The accompanying notes are an integral part
of these Condensed Consolidated Financial Statements.
The accompanying notes are an integral part
of these Condensed Consolidated Financial Statements.
The accompanying notes are an integral part
of these Condensed Consolidated Financial Statements.
The accompanying notes are an integral part
of these Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 1: GENERAL
This report on Form 10-Q for the quarter
ended November 30, 2020, should be read in conjunction with the Company's annual report on Form 10-K for the year ended August
31, 2020, filed with the Securities and Exchange Commission (“SEC”) on November 16, 2020. As contemplated by the SEC
under Article 8 of Regulation S-X, the accompanying consolidated financial statements and footnotes have been condensed and therefore
do not contain all disclosures required by generally accepted accounting principles. The interim financial data are unaudited;
however, in the opinion of Simulations Plus, Inc. ("we", "our", "us"), the interim data includes
all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim
periods. Results for interim periods are not necessarily indicative of those to be expected for the full year.
Organization
Simulations Plus, Inc. (“Simulations
Plus”, “Lancaster”) was incorporated on July 17, 1996. In September 2014, Simulations Plus acquired all of the
outstanding equity interests of Cognigen Corporation (“Cognigen”, “Buffalo”) and Cognigen became a wholly
owned subsidiary of Simulations Plus, Inc. In June 2017, Simulations Plus acquired DILIsym Services, Inc. (DILIsym) as a wholly
owned subsidiary. In April 2020, Simulations Plus, Inc. acquired Lixoft, a French société par actions simplifiée
(“Lixoft”, “Paris”) as a wholly owned subsidiary pursuant to a stock purchase and contribution agreement.
(Collectively, “Company”, “we”, “us”, “our”).
Lines of Business
The Company designs and develops pharmaceutical
simulation software to promote cost-effective solutions to a number of problems in pharmaceutical research and in the education
of pharmacy and medical students, and it provides consulting services to the pharmaceutical and chemical industries. Recently,
the Company has begun to explore developing software applications for health care outside of the pharmaceutical industry.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial
statements include the accounts of Simulations Plus, Inc. and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated upon consolidation.
Use of Estimates
Our financial statements and accompanying
notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing financial
statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Actual results
could differ from those estimates. Significant accounting policies for us include revenue recognition, accounting for capitalized
computer software development costs, valuation of stock options, and accounting for income taxes.
Reclassifications
Certain numbers in the prior year have
been reclassified to conform to the current year's presentation.
Revenue Recognition
We generate revenue primarily from the
sale of software licenses and by providing consulting services to the pharmaceutical industry for drug development.
In accordance with Accounting Standards
Codification Topic 606 (ASC Topic 606), “Revenue from Contracts with Customers”, the Company determines revenue
recognition through the following steps:
i.
|
Identification of the contract, or contracts, with a customer
|
ii.
|
Identification of the performance obligations in the contract
|
iii.
|
Determination of the transaction price
|
iv.
|
Allocation of the transaction price to the performance obligations in the contract
|
v.
|
Recognition of revenue when, or as, the Company satisfies a performance obligation
|
Deferred Commissions
Sales commissions earned by our sales force
and our commissioned sales representatives are considered incremental and recoverable costs of obtaining a contract with a customer.
Sales commissions for new contracts are deferred and then amortized on a straight-line basis over a period of benefit. We determined
the period of benefit by taking into consideration our customer contracts, our technology, and other factors. Sales commissions
for renewal contracts are deferred and then amortized on a straight-line basis over the related contractual renewal period. Amortization
expense is included in sales and marketing expenses on the condensed consolidated statements of operations.
We apply the practical expedient in ASC
Topic 606 to expense costs as incurred for sales commissions when the period of benefit would have been one year or less. Most
of our contracts are of a duration of one year or less, while few, if any of the longer-term contracts have commissions associated
with them.
Practical Expedients and Exemptions
The Company has elected the following additional
practical expedients in applying Topic 606:
·
|
Commission Expense: We apply the practical expedient in ASC Topic 606 to expense costs as incurred for sales commissions when the period of benefit is one year or less. Most of our contracts are of a duration of one year or less, few, if any of the longer term contracts have commissions associated with them.
|
·
|
Transaction Price Allocated to Future
Performance Obligations
ASC 606 requires that the Company disclose
the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of November
30, 2020. ASC 606 provides certain practical expedients that limit the requirement to disclose the aggregate amount of transaction
price allocated to unsatisfied performance obligations.
The Company applied the practical expedient
to not disclose the amount of transaction price allocated to unsatisfied performance obligations when the performance obligation
is part of a contract that has an original expected duration of one year or less.
|
Cash and Cash Equivalents
For purposes of the statements of cash
flows, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash
equivalents.
Accounts Receivable
We analyze the age of customer balances,
historical bad-debt experience, customer creditworthiness, and changes in customer payment terms when making estimates of the collectability
of the Company’s trade accounts receivable balances. If we determine that the financial conditions of any of its customers
deteriorated, whether due to customer-specific or general economic issues, an increase in the allowance may be made. Accounts receivable
are written off when all collection attempts have failed.
Investments
We may invest excess cash balances in short-term
and long-term marketable debt securities. Investments may consist of certificates of deposit, money market accounts, government-sponsored
enterprise securities, corporate bonds and/or commercial paper. The Company accounts for its investment in marketable securities
in accordance with Financial Accounting Standards Board (FASB) ASC 320, Investments – Debt and Equity Securities. This statement
requires debt securities to be classified into three categories:
Held-to-maturity—Debt securities
that the entity has the positive intent and ability to hold to maturity are reported at amortized cost.
Trading Securities—Debt securities
that are bought and held primarily for the purpose of selling in the near term are reported at fair value, with unrealized gains
and losses included in earnings.
Available-for-Sale—Debt securities
not classified as either securities held-to-maturity or trading securities are reported at fair value with unrealized gains or
losses excluded from earnings and reported as a separate component of shareholders’ equity.
The Company classifies its investments
in marketable debt securities based on the facts and circumstances present at the time of purchase of the securities. During the
quarter ended November 30, 2020, all of the Company’s investments were classified as held-to-maturity.
Held-to-maturity investments are measured
and recorded at amortized cost on the Company’s Consolidated Balance Sheet. Discounts and premiums to par value of the debt
securities are amortized to interest income/expense over the term of the security. No gains or losses on investment securities
are realized until they are sold or a decline in fair value is determined to be other-than-temporary.
Capitalized Computer Software Development
Costs
Software development costs are capitalized
in accordance with ASC 985-20, “Costs of Software to Be Sold, Leased, or Marketed”. Capitalization of software
development costs begins upon the establishment of technological feasibility and is discontinued when the product is available
for sale.
The establishment of technological feasibility
and the ongoing assessment for recoverability of capitalized software development costs require considerable judgment by management
with respect to certain external factors including, but not limited to, technological feasibility, anticipated future gross revenues,
estimated economic life, and changes in software and hardware technologies. Capitalized software development costs are comprised
primarily of salaries and direct payroll-related costs and the purchase of existing software to be used in our software products.
Amortization of capitalized software development
costs is calculated on a product-by-product basis on the straight-line method over the estimated economic life of the products
(not to exceed five years). Amortization of software development costs amounted to $325 thousand and $314 thousand for the three
months ended November 30, 2020 and 2019, respectively. We expect future amortization expense to vary due to increases in capitalized
computer software development costs.
We test capitalized computer software development
costs for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Property and Equipment
Property and equipment are recorded at
cost, less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method
over the estimated useful lives as follows:
Property and Equipment estimated useful lives
|
|
Equipment
|
5 years
|
Computer equipment
|
3 to 7 years
|
Furniture and fixtures
|
5 to 7 years
|
Leasehold improvements
|
Shorter of life of asset or lease
|
Internal-use Software
The Company has a service contract related
to the implementation of internally used software. In accordance with ASC 350-40 “Customer’s Accounting for Implementation
Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”, the Company has capitalized certain internal-use
software which are included in long-term assets.
The amortization will be classified as
selling, general, and administrative expenses on the condensed consolidated statement of operations and maintenance and minor upgrades
are charged to expense as incurred. Gains and losses on disposals are included in the results of operations. No amortization has
been expensed for the project as it is still in progress.
Leases
Supplemental balance sheet information
related to operating leases was as follows as of November 30, 2020:
Schedule of lease cost
|
|
|
|
|
(in thousands)
|
|
|
|
Right of use assets
|
|
$
|
768
|
|
Lease Liabilities, Current
|
|
$
|
395
|
|
Lease Liabilities, Long-term
|
|
$
|
376
|
|
Operating lease costs
|
|
$
|
165
|
|
Weighted Average remaining lease term
|
|
|
2.0 years
|
|
Weighted Average Discount rate
|
|
|
4.25%
|
|
Intangible Assets and Goodwill
The Company performs valuations of assets
acquired and liabilities assumed on each acquisition accounted for as a business combination and recognizes the assets acquired
and liabilities assumed at their acquisition-date fair value. Acquired intangible assets include customer relationships, software,
trade names, and noncompete agreements. The Company determines the appropriate useful life by performing an analysis of expected
cash flows based on historical experience of the acquired businesses. Intangible assets are amortized over their estimated useful
lives using the straight-line method, which approximates the pattern in which the majority of the economic benefits are expected
to be consumed.
Goodwill represents the excess of the cost
of an acquired entity over the fair value of the acquired net assets. Goodwill is not amortized, instead it is tested for impairment
annually or when events or circumstances change that would indicate that goodwill might be impaired. Events or circumstances that
could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business
climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes
in the manner of the Company's use of the acquired assets or the strategy for the Company's overall business, significant negative
industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.
Goodwill is tested for impairment at the
reporting unit level, which is one level below or the same as an operating segment. As of November 30, 2020, the Company determined
that it has four reporting units: Simulations Plus, Cognigen, DILIsym and Lixoft. When testing goodwill for impairment,
the Company first performs a qualitative assessment to determine whether it is necessary to perform step one of a two-step annual
goodwill impairment test for each reporting unit. The Company is required to perform step one only if it concludes that it is more
likely than not that a reporting unit's fair value is less than its carrying value. Should this be the case, the first step of
the two-step process is to identify whether a potential impairment exists by comparing the estimated fair values of the Company's
reporting units with their respective book values, including goodwill. If the estimated fair value of the reporting unit exceeds
book value, goodwill is considered not to be impaired, and no additional steps are necessary. If, however, the fair value of the
reporting unit is less than book value, then the second step is performed to determine if goodwill is impaired and to measure the
amount of impairment loss, if any. The amount of the impairment loss is the excess of the carrying amount of the goodwill over
its implied fair value. The estimate of implied fair value of goodwill is primarily based on an estimate of the discounted cash
flows expected to result from that reporting unit, but may require valuations of certain internally generated and unrecognized
intangible assets such as the Company's software, technology, patents, and trademarks. If the carrying amount of goodwill exceeds
the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.
As of November 30, 2020, the entire balance
of goodwill was attributed to three of the Company's reporting units, Cognigen, DILIsym, and Lixoft. Intangible assets subject
to amortization are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets
may not be recoverable. The Company did not recognize any impairment charges during the three months ended November 30, 2020 and
2019.
Reconciliation of Goodwill for the period
ended November 30, 2020:
Schedule of reconciliation of goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Cognigen
|
|
|
DILIsym
|
|
|
Lixoft
|
|
|
Total
|
|
Balance, August 31, 2020
|
|
$
|
4,789
|
|
|
$
|
5,598
|
|
|
$
|
2,534
|
|
|
$
|
12,921
|
|
Addition
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Impairments
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Balance, November 30, 2020
|
|
$
|
4,789
|
|
|
$
|
5,598
|
|
|
$
|
2,534
|
|
|
$
|
12,921
|
|
Fair Value of Financial Instruments
Assets and liabilities recorded at fair
value in the Condensed Balance Sheets are categorized based upon the level of judgment associated with the inputs used to measure
their fair value. The categories, as defined by the standard are as follows:
Level Input:
|
|
Input Definition:
|
Level I
|
|
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
|
Level II
|
|
Inputs, other than quoted prices included in Level I, that are observable for the asset or liability through corroboration with market data at the measurement date.
|
Level III
|
|
Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.
|
For certain of our financial instruments,
including accounts receivable, accounts payable, accrued payroll and other expenses, accrued bonuses to officers, and accrued
warranty and service costs, the amounts approximate fair value due to their short maturities.
The following table summarizes fair value
measurements at November 30, 2020 and August 31, 2020 for assets and liabilities measured at fair value on a recurring basis:
November 30, 2020:
Schedule of fair value
measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
27,651
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
27,651
|
|
Short-term investments
|
|
$
|
91,115
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
91,115
|
|
Acquisition-related contingent consideration obligations
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
4,852
|
|
|
$
|
4,852
|
|
August 31, 2020:
(in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
49,207
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
49,207
|
|
Short-term investments
|
|
$
|
66,804
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
66,804
|
|
Acquisition-related contingent consideration obligations
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
4,731
|
|
|
$
|
4,731
|
|
As of November 30, 2020 and August 31,
2020, the Company has a liability for contingent consideration related to its acquisition of Lixoft. The fair value measurement
of the contingent consideration obligations is determined using Level 3 inputs. The fair value of contingent consideration obligations
is based on a discounted cash flow model using a probability-weighted income approach. These fair value measurements represent
Level 3 measurements as they are based on significant inputs not observable in the market. Significant judgment is employed in
determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes
in assumptions could have a material impact on the amount of contingent consideration expense the Company records in any given
period. Changes in the value of the contingent consideration obligations are recorded in the Company’s Consolidated Statement
of Operations.
The following is a reconciliation of contingent
consideration value:
Reconciliation of contingent consideration value
|
|
|
|
|
(in thousands)
|
|
|
|
|
Value at August 31, 2020
|
|
$
|
4,731
|
|
Contingent consideration payments
|
|
|
–
|
|
Change in value of contingent consideration
|
|
|
121
|
|
Value at November 30, 2020
|
|
$
|
4,852
|
|
Research and Development Costs
Research and development costs are charged
to expense as incurred until technological feasibility has been established. These costs include salaries, laboratory experiment,
and purchased software that was developed by other companies and incorporated into, or used in the development of, our final products.
Income Taxes
The Company accounts for income taxes in
accordance with ASC 740-10, “Income Taxes” which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements or tax returns.
Under this method, deferred income taxes
are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and
the change during the period in deferred tax assets and liabilities.
Intellectual property
The following table summarizes intellectual
property as of November 30, 2020:
Schedule of Intellectual
property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Amortization
Period
|
|
Acquisition
Value
|
|
|
Accumulated
Amortization
|
|
|
Net book
value
|
|
Royalty Agreement buy out-Enslein Research
|
|
Straight line 10 years
|
|
$
|
75
|
|
|
$
|
66
|
|
|
$
|
9
|
|
Termination/nonassertion agreement-TSRL Inc.
|
|
Straight line 10 years
|
|
|
6,000
|
|
|
|
3,925
|
|
|
|
2,075
|
|
Developed technologies–DILIsym acquisition
|
|
Straight line 9 years
|
|
|
2,850
|
|
|
|
1,108
|
|
|
|
1,742
|
|
Intellectual rights of Entelos Holding Corp.
|
|
Straight line 10 years
|
|
|
50
|
|
|
|
11
|
|
|
|
39
|
|
Developed technologies–Lixoft acquisition
|
|
Straight line 16 years
|
|
|
8,010
|
|
|
|
334
|
|
|
|
7,676
|
|
|
|
|
|
$
|
16,985
|
|
|
$
|
5,444
|
|
|
$
|
11,541
|
|
The following table summarizes intellectual
property as of August 31, 2020:
(in thousands)
|
|
Amortization
Period
|
|
Acquisition
Value
|
|
|
Accumulated
Amortization
|
|
|
Net book
value
|
|
Royalty Agreement buy out-Enslein Research
|
|
Straight line 10 years
|
|
$
|
75
|
|
|
$
|
64
|
|
|
$
|
11
|
|
Termination/nonassertion agreement-TSRL Inc.
|
|
Straight line 10 years
|
|
|
6,000
|
|
|
|
3,775
|
|
|
|
2,225
|
|
Developed technologies–DILIsym acquisition
|
|
Straight line 9 years
|
|
|
2,850
|
|
|
|
1,029
|
|
|
|
1,821
|
|
Intellectual rights of Entelos Holding Corp.
|
|
Straight line 10 years
|
|
|
50
|
|
|
|
10
|
|
|
|
40
|
|
Developed technologies–Lixoft acquisition
|
|
Straight line 16 years
|
|
|
8,010
|
|
|
|
209
|
|
|
|
7,801
|
|
|
|
|
|
$
|
16,985
|
|
|
$
|
5,087
|
|
|
$
|
11,898
|
|
Total amortization expense for intellectual
property agreements for the three months ended November 30, 2020 and 2019 was $357 thousand and $232 thousand, respectively.
Other intangible assets
The following table summarizes the Company’s
other intangible assets as of November 30, 2020:
Schedule of other intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Amortization
Period
|
|
Acquisition
Value
|
|
|
Accumulated
Amortization
|
|
|
Net book
value
|
|
Cognigen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
Straight line 8 years
|
|
$
|
1,100
|
|
|
$
|
859
|
|
|
$
|
241
|
|
Trade name
|
|
None
|
|
|
500
|
|
|
|
–
|
|
|
|
500
|
|
Covenants not to compete
|
|
Straight line 5 years
|
|
|
50
|
|
|
|
50
|
|
|
|
–
|
|
DILIsym
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
Straight line 10 years
|
|
|
1,900
|
|
|
|
665
|
|
|
|
1,235
|
|
Trade name
|
|
None
|
|
|
860
|
|
|
|
–
|
|
|
|
860
|
|
Covenants to compete
|
|
Straight line 4 years
|
|
|
80
|
|
|
|
70
|
|
|
|
10
|
|
Lixoft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
Straight line 14 years
|
|
|
2,550
|
|
|
|
122
|
|
|
|
2,428
|
|
Trade name
|
|
None
|
|
|
1,550
|
|
|
|
–
|
|
|
|
1,550
|
|
Covenants to compete
|
|
Straight line 3 years
|
|
|
60
|
|
|
|
13
|
|
|
|
47
|
|
|
|
|
|
$
|
8,650
|
|
|
$
|
1,779
|
|
|
$
|
6,871
|
|
The following table summarizes the Company’s
other intangible assets as of August 31, 2020:
(in thousands)
|
|
Amortization
Period
|
|
Acquisition
Value
|
|
|
Accumulated
Amortization
|
|
|
Net book
value
|
|
Cognigen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
Straight line 8 years
|
|
$
|
1,100
|
|
|
$
|
825
|
|
|
$
|
275
|
|
Trade name
|
|
None
|
|
|
500
|
|
|
|
–
|
|
|
|
500
|
|
Covenants not to compete
|
|
Straight line 5 years
|
|
|
50
|
|
|
|
50
|
|
|
|
–
|
|
DILIsym
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
Straight line 10 years
|
|
|
1,900
|
|
|
|
618
|
|
|
|
1,282
|
|
Trade name
|
|
None
|
|
|
860
|
|
|
|
–
|
|
|
|
860
|
|
Covenants to compete
|
|
Straight line 4 years
|
|
|
80
|
|
|
|
65
|
|
|
|
15
|
|
Lixoft
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
Straight line 14 years
|
|
|
2,550
|
|
|
|
76
|
|
|
|
2,474
|
|
Trade name
|
|
None
|
|
|
1,550
|
|
|
|
–
|
|
|
|
1,550
|
|
Covenants to compete
|
|
Straight line 3 years
|
|
|
60
|
|
|
|
8
|
|
|
|
52
|
|
|
|
|
|
$
|
8,650
|
|
|
$
|
1,642
|
|
|
$
|
7,008
|
|
Amortization expense for each of the three
months ended November 30, 2020 and 2019 was $137 thousand and $87 thousand, respectively. According to policy in addition to normal
amortization, these assets are tested for impairment as needed.
Earnings per Share
We report earnings per share in accordance
with FASB ASC 260-10. Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average
number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator
is increased to include the number of additional common shares that would have been outstanding if the potential common shares
had been issued and if the additional common shares were dilutive. The components of basic and diluted earnings per share for the
three months ended November 30, 2020 and 2019 were as follows:
Schedule of earnings per share
|
|
|
|
|
|
|
|
|
|
|
Three months ended November 30,
|
|
(in thousands)
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
|
|
$
|
2,479
|
|
|
$
|
2,058
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding during the period
|
|
|
19,930
|
|
|
|
17,609
|
|
Dilutive effect of stock options
|
|
|
869
|
|
|
|
698
|
|
Common stock and common stock equivalents used for diluted earnings per share
|
|
$
|
20,799
|
|
|
$
|
18,307
|
|
Stock-Based Compensation
Compensation costs related to stock options
are determined in accordance with FASB ASC 718-10, “Compensation-Stock Compensation”, using the modified prospective
method. Under this method, compensation cost is calculated based on the grant-date fair value estimated in accordance with FASB
ASC 718-10, amortized on a straight-line basis over the options’ vesting period. Stock-based compensation expense was $449
thousand and $295 thousand for the three months ended November 30, 2020 and 2019, respectively. This expense is included in the
condensed consolidated statements of operations as Selling, general, and administration and Research and development expense.
Impairment of Long-lived Assets
The Company accounts for the impairment
and disposition of long-lived assets in accordance with ASC 350, “Intangibles – Goodwill and Other” and
ASC 360, “Property and Equipment”. Long-lived assets to be held and used are reviewed for events or changes
in circumstances that indicate that their carrying value may not be recoverable. We measure recoverability by comparing the carrying
amount of an asset to the expected future undiscounted net cash flows generated by the asset. If we determine that the asset may
not be recoverable, or if the carrying amount of an asset exceeds its estimated future undiscounted cash flows, we recognize an
impairment charge to the extent of the difference between the fair value and the asset's carrying amount. No impairment losses
were recorded during the three months ended November 30, 2020 and 2019.
Recently Issued Accounting Pronouncements
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in
"Leases (Topic 840)" and generally requires all leases to be recognized in the consolidated balance sheet. ASU 2016-02
is effective for annual and interim reporting periods beginning after December 15, 2018. The Company adopted this ASU on September
1, 2019.
We do not expect any other recently issued
accounting pronouncements to have a material effect on our financial statements.
NOTE 3: REVENUE RECOGNITION
Contract Liabilities
During the three months ended November
30, 2020 and 2019, the Company recognized $296 thousand and $306 thousand of revenue that was included in contract liabilities
as of August 31, 2020 and 2019, respectively.
Disaggregation of Revenues
Schedule of disaggregation of revenues
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Three months Ended November 30,
|
|
Disaggregation of revenues:
|
|
2020
|
|
|
2019
|
|
Software licenses
|
|
|
|
|
|
|
|
|
Point in time
|
|
$
|
6,001
|
|
|
$
|
4,363
|
|
Over time
|
|
|
211
|
|
|
|
251
|
|
Consulting services
|
|
|
|
|
|
|
|
|
Over time
|
|
|
4,489
|
|
|
|
4,787
|
|
Total Revenue
|
|
$
|
10,701
|
|
|
$
|
9,401
|
|
Remaining Performance Obligations
Remaining performance obligations that
do not fall under the expedients require the Company to perform various consulting and software development services of approximately
$2.7 million. It is anticipated these revenues will be recognized within the next twelve months.
NOTE
4: PROPERTY AND EQUIPMENT
Property and equipment consisted of the
following:
Schedule of property and equipment
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
November 30,
2020
|
|
|
August 31,
2020
|
|
Equipment
|
|
$
|
930
|
|
|
$
|
865
|
|
Computer equipment
|
|
|
572
|
|
|
|
548
|
|
Furniture and fixtures
|
|
|
161
|
|
|
|
161
|
|
Leasehold improvements
|
|
|
114
|
|
|
|
114
|
|
Construction in progress
|
|
|
115
|
|
|
|
–
|
|
Sub total
|
|
|
1,892
|
|
|
|
1,688
|
|
Less: accumulated depreciation
|
|
|
(1,296
|
)
|
|
|
(1,250
|
)
|
Net book value
|
|
$
|
596
|
|
|
$
|
438
|
|
NOTE 5: INVESTMENTS
The Company invests a portion of its excess
cash balances in short-term debt securities. Investments at November 30, 2020 consisted of corporate bonds with maturities remaining
of less than 12 months. The Company may also invest excess cash balances in certificates of deposit, money market accounts, government-sponsored
enterprise securities, corporate bonds and/or commercial paper. The Company accounts for its investments in accordance with FASB
ASC 320, Investments – Debt and Equity Securities. At November 30, 2020, all investments were classified as held-to-maturity
securities.
The following tables summarize the Company’s
short-term investments as of November 30, 2020 and August 31, 2020:
Schedule of short term investment
|
November 30, 2020
|
(in thousands)
|
|
Amortized Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial notes (due within one year)
|
|
$
|
91,115
|
|
|
$
|
–
|
|
|
$
|
(48
|
)
|
|
$
|
91,067
|
|
Total
|
|
$
|
91,115
|
|
|
$
|
–
|
|
|
$
|
(48
|
)
|
|
$
|
91,067
|
|
August 31, 2020
|
(in thousands)
|
|
Amortized Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial notes (due within one year)
|
|
$
|
66,804
|
|
|
$
|
–
|
|
|
$
|
(61
|
)
|
|
$
|
66,743
|
|
Total
|
|
$
|
66,804
|
|
|
$
|
–
|
|
|
$
|
(61
|
)
|
|
$
|
66,743
|
|
NOTE 6: CONTRACTS PAYABLE
DILIsym Acquisition Liabilities:
On June 1, 2017, the Company acquired DILIsym.
The agreement provided for a working capital adjustment, an eighteen-month $1.0 million holdback provision against certain representations
and warranties, and an earnout agreement of up to an additional $5.0 million in earnout payments based on earnings over three years
following acquisition. The earnout liability has been recorded at an estimated fair value. Payments under the earnout liability
started in FY 2019. In September 2018, $1.6 million was paid out under the first earnout payment, a second earnout payment was
made in August 2019 in the amount of $1.7 million. The final payment of $1.8 million was paid in August 2020. In addition, no claims
were made against the holdback and the $1.0 million was released eighteen months after June 1, 2017.
Lixoft Acquisition Liabilities:
On April 1, 2020, the Company
acquired Lixoft. The agreement provided for a twenty-four month $2.0 million holdback provision against certain representations
and warrantees, comprised of $1.3 million of cash and the release from an escrow shares of stock valued at $667 thousand issued
at the date of the agreement. In addition, based on a revenue growth formula for the two years subsequent to April 1, 2020, the
agreement calls for earnout payments of up to $5.5 million (two-thirds cash and one-third newly issued, restricted shares of the
Company’s common stock). The former shareholders of Lixoft can earn up to $2.0 million the first year and $3.5 million in
year two.
As of November 30, 2020 and August, 31,
2020 the following liabilities have been recorded:
Schedule of Liabilities
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
November 30,
2020
|
|
|
August 31,
2020
|
|
Holdback liability — Lixoft
|
|
$
|
1,333
|
|
|
$
|
1,333
|
|
Earnout liability — Lixoft
|
|
|
4,852
|
|
|
|
4,731
|
|
Sub total
|
|
$
|
6,185
|
|
|
$
|
6,064
|
|
Less: current portion
|
|
|
2,000
|
|
|
|
2,000
|
|
Long-term portion
|
|
$
|
4,185
|
|
|
$
|
4,064
|
|
NOTE 7: COMMITMENTS AND CONTINGENCIES
Leases
We lease approximately 13,500 square feet
of space in Lancaster, California. The original lease had a five-year term with two, three-year options to extend. The initial
five-year term expired in February 2011, and we extended the lease to February 2, 2014. In June 2013, the lease was amended to
extend the term to February 2, 2017. The amended lease also provides for an annual base rent increase of 3% per year and two, two-year
options to extend. In May 2016 the Company exercised the two, two-year options extending the term of the lease through February
2, 2021 at a fixed rate of $25 thousand per month. The new extension agreement allowed the Company with 90 days’ notice to
opt out of the remaining lease in the last two years of the term upon payment of a recapture payment equal to the 3% base payment
increase that would have been due under the original agreement. Refer to subsequent events footnote for details of the third amendment
to the lease for the property in Lancaster, CA.
Our Cognigen subsidiary leases approximately
12,623 square feet of space in Buffalo, New York. The initial five-year term expired in October 2018 and was renewed for a three-year
option extending it to November 2021. The new base rent is $16 thousand per month.
DILIsym leases approximately 2,700 square
feet of space in Research Triangle Park, North Carolina. The initial three-year term was due to expire October 2020. An amendment
to the initial lease became effective April 1, 2020, which added 686 square feet and extended the term of the lease to September
30, 2023. The new base rent is approximately $8 thousand per month with an annual 3% adjustment.
In Paris, France, Lixoft leases approximately
2,300 square feet of office space, which as of April 1, 2020, had minimum payments equaling $288 thousand. The lease is for a 9-year
term, with an option to terminate every 3 years, and expires in November of 2024. The rent is $16 thousand per quarter and can
be adjusted each December based on a consumer price index.
Rent expense, including common area maintenance
fees for the three months ended November 30, 2020, and 2019 was $185 thousand and $145 thousand, respectively.
Future minimum lease payments under noncancelable
operating leases with remaining terms of one year or more at November 30, 2020 were as follows:
Future minimum lease payments
|
|
|
|
|
(in thousands)
Years Ending November 30,
|
|
|
|
2021
|
|
$
|
412
|
|
2022
|
|
|
170
|
|
2023
|
|
|
155
|
|
2024
|
|
|
61
|
|
Future
minimum lease payments
|
|
$
|
798
|
|
Line
of Credit
On March 31, 2020, the Company entered
into a Credit Agreement with Wells Fargo Bank, N.A. The Credit Agreement provides the Company with a credit facility of $3.5 million
through April 15, 2022. As of November 30, 2020, there were no amounts drawn against the line of credit.
Employment Agreements
In the normal course of business, the Company
has entered into employment agreements with certain of its key management personnel that may require compensation payments upon
termination.
License Agreement
The Company had a royalty agreement with
Dassault Systèmes Americas Corp. for access to their Metabolite Database for developing our Metabolite Module within ADMET
Predictor™. The module was renamed the Metabolism Module when we released ADMET Predictor version 6 on April 19, 2012. Under
this agreement, we paid a royalty of 25% of revenue derived from the sale of the Metabolism/Metabolite module. This agreement was
renegotiated, and the Company does not bear any royalty obligations towards Dassault Systèmes Americas Corp. effective as
of June 30, 2019. In addition, the license agreement terminated on September 5, 2020.
The Company is in the process of making
arrangements to replace the database.
Income Taxes
We follow guidance issued by the FASB with
regard to our accounting for uncertainty in income taxes recognized in the financial statements. Such guidance prescribes a recognition
threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than
not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume
that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to income
tax expense. We file income tax returns with the IRS and various state jurisdictions as well as India and France. Our federal income
tax returns for fiscal year 2017 thru 2019 are open for audit, and our state tax returns for fiscal year 2016 through 2019 remain
open for audit.
Our review of prior year tax positions
using the criteria and provisions presented in guidance issued by FASB did not result in a material impact on our financial position
or results of operations.
Legal Proceedings
We may be subject to litigation, claims, investigations and
audits arising from time to time in the ordinary course of our business; however, at this time, we are not a party to any legal
proceedings and are not aware of any pending, threatened, or unasserted legal proceedings of any kind.
NOTE 8: SHAREHOLDERS’ EQUITY
Dividend
The Company’s Board of Directors
declared cash dividends during the first quarter of fiscal year 2021 and during fiscal year 2020. The details of the dividends
paid are in the following tables:
Schedule of dividends declared and paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except dividend per share amounts)
|
Fiscal Year 2021
|
Record Date
|
|
Distribution Date
|
|
Number of Shares
Outstanding on
Record Date
|
|
|
Dividend per
Share
|
|
|
Total
Amount
|
|
10/26/2020
|
|
11/02/2020
|
|
|
19,924
|
|
|
$
|
0.06
|
|
|
$
|
1,195
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,195
|
|
(in thousands, except dividend per share amounts)
|
Fiscal Year 2020
|
Record Date
|
|
Distribution Date
|
|
Number of Shares
Outstanding on
Record Date
|
|
|
Dividend per
Share
|
|
|
Total
Amount
|
|
10/25/2019
|
|
11/01/2019
|
|
|
17,606
|
|
|
$
|
0.06
|
|
|
$
|
1,056
|
|
1/27/2020
|
|
2/03/2020
|
|
|
17,646
|
|
|
$
|
0.06
|
|
|
|
1,059
|
|
4/24/2020
|
|
5/01/2020
|
|
|
17,769
|
|
|
$
|
0.06
|
|
|
|
1,066
|
|
7/27/2020
|
|
8/03/2020
|
|
|
17,820
|
|
|
$
|
0.06
|
|
|
|
1,069
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,250
|
|
Stock Option Plan
On February 23, 2007, the Board of Directors
adopted and the shareholders approved the 2007 Stock Option Plan under which a total of 1.0 million shares of common stock were
reserved for issuance. On February 25, 2014 the shareholders approved an additional 1.0 million shares increasing the total number
of shares available to be granted under the 2007 Stock Option Plan to 2.0 million. This plan terminated in February 2017
by its term.
On December 23, 2016 the Board of
Directors adopted, and on February 23, 2017 the shareholders approved, the 2017 Equity Incentive Plan under which a total of 1.0
million shares of common stock were reserved for issuance. This plan will terminate in December 2026 by its term.
On November 20, 2020, the Board of Directors
adopted an amendment to the 2017 Equity Incentive Plan to increase the number of shares reserved for issuance under the plan from
1.0 million shares of common stock to 1.75 million shares of common stock. The amendment is subject to shareholder approval at
the Company’s upcoming annual shareholder meeting.
As of November 30, 2020, employees and
directors hold Qualified Incentive Stock Options (“ISOs”) and Non-Qualified Stock Options (“NQSOs) to purchase
1.2 million shares of common stock at exercise prices ranging from $6.75 to $61.84.
The following table summarizes information about stock options:
Schedule of stock option activity
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share and weighted-average amounts)
|
|
Number of
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
|
|
Transactions during the three months ended November 30, 2020
|
|
Options
|
|
|
Per Share
|
|
|
Life
|
|
Outstanding, August 31, 2020
|
|
|
1,224
|
|
|
$
|
17.76
|
|
|
|
6.79
|
|
Granted
|
|
|
26
|
|
|
$
|
59.91
|
|
|
|
|
|
Exercised
|
|
|
(34
|
)
|
|
$
|
14.04
|
|
|
|
|
|
Cancelled/Forfeited
|
|
|
(11
|
)
|
|
$
|
24.18
|
|
|
|
|
|
Outstanding, November 30, 2020
|
|
|
1,205
|
|
|
$
|
18.73
|
|
|
|
6.62
|
|
Exercisable, November 30, 2020
|
|
|
583
|
|
|
$
|
11.16
|
|
|
|
5.35
|
|
The weighted-average remaining contractual
life of options outstanding issued under the Plan, both ISOs and NQSOs, was 6.62 years at November 30, 2020. The total fair value
of nonvested stock options as of November 30, 2020 was $19.1 million and is amortizable over a weighted average period of 3.18
years.
The fair value of these options was estimated
at the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-valuation model was developed for use
in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions, including the expected stock price volatility.
The following table summarizes the fair
value of the options, including both ISOs and NQSOs, granted during the current fiscal year 2021 and fiscal year 2020:
Schedule of fair value of options
|
|
|
|
|
|
|
|
|
(in thousands except pricing)
|
|
Three months ended, November 30 2020
|
|
|
Fiscal Year 2020
|
|
Estimated fair value of awards granted
|
|
$
|
560
|
|
|
$
|
2,997
|
|
Unvested forfeiture rate
|
|
|
0%
|
|
|
|
0%
|
|
Weighted average grant price
|
|
$
|
59.91
|
|
|
$
|
39.23
|
|
Weighted average market price
|
|
$
|
59.91
|
|
|
$
|
39.23
|
|
Weighted average volatility
|
|
|
36.35%
|
|
|
|
33.56%
|
|
Weighted average risk-free rate
|
|
|
0.47%
|
|
|
|
1.39%
|
|
Weighted average dividend yield
|
|
|
0.40%
|
|
|
|
0.65%
|
|
Weighted average expected life
|
|
|
6.65 years
|
|
|
|
6.67 years
|
|
The exercise prices for the options outstanding
at November 30, 2020 ranged from $6.75 to $61.84, and the information relating to these options is as follows:
|
Schedule of options by exercise price range
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands except prices)
|
|
|
|
|
|
|
|
Exercise Price
|
|
|
Awards Outstanding
|
|
|
Awards Exercisable
|
|
Low
|
|
|
High
|
|
|
Quantity
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
|
Quantity
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
6.75
|
|
|
$
|
8.00
|
|
|
|
169
|
|
|
3.77 years
|
|
$
|
6.85
|
|
|
|
169
|
|
|
|
3.77 years
|
|
|
$
|
6.85
|
|
$
|
8.01
|
|
|
$
|
16.00
|
|
|
|
535
|
|
|
5.80 years
|
|
$
|
9.99
|
|
|
|
337
|
|
|
|
5.74 years
|
|
|
$
|
9.99
|
|
$
|
16.01
|
|
|
$
|
24.00
|
|
|
|
208
|
|
|
7.51 years
|
|
$
|
20.42
|
|
|
|
49
|
|
|
|
6.19 years
|
|
|
$
|
20.61
|
|
$
|
24.01
|
|
|
$
|
38.00
|
|
|
|
204
|
|
|
8.90 years
|
|
$
|
33.46
|
|
|
|
28
|
|
|
|
8.70 years
|
|
|
$
|
34.83
|
|
$
|
38.01
|
|
|
$
|
52.00
|
|
|
|
20
|
|
|
9.31 years
|
|
$
|
38.64
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
$
|
52.01
|
|
|
$
|
61.84
|
|
|
|
69
|
|
|
9.68 years
|
|
$
|
61.10
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
1,205
|
|
|
6.62 years
|
|
$
|
18.73
|
|
|
|
583
|
|
|
|
5.35 years
|
|
|
$
|
11.16
|
|
During the three months ended November
30, 2020 the company issued 1,275 shares of stock to nonmanagement directors of the Company valued at $83 thousand as compensation
for services rendered to the Company.
In August 2020, the company closed an
underwritten public offering of 2,090,909 shares of its common stock to the public at $55.00 per share, which included
the full exercise of the underwriters’ option to purchase 272,727 additional shares of common stock. The aggregate
gross proceeds to the company from this offering were approximately $115 million, before deducting underwriting
discounts and commissions; net proceeds were approximately $107.7 107700 million. The offering was made pursuant to the
Company’s automatic shelf registration statement on Form S-3 filed with the SEC on July 9, 2020.
The balance of par value common stock and
additional paid in capital as of November 30, 2020 was $10 thousand and $129.2 million, respectively.
NOTE 9: CONCENTRATIONS AND UNCERTAINTIES
Financial instruments that potentially
subject the Company to concentration of credit risk consist principally of cash, cash equivalents, trade accounts receivable and
short-term investments. The Company holds cash and cash equivalents at banks located in California and North Carolina with balances
that often exceed FDIC-insured limits. In addition, the Company holds cash at a bank in France that is not FDIC-insured. Historically,
the Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash
and cash equivalents. However, considering the current banking environment, the Company is investigating alternative ways to minimize
its exposure to such risks. While the Company may be exposed to credit losses due to the nonperformance of its counterparties,
the Company does not expect the settlement of these transactions to have a material effect on its results of operations, cash flows,
or financial condition. The Company maintains cash at financial institutions that may, at times, exceed federally insured limits.
As of November 30, 2020 the Company had cash and cash equivalents exceeding insured limits by $13.8 million.
Revenue concentration shows that international
sales accounted for 33% and 30% of net sales for the three months ended November 30, 2020 and 2019, respectively. Three customers
accounted for 17%, 7% and 5% of net sales during the three months ended November 30, 2020. Four customers accounted for 13%, 8%,
6%, and 6% (a dealer account in Japan representing various customers) of net sales during the three months ended November 30, 2019.
Accounts receivable concentration shows
that five customers comprised 21%, 8%, 8%, 7% and 6% (a dealer account in Japan representing various customers) of accounts receivable
at November 30, 2020. Accounts receivable concentration shows that four customers comprised 14%, 8%, 7% and 7% (a dealer account
in Japan representing various customers) of accounts receivable at November 30, 2019.
We operate in the computer software industry,
which is highly competitive and changes rapidly. Our operating results could be significantly affected by our ability to develop
new products and find new distribution channels for new and existing products.
The majority of our customers are in the
pharmaceutical industry. During economic downturns, we have seen consolidations in the pharmaceutical industry. The
extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous factors we cannot reliably predict,
including the duration and scope of the pandemic; businesses and individuals' actions in response to the pandemic; and the impact
on economic activity including the possibility of recession or financial market instability. These factors may adversely impact
consumer, business, and government spending as well as customers' ability to pay for our products and services on an ongoing basis.
As a result, our growth rate could be affected by consolidation and downsizing in the pharmaceutical industry.
NOTE 10: SEGMENT AND GEOGRAPHIC REPORTING
We account for segments and geographic
revenues in accordance with guidance issued by the FASB. Our reportable segments are strategic business units that offer different
products and services.
Results for each segment and consolidated
results are as follows for the three months ended November 30, 2020 and 2019:
Schedule of consolidated results from reportable segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Three Months Ended November 30, 2020
|
|
|
|
Simulations Plus
|
|
|
Cognigen
|
|
|
DILIsym
|
|
|
Lixoft*
|
|
|
Eliminations
|
|
|
Total
|
|
Revenues
|
|
$
|
5,432
|
|
|
$
|
2,668
|
|
|
$
|
1,372
|
|
|
$
|
1,229
|
|
|
$
|
–
|
|
|
$
|
10,701
|
|
Income from operations before income taxes
|
|
$
|
2,365
|
|
|
$
|
206
|
|
|
$
|
(45
|
)
|
|
$
|
525
|
|
|
$
|
–
|
|
|
$
|
3,051
|
|
Total assets
|
|
$
|
162,871
|
|
|
$
|
12,279
|
|
|
$
|
14,180
|
|
|
$
|
20,628
|
|
|
$
|
(39,488
|
)
|
|
$
|
170,470
|
|
Capital expenditures
|
|
$
|
139
|
|
|
$
|
63
|
|
|
$
|
–
|
|
|
$
|
3
|
|
|
$
|
–
|
|
|
$
|
205
|
|
Capitalized software costs
|
|
$
|
568
|
|
|
$
|
–
|
|
|
$
|
43
|
|
|
$
|
117
|
|
|
$
|
–
|
|
|
$
|
728
|
|
Depreciation and amortization
|
|
$
|
451
|
|
|
$
|
81
|
|
|
$
|
149
|
|
|
$
|
184
|
|
|
$
|
–
|
|
|
$
|
865
|
|
*
|
The Company purchased Lixoft on April 1, 2020.
|
(in thousands)
|
|
Three Months Ended November 30, 2019
|
|
|
|
Simulations Plus
|
|
|
Cognigen
|
|
|
DILIsym
|
|
|
Eliminations
|
|
|
Total
|
|
Revenues
|
|
$
|
4,927
|
|
|
$
|
2,387
|
|
|
$
|
2,087
|
|
|
$
|
–
|
|
|
$
|
9,401
|
|
Income from operations
|
|
$
|
1,903
|
|
|
$
|
40
|
|
|
$
|
775
|
|
|
$
|
–
|
|
|
$
|
2,718
|
|
Total assets
|
|
$
|
40,656
|
|
|
$
|
10,660
|
|
|
$
|
14,149
|
|
|
$
|
(17,702
|
)
|
|
$
|
47,763
|
|
Capital expenditures
|
|
$
|
8
|
|
|
$
|
17
|
|
|
$
|
3
|
|
|
$
|
–
|
|
|
$
|
28
|
|
Capitalized software costs
|
|
$
|
457
|
|
|
$
|
20
|
|
|
$
|
30
|
|
|
$
|
–
|
|
|
$
|
507
|
|
Depreciation and amortization
|
|
$
|
435
|
|
|
$
|
86
|
|
|
$
|
150
|
|
|
$
|
–
|
|
|
$
|
671
|
|
In addition, the Company allocates revenues
to geographic areas based on the locations of its customers. Geographical revenues for the three months ended November 30, 2020
and 2019 were as follows:
Schedule of geographical revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Three Months Ended November 30, 2020
|
|
|
|
Americas
|
|
|
EMEA
|
|
|
Asia Pacific
|
|
|
Total
|
|
Simulations Plus
|
|
$
|
2,518
|
|
|
$
|
1,890
|
|
|
$
|
1,024
|
|
|
$
|
5,432
|
|
Cognigen
|
|
|
2,668
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,668
|
|
DILIsym
|
|
|
1,326
|
|
|
|
21
|
|
|
|
25
|
|
|
|
1,372
|
|
Lixoft
|
|
|
611
|
|
|
|
567
|
|
|
|
51
|
|
|
|
1,229
|
|
Total
|
|
$
|
7,123
|
|
|
$
|
2,478
|
|
|
$
|
1,100
|
|
|
$
|
10,701
|
|
(in thousands)
|
|
Three Months Ended November 30, 2019
|
|
|
|
Americas
|
|
|
EMEA
|
|
|
Asia Pacific
|
|
|
Total
|
|
Simulations Plus
|
|
$
|
2,547
|
|
|
$
|
1,147
|
|
|
$
|
1,233
|
|
|
$
|
4,927
|
|
Cognigen
|
|
|
2,387
|
|
|
|
–
|
|
|
|
–
|
|
|
|
2,387
|
|
DILIsym
|
|
|
1,737
|
|
|
|
325
|
|
|
|
25
|
|
|
|
2,087
|
|
Total
|
|
$
|
6,671
|
|
|
$
|
1,472
|
|
|
$
|
1,258
|
|
|
$
|
9,401
|
|
NOTE 11: EMPLOYEE BENEFIT PLAN
We maintain a 401(k) Plan for all eligible
employees, and we make matching contributions equal to 100% of the employee’s elective deferral, not to exceed 4% of total
employee compensation. We can also elect to make a profit-sharing contribution. Our contributions to this Plan amounted to $121
thousand and $92 thousand for the three months ended November 30, 2020 and 2019, respectively.
NOTE 12: ACQUISITION
On March 31, 2020, the Company entered
into a Stock Purchase and Contribution Agreement (the “Agreement”) with Lixoft. On April 1, 2020, the Company completed
the acquisition of all outstanding equity interests of Lixoft pursuant to the terms of the Agreement, with Lixoft becoming a wholly
owned subsidiary of the Company. We believe the combination of Simulations Plus and Lixoft provides substantial future potential
based on the complementary strengths of each of the companies.
Under the terms of the Agreement, as described
below, the Company will pay the former shareholders of Lixoft total consideration of up to $16.5 million, consisting of two-thirds
cash and one-third newly issued, unregistered shares of the Company’s common stock. In addition, the Company will pay $3.5
million of excess working capital based on the March 31, 2020 financial statements of Lixoft.
On April 1, 2020, the Company paid the
former shareholders of Lixoft a total of $10.8 million, comprised of cash in the amount of $9.5 million and the issuance of 111,682
shares of the Company’s common stock valued at $3.7 million, net of adjustments and a holdback for representations and warranties.
Under the terms of the Agreement a price of approximately $32.15 dollars per share was used based upon the volume-weighted average
closing price of the Company’s shares of common stock for the 30-consecutive-trading-day period ending two trading days prior
to April 1, 2020. A total of 9,669 shares are held in an escrow account for potential offset for representations and warrantees.
Within three business days following the two-year anniversary of March 31, 2020 (the date of the Agreement) and subject to any
offsets for representations and warrantees, the Company will pay the former shareholders of Lixoft a total of $2.0 million, comprised
of $1.3 million of cash and shares released from escrow valued at $666 thousand issued at the date of the Agreement. The Agreement
provides for a two-year market standoff period in which the newly issued shares may not be sold by the recipients thereof.
In addition, the Agreement calls for earnout
payments up to an additional $5.5 million, two-thirds cash and one-third newly issued, unregistered shares of the Company’s
common stock based on a revenue growth formula each year for the two years subsequent to April 1, 2020. The former shareholders
can earn up to $2.0 million the first year and $3.5 million in year two. The earnout liability has been recorded at fair value.
Under the acquisition method of accounting,
the total purchase price reflects Lixoft’s tangible and intangible assets and liabilities based on their estimated fair values
at the date of the completion of the acquisition (April 1, 2020). The following table summarizes the preliminary allocation of
the purchase price for Lixoft:
Allocation of purchase price
|
|
|
|
|
(in thousands)
|
|
|
|
|
Assets acquired, including cash of $3,799 and accounts receivable of $629
|
|
$
|
5,007
|
|
Developed technologies acquired
|
|
|
8,010
|
|
Estimated value of intangible assets acquired (customer lists, trade name etc.)
|
|
|
4,160
|
|
Estimated goodwill acquired
|
|
|
2,534
|
|
Liabilities assumed
|
|
|
(1,118
|
)
|
Total consideration
|
|
$
|
18,593
|
|
Goodwill was provided in the transaction
based on estimates of future earnings of this subsidiary including anticipated synergies associated with the positioning of the
combined company as a leader in Model-Based Drug Development.
Consolidated supplemental Pro Forma
information
The following unaudited consolidated supplemental
pro forma information assumes that the acquisition of Lixoft took place on September 1, 2019 for the income statement for the three-month
period ended November 30, 2020. These amounts have been calculated after applying the Company’s accounting policies and adjusting
the results of Lixoft to reflect the same expenses in the three-month perioded ended November 30, 2019. The adjustments include
costs of acquisition, and amortization of intangibles and other technologies acquired during the merger, assuming the fair value
adjustments applied on September 1, 2019, together with consequential tax effects.
Schedule of Pro Forma Information
|
|
|
|
|
|
|
|
|
For the three-month period ended
|
|
(in thousands)
|
|
November 30,
(Unaudited)
|
|
|
|
(Actual)
|
|
|
(Pro forma)
|
|
|
|
2020
|
|
|
2019
|
|
Net sales
|
|
$
|
10,701
|
|
|
$
|
10,521
|
|
Net income
|
|
$
|
2,479
|
|
|
$
|
2,516
|
|
NOTE
13: SUBSEQUENT EVENTS
On Wednesday, January 6, 2021, our
Board of Directors declared a quarterly cash dividend of $0.06
per share to our shareholders. The dividend amount of $12001.2
million will be distributed on Monday, February 1, 2021, for shareholders of record as of Monday, January 25, 2021.
On December 28, 2020, the Company
entered into a Third Amendment with Crest Development Group LLC to amend a lease of real property originally entered into on
September 12, 2005 as amended in June 2013 and May 2016 for property located at 42505 10th Street West, Ste. A in
Lancaster, California. The Premises serves as the Company’s principal executive office. This Third Amendment (i)
extends the term of the Lease by approximately five years to January 31, 2026, (ii) decreases the leased square footage from
13,500 sq. ft to 9,255 sq. ft, (iii) correspondingly reduces the base rent from $25,000 per month to $16,659 per month and
(iv) allows the Company to opt out of the last 4 years of the Lease upon 180-day notice to the Landlord with no penalty.