| x | Quarterly Report Pursuant to Section 13 or 15(d) of the | |||||
| OR | ||||||
| o | ||||||
| California | 95-4595609 | ||||
| (State or other jurisdiction of Incorporation or Organization) | (I.R.S. Employer identification No.) | ||||
Title of Each Class Common Stock, par value $0.001 per share | Trading Symbol SLP | Name of Each Exchange on Which Registered NASDAQ Stock Market LLC | ||||||
| x | Large accelerated | Accelerated | |||||||||
| Non-accelerated | Smaller reporting company | ||||||||||
| Emerging Growth Company | |||||||||||
| Page | ||||||||
| Item 3. | ||||||||
| Item 1A. | ||||||||
PartPART I. FINANCIAL INFORMATIONItem 1.Condensed Consolidated Financial Statements
| (Unaudited) | (Audited) | |||||||
| November 30, | August 31, | |||||||
| 2017 | 2017 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 7,045,756 | $ | 6,215,718 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $0 | 5,230,824 | 4,048,725 | ||||||
| Revenues in excess of billings | 1,361,242 | 1,481,082 | ||||||
| Prepaid income taxes | – | 462,443 | ||||||
| Prepaid expenses and other current assets | 348,708 | 459,902 | ||||||
| Total current assets | 13,986,530 | 12,667,870 | ||||||
| Long-term assets | ||||||||
| Capitalized computer software development costs, net of accumulated amortization of $10,080,778 and $9,795,469 | 4,529,380 | 4,307,600 | ||||||
| Property and equipment, net (note 3) | 305,634 | 291,135 | ||||||
| Intellectual property, net of accumulated amortization of $2,326,459 and $2,095,417 | 6,598,541 | 6,829,583 | ||||||
| Other intangible assets net of accumulated amortization of $584,375 and $495,000 | 3,905,625 | 3,995,000 | ||||||
| Goodwill | 10,387,198 | 10,387,198 | ||||||
| Other assets | 37,227 | 34,082 | ||||||
| Total assets | $ | 39,750,135 | $ | 38,512,468 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 141,815 | $ | 240,892 | ||||
| Accrued payroll and other expenses | 1,085,065 | 983,293 | ||||||
| Income taxes payable | 404,600 | – | ||||||
| Current portion - Contracts payable (note 4) | 3,150,000 | 247,328 | ||||||
| Billings in excess of revenues | 602,233 | 216,958 | ||||||
| Deferred revenue | 270,250 | 353,962 | ||||||
| Total current liabilities | 5,653,963 | 2,042,433 | ||||||
| Long-term liabilities | ||||||||
| Deferred income taxes,net | 4,791,460 | 4,926,960 | ||||||
| Payments due under Contracts payable (note 4) | 2,626,376 | 5,738,188 | ||||||
| Total liabilities | 13,071,799 | 12,707,581 | ||||||
| Commitments and contingencies(note 5) | ||||||||
| Shareholders' equity(note 6) | ||||||||
| Preferred stock, $0.001 par value 10,000,000 shares authorized no shares issued and outstanding | $ | – | $ | – | ||||
| Common stock, $0.001 par value 50,000,000 shares authorized 17,287,652 and 17,277,604 shares issued and outstanding | 7,288 | 7,278 | ||||||
| Additional paid-in capital | 12,303,662 | 12,109,141 | ||||||
| Retained earnings | 14,367,386 | 13,688,468 | ||||||
| Total shareholders' equity | 26,678,336 | $ | 25,804,887 | |||||
| $ | – | – | ||||||
| Total liabilities and shareholders' equity | $ | 39,750,135 | $ | 38,512,468 | ||||
| (Unaudited) | (Audited) | |||||||||||||
| (in thousands, except share and per share amounts) | November 30, 2023 | August 31, 2023 | ||||||||||||
| ASSETS | ||||||||||||||
| Current assets | ||||||||||||||
| Cash and cash equivalents | $ | 39,789 | $ | 57,523 | ||||||||||
| Accounts receivable, net of allowance for doubtful accounts of $37 and $46 | 10,346 | 10,201 | ||||||||||||
| Prepaid income taxes | 37 | 804 | ||||||||||||
| Prepaid expenses and other current assets | 5,414 | 3,904 | ||||||||||||
| Short-term investments | 74,101 | 57,940 | ||||||||||||
| Total current assets | 129,687 | 130,372 | ||||||||||||
| Long-term assets | ||||||||||||||
| Capitalized computer software development costs, net of accumulated amortization of $17,580 and $17,199 | 11,896 | 11,335 | ||||||||||||
| Property and equipment, net | 487 | 671 | ||||||||||||
| Operating lease right-of-use assets | 1,118 | 1,247 | ||||||||||||
| Intellectual property, net of accumulated amortization of $9,709 and $9,301 | 8,281 | 8,689 | ||||||||||||
| Other intangible assets, net of accumulated amortization of $2,351 and $2,107 | 12,954 | 12,825 | ||||||||||||
| Goodwill | 19,099 | 19,099 | ||||||||||||
| Deferred tax assets | 1,826 | 1,438 | ||||||||||||
| Other assets | 430 | 425 | ||||||||||||
| Total assets | $ | 185,778 | $ | 186,101 | ||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||
| Current liabilities | ||||||||||||||
| Accounts payable | $ | 317 | $ | 144 | ||||||||||
| Accrued compensation | 2,170 | 4,392 | ||||||||||||
| Accrued expenses | 731 | 659 | ||||||||||||
| Contracts payable | 2,290 | 3,250 | ||||||||||||
| Operating lease liability - current portion | 420 | 442 | ||||||||||||
| Deferred revenue | 2,660 | 3,100 | ||||||||||||
| Total current liabilities | 8,588 | 11,987 | ||||||||||||
| Long-term liabilities | ||||||||||||||
| Operating lease liability | 669 | 755 | ||||||||||||
| Contracts payable – net of current portion | 4,180 | 3,330 | ||||||||||||
| Total liabilities | 13,437 | 16,072 | ||||||||||||
| Commitments and contingencies | — | — | ||||||||||||
| Shareholders' equity | ||||||||||||||
| Preferred stock, $0.001 par value — 10,000,000 shares authorized; no shares issued and outstanding | $ | — | $ | — | ||||||||||
| Common stock, $0.001 par value and additional paid-in capital —50,000,000 shares authorized; 19,965,678 and 19,937,961 shares issued and outstanding | 146,591 | 144,974 | ||||||||||||
| Retained earnings | 25,945 | 25,196 | ||||||||||||
| Accumulated other comprehensive loss | (195) | (141) | ||||||||||||
| Total shareholders' equity | 172,341 | 170,029 | ||||||||||||
| Total liabilities and shareholders' equity | $ | 185,778 | $ | 186,101 | ||||||||||
For the three months ended November 30,
| Three Months Ended November 30, | ||||||||||||||||||||||||||||||||
| (in thousands, except per common share amounts) | 2023 | 2022 | ||||||||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||||
| Software | $ | 7,589 | $ | 6,074 | ||||||||||||||||||||||||||||
| Services | 6,911 | 5,890 | ||||||||||||||||||||||||||||||
| Total revenues | 14,500 | 11,964 | ||||||||||||||||||||||||||||||
| Cost of revenues | ||||||||||||||||||||||||||||||||
| Software | 991 | 885 | ||||||||||||||||||||||||||||||
| Services | 3,661 | 1,786 | ||||||||||||||||||||||||||||||
| Total cost of revenues | 4,652 | 2,671 | ||||||||||||||||||||||||||||||
| Gross profit | 9,848 | 9,293 | ||||||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||
| Research and development | 1,217 | 1,166 | ||||||||||||||||||||||||||||||
| Selling and marketing | 1,989 | 1,485 | ||||||||||||||||||||||||||||||
| General and administrative | 5,682 | 5,764 | ||||||||||||||||||||||||||||||
| Total operating expenses | 8,888 | 8,415 | ||||||||||||||||||||||||||||||
| Income from operations | 960 | 878 | ||||||||||||||||||||||||||||||
| Other income | 1,446 | 740 | ||||||||||||||||||||||||||||||
| Income before income taxes | 2,406 | 1,618 | ||||||||||||||||||||||||||||||
| Provision for income taxes | (461) | (373) | ||||||||||||||||||||||||||||||
| Net income | $ | 1,945 | $ | 1,245 | ||||||||||||||||||||||||||||
| Earnings per share | ||||||||||||||||||||||||||||||||
| Basic | $ | 0.10 | $ | 0.06 | ||||||||||||||||||||||||||||
| Diluted | $ | 0.10 | $ | 0.06 | ||||||||||||||||||||||||||||
| Weighted-average common shares outstanding | ||||||||||||||||||||||||||||||||
| Basic | 19,947 | 20,286 | ||||||||||||||||||||||||||||||
| Diluted | 20,279 | 20,825 | ||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (54) | 53 | ||||||||||||||||||||||||||||||
| Comprehensive income | $ | 1,891 | $ | 1,298 | ||||||||||||||||||||||||||||
| (Unaudited) | ||||||||
| 2017 | 2016 | |||||||
| Net Revenues | $ | 7,068,782 | $ | 5,417,933 | ||||
| Cost of revenues | 1,735,608 | 1,335,982 | ||||||
| Gross margin | 5,333,174 | 4,081,951 | ||||||
| Operating expenses | ||||||||
| Selling, general, and administrative | 2,408,514 | 1,863,555 | ||||||
| Research and development | 360,817 | 290,299 | ||||||
| Total operating expenses | 2,769,331 | 2,153,854 | ||||||
| Income from operations | 2,563,843 | 1,928,097 | ||||||
| Other income (expense) | ||||||||
| Interest income | 4,310 | 4,455 | ||||||
| Interest expense | (38,470 | ) | – | |||||
| Gain (loss) on currency exchange | (12,678 | ) | 34,928 | |||||
| Total other income (expense) | (46,838 | ) | 39,383 | |||||
| Income before provision for income taxes | 2,517,005 | 1,967,480 | ||||||
| Provision for income taxes | (800,999 | ) | (605,915 | ) | ||||
| Net Income | $ | 1,716,006 | $ | 1,361,565 | ||||
| Earnings per share | ||||||||
| Basic | $ | 0.10 | $ | 0.08 | ||||
| Diluted | $ | 0.10 | $ | 0.08 | ||||
| Weighted-average common shares outstanding | ||||||||
| Basic | 17,282,132 | 17,226,192 | ||||||
| Diluted | 17,859,683 | 17,409,134 | ||||||
For the three months ended November 30,
(UNAUDITED)
| Three Months Ended November 30, | ||||||||||||||||||||||||||||||||
| (in thousands, except per common share amounts) | 2023 | 2022 | ||||||||||||||||||||||||||||||
| Common stock and additional paid in capital | ||||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | 144,974 | $ | 138,512 | ||||||||||||||||||||||||||||
| Exercise of stock options | 164 | 758 | ||||||||||||||||||||||||||||||
| Stock-based compensation | 1,303 | 886 | ||||||||||||||||||||||||||||||
| Shares issued to Directors for services | 150 | 150 | ||||||||||||||||||||||||||||||
| Balance, end of period | 146,591 | 140,306 | ||||||||||||||||||||||||||||||
| Retained earnings | ||||||||||||||||||||||||||||||||
| Balance, beginning of period | 25,196 | 40,044 | ||||||||||||||||||||||||||||||
| Declaration of dividends | (1,196) | (1,218) | ||||||||||||||||||||||||||||||
| Net income | 1,945 | 1,245 | ||||||||||||||||||||||||||||||
| Balance, end of period | 25,945 | 40,071 | ||||||||||||||||||||||||||||||
| Accumulated other comprehensive loss | ||||||||||||||||||||||||||||||||
| Balance, beginning of period | (141) | (308) | ||||||||||||||||||||||||||||||
| Other comprehensive (loss) income | (54) | 53 | ||||||||||||||||||||||||||||||
| Balance, end of period | (195) | (255) | ||||||||||||||||||||||||||||||
| Total shareholders’ equity | $ | 172,341 | $ | 180,122 | ||||||||||||||||||||||||||||
| Cash dividends declared per common share | $ | 0.06 | $ | 0.06 | ||||||||||||||||||||||||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | 1,716,006 | $ | 1,361,565 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
| Depreciation and amortization of property and equipment | 32,777 | 42,721 | ||||||
| Amortization of capitalized computer software development costs | 285,310 | 284,217 | ||||||
| Amortization of Intellectual Property | 320,417 | 188,750 | ||||||
| Change in value of contingent consideration | 38,188 | – | ||||||
| Stock-based compensation | 130,221 | 95,860 | ||||||
| Shares issued to directors for services | 36,773 | – | ||||||
| Deferred income taxes | (135,500 | ) | (51,145 | ) | ||||
| (Increase) decrease in | ||||||||
| Accounts receivable | (1,182,099 | ) | (407,962 | ) | ||||
| Revenues in excess of billings | 119,840 | (340,947 | ) | |||||
| Prepaid income taxes | 462,443 | 555,486 | ||||||
| Prepaid expenses and other assets | 108,049 | 96,104 | ||||||
| Increase (decrease) in | ||||||||
| Accounts payable | (99,077 | ) | 103,691 | |||||
| Accrued payroll and other expenses | 101,772 | (23,983 | ) | |||||
| Billings in excess of revenues | 385,275 | (33,301 | ) | |||||
| Accrued income taxes | 404,600 | 100,942 | ||||||
| Other liabilities | – | (4,965 | ) | |||||
| Deferred revenue | (83,712 | ) | (24,132 | ) | ||||
| Net cash provided by operating activities | 2,641,283 | 1,942,901 | ||||||
| Cash flows used in investing activities | ||||||||
| Purchases of property and equipment | (47,276 | ) | (58,337 | ) | ||||
| Capitalized computer software development costs | (507,090 | ) | (234,829 | ) | ||||
| Net cash used in investing activities | (554,366 | ) | (293,166 | ) | ||||
| Cash flows used in financing activities | ||||||||
| Payment of dividends | (1,037,088 | ) | (861,324 | ) | ||||
| Payments on Contracts Payable | (247,328 | ) | – | |||||
| Proceeds from the exercise of stock options | 27,537 | 25,969 | ||||||
| Net cash used in financing activities | (1,256,879 | ) | (835,355 | ) | ||||
| Net increase (decrease) in cash and cash equivalents | 830,038 | 814,380 | ||||||
| Cash and cash equivalents, beginning of year | 6,215,718 | 8,030,284 | ||||||
| Cash and cash equivalents, end of period | $ | 7,045,756 | $ | 8,844,664 | ||||
| Supplemental disclosures of cash flow information | ||||||||
| Income taxes paid | 34,500 | $ | – | |||||
| Three Months Ended November 30, | ||||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||||||||||||||
| Cash flows from operating activities | ||||||||||||||||||||||||||
| Net income | $ | 1,945 | $ | 1,245 | ||||||||||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||||||||||||||||||
| Depreciation and amortization | 1,091 | 923 | ||||||||||||||||||||||||
| Change in fair value of contingent consideration | (110) | — | ||||||||||||||||||||||||
| Amortization of investment (discounts) premiums | (395) | (90) | ||||||||||||||||||||||||
| Stock-based compensation | 1,362 | 1,036 | ||||||||||||||||||||||||
| Deferred income taxes | (388) | — | ||||||||||||||||||||||||
| Currency translation adjustments | (54) | 52 | ||||||||||||||||||||||||
| (Increase) decrease in | ||||||||||||||||||||||||||
| Accounts receivable | (145) | 2,088 | ||||||||||||||||||||||||
| Prepaid income taxes | 767 | 399 | ||||||||||||||||||||||||
| Prepaid expenses and other assets | (1,515) | (1,266) | ||||||||||||||||||||||||
| Increase (decrease) in | ||||||||||||||||||||||||||
| Accounts payable | 173 | 13 | ||||||||||||||||||||||||
| Other liabilities | (2,129) | 107 | ||||||||||||||||||||||||
| Deferred revenue | (440) | 200 | ||||||||||||||||||||||||
| Net cash provided by operating activities | 162 | 4,707 | ||||||||||||||||||||||||
| Cash flows from investing activities | ||||||||||||||||||||||||||
| Purchases of property and equipment | — | (109) | ||||||||||||||||||||||||
| Purchase of short-term investments | (30,544) | (29,518) | ||||||||||||||||||||||||
| Proceeds from maturities of short-term investments | 14,778 | 24,138 | ||||||||||||||||||||||||
| Purchased intangibles | (247) | (39) | ||||||||||||||||||||||||
| Capitalized computer software development costs | (851) | (894) | ||||||||||||||||||||||||
| Net cash used in investing activities | (16,864) | (6,422) | ||||||||||||||||||||||||
| Cash flows from financing activities | ||||||||||||||||||||||||||
| Payment of dividends | (1,196) | (1,218) | ||||||||||||||||||||||||
| Payments on contracts payable | — | 758 | ||||||||||||||||||||||||
| Proceeds from the exercise of stock options | 164 | — | ||||||||||||||||||||||||
| Net cash used in financing activities | (1,032) | (460) | ||||||||||||||||||||||||
| Net decrease in cash and cash equivalents | (17,734) | (2,175) | ||||||||||||||||||||||||
| Cash and cash equivalents, beginning of year | $ | 57,523 | $ | 51,567 | ||||||||||||||||||||||
| Cash and cash equivalents, end of period | $ | 39,789 | $ | 49,392 | ||||||||||||||||||||||
| Supplemental disclosures of cash flow information | ||||||||||||||||||||||||||
| Income taxes paid | $ | 96 | $ | — | ||||||||||||||||||||||
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2017 and 2016
(Unaudited)
NOTE 1: GENERAL
This report on Form 10-Q for
2023
. To effectuate the Merger, the Company filed Certificates of Ownership with the Secretaries of State of the states of Delaware (Immunetrics’ state of incorporation) and California (Simulation Plus’ state of incorporation). Consummation of the Merger was not subject to approval of the Company’s stockholders and did not impact the rights of the Company’s stockholders.
The Company designs
| Revenue Components | Typical Payment Terms | |||||||
| Software Revenues: | ||||||||
Software revenues are generated primarily from sales of software licenses at the time the software is unlocked, and the term commences. The license period typically is one year or less. Along with the license, a di minimis amount of customer support is provided to assist the customer with the software. Should the customer need more than a di minimis amount of support, they can choose to enter into a separate contract for additional training. Most software is installed on our customers’ servers and the Company has no control of the software once the sale is made. | Payments are generally due upon invoicing on a net 30 basis, unless other payment terms are negotiated with the customer based on customer history. Typical industry standards apply. | |||||||
For certain software arrangements the Company hosts the licenses on servers maintained by the Company. Revenue for those arrangements is accounted as Software as a Service over the life of the contract. These arrangements account for a small portion of software revenues of the Company. | ||||||||
| Consulting Contracts: | ||||||||
| Consulting services provided to our customers are generally recognized over time as the contracts are performed and the services are rendered. The Company measures its consulting revenue based on time expended compared to total estimated hours to complete a project. The Company believes the method chosen for its contract revenue best depicts the transfer of benefits to the customer under the contracts. | Payment terms vary, depending on the size of the contract, credit history and history with the client, and deliverables within the contract. | |||||||
| Consortium-Member Based Services: | ||||||||
| The performance obligation is recognized on a time-elapsed basis, by month for which the services are provided, as the Company transfers control evenly over the contractual period. | Payment is due at the beginning of the period, generally on a net-30 or -60 basis. | |||||||
| Three Months Ended November 30, | ||||||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||||||||||||||||||||
| Software licenses | ||||||||||||||||||||||||||||||||
| Point in time | $ | 7,321 | $ | 5,802 | ||||||||||||||||||||||||||||
| Over time | 268 | 272 | ||||||||||||||||||||||||||||||
| Services | ||||||||||||||||||||||||||||||||
| Over time | 6,911 | 5,890 | ||||||||||||||||||||||||||||||
| Total revenue | $ | 14,500 | $ | 11,964 | ||||||||||||||||||||||||||||
| Three Months Ended November 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||
| $ | % of total | $ | % of total | |||||||||||||||||||||||||||||||||||||||||||||||
| Americas | $ | 10,891 | 75 | % | $ | 8,500 | 71 | % | ||||||||||||||||||||||||||||||||||||||||||
| EMEA | 2,302 | 16 | % | 2,130 | 18 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Asia Pacific | 1,307 | 9 | % | 1,334 | 11 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 14,500 | 100 | % | $ | 11,964 | 100 | % | ||||||||||||||||||||||||||||||||||||||||||
As a byproduct of ongoing improvements and upgrades for the new programs and new modules of software, some modifications are provided to our customers who have already purchased software at no additional charge. Other software modifications result in new, additional cost modules that expand the functionality of the software. These are licensed separately. We consider the modifications that are provided without charge to be minimal, as they do not significantly change the basic functionality or utility of the software, but rather add convenience, such as being able to plot some additional variable on a graph in addition to the numerous variables that had been available before, or adding some additional calculations to supplement the information provided from running the software. Such software modifications for any single product have typically occurred once or twice per year, sometimes more, sometimes less. Thus, they are infrequent. The Company provides, for a fee, additional training and service calls to its customers and recognizes revenue at the time the training or service call is provided.
Generally, we enter into one-year license agreements with customers for the use of our pharmaceutical software products. We recognize revenue on these contracts when all the criteria are met. Most license agreements have a term of one year; however, from time to time, we enter into multi-year license agreements. We generally unlock and invoice software one year at a time for multi-year licenses. Therefore, revenue is recognized one year at a time. Certain of the Company's software products are housed and supported on the Company's computer networks. Software revenues for those productsfuture performance. Contract assets are included in income overprepaid expenses and other current assets on our condensed consolidated balance sheets. We record a contract liability when we have an obligation to transfer goods or services to a customer for which we have either received consideration or a payment is due from a customer. We refer to contract liabilities as deferred revenue on our condensed consolidated balance sheets.
We recognize revenue on salesasset that we otherwise would have recognized is one year or less. This expense is included in the condensed consolidated statements of our DILIsym Subsidiary in accordance with ASC 605-25,“Revenue Recognition, Multiple-Element Arrangements”. Our multiple-deliverable arrangements consist of consulting arrangements, at our DILIsym Subsidiary. We determined all elements to be separate units of accountingoperations and comprehensive income as they have standalone value to the customers. We allocate the revenue derived from these arrangements among all the deliverables. We base such allocation on the relative selling price of each deliverable. We recognize the allocated revenue for each deliverable when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable, and collectability is reasonably assured.
We recognize revenue from collaboration research, revenue from grants and consortium memberships over their terms. For contract revenues based on actual hours incurred, we recognize revenues when the work is performed. For fixed price contracts, we recognize contract study and other contract revenues using the percentage-of-completion method, depending upon how the contract studies are engaged, in accordance with ASC 605-35, “Revenue Recognition – Construction-Type and Production-Type Contracts”. To recognize revenue using the percentage-of-completion method, we must determine whether we meet the following criteria: 1) there is a long-term, legally enforceable contract, 2) it is possible to reasonably estimate the total project costs, and 3) it is possible to reasonably estimate the extent of progress toward completion.
marketing expense.
We analyze and Allowance for Credit Losses
| Three Months Ended November 30, | ||||||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||||||||||||||||||||
| Balance, beginning of period | $ | 46 | $ | 12 | ||||||||||||||||||||||||||||
| Provision for expected credit losses | (9) | — | ||||||||||||||||||||||||||||||
| Balance, end of period | $ | 37 | $ | 12 | ||||||||||||||||||||||||||||
of our investments were classified as held-to-maturity.
We test capitalized computer software development costs for recoverabilityimpairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
| Equipment | 5 years | ||||
| Computer equipment | 3 to 7 years | ||||
| Furniture and fixtures | 5 to 7 years | ||||
| Leasehold improvements | Shorter of the asset life | ||||
Goodwill
and operating lease liabilities (current and long-term) in our condensed consolidated balance sheets.
| (in thousands) | ||||||||
| Right of use assets | $ | 1,118 | ||||||
| Lease liabilities, current | $ | 420 | ||||||
| Lease liabilities, long-term | $ | 669 | ||||||
| Operating lease costs | $ | 117 | ||||||
| Weighted-average remaining lease term | 3.12 years | |||||||
| Weighted-average discount rate | 4.93 | % | ||||||
Finite-lived 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.
| (in thousands) | CPP | QSP | Total | |||||||||||||||||||||||||||||
| Balance, August 31, 2023 | $ | 7,323 | $ | 11,776 | $ | 19,099 | ||||||||||||||||||||||||||
| Addition | — | — | — | |||||||||||||||||||||||||||||
| Impairments | — | — | — | |||||||||||||||||||||||||||||
| Balance, November 30, 2023 | $ | 7,323 | $ | 11,776 | $ | 19,099 | ||||||||||||||||||||||||||
As of November 30, 2017, the entire balance2023:
| (in thousands) | Amortization Period | Acquisition Value | Accumulated Amortization | Net Book Value | ||||||||||||||||||||||
| Trade names | None | $ | 4,210 | $ | — | $ | 4,210 | |||||||||||||||||||
| Covenants not to compete | Straight line 2 to 3 years | 30 | 7 | 23 | ||||||||||||||||||||||
| Other internal use software | Straight line 3 to 5 years | 306 | 13 | 293 | ||||||||||||||||||||||
| Customer relationships | Straight line 8 to 14 years | 8,230 | 2,085 | 6,145 | ||||||||||||||||||||||
| ERP | Straight line 15 years | 2,529 | 246 | 2,283 | ||||||||||||||||||||||
| $ | 15,305 | $ | 2,351 | $ | 12,954 | |||||||||||||||||||||
| (in thousands) | Amortization Period | Acquisition Value | Accumulated Amortization | Net Book Value | ||||||||||||||||||||||
| Trade names | None | $ | 4,210 | $ | — | $ | 4,210 | |||||||||||||||||||
| Covenants not to compete | Straight line 3 years | 30 | 3 | 27 | ||||||||||||||||||||||
| Other internal use software | Straight line 3 to 5 years | 350 | 10 | 340 | ||||||||||||||||||||||
| Customer relationships | Straight line 8 to 14 years | 8,230 | 1,887 | 6,343 | ||||||||||||||||||||||
| ERP | Straight line 15 years | 2,112 | 207 | 1,905 | ||||||||||||||||||||||
| $ | 14,932 | $ | 2,107 | $ | 12,825 | |||||||||||||||||||||
Business Acquisitions
The Company accountedEstimated future amortization of finite-lived intangible assets for the acquisition of Cognigen and DILIsym Services, Inc., using the purchase method of accounting where the assets acquired and liabilities assumed are recognized based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquirednext five fiscal years is recorded as goodwill. Determining the fair value of certain acquired assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions, including, but not limited to, the selection of appropriate valuation methodology, projected revenue, expenses and cash flows, weighted average cost of capital, discount rates, estimates of advertiser and publisher turnover rates, and estimates of terminal values. Business acquisitions are included in the Company's consolidated financial statements as of the date of the acquisition.
follows:
| (in thousands) | ||||||||
| Years ending August 31, | Amount | |||||||
| Remainder of 2024 | $ | 716 | ||||||
| 2025 | $ | 957 | ||||||
| 2026 | $ | 945 | ||||||
| 2027 | $ | 898 | ||||||
| 2028 | $ | 755 | ||||||
| Level Input: | Input Definition: | |||||||
| Level I | Inputs that 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. | |||||||
The following table summarizes fair value measurements
November 30, 2017:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Cash and cash equivalents | $ | 7,045,756 | $ | – | $ | – | $ | 7,045,756 | ||||||||
| Acquisition-related contingent consideration obligations | $ | – | $ | – | $ | 4,776,376 | $ | 4,776,376 | ||||||||
August 31, 2017:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Cash and cash equivalents | $ | 6,215,718 | $ | – | $ | – | $ | 6,215,718 | ||||||||
| Acquisition-related contingent consideration obligations | $ | – | $ | – | $ | 4,738,188 | $ | 4,738,188 | ||||||||
Equity Securities. As of November 30, 20172023, all investments were classified as held-to-maturity securities, as we have the positive intent and ability to hold these securities until maturity. We believe unrealized losses on investments were primarily caused by rising interest rates rather than changes in credit quality, and, accordingly, we have not recorded an allowance for credit losses on our debt securities as of November 30, 2023, and August 31, 2017,2023.
| November 30, 2023 | ||||||||||||||||||||||||||
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||
| Commercial notes (due within one year) | $ | 70,101 | $ | — | $ | (33) | $ | 70,068 | ||||||||||||||||||
| Term deposits (due within one year) | 4,000 | — | — | 4,000 | ||||||||||||||||||||||
| Total | $ | 74,101 | $ | — | $ | (33) | $ | 74,068 | ||||||||||||||||||
| August 31, 2023 | ||||||||||||||||||||||||||
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||
| Commercial notes (due within one year) | $ | 53,940 | $ | — | $ | (115) | $ | 53,825 | ||||||||||||||||||
| Term deposits (due within one year) | 4,000 | — | — | 4,000 | ||||||||||||||||||||||
| Total | $ | 57,940 | $ | — | $ | (115) | $ | 57,825 | ||||||||||||||||||
| Value at August 31, 2017 | $ | 4,738,188 | ||
| Contingent consideration payments | – | |||
| Change in value of contingent consideration | 38,188 | |||
| Value at November 30, 2017 | $ | 4,776,376 |
| (in thousands) | Amount | |||||||
| Contingent consideration as of August 31, 2023 | $ | 4,780 | ||||||
| Change in fair value of contingent consideration | (110) | |||||||
| Contingent consideration as of November 30, 2023 | $ | 4,670 | ||||||
2023: 2022, respectively. Standards increase. Taxes Plans 2031. $66.14 per share. 2022. 2023; our three largest customers in terms of accounts receivable comprised between 4% and 12% of accounts receivable as of November 30, 2022. total revenue, respectively, for the three months ended November 30, 2023. For the quarterly period ended (Unaudited) We are a global leader, 21%, to $14.5 million for the three months ended November 30, 2023, compared to $12.0 million for the three months ended November 30, 2022. This increase is primarily due to an increase of $1.5 million, or 25%, in Immunetrics acquisition. Research and Research and development spend remained relatively consistent with a slight increase of $0.1 million, or 5%, for the three months ended November 30, 2023, compared to the three months ended November 30, 2022. Immunetrics earnout liability. income taxes the same periods. this Report.Business CombinationThe acquisition method of accounting for business combinations requires us to use significant estimates and assumptions, including fair value estimates, as of the business combination date and to refine those estimates as necessary during the measurement period (defined as the period, not to exceed one year, in which we may adjust the provisional amounts recognized for a business combination).Under the acquisition method of accounting, we recognize separately from goodwill the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree, generally at the acquisition-date fair value. We measure goodwill as of the acquisition-date as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed. Costs that we incur to complete the business combination, such as investment banking, legal, and other professional fees, are not considered part of consideration, and we recognize such costs as general and administrative expenses as they are incurred. Under the acquisition method, we also account for acquired company restructuring activities that we initiate separately from the business combination.Should the initial accounting for a business combination be incomplete by the end of a reporting period that falls within the measurement period, we report provisional amounts in our financial statements. During the measurement period, we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date, and we record those adjustments to our financial statements. We apply those measurement-period adjustments that we determine to be material retrospectively to comparative information in our financial statements, including adjustments to depreciation and amortization expense.Under the acquisition method of accounting for business combinations, if we identify changes to acquired deferred-tax asset valuation allowances or liabilities related to uncertain tax positions during the measurement period, and they relate to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement period adjustment and we record the offset to goodwill. We record all other changes to deferred-tax asset valuation allowances and liabilities related to uncertain tax positions in current period income tax expense. This accounting applies to all of our acquisitions regardless of acquisition date.Research and Development CostsResearch and development costs are charged to expense as incurred until technological feasibility has been established. These costs include salaries, laboratory experiment,experiments, and purchased software whichthat was developed by other companies and incorporated into, or used in the development of, our final products.Income TaxesThe Company accountsWe account for income taxes in accordance with ASC 740-10,“Income Taxes”740, 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 propertyOn February 28, 2012, we bought out the royalty agreement with Enslein Research of Rochester, New York. The cost of $75,000 is being amortized over 10 years under the straight-line method. Amortization expense for each of the three-month periods ended November 30, 2017 and 2016 was $1,875. Accumulated amortization as of November 30, 2017 and August 31, 2017 was $43,125 and $41,250, respectively.OnIn May 15, 2014, we entered into a termination and nonassertionnon-assertion agreement with TSRL, Inc., pursuant to which the parties agreed to terminate an exclusive software licensing agreement entered into between the parties in 1997. As a result, the companyCompany obtained a perpetual right to use certain source code and data, and TSRL relinquished any rights and claims to any GastroPlus products and to any claims, to royalties, or other payments under that 1997 agreement. We agreed to pay TSRL total consideration of $6,000,000,$6.0 million, which is being amortized over 10 years under the straight-line method. Amortization expense for each of the three-month periods ended November 30, 2017 and 2016 was $150,000. Accumulated amortization as of November 30, 2017 and August 31, 2017 was $2,125,000 and $1,975,000, respectively.OnIn June 1, 2017, as part of the acquisition of DILIsym, Services, Inc. the Company acquired certain developed technologies associated with the drug induceddrug-induced liver disease (DILI). These technologies were valued at $2,850,000$2.9 million and are being amortized over 9 years under the straight-line method. Amortization expense for the three months ended November 30, 2017 was $79,176 and is included inIn September 2018, we purchased certain intellectual property rights of Entelos Holding Company. The cost of revenues. Accumulated amortization$0.1 million is being amortized over 10 years under the straight-line method.In April 2020, as part of the acquisition of Lixoft, the Company acquired certain developed technologies associated with the Lixoft scientific software. These technologies were valued at $8.0 million and are being amortized over 16 years under the straight-line method.In June 2023, we purchased certain developed technology of Immunetrics. The cost of $1.1 million is being amortized over 5 years under the straight-line method.The following table summarizes intellectual property as of November 30, 2017 and2023:(in thousands) Amortization
PeriodAcquisition
ValueAccumulated
AmortizationNet Book
ValueTermination/nonassertion agreement-TSRL Inc. Straight line 10 years $ 6,000 $ 5,725 $ 275 Developed technologies–DILIsym acquisition Straight line 9 years 2,850 2,057 793 Intellectual rights of Entelos Holding Company Straight line 10 years 50 26 24 Developed technologies–Immunetrics acquisition Straight line 5 years 1,080 99 981 Developed technologies–Lixoft acquisition Straight line 16 years 8,010 1,802 6,208 $ 17,990 $ 9,709 $ 8,281 The following table summarizes intellectual property as of August 31, 2017 was $158,333 and $79,176, respectively.(in thousands) Amortization
PeriodAcquisition
ValueAccumulated
AmortizationNet Book
ValueTermination/nonassertion agreement-TSRL Inc. Straight line 10 years $ 6,000 $ 5,575 $ 425 Developed technologies–DILIsym acquisition Straight line 9 years 2,850 1,978 872 Intellectual rights of Entelos Holding Company Straight line 10 years 50 25 25 Developed technologies–Immunetrics acquisition Straight line 5 years 1,080 45 1,035 Developed technologies–Lixoft acquisition Straight line 16 years 8,010 1,678 6,332 $ 17,990 $ 9,301 $ 8,689 Total amortization expense for intellectual property agreements for the three months ended November 30, 20172023 and 20162022 was $320,417$0.4 million and $188,750,$0.3 million, respectively. AccumulatedEstimated future amortization of intellectual property for the next five years is as of November 30, 2017 was $2,326,458 and $2,095,417 as of August 31, 2017.Intangible assetsThe following table summarizes those intangible assets as of November 30, 2017: Amortization
Period Acquisition
Value Accumulated
Amortization Net book
value Customer relationships Straight line 8 years $ 1,100,000 $ 446,875 $ 653,125 Trade Name-Cognigen None 500,000 0 500,000 Covenants not to compete-Cognigen Straight line 5 years 50,000 32,500 17,500 Covenants not to compete-DILIsym Straight line 4 years 80,000 10,000 70,000 Trade Name-DILIsym None 860,000 0 860,000 Customer relationships-DILIsym Straight line 8 years 1,900,000 95,000 1,805,000 $ 4,490,000 $ 584,375 $ 3,905,625 Amortization expense for each of the three month periods ended November 30, 2017 and 2016 was $89,375 and $36,875, respectively. According to policy in addition to normal amortization, these assets are tested for impairment as needed.
follows:10(in thousands) Years ending August 31, Amount Remainder of 2024 $ 1,026 2025 $ 1,009 2026 $ 933 2027 $ 693 2028 $ 648 Earnings per ShareWe report earnings per share in accordance with FASB ASC 260-10.260. Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares available.outstanding. Diluted earnings per share is computed similarsimilarly 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, 20172023 and 20162022 were as follows: Three months ended 11/30/2017 11/30/2016 Numerator: Net income attributable to common shareholders $ 1,716,006 1,361,565 Denominator: Weighted-average number of common shares outstanding during the period 17,282,132 17,226,192 Dilutive effect of stock options 589,551 182,942 Common stock and common stock equivalents used for diluted earnings per share 17,871,683 17,409,134 Three Months Ended November 30, (in thousands) 2023 2022 Numerator Net income attributable to common shareholders $ 1,945 $ 1,245 Denominator Weighted-average number of common shares outstanding during the period 19,947 20,286 Dilutive effect of stock options 332 539 Common stock and common stock equivalents used for diluted earnings per share 20,279 20,825 Stock-Based CompensationCompensation 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, compensation718. Compensation cost is calculated based on the grant-date fair value estimated in accordance with FASB ASC 718-10,using the Black-Scholes pricing model and then amortized on a straight-line basis over the options’ vestingrequisite service period. Stock-based compensation costs related to stock options, not including shares issued to directors for services, was $130,221$1.3 million and $95,860$0.9 million for the three months ended November 30, 20172023 and 2016,2022, respectively. This expense is included in the condensed consolidated statements of operations as Selling, General, and Administration (SG&A), and Research and Development expense.Impairment of Long-lived AssetsThe Company accountsWe account for the impairment and disposition of long-lived assets in accordance with ASC 350,“Intangibles – Goodwill and Other” and ASC 360,“Property and Equipment”.360. 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, 20172023 and 2016.Recently Issued Accounting PronouncementsIn May 2014,October, 2023, the FranchiseFinancial Accounting Standards Board (FASB)("FASB") issued Accounting Standards Update (ASU)("ASU") 2023-06 - Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative ("ASU 2023-06"). ASU 2023-06 incorporates 14 of the 27 disclosure requirements published in SEC Release No. 2014-09,Revenue33-10532 - Disclosure Update and Simplification into various topics within the Accounting Standards Codification ("ASC"). ASU 2023-06's amendments represent clarifications to, or technical corrections of, current requirements. For SEC registrants, the effective date for each amendment will be the date on which the SEC removes that related disclosure from Contracts with Customers(ASU 2014-09). The standard will eliminate the transaction- and industry-specific revenue recognition guidance under current generally accepted accounting principles in the U.S. (GAAP) and replace it with a principles-based approach for determining revenue recognition. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017.its rules. Early adoption is permittedprohibited. The Company does not expect ASU 2023-06 to have a material effect on its condensed consolidated financial statements.In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2016.2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The revenue recognition standard is required toamendments should be applied retrospectively including any combination of practical expedients as allowedto all prior periods presented in the standard. We arefinancial statements. The Company is currently evaluating the ASU to determine its impact if any, ofon the adoption of ASU 2014-09 to our financial statements and relatedCompany’s disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting. Recently Adopted Accounting StandardsIn February 2016,October 2021, the FASB issued ASU 2016-02, Leases2021-08, Business Combinations - Accounting for contract assets and contract liabilities from contracts with customers (Topic 842)805), which supersedes existing guidance on accounting for leasesrequires contract assets and contract liabilities acquired in "Leases (Topic 840)" and generally requires all leasesa business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Revenues from contracts with customers (Topic 606). For public companies, the consolidated balance sheet. ASU 2016-02guidance is effective for annualfiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company adopted the guidance during fiscal year 2023. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), which requires business entities to disclose information about transactions with a government that are accounted for by applying a grant or contribution model by analogy (for example, IFRS guidance in IAS 20 or guidance on contributions for not-for-profit entities in ASC 958-605). For transactions within scope, the new standard requires the disclosure of information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction. The new guidance is effective for annual reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach.2021. The Company is currently evaluatingadopted the impact of theguidance during fiscal year 2023. The adoption of this standardguidance did not have a material impact on itsthe Company’s condensed consolidated financial statements.In April 2016,NOTE 3 – OTHER INCOMEThe components of other income for the FASB issued AS 2016-10, Revenue from Contracts with Customers (Topic 606), which amends certain aspects of the Board's new revenue standard, ASU 2014-09, Revenue from Contracts with Customers. The standard should be adopted concurrently with adoption of ASU 2014-09 which is effective for annual and interim periods beginning after December 15, 2017. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.11NOTE 3:Property and EquipmentProperty and equipment as ofthree months ended November 30, 2017 consisted of the following:Equipment $ 661,987 Computer equipment 243,308 Furniture and fixtures 141,615 Leasehold improvements 103,598 Sub total 1,150,508 Less: Accumulated depreciation and amortization (844,874 ) Net Book Value $ 305,634 NOTE 4: CONTRACTS PAYABLEDILIsym Acquisition Liabilities:On June 1, 2017, the Company acquired DILIsym Services, Inc. The agreement provided for a working capital adjustment, an eighteen-month $1,000,000 holdback provision against certain representations2023 and warrantees, and an Earn-out agreement of up to an additional $5,000,000 in Earn-out payments based on earnings over the next three years. The Earn-out liability has been recorded at an estimated fair value. Payments under the Earn-out liability will be due starting in FY 2019, it is estimated that approximately 43% of the Earn-out liability and well2022, were as the holdback will be paid in 2019 and the majority of the remaining Earn-out will be paid in the following year.As of November 30, 2017 and August, 31, 2017 the following liabilities have been recorded: November 30,
2017 August 31,
2017 Working Capital Liability $ – $ 247,328 Holdback Liability 1,000,000 1,000,000 Earn-out Liability 4,776,376 4,738,188 Sub Total $ 5,776,376 $ 5,985,516 Less: Current Portion 3,150,000 247,328 Long-Term $ 2,626,376 $ 5,738,188 Three Months Ended November 30, (in thousands) 2023 2022 Interest income $ 1,292 $ 771 Change in fair valuation of contingent consideration 110 — Gain (loss) on currency exchange 44 (31) Total other income $ 1,446 $ 740 NOTE 5:4 – COMMITMENTS AND CONTINGENCIESLeasesWe lease approximately 13,5004,200 square feet of office space in Lancaster, California. California, where our corporate headquarters are located. The original lease had a five-year term with two, three-year optionsextends to extend. The initial five-year term expired in February 2011,April 30, 2028 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 forbase rent is $8 thousand per month with an annual base rent increase of 3% per year and two, two-year options to extend. In May 2016. The lease agreement gives the Company exercised the two, two-year options extending the term of the lease through February 2, 2021 at a fixed rate of $25,000 per month. The new extension agreement allowed the Company with 90 days’right, upon 180 days prior notice, to opt out of the remaining lease inall or part of the last twothree years of the lease term upon payment of a recapture payment equal to the 3% base payment increase that would have been due under the original agreement.Our Buffalo subsidiary leases approximately 12,623with no penalty.We lease 1,510 square feet of office space in Durham, North Carolina. The lease term extends to September 30, 2026, and the base rent is $4 thousand per month with an annual increase of 3%. The amended lease agreement gives the Company the right, upon 9 months prior notice, to extend the lease for 60 months.We lease 4,317 square feet of office space in Buffalo, New York. The initial five-yearlease term expires in October 2018;extends to November 30, 2026, and the lease allows for a three-year option to extend to October 2021. The current base rent is $15,638$7 thousand per month.In September 2017 DILIsym service signed a three-yearmonth with an annual 2% increase. The lease for approximately 1,900 rentableagreement provides the Company with two five-year renewal options and the right to terminate the lease with one year’s prior written notice with certain penalties.We lease 2,300 square feet of office space in Research Triangle Park, North Carolina.Paris, France. The initial three-yearlease term expiresextends to November 30, 2024, and the rent is $5 thousand per month, which amount is subject to adjustment each December based on a consumer price index.We lease 7,141 square feet of office space in October 2020.Pittsburgh, Pennsylvania. The initiallease term extends to May 31, 2025, and the base rent is $3,975$10 thousand per month. The lease agreement provides the Company with one five-year renewal option.We have a data center colocation space in Buffalo, New York, with a lease term through November 30, 2026, and rent of $4 thousand per month with an annual 3% adjustment. Prior to this lease DILIsym was on a month-to-month rental.Rent expense, including common area maintenance fees for the three months ended November 30, 2017,2023 and 20162022 was $135,877,$0.1 million and $122,949,$0.1 million, respectively.12Lease liability maturities as of November 30, 2023, were as follows:(in thousands) Years ending August 31, Amount Remainder of 2024 $ 343 2025 390 2026 293 2027 140 2028 68 Total undiscounted liabilities 1,234 Less: imputed interest (145) Total operating lease liabilities (including current portion) $ 1,089 Employment AgreementsIn the normal course of business, the Company has entered into employment agreements with certain of its key management personnelexecutive officers that may require compensation payments upon termination.License AgreementThe Company executed a royalty agreement with Accelrys, Inc. (“Accelrys”) (the original agreement was entered into with Symyx Technologies in March 2010; Symyx Technologies later merged with Accelrys, Inc.) 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 pay a royalty of 25% of revenue derived from the sale of the Metabolism/Metabolite module to Accelrys. In 2014, Dassault Systemes of France acquired Accelrys and the Company now operates under the name BIOVIA. We incurred royalty expense of $35,897 and $31,069, respectively, for the three months ended November 30, 2017 and 2016, respectively.Income taxesWe 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 unrecognized tax benefits in income tax expense. Interest and penalties totaled $-0- for fiscal year 2018 We file income tax returns with the IRS and various state jurisdictions as well as with the countries of India and India. France. Our federal income tax returns for fiscal year 2012 thru 2013 and 2015years 2020 through 2023 are open for audit, and our state tax returns for fiscal year 2011years 2019 through 20152023 remain open for audit. In addition, our California tax return for the fiscal year 2007 and fiscal year 2008 remains open with regard to R&D tax credits as a result of a previous audit for which we received a letter from the California Franchise Tax Board stating that an audit will not be conducted for those years at this time; however it may be subject to future 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.LitigationFrom time to time, we may be involved in routine legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of our business. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings, particularly complex legal proceedings, cannot be predicted with any certainty.We are not a party to any legal proceedings and are not aware of any pending or threatened legal proceedings of any kind.NOTE 6: SHAREHOLDERS’5 – SHAREHOLDERS' EQUITYDividendShares OutstandingShares of Company's common stock outstanding for the three months ended November 30, 2023 and 2022 were as follows:Three Months Ended November 30, (in thousands) 2023 2022 Common stock outstanding, beginning of period 19,938 20,260 Common stock issued during the period 28 54 Common stock outstanding, end of period 19,966 20,314 DividendsThe Company’s Board of Directors declared cash dividends during the fiscal years 2018 2024and 2017.2023. The details of the dividends paid are in the following tables:FY2018 Record Date Distribution Date Number of Shares
Outstanding on
Record Date Dividend per
Share Total
Amount 11/13/2017 11/20/2017 17,284,792 $ 0.06 $ 1,037,088 Total $ 1,037,088 FY2017 Record Date Distribution Date Number of Shares
Outstanding on
Record Date Dividend per
Share Total
Amount 11/10/2016 11/17/2016 17,226,478 $ 0.05 $ 861,324 1/30/2017 2/6/2017 17,233,758 $ 0.05 $ 861,688 5/08/2017 5/15/2017 17,240,626 $ 0.05 $ 862,031 7/28/2017 8/4/2017 17,268,920 $ 0.05 $ 863,446 Total $ 3,448,489 13Equity Incentive PlanIn September 1996, the Board(in thousands, except dividend per share) Fiscal Year 2024 Record Date Distribution Date Number of Shares
Outstanding on
Record DateDividend per
ShareTotal Amount 10/30/2023 11/06/2023 19,939 $ 0.06 $ 1,196 (in thousands, except dividend per share) Fiscal Year 2023 Record Date Distribution Date Number of Shares
Outstanding on
Record DateDividend per
ShareTotal Amount 10/31/2022 11/07/2022 20,299 $ 0.06 $ 1,218 1/30/2023 2/06/2023 19,924 $ 0.06 1,195 4/24/2023 5/01/2023 19,999 $ 0.06 1,200 7/31/2023 8/07/2023 19,931 $ 0.06 1,196 Total $ 4,809 Stock Option Plan (the "Option Plan") under which a total of 1,000,000 shares of common stock had been reserved for issuance. In March 1999, the shareholders approved an increase in the number of shares that may be granted under the Option Plan to 2,000,000. In February 2000, the shareholders approved an increase in the number of shares that may be granted under the Option Plan to 4,000,000. In December 2000, the shareholders approved an increase in the number of shares that may be granted under the Option Plan to 5,000,000. Furthermore, in February 2005, the shareholders approved an additional 1,000,000 shares, resulting in the total number of shares that may be granted under the Option Plan to 6,000,000. The 1996 Stock Option Plan terminated in September 2006 by its term.On February 23, 2007, the Board of Directors adopted and the shareholders approved the 2007 Stock Option Plan under which a total of 1,000,000 shares of common stock had been reserved for issuance. On February 25, 2014 the shareholders approved an additional 1,000,000 shares increasing the total number of shares that may be granted under the Option Plan to 2,000,000.On December 23, 2016, the Company’s Board of Directors adopted, and on February 23, 2017, theits shareholders approved, the Company’s 2017 Equity Incentive Plan (the “2017 Plan”), under which a total of 1,000,0001.0 million shares of common stock has beenwere initially reserved for issuance. ThisThe 2017 plan would have terminated pursuant to its terms in December 2026; however, the 2017 Plan was replaced by the Company’s 2021 Plan (as defined below), and as a result, no further issuances of shares may be made under the 2017 Plan.On April 9, 2021, the Company’s Board of Directors adopted, and on June 23, 2021, its shareholders approved, the Company’s 2021 Equity Incentive Plan (the “2021 Plan,” and together with the 2017 Plan, the “Plans”), under which a total of 1.3 million shares of common stock were initially reserved for issuance. On October 20, 2022, the Company’s Board of Directors approved, and on February 9, 2023, its shareholders approved, an amendment to the 2021 Plan to increase the number of shares of common stock authorized for issuance thereunder from 1.3 million shares to 1.55 million shares of common stock of the Company. The 2021 Plan will terminate in December 2026.On October 19, 2023, the Company’s Board of Directors approved, subject to shareholder approval, an amendment to the 2021 Plan to increase the number of shares of common stock authorized for issuance thereunder from 1.55 million shares to 2.5 million shares of common stock of the Company (the “Plan Amendment”). The Plan Amendment will be presented to the Company’s shareholders for approval at its 2024 Annual Meeting of Shareholders, to be held on February 8, 2024. If approved by the Company’s shareholders, the Plan Amendment will be effective as of the date of such approval. If the Plan Amendment is not approved by the Company’s shareholders, the Plan Amendment will not become effective, and the number of shares of common stock authorized for issuance under the 2021 Plan will remain at 1.55 million shares.As of November 30, 2017,2023, employees and directors holdof the Company held Qualified Incentive Stock Options (“ISOs”) and Non-Qualified Stock Options (“NQSOs”) to purchase 1,243,606an aggregate of 1.9 million shares of common stock at exercise prices ranging from $1.00$6.85 to $17.71.The following tables summarize information about stock options:(in thousands, except per share and weighted-average amounts) Activity for the three months ended November 30, 2023 Number of
OptionsWeighted-Average
Exercise Price
Per ShareWeighted-Average
Remaining
Contractual LifeOutstanding, August 31, 2023 1,478 $ 34.62 6.62 years Granted 482 39.98 Exercised (26) 9.78 Canceled/Forfeited (7) 45.64 Outstanding, November 30, 2023 1,927 $ 36.25 7.30 years Vested and Exercisable, November 30, 2023 809 $ 28.06 5.10 years Vested and Expected to Vest, November 30, 2023 1,844 $ 36.06 7.19 years The total grant-date fair value of nonvested stock options as of November 30, 2023, was $22.1 million and is amortizable over a weighted-average period of 3.67 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 information about stock options:Transactions in FY18 Number of
Options Weighted-
Average
Exercise
Price
Per Share Weighted-
Average
Remaining
Contractual
Life Outstanding, August 31, 2017 1,249,126 $ 8.51 7.52 Granted 12,000 $ 17.71 Exercised (7,792 ) $ 7.28 Cancelled/Forfeited (3,728 ) $ 8.16 Expired (6,000 ) 5.06 Outstanding, November 30, 2017 1,243,606 $ 8.63 7.51 Exercisable, November 30, 2017 394,765 $ 6.51 5.46 The weighted-average remaining contractual lifethe fair value of the options, outstanding issued underincluding both ISOs and NQSOs, granted during the Plan, both Qualified ISO and Non-Qualified SO, was 8.63 years atthree month period ended November 30, 2017. 2023 and fiscal year 2023:(in thousands, except weighted-average amounts) Three Months Ended November 30, 2023 Fiscal Year 2023 Estimated fair value of awards granted $ 9,552 $ 10,067 Unvested Forfeiture Rate 6.38 % 0.22 % Weighted-average grant price $ 39.98 $ 43.78 Weighted-average market price $ 39.98 $ 43.78 Weighted-average volatility 44.79 % 46.14 % Weighted-average risk-free rate 4.93 % 4.29 % Weighted-average dividend yield 0.60 % 0.55 % Weighted-average expected life 6.59 years 6.55 years The exercise prices for the options outstanding at November 30, 20172023, ranged from $1.00$6.85 to $17.71,$66.14, and the information relating to these options isare as follows: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 $ 1.00 $ 4.00 54,000 1.08 years $ 1.45 54,000 1.08 years $ 1.45 $ 4.01 $ 8.00 384,870 5.86 years $ 6.63 254,665 5.40 years $ 6.52 $ 8.51 $ 12.00 779,820 8.76 years $ 9.87 86,100 8.38 years $ 9.69 $ 12.01 $ 16.00 12,916 9.72 years $ 14.44 0 – $ – $ 16.51 $ 17.71 12,000 4.96 years $ 17.71 0 – $ – 1,243,606 7.51 years $ 8.63 394,765 5.46 years $ 6.51 (in thousands except prices and weighted-average amounts)Exercise Price Awards Outstanding Awards Exercisable Low High Quantity Weighted -Average
Remaining
Contractual
LifeWeighted-Average
Exercise
PriceQuantity Weighted-Average
Remaining
Contractual
LifeWeighted-Average
Exercise
Price$ 6.85 $ 9.77 182 1.81 years $ 8.89 182 1.81 years $ 8.89 $ 9.78 $ 18.76 148 3.24 years $ 10.10 148 3.24 years $ 10.10 $ 18.77 $ 33.40 200 5.39 years $ 25.37 137 5.29 years $ 24.60 $ 33.41 $ 47.63 1,125 9.06 years $ 41.21 212 7.90 years $ 40.94 $ 47.64 $ 66.14 272 7.31 years $ 56.33 130 7.05 years $ 58.00 1,927 7.30 years $ 36.25 809 5.10 years $ 28.06 During the periodthree months ended November 30, 2017 the company issues 2,2562023, we issued 4,255 shares of stock to non-management directors of the Company valued at $36,770$0.2 million to our nonmanagement directors as compensation for services renderedboard-related duties.The Company's par-value common stock and additional paid-in capital as of November 30, 2023, were $11 thousand and $146.6 million, respectively.Share RepurchasesNo share repurchases were made during the three months ended November 30, 2023 and 2022.On December 29, 2022, our Board of Directors authorized and approved a share repurchase program for up to $50 million of the outstanding shares of our common stock, and on January 11, 2023, we entered into an accelerated share repurchase agreement (the “ASR Agreement”) with Morgan Stanley & Co. LLC (“Morgan Stanley”) to repurchase an aggregate of $20 million of our outstanding shares of common stock as part of the share repurchase program, which was settled in full in May 2023. The share repurchase program has no expiration date but may be terminated at any time at our Board of Directors’ discretion.In January 2023, we received an initial delivery of an aggregate of 408,685 shares of our common stock from Morgan Stanley pursuant to the Company.
ASR Agreement, in exchange for which we made an initial payment of $20 million to Morgan Stanley. These 408,685 shares were retired and are treated as authorized, unissued shares. At final settlement on May 20, 2023, based on the volume-weighted average price of our common stock during the term of the ASR Agreement, Morgan Stanley delivered an additional 83,356 shares of Company common stock to us, which shares were also retired and treated as authorized, unissued shares.14After completion of the repurchases under the ASR Agreement, $30 million remains available for additional repurchases under our authorized repurchase program.NOTE 7:6 – CONCENTRATIONS AND UNCERTAINTIESFinancial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, and trade accounts receivable.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. Cash maintained in excess of these limits is on deposit with a large, national bank. Accordingly, the Company does not have depository exposure to regional banks. 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 management believes itthat the financial institutions at which its cash 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.held are stable; however, no assurances can be provided. 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. At November 30, 2017 the Company had cash and cash equivalents exceeding insured limits by $5,948,000.Revenue concentration shows that international sales accounted for 35.6%25% and 31.8%29% of net salesrevenue for the three months ended November 30, 20172023 and 2016,2022, respectively. FourOur three largest customers in terms of revenue accounted for 7%8%, 7% (a dealer account in Japan representing various customers)8%, 6% and 6%5% of net sales duringrevenue, respectively, for the three months ended November 30, 2017. Three2023. Our three largest customers in terms of revenue accounted for 9%8%, 7% (a dealer account in Japan representing various customers)3%, and 6%3% of net sales duringrevenue, respectively, for the three months ended November 30, 2016.Accounts receivable concentration showsconcentrations show that sixour three largest customers comprised 18%, 8%, 8% (a dealer account in Japan representing various customers), 7%, 6%, and 5%terms of accounts receivable at November 30, 2017. Accounts receivable concentration shows that four customerseach comprised 19%, 8% (a dealer account in Japan representing various customers),between 7%, and 5%9% of accounts receivable atas of November 30, 2016.We operate in the computer software industry,biosimulation market, 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.NOTE 7 – SEGMENT REPORTINGThe majority of our customers areCompany applies ASC 280, Segment Reporting, in determining reportable segments. The Company has two reportable segments: Software and Services. Segment information is presented in the pharmaceutical industry. Consolidationsame manner that the chief operating decision maker (“CODM”) reviews certain financial information based on these reportable segments. The CODM reviews revenue and downsizing ingross profit for both of the pharmaceutical industry could have an impact on our revenues and earnings going forward.NOTE 8: SEGMENT ANDGeographic ReportingWe account for segments and geographic revenues in accordance with guidance issuedreportable segments. Gross profit is defined as revenue less cost of revenue incurred by the FASB. Oursegment.No operating segments have been aggregated to form the reportable segmentssegments. The Company does not allocate assets at the reportable segment level, as these are strategic business unitsmanaged on an entity-wide group basis and, accordingly, the Company does not report asset information by segment. The Company does not allocate operating expenses that offer different productsare managed on an entity-wide group basis and, services.Resultsaccordingly, the Company does not allocate and report operating expenses at a segment level. There are no internal revenue transactions between the Company’s segments.The following tables summarize the results for each segment and consolidated results are as follows for the three ended November 30, 2017 and 2016 (in thousands, because of rounding numbers may not foot):November 30, 2017 Lancaster Buffalo North Carolina* Eliminations Total Net revenues $ 4,042 $ 1,913 $ 1,114 $ – $ 7,069 Income (loss) from operations $ 1,641 $ 508 $ 415 $ – $ 2,564 Total assets $ 33,033 $ 10,429 $ 13,990 $ (17,702 ) $ 39,750 Capital expenditures $ 25 $ 18 $ 5 $ – $ 48 Capitalized software costs $ 283 $ 159 $ 66 $ – $ 507 Depreciation and amortization $ 414 $ 87 $ 137 $ – $ 638 *Acquired June 1, 2017 November 30, 2016 Lancaster Buffalo Eliminations Total Net revenues $ 3,695 $ 1,723 $ – $ 5,418 Income (loss) from operations $ 1,489 $ 439 $ – $ 1,928 Total assets $ 26,432 $ 9,308 $ (7,238 ) $ 28,503 Capital expenditures $ 21 $ 37 $ – $ 58 Capitalized software costs $ 212 $ 21 $ – $ 234 Depreciation and amortization $ 417 $ 99 $ – $ 516 15In addition, the Company allocates revenues to geographic areas based on the locations of its customers. Geographical revenues for the three months ended November 30, 20172023 and 2016 were as follows (in thousands, because2022:(in thousands) Three Months Ended November 30, 2023 Software Services Total Revenues $ 7,589 $ 6,911 $ 14,500 Cost of revenues 991 3,661 4,652 Gross profit $ 6,598 $ 3,250 $ 9,848 Gross margin 87 % 47 % 68 % Our software business and services business represented 52% and 48% of rounding numbers may not foot):Three months ended November 30, 2017 North America Europe Asia South America Total Lancaster $ 1,816 $ 1,089 $ 1,133 $ 4 $ 4,042 Buffalo 1,913 – – – 1,913 North Carolina 811 12 291 – 1,114 Total $ 4,540 $ 1,101 $ 1,424 $ 4 $ 7,069 Three months ended November 30, 2016 North America Europe Asia South America Total Lancaster $ 1,973 $ 721 $ 1,001 $ 1 $ 3,695 Buffalo 1,723 – – – 1,723 Total $ 3,696 $ 721 $ 1,001 $ 1 $ 5,418 (in thousands) Three Months Ended November 30, 2022 Software Services Total Revenues $ 6,074 $ 5,890 $ 11,964 Cost of revenues 885 1,786 2,671 Gross profit $ 5,189 $ 4,104 $ 9,293 Gross margin 85 % 70 % 78 % Our software business and services business represented 51% and 49% of total revenue, respectively, for the three months ended November 30, 2022.The increase in the cost of revenues for our Services segment and corresponding decline in gross margin for the three months ended November 30, 2023 compared to the three months endedNovember 30, 2022 is driven by $1.2 million from the reorganization of our internal structure from divisions based on prior acquisitions to business units organized around key product and service offerings and $0.4 million from the acquisition of Immunetrics, which contributed to our services headcount. Gross margin would have been 49% during the three months ended November 30, 2022 under the current organization structure. The new business unit structure is designed to optimize the utilization of our scientific talent in support of our revenue growth objectives.NOTE 9:8 – EMPLOYEE BENEFIT PLANWe maintain a 401(K)401(k) Plan for all eligible employees, and weemployees. We make matching contributions equal to 100% of the employee’s elective deferral, not to exceed 4% of total employee compensation.the employee’s gross salary. We can also elect to make a profit-sharing contribution. Our contributions to this Plan amounted to $71,381contributed $0.1 million and $53,959$0.1 million for the three months ended November 30, 20172023 and 2016,2022, respectively.NOTE 10:9 - ACQUISITION/MERGER WITH SUBSIDIARIESDILIsym Services, Inc.On May 1, 2017,GOVERNMENT ASSISTANCEThe Company receives government assistance in the form of cash grants which vary in size, duration, and conditions from domestic governmental agencies. Accounting for the grant revenue does not fall under ASC 606, Revenue from Contracts with Customers, as the Government will not benefit directly from our offerings. For government assistance in which no specific US GAAP applies, the Company entered intoaccounts for such transactions as revenue and by analogy to a Stock Purchase Agreement (the “Stock Agreement”) with DILIsym Services, Inc (“DILIsym”). On June 1 2016,grant model. Under such model, the Company consummatedrecognizes the acquisition of all outstanding equity interests of DILIsym pursuant to the termsimpact of the Stock Agreement,government assistance on the Condensed Consolidated Statements of Income upon complying with DILIsym becoming a wholly owned subsidiarythe conditions of the Company. We believe the combination of Simulations Plus and DILIsym provides substantial future potential based on the complementary strengths of each of the companies.Under the terms of the Stock Agreement, as described below, the Company will pay the former shareholders of DILIsym total consideration of approximately $10,463,000.On June 1, 2017, the Company paid the former shareholders of DILIsym a total of $4,515,982, which included a $4,000,000 initial payment and a preliminary working capital payment of $515,982. Additional working capital adjustments of $247,328 were due under the agreement and were paid subsequent to August 31, 2017.Within three business days following the eighteen-month anniversary of the date of the Stock Agreement, May 1, 2017, and subject to any offsets, the Company will pay the former shareholders of DILIsym a total of $1,000,000.grant. The agreement calls for Earn-out payments up to an additional $5,000,000 basedgrant revenue is recognized on a formula of pre-tax earnings over the next three years.gross basis. The Earn-out liability has been recorded at fair value.Under the acquisition method ofCompany's accounting the total estimated purchase pricepolicy is allocated to DILIsym’s tangible and intangible assets and liabilities based on their estimated fair values at the date of the completion of the acquisition (June 1, 2017). The following table summarizes the preliminary allocation of the purchase price for DILIsym:Assets acquired, including accounts receivable of $255,000 and estimated Contracts receivable of $153,000 $ 2,283,110 Developed Technologies Acquired 2,850,000 Estimated value of Intangibles acquired (Customer Lists, trade name etc.) 2,840,000 Current Liabilities assumed (911,049 ) Goodwill 5,597,950 Estimated Deferred income taxes (2,212,160 ) Total Consideration $ 10,463,310 16Goodwill has been provided in the transaction based on estimates of future earnings of this subsidiary including anticipated synergies associated with the positioning of the combined company asrecognize a leader in model-based drug development. Based on the structure of the transaction, the Company does not anticipate benefiting from any tax deductions in future periods for recognized goodwill.PROFORMA INFORMATION (UNAUDITED)Consolidated supplemental Pro Forma informationThe following consolidated supplemental pro forma information assumes that the acquisition of DILIsym took place on September 1, 2016 forbenefit to the income statement forover the three-month periodduration of the program when the conditions attached to the grant are achieved. If conditions are not satisfied, the grants are often subject to reduction, repayment, or termination. The Company classifies the impact of government assistance on the Condensed Consolidated Statements of Income as Services Revenue.During the three months ended November 30, 2016.2023, government assistance received primarily consisted of the following:The Company received assistance from domestic governmental agencies to provide reimbursement for various costs incurred for research and development. These include direct grant awards and subawards. The grants awarded are currently set to expire at various dates through 2025. During the three months ended November 30, 2023 and 2022, the Company recognized $0.4 million and $0.3 million, respectively, within Services revenues on the Condensed Consolidated Statements of Operations and Comprehensive Income related to such assistance. To the extent amounts have been calculated after applyingearned but not yet funded, the Company’s accounting policies and adjustingamounts are in Accounts Receivable. Computer equipment allowable by the resultsgrants is classified under Fixed Assets. Subawards due to unrelated entities are classified under Accrued Expenses.NOTE 10 - SUBSEQUENT EVENTSDividend DeclaredOn Thursday, January 3, 2024, our Board of DILIsymDirectors declared a quarterly cash dividend of $0.06 per share to reflect the same expensesour shareholders. The dividend in the three-month period ended November 30, 2016. 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, 2016, together with consequential tax effects.
November 30,
(in 1000’s) (Actual) (Pro forma) 2017 2016 Net Sales $ 7,069 $ 5,958 Net Income $ 1,716 $ 1,274 NOTE 11: SUBSEQUENT EVENTOn December 22, 2017, the U.S. President signed the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act). Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”) requires that the company recognize the effects of changes in tax laws or tax rates in the financial statements for the period in which such changes were enacted. Among other things, changes in tax laws or tax rates can affect the amount of taxes payableapproximately $1.2 million will be distributed on Monday, February 5, 2024, for the current period,shareholders of record as well as the amount and timing of deferred tax liabilities and deferred tax assets. The Company is a fiscal year reporting company, because the 2017 Tax Act became law in December 2017, and as such would be required to account for the impacts related to the 2017 Tax Act in the financial statements included in their annual report on Form 10-K for August 31, 2018 due in November 2018. The Company has elected to take advantageMonday, January 29, 2024.ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThis document and the documents incorporated in this document by reference contain forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact contained in this document and the materials accompanying this document are forward-looking statements.The forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to our management. Frequently, but not always, forward-looking statements are identified by the use of the future tense and by words such as “believes,” expects,” “anticipates,” “intends,” “will,” “may,” “could,” “would,” “projects,” “continues,” “estimates” or similar expressions. Forward-looking statements are not guarantees of future performance and actual results could differ materially from those indicated by the forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by the forward-looking statements.The forward-looking statements contained or incorporated by reference in this document are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. These statements include declarations regarding our plans, intentions, beliefs, or current expectations.Among the important factors that could cause actual results to differ materially from those indicated by forward-looking statements are the risks and uncertainties described under “Risk Factors” in our Annual Report on Form 10-K for the year ended August 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on October 27, 2023, and elsewhere in this document and in our other filings with the SEC.Forward-looking statements are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this document are made as of the date of this document and we do not undertake any obligation to update forward-looking statements to reflect new information, subsequent events, or otherwise.Our historical results are not necessarily indicative of the results that may be expected for any period in the future.GeneralBUSINESSOVERVIEWSimulations Plus, Inc., incorporated in 1996, is a premier developer of groundbreaking drug discovery and development software for mechanistic modeling and simulation, and for machine-learning-basedthe prediction of molecular properties of molecules solely from their structure,utilizing both artificial intelligence and is exploring the application of its machine-learning technologies in other industries, including aerospace/military and general healthcare. Our pharmaceutical/chemistry software is licensed to major pharmaceutical, biotechnology, agrochemical, and food industry companies and to regulatory agencies worldwide for use in the conduct of industry-based research.machine-learning-based technology. We also provide consulting services ranging from early drug discovery through preclinical and clinical trial datadevelopment analysis and for submissions to regulatory agencies. Simulations PlusOur software and consulting services are provided to major pharmaceutical, biotechnology, agrochemical, cosmetics, and food industry companies and academic and regulatory agencies worldwide for use in the conduct of industry-based research. The Company is headquartered in Southern California, with offices in Buffalo, New York,NY; Research Triangle Park, NC; Pittsburgh, PA; and itsParis, France. Our common stock tradeshas traded on the NASDAQNasdaq Global Select Market under the symbol “SLP” since May 13, 2021, prior to which it traded on the Nasdaq Capital Market under the symbol “SLP.”In September 2014, Simulations Plus acquired Cognigen Corporation (Cognigen) as a wholly owned subsidiary pursuant to that certain Agreement and Plan of Merger, dated as of July 23, 2014, by and between Simulations Plus and Cognigen (the “Merger Agreement”). Cognigen was originally incorporated in 1992. Through the integration of Cognigen into Simulations Plus, Simulations Plus became also a leading provider of population modeling and simulation contract research services for the pharmaceutical and biotechnology industries. Our clinical-pharmacology-based consulting services include pharmacokinetic and pharmacodynamic modeling, clinical trial simulations, data programming, and technical writing services in support of regulatory submissions. We have also developed software for harnessing cloud-based computing in support of modeling and simulation activities and secure data archiving, and we provide consulting services to improve interdisciplinary collaborations and research and development productivity.
same symbol.18In June 2017, Simulation Plus acquired DILIsym Services, Inc. (DILIsym) as a wholly owned subsidiary pursuant to a stock purchase agreement dated May 1, 2017. On June 1, 2017, the Company consummated the acquisition of all outstanding equity interests of DILIsym pursuant to the terms of the Stock Agreement, with DILIsym becoming a wholly owned subsidiary of the Company. We believe the combination of Simulations Plus and DILIsym provides substantial future potential based on the complementary strengths of each of the companies. The acquisition of DILIsym positions the Company as the leading provider of Drug Induced Liver Injury (DILI) modeling and simulation software and contract research services.In addition to the DILIsym® software for analysis of potential drug-induced liver injury, DILIsym Services, Inc. also has developed a simulation program for analyzing nonalcoholic fatty liver disease (NAFLD) called NAFLDsym™. The difference between DILIsym and NAFLDsym is that DILIsym estimates the potential for a particular drug molecule to induce liver injury (i.e., to cause damage), while NAFLDsym estimates the likelihood of new molecules to treat nonalcoholic fatty liver disease (i.e., to repair damage), and is unique to the mechanisms involved in such treatment. As such, DILIsym can be a single program that addresses a wide variety of molecules across various companies, while NAFLDsym requires customizing the software for each mechanism of action. Both the DILIsym and NAFLDsym software programs require outputs from physiologically based pharmacokinetics (PBPK) software as inputs. The GastroPlus™ PBPK software from Simulations Plus provides such information; thus, the integration of these technologies will provide a seamless capability for analyzing the potential for drug-induced liver injury for new drug compounds and for investigating the potential for new therapeutic agents to treat nonalcoholic fatty liver disease. focused on improving the ways scientists use knowledge and data to predict the properties and outcomes of pharmaceutical and biotechnology agents, and are one of only two global companies who provide a wide range of preclinical and clinical consulting services and software. Our innovations in integrating new and existing science in medicinal chemistry, computational chemistry, pharmaceutical science, biology, physiology, and machine learning into our software have made us the leading software provider for PBPK modeling and simulation and for prediction of molecular properties from structure.We generate revenue by delivering relevant, cost-effective software and creative and insightful consulting services. Pharmaceutical and biotechnology companies and hospitals use our software programs and scientific knowledgeconsulting services to guide early drug discovery (molecule design, screening, and screening)lead optimization), preclinical and clinical development programs. They also use itprograms, and the development of generic medicines after patent expiration, including using our software products and services to enhance their understanding of the properties of potential new medicinestherapies and to use emerging data to improve formulations, select and justify dosing regimens, support the genericsgeneric pharmaceutical product development industry, optimize clinical trial designs, and simulate outcomes in special populations, such as thein elderly and pediatric patients.PRODUCTSGeneralWe currently offer ten software products for pharmaceutical research and development: five simulation programs that provide time-dependent results based on solving large sets of differential equations: GastroPlus™; DDDPlus™; MembranePlus™; DILIsym®; and NAFLDsym™; three programs that are based on predicting and analyzing static (not time-dependent) properties of chemicals: ADMET Predictor™; MedChem Designer™; and MedChem Studio™ (the combination of ADMET Predictor, MedChem Designer, and MedChem Studio is called our ADMET Design Suite™); our newest program which is designed for rapid clinical trial data analysis and regulatory submissions called PKPlus™; and a program called KIWI™ from our Cognigen division that provides an integrated platform for data analysis and reporting through our proprietary secure cloud.GastroPlusOur flagship product, and currently our largest single source of software revenue, is GastroPlus. GastroPlus simulates the absorption, pharmacokinetics, and pharmacodynamics of drugs administered to humans and animals, and is currently the most widely used commercial software of its type by pharmaceutical companies, the U.S. Food and Drug Administration (FDA), the U.S. National Institutes of Health (NIH), and other government agencies in the U.S. and other countries. The FDA currently has 30 floating GastroPlus licenses shared across various divisions.Because of the widespread use of GastroPlus, we were the only non-European company invited to join the European Innovative Medicines Initiative (IMI) program for Oral Bioavailability Tools (OrBiTo). OrBiTo, begun in 2012 and completed in 2017, was an international collaboration among 27 industry, academic, and government organizations working in the area of oral absorption of pharmaceutical products. Because we are outside of the European Union, our participation in this project was at our own expense, while other members were compensated for their work; however, we were a full member with access to all of the data and discussions of all other members. We believe our investment to participate in this initiative enabled us to benefit from, and to contribute to, advancing the prediction of human oral bioavailability from preclinical data, and ensured that we are well-known to member pharmaceutical companies and regulatory agencies.19In September 2016, we announced that Simulations Plus had been invited to join the European SimInhale Consortium and had been admitted to this prestigious group focused on advancing the state of the art for simulation of inhaled dosage forms. As one of only two U.S. participants, Simulations Plus is participating in activities designed toadvance particle designs for improved deposition and interaction with lung tissue; promote realistic computer simulations of particle aerosolization, delivery, and deposition; promote patient-tailored inhaled medicines; promote integration of device and formulation design; and promote critical assessment of toxicity issues and related risks.In September 2014, we entered into a research collaboration agreement (RCA) with the FDA to enhance the Ocular Compartmental Absorption and Transit (OCAT™) model within the Additional Dosing Routes Module of GastroPlus. The objective of this agreement was to provide a tool for generic companies and the FDA to assess the likely bioequivalence of generic drug formulations dosed to the eye. Under this RCA, we received up to $200,000 per year. This RCA could be renewed for up to a total of three years based on the progress achieved during the project. After a successful second year, the RCA was renewed for its third year in September 2016, and was completed in September 2017.We were awarded another RCA by the FDA in September 2015; this one to expand the capabilities of GastroPlus to simulate the dosing of long-acting injectable microspheres. This type of dosage form is usually injected via subcutaneous or intramuscular routes, but can also be used for ocular dosing. Once again, this RCA provides up to $200,000 per year for up to three years. Under this agreement, we are developing simulation models to deal with the very slow dissolution/decomposition of the microsphere carrier material that gradually releases the active drug over periods as long as weeks or months. After a successful second year, the RCA was renewed for the third year in September 2017, and will expire in September 2018 unless further renewed.In addition to the two funded efforts with the FDA described above, we also have an unfunded RCA with the FDA’s Office of Generic Drugs (OGD) that began in 2014. The objective of this RCA, which has a five-year term, is directed toward the FDA’s evaluation of mechanistic IVIVCs (in vitro-in vivo correlations) to determine whether mechanistic absorption modeling (MAM) can relate laboratory (in vitro) dissolution experiment results to the behavior of dosage forms in humans and animals (in vivo) better than traditional empirical methods.In April 2017, we released Version 9.5 of GastroPlus after nearly two years of improvements over version 9.0, which was released in April 2015. Version 9.5 is now the largest single upgrade we’ve made to the program. New functionalities that we believe provide the most advanced decision-making tool for preclinical and early clinical trial simulation and modeling analysis available today include:·ability to simulate the absorption and distribution of antibody-drug conjugates (ADCs), which are antibodies that are used to carry small drug molecules to the intended target tissue·ability to dose via intramuscular injection and an improved model for subcutaneous injection·several new physiology models, including Chinese and hepatic impairment populations·revamped workflows for buildingin vitro-in vivo correlations (IVIVCs) and performing virtual bioequivalence trial simulations·improved reporting capabilities, making it easier for companies wishing to submit results to regulatory agenciesOur goal with GastroPlus is to integrate the most advanced science into user-friendly software to enable pharmaceutical researchers and regulators to perform sophisticated analyses of complex drug behaviors in humans and laboratory animals. Already the most widely used program in the world for physiologically based pharmacokinetics (PBPK), the addition of these new capabilities is expected to expand the user base in the early pharmaceutical research and development process, while also helping us further penetrate the biopharmaceuticals, food, cosmetics, and general toxicology markets.Version 9.6 is now in development and release is expected in early calendar 2018. This version will add a number of important new capabilities, including improvements to absorption, metabolism, drug-drug interaction, and output reporting, among others.DDDPlusDDDPlus simulatesin vitro (laboratory) experiments that measure the rate of dissolution of a drug and, if desired, the additives (excipients) in a particular dosage form (e.g., powder, tablet, capsule, or injectable solids) under a variety of experimental conditions. This unique software program is used by formulation scientists in industry and the FDA to (1) understand the physical mechanisms affecting the disintegration and dissolution rates of various formulations, (2) reduce the number of cut-and-try attempts to design new drug formulations, and (3) designin vitrodissolution experiments to better mimicin vivo (animal and human) conditions. Version 5.0 of DDDPlus, which added a number of significant enhancements, was released in April 2016. This version added new formulation types (controlled release bilayer tablet, delayed release coated tablet, and immediate release coated beads), expanded formulation specification options, biorelevant solubilities and surfactant effects on dissolution, tablet compression and disintegration models, links with GastroPlus, and updated licensing. Current improvements in development and testing include new capabilities to simulatein vitro dissolution experiments for long-acting injectable microspheres as part of our work under the FDA-funded grant mentioned above.20Version 6.0 of DDDPlus is in final development testing and will offer a series of new capabilities, including:·simulation of thein vitro dissolution of long-acting injectable dosage forms·simulation of thein vitro dissolution of controlled release bead formulations·improved simulation of transfer assay experiments·ability to fit models from precipitation experiments·new dissolution apparatus models·improved output reportingMembranePlus™MembranePlus was released in October 2014. Similar to DDDPlus, MembranePlus simulates laboratory experiments, but in this case, the experiments are for measuring permeability of drug-like molecules through various membranes, including several different standard cell cultures (Caco-2, MDCK), as well as artificially formulated membranes (PAMPA). The value of such simulations derives from the fact that when the permeabilities of the same molecules are measured in different laboratories using (supposedly) the same experimental conditions, the results are often significantly different. These differences are caused by a complex interplay of factors in how the experiment was set up and run. MembranePlus simulates these experiments with their specific experimental details, and this enables scientists to better interpret how results from specific experimental protocols can be used to predict permeability in human and animals, which is the ultimate goal.Version 2.0 of MembranePlus is in final development testing. This version will add:·simulation of sandwich hepatocyte assays·simulation of suspended hepatocyte assays·intracellular protein binding·integration of ADMET Predictor metabolism predictions·improved output reportingPKPlus™On August 25, 2016, we announced the release of a new standalone software product called PKPlus, based on the internal PKPlus Module in GastroPlus that has been available since 2000. The PKPlus Module in GastroPlus provides quick and easy fitting of compartmental pharmacokinetic (PK) models as well as a simple noncompartmental analysis (NCA) for intravenous and extravascular (oral, dermal, ocular, pulmonary, etc.) doses; however, the PKPlus Module in GastroPlus was not designed to meet all of the requirements for performing these analyses for Phase 2 and 3 clinical trials, nor to produce report-quality output for regulatory submissions. The new standalone PKPlus program has been developed to provide the full level of functionality needed by pharmaceutical industry scientists to perform the analyses and generate the outputs needed to fully satisfy regulatory agency requirements for both more complex NCA as well as compartmental PK modeling. After receiving considerable feedback on version 1.0, we began modifying the program to include a number of additional features requested by our users and potential users and expect to release the next version early in 2018. We believe the potential number of eventual users for PKPlus is in the thousands world-wide and that it has the potential to eventually become one of our leading revenue producers.We are now in final development testing and documentation of PKPlus version 2.0, which has incorporated a wide variety of requested features from current users as well as evaluators of version 1.0, including:·21 CFR Part 11 compliance for audit trail and validation·nonparametric superstition for analysis of multiple-dose pharmacokinetics21·ability to edit input data prior to incorporating it into a project·ability to save templates for various types of analyses to reduce the time required when working with new datasets·new statistics graphical outputs·command line capability for rapid validation after installation on customers’ computer systems and for batch processingADMET Predictor™ADMET (Absorption, Distribution, Metabolism, Excretion, and Toxicity) Predictor is a chemistry-based computer program that takes molecular structures (i.e., drawings of molecules represented in various formats) as inputs and predicts approximately 150 different properties for them at an average rate of over 100,000 compounds per hour on a modern laptop computer. This capability allows chemists to generate estimates for a large number of important molecular properties without the need to synthesize and test the molecules, as well as to generate estimates of unknown properties for molecules that have been synthesized, but for which only a limited number of experimental properties have been measured. Thus, a chemist can assess the likely success of a large number of existing molecules in a company’s chemical library, as well as molecules that have never been made, by providing only their molecular structures, either by drawing them using a tool such as our MedChem Designer software, or by automatically generating large numbers of molecules using various computer algorithms, including those embedded in our MedChem Studio software.ADMET Predictor has enjoyed top-ranked for predictive accuracy in multiple peer-reviewed, independent comparison studies for many years, while generating its results at a high throughput rate. Although the state of the art of this type of software does not enable identifying the best molecule in a series, it does allow early screening of molecules that are highly likely to fail as potential drug candidates (i.e., the worst molecules, which is usually the majority of a chemical library) before synthesizing and testing them. Thus, millions of virtual compounds can be created and screened in a day, compared to potentially months or years of work to actually synthesize and test a much smaller number of actual compounds.ADMET Predictor version 8.0 was released on August 1, 2016. This version featured a completely redesigned and modernized interface as well as a number of new capabilities to enhance the performance and user-friendliness of the program. In addition, we integrated a number of MedChem Studio features into version 8.0, and created a tighter integration between the two programs when a MedChem Studio license is obtained along with an ADMET Predictor license.The optional ADMET Modeler Module™ in ADMET Predictor enables scientists to use their own experimental data to quickly create proprietary high-quality predictive models using the same powerful machine-learning methods we use to build our top-ranked property predictions. Pharmaceutical companies expend substantial time and money conducting a wide variety of experiments on new molecules each year, generating large databases of experimental data. Using this proprietary data to build predictive models can provide a second return on their investment; however, model building has traditionally been a difficult and tedious activity performed by specialists. The automation in ADMET Modeler makes it easy for a scientist to create very powerful models with minimal training.We released version 8.1 of ADMET Predictor in January 2017. This release included:·both 64-bit and 32-bit executables, making it possible to handle larger data sets·optimization of spreadsheet and model-building functions to improve efficiency·streamlined and much more efficient model-building in ADMET Modeler using our proprietary machine-learning engine·combinatorial substituent and scaffold replacement operations in the MedChem Studio™ Module·newin silico Ames tests to produce reliable confidence predictions that are more broadly applicable·ADMET Risk™ scores accessible graphically in histogramsThe recent release of version 8.5 in November 2017 added:·a new Simulation Module to predict absorption and bioavailability for libraries of molecules from their structure·ability to optimize doses to achieve desired steady-state concentrations·new property models for rat fraction unbound in plasma, blood/plasma concentration ratio, and metabolism by certain enzymes22·all MedChem Studio™ features now available through the same graphical user interface as ADMET Predictor·new synthetic difficulty model·improved visualization·multithreading and other speed enhancementsPotential new markets for machine learningWe are currently investigating applications of our sophisticated machine-learning engine outside of our normal pharmaceutical markets. To date, we have conducted several proof-of-concept studies including: (1) building predictive models for missile aerodynamic force and moment coefficients as a function of missile geometry, Mach number, and angle of attack, (2) classifying/identifying missiles and other objects from radar tracking data, (3) mapping jet engine compressor performance to predict when maintenance might be required, and (4) classifying patients as healthy or experiencing some disease state or genetic disorder evidenced by magnetic resonance imaging (MRI) of the brain. Other potential applications for this modeling engine have also been identified; however, our focus to date has been primarily in these areas.We believe our proprietary machine-learning software engine has a wide variety of potential applications and we intend to pursue funding to develop customized tools to further monetize our investment in this technology by expanding our markets beyond the life sciences and chemistry. In addition, we are examining a variety of expanded capabilities to add to the basic modeling engine to accommodate even larger data sets (“big data analytics”) and new applications.MedChem Designer™MedChem Designer was launched in 2011. It was initially a molecule-drawing program, or “sketcher”, but now has capabilities exceeding those of other molecule-drawing programs because of its integration with both MedChem Studio and ADMET Predictor. We provide MedChem Designer for free because we believe that in the long run it will help to increase demand for ADMET Predictor and MedChem Studio, and because most other existing molecule-drawing programs are also provided for free. Our free version includes a small set of ADMET Predictor’s best-in-class property predictions, allowing the chemist to modify molecular structures and then see a few key properties very quickly. With a paid ADMET Predictor license, the chemist would see the entire approximately 150 predictions that are available. Over 23,000 copies of MedChem Designer have been downloaded by scientists around the world to date.When used with a license for ADMET Predictor, MedChem Designer becomes ade novo molecule design tool. With it, a researcher can draw one or more molecular structures, then click on the ADMET Predictor icon and have approximately 150 properties for each structure calculated in seconds, including our proprietary ADMET Risk index. Researchers can also click on an icon to generate the likely metabolites of a molecule and then predict all of the properties of those metabolites from ADMET Predictor, including each of their ADMET Risk scores. This is important because a metabolite of a molecule can be therapeutically beneficial (or harmful) even though the parent molecule is not.Our proprietary ADMET Risk score provides a single number that tells the chemist how many default threshold values for various predicted properties were crossed (or violated) by each structure. Thus, in a single number, the chemist can instantly compare the effects of different structural changes in many dimensions. The ideal score is zero; however, a low score greater than zero might be acceptable, depending on what property(s) caused the points to be assigned. If the number is too high (greater than 5 or 6), the molecule is not likely to be successful as a drug. The default rules can be modified and new rules can be added by the user to include any desired rule set based on any combination of calculated descriptors, predicted properties, and user inputs. As chemists attempt to modify structures to improve one property, they often cause others to become unacceptable. Without ADMET Risk, the chemist would have to individually examine many key properties for each new molecule (and its metabolites) to determine whether any of them became unacceptable as a result of changing the structure.MedChem Studio™MedChem Studio has been integrated into the ADMET Predictor platform, but can still be licensed separately without requiring a license for ADMET Predictor. MedChem Studio is a powerful software tool that is used both for data mining and forde novo design of new molecules. In its data-mining role, MedChem Studio facilitates searching large chemical libraries to find molecules that contain identified substructures, and it enables rapid identification of clusters (classes) of molecules that share common substructures. We have now merged MedChem Studio with ADMET Predictor so that either program can be entered through the same interface, and the communication between the two programs is enhanced through the seamless integration of both technologies. We believe this will enhance the attractiveness of both ADMET Predictor and MedChem Studio to medicinal and computational chemists.23While MedChem Designer can be used to refine a small number of molecules, MedChem Studio can be used to create and screen (with ADMET Predictor) very large numbers of molecules down to a few promising lead candidates. MedChem Studio has features that enable it to generate new molecular structures using a variety ofde novo design methods. When MedChem Studio is used with ADMET Predictor and MedChem Designer (the combination of which we refer to as our ADMET Design Suite), we believe the programs provide an unmatched capability for chemists to search through large libraries of compounds that have undergone high-throughput screening experiments to find the most promising classes (groups of molecules with a large common part of their structures) and molecules that are active against a particular target. In addition, MedChem Studio can take an interesting (but not acceptable) molecule and, using a variety of design algorithms, quickly generate many thousands to millions of high quality analogs (similar new molecules). These molecules can then be screened using ADMET Predictor to find molecules that are predicted to be both active against the target and acceptable in a variety of ADMET properties. We demonstrated the power of the ADMET Design Suite during two NCE (new chemical entity) projects wherein we designed lead molecules to inhibit the growth of theplasmodium falciparum malaria parasite in one study, and lead molecules that were able to inhibit two targets at the same time: COX-1 and COX-2. In each case, we announced ahead of time that we were attempting to do this, and we reported the results when the projects were complete. Every molecule we designed and had synthesized hit their targets in both projects, clearly demonstrating the power of the ADMET Design Suite.KIWI™Drug development programs rely increasingly on modeling and simulation analyses to support decision-making and submissions to regulatory agencies. To ensure high-quality analyses, organizations must not only apply high-quality science, but must also be able to support the science by being able to validate the results. KIWI is a cloud-based web application that was developed to efficiently organize, process, maintain, and communicate the volume of data and results generated by pharmacologists and scientists over the duration of a drug development program. The validated workflow and tools within KIWI promote traceability and reproducibility of results.The pharmaceutical industry has been rapidly adopting cloud technology as a solution to ever-expanding computer processing needs. Leveraging our 20-plus years of experience in providing an architecture supporting modeling and simulation efforts, we have developed KIWI as a secure, validated, enterprise-scale environment, enabling global teams to collaborate on model-based decision making. KIWI has proven to be a valuable platform for encouraging interdisciplinary discussions about the model development process and interpretation of results. We continue to receive positive feedback about the functionality implemented in KIWI and the value of the approach we have taken to harness cloud technology. We continue to improve functionality and collaboration within the KIWI platform, and we expect the licensing fee will be a source of recurring revenue for further development and growth. KIWI Version 1.3 was released in May 2015. This version of KIWI provides our user community with access to new features that accelerate completion of modeling projects by decreasing run times and facilitating the comparison and exporting of results across models. These features include dynamic comparisons of model parameter estimates and diagnostic plots, export of model run records for regulatory submissions, and accelerated infrastructure with the upgrade to the latest versions of NONMEM® and Perl-speaks-NONMEM running in a 64-bit Linux environment.KIWI Version 1.6 was released in September 2016. This new version introduced major enhancements in the functionality of visualization tools offered by the platform. These enhancements include simplifying the creation of plots and comparing them across multiple models, thus accelerating the model refinement process. In addition, analysts can now conveniently copy visualization preferences across projects, improving consistency and facilitating collaboration and communication with clients and colleagues.KIWI 2 was released in December 2017. This latest version introduces a repository within the KIWI Cloud service to facilitate the management and organization of data and documents used and produced to support the modeling and simulation analyses used, in part, to submit new drug applications. The user interface provides a pre-defined directory as a default that can be customized, allows file version control, and provides a comprehensive roles and permissions structure to enhance collaboration among a community of users. As part of this initiative an enhanced authentication framework foundation was included to provide the ability for clients to customize authentication rules according to their internal regulatory policies and procedures. In addition, since it can take hundreds of models to create one final model, an automated diagnostics dashboard has been added that visually displays the results of over 10 diagnostics that are used by modelers to decide what direction to take their modeling with the potential to significantly reduce the amount of time it takes to arrive at a final model.We continue enhancing KIWI as part of our five-year, almost-$5 million contract with a leading global research foundation.24DILIsymThe DILIsym software is a quantitative systems pharmacology (QSP) program that has been in development since 2011. QSP software models are based on the fundamental understanding of complex biological pathways, disease processes, and drug mechanisms of action, integrating information from experiments and forming hypotheses for the next experimental model. DILIsym deals with the propensity for some drug molecules to induce temporary or permanent changes in biological functions within liver cells (hepatocytes) that can result in damage to the liver. Some drugs cause temporary changes in liver function but the body soon compensates and liver function returns to normal. Other drugs cause liver function to permanently decline as they continue to be taken. The DILIsym software models a variety of interactions within the hepatocytes to determine whether a particular drug molecule interrupts normal signaling pathways in a manner to induce injury to the cells.NAFLDsymWhere DILIsym is used to investigate the likelihood that a known drug molecule would cause injury to the liver, NAFLDsym is concerned with a liver that is already diseased by excess fat and investigates the likelihood that various molecules might provide beneficial therapeutic benefits to treat or cure the disease. DILIsym can be considered a “shrink wrap” software product, usable across many companies and drug development projects. NAFLDsym, on the other hand, requires modification for each of a number of different mechanisms of action that potential new drug compounds could use to treat the disease, and so is a customized tool used in consulting projects for each new client project.Contract Research and Consulting ServicesOur scientists and engineers have expertise in drug absorption via various dosing routes (oral, intravenous, subcutaneous, intramuscular, ocular, nasal/pulmonary, and dermal), pharmacokinetics, and pharmacodynamics. They have attended over 200 scientific meetings worldwide in the past four years, often speaking and presenting. We frequently conduct contracted consulting studies for large customers (including the five largest pharmaceutical companies) who have particularly difficult problems and who recognize our expertise in solving them, as well as for smaller customers who prefer to have studies run by our scientists rather than to license our software and train someone to use it. The demand for our consulting services has been steadily increasing, and we have expanded our consulting teams to meet the increased workload.We continue working on a five-year consulting agreement with a major research foundation to implement a platform for coordinating the data generated by global teams engaged in model-based drug development.We currently are working with the FDA on two Research Collaboration Agreements (RCAs): the funded efforts for long-acting injectable microspheres and the unfunded IVIVC effort, both described above under “GastroPlus”. We also successfully completed the third year of our funded collaboration for ocular dosing just after the end of FY2017.Pharmacometric ModelingWe have a reputation for high-quality analyses and regulatory reporting of data collected during preclinical experiments as well as clinical trials of new and existing pharmaceutical products, typically working on 30-40 drug projects per year. Traditionally, the model-based analysis of clinical trial data was different from the modeling analysis offered by GastroPlus; the former relied more on statistical and semi-mechanistic models, whereas the latter is based on very detailed mechanistic models. Statistical models rely on direct observation and mathematical equations that are used to fit data collected across multiple studies along with describing the variability within and between patients. Mechanistic models are based on a detailed understanding of the human body and the chemistry of the drug and involve mathematical and scientific representation of the phenomena involved in drug dissolution/precipitation, absorption, distribution, metabolism, and elimination. Collectively, the models guide drug formulation design and dose selection. Beginning in 2014, the U.S. F.D.A and other regulatory agencies began to emphasize the need to push mechanistic PBPK modeling and simulation into clinical pharmacology, and we have seen the benefit of having our clinical pharmacology team in the Cognigen division and our scientists in our Lancaster, California (Simulations Plus) division working together to achieve this goal.PRODUCT DEVELOPMENTDevelopment of our software is focused on expanding product lines, designing enhancements to our core technologies, and integrating existing and new products into our principal software architecture and platform technologies. We intend to continue to offer regular updates to our products and to continue to look for opportunities to expand our existing suite of products and services.25To date, we have developed products internally, sometimes also licensing or acquiring products, or portions of products, from third parties. These arrangements sometimes require that we pay royalties to third parties. We intend to continue to license or otherwise acquire technology or products from third parties when it makes business sense to do so. We currently have one license agreement, with BIOVIA (formerly known as Accelrys, Inc.), a San Diego division of Dassault Systemes in France, pursuant to which a small royalty is paid to BIOVIA from revenues on each license for the Metabolite module in ADMET Predictor. This license agreement continues in perpetuity and either party has the right to terminate it.In 1997 we entered into an exclusive software licensing agreement with TSRL, Inc. (aka Therapeutic Systems Research Laboratories) (TSRL), pursuant to which TSRL licensed certain software technology and databases to us, and we paid royalties to TSRL. On May 15, 2014, we and TSRL entered into a termination and nonassertion agreement pursuant to which the parties agreed to terminate the 1997 exclusive software licensing agreement. As a result, the Company obtained a perpetual right to use certain source code and data, and TSRL relinquished any rights and claims to any GastroPlus products and to any claims to royalties or other payments under that agreement, and we agreed to pay TSRL total consideration of $6,000,000. All payments have now been made as of April 2017. Our payment obligation is being amortized at a constant rate of $150,000 per quarter until it is completely amortized, after which no further expense will be incurred. To date, this has resulted in expense savings over $950,000 compared to the royalty payments that would have been paid to TSRL if paid consistent with past practices.MARKETING AND DISTRIBUTIONWe distribute our products and offer our services in North America, South America, Europe, Japan, Australia, New Zealand, India, Singapore, Taiwan, and the People’s Republic of China.We market our pharmaceutical software and consulting services through attendance and presentations at scientific meetings, exhibits at trade shows, seminars at pharmaceutical companies and government agencies, through our website, and using various communication channels to our database of prospects and customers. At various scientific meetings around the world each year there are numerous presentations and posters presented in which the reported research was performed using our software. Many of these presentations are from industry and FDA scientists; some are from our staff. In addition, more than 50 peer-reviewed scientific journal articles, posters, and podium presentations are typically published each year using our software, mostly by our customers, further supporting its use in a wide range of preclinical and clinical studies.Our sales and marketing efforts are handled primarily internally with our scientific team and several senior management staff assisting our marketing and sales staff with trade shows, seminars, and customer trainings both online and on-site. We believe that this is more effective than a completely separate sales team for several reasons: (1) customers appreciate talking directly with software developers and consulting scientists who can answer a wide range of in-depth technical questions about methods and features; (2) our scientists and engineers gain an appreciation for the customer’s environment and problems; and (3) we believe the relationships we build through scientist-to-scientist contact are stronger than relationships built through salesperson-to-scientist contacts. We also have one independent distributor in Japan and two independent representatives in China who also sell and market our products with support from our scientists and engineers.We provide support to the GastroPlus User Group in Japan, which was organized by Japanese researchers in 2009. In early 2013, a group of scientists in Europe and North America organized another GastroPlus User Group following the example set in Japan. Nearly 1,000 members have joined this group to date. We support this group through coordination of online meetings each month and managing the user group web site for exchange of information among members. These user groups provide us valuable feedback with respect to desired new features and suggested interface changes.PRODUCTIONOur pharmaceutical software products are designed and developed by our development teams in California (Lancaster, Guerneville, San Jose, and San Diego), North Carolina (Research Triangle Park), and New York (Buffalo). In addition, our Chief Executive Officer works primarily from Auburn, Alabama. Our products and services are now delivered electronically – we no longer provide CD-ROMs and printed manuals or reports.26COMPETITIONIn our pharmaceutical software and services business, we compete against a number of established companies that provide screening, testing and research services, and products that are not based on simulation software. There are also software companies whose products do not compete directly with, but are sometimes closely related to, ours. Our competitors in this field include some companies with financial, personnel, research, and marketing resources that are larger than ours. Our management believes there is currently no significant competitive threat to GastroPlus; however, in spite of a high barrier to entry, one could be developed over time. Our new PKPlus software product will compete with one major and a few minor software programs; however, the capabilities and design features of PKPlus, along with more affordable licensing, are expected to generate significant interest. MedChem Studio, MedChem Designer, and ADMET Predictor/ADMET Modeler operate in a more competitive environment. Several other companies presently offer simulation or modeling software, or simulation-software-based services, to the pharmaceutical industry. We believe DILIsym and NAFLDsym enjoy a unique market position, with no significant competition.Major pharmaceutical companies conduct drug discovery and development efforts through their internal development staffs and through outsourcing. Smaller companies generally need to outsource a greater percentage of this research. Thus, we compete not only with other software suppliers, but also with the in-house development teams at some of the larger pharmaceutical companies.Although competitive products exist, both new licenses and license renewals for GastroPlus have continued to grow. We believe that we enjoy a dominant market share in this segment. We believe our ADMET Predictor/ADMET Modeler, MedChem Studio, MedChem Designer, DDDPlus, MembranePlus, PKPlus, KIWI, DILIsym, and NAFLDsym software offerings are each unique in their combination of capabilities and we intend to continue to market them aggressively.We believe the key factors in our ability to successfully compete in this field are our ability to: (1) continue to invest in research and development, and develop and support industry-leading simulation and modeling software and related products and services to effectively predict activities and ADMET-related behaviors of new drug-like compounds, (2) design new molecules with acceptable activity and ADMET properties, (3) develop and maintain a proprietary database of results of physical experiments that serve as a basis for simulated studies and empirical models, (4) attract and retain a highly skilled scientific and engineering team, (5) aggressively our products and services to our global market, and (6) develop and maintain relationships with research and development departments of pharmaceutical companies, universities, and government agencies.In addition, we actively seek strategic acquisitions to expand the pharmaceutical software and services business and to explore opportunities in aerospace and general healthcare.STRATEGYOur business strategy is to do the things we need to do to promote growth both organically (i.e., by expanding our current products and services through in-house efforts) and by acquisition. We believe in the “Built to Last” approach - that the fundamental science and technologies that underlie our business units are the keys both to improving our existing products and to expanding the product line with new products that meet our various customers’ needs. We believe the continued growth of our pharmaceutical software and services business segment is the result of steadily increasing adoption of simulation and modeling software tools across the pharmaceutical industry, as well as the world-class expertise we offer as consultants to assist companies involved in the research and development of new medicines. We have received a continuing series of study contracts with pharmaceutical companies ranging from several of the largest in the world to a number of medium-sized and smaller companies in the U.S. and Europe.On July 23, 2014, we signed a merger agreement with Cognigen Corporation of Buffalo, New York. The merger closed on September 2, 2014, and Cognigen became our wholly owned subsidiary. We believe the combination of Simulations Plus and Cognigen provides substantial future potential based on the complementary strengths of each of the companies.In June 2017, Simulation Plus acquired DILIsym Services, Inc. (DILIsym) as a wholly owned subsidiary pursuant to a stock purchase agreement dated May 1, 2017. On June 1, 2017, the Company consummated the acquisition of all outstanding equity interests of DILIsym pursuant to the terms of the Stock Agreement, with DILIsym becoming a wholly owned subsidiary of the Company. We believe the combination of Simulations Plus and DILIsym provides substantial future potential based on the complementary strengths of each of the companies. The acquisition of DILIsym positions the Company as the leading provider of Drug Induced Liver Injury (DILI) modeling and simulations software and contract research services.In addition to the DILIsym® software for analysis of potential drug-induced liver injury, DILIsym Services, Inc. also has developed a simulation program for analyzing nonalcoholic fatty liver disease (NAFLD) called NAFLDsym™.27It is our intent to continue to search for acquisition opportunities that are compatible with our current businesses and that are accretive, i.e., adding to both revenues and earnings.In the fiscal year ended August 31, 2017 we distributed $0.20 per share in dividends to our shareholders. In November 2017, we distributed a quarterly dividend of $0.06 per share. We anticipate future dividends to be $0.06 per share per quarter; however, there can be no assurances that such dividends will be distributed, or if so, whether the amounts will be more, less, or the same as expected. The Board of Directors must approve each quarterly dividend distribution and may decide to increase, decrease, or eliminate dividend distributions at any time.Comparison of Three Months Ended November 30, 20172023 and 2016.The following table sets forth our condensed statements of operations (in thousands) and the percentages that such items bear to net sales (because of rounding, numbers may not foot): Three Months Ended 11/30/17 11/30/16 Net revenues $ 7,069 100.0% $ 5,418 100.0% Cost of revenues 1,736 24.6 1,336 24.7 Gross profit 5,333 75.4 4,082 75.3 Selling, general and administrative 2,409 34.1 1,864 34.4 Research and development 361 5.1 290 5.4 Total operating expenses 2,769 39.2 2,154 39.8 Income from operations 2,564 36.3 1,928 35.6 Other income (47 ) (0.7 ) 39 0.7 Income from operations before taxes 2,517 35.6 1,967 36.3 (Provision for) income taxes (801 ) (11.3 ) (606 ) (11.2 ) Net income $ 1,716 24.3% $ 1,361 25.1% Net 2022(in thousands) Three Months Ended November 30, % of Revenue 2023 2022 2023 2022 $ Change % Change Revenue $ 14,500 $ 11,964 100 % 100 % $ 2,536 21 % Cost of revenue 4,652 2,671 32 % 22 % 1,981 74 % Gross profit 9,848 9,293 68 % 78 % 555 6 % Research and development 1,217 1,166 8 % 10 % 51 4 % Selling and marketing 1,989 1,485 14 % 12 % 504 34 % General and administrative 5,682 5,764 39 % 48 % (82) (1) % Total operating expenses 8,888 8,415 61 % 70 % 473 6 % Income from operations 960 878 7 % 7 % 82 9 % Other income, net 1,446 740 10 % 6 % 706 95 % Income before income taxes 2,406 1,618 17 % 14 % 788 49 % Provision for income taxes (461) (373) 3 % 3 % (88) 24 % Net income $ 1,945 $ 1,245 13 % 10 % $ 700 56 % RevenuesConsolidated net revenuesRevenues increased by 30.5% or $1.65 million to $7.07 million in the first fiscal quarter of Fiscal Year 2018 (“1QFY18”) from $5.42 million in the first fiscal quarter of Fiscal Year 2017 (“1QFY17”). Changes by division are as follows:·Lancaster: $346,000 increase, representing a 9.4% increase to $4.04 million·Buffalo (Cognigen): $190,000 increase, representing an 11.1% increase to $1.91 million·North Carolina (DILIsym): recorded revenues of $1.11 million. (Acquired June 1, 2017, they were not a part of the prior year numbers)Consolidated software and software-related sales increased $342,000 or 10.0%, while consolidated consulting and analytical study revenues increased $1.31$2.5 million, or 65.3% over 1QFY17.Cost of RevenuesConsolidated costrevenuesCost of revenues increased by $400,000,$2.0 million, or 29.9%74%, for the three months ended November 30, 2023, compared to the three months ended November 30, 2022. The increase is primarily due to an increase of $1.9 million, or 105%, in 1QFY18 to $1.74service-related cost of revenue, driven by $1.2 million from $1.34 million in 1QFY17. Labor-related cost accounted for $262,000the reorganization of this increase, a combination of increased labor count, salary increases, and bonuses at our subsidiariesinternal structure from divisions based on prior acquisitions to business units organized around key product and service offerings and $0.4 million from the acquisition of Immunetrics, which contributed to our services headcount. The new business unit structure is designed to optimize the utilization of our scientific talent in support of our revenue growth objectives.Gross profitGross profit increased earnings. Includedby $0.6 million, or 6%, to $9.8 million for the three months ended November 30, 2023, compared to $9.3 million, for the three months ended November 30, 2022. The increase in gross profit is primarily due to an increase in gross profit for our software business of $1.4 million, or 27%, reflecting the increase was $139,000strong revenue growth and operating leverage of salary expense at DILIsym. Other significant increasesour software business, partially offset by a decrease in costgross profit for our services business of revenues included $97,000$0.9 million, or 21%, reflecting the reorganization of direct contract expenses paid for testing at DILIsym, and approximately $119,000 of increased training related expensesour internal structure as well as an additional $79,000 of amortization expense associated with acquired technologies associated with DILIsym’s drug-induced liver injury technologies.Cost of Revenues as a percentage of revenue remained fairly constant decreasing by 0.1% in 1QFY18 to 24.6% as compared to 24.7% in 1QFY17.Gross ProfitConsolidated gross margin increased $1.25 million or 30.7%, to $5.33 million in 1QFY18 from $4.08 million in 1QFY17. $318,000 of this increase isservices headcount from the California division, which showed an 82.4% gross margin. The Buffalo Division Gross margins increased $139,000 or 13.0% with margins of 63.1%, and DILIsym of North Carolina showed $794,000, a 71.2% margin.Overall gross margin remained fairly constant increasing by 0.1% to 75.4% in 1QFY18 from 75.3.9% in 1QFY17.
percentage was 68% and 78% for the three months ended November 30, 2023 and 2022, respectively.28Selling, General and Administrative ExpensesSelling, general, and administrative (SG&A) expenses increased $545,000, or 29.2% to $2.41 million in 1QFY18 from $1.86 million in 1QFY17. As a percent of revenues, SG&A was 34.1% for 1QFY18, compared to 29.2% in 1QFY17.The major increases in SG&A expense were:oMarket expenses: $91,000 related to trade show and conference attendanceoContract labor: $94,000 made up of outsources services and increased director compensation program costsoG&A Salaries and Wages increased by $151,000; this increase is a combination of increased stock compensation costs of $47,000, salaries of $72,000 at DILIsym during the last fiscal quarter after acquisition, annual salary increases and increased head count in Lancaster and BuffalooInsurance Expense $66,000; mostly health-related medical costs due to cost increased and higher employee counts, of which $34,000 was associated with DILIsymoPayroll tax expense increased $44,000, the effect of higher salary expense of which $22,000 was DILIsymoAmortization expense increased $53,000 due to new acquisition amortization for DILIsym intangiblesThe major decreases in SG&A expense were:oLegal expenses decreased $52,000 due to a reduction in document reviewDevelopmentTotal research and development cost increased $343,000 in 1QFY18 compared to 1QFY17. In 1QFY18 weWe incurred approximately $868,000$2.1 million of research and development costs ofduring the three months ended November 30, 2023. Of this amount, $507,000$0.9 million was capitalized as a part of capitalized software development costs and $361,000$1.2 million was expensed. In 1QFY17 weWe incurred approximately $525,000$2.1 million of research and development costs ofduring the three months ended November 30, 2022. Of this amount, $235,000$0.9 million was capitalized and $290,000$1.2 million was expensed.Selling and marketing expensesSelling and marketing expenses increased by $0.5 million, or 34%, to $2.0 million for the three months ended November 30, 2023, compared to $1.5 million for the three months ended November 30, 2022. The increase was primarily due to higher marketing spend of $0.3 million, an increase in stock compensation of $0.1 million, and an increase of $0.1 million in sales commissions due to higher sales.General, and administrative expensesGeneral, and administrative (“G&A”) expenses remained relatively consistent with a slight decrease of $0.1 million, or 1%, to $5.7 million for the three months ended November 30, 2023, compared to $5.8 million for the three months ended November 30, 2022.Other income (expense)OtherTotal other income was an expense of $47,000$1.4 million for the three months ended November 30, 2023, compared to total other income of $39,000$0.7 million for the three months ended November 30, 2022. The increase is primarily due to an increase in 1QFY17,interest income of $0.5 million driven by an increase in interest rates as well as a decrease in the fair value of $86,000. Foreign currency exchange accounted for $47,000, the change mainly duecontingent consideration of $0.1 million related to the yen strengthening in relation to the US dollar. An additional $38,000 of imputed interest expense associated with acquisition-related liabilities was the other major change.Provision for Income TaxesThe provision for income taxes was $801,000$0.5 million for 1QFY18the three months ended November 30, 2023, compared to $606,000$0.4 million for 1QFY17.the three months ended November 30, 2022. Our effective tax rate increased 1.0%decreased to 31.8% in 1QFY1819% mainly due to disqualifying dispositions of incentive stock options for the three months ended November 30, 2023, when compared to 23% for the three months ended November 30, 2022.Results of Operations by Business UnitComparison of Three Months Ended November 30, 2023 and 2022Revenues(in thousands) Three Months Ended November 30, 2023 2022 Change ($) Change (%) Software $ 7,589 $ 6,074 $ 1,515 25 % Services 6,911 5,890 1,021 17 % Total $ 14,500 $ 11,964 $ 2,536 21 % Cost of Revenues(in thousands) Three Months Ended November 30, 2023 2022 Change ($) Change (%) Software $ 991 $ 885 $ 106 12 % Services 3,661 1,786 1,875 105 % Total $ 4,652 $ 2,671 $ 1,981 74 % Gross Profit(in thousands) Three Months Ended November 30, 2023 2022 Change ($) Change (%) Software $ 6,598 $ 5,189 $ 1,409 27 % Services 3,250 4,104 (854) (21) % Total $ 9,848 $ 9,293 $ 555 6 % Software BusinessFor the three months ended November 30, 2023, the revenue increase of $1.5 million, or 25%, compared to the three months ended November 30, 2022, was primarily due to higher revenue from 30.8% in 1QFY17. The increase is a resultGastroPlus® of fewer tax deductions for stock based compensation in 1QFY18.Net IncomeNet income$0.9 million and higher revenue from $354,000,$0.1 million, or 26.0%12%, during the same periods, and gross profit increased by $1.4 million, or 27%, for the three months ended November 30, 2023, compared to the three months ended November 30, 2022.Services BusinessFor the three months ended November 30, 2023, the revenue increase of $1.0 million, or 17%, compared to the three months ended November 30, 2022, was primarily due to higher revenues from QSP services of $1.1 million driven by the addition of Immunetrics services revenue, and an increase in 1QFY18 to $1.72revenues from CPP services of $0.3 million, partially offset by a decrease in revenues from PBPK services of $0.2 million. Cost of revenues increased by $1.9 million, or 105%, driven by $1.2 million from $1.36the reorganization of our internal structure from divisions based on prior acquisitions to business units organized around key product and service offerings and $0.4 million from the acquisition of Immunetrics, which contributed to our services headcount. The new business unit structure is designed to optimize the utilization of our scientific talent in 1QFY17. Net earnings fromsupport of our Lancaster division were up $33,000revenue growth objectives. Gross profit decreased accordingly by $0.9 million, or 3.1% to $1.11 million in 1QFY18. Net earnings21%, for our Buffalo division were up $49,000 or 17.7% to $281,000 in 1QFY18. DILIsym (No. Carolina) net earnings were $272,000 for 1QFY17.Liquidity and Capital ResourcesAs of November 30, 2023, the Company had $39.8 million in cash and cash equivalents, $74.1 million in short-term investments, and working capital of $121.1 million. Our principal sources of capital have been a follow-on public offering in August 2020 for $107.7 million and cash flows from our operations. We have achieved continuous positive operating cash flow over the last tenfourteen fiscal years.On December 29, 2022, our Board of Directors authorized and approved a share repurchase program for up to $50 million of the outstanding shares of our common stock, including the repurchase of up to $20 million of our outstanding shares through an accelerated share repurchase transaction. Under the repurchase program, shares may be repurchased at our discretion based on ongoing assessment of the capital needs of our business, the market price of shares of our common stock, and general market conditions. Repurchases may be made pursuant to certain SEC regulations, which permit common shares to be repurchased when we would otherwise be prohibited from doing so under insider-trading laws. There is no time limit in place for the completion of our share repurchase program, and the program may be suspended or discontinued at any time. Except as was required by the ASR Agreement (as defined below), we are not obligated to repurchase any shares under the repurchase program. We have funded share repurchases to date, and will fund future repurchases, if any, through cash on hand and cash generated from operations.On January 11, 2023, the Company entered into an accelerated share repurchase agreement (the “ASR Agreement”) with Morgan Stanley & Co. LLC (“Morgan Stanley”) to repurchase an aggregate of $20 million of our outstanding shares of common stock. The ASR Agreement was executed as part of our existing $50 million share repurchase program. Pursuant to the terms of the ASR Agreement, we made an initial payment, using available cash balances, of $20 million to Morgan Stanley and received an initial delivery of 408,685 shares of Company common stock from Morgan Stanley. These 408,685 shares were retired and are treated as authorized, unissued shares. At final settlement on May 20, 2023, based on the volume-weighted average price of our common stock during the term of the ASR Agreement, Morgan Stanley delivered an additional 83,356 shares of Company common stock to us, which shares were also retired and treated as authorized, unissued shares. After completion of the repurchases under the ASR Agreement, $30 million remains available for additional repurchases under our authorized repurchase program.On June 16, 2023, the Company acquired Immunetrics through a reverse triangular merger, pursuant to which Immunetrics became a wholly owned subsidiary of the Company. As consideration for the acquisition, at closing, the Company paid the equity holders of Immunetrics a cash payment in the aggregate amount of approximately $13.7 million, and also paid the representative of the Immunetrics stockholders $250,000 as an expense fund to cover expenses that it incurs in its role as such (collectively, the “Closing Payments”). In addition to the Closing Payments, the Company held back $1.8 million to cover any negative working capital adjustments and Immunetrics’ indemnification obligations under the Merger Agreement (the “Holdback Amount”), the balance of which, less any deductions, if any, will be distributed to the Immunetrics stockholders after expiration of the applicable hold back period. Furthermore, the Company agreed to pay the Immunetrics equity holders an aggregate amount of up to $8.0 million in earnout payments, consisting of two payouts of up to $4.0 million each, if Immunetrics achieves certain revenue milestones for the calendar years 2023 and 2024 (the “Earnout Payments,” and together with the Closing Payments and Holdback Amount, the “Merger Consideration”). Pursuant to the agreement, we have up to 60 days after December 31, 2023 to calculate and notify the Immunetrics stockholder representative of the amount of the first earnout payment, if any, payable for year one under the Agreement, after which the Immunetrics stockholder representative will have up to 25 days to provide any objections to our earnout calculations. We will have five business days from the earlier of (i) the date that the Immunetrics stockholder representative confirms agreement with our calculations and (ii) 25 days from the date we notify the Immunetrics stockholder representative of the calculated amount of the first earnout payment, provided that we do not receive any objections or confirmation of our calculations from the Immunetrics stockholder representative prior to expiration of the period. We have not yet determined the final amount, if any, we will be required to pay under the first earnout payment; however, we intend to do so within the period provided under the agreement.We believe that our existing capital and anticipated funds from operations will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for the foreseeable future.future, including to complete the remaining $30 million of repurchases available under our $50 million share repurchase program, if we so choose. Thereafter, if cash generated from operations is insufficient to satisfy our capital requirements, we may open a revolving line of credit with a bank, or we may have to sell additional equity or debt securities or obtain expanded credit facilities.securities. In the event suchthat additional financing is needed in the future, there can be no assurance that such financing will be available to us, or, if available, that it will be in amounts and on terms acceptable to us.We continue to seek opportunities for strategic acquisitions, investments, and partnerships. If one or more such strategic opportunities are identified, a substantial portion of our cash reserves may be required to complete it; however, we intend to maintain sufficient cash reserves to provide reasonable assurance that outside financing will not be necessary to continue operations. If we identify an attractive strategic opportunity that would require more cash to complete than we are willing or able to use from our cash reserves, we will consider financing options to complete the transaction, including obtaining loans and issuing additional securities.Except as discussed elsewhere in this Quarterly Report on Form 10-Q (this “Report”), we are not aware of any trends or demands, commitments, events, or uncertainties that are reasonably likely to result in a decrease in liquidity of our assets. The trend over the last ten years has been increasing cash deposits from our operating cash flows, from operations became insufficientand we expect that trend to continue operationsfor the foreseeable future.Cash FlowsOperating ActivitiesNet cash provided by operating activities was $0.2 million for the three months ended November 30, 2023. Our operating cash flows resulted in part from our net income of $1.9 million, which was generated by cash received from our customers, offset by cash payments we made to third parties for their services and employee compensation. In addition, $3.3 million related to changes in balances of operating assets and liabilities was subtracted from net income and $1.5 million related to non-cash charges was added to net income to reconcile to cash flow from operations.Net cash provided by operating activities was $4.7 million for the three months ended November 30, 2022. Our operating cash flows resulted primarily from our net income of $1.2 million, which was generated by cash received from our customers, offset by cash payments we made to third parties for their services and employee compensation. In addition, $1.5 million related to changes in balances of operating assets and liabilities was added to net income and $1.9 million related to noncash charges was added to net income to reconcile to cash flow from operations.Net cash provided by operating activities decreased by $4.5 million during the three months ended November 30, 2023 compared to the three months ended November 30, 2022. $2.2 million of this change relates to accounts receivable, as the Company experienced strong cash collections from customers on older balances during the three months ended November 30, 2022. $0.8 million of this change relates to the Company's bonus payments, which increased during the three months ended November 30, 2023 due to growth in headcount and annual pay increases. $0.6 million of this change relates to the timing of our bi-weekly payroll such that 9 additional days were accrued for during the three months ended November 30, 2023.Investing ActivitiesNet cash used in investing activities during the three months ended November 30, 2023, was $16.9 million, primarily due to the purchase of short-term investments of $30.5 million and computer software development costs of $0.9 million, offset by proceeds from maturities of short-term investments of $14.8 million.Net cash used in investing activities during the three months ended November 30, 2022, was $6.4 million, primarily due to the purchase of short-term investments of $29.5 million and computer software development costs of $0.9 million, offset by proceeds from maturities of short-term investments of $24.1 million.Financing ActivitiesNet cash used in financing activities during the three months ended November 30, 2023, was $1.0 million, primarily due to dividend payments totaling $1.2 million, partially offset by proceeds from the exercise of stock options totaling $0.2 million.Net cash used in financing activities during the three months ended November 30, 2022, was $0.5 million, primarily due to payments on contracts payable of $0.8 million related to the Lixoft acquisition, and dividend payments totaling $1.2 million.DividendsRefer to Note 5 – Shareholders’ Equity of the Notes to Financial Statements (Part II, Item 8 of this Report) for details regarding dividends.Known Trends or UncertaintiesWe have seen some consolidation in the pharmaceutical industry during economic downturns, although these consolidations have not had a negative effect on our total revenues. Should customer delays, holds, program cancellations, or consolidations and downsizing in the industry continue to occur, those events could adversely impact our revenues and earnings going forward.We believe that the need for improved productivity in the research and development activities directed toward developing new medicines will continue to result in increasing adoption of simulation and modeling tools and consulting services such as those we provide. New product developments in our pharmaceutical business segments could result in increased revenues and earnings if they are accepted by our markets; however, there can be no assurances that new products will result in significant improvements to revenues or earnings. For competitive reasons, we do not disclose all of our new product development activities.The world has been affected by the ongoing conflict between Russia and Ukraine, the conflict between Israel and Hamas, other geopolitical instability, and general economic uncertainty, amongst other things. Inflation has risen, Federal Reserve interest rates have increased, and the general consensus among economists suggests that we should expect a recession risk to continue for the near future. These factors, amongst other things, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations.Historically, we have paid cash dividends of $0.06 per share to holders of shares of our common stock on a quarterly basis. The declaration of any future dividends will be determined by our Board of Directors each quarter and will depend on earnings, financial condition, capital requirements, and other factors.Our continued quest for strategic acquisitions could result in a significant change to revenues and earnings if one or more such acquisitions are completed.The potential for growth in new markets (e.g., healthcare) is uncertain. We will continue to explore these opportunities until such time as we either generate revenues in these new markets or determine that resources would be more efficiently used elsewhere.Contractual ObligationsThe following table provides aggregate information regarding our contractual obligations as of November 30, 2023:(in thousands) Payments due by period Contractual obligations: Total 1 year 2–3 years 4–5 years More than 5 years Contracts payable(1)$ 6,470 $ 2,290 $ 4,180 $ — $ — (1) Contracts payable are related to our Merger Agreement that the Company entered into with Immunetrics on June 16, 2023. Under the terms of the agreement, we agreed to pay the former stockholders of Immunetrics earnout payments up to an $8.0 million, consisting of two payouts of up to $4.0 million each, subject to a potential catch-up increase in certain circumstances. Additionally, a portion of the consideration, in an amount equal to $1.8 million, which was held-back by the Company at closing to cover any negative net working capital adjustments (if any) and Immunetrics’ indemnification obligations under the Merger Agreement.Critical Accounting EstimatesEstimatesOur financial statements and accompanying notes are prepared in accordance with GAAP. 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 software development costs, valuation of stock options, and accounting for income taxes.Revenue RecognitionWe generate revenue primarily from the sale of software licenses and providing consulting services to the pharmaceutical industry for drug development.The Company determines revenue recognition through the following steps:i.Identification of the contract, or contracts, with a customerii.Identification of the performance obligations in the contractiii.Determination of the transaction priceiv.Allocation of the transaction price to the performance obligations in the contractv.Recognition of revenue when, or as, the Company satisfies a performance obligationThe Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. Contracts generally have fixed pricing terms and are not subject to variable pricing. The Company considers the nature and significance of each specific performance obligation under a contract when allocating the proceeds under each contract. Accounting for contracts includes significant judgement in the estimation of estimated hours/cost to be incurred on consulting contracts, and the di minimis nature of the post-sales costs associated with software sales.Capitalized Computer Software Development CostsSoftware 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 computer 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 the Company’s software products. Total capitalized computer software development costs were $0.9 million and $0.9 million for the three months ending November 30, 2023 and 2022, respectively.Amortization of capitalized computer 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 $0.4 million and $0.4 million for the fiscal three months ending November 30, 2023, and 2022, 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.Intangible Assets and GoodwillThe 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 name, 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 under-performance relative to expected historical or projected future results of operations.Goodwill is tested for impairment at the currentreporting unit level, and if no additional financing was obtained, then management would restructurewhich is one level below or the same as an operating segment. As of November 30, 2023, after completion of the Company's internal reorganization, the Company determined that it had five reporting units: CPP, QSP, PBPK, Cheminformatics, and Regulatory Strategies.As of November 30, 2023, the entire balance of goodwill was attributed to two of the Company's reporting units, CPP and QSP. 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. No impairment losses were recorded during the three months ended November 30, 2023 and 2022, respectively.Business AcquisitionsThe Company accounted for the acquisitions of Cognigen, DILIsym, Lixoft, and Immunetrics using the acquisition method of accounting where the assets acquired and liabilities assumed are recognized based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of certain acquired assets and liabilities is subjective in a waynature and often involves the use of significant estimates and assumptions, including, but not limited to, preserve its pharmaceutical business while maintainingthe selection of appropriate valuation methodology, projected revenue, expenses, within operatingand cash flows.
flows, weighted-average cost of capital, discount rates, and estimates of terminal values. Business acquisitions are included in the Company's condensed consolidated financial statements as of the date of the acquisition.29Research and Development CostsResearch and development costs are charged to expense as incurred until technological feasibility has been established, or when the costs are for maintenance and minor modification of existing software products that do not add significant new capabilities to the products. 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 TaxesThe Company accounts for income taxes in accordance with ASC 740-10, “Income Taxes”, which requires the recognition of deferred tax assets and liabilities for 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.Stock-Based CompensationThe Company accounts for stock options in accordance with ASC 718-10, “Compensation-Stock Compensation”. Under this method, compensation costs include the estimated grant-date fair value of awards amortized over the options’ vesting period. Stock-based compensation costs, not including shares issued to directors for services, was $1.3 million and $0.9 million for the three months ended November 30, 2023 and 2022, respectively.Item 3.Quantitative and Qualitative Disclosures about Market RiskAs of November 30, 2017 and August 31, 2017, we had cash and cash equivalents of $7.05 million and $6.22 million, respectively. We do not hold any investments that are exposed2023, there has been no material change in our exposure to market risk related to changesfrom that described in interest rates, which could adversely affect the valueItem 7A of our assets and liabilities, and we do not hold any instruments for trading purposes and investment. SomeAnnual Report.Item 4.Controls and ProceduresOur management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of November 30, 2017.2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designedwell-designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, management concluded as of November 30, 2017,2023 that our disclosure controls and procedures were effective.Changes in Internal Control OverControls over Financial ReportingNo change in the Company’sour internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) occurred during the Company’sour most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.30Item 1. Legal ProceedingsFor a party to any legal proceedings and are not awaredescription of anyour material pending legal proceedings, please see Note 4, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1 of any kind. Item 1A.Risk FactorsItem 1A. Risk FactorsPlease carefully consider the information set forth in this Quarterly Report on Form 10-Q and the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2017,2023, which could materially affect our business, financial condition, or future results. The risks described in our Annual Report, on Form 10-K, as well as other risks and uncertainties, could materially and adversely affect our business, results of operations, and financial condition, which in turn could materially and adversely affect the trading price of shares of our Common Stock. Additionalcommon stock. There have been no material updates or changes to the risk factors previously disclosed in our Annual Report; however, additional risks not currently known or currently material to us may also harm our business.Item 2. Unregistered Sales of Equity Securities and Use of ProceedsUnregistered Sales of Equity SecuritiesDuring the quarter ended November 30, 2023, there were no unregistered sales of our securities that were not reported in a Current Report on Form 8-K.Issuer Purchases of Equity SecuritiesAs discussed elsewhere in this Quarterly Report on Form 10-Q, on December 29, 2022, our Board of Directors authorized and approved a share repurchase program for up to $50 million of the outstanding shares of our common stock, and on January 11, 2023, we entered into the ASR Agreement with Morgan Stanley to repurchase an aggregate of $20 million of our outstanding shares of common stock as part of the share repurchase program, which was settled in full in May 2023. The program has no expiration date but may be terminated at any time at our Board of Directors’ discretion.In January 2023, we received an initial delivery of an aggregate of 408,685 shares of our common stock from Morgan Stanley pursuant to the ASR Agreement, in exchange for which we made an initial payment of $20 million to Morgan Stanley. These 408,685 shares were retired and are treated as authorized, unissued shares. At final settlement on May 20, 2023, based on the volume-weighted average price of our common stock during the term of the ASR Agreement, Morgan Stanley delivered an additional 83,356 shares of Company common stock to us, which shares were also retired and treated as authorized, unissued shares.After completion of the repurchases under the ASR Agreement, $30 million remains available for additional repurchases under our authorized repurchase program.We did not repurchase any shares or other equity securities of the Company during the three months ended November 30, 2023.Item 3. Defaults Upon Senior SecuritiesNone.Item 4. Mine Safety DisclosuresNot applicable.Item 5. Other InformationRule 10b5-1 Trading PlansDuring the three months ended November 30, 2023, none of our directors or officers entered into, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” that were intended to satisfy the affirmative defense conditions of Rule 10b5-1, in each case as defined in Item 408 of Regulation S-K.Item 6. ExhibitsItem 2.Changes in SecuritiesNone.Item 3.Defaults Upon Senior SecuritiesNone.Item 4.Mine Safety DisclosuresN/AItem 5.Other InformationN/A31Item 6.ExhibitsEXHIBIT NUMBERDESCRIPTION2.1 (4)^EXHIBIT NUMBERDESCRIPTION 2.1^ 3.1 (2)2.2^Articles of Incorporation of the Company.3.2 (2)Amended and Restated Bylaws of the Company.4.1 (1)Form of Common Stock Certificate.4.2 (1)Share Exchange Agreement.10.1 (1) (†)The Company’s 1996 Stock Option Plan and forms of agreements relating thereto.10.2 (3) (†)The Company’s 2007 Stock Option Plan, as amended.10.3 (10)Second Amendment to Lease by and between the Company and Crest Development LLC, dated as of May 1, 2016.10.4 (5) (†)Employment Agreement by and between the Company and Walter S. Woltosz, dated as of August 8, 2016.10.5 (6)Form of Indemnification Agreement.10.6 (8)2017 Equity Incentive Plan.10.7 (7)10.8 (9)(†)2.3^2.4^ 3.1 10.9 (9) (†)3.210.10 (9) (†)3.331.14.1Section 302 – CertificationForm of the Principal Executive Officer*31.2Section 302 – Certification of the Principal Financial Officer*32.1Section 906 – Certification of the Chief Executive Office and Chief Financial Officer**101.INSXBRL Instance Document.101.SCHXBRL Taxonomy Extension Schema Document.101.CALXBRL Taxonomy Extension Calculation Linkbase Document.101.DEFXBRL Taxonomy Extension Definition Linkbase Document.101.LABXBRL Taxonomy Extension Label Linkbase Document.101.PREXBRL Taxonomy Extension Presentation Linkbase Document.________________________^Schedules and exhibits omitted pursuant to Item 601(b)(2) of Registration S-K. The registrant agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request.†Those exhibits marked with a (†) refer to management contracts or compensatory plans or arrangements*Filed herewith**Furnished herewith(1)IncorporatedCommon Stock Certificate, incorporated by reference to the Company’s Registration Statement on Form SB-2 (Registration No. 333-6680) filed on March 25, 1997.(2)4.2IncorporatedShare Exchange Agreement, incorporated by reference to an exhibitthe Company’s Registration Statement on Form SB-2 (Registration No. 333-6680) filed March 25, 1997.10.1(†) 10.2(†) 10.3(†) 10.4(†) 10.5(†) 31.1 * 31.2 * 32.1 ** 101.INS*** Inline XBRL Instance Document 101.SCH*** Inline XBRL Taxonomy Extension Schema Document 101.CAL*** Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF*** Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB*** Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE*** Inline XBRL Taxonomy Extension Presentation Linkbase Document 104*** Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101 attachments). _____________________________* Filed herewith. ** Furnished herewith. *** The XBRL related information in Exhibit 101 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Company’s Form 10-K for the fiscal year ended August 31, 2010.Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.(3)(†)Incorporated by referenceRefers to an exhibit to the Company’s Form 10-Q filed April 9, 2014.(4)Incorporated by reference to an exhibit to the Company’s Form 8-K/A filed November 18, 2014.(5)Incorporated by reference to an exhibit to the Company’s Form 8-K filed August 11, 2016.(6)Incorporated by reference to an exhibit to the Company’s Form 8-K filed August 10, 2016.(7)Incorporated by reference to an exhibit to the Company’s Form 10-Q filed July 10, 2017.(8)Incorporated by reference to Appendix A to the Company’s Schedule 14A filed December 29. 2016.(9)Incorporated by reference to an exhibit to the Company’s Form 8-K filed September 6, 2017.(10)Incorporated by reference to an exhibit to the Company’s Form 10-K for the fiscal year ended August 31, 2016.32management contracts or compensatory plans or arrangements. SIGNATUREIn accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lancaster, State of California, on January 9, 2018.5, 2024Simulations Plus, Inc.SIMULATIONS PLUS, INC. Date: January 9, 20185, 2024By: /s/ John R Kneisel Will FrederickJohn R. KneiselWill Fredrick
Chief Financial Officer33 (Principal financial officer) and Chief Operating Officer