the company to hire productive sales professionals; general economic conditions; competition in the company’s targeted marketplace; market acceptance of new products or services and marketing strategies; changes in the company’s market share; changes in the size of the overall market for the company’s products; changes in the training and spending policies of the company’s clients; and other factors identified and discussed in the company’s most recent Annual Report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission. Many of these conditions are beyond our control or influence, any one of which may cause future results to differ materially from the company’s current expectations and there can be no assurance that the company’s actual future performance will meet management’s expectations.

These forward-looking statements are based on management’s current expectations and we undertake no obligation to update or revise these forward-looking statements to reflect events or circumstances after the date of today’s presentation. With that out of the way, we’d like to turn the remainder of the call or this portion of the call over to Robert Whitman, our Chairman and Chief Executive Officer.

Thanks Derek, appreciate everyone joining us this afternoon and we’ll looking to answering your questions after a short review of the results reported here just an hour ago. In Q3 our operating performance was actually meaningfully better than that we achieved in Q2.

As you will note we had a very unusual tax provision which Stephen will address that was several million dollars, but otherwise the quarter reflected good continued progress on each of our major objectives. Despite hitting our cost targets however it fell somewhat short of our expectations as more revenue than expected shifted from Q3 to Q4 and we’ll talk to that.

Our operating loss of $1.2 million reflected $2.2 million improvement compared to that achieved in Q3 but still reflected a loss. We expect to generate an operating profit in the fourth quarter and hopefully every quarter thereafter.

Operating EBITDA which is in previous calls we’ve identified as excluding severance or restructuring charges which were $900,000 during the quarter, so excluding those costs operating EBITDA was $1.7 million positive during the quarter which reflected a $3.2 million improvement compared to Q2 but fell approximately $2 million short of our expectations all because of this revenue shifting which we’ll speak to. We were successful in meeting our cost reduction targets and the gap therefore was primarily due to revenue expected to be recognized in the quarter that shifted into Q4 and a little bit into Q1.

Its still on our books thankfully, but due to clients who themselves are struggling to meet their quarters and might in a given month all of a sudden shut the door to all training even if it was planned and then reschedule it for the next month, the start of the next quarter. Its those kinds of things that effected on the margin.

This shift of revenue was definitely a disappointment but I don’t believe that it reflects any fundamental weakness in the business. In fact as we’ll talk about in a minute we showed progress during the quarter on each of the key initiatives outlined in the previous quarters and I’ll speak to those one by one.

As we mentioned this shift reflects the difficulty really of predicting precisely when we will deliver and recognize training revenue in the current economic environment because of the kinds of things that clients are doing and needing to do but most of the revenue that shifted is still in our revenue backlog and is expected to be realized primarily in Q4 with some shifting until after the summer into Q1. Its important to emphasize as I did, most of this reflects a shift in timing with respect to our customers as our cancellation rates have really remained pretty much in line with our historical trend.

While predicting the exact timing of certain revenue may continue to be difficult in this environment we are still moving at the mountain, using a metaphor from last time, so expect to achieve our stated summit so to speak, of getting back to a run rate of operating EBITDA without our consumer business unit which is equivalent to that we achieved when the consumer business unit results were included. However with the slippage of certain of our revenues in this quarter its likely to be a few months later if that were to continue into the next quarters.

As I’ll explain below we have and are taking additional business model improvement actions that will help to mitigate further shifts and so that whatever that impact of shifting would be, it would be muted to some extent by these other cost reductions that we have undertaken in the last month or so. In addition we’re grateful we continue to win multiyear contracts in our various practices and our quarter-to-quarter volatility we hope will therefore lessen over time as there are more contractual revenues represented.

To give you some visibility into what we’re seeing in the business, I’d like to briefly review each of the four key objectives which we’ve outlined in the past two quarters. First was to continue to build our revenue momentum and pipeline.

We felt like although we may not be able to predict the exact date on which things will happen, we want to be building momentum and backlog and that we’re continuing to do. First as to reported revenue, if you’ll note in slide four that while the revenue for the quarter was done versus last year and was expected to be down our trend did improve markedly versus Q2.

In slide four you can see the adjusted for the planned decline in public programs which as you know are just marketing dollars that we get paid for as we put people into programs in hotels and other things that are given the public exposure. In this environment we cut that way back.

It has little or no effect on the bottom line because its kind of a break-even proposition but aside from that, which was planned from quarters back and the effect of FX, revenue declined 9% compared to last year during Q3 which compares to year over year decline of 15% in Q2. We expect an even smaller in fact very small year over year decline in Q4 and so that this revenue trend is improving quarter by quarter and we feel good about that.

In terms of booking pace, the amount of revenue we booked during Q3 was strong. It was up a little bit compared to last year.

Last quarter we said that we expected our facilitator revenue which as you remember is revenue from our licensed facilitators that work inside client companies where they order materials to do training on their own. That after being down my more than 20% in Q2, we expected facilitator would rebound, it did, and facilitator revenue actually was up 9% during Q3.

and so after being down 20% as we’d said before primarily driven not by a failure by existing facilitators to order materials, but the failure more by the failure of the companies to send new people to be certified. That reversed in the third quarter.

We had a lot of new certifications. We feel that’s a very good sign for future orders.

It also effected the quarter and we had both good material orders and good certifications in Q3 as expected. Our revenue backlog is very solid.

We have a little more than $3 million more revenue on the books to be delivered over the coming quarter than we had at this time last year. Our current booking pace, we expect the backlog will grow further during Q4.

Our bookings were holding up well. Our pipeline of sales opportunities is significant and we’re actually beginning to see some deepening in that with a meaningful increase in the amount of potential business we’re discussing with existing and potential clients.

There’s also a sense of firming in the delivery schedule associated with our bookings. Although a given client on any quarter end, could say, we’re going to cut this off this month and move it to next month.

Nevertheless it feels like that that’s happening less across the thousands of clients that we have. And as noted earlier everything we see suggests that revenue will strengthen further during Q4 compared to Q3 and with the revenue backlog in bookings, that should carry forward into Q1 where we would hope to see continued improvement in that regard.

So in terms of revenue, the basics that we’ve been focused on are good. We were disappointed in the slippage.

A lot of it occurred in four or five key clients that moved revenues into June or July or one case into September. But have reconfirmed their commitments to it.

The second key focus for us has been to get our business model in line so that we can hit EBITDA to sales targets in the mid teens. We took a lot of costs out during the year.

As I mentioned we’ve done other things to address the business model at current revenue levels and let me just speak to each of those. In terms of the reduction in central costs, as you know a portion of this cost reduction effort entailed dismantling the holding company structure and other central costs we had when we operated multiple divisions before the sale of the consumer business last year.

Last quarter we provided an outlook for our central cost structure for Q3, Q4 and Q1 and Q2 of next year and slide five provides an update to that forecast. As you see in slide five we met our target for central costs for Q3 and since we’ve already completed the necessary cost reductions to meet the targets that are outlined here, so this is just running it through, we’re very confident in our ability to meet the central cost targets for Q4, Q1, Q2 and Q3 of next year that are set forth in slide five.

As shown we expect the central costs in Q4 to be more than $4 million less than last year. That will help us obviously a lot in the fourth quarter in addition to the revenue momentum and over the next four quarters we expect our central costs to approximately $8.5 million lower even than this year as we annualize these cost reductions.

So on that one we feel good. The cost adjustments have been taken.

They were taken before and so we’ve always had confidence in that number. In terms of further business model adjustments, in addition to these central cost reductions we’re also, its actually significantly reducing the central administrative and sales support costs associated with our domestic direct office operations.

Over the years in addition to providing the common central support and guidance functions for our 38 international licensee operations and our eight direct operations, we’ve also assumed certain central operating functions on behalf of our domestic direct office such as contract processing, collections, accounting, etc. Over time a duplication of certain of these functions has occurred happening both centrally and in the field and really at this point we were going to take that out, complete the decentralization, have those costs in the field and we expect an approximate additional $5 million of central costs which don’t relate to central overhead but sales support and administration that’s being duplicated or in one way or another centrally here and we expect as I say, another $5 million that will result in approximately another $5 million in year over year cost reductions in next fiscal year.

And this is part of our commitment that, with this slide and the shift in revenues we rededicated ourselves to saying if that’s where the revenue levels are, we’re going to go ahead and get the cost levels to the level necessary to get to this business model that we’ve been targeting and expect that revenues will increase some next year, but if not that we can still be in there on the cost structure. So from the cost side we feel good.

We’ve been able to meet our cost targets over the years and in this year and so we feel solid about that and good about the revenue momentum that’s building. Third objective has been to monetize our balance sheet in three ways.

One by reducing our receivables days’ sales outstanding. Two by reducing inventories and three, selling our Canadian office warehouse building and we’ve made good progress on each of those fronts.

Receivables since the end of Q1, our overall receivables balance has been reduced from $26.4 million to $19.9 million. Our team has done a great job and our goal is to achieve days’ sales outstanding of 42 days within the next four to six months which would bring that down several million dollars further.

Inventories has also been reduced approximately $700,000 over the last quarter or so and we expect to be able to reduce these inventories further in the coming quarters and on July 2nd we did close the sale of our Canadian office warehouse building for approximately $2 million US. So the principal objectives there moving forward, its not the easiest time obviously to collect from others as they have challenges, but our team has actually done a tremendous job in terms of those receivables that are significantly past due, really are very, very small now.

And our final area of focus of course has been to successfully launch several new revenue and strategic initiatives. One is in our practices and we have a number of these practices.

Our customer loyalty practice continues to grow with the addition of several significant new clients this year and a pipeline that’s deepening. With the customer loyalty portal and data collection revenue a significant portion of that revenue is both contractual and recurring and we expect to build that.

Second our execution practice has continued to do well in this environment and its been something that is actually on the minds of CEOs a lot. The conference board in this survey of more than approximately 3,000 CEOs found that execution is their top priority and actually out of 92 topics, and our execution methodology, the four disciplines of execution is being adopted inside a number of lodging, supermarket, retail, and manufacturing companies.

We’re also doing a lot of significant execution work within the Department of Defense and other government entities. We see continued significant growth opportunities in that area.

Our sales, training practice is focused on complex professional service type sales. We have a number of very large accounts in this area and several of the major engagements which we signed earlier this year have now finally begun to generate revenue during this quarter a little bit into scheduled significant blocks of additional training for Q4 and Q1.

So we would anticipate some significant growth in the sales, training area as these contracts really ramp up into fourth quarter and first quarter of next year. Also in our practices, the education practice including our new leader in me, K through 12 school solution has now been launched and because its easier to do much of the training of teachers, administrators, when schools of course are not in session we expect to generate a significant amount of revenue from this program in the fourth quarter.

And we have a deep pipeline of more than 130 schools who are in various stages of the sales or implementation pipeline that should then continue into other quarters after this launch and has a recurring revenue component and portal revenue component with it as well. We introduced two other products, one called Live Clicks which is our proprietary webinar platform.

Its our answer to the need for high quality effective training delivered by the internet in one or two hour chunks. Through Live Clicks webinars we provide affordable and time efficient workshops on high demand topics in the marketplace such as time management for Microsoft Outlook, project management fundamentals, financial intelligence.

This project will reach an audience who heretofore has not been able to access our training solutions because of the time, distance or budget constraints. We launched this new platform in January and have already trained over 4,000 people.

We’ll do about a million in sales this first year and expect that number to grow significantly in the coming years as we expand the topics we cover as well as through our improved marketing efforts. This new platform is easily translatable and is being adopted by our partners in countries around the world.

Insights just launched a couple of weeks ago. Its an, we think, an exciting web based tool that let’s team leaders access a library of 63 award winning video based learning modules.

These modules are short, 20 to 30 minute segments so leaders can use them as part of their normal team meetings. People can view the videos and participate either in person or remotely similar to Web X.

The modules contain a video, a set of provocative questions, and a process to set and track goals and there’s also an online form and an assessment that recommends which modules to take. We’ve just launched this product and are very encouraged by our clients’ initial reactions.

And so we’ve just signed our first deal which was opened a week or so ago, $200,000 for a school district and we think this opens training for a lot of front line people who for us have never had that chance but does it in a way which is uniquely Franklin Covey with each very, very high quality video segments that are excerpted from our own films etc. So overall we’re excited about what the future holds for Franklin Covey.

Our practices are picking up momentum. We prove the value propositions to our customers and truly are helping them to work on very, very mission critical problems in execution, loyalty, sales, and profitability performance in this environment.

While the current environment has made it more difficult on the margin to predict when we will deliver our revenues than maybe it has been in the past, nevertheless most of the revenues are predictable. Its really on the margin, the 10% or so that’s shifting the expectations and we’re thankfully those shifts are being delivered either will be delivered, or are in our backlogs and will add to our fourth quarter and first quarter sales.

So we’ve made significant progress as I mentioned in our cost reduction initiatives and took additional acts that will deliver further savings in fiscal 2010. Having, just in conclusion, having exited the consumer business we really believe our business model will be quite compelling.

Our direct offices as we mentioned had low fixed costs, high variable costs. In 2005 to 2008 they achieved revenue growth of 42% and EBITDA growth of 92%.

We think they’re well positioned with a lot more strong sales people even than we had during that period of time and that we will resume that growth and I think that as we see each quarter’s revenue improving, we think that’s starting, is really in process now. Our licensee model is good.

We grew royalties from $4.2 million to $10.2 million over those same four years, 2005 to 2008 of which apples to apples, $4.2 to $8.8, because a couple of offices were converted but that means their sales grew from approximately $25 million to $75 million. And these licensees are getting larger.

They’re gaining momentum and really are large enough to make some impact and so as those revenues grow, with lower central costs that we already had and with the additional cost reductions that we’ve taken this year and are taking this summer, we think we’ll have good flow through. So we’re basically encouraged by the underlying trends in our business and expect to report continued progress in the fourth quarter and beyond.

I’m going to turn the time over to you Stephen to talk about this tax provision and anything else you’d like to talk about and then we’ll open it up for questions.

Thank you Robert. Nice to be with you everyone and probably is best to get this tax provision discussion out of the way first.

It is a, we consider it unusual to show a $2.9 million tax expense following a $2.2 million pre-tax loss. You would expect a several hundred thousand dollar tax benefit instead of the $2.9 million tax loss.

If you look at our earnings per share that is significantly impacted by this tax provision. The tax provision is a result of several things.

First of all, please remember that we do have a very significant NOL carry forward that’s high $20 million. So our taxes paid during any year is very small and our tax provision is primarily an adjustment to deferred taxes.

In this year, at the end of Q3 we determined it reasonable to adjust our year to date tax provision to be a number that would be consistent with what we would experience if we closed our books after three quarters. We decided to make that change realizing that if we did not make the change in Q3, then this unusual tax provision would most likely occur in Q4.

So we adjusted our provision again to make our year to date provision reasonable as if we had closed our books. The reason, that’s what we did.

The reason it is an unusual amount is because please remember that we, even though we don’t show interest income on our management loan shares, the interest income is taxable interest. We are unable to benefit from our foreign tax credits until our net operating loss forward is consumed and we are experiencing international profits while as a company overall we’re showing a pre-tax loss.

So the combination of all of those things, the simple math required us to take a $2.9 million provision even though it was a $2.2 million pre-tax loss and given our tax structure we would have, in a “normal” circumstances, you would expect a several hundred thousand dollar tax benefit associated with a $2 million pre-tax loss. So I hope that that’s a meaningful explanation.

Now please let me go back and Robert mentioned the key points related to our balance sheet and our P&L; let me just mention a couple of others. Accounts receivable, we are pleased about how the balance has come down and we are targeting a days’ sales outstanding that we consider to be very good especially in these economic conditions.

Please remember that as we reach that days’ sales outstanding number that our receivables will then still go up and down as our sales go up and down particularly in the last month of a quarter, either compared to the, so as our revenues hopefully go up quarter to quarter and year over year, our receivables could increase even when the days’ sales outstanding is decreasing. But we’re very, very pleased with our effort of reducing receivables especially given the current economic condition.

You’ll note as you study our balance sheet that we moved the receivable from an equity method investee of $3.6 million to long-term from short-term. That’s to reflect a modification of the note that we accepted during this quarter and is most likely going to result in that note being collected after a year period rather than during the year so we moved that to long-term.

We believe that the note is collectible and we will collect on that money as the Franklin Covey products has EBITDA come in in future years. You’ll also notice on the balance sheet that our accrued liability number decreased by about $5 million.

I mention that because of the cash impact that that has. That decrease in accrued liability is associated primarily with commissions and bonuses that are usually high at the end of a year, August, and are lower at this time and a little bit lower based upon the financial result.

But we had a decrease in our accrued liabilities. We also had a line of credit of $16 million at the end of the quarter.

Based upon our discussions with JPMorgan Chase, modification of our line there, our revolving credit agreement on June 30, the available amount was reduced from $25 to $20 million. Then August 31 will be reduced to $18 million and then on November 30 to $13.5 million.

And those what we view I think are the key points on the balance sheet in addition to the things that Robert mentioned. On our income statement, the tax provision is the key item.

Please understand that in our $18 million of selling, general and administrative expense we have $900,000 of primarily severance related to actions we are taking to reach our business model. So I would obviously concur with Robert that we’re pleased with our ability to control costs and go toward an acceptable business model.

We have significant reductions there. I’m also pleased with our gross margin, that it is holding up.

We see some change related to mix but the gross margin on the different elements of our revenue are holding up good. We’re pleased about that.

So overall, we do look to reduce cost in the future as Robert mentioned, optimistic about revenues and, so Robert those are the points that I have related to. I’m sorry, one additional thing, you’ll probably notice as you look at our weighted average number of common shares, 13.4 million, please remember that in a time of net loss, we deduct from the number of outstanding shares the 3.5 million shares held in the management loan escrow program.

And the difference in the share count from last year to this year is a reflection of a few shares that we have issued in our ESPP plan and some shares granted to Board members under our disclosed plans. Reduction is primarily the impact of the tender offer.

So Robert, those are the comments I have related to the P&L and the balance sheet.

Maybe I’d just highlight two things Stephen thanks so much, one with respect to the reduction in availability under the credit facility, that was something that was agreed to a year ago in principal when we sold the products company, we had an outstanding credit facility of $25 million. We had a bank group that was involved and actually at that point our lead bank and only bank, JPMorgan Chase, said they’d be very happy to take the whole thing, but asked whether it would be comfortable for us to reduce that over time which we believed it would.

And this reflects a more gentle reduction of that than had originally been anticipated a year ago but it reflects the fact that we expect to retire our credit facility through operations and continued improvement of the balance sheet and that we’re just not a capital-intensive business. So this has been a very, its not a punitive or difficult thing, its actually been a very responsive thing from them.

Also for those who are new on this management stock loan program, we’ve talked about it before, but there’s effectively a receivable which doesn’t appear on the balance sheet and then there are these shares and I think many at least with whom I’ve spoken, have recognized that there either ought to be the receivables of around $60 million on the balance sheet and the shares or for purposes of analysis not having the receivable and not having the shares and so the $13 million or so may actually be a good number to use. At this point, we’ll turn it over for questions and answers.

I know you mentioned that the July 2, you closed the property sale on Canada, what effect is that going to have, what effect does that have on EBITDA and what would the EBITDA look like without the property.

Essentially no impact. We’ve had the assets, the sales price was $2.250 million Canadian.

We’ve had that asset held for sale for a quarter or two. It’s a building that we owned so we had depreciation and interest historically on that building.

We have a small amount of expense there as we were just keeping it open but nothing material or significant.

Were there any new Fortune 100 customers won in this quarter.

Let’s see, we have a couple. We don’t name them but we have one in our sales performance practice and one in our customer loyalty that are Fortune 100.

The answer probably is is that we had significant number of new training things but in terms of major engagements that would involve the C Suite of a Fortune 100 company, we have had a couple of new engagements. We do a lot of training in the Fortune 100, Fortune 500 and Fortune 1000.

In fact in most of them we do some training but in terms of winning major strategic engagements, we have a couple during the quarter that were at the C level.

And I think maybe I misheard this if you could clarify this, we the bookings in the third quarter higher than in the second quarter.

They were. And they were also higher than in the third quarter last year.

And what was the biggest difference that propelled the increase from earlier in the calendar year.

Maybe I should respond to it two ways, one by channel, they happened primarily, the biggest growth occurred in the practices which included as we talked about before customer loyalty, execution, sales performance, education, those kinds of things. So in terms of practices they were there.

In terms of offerings, they relate to those things which are more kind of the strategic things, execution and sales related. Although actually our bookings on a year over year basis the bookings in our normal training were also pretty solid and off a little bit versus last year but not much.

So it was a more solid quarter. I think the facilitator business being actually up is I think a good indication that the training business which, that makes up approximately, facilitator business domestically is $30 million a year approximately which represents almost half the direct offices training revenues.

And so for that to come back we think is an indication that people are opening their pockets a little bit and allowing people to be trained and certified for future training and while they may, the revenue may move around a little bit, it’s a pretty good indication we think on the training business.

And I know you went over the objectives, the four objectives, and you kind of touched on EBITDA, is EBITDA $24 million run rate by the first quarter still on the table.

Yes, so what I said, we reported, with the slippage in this quarter I would say, let me first of all go back, the run rate we’ve talked about is to get to EBITDA of somewhere around, at trailing 12 months EBITDA of $17 million or so we would be on a run rate for the $23 million of EBITDA that we had before. And so our goal has been within that period of around 15 months from the sale, which would have been the end of the first quarter, to get to that run rate which would be in the $17 million operating EBITDA range.

My comment was that with the slippage in this quarter by a couple of months that if that were to continue that would put us a few months later in getting to that goal but we still expect to get there. Any slippage would be mitigated to some extent by these additional cost reductions that we’re doing but I think we’d say it would be a little later.

Is that, are you saying that’s a worst case or is that something that should be expected that its going to be later.

I would say just right now given that there was more slippage than we had expected in this quarter even though its still in our backlog I think its possible there would be slippage again in this quarter which we’re, we’re forecasting slippage in what we’re thinking about now but I think if slippage continued for the next couple of quarters it could put us a few months later.

Just to understand, I had problems hearing, did you say the real estate in Canada sold in early July and how much was it for.

It closed on July 2nd which was last Thursday for approximately $2 million US, I think it was $2.2 million Canadian.

Yes, $2.250 million Canadian.

And did you also collect part of the note from Peterson.

We did not collect a part of the note. We have ongoing receivables payable to them that we continue to have activity on and collections and we continue to order from them and so they’re a month-to-month ongoing transactions with Peterson partners but we did not collect any on the note.

The note itself which was due last January, we talked about it I think as you know in the last couple of quarters obviously the retail business was hit hard as many retail operations were and so they needed our cooperation and we were already subordinate to their bank debt anyway but we were happy to cooperate but their ability to pay that will, while we’re confident that they’ll get it paid, really their high season again won’t be until December, January. Depending on the level of performance they achieve, they can either pay us a portion of that at that time or more likely as Stephen said, its more likely unless things, the economy were to rebound significantly and effect retail that the collection would really begin in significant amounts the following year.

And we accrue interest at I think 8% on that and we expect to collect it all.

And so, can you talk at all about the customer loyalty portals and what kind of, or how many customers you have.

Yes we can. We won’t name them but we have and again the target here is retailers with more than 1,000 units.

We have lots of opportunities to do small things, so we can have 50 accounts right now if we were willing to take customers with 50 or fewer units but we’re not. We’re trained to focus on big, multiunit operators who have a CEO who’s committed to the process and to doing all the execution things that are needed so in that category, at least, and not necessarily all of our engagements are for a full 1,000 stores to start with but our target is to have 1,000 stores each paying us at least $100 a month for the portal so that these are million dollar accounts.

To date we have a practice that is going to be approximately $5.5 million this year and it includes around eight accounts and so that includes one where we have, we’re just starting up as well as ones we’re in full rollout and but all of them have the potential to be large accounts generating $0.50 million plus to a million dollars plus a year and that’s our target. Its really a big strategic relationship because the nature of what we do is I think particularly, its not that much easier to sell to a small client and the impact of having a Fortune 1000 CEO really committed we think can help us grow the practice a lot faster.

So you’ll do about $5.5 million in customer loyalty portal revenue for 2009.

Yes, in this fiscal year. And then we expect to grow it next year.

Do you have any specific number of clients you’re shooting for for 2010.

Yes, we’ll finish our final plan but I would say that we would hope to add another eight to 10 accounts next year. There’s a lot of work that goes into these and getting them started up and so if we could add eight to 10 clients, that each of them had the potential in the ensuing 12 months, or by the end of the 12 months to be on a run rate of $0.50 million to $1 million a year, we’d feel good about that in terms of the practice.

And that would give us significant growth in that practice.

So you would essentially double—

Yes, that’s the idea would be to do that and we think each of these practices has the potential within four to six years to be a $15 to $20 million practice or else we don’t start it.

Can you talk at all about, I know you gave a little bit of color on Live Clicks and Insights, but can you just talk about how customers are reacting to that product so far and—

I can, Live Clicks, we’re trained a little more than 4,000 since January which is ahead of our, what we anticipated when we launched it. I think that will continue to be something that I think can have good growth.

I don’t see that as much of a growth engine as Insights should be. Insights really allows us and we’re focusing in our execution practices and customer loyalty on multiunit operators with tens and tens of thousands of frontline employees who historically have not really been able to go through traditional training and many of whom would never necessarily go home and take the training online.

So these little modules where in their team meetings they can look at five-minute film of John Wooden talking about leaderships, stop and ask two or three poignant questions about this means and our team really opens a big market for us. And so it also does in schools and other things.

So everywhere there are lots of distributed work forces, this is a product that allows us to get to these frontline training and it also involves the leader in the training rather than using an HR person. So we’ve only had it available for actual for sale here for the last 10 or 12 days and we’re glad that we’ve landed this first one for a couple hundred thousand dollars but for us this should be a big product.

And for us we anticipate that these products, if we launch a new product with the development costs etc. it needs to be able to add more than $10 million of revenue a year within a few years and we think this one has that potential both in terms of new clients that maybe would not have been able to do training with us, one.

Number two, worldwide intellectual property contracts with existing clients where they see this as a resource and third, really as an add-on to training that we have because we have the ability if we sell a seven habits course, we have six of the film modules that actually support that course where we could actually sell them an add-on for a few thousand dollars to help support the training. So we think this will be, this platform will be with us for a long time.

We’ll keep adding to it. I’m sure it will get segmented into various things that support certain courses as well as certain problems but for us this is an area where we think its, the reaction has been tremendous.

The pricing point for what they’re getting is very attractive and so in our pre-marketing and demonstration area we’re getting a lot of interest. We suspect that this will be a good product and it will also increase the recurring revenue because one-twelfth of whatever we sell will be recognized in each month as long as the contracts exist and so it will help us in our effort to move recurring revenue up from the high 40’s to the mid 60’s over the next three or four years we think.

I think last time I guess a quarter or two ago, one of the I think ideas that you were going to revisit was the potential for a buyback and/or a dividend policy and given what’s happened I guess that obviously would probably be pushed out a quarter or two, can you just give any kind of thoughts on how you see those two opportunities.

I think you’re right in terms of the timing. Its likely to be something we think about after the next couple of quarters but I think philosophically hopefully we’ve shown over the years as we’ve redeemed, paid off senior debt, redeemed 87 million of preferred and bought back close to 45 million of common that we have a business that we think is not very capital intensive.

We don’t anticipate doing very many acquisitions which maybe is a negative but we don’t. We think our capital intensity in the basic business will be reduced from somewhere around, working capital to sales of 20%, our target would be in the 17% or even less percent.

So as a consequence, as we get to, as revenues solidify with our cost structure we would anticipate we’ll generate a lot of cash and beyond maintaining a cash reserve that is sufficient to make sure that we can weather anything that we see on the horizon, that and probably keeping some credit line out for the same reason, we would expect to return the capital to shareholders one way or the other or maybe a combination. So all I’ll do is reaffirm.

I don’t know what the right mix is. Some would argue we just ought to buy common stock and even though the float is already not very big and we should just take, look at this as not a private company but look at it and just make good investments and buy back stock.

Others are concerned about the effect that might have on the ability of shareholders to invest. So I think we’ll look at some balance and my guess is that it will be some balance of those two and will be something we’ll be thinking about in the, probably in our fall or winter board meetings.

I saw an article in Investors Business Daily about a month and a half ago, where Stephen Covey laid out some, I guess he said his target of the company reaching a billion dollars in training and consulting revenue over the next decade, I’m just curious, what are you, where are your thoughts overall in terms of short and long-term growth and given all the new products that you’re releasing, its tough to get a feel but it seems like it should be fairly decent top line growth.

I think if you look at the last four years, 2005 through 2008 as we started to add sales people in our eight direct offices, those direct offices added 42% revenue growth which was around $32 million of revenue and had huge flow through so that EBITDA increased by 92%. We have in place a bigger sales force than we had then.

We have still a lot of opportunities for hiring new sales people and so when ever things stabilize in the world we don’t see any reason why what we accomplished in a time when we were trying to figure it out how to hire people, figuring out our mentorship programs, all of which we now have in place, not that it will be easy, but we don’t know what that wouldn’t at least be possible to do that in our direct offices. Have at least that kind of growth going forward.

Our licensees we talked about grew at more than double during that period of time and most of them are now gaining stride and gaining strength. Many of them were start-ups at the time and so they were going through their start up problems.

Many are now quite significant. Our licensee and partners in India have more than 300 people on the ground.

In China, 80, and all of them are growing rapidly and so we again would think there’s lots of opportunity there and then we didn’t have in the past years these practices which in addition to supporting field sales in both our direct offices and licensee offices, also go out and make national account sales themselves and like I say, we wouldn’t be, these we think can be over four to six years, $15 million plus each of them. So we do believe and are positioning ourselves and have been positioning ourselves and with these new platforms to have significant top line growth through what we think is an attractive field model between the direct office and licensee models with low central fixed costs that we hope will not increase at all and I think we feel good about our ability to make that, at least keep the cost down and feel optimistic about our ability to grow the revenues.

I guess you hit on it briefly, its just international, what do you see over there. Sounds like India is—

International now, if you gross up the revenues from our licensee partners and add, they’re around $75 million of revenue and our direct offices generate another $38 million so actually we have more, we now have more revenues although not reported revenues because license fees, but more revenues coming internationally than domestically. Our direct offices only cover countries that have around 500 million population really and so our growth really will be international.

We think we can grow a lot domestically because we’re only, our penetration level is small relative to the number of sales territories that we have so we think we’ve got lots of opportunity domestically but clearly internationally there are enormous opportunities and we’re reorganizing some of our functions this summer to put more emphasis on certain key countries and really treat our top 10 licensee partners almost as though they’re direct offices with the same kind of interaction and work with them as we have with our direct offices because their potential is so significant. In a country like China we’ve got less, they’ve been growing very rapidly and they’re a wonderful partner but the revenue we have from China today represents less than one of our direct offices domestically and so the kind of growth opportunity there and in India we think is particularly robust, in Brazil, in Mexico, and in Europe.

We’d have a lot of wonderful partners who are just gaining stride so we’re optimistic about their ability. They haven’t been unaffected by what’s going on in the world but nevertheless they’re holding their own as well.

Could you spend just a minute and review some of the cost reduction numbers you gave on the call. I think I heard that you’d mentioned that there was an $8 million plus run rate cost reduction that you would be having the benefit of from 2010 but then I think there was another number of about $5 million of additional cost reduction identified.

If you could just sort out those numbers for me.

You got it exactly right. I probably just didn’t say it very clearly.

The first, I think its slide five, just shows the quarter by quarter comparison of our central costs, so these are the actual costs of running central operations in our headquarters offices and the year over year and I think that adds up to around, should add up to about $8.5 million just in the coming quarters. So that was the first number, just the run rate impact into next year.

Is that the first half of your question?

Right exactly.

So that’s one thing and then I was just saying that the other thing that we’ve taken on this summer is that we’ve had other redundant costs that are handled centrally but they’re really what I would call domestic direct office support costs. So the five direct offices that we have in North America unlike our offices in Japan, the UK and Australia, which are self-contained, they do their own accounting, contract processing, collections, etc.

we have historically done those functions on behalf of the offices centrally in Salt Lake and then of course it makes sense that you would think that that would be less expensive. But over the years we’ve also started to move some of those functions back into the field and we’ve been kind of straddle, where in some offices we have financial, the financial functions in the office and some of the contract processing in the offices, while we’re still maintaining systems etc.

centrally. Our IT costs are much, much higher in supporting these five offices on a per office basis than the systems we use internationally which are very good and do fine.

So we’re just saying that we’re taking, in addition to the central costs already, are already reflected in that chart which were implemented in Q1 and Q2 so those really are things that have already happened and therefore we have good visibility that they, what those costs will be in the future. In addition to that we are taking out of what I would estimate will be approximately another $5 million of costs as we really complete the decentralization of our, the functions that are currently supporting our five direct offices in the US.

And so just reducing duplicate costs, reducing layers of sales support and just letting those offices operate as our international direct offices do and as our licensee partners offices do. We just want to make sure that we’re very clear that our central office is there to support all 46 of our licensee and direct office partners; that we’re really not in the business of running domestic operations.

I just wanted, the slippage you saw last quarter, how much was that and since the quarter is half over already almost, what have you seen further slippage so far this quarter. And if you saw the slippage why isn’t that helping this quarter and not hurting this quarter.

Yes I think it is helping this quarter and so we did see slippage. The nature of it was primarily in terms of a smaller number, there’s slippage of little things all the time that goes on in the business but the things that were more noticeable were some of these larger sales contracts and some of the other practice contracts that shifted for one reason or another either because they’re reorganizing their sales force and wanted to wait until the reorganization was complete before they did the training, or they were trying to meet their third quarter numbers and had to cut all discretionary spending but were still committed to the training and needed to move it to July or whatever.

But that’s the nature of the slippage and it comes in a lot of different forms. But its primarily large contracts that for one reason or another have deferred but retained the commitment.

To your second point being five weeks into the quarter we have seen some slippage but we benefited from some of the slippage from the third quarter. We’re benefiting from that and we’ll expect to benefit from that in the fourth quarter and right now some of the slippage, I can think of three contracts that have slipped a little bit, they’ve slipped within the quarter from a June to a July or a July to August and so the dollars involved have not been as significant as what we saw in the third quarter.

But I think its still possible there would be—

So how much was the slippage in the quarter, you didn’t say.

Yes, it was probably $3 million, close to $2.8 million of slippage. And I think it could, we could have a number like that in the fourth quarter although we’re not seeing it.

So if it was $2.8 million slippage again, the $2.8 then you will then make what you originally—

Yes, we’ll pick that back up in the fourth. So we would expect the fourth as I mentioned, the revenue improvement would be significant in the fourth quarter.

With our cost reductions in the fourth quarter the EBITDA impact and operating income impact should also be very positive and very significant.

Thank everyone very much for making the time late in the day for how many of you are to be on the call. We appreciate your interest and I want to assure you that the slippage is painful for us too every day but I think on the other hand we don’t see it as a fundamental problem and we expect to meet the other commitments that we’ve made on costs.

And expect that our new offerings and our continued efforts and these practices will allow us to catch up on the revenue line here in the coming quarters. So thanks very much and appreciate all your efforts on our behalf.

Thank you.