SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM ~~10-Q/A~~

~~(Amendment No.1)~~10-Q

	☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Security Exchange Act of 1934 for the quarterly period ended ~~May 31,~~November 30, 2020

OR

	☐	Transmission Report Pursuant to Section 13 or 15(d) of the Security Exchange Act of 1937 for the transition period from ______ to ______

Commission file number: 001-32046

Simulations Plus, Inc.

(Name of registrant as specified in its charter)

California	95-4595609
(State or other jurisdiction of Incorporation or Organization)	(I.R.S. Employer identification No.)

42505 10^th10th Street West

Lancaster, CA93534-7059

(Address of principal executive offices including zip code)

(661)723-7723

(Registrant’s telephone number, including area code)

~~Securities registered pursuant to Section~~SECURITIES REGISTERED PURSUANT TO SECTION 12(b) ~~of the Act:~~OF THE ACT:

Title of ~~each class~~

~~Trading Symbol(s)~~

~~Name of each exchange on which registered~~

Each Class

Common Stock, par value $0.001 per share

Trading Symbol

SLP

~~The~~

Name of Each Exchange on Which Registered

NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a ~~non-accelerated~~nonaccelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

☐ Large accelerated filer	☒☐ Accelerated filer
☐ ☒ Non-accelerated ~~filer (Do not check if a smaller reporting company)~~ Filer	☒ Smaller reporting company
☐ Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of ~~July 22, 2020~~January 5, 2021 was ~~17,820,057,~~19,964,659; no shares of preferred stock were outstanding.

~~EXPLANATORY NOTE~~

This Form 10-Q/A (Amendment No. 1) (the “Amendment”) is being filed solely to correct a clerical error in the Quarterly Report on Form 10-Q for the quarter ended May 31, 2020, initially filed with the Securities and Exchange Commission on July 9, 2020 (the “Original Filing”).

We have determined that in Item 3 of Part I, “Quantitative and Qualitative Disclosures about Market Risk” we reported as follows: In the three and nine months ended May 31, 2020 and 2019, we sold $1,453,000 and $1,402,000 and $3,273,000 and $3,800,000, respectively, of software through representatives in certain Asian markets in local currencies. The reported amounts for those nine-month periods were switched and the nine month sales ended May 31, 2020 and 2019 should have been reported as $3,800,000 and $3,273,000, respectively. In addition, cash and cash equivalents as of August 31, 2019 was reported as $11.40 million and was actually $11.44 million. Despite being minor grammatical errors in the narrative, we felt it necessary to correct the clerical errors to avoid confusion over this disclosure.

In addition, we have determined that in Item 1 of Part I, “Condensed Consolidated Statements of Cash Flows” the presentation of the Statement of Cash Flows for the comparative historical period ended May 31, 2019 mistakenly included certain numbers from the period ended February 28, 2019, rather than the period ended May 31, 2019. The overall financial impact of this clerical error showed for the nine months 2019 cash generated of $3,381,958 when in fact the cash generated in that prior year period was $907,424.

In connection with the filing of this Amendment and pursuant to the rules of the Securities and Exchange Commission, we are including with this Amendment new certifications by our principal executive and principal financial officer as required by Rule 12b-15.

Except for the correction described above, this Amendment does not modify, amend or update in any way any other item or disclosure in the Original Filing. The Original Filing continues to speak as of the date of the Original Filing and we have not updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the filing of the Original Filing other than as expressly indicated in this Amendment. Accordingly, this Amendment should be read in conjunction with the Original Filing.

Simulations Plus, Inc.

FORM ~~10-Q/A~~10-Q

For the Quarterly Period Ended ~~May 31,~~November 30, 2020

Table of Contents

PART I. FINANCIAL INFORMATION
		Page
Item 1.	Condensed Consolidated Financial Statements	3

	Condensed Consolidated Balance Sheets at ~~May 31,~~November 30, 2020 ~~(unaudited)~~ and August 31, ~~2019 (audited)~~2020	3

	Condensed Consolidated Statements of Operations ~~and Comprehensive Income~~ for the three months ~~and nine months~~ ended ~~May 31,~~November 30, 2020 and ~~May 31,~~ 2019 ~~(unaudited)~~	4

	Condensed Consolidated Statements of Shareholders’ Equity for the ~~nine~~three months ended ~~May 31,~~November 30, 2020 and ~~the year ended August 31,~~ 2019 ~~(unaudited)~~	5

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~May 31,~~November 30, 2020 and ~~May 31,~~ 2019 ~~(unaudited)~~	6

	Notes to Condensed Consolidated Financial Statements ~~(unaudited)~~	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Result of Operations	25

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2231

Item 4.	Controls and Procedures	32

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3.	Defaults upon Senior Securities	33

Item 4.	Mine Safety Disclosures	33

Item 5.	Other Information	33

Item 6.	Exhibits	34

	Signatures
~~PART II. OTHER INFORMATION~~

~~Item 6.~~	~~Exhibits~~	23

~~Signature~~		2435

~~Part I. FINANCIAL INFORMATION~~

~~Item 1.~~

~~Condensed Consolidated Financial Statements~~

~~SIMULATIONS PLUS, INC.~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

(Unaudited) (Audited)
May 31 August 31,
2020 2019
ASSETS
Current assets
Cash and cash equivalents $ 7,354,496 $ 11,435,499
Accounts receivable, net of allowance for doubtful accounts of $25,000 and $0 10,853,452 5,026,558
Revenues in excess of billings 2,838,072 3,233,659
Prepaid income taxes 392,099 765,110
Prepaid expenses and other current assets 745,468 704,316
Total current assets 22,183,587 21,165,142

Long-term assets
Capitalized computer software development costs,
net of accumulated amortization of $13,293,943 and $12,356,055 5,754,971 4,959,736
Property and equipment, net (note 4) 356,784 341,145
Operating lease right of use asset 1,019,408 –
Intellectual property, net of accumulated amortization of $4,729,270 and $3,948,750 12,275,730 5,026,249
Other intangible assets net of accumulated amortization of $1,503,481 and $1,210,000 7,146,519 3,280,000
Goodwill 12,792,171 10,387,198
Other assets 49,957 37,227
Total assets $ 61,579,127 $ 45,196,697

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 663,337 $ 204,075
Accrued payroll and other expenses 2,137,383 1,639,038
Current portion - Contracts payable (note 5) 3,761,028 1,761,028
Billings in excess of revenues 269,232 798,549
Operating lease liability, current portion 525,454 –
Deferred revenue 428,611 380,787
Total current liabilities 7,785,045 4,783,477

Long-term liabilities
Deferred income taxes, net 2,775,398 2,731,616
Operating Lease Liability 489,463 –
Payments due under Contracts payable (note 5) 3,942,333 –
Total liabilities 14,992,239 7,515,093

Commitments and contingencies (note 6)

Shareholders' equity (note 7)
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 17,788,498 and 17,591,834 shares issued and outstanding 7,791 7,595
Additional paid-in capital 20,231,443 15,319,474
Accumulated Other Comprehensive Income (Loss) 30,460 –
Retained earnings 26,317,194 22,354,535
Total shareholders' equity $ 46,586,888 $ 37,681,604
Total liabilities and shareholders' equity $ 61,579,127 $ 45,196,697

~~The accompanying notes are an integral part of these financial statements.~~

~~SIMULATIONS PLUS, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME~~

~~For the three and nine months ended May 31, 2020 and May 31, 2019~~

Three months ended Nine months ended
(Unaudited) (Unaudited)
2020 2019 2020 2019
Revenues $ 12,298,036 $ 9,936,921 $ 32,049,003 $ 25,944,545
Cost of revenues 2,665,405 2,324,188 7,974,702 6,734,890
Gross margin 9,632,630 7,612,733 24,074,301 19,209,655
Operating expenses
Selling, general, and administrative 5,023,132 3,087,445 12,646,512 8,613,788
Research and development 752,719 643,255 2,026,684 1,896,926
Total operating expenses 5,775,851 3,730,700 14,673,197 10,510,714

Income from operations 3,856,779 3,882,033 9,401,104 8,698,941

Other income (expense)
Interest income 4,465 11,050 27,814 20,296
Interest expense – (32,702 ) – (109,078 )
Change in value of contingent consideration (81,000 ) – (81,000 ) –
(Loss) income on currency exchange (602 ) (7,941 ) 1,283 (40,467 )
Total other income (expense) (77,137 ) (29,593 ) (51,902 ) (129,249 )

Income before provision for income taxes 3,779,642 3,852,440 9,349,202 8,569,692
Provision for income taxes (844,073 ) (963,734 ) (2,205,276 ) (2,045,590 )
Net Income $ 2,935,569 $ 2,888,706 $ 7,143,925 $ 6,524,102

Earnings per share
Basic $ 0.17 $ 0.16 $ 0.40 $ 0.37
Diluted $ 0.16 $ 0.16 $ 0.39 $ 0.36

Weighted-average common shares outstanding
Basic 17,735,354 17,519,849 17,661,189 17,472,922
Diluted 18,426,872 18,096,195 18,333,596 18,008,336

Other Comprehensive Income (Loss), net of tax
Foreign currency translation adjustments 30,460 – 30,460 –
Comprehensive Income (Loss) $ 2,966,029 $ 2,888,706 $ 7,174,385 $ 6,524,102

~~The accompanying notes are an integral part of these financial statements.~~

Part I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

SIMULATIONS PLUS, INC.

CONDENSED CONSOLIDATED ~~STATEMENTS OF SHAREHOLDERS' EQUITY~~BALANCE SHEETS

~~For the nine months ended May 31, 2020 and the year ended August 31, 2019~~

~~(UNAUDITED)~~

Common Stock
Additional
Paid-In

Accumulated Other
Comprehensive
Retained
Shares Amount Capital Income Earnings Total

Balance, August 31, 2018 17,416,445 $ 7,417 $ 13,453,668 $ – $ 18,461,540 $ 31,922,625

Exercise of stock options 41,103 42 357,410 – – 357,452
Stock-based Compensation – – 200,029 – – 200,029
Shares issued to Directors for services 2,222 2 44,904 – – 44,906
Adjustment for 606 – – – – (493,279 ) (493,279 )
Declaration of Dividend – – – – (1,045,073 ) (1,045,073 )
Net income – – – – 1,535,947 1,535,947
Balance, November 30, 2018 17,459,770 7,461 14,056,011 – 18,459,135 32,522,607

Exercise of stock options 37,680 38 121,912 – – 121,950
Stock-based Compensation – – 208,715 – – 208,715
Shares issued to Directors for services 2,508 4 48,954 – – 48,958
Declaration of Dividend – – – – (1,048,887 ) (1,048,887 )
Net income – – – – 2,099,449 2,099,449
Balance, February 28, 2019 17,499,958 7,503 14,435,592 – 19,509,697 33,952,792

Exercise of stock options 25,849 26 103,747 – – 103,773
Stock-based Compensation – – 224,654 – – 224,654
Shares issued to Directors for services 2,176 2 49,023 – – 49,025
Declaration of Dividend – – – – (1,050,914 ) (1,050,914 )
Net income – – – – 2,888,706 2,888,706
Balance, May 31, 2019 17,527,983 7,531 14,813,016 – 21,347,489 36,168,036

Exercise of stock options 62,071 62 204,910 – – 204,972
Stock-based Compensation – – 232,450 – – 232,450
Shares issued to Directors for services 1,780 2 69,098 – – 69,100
Declaration of Dividend – – – – (1,052,181 ) (1,052,181 )
Net income – – – – 2,059,227 2,059,227
Balance, August 31, 2019 17,591,834 $ 7,595 $ 15,319,474 $ – $ 22,354,535 $ 37,681,604


	(Unaudited)		(Audited)
	November 30,		August 31,
(in thousands, except share and per share amounts)	2020		2020
ASSETS
Current assets
Cash and cash equivalents	$	27,651	$	49,207
Accounts receivable, net of allowance for doubtful accounts of $50 and $50		7,331		7,422
Revenues in excess of billings		2,837		3,093
Prepaid income taxes		560		970
Prepaid expenses and other current assets		1,738		1,596
Short-term investments		91,115		66,804
Total current assets		131,232		129,092
Long-term assets
Capitalized computer software development costs, net of accumulated amortization of $13,906 and $13,582		6,490		6,087
Property and equipment, net		596		438
Operating lease right of use assets		768		927
Intellectual property, net of accumulated amortization of $5,444 and $5,087		11,541		11,898
Other intangible assets, net of accumulated amortization of $1,779 and $1,642		6,871		7,008
Goodwill		12,921		12,921
Other assets		51		51
Total assets	$	170,470	$	168,422

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	332	$	351
Accrued payroll and other expenses		2,300		2,251
Current portion - contracts payable		2,000		2,000
Billings in excess of revenues		206		141
Operating lease liability, current portion		395		463
Deferred revenue		244		300
Total current liabilities		5,477		5,506

Long-term liabilities
Deferred income taxes, net		2,401		2,354
Operating lease liability		376		463
Payments due under contracts payable		4,185		4,064
Total liabilities		12,439		12,387

Commitments and contingencies

Shareholders' equity
Preferred stock, $0.001 par value 10,000,000 shares authorized, 0 shares issued and outstanding		0		0
Common stock, $0.001 par value and additional paid in capital –50,000,000 shares authorized, 19,958,760 and 19,923,277 shares issued and outstanding		129,253		128,541
Retained earnings		28,720		27,436
Accumulated other comprehensive income		58		58
Total shareholders' equity		158,031		156,035
Total liabilities and shareholders' equity	$	170,470	$	168,422

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

SIMULATIONS PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~SHAREHOLDERS' EQUITY~~OPERATIONS

~~For the nine months ended May 31, 2020 and the year ended August 31, 2019~~

~~(UNAUDITED) (continued)~~(Unaudited)

Common Stock
Additional
Paid-In

Accumulated Other
Comprehensive
Retained
Shares Amount Capital Income Earnings Total
Balance, August 31, 2019 17,591,834 $ 7,595 $ 15,319,474 $ – $ 22,354,535 $ 37,681,604

Exercise of stock options 29,445 29 135,529 – – 135,558
Stock-based Compensation – – 294,704 – – 294,704
Shares issued to Directors for services 2,045 2 72,411 – – 72,413
Declaration of Dividend – – – – (1,056,379 ) (1,056,379 )
Net income – – – – 2,058,277 2,058,277
Balance November 30, 2019 17,623,324 7,626 15,822,118 – 23,356,433 39,186,177

Exercise of stock options 22,915 23 167,168 – – 167,191
Stock-based Compensation – – 344,928 – – 344,928
Shares issued to Directors for services 2,225 2 72,488 – – 72,490
Declaration of Dividend – – – – (1,058,740 ) (1,058,740 )
Net income – – – – 2,150,080 2,150,080
Balance February 29, 2020 17,648,464 7,651 16,406,702 – 24,447,773 40,862,126

Exercise of stock options 26,447 26 204,581 – – 204,607
Stock-based Compensation – – 287,115 – – 287,115
Shares issued to Directors for services 1,905 2 72,483 – – 72,485
Declaration of Dividend – – – – (1,066,148 ) (1,066,148 )
Shares issued - Lixoft 111,682 112 3,260,562 – – 3,260,674
Foreign Currency Translation Adjustments – – – 30,460 – 30,460
Net income – – – – 2,935,569 2,935,569
Balance May 31, 2020 17,788,498 $ 7,791 $ 20,231,443 $ 30,460 $ 26,317,194 $ 46,586,888


	Three Months Ended November 30,
(in thousands, except per common share amounts)	2020			2019

Revenues	$	10,701		$	9,401
Cost of revenues		2,433			2,643
Gross margin		8,268			6,758
Operating expenses
Selling, general, and administrative		4,408			3,514
Research and development		809			526
Total operating expenses		5,217			4,040

Income from operations		3,051			2,718

Other income (expense)
Interest income		61			11
Change in valuation of contingent consideration		(121	)		0
Income on currency exchange		5			4
Total other income (expense)		(55	)		15

Income before provision for income taxes		2,996			2,733
Provision for income taxes		(517	)		(675	)
Net Income	$	2,479		$	2,058

Earnings per share
Basic	$	0.12		$	0.12
Diluted	$	0.12		$	0.11

Weighted-average common shares outstanding
Basic		19,930			17,609
Diluted		20,799			18,307

The accompanying notes are an integral part of these ~~financial statements.~~Condensed Consolidated Financial Statements.

SIMULATIONS PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~SHAREHOLDERS' EQUITY

~~For the nine months ended May 31, 2020 and May 31, 2019~~

~~(UNAUDITED)~~(Unaudited)

2020 2019
Cash flows from operating activities
Net income $ 7,143,925 $ 6,524,102
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 2,133,676 2,070,583
Change in value of contingent consideration 81,000 109,061
Stock-based compensation 1,144,135 776,287
Deferred income taxes 43,782 (248,526 )
(Increase) decrease in
Accounts receivable (5,268,565 ) (2,220,795 )
Revenues in excess of billings 395,587 (695,192 )
Prepaid income taxes 553,462 312,593
Prepaid expenses and other assets 7,445 76,667
Increase (decrease) in
Accounts payable 324,427 (142,520 )
Accrued payroll and other expenses 26,653 257,026
Billings in excess of revenues (529,317 ) 114,369
Accrued income taxes – 434,886
Deferred revenue 47,824 145,406
Net cash provided by operating activities 6,104,034 7,513,947

Cash flows used in investing activities
Purchases of property and equipment (105,784 ) (75,861 )
Purchases of intellectual property – (50,000 )
Cash used to acquire subsidiaries (9,471,352 ) –
Cash received in acquisition 3,799,134 –
Capitalized computer software development costs (1,733,124 ) (1,362,329 )
Net cash used in investing activities (7,511,126 ) (1,488,190 )

Cash flows used in financing activities
Payment of dividends (3,181,267 ) (3,144,864 )
Payments on Contracts Payable – (2,556,644 )
Proceeds from the exercise of stock options 507,356 583,175
Net cash used in financing activities (2,673,911 ) (5,118,333 )

Net increase (decrease) in cash and cash equivalents (4,081,003 ) 907,424
Cash and cash equivalents, beginning of year 11,435,499 9,400,701
Cash and cash equivalents, end of period $ 7,354,496 $ 10,308,125

Supplemental disclosures of cash flow information
Income taxes paid $ 1,613,868 $ 1,503,740

Non-Cash Investing and Financing Activities
Stock issued for acquisition of Lixoft $ 3,260,674 $ –
Creation of contract liabilities for acquisition of subsidiaries $ 4,528,000 $ –
Non-Cash Investing and Financing Activities
Right of use assets capitalized $ 1,470,656 $ –


	Three months Ended November 30,
(in thousands, except per common share amounts)	2020			2019

Common stock and additional paid in capital
Balance, beginning of period	$	128,541		$	15,327
Exercise of stock options		180			136
Stock-based compensation		449			295
Shares issued to Directors for services		83			72
Balance, end of period	$	129,253		$	15,830

Retained earnings
Balance, beginning of period	$	27,436		$	22,355
Declaration of dividend		(1,195	)		(1,056	)
Net income		2,479			2,058
Balance, end of period	$	28,720		$	23,357

Accumulated other comprehensive income
Balance, beginning of period	$	58		$	–
Other comprehensive income		–			–
Balance, end of period	$	58		$	–
Balance, beginning of period		156,035			–
Other comprehensive income		–
Total shareholders’ equity	$	158,031		$	39,187
Common dividends declared per common share	$	0.06		$	0.06

The accompanying notes are an integral part of these ~~financial statements.~~Condensed Consolidated Financial Statements.

~~Simulations Plus, Inc.~~SIMULATIONS PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended November 30,
(in thousands)	2020			2019
Cash flows from operating activities
Net income	$	2,479		$	2,058
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		865			671
Change in value of contingent consideration		121			0
Amortization of note premiums		630			0
Stock-based compensation		532			367
Deferred income taxes		47			(28	)
(Increase) decrease in
Accounts receivable		91			(1,327	)
Revenues in excess of billings		256			(247	)
Prepaid income taxes		410			678
Prepaid expenses and other assets		(141	)		143
Increase (decrease) in
Accounts payable		(15	)		381
Accrued payroll and other expenses		49			(44	)
Billings in excess of revenues		65			91
Deferred revenue		(56	)		(109	)
Net cash provided by operating activities		5,333			2,634

Cash flows used in investing activities
Purchases of property and equipment		(205	)		(32	)
Purchases of short-term investments		(30,959	)		0
Proceeds from sale of short-term investments		6,018			0
Capitalized computer software development costs		(728	)		(507	)
Net cash used in investing activities		(25,874	)		(539	)

Cash flows used in financing activities
Payment of dividends		(1,195	)		(1,056	)
Proceeds from the exercise of stock options		180			136
Net cash used in financing activities		(1,015	)		(920	)

Net increase (decrease) in cash and cash equivalents		(21,556	)		1,175
Cash and cash equivalents, beginning of year		49,207			11,435
Cash and cash equivalents, end of period	$	27,651		$	12,610

Supplemental disclosures of cash flow information
Income taxes paid	$	57		$	25

Non-Cash Investing and Financing Activities
Right of use assets capitalized	$	0		$	903

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

SIMULATIONS PLUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~May 31, 2019~~

(Unaudited)

NOTE 1: GENERAL

This report on Form ~~10-Q/A~~10-Q for the quarter ended ~~May 31,~~November 30, 2020, should be read in conjunction with the Company's annual report on Form 10-K for the year ended August 31, ~~2019,~~2020, filed with the Securities and Exchange Commission (“SEC”) on November ~~13, 2019.~~16, 2020. As contemplated by the SEC under Article 8 of Regulation S-X, the accompanying consolidated financial statements and footnotes have been condensed and therefore do not contain all disclosures required by generally accepted accounting principles. The interim financial data are unaudited; however, in the opinion of Simulations Plus, Inc. ("we", "our", "us"), the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. Results for interim periods are not necessarily indicative of those to be expected for the full year.

Organization

Simulations Plus, Inc. (“Simulations Plus”, “Lancaster”) was incorporated on July 17, 1996. OnIn September 2, 2014, Simulations Plus ~~Inc.~~ acquired all of the outstanding equity interests of Cognigen Corporation (“Cognigen”, “Buffalo”) and Cognigen became a wholly owned subsidiary of Simulations Plus, Inc. In June 2017, Simulations Plus ~~Inc.,~~ 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. Onsubsidiary. In April 1, 2020, Simulations Plus, Inc. acquired Lixoft, a French société par actions simplifiée (“Lixoft”, “Paris”) as a ~~wholly-owned~~wholly owned subsidiary pursuant to a stock purchase and contribution ~~agreement dated March 21, 2020.~~agreement. (Collectively, “Company”, “we”, “us”, “our”).

Lines of Business

The Company designs and develops pharmaceutical simulation software to promote cost-effective solutions to a number of problems in pharmaceutical research and in the education of pharmacy and medical students, and it provides consulting services to the pharmaceutical and chemical industries. Recently, the Company has begun to explore developing software applications for ~~defense and for~~ health care outside of the pharmaceutical industry.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Simulations Plus, Inc. and ~~as of September 2, 2014,~~ its wholly owned ~~subsidiary, Cognigen Corporation, as of June 1, 2017, the accounts of DILIsym Services, Inc., and as of April 1, 2020, Lixoft accounts.~~subsidiaries. All significant intercompany accounts and transactions ~~are~~have been eliminated inupon consolidation.

Use of Estimates

Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Actual results could differ from those estimates. Significant accounting policies for us include revenue recognition, accounting for capitalized computer software development costs, valuation of stock options, and accounting for income taxes.

Reclassifications

Certain numbers in the prior year have been reclassified to conform to the current year's presentation.

~~Revenue Recognition~~

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09 and its related amendments regarding Accounting Standards Codification Topic 606 (ASC Topic 606), ~~Revenue from Contracts with Customers~~. The standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also provides guidance on the recognition of incremental costs related to obtaining customer contracts. We adopted ASC Topic 606, effective September 1, 2018, utilizing the modified retrospective method. This approach was applied to contracts that were in process as of September 1, 2018, and the corresponding incremental costs of obtaining those contracts, which resulted in a cumulative effect adjustment of $493,279 to the opening balance of retained earnings at the date of adoption. The adoption of this ASU primarily impacts the timing of our revenue recognition for certain sales contracts, the capitalization and amortization of incremental costs of obtaining a contract, and related disclosures. The reported results for fiscal year 2019 reflect the application of ASC Topic 606.

Revenue Recognition

We generate revenue primarily from the sale of software licenses and by providing consulting services to the pharmaceutical industry for drug development.

~~The~~In accordance with Accounting Standards Codification Topic 606 (ASC Topic 606), “Revenue from Contracts with Customers”, the Company determines revenue recognition through the following steps:

i.	Identification of the contract, or contracts, with a customer
ii.	Identification of the performance obligations in the contract
iii.	Determination of the transaction price
iv.	Allocation of the transaction price to the performance obligations in the contract
v.	Recognition of revenue when, or as, the Company satisfies a performance obligation

Deferred Commissions

Sales commissions earned by our sales force and our commissioned sales representatives are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for new contracts are deferred and then amortized on a straight-line basis over a period of benefit. We determined the period of benefit by taking into consideration our customer contracts, our technology, and other factors. Sales commissions for renewal contracts are deferred and then amortized on a straight-line basis over the related contractual renewal period. Amortization expense is included in sales and marketing expenses on the condensed consolidated statements of operations.

We apply the practical expedient in ASC Topic 606 to expense costs as incurred for sales commissions when the period of benefit would have been one year or less. Most of our contracts are of a duration of one year or less, while few, if any of the longer-term contracts have commissions associated with them.

Practical Expedients and Exemptions

The Company has elected the following additional practical expedients in applying Topic 606:

Commission Expense: We apply the practical expedient in ASC Topic 606 to expense costs as incurred for sales commissions when the period of benefit is one year or less. Most of our contracts are of a duration of one year or less, few, if any of the longer term contracts have commissions associated with them.

Transaction Price Allocated to Future Performance Obligations

ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of ~~May 31,~~November 30, 2020. ASC 606 provides certain practical expedients that limit the requirement to disclose the aggregate amount of transaction price allocated to unsatisfied performance obligations.

The Company applied the practical expedient to not disclose the amount of transaction price allocated to unsatisfied performance obligations when the performance obligation is part of a contract that has an original expected duration of one year or less.

Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

Accounts Receivable

We analyze the age of customer balances, historical bad-debt experience, customer creditworthiness, and changes in customer payment terms when making estimates of the collectability of the Company’s trade accounts receivable balances. If we determine that the financial conditions of any of ~~our~~its customers deteriorated, whether due to customer-specific or general economic issues, an increase in the allowance may be made. Accounts receivable are written off when all collection attempts have failed.

Investments

We may invest excess cash balances in short-term and long-term marketable debt securities. Investments may consist of certificates of deposit, money market accounts, government-sponsored enterprise securities, corporate bonds and/or commercial paper. The Company accounts for its investment in marketable securities in accordance with Financial Accounting Standards Board (FASB) ASC 320, Investments – Debt and Equity Securities. This statement requires debt securities to be classified into three categories:

Held-to-maturity—Debt securities that the entity has the positive intent and ability to hold to maturity are reported at amortized cost.

Trading Securities—Debt securities that are bought and held primarily for the purpose of selling in the near term are reported at fair value, with unrealized gains and losses included in earnings.

Available-for-Sale—Debt securities not classified as either securities held-to-maturity or trading securities are reported at fair value with unrealized gains or losses excluded from earnings and reported as a separate component of shareholders’ equity.

The Company classifies its investments in marketable debt securities based on the facts and circumstances present at the time of purchase of the securities. During the quarter ended November 30, 2020, all of the Company’s investments were classified as held-to-maturity.

Held-to-maturity investments are measured and recorded at amortized cost on the Company’s Consolidated Balance Sheet. Discounts and premiums to par value of the debt securities are amortized to interest income/expense over the term of the security. No gains or losses on investment securities are realized until they are sold or a decline in fair value is determined to be other-than-temporary.

Capitalized Computer Software Development Costs

Software development costs are capitalized in accordance with ASC 985-20, “Costs of Software to Be Sold, Leased, or Marketed”. Capitalization of software development costs begins upon the establishment of technological feasibility and is discontinued when the product is available for sale.

The establishment of technological feasibility and the ongoing assessment for recoverability of capitalized software development costs require considerable judgment by management with respect to certain external factors including, but not limited to, technological feasibility, anticipated future gross revenues, estimated economic life, and changes in software and hardware technologies. Capitalized software development costs are comprised primarily of salaries and direct payroll-related costs and the purchase of existing software to be used in our software products.

Amortization of capitalized software development costs is calculated on a product-by-product basis ~~using~~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 ~~$310,218~~$325 thousand and ~~$322,552~~$314 thousand for the three months ended ~~May 31, 2020 and 2019, respectively, and $937,888 and $1,006,339 for the nine months ended May 31,~~November 30, 2020 and 2019, respectively. We expect future amortization expense to vary due to increases in capitalized computer software development costs.

We test capitalized computer software development costs for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over the estimated useful lives as follows:

Property and Equipment estimated useful lives	~~5 years~~
Equipment	5 years
Computer equipment	3 to 7 years
Furniture and fixtures	5 to 7 years
Leasehold improvements	Shorter of life of asset or lease

~~Maintenance~~Internal-use Software

The Company has a service contract related to the implementation of internally used software. In accordance with ASC 350-40 “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”, the Company has capitalized certain internal-use software which are included in long-term assets.

The amortization will be classified as selling, general, and administrative expenses on the condensed consolidated statement of operations and maintenance and minor ~~replacements~~upgrades are charged to expense as incurred. Gains and losses on disposals are included in the results of operations. No amortization has been expensed for the project as it is still in progress.

Leases

In February 2016, the FASB issued ASU No. 2016-02—Leases, to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessor have not significantly changed from previous U.S. GAAP. This ASU was effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018. We adopted this ASU on September 1, 2019.

We lease various production, administrative and sales offices under operating leases. We evaluate our contracts to determine if an arrangement is a lease at inception and classify it as a finance or operating lease. Currently, all our leases are classified as operating leases. Leased assets and corresponding liabilities are recognized based on the present value of the lease payments over the lease term. Our lease terms may include options to extend when it is reasonably certain that we will exercise that option. Costs associated with operating leases are recognized on a straight-line basis within operating expenses over the term of the lease. With the adoption of ASC 842 on September 1, 2019, we recognized all leases with terms greater than 12 months in duration on our consolidated balance sheets as right-of-use assets and lease liabilities. We adopted the standard using the prospective approach and did not retrospectively apply to prior periods. Right-of-use assets are recorded in long-term assets on our consolidated balance sheets. Current and non-current lease liabilities are recorded as operating lease liabilities within current liabilities and long-term liabilities, respectively, on our consolidated balance sheets. As part of the adoption of this standard we recorded the following assets and liabilities as of September 1, 2019:

Right of use assets $ 902,553
Lease Liabilities, Current $ 537,017
Lease Liabilities, Long-term $ 365,536

~~We have made certain assumptions and judgments when applying ASC 842, the most significant of which are:~~

	·	We elected the package of practical expedients available for transition that allow us to not reassess whether expired or existing contracts contain leases under the new definition of a lease, lease classification for expired or existing leases and whether previously capitalized initial direct costs would qualify for capitalization under ASC 842.
	·	~~We did not elect to use hindsight when considering judgments and estimates such as assessments of lessee options to extend or terminate a lease or purchase the underlying asset.~~
	·	~~For all asset classes, we elected to not recognize a right-of-use asset and lease liability for short-term leases.~~
	·	The determination of the discount rate used in a lease is our estimated incremental borrowing rate that is based on what we would expect to pay to borrow over a similar term an amount equal to the lease payments.

Supplemental balance sheet information related to operating leases was as follows as of ~~May 31,~~November 30, 2020:

Right of use asset $ 1,019,408
Lease Liabilities, Current $ 525,454
Lease Liabilities, Long-term $ 489,463
Operating lease costs $ 438,269
Weighted Average remaining lease term 2.31 years
Weighted Average Discount rate 4.28%

Schedule of lease cost
(in thousands)
Right of use assets	$	768
Lease Liabilities, Current	$	395
Lease Liabilities, Long-term	$	376
Operating lease costs	$	165
Weighted Average remaining lease term		2.0 years
Weighted Average Discount rate		4.25%

~~Goodwill~~Intangible Assets and ~~indefinite-lived assets~~Goodwill

The Company performs valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and recognizes the assets acquired and liabilities assumed at their ~~acquisition date~~acquisition-date fair value. Acquired intangible assets include customer relationships, software, trade names, and ~~non-compete~~noncompete agreements. The Company determines the appropriate useful life by performing an analysis of expected cash flows based on historical experience of the acquired businesses. Intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the pattern in which the majority of the economic benefits are expected to be consumed.

Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets. Goodwill is not amortized, instead it is tested for impairment annually or when events or circumstances change that would indicate that goodwill might be impaired. Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of the Company's use of the acquired assets or the strategy for the Company's overall business, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.

Goodwill is tested for impairment at the reporting unit level, which is one level below or the same as an operating segment. As of ~~May 31,~~November 30, 2020, the Company determined that it has four reporting ~~units,~~units: Simulations Plus, Cognigen, ~~Corporation,~~ DILIsym ~~Services, Inc.~~ and Lixoft. When testing goodwill for impairment, the Company first performs a qualitative assessment to determine whether it is necessary to perform step one of a two-step annual goodwill impairment test for each reporting unit. The Company is required to perform step one only if it concludes that it is more likely than not that a reporting unit's fair value is less than its carrying value. Should this be the case, the first step of the two-step process is to identify whether a potential impairment exists by comparing the estimated fair values of the Company's reporting units with their respective book values, including goodwill. If the estimated fair value of the reporting unit exceeds book value, goodwill is considered not to be impaired, and no additional steps are necessary. If, however, the fair value of the reporting unit is less than book value, then the second step is performed to determine if goodwill is impaired and to measure the amount of impairment loss, if any. The amount of the impairment loss is the excess of the carrying amount of the goodwill over its implied fair value. The estimate of implied fair value of goodwill is primarily based on an estimate of the discounted cash flows expected to result from that reporting unit, but may require valuations of certain internally generated and unrecognized intangible assets such as the Company's software, technology, patents, and trademarks. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.

As of ~~May 31,~~November 30, 2020, the entire balance of goodwill was attributed to three of the Company's reporting units, Cognigen, ~~Corporation,~~ DILIsym, ~~Services,~~ and Lixoft. Intangible assets subject to amortization are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. The Company did not recognize any impairment charges during the ~~three-month and nine-month periods~~three months ended ~~May 31,~~November 30, 2020 and 2019.

Reconciliation of Goodwill for the period ended ~~May 31,~~November 30, 2020:

	Cognigen		DILIsym		Lixoft		Total
Balance, August 31, 2019	$	4,789,248	$	5,597,950	$	–	$	10,387,198
Schedule of reconciliation of goodwill
(in thousands)									Cognigen		DILIsym		Lixoft		Total
Balance, August 31, 2020									$	4,789	$	5,598	$	2,534	$	12,921
Addition		–		–		2,404,973		2,404,973		0		0		0		0
Impairments		–		–		–		–		0		0		0		0
Balance, May 31, 2020	$	4,789,248	$	5,597,950	$	2,404,973	$	12,792,171
Balance, November 30, 2020									$	4,789	$	5,598	$	2,534	$	12,921

Fair Value of Financial Instruments

Assets and liabilities recorded at fair value in the Condensed Balance Sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The categories, as defined by the standard are as follows:

Level Input:		Input Definition:
Level I		Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level II		Inputs, other than quoted prices included in Level I, that are observable for the asset or liability through corroboration with market data at the measurement date.
Level III		Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

For certain of our financial instruments, including accounts receivable, accounts payable, accrued payroll and other expenses, accrued ~~bonus~~bonuses to ~~officer,~~officers, and accrued warranty and service costs, the amounts approximate fair value due to their short maturities.

The following table summarizes fair value measurements at ~~May 31,~~November 30, 2020 and August 31, ~~2019~~2020 for assets and liabilities measured at fair value on a recurring basis:

~~May~~November 30, 2020:

Schedule of fair value measurements
(in thousands)	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	27,651	$	0	$	0	$	27,651
Short-term investments	$	91,115	$	0	$	0		91,115
Acquisition-related contingent consideration obligations	$	0	$	0	$	4,852	$	4,852

August 31, 2020:

Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 7,354,496 $ – $ – $ 7,354,496
Acquisition-related contingent consideration obligations $ – $ – $ 6,370,028 $ 6,370,028

~~August 31, 2019:~~

	Level 1		Level 2		Level 3		Total
(in thousands)									Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	11,435,499	$	–	$	–	$	11,435,499	$	49,207	$	0	$	0	$	49,207
Short-term investments									$	66,804	$	0	$	0	$	66,804
Acquisition-related contingent consideration obligations	$	–	$	–	$	1,761,028	$	1,761,028	$	0	$	0	$	4,731	$	4,731

As of ~~May 31,~~November 30, 2020 and August 31, ~~2019,~~2020, the Company has a liability for contingent consideration related to its ~~acquisitions~~acquisition of ~~the DILIsym Services, Inc. and~~ Lixoft. The ~~fair-value~~fair value measurement of the contingent consideration obligations is determined using Level 3 inputs. The fair value of contingent consideration obligations is based on a discounted cash flow model using a probability-weighted income approach. These ~~fair-value~~fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense the Company records in any given period. Changes in the value of the contingent consideration obligations are recorded in the Company’s Consolidated Statement of Operations.

~~As of May 31, 2020, the Company has a liability for contingent consideration related to its acquisitions of DILIsym Services, Inc. and Lixoft:~~

The following is a reconciliation of contingent consideration ~~value.~~value:

Value at August 31, 2019 $ 1,761,028
Contingent consideration for Lixoft 4,609,000
Value at May 31, 2020 $ 6,370,028

Reconciliation of contingent consideration value		10
(in thousands)

Value at August 31, 2020	$	4,731
Contingent consideration payments		0
Change in value of contingent consideration		121
Value at November 30, 2020	$	4,852

Research and Development Costs

Research and development costs are charged to expense as incurred until technological feasibility has been established. These costs include salaries, laboratory experiment, and purchased software that was developed by other companies and incorporated into, or used in the development of, our final products.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740-10, “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.

Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each ~~year end~~year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

Intellectual property

~~On February 28, 2012, we bought out a 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 May 31, 2020 and 2019 was $1,875 and was $5,625 for each of the nine-month periods ended May 31, 2020, and 2019. Accumulated amortizationfollowing table summarizes intellectual property as of ~~May 31, 2020 and~~November 30, 2020:

Schedule of Intellectual property
(in thousands)	Amortization Period	Acquisition Value		Accumulated Amortization		Net book value
Royalty Agreement buy out-Enslein Research	Straight line 10 years	$	75	$	66	$	9
Termination/nonassertion agreement-TSRL Inc.	Straight line 10 years		6,000		3,925		2,075
Developed technologies–DILIsym acquisition	Straight line 9 years		2,850		1,108		1,742
Intellectual rights of Entelos Holding Corp.	Straight line 10 years		50		11		39
Developed technologies–Lixoft acquisition	Straight line 16 years		8,010		334		7,676
		$	16,985	$	5,444	$	11,541

The following table summarizes intellectual property as of August 31, ~~2019 were $61,875 and $56,250, respectively.~~2020:

On May 15, 2014, we entered into a termination and nonassertion 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 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 1997 agreement. We agreed to pay TSRL total consideration of $6,000,000, which is being amortized over 10 years under the straight-line method. Amortization expense for each of the three-month periods ended May 31, 2020 and 2019 was $150,000, and $450,000 for each of the nine-month periods ended May 31, 2020 and 2019. Accumulated amortization as of May 31, 2020 and August 31, 2019 were $3,625,000 and $3,175,000, respectively.

On June 1, 2017, as part of the acquisition of DILIsym Services, Inc. the Company acquired certain developed technologies associated with the drug induced liver disease (DILI). These technologies were valued at $2,850,000 and are being amortized over 9 years under the straight-line method. Amortization expense for the three months and nine months ended May 31, 2020 and May 31, 2019 was $79,167 and $237,501, respectively, and is included in cost of revenues. Accumulated amortization as of May 31, 2020 and August 31, 2019 were $950,000 and $712,513, respectively.

In September 2018, we purchased certain intellectual property rights of Entelos Holding Company, a Delaware Corporation. The cost of $50,000 is being amortized over 10 years under the straight-line method. Amortization expense for the three months and nine months period ended May 31, 2020 and May 31, 2019 was $1,250 and $3,750, respectively. Accumulated amortization as of May 31, 2020 and August 31, 2019 was $8,750 and $5,000 respectively.

On April 1, 2020, as part of the acquisition of Lixoft the Company acquired certain developed technologies associated with the non-linear mixed effed models, population analysis, pharmacometrics and pre-clinical and clinical trial modeling and simulation algorithms. These technologies were valued at $8,030,000 and are being amortized over 16 years under the straight-line method. Amortization expense for the two months from acquisition to May 31, 2020 was $83,644, and is included in cost of revenues. Accumulated amortization as of May 31, 2020 was $83,644.

(in thousands)	Amortization Period	Acquisition Value		Accumulated Amortization		Net book value
Royalty Agreement buy out-Enslein Research	Straight line 10 years	$	75	$	64	$	11
Termination/nonassertion agreement-TSRL Inc.	Straight line 10 years		6,000		3,775		2,225
Developed technologies–DILIsym acquisition	Straight line 9 years		2,850		1,029		1,821
Intellectual rights of Entelos Holding Corp.	Straight line 10 years		50		10		40
Developed technologies–Lixoft acquisition	Straight line 16 years		8,010		209		7,801
		$	16,985	$	5,087	$	11,898

Total amortization expense for intellectual property agreements for the three months ended ~~May 31,~~November 30, 2020 and 2019 was ~~$315,936~~$357 thousand and ~~$232,292, respectively, and total amortization expense for~~$232 thousand, respectively.

Other intangible assets

The following table summarizes the ~~nine months ended May 31, 2020 and 2019 was $780,520 and $696,876 respectively. Accumulated amortization~~Company’s other intangible assets as of ~~May 31, 2020 was $4,729,270 and $3,948,750 as of August 31, 2019.~~November 30, 2020:

Schedule of other intangible assets
(in thousands)	Amortization Period	Acquisition Value		Accumulated Amortization		Net book value
Cognigen
Customer relationships	Straight line 8 years	$	1,100	$	859	$	241
Trade name	None		500		0		500
Covenants not to compete	Straight line 5 years		50		50		0
DILIsym
Customer relationships	Straight line 10 years		1,900		665		1,235
Trade name	None		860		0		860
Covenants to compete	Straight line 4 years		80		70		10
Lixoft
Customer relationships	Straight line 14 years		2,550		122		2,428
Trade name	None		1,550		0		1,550
Covenants to compete	Straight line 3 years		60		13		47
		$	8,650	$	1,779	$	6,871

1113

~~Intangible assets~~

The following table summarizes the Company’s other intangible assets as of ~~May~~August 31, 2020:

Amortization
Period Acquisition
Value Accumulated
Amortization Net book
value
Customer relationships-Cognigen Straight line 8 years $ 1,100,000 $ 790,625 $ 309,375
Trade Name-Cognigen None 500,000 0 500,000
Covenants not to compete-Cognigen Straight line 5 years 50,000 50,000 0
Covenants not to compete-DILIsym Straight line 4 years 80,000 60,000 20,000
Trade Name-DILIsym None 860,000 0 860,000
Customer relationships-DILIsym Straight line 10 years 1,900,000 570,000 1,330,000
Customer relationships-Lixoft Straight line 14 years 2,550,000 30,356 2,519,644
Trade Name-Lixoft None 1,550,000 0 1,550,000
Covenants not to compete-Lixoft Straight line 4 years 60,000 2,500 57,500
$ 8,650,000 $ 1,503,481 $ 7,146,519

(in thousands)	Amortization Period	Acquisition Value		Accumulated Amortization		Net book value
Cognigen
Customer relationships	Straight line 8 years	$	1,100	$	825	$	275
Trade name	None		500		0		500
Covenants not to compete	Straight line 5 years		50		50		0
DILIsym
Customer relationships	Straight line 10 years		1,900		618		1,282
Trade name	None		860		0		860
Covenants to compete	Straight line 4 years		80		65		15
Lixoft
Customer relationships	Straight line 14 years		2,550		76		2,474
Trade name	None		1,550		0		1,550
Covenants to compete	Straight line 3 years		60		8		52
		$	8,650	$	1,642	$	7,008

Amortization expense for each of the ~~three-month and nine-month periods~~three months ended ~~May 31,~~November 30, 2020 and ~~May 31,~~ 2019 was ~~$119,731~~$137 thousand and ~~$293,481 as compared to $89,375 and $268,125,~~$87 thousand, respectively. According to policy in addition to normal amortization, these assets are tested for impairment as needed.

Earnings per Share

We report earnings per share in accordance with FASB ASC 260-10. Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share ~~computation~~ is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The components of basic and diluted earnings per share for the three ~~and nine~~ months ended ~~May 31,~~November 30, 2020 and 2019 were as follows:

Schedule of earnings per share
	Three months ended				Nine months ended				Three months ended November 30,
	5/31/2020		5/31/2019		5/31/2020		5/31/2019
(in thousands)									2020		2019
Numerator:
Net income attributable to common shareholders	$	2,935,569	$	2,888,706	$	7,143,925	$	6,524,102	$	2,479	$	2,058

Denominator:
Weighted-average number of common shares outstanding during the period		17,735,354		17,519,849		17,661,189		17,472,922		19,930		17,609
Dilutive effect of stock options		691,518		576,346		672,407		535,414		869		698
Common stock and common stock equivalents used for diluted earnings per share		18,426,872		18,096,195		18,333,596		18,008,336	$	20,799	$	18,307

Stock-Based Compensation

Compensation costs related to stock options are determined in accordance with FASB ASC 718-10, “Compensation-Stock Compensation”,using the modified prospective method. Under this method, compensation cost is calculated based on the grant-date fair value estimated in accordance with FASB ASC 718-10, amortized on a straight-line basis over the options’ vesting period. Stock-based compensation expense was ~~$287,115~~$449 thousand and ~~$224,654~~$295 thousand for the three months ended ~~May 31, 2020 and 2019, respectively and $926,747 and $633,398 for the nine months ended May 31,~~November 30, 2020 and 2019, respectively. This expense is included in the condensed consolidated statements of operations as Selling, ~~General,~~general, and ~~Administration (SG&A),~~administration and Research and ~~Development~~development expense.

Impairment of Long-lived Assets

The Company accounts for the impairment and disposition of long-lived assets in accordance with ASC 350, “Intangibles – Goodwill and Other” and ASC 360, “Property and Equipment”. Long-lived assets to be held and used are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable. We measure recoverability by comparing the carrying amount of an asset to the expected future undiscounted net cash flows generated by the asset. If we determine that the asset may not be recoverable, or if the carrying amount of an asset exceeds its estimated future undiscounted cash flows, we recognize an impairment charge to the extent of the difference between the fair value and the asset's carrying amount. No impairment losses were recorded during the ~~nine~~three months ended ~~May 31,~~November 30, 2020 and 2019.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in "Leases (Topic 840)" and generally requires all leases to be recognized in the consolidated balance sheet. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, ~~2018; early adoption is permitted. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach.~~2018. The Company ~~is currently evaluating the impact of the adoption of~~adopted this ~~standard~~ASU on ~~its consolidated~~September 1, 2019.

We do not expect any other recently issued accounting pronouncements to have a material effect on our financial statements.

In April 2016, the FASB issued ASU 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 was adopted concurrently with the adoption of ASU 2014-09 which is effective for annual and interim periods beginning after December 15, 2017.NOTE 3: REVENUE RECOGNITION

~~NOTE 3. REVENUE RECOGNITION~~Contract Liabilities

~~The Company adopted Topic 606 effective September 1, 2018 using~~During the modified retrospective method applying this guidance to all open contracts at the date of initial application, which resulted in an adjustment to retained earnings for the cumulative effect of applying this guidance. The most significant impact of Topic 606 on revenue tothree months ended November 30, 2020 and 2019, the Company ~~relates to the timing~~recognized $296 thousand and $306 thousand of revenue ~~recognition for one~~that was included in contract liabilities as of ~~its payment contracts. Under 606 the revenues under the contract are being recognized as time is expended~~August 31, 2020 and ~~costs are being expensed as incurred. Under ASC 605 revenues were recognized as invoiced and certain costs were capitalized as development.~~2019, respectively.

~~We generate revenue primarily from the sale~~Disaggregation of ~~software licenses and providing consulting services to the pharmaceutical industry for drug development.~~Revenues

~~The Company determines revenue recognition through the following steps:~~

i.	~~Identification of the contract, or contracts, with a customer~~
~~ii.~~	~~Identification of the performance obligations in the contract~~
~~iii.~~	~~Determination of the transaction price~~
~~iv.~~	~~Allocation of the transaction price to the performance obligations in the contract~~
v.	~~Recognition of revenue when, or as, the Company satisfies a performance obligation~~

Schedule of disaggregation of revenues
(in thousands)	Three months Ended November 30,
Disaggregation of revenues:	2020		2019
Software licenses
Point in time	$	6,001	$	4,363
Over time		211		251
Consulting services
Over time		4,489		4,787
Total Revenue	$	10,701	$	9,401

The 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.~~

~~Components of revenue~~

The following is a description of principal activities from which the Company generates revenue. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. Stand-alone selling prices are determined based on the prices at which the Company separately sells its services or goods.

~~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.

~~For certain software arrangements the Company hosts the licenses on servers maintained by the Company, revenue for those arrangements are accounted as~~ ~~Software as a Service~~ ~~over the life of the contract. These arrangements are a small portion of software revenues of the Company.~~

~~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.~~


~~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 methods 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.~~

Remaining Performance Obligations

Remaining performance obligations that do not fall under the expedients require the Company to perform various consulting and software development services ~~and consortium memberships~~ of approximately ~~$2,700,000.~~$2.7 million. It is anticipated these revenues will be recognized within the next ~~two and ½ years.~~twelve months.

~~Contract liabilities~~

~~During the three months and nine months period ended May 31, 2020 the Company recognized $109,000 and $882,000 of revenue that was included in contract liabilities as of August 31, 2019.~~

~~Disaggregation of Revenues~~

Disaggregation of Revenues: Three Months
Ended
May 31, 2020 Nine Months
Ended
May 31, 2020
Software licenses
Point in time $ 6,622,671 $ 16,116,466
Over time 230,047 734,339
Consulting services
Over time 5,445,318 15,198,198
Total Revenue $ 12,298,036 $ 32,049,003

~~NOTE 4:~~ ~~Property and Equipment~~

~~Property and equipment as of May 31, 2020 consisted of the following:~~

Equipment $ 775,767
Computer equipment 510,935
Furniture and fixtures 160,990
Leasehold improvements 114,004
Sub total 1,561,696
Less: Accumulated depreciation and amortization (1,204,912 )
Net Book Value $ 356,784

1415

NOTE 4: PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

Schedule of property and equipment
(in thousands)	November 30, 2020			August 31, 2020
Equipment	$	930		$	865
Computer equipment		572			548
Furniture and fixtures		161			161
Leasehold improvements		114			114
Construction in progress		115			0
Sub total		1,892			1,688
Less: accumulated depreciation		(1,296	)		(1,250	)
Net book value	$	596		$	438

NOTE 5: ~~CONTRACTS PAYABLE~~INVESTMENTS

The Company invests a portion of its excess cash balances in short-term debt securities. Investments at November 30, 2020 consisted of corporate bonds with maturities remaining of less than 12 months. The Company may also invest excess cash balances in certificates of deposit, money market accounts, government-sponsored enterprise securities, corporate bonds and/or commercial paper. The Company accounts for its investments in accordance with FASB ASC 320, Investments – Debt and Equity Securities. At November 30, 2020, all investments were classified as held-to-maturity securities.

The following tables summarize the Company’s short-term investments as of November 30, 2020 and August 31, 2020:

Schedule of short term investment
November 30, 2020
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

Commercial notes (due within one year)	$	91,115	$	0	$	(48	)	$	91,067
Total	$	91,115	$	0	$	(48	)	$	91,067

August 31, 2020
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

Commercial notes (due within one year)	$	66,804	$	0	$	(61	)	$	66,743
Total	$	66,804	$	0	$	(61	)	$	66,743

NOTE 6: CONTRACTS PAYABLE

DILIsym Acquisition Liabilities:

On June 1, 2017, the Company acquired ~~DILIsym Services, Inc.~~DILIsym. The agreement provided for a working capital adjustment, an eighteen-month ~~$1,000,000~~$1.0 million holdback provision against certain representations and ~~warrantees,~~warranties, and an ~~Earn-out~~earnout agreement of up to an additional ~~$5,000,000~~$5.0 million in ~~Earn-out~~earnout payments based on earnings over ~~the next~~ three ~~years.~~years following acquisition. The ~~Earn-out~~earnout liability has been recorded at an estimated fair value. Payments under the ~~Earn-out~~earnout liability started in FY 2019. In September 2018, ~~$1,556,644~~$1.6 million was paid out under the first ~~earn-out~~earnout payment, a second ~~earn-out~~earnout payment was made in August 2019 in the amount of ~~$1,682,329. It is estimated that a~~$1.7 million. The final payment of ~~approximately $1,761,028 will be~~$1.8 million was paid in August 2020. In addition, no claims were made against the holdback and the $1.0 million was released eighteen months after June 1, 2017.

Lixoft Acquisition Liabilities:

On April 1, 2020, the Company acquired Lixoft. The agreement provided for a twenty-four month ~~$2,000,000~~$2.0 million holdback provision against certain representations and warrantees, comprised of ~~$1,333,333~~$1.3 million of cash and the release from an escrow shares of stock valued at ~~$666,337~~$667 thousand issued at the date of the ~~Agreement.~~agreement. In addition, based on a revenue growth formula for the two years subsequent to April 1, 2020, the agreement calls for ~~earn-out~~earnout payments of up to ~~$5,500,000 (two thirds~~$5.5 million (two-thirds cash and one-third newly issued, ~~unregistered~~restricted shares of the Company’s common stock). The former shareholders of Lixoft can earn up to ~~$2,000,000~~$2.0 million the first year and ~~$3,500,000~~$3.5 million in year two.

As of ~~May 31,~~November 30, 2020 and August, 31, ~~2019~~2020 the following liabilities have been recorded:

May 31,
2020 August 31,
2019
Holdback Liability - Lixoft $ 1,333,333 $ –
Earn-out Liability - Lixoft 4,609,000 –
Earn-out Liability - Dilisym 1,761,028 1,761,028
Sub Total $ 7,703,361 $ 1,761,028
Less: Current Portion 3,761,028 1,761,028
Long-Term $ 3,942,333 $ –

Schedule of Liabilities
(in thousands)	November 30, 2020		August 31, 2020
Holdback liability — Lixoft	$	1,333	$	1,333
Earnout liability — Lixoft		4,852		4,731
Sub total	$	6,185	$	6,064
Less: current portion		2,000		2,000
Long-term portion	$	4,185	$	4,064

NOTE 6: 7: COMMITMENTS AND CONTINGENCIES

Leases

We lease approximately 13,500 square feet of space in Lancaster, California. The original lease had a five-year term with two, three-year options to extend. The initial five-year term expired in February 2011, and we extended the lease to February 2, 2014. In June 2013, the lease was amended to extend the term to February 2, 2017. The amended lease also provides for an annual base rent increase of 3% per year and two, two-year options to extend. In May 2016 the Company exercised the two, two-year options extending the term of the lease through February 2, 2021 at a fixed rate of ~~$25,000~~$25 thousand per month. The new extension agreement allowed the Company with 90 days’ notice to opt out of the remaining lease in the last two years of the term upon payment of a recapture payment equal to the 3% base payment increase that would have been due under the original agreement. Refer to subsequent events footnote for details of the third amendment to the lease for the property in Lancaster, CA.

Our ~~Buffalo~~Cognigen subsidiary leases approximately 12,623 square feet of space in Buffalo, New York. The initial five-year term expired in October ~~2018;~~2018 and was renewed for a three-year option to extending it to ~~October~~November 2021. The new base rent is ~~$16,147~~$16 thousand per month.

DILIsym leases approximately 2,700 square feet of space in Research Triangle Park, North Carolina. The initial three-year term was due to expire October 2020. An amendment to the initial lease became effective April 1, ~~2020. This amendment~~2020, which added 686 square feet and extended the term of the lease to September 30, 2023. The new base rent is ~~$7,500~~approximately $8 thousand per month with an annual 3% adjustment.

In Paris, France, Lixoft leases approximately 2,300 square feet of office space, which as of April 1, 2020, had minimum payments equaling ~~$229,843.~~$288 thousand. The lease is for a 9-year term, with an option to terminate every 3 years, and expires in November of 2024. The rent is ~~$16,555~~$16 thousand per quarter and can be adjusted each December based on a consumer price index.

Rent expense, including common area maintenance fees for the three months ended ~~May 31,~~November 30, 2020, and 2019 was ~~$168,381~~$185 thousand and ~~$147,581, respectively, and $463,074 and $436,357 for the nine months ended May 31, 2020 and 2019,~~$145 thousand, respectively.

Future minimum lease payments under ~~non-cancelable~~noncancelable operating leases with remaining terms of one year or more at ~~May 31,~~November 30, 2020 were as follows:

Years Ending May 31,
Future minimum lease payments
(in thousands) Years Ending November 30,
2021	$	560,554	$	412
2022		268,440		170
2023		174,719		155
2024		64,118		61
	$	1,067,831
Future minimum lease payments			$	798

Line of Credit

On March 31, 2020, ~~Simulations Plus, Inc.~~the Company entered into a Credit Agreement with Wells Fargo Bank, N.A. The Credit Agreement ~~has provided Simulations Plus, Inc.~~provides the Company with a credit facility of ~~$3,500,000~~$3.5 million through April 15, ~~2022.~~2022. As of ~~May 31,~~November 30, 2020, there were no0 amounts drawn against the line of credit.

Employment Agreements

In the normal course of business, the Company has entered into employment agreements with certain of its key management personnel that may require compensation payments upon termination.

License Agreement

The Company had a royalty agreement with Dassault Systèmes Americas Corp. for access to their Metabolite Database for developing our Metabolite Module within ADMET Predictor™. The module was renamed the Metabolism Module when we released ADMET Predictor version 6 on April 19, 2012. Under this agreement, we paid a royalty of 25% of revenue derived from the sale of the Metabolism/Metabolite module. This agreement was ~~recently~~ renegotiated, and the Company does not bear any royalty obligations towards Dassault Systèmes Americas Corp. effective as of June 30, 2019. In addition, the license agreement ~~will terminate~~terminated on September 5, 2020. We incurred royalty expense (benefit) of ($137,496) and $55,924, respectively, for the three months ended May 31, 2020 and 2019, respectively and ($26,055) and $147,495 for the nine months ended May 31, 2020 and 2019, respectively.

The Company is in the process of making arrangements to replace the database.

Income Taxes

We follow guidance issued by the FASB with regard to our accounting for uncertainty in income taxes recognized in the financial statements. Such guidance prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to ~~unrecognized tax benefits in~~ income tax expense. ~~Interest and penalties totaled $-0- for fiscal year 2019.~~ We file income tax returns with the IRS and various state jurisdictions as well as India and ~~France for our Paris division.~~France. Our federal income tax returns for fiscal ~~years 2016 through 2018~~year 2017 thru 2019 are open for audit, and our state tax returns for fiscal year ~~2015~~2016 through ~~2018~~2019 remain open for audit. ~~In addition, certain elements of prior tax years, such as R&D credits, may remain open and 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.

~~Litigation~~

Legal Proceedings

We may be subject to litigation, claims, investigations and audits arising from time to time in the ordinary course of our business; however, at this time, we are not a party to any legal proceedings and are not aware of any pending, threatened, or unasserted legal proceedings of any kind.

NOTE 7: 8: SHAREHOLDERS’ EQUITY

Dividend

The Company’s Board of Directors declared cash dividends during the first quarter of fiscal ~~years 2020~~year 2021 and ~~2019.~~during fiscal year 2020. The details of the dividends paid are in the following tables:

FY2020
Record Date Distribution Date Number of Shares
Outstanding on
Record Date Dividend per
Share Total
Amount
10/25/2019 11/01/2019 17,606,314 $ 0.06 $ 1,056,379
1/27/2020 2/03/2020 17,645,639 $ 0.06 1,058,740
4/24/2020 5/01/2020 17,769,134 $ 0.06 1,066,148
Total $ 3,181,267

Schedule of dividends declared and paid

(in thousands, except dividend per share amounts)

Fiscal Year 2021

Record Date

Distribution Date

Number of Shares
Outstanding on
Record Date

Dividend per
Share

Total
Amount

10/26/2020

11/02/2020

19,924

0.06

1,195

Total

1,195

(in thousands, except dividend per share amounts)	Fiscal Year 2020
Record Date		Distribution Date	Number of Shares Outstanding on Record Date		Dividend per Share		Total Amount
10/25/2019		11/01/2019		17,606	$	0.06	$	1,056
1/27/2020		2/03/2020		17,646	$	0.06		1,059
4/24/2020		5/01/2020		17,769	$	0.06		1,066
7/27/2020		8/03/2020		17,820	$	0.06		1,069
Total							$	4,250

FY2019
Record Date Distribution Date Number of Shares
Outstanding on
Record Date Dividend per
Share Total
Amount
11/1/2018 11/08/2018 17,417,875 $ 0.06 $ 1,045,073
1/25/2019 2/1/2019 17,481,450 $ 0.06 1,048,887
4/09/2019 5/01/2019 17,515,228 $ 0.06 1,050,914
7/25/2019 8/1/2019 17,536,454 $ 0.06 1,052,181
Total $ 4,197,055

Stock Option Plan

On February 23, 2007, the Board of Directors adopted and the shareholders approved the 2007 Stock Option Plan under which a total of ~~1,000,000~~1.0 million shares of common stock ~~had been~~were reserved for issuance. On February 25, 2014 the shareholders approved an additional ~~1,000,000~~1.0 million shares increasing the total number of shares ~~that may~~available to be granted under the 2007 Stock Option Plan to ~~2,000,000.~~2.0 million. This plan terminated in February 2017 by its term.

On December 23, 2016 the Board of Directors adopted, and on February 23, 2017 the shareholders approved, the 2017 Equity Incentive Plan under which a total of ~~1,000,000~~1.0 million shares of common stock ~~has been~~were reserved for issuance. This plan will terminate in December ~~2026.~~2026 by its term.

On November 20, 2020, the Board of Directors adopted an amendment to the 2017 Equity Incentive Plan to increase the number of shares reserved for issuance under the plan from 1.0 million shares of common stock to 1.75 million shares of common stock. The amendment is subject to shareholder approval at the Company’s upcoming annual shareholder meeting.

As of ~~May 31,~~November 30, 2020, employees and directors hold ~~stock options~~Qualified Incentive Stock Options (“ISOs”) and Non-Qualified Stock Options (“NQSOs) to purchase ~~1,231,491~~1.2 million shares of common stock at exercise prices ranging from $6.75 to ~~$38.81.~~$61.84.

The following table summarizes information about stock options:

Transactions in FY20 Number of
Options Weighted-
Average
Exercise
Price
Per Share Weighted-
Average
Remaining
Contractual
Life
Outstanding, August 31, 2019 1,163,259 $ 12.63 7.13
Granted 180,000 $ 33.83
Exercised (78,807 ) $ 8.46
Cancelled/Forfeited (32,961 ) $ 14.26
Expired – $ –
Outstanding, May 31, 2020 1,231,491 $ 15.95 6.90
Exercisable, May 31, 2020 625,966 $ 10.05 5.78

Schedule of stock option activity
(in thousands, except per share and weighted-average amounts)	Number of			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual
Transactions during the three months ended November 30, 2020	Options			Per Share		Life
Outstanding, August 31, 2020		1,224		$	17.76		6.79
Granted		26		$	59.91
Exercised		(34	)	$	14.04
Cancelled/Forfeited		(11	)	$	24.18
Outstanding, November 30, 2020		1,205		$	18.73		6.62
Exercisable, November 30, 2020		583		$	11.16		5.35

The weighted-average remaining contractual life of options outstanding issued under the Plan, both ~~Qualified ISO~~ISOs and ~~Non-Qualified SO,~~NQSOs, was ~~6.88~~6.62 years at ~~May 31,~~November 30, 2020. The total fair value of ~~non-vested~~nonvested stock options as of ~~May 31,~~November 30, 2020 was ~~$17,328,000~~$19.1 million and is amortizable over a weighted average period of ~~3.46~~3.18 years.

The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model. The Black-Scholes ~~option valuation~~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. Because our stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.

The following table summarizes the fair value of the options, including both ISOs and NQSOs, granted during the current fiscal year ~~2020~~2021 and fiscal year ~~2019:~~2020:

	YTD FY 2020		FY 2019
Schedule of fair value of options
(in thousands except pricing)					Three months ended, November 30 2020		Fiscal Year 2020
Estimated fair value of awards granted	$	1,996,200	$	1,928,820	$	560	$	2,997
Unvested Forfeiture Rate		0%		6.20%
Unvested forfeiture rate						0%		0%
Weighted average grant price	$	33.83	$	22.78	$	59.91	$	39.23
Weighted average market price	$	33.83	$	22.69	$	59.91	$	39.23
Weighted average volatility		32.27%		31.61%		36.35%		33.56%
Weighted average risk-free rate		1.62%		2.59%		0.47%		1.39%
Weighted average dividend yield		0.71%		1.10%		0.40%		0.65%
Weighted average expected life		6.68 years		6.64 years		6.65 years		6.67 years

The exercise prices for the options outstanding at ~~May 31,~~November 30, 2020 ranged from $6.75 to ~~$38.81,~~$61.84, and the information relating to these options is 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
$ 6.75 $ 8.00 180,970 4.27 years $ 6.85 180,970 4.27 years $ 6.85
$ 8.01 $ 16.00 588,401 6.29 years $ 9.97 387,846 6.21 years $ 9.93
$ 16.01 $ 24.00 236,870 8.03 years $ 20.69 57,150 7.60 years $ 21.06
$ 24.01 $ 38.81 225,250 9.43 years $ 33.92 0 – $ –
1,231,491 6.90 years $ 15.95 625,966 5.78 years $ 10.05

	Schedule of options by exercise price range
(in thousands except prices)
Exercise Price				Awards Outstanding					Awards Exercisable
Low		High		Quantity		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Quantity		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price
$	6.75	$	8.00		169	3.77 years	$	6.85		169		3.77 years	$	6.85
$	8.01	$	16.00		535	5.80 years	$	9.99		337		5.74 years	$	9.99
$	16.01	$	24.00		208	7.51 years	$	20.42		49		6.19 years	$	20.61
$	24.01	$	38.00		204	8.90 years	$	33.46		28		8.70 years	$	34.83
$	38.01	$	52.00		20	9.31 years	$	38.64		0		–	$	0
$	52.01	$	61.84		69	9.68 years	$	61.10		0		–	$	0
					1,205	6.62 years	$	18.73		583		5.35 years	$	11.16

During the three ~~and nine-month periods~~months ended ~~May 31,~~November 30, 2020 the ~~Company~~company issued ~~1,905 and 6,175~~1,275 shares of stock to ~~non-management~~nonmanagement directors of the Company valued at ~~$72,483 and $217,382, respectively~~$83 thousand as compensation for services rendered to the Company.

In August 2020, the company closed an underwritten public offering of 2,090,909 shares of its common stock to the public at $55.00 per share, which included the full exercise of the underwriters’ option to purchase 272,727 additional shares of common stock. The aggregate gross proceeds to the company from this offering were approximately $115 million, before deducting underwriting discounts and commissions; net proceeds were approximately $107.7 107700 million. The offering was made pursuant to the Company’s automatic shelf registration statement on Form S-3 filed with the SEC on July 9, 2020.

The balance of par value common stock and additional paid in capital as of November 30, 2020 was $10 thousand and $129.2 million, respectively.

NOTE 8: 9: CONCENTRATIONS AND UNCERTAINTIES

Financial 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~~FDIC-insured limits. In addition, the Company holds cash at a bank in France that is not FDIC-insured. Historically, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. However, considering the current banking environment, the Company is investigating alternative ways to minimize its exposure to such risks. While the Company may be exposed to credit losses due to the nonperformance of its counterparties, the Company does not expect the settlement of these transactions to have a material effect on its results of operations, cash flows, or financial condition. The Company maintains cash at financial institutions that may, at times, exceed federally insured limits. ~~At May 31,~~As of November 30, 2020 the Company had cash and cash equivalents exceeding insured limits by ~~approximately $6,300,000.~~$13.8 million.

Revenue concentration shows that international sales accounted for ~~32%~~33% and ~~36%~~30% of net sales for the ~~nine~~three months ended ~~May 31,~~November 30, 2020 and 2019, respectively. Three customers accounted for 8%17%, 7%7% and 5% of net sales during the three months ended November 30, 2020. Four customers accounted for 13%, 8%, 6%, and 6% (a dealer account in Japan representing various customers)~~, and 7%~~ of net sales during the ~~nine~~three months ended ~~May 31, 2020. Three~~November 30, 2019.

Accounts receivable concentration shows that five customers ~~accounted for 9%~~comprised 21%, 8%8%, 8%, 7% and 6% (a dealer account in Japan representing various customers)~~, and 7%~~ of ~~net sales during the nine months ended May 31, 2019.~~

accounts receivable at November 30, 2020. Accounts receivable concentration shows that ~~seven~~four customers comprised ~~10%~~14%, 8%, 7% and 7% (a dealer account in Japan representing various customers)~~, 7%, 7%, 7%, 5%, 5% and 5%~~ of accounts receivable at ~~May 31, 2020, compared to five customers comprised 10% (a dealer account in Japan representing various customers), 9%, 8%, 5% and 5% of accounts receivable at May 31, 2019~~November 30, 2019.

We operate in the computer software industry, which is highly competitive and changes rapidly. Our operating results could be significantly affected by our ability to develop new products and find new distribution channels for new and existing products.

The majority of our customers are in the pharmaceutical industry. ~~Consolidation~~During economic downturns, we have seen consolidations in the pharmaceutical industry. The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous factors we cannot reliably predict, including the duration and scope of the pandemic; businesses and individuals' actions in response to the pandemic; and the impact on economic activity including the possibility of recession or financial market instability. These factors may adversely impact consumer, business, and government spending as well as customers' ability to pay for our products and services on an ongoing basis. As a result, our growth rate could be affected by consolidation and downsizing in the pharmaceutical ~~industry could have an impact on our revenues and earnings going forward.~~industry.

NOTE 9: 10: SEGMENT AND ~~Geographic Reporting~~GEOGRAPHIC REPORTING

We account for segments and geographic revenues in accordance with guidance issued by the FASB. Our reportable segments are strategic business units that offer different products and services.

Results for each segment and consolidated results are as follows for the ~~three-month periods~~three months ended ~~May 31,~~November 30, 2020 and ~~2019 (in thousands, because of rounding numbers may not foot):~~2019:

Schedule of consolidated results from reportable segments
(in thousands)														Three Months Ended November 30, 2020
	Three months ended May 31, 2020													Simulations Plus		Cognigen		DILIsym			Lixoft*		Eliminations			Total
	Lancaster		Buffalo		North Carolina		Paris		Eliminations			Total
Net revenues	$	6,728	$	3,039	$	1,909	$	622	$	–		$	12,298
Income (loss) from operations		2,518		610		414		315		–			3,857
Revenues														$	5,432	$	2,668	$	1,372		$	1,229	$	0		$	10,701
Income from operations before income taxes														$	2,365	$	206	$	(45	)	$	525	$	0		$	3,051
Total assets		57,145		10,730		14,288		19,424		(40,007	)		61,579	$	162,871	$	12,279	$	14,180		$	20,628	$	(39,488	)	$	170,470
Capital expenditures		7		12		13		–		–			32	$	139	$	63	$	0		$	3	$	0		$	205
Capitalized software costs		494		4		32		76		–			606	$	568	$	0	$	43		$	117	$	0		$	728
Depreciation and amortization		430		88		151		119		–			788	$	451	$	81	$	149		$	184	$	0		$	865

*	The Company purchased Lixoft on April 1, 2020.

(in thousands)	Three Months Ended November 30, 2019
	Simulations Plus		Cognigen		DILIsym		Eliminations			Total
Revenues	$	4,927	$	2,387	$	2,087	$	0		$	9,401
Income from operations	$	1,903	$	40	$	775	$	0		$	2,718
Total assets	$	40,656	$	10,660	$	14,149	$	(17,702	)	$	47,763
Capital expenditures	$	8	$	17	$	3	$	0		$	28
Capitalized software costs	$	457	$	20	$	30	$	0		$	507
Depreciation and amortization	$	435	$	86	$	150	$	0		$	671

1822

Three months ended May 31, 2019
Lancaster Buffalo North Carolina Paris Eliminations Total
Net revenues $ 6,025 $ 2,538 $ 1,374 $ – $ – $ 9,937
Income (loss) from operations 3,044 387 451 – – 3,882
Total assets 40,130 10,147 12,927 – (17,702 ) 45,502
Capital expenditures 31 8 3 – – 42
Capitalized software costs 351 27 44 – – 422
Depreciation and amortization 440 92 146 – – 678

Nine months ended May 31, 2020
Lancaster Buffalo North Carolina Paris Eliminations Total
Net revenues $ 17,559 $ 8,176 $ 5,692 $ 622 $ – $ 32,049
Income (loss) from operations 6,425 926 1,735 315 – 9,401
Total assets 57,145 10,730 14,288 19,424 (40,007 ) 61,579
Capital expenditures 24 53 29 – – 106
Capitalized software costs 1,523 40 93 76 – 1,732
Depreciation and amortization 1,301 263 451 119 – 2,134

Nine months ended May 31, 2019
Lancaster Buffalo North Carolina Paris Eliminations Total
Net revenues $ 15,398 $ 6,895 $ 3,652 $ – $ – $ 25,945
Income (loss) from operations 6,614 1,093 992 – – 8,699
Total assets 40,130 10,147 12,927 – (17,702 ) 45,502
Capital expenditures 34 25 16 – – 75
Capitalized software costs 1,135 93 134 – – 1,362
Depreciation and amortization 1,366 272 432 – – 2,070

In addition, the Company allocates revenues to geographic areas based on the locations of its customers. Geographical revenues for the three months ~~and nine months~~ ended ~~May 31,~~November 30, 2020 and 2019 were as ~~follows (in thousands, because of rounding numbers may not foot):~~follows:

Three months ended May 31, 2020
North & South America Europe Asia Total
Lancaster $ 3,401 $ 1,719 $ 1,608 $ 6,728
Buffalo 3,039 – – 3,039
North Carolina 1,685 130 94 1,909
Paris 537 85 – 622
Total $ 8,662 $ 1,934 $ 1,702 $ 12,298

Schedule of geographical revenues
(in thousands)	Three Months Ended November 30, 2020
	Americas		EMEA		Asia Pacific		Total
Simulations Plus	$	2,518	$	1,890	$	1,024	$	5,432
Cognigen		2,668		0		0		2,668
DILIsym		1,326		21		25		1,372
Lixoft		611		567		51		1,229
Total	$	7,123	$	2,478	$	1,100	$	10,701

Three months ended May 31, 2019
North & South America Europe Asia Total
Lancaster $ 2,872 $ 1,497 $ 1,656 $ 6,025
Buffalo 2,538 – – 2,538
North Carolina 906 363 105 1,374
Total $ 6,316 $ 1,860 $ 1,761 $ 9,937

(in thousands)	Three Months Ended November 30, 2019
	Americas		EMEA		Asia Pacific		Total
Simulations Plus	$	2,547	$	1,147	$	1,233	$	4,927
Cognigen		2,387		0		0		2,387
DILIsym		1,737		325		25		2,087
Total	$	6,671	$	1,472	$	1,258	$	9,401

Nine months ended May 31, 2020
North & South America Europe Asia Total
Lancaster $ 8,555 $ 4,476 $ 4,528 $ 17,559
Buffalo 8,176 – – 8,176
North Carolina 4,890 581 221 5,692
Paris 537 85 – 622
Total $ 22,158 $ 5,142 $ 4,749 $ 32,049

Nine months ended May 31, 2019
North & South America Europe Asia Total
Lancaster $ 7,059 $ 4,207 $ 4,132 $ 15,398
Buffalo 6,895 – – 6,895
North Carolina 2,622 550 480 3,652
Total $ 16,576 $ 4,757 $ 4,612 $ 25,945

NOTE ~~10:~~ 11: EMPLOYEE BENEFIT PLAN

We maintain a ~~401(K)~~401(k) Plan for all eligible employees, and we make matching contributions equal to 100% of the employee’s elective deferral, not to exceed 4% of total employee compensation. We can also elect to make a profit-sharing contribution. Our contributions to this Plan amounted to ~~$123,549~~$121 thousand and ~~$116,839~~$92 thousand for the three months ended ~~May 31, 2020 and 2019, respectively and $325,220 and $295,777 for the nine months ended May 31,~~November 30, 2020 and 2019, respectively.

NOTE ~~11: ACQUISITION/MERGER WITH LIXOFT~~12: ACQUISITION

On March 31, 2020, the Company entered into a Stock Purchase and Contribution Agreement (the “Agreement”) with ~~Lixoft, a French société par actions simplifiée (“Lixoft”).~~Lixoft. On April 1, 2020, the Company ~~consummated~~completed the acquisition of all outstanding equity interests of Lixoft pursuant to the terms of the Agreement, with Lixoft becoming a wholly owned subsidiary of the Company. We believe the combination of Simulations Plus and Lixoft provides substantial future potential based on the complementary strengths of each of the companies.

Under the terms of the Agreement, as described below, the Company will pay the former shareholders of Lixoft total consideration of up to ~~$16,500,000,~~$16.5 million, consisting of two-thirds cash and one-third newly issued, unregistered shares of the Company’s common stock. In addition, the Company will pay ~~$3,456,029~~$3.5 million of excess working capital based on the March 31, 2020 financial statements of Lixoft.

On April 1, 2020, the Company paid the former shareholders of Lixoft a total of ~~$10,789,362,~~$10.8 million, comprised of cash in the amount of ~~$9,460,129~~$9.5 million and the issuance of 111,682 shares of the Company’s common stock valued at ~~$3,662,337 (under~~$3.7 million, net of adjustments and a holdback for representations and warranties. Under the terms of the Agreement a price of approximately $32.15 dollars per share was used based upon the volume-weighted average closing price of the Company’s shares of common stock for the 30-consecutive-trading-day period ending two trading days prior to April 1, ~~2020). The actual stock price at April 1, 2020 was $34.92, so the~~2020. A total ~~value~~ of ~~the stock issued was approximately $3,900,000, of which~~ 9,669 shares are held in an escrow account for potential offset for representations and warrantees. Within three business days following the two-year anniversary of March 31, 2020 (the date of the Agreement) and subject to any offsets for representations and warrantees, the Company will pay the former shareholders of Lixoft a total of ~~$2,000,000,~~$2.0 million, comprised of ~~$1,333,333~~$1.3 million of cash and ~~the release~~shares released from an escrow ~~shares of stock~~ valued at ~~$666,337~~$666 thousand issued at the date of the Agreement. The Agreement provides for a two-year market standoff period in which the newly issued shares may not be sold by the recipients thereof.

In addition, the ~~agreement~~Agreement calls for ~~earn-out~~earnout payments up to an additional ~~$5,500,000,~~$5.5 million, two-thirds cash and one-third newly issued, unregistered shares of the Company’s common stock based on a revenue growth formula each year for the two years subsequent to April 1, 2020. The former shareholders can earn up to ~~$2,000,000~~$2.0 million the first year and ~~$3,500,000~~$3.5 million in year two. The ~~Earn-out~~earnout liability has been recorded at fair value.

Under the acquisition method of accounting, the total purchase price reflects Lixoft’s tangible and intangible assets and liabilities based on their estimated fair values at the date of the completion of the acquisition (April 1, 2020). The following table summarizes the preliminary allocation of the purchase price for Lixoft:

Assets acquired, Including cash of $3,799,134 and accounts receivable of $629,481 $ 4,994,160
Developed Technologies Acquired 8,030,000
Estimated value of Intangibles assets acquired (Customer Lists, trade name etc.) 4,160,000
Estimated Goodwill acquired 2,404,973
Liabilities Assumed (862,208 )
Total Consideration $ 18,726,925

Allocation of purchase price
(in thousands)
Assets acquired, including cash of $3,799 and accounts receivable of $629	$	5,007
Developed technologies acquired		8,010
Estimated value of intangible assets acquired (customer lists, trade name etc.)		4,160
Estimated goodwill acquired		2,534
Liabilities assumed		(1,118	)
Total consideration	$	18,593

Goodwill ~~has been~~was provided in the transaction based on estimates of future earnings of this subsidiary including anticipated synergies associated with the positioning of the combined company as a leader in ~~model-based drug development.~~Model-Based Drug Development.

Consolidated supplemental Pro Forma information

The following unaudited consolidated supplemental pro forma information assumes that the acquisition of Lixoft took place on September 1, ~~2018~~2019 for the income statement for the three-month ~~and nine-month periods~~period ended ~~May 31,~~November 30, 2020. These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Lixoft to reflect the same expenses in the three-month ~~period~~perioded ended ~~May 31,~~November 30, 2019. The adjustments include costs of acquisition, and amortization of intangibles and other technologies acquired during the merger, assuming the ~~fair-value~~fair value adjustments applied on September 1, ~~2018,~~2019, together with consequential tax effects.

For the three-month period ended For the nine-month period ended

May 31,
(in 1000’s)
(Unaudited)

May 31,
(in 1000’s)
(Unaudited)

(Pro forma)* (Pro forma) (Pro forma)* (Pro forma)
2020 2019 2020 2019
Net Sales $ 12,422 $ 10,520 $ 34,430 $ 28,389
Net Income $ 3,565 $ 2,860 $ 8,442 $ 7,076

Schedule of Pro Forma Information
	For the three-month period ended
(in thousands)	November 30, (Unaudited)
	(Actual)		(Pro forma)
	2020		2019
Net sales	$	10,701	$	10,521
Net income	$	2,479	$	2,516

*Balances include two months actual results for Lixoft.

NOTE ~~12 -~~ 13: SUBSEQUENT ~~EVENTS:~~

~~Dividend Declared~~EVENTS

On ~~July 7, 2020,~~Wednesday, January 6, 2021, our Board of Directors declared a quarterly cash dividend of ~~$0.06~~$0.06 per share to our shareholders. The dividend amount of $12001.2 million will be distributed on Monday, ~~August 3, 2020,~~February 1, 2021, for shareholders of record as of Monday, ~~July 27, 2020.~~January 25, 2021.

On December 28, 2020, the Company entered into a Third Amendment with Crest Development Group LLC to amend a lease of real property originally entered into on September 12, 2005 as amended in June 2013 and May 2016 for property located at 42505 10^th Street West, Ste. A in Lancaster, California. The Premises serves as the Company’s principal executive office. This Third Amendment (i) extends the term of the Lease by approximately five years to January 31, 2026, (ii) decreases the leased square footage from 13,500 sq. ft to 9,255 sq. ft, (iii) correspondingly reduces the base rent from $25,000 per month to $16,659 per month and (iv) allows the Company to opt out of the last 4 years of the Lease upon 180-day notice to the Landlord with no penalty.

2124

Item 2. Management's Discussion and Analysis or Plan of Operations

Forward-Looking Statements

This 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 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.

General

BUSINESS

OVERVIEW

Simulations Plus, Inc., incorporated in 1996, is a premier developer of modeling and simulation software for drug discovery and development, including the prediction of properties of molecules utilizing artificial-intelligence- and machine-learning-based technology. We also provide consulting services ranging from early drug discovery through preclinical and clinical trial development to regulatory submissions in support of product approval. Our software and consulting services are provided to major pharmaceutical, biotechnology, agrochemical, cosmetics, and food industry companies and to academic and regulatory agencies worldwide for use in the conduct of industry-based research. SLP is headquartered in Southern California, with offices in Buffalo, NY, Research Triangle Park, NC, and Paris, France. The Company’s common stock trades on the Nasdaq Capital Market under the symbol “SLP”.

We are a global leader focused on improving the ways scientists use knowledge and data to predict the properties and outcomes of pharmaceutical and biotechnology agents by providing a wide range of early discovery, preclinical, and clinical consulting services and software. Our innovations in integrating new and existing science in medicinal and computational chemistry, pharmaceutical science, biology, physiology, and machine learning into our software have enabled us to be a leading software provider for physiologically based pharmacokinetics (PBPK) modeling and simulation, pharmacometric modeling and simulation, prediction of molecular properties from structure, and prediction of the propensity of drugs to induce liver injury or to treat nonalcoholic fatty liver disease. Our scientific consulting staff draw upon extensive experience across multiple therapeutic areas and a full range of modeling and simulation techniques to assist our clients across the full spectrum of drug development.

We generate revenue by delivering relevant, cost-effective software and creative and insightful consulting services. Pharmaceutical and biotechnology companies use our software programs and scientific consulting services to guide early drug discovery (molecule design screening and lead optimization), preclinical, and clinical development programs, including using our software products and services to enhance their understanding of the properties of potential new medicines and to use emerging data to improve formulations, select and justify dosing regimens, support the generics industry, optimize clinical trial designs, and simulate outcomes in special populations, such as in elderly and pediatric patients.

Simulations Plus acquired Cognigen Corporation (Cognigen) as a wholly owned subsidiary in September 2014. Cognigen was originally incorporated in 1992. Through the integration of Cognigen into Simulations Plus, Simulations Plus became 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.

Simulation Plus acquired DILIsym Services, Inc. (DILIsym) as a wholly owned subsidiary in June 2017. The acquisition of DILIsym positioned the Company as the leading provider of Drug Induced Liver Injury (DILI) modeling and simulation software and related scientific consulting services. In addition to the DILIsym® software for analysis of potential drug-induced liver injury, DILIsym. also has developed a simulation program for analyzing nonalcoholic fatty liver disease (NAFLD) called NAFLDsym™. Both the DILIsym and NAFLDsym software programs require outputs from physiologically based pharmacokinetics (PBPK) software as inputs. Outputs generated by the GastroPlus™ PBPK software that are required by DILIsym software can be automatically mapped to DILIsym applications; thus, the integration of these technologies provides 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 NAFLD. Since the acquisition, DILIsym has applied its mechanistic modeling resources in other disease areas including idiopathic pulmonary fibrosis (IPF).

Simulations Plus acquired Lixoft as a wholly owned subsidiary on April 1, 2020. Lixoft brings to Simulations Plus its powerful software products, Monolix, Simulx and PKanalix, which can take modeling projects from data exploration to clinical trial simulations. In addition, Lixoft provides training and focused consulting services which can accelerate pharmacometric studies. Lixoft’s technologies were developed as a result of a research program led by the French national research institute for digital science and technology (Inria), on nonlinear mixed effect models for advanced population analysis, pharmacometrics, pre-clinical, and clinical trial modeling and simulation. Lixoft continues to work with Inria.

PRODUCTS

General

We currently offer eleven 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); a program which is designed for rapid clinical trial data analysis and regulatory submissions called PKPlus™; a program called KIWI™ from our Cognigen division that provides an integrated platform for data analysis and reporting through our proprietary secure cloud; and in April 2020 with the acquisition of Lixoft, we added the Monolix Suite of products – a modeling and simulation solution that allows nonparametric analyses, population PKPD analyses, and modeling and clinical trial simulation.

Software business

Our software business represents 58% of our total revenue during the first quarter of fiscal year 2021, and is primarily generated by the following products:

GastroPlus®

Our flagship product, originally introduced in 1998, and currently our largest single source of software revenue, is GastroPlus. GastroPlus mechanistically simulates the absorption, pharmacokinetics, pharmacodynamics, and drug-drug interactions of compounds administered to humans and animals and is currently one of the most widely used commercial software of its type by industry, 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 around the world. In October 2020, GastroPlus version 9.8, which provides enhancements to non-oral delivery models, was released.

ADMET Predictor®

ADMET Predictor is a top-ranked, chemistry-based computer program that takes molecular structures (i.e., drawings of molecules represented in various formats) as inputs and uses artificial intelligence/machine learning technologies to predict approximately 175 different properties for them at an average rate of over 200,000 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. In September 2020, ADMET Predictor® Version 10.0 (APX), which integrates Artificial Intelligence-driven Drug Design Integration (AIDD) with PBPK, was released.

DILIsym®

The DILIsym software is a quantitative systems pharmacology (QSP) program that was introduced in 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 (i.e., drug-induced liver injury or DILI).

Monolix Suite^TM

The Monolix Suite is a unique solution for modeling and simulation for pharmaceutical companies, biotechs, and hospitals. It supports nonparametric analyses, population PKPD analyses and modeling, and clinical trial simulation. The extended MonolixSuite contains three main products: Monolix, Simulx, and PKanalix. These products are interconnected and interoperable, i.e., allowing users to go from one application to another one without changing anything in terms of data set or of biological models. Monolix 2020R1 was released in November 2020, which combines the most advanced algorithms with unique ease of use.

Consulting Services

Our consulting business represented 42% of our total revenue during the first quarter of fiscal year 2021, and is primarily generated by the following services:

PKPD

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. The Company provides modeling and simulation consulting services and assistance when an organization does not have the time or resources to use our software directly.

QSP/QST

We provide creative and insightful consulting services to support our QSP/QST modeling focused on heart failure, liver safety, radiation syndrome, as well as other areas. Pharmaceutical and biotechnology companies use our scientific consulting services to guide early drug discovery (molecule design screening and lead optimization), preclinical, and clinical development programs. This includes using our software products and services to enhance their understanding of the properties of potential new medicines and to use emerging data to improve formulations, select and justify dosing regimens, support the generics industry, optimize clinical trial designs, and simulate outcomes in special populations, such as in elderly and pediatric patients.

PBPK

Beginning in 2014, the FDA and other regulatory agencies began to emphasize the need to encourage mechanistic PBPK modeling and simulation in clinical pharmacology, with final guidance documents completed in 2018. This has resulted in an increased need for us to provide consulting-related services to support this sophisticated product. We support Model Based Drug Development in all phases of drug discovery, translational research, and clinical development when an organization does not have the time or resources to use our software, directly. More specifically, our clients seek out our consulting services to acquire scientific, therapeutic-area-related modeling and simulation expertise that they do not have in-house.

Summary Results of Operations

Comparison of Three Months Ended November 30, 2020 and 2019.

The following table sets forth our condensed statements of operations (in thousands) and the percentages that such items bear to net sales:

(in thousands)	Three Months Ended November 30,
	2020					2019
Revenues	$	10,701		100.0%		$	9,401		100.0%
Cost of revenues		2,433		23			2,643		28
Gross margin		8,268		77			6,758		72
Selling, general and administrative		4,408		41			3,514		37
Research and development		809		8			526		6
Total operating expenses		5,217		49			4,040		43
Income from operations		3,051		29			2,718		29
Other income (expense)		(55	)	(1	)		15		0.2
Income before provision for income taxes		2,996		28			2,733		29
(Provision for) income taxes		(517	)	(5	)		(675	)	(7	)
Net income	$	2,479		23%		$	2,058		22%

Consolidated Revenues

Consolidated revenues increased by 14% or $1.3 million to $10.7 million for the three months ended November 30, 2020 compared to $9.4 million for the three months ended November 30, 2019.

This increase is primarily due to a $1.6 million or 35% increase in consolidated software-related revenue, offset by a $0.3 million or 6% decrease in consolidated consulting and analytical study revenues when comparing the three-month periods ended November 30, 2020 and November 30, 2019.

Consolidated Cost of Revenues

Consolidated cost of revenues decreased by $0.2 million, or 8%, to $2.4 million for the three-month period ended November 30, 2020 compared to $2.6 million for the three-month period ended November 30, 2019. The decrease is primarily due to a $0.2 million decrease in labor-related contract research organization fees for the DILIsym division.

Consolidated Gross Margin

Consolidated gross margin increased $1.5 million or 22% to $8.3 million for the three-month period ended November 30, 2020 compared to $6.8 million for the three-month period ended November 30, 2019.

The higher gross margin is primarily due to the addition of the Lixoft division, which contributed $1.0 million to the increase, as well as due to the Simulations Plus division’s gross margin increase of $0.5 million or 13%. The Cognigen Division gross margin increased $0.4 million or 36%, with a gross margin percentage of 57% for the quarter. This was offset by a decrease for DILIsym Divisions’ gross margin of $0.5 million or 32% with a gross margin percentage of 72% for the quarter.

Overall gross margin percentage increased by 5% to 77% for the three-month period ended November 30, 2020 from 72% for the three-month period ended November 30, 2019.

Consolidated Selling, General and Administrative Expenses

Selling, general, and administrative expenses increased $0.9 million, or 25% to $4.4 million for the three-month period ended November 30, 2020 from $3.5 million for the three-month period ended November 30, 2019. As a percent of revenues, Selling, general, and administrative expense increased from 37% to 41% for the same comparative periods.

The increase in Selling, General, and Administrative expense was primarily due to the following:

·	Salaries and wage increased by $391 thousand due to higher corporate salaries and bonuses, higher headcount and higher contract labor costs;
·	Payroll tax expense increased $218 thousand due to higher headcount and wages;
·	Insurance expense increased by $116 thousand due to cost increases, higher employee counts and increased liability-related insurance;
·	Professional fees increased by $95 thousand due to higher accounting costs.

Research and Development

Total research and development costs increased by $0.5 million for the three months ended November 30, 2020 compared to the three months ended November 30, 2019. During the first quarter of FY 2021, we incurred approximately $1.5 million of research and development costs; of this amount, $0.7 million was capitalized and $0.8 million was expensed. For the three months ended November 30, 2019 we incurred approximately $1.0 million of research and development costs, of this amount, $0.5 million was capitalized and $0.5 million was expensed.

Other Income (Expense)

Total other expense was $55 thousand for the three months ended November 30, 2020 compared to total other income of $15 thousand for the three months ended November 30, 2019. The decrease of $70 thousand is primarily due to a change in the valuation of contingent consideration, partially offset by an increase in interest income resulting from short-term investments.

Provision for Income Taxes

The provision for income taxes was $0.5 million for the three months ended November 30, 2020 compared to $0.7 million for the same period in the previous year. Our effective tax rate decreased 7.4% to 17.3% for the three months ended November 30, 2020 from 24.7% during the same period of the previous year.

Net Income

Net income increased by $0.4 million, or 20.5%, for the three months ended November 30, 2020 to $2.5 million from $2.1 million for the same period in the previous year.

Segment Results of Operations

Revenue

(in thousands)	Three Months Ended November 30,
	2020		2019		Change ($)			Change (%)
Simulations Plus	$	5,432	$	4,927	$	505			10%
Cognigen		2,668		2,387		281			12
DILIsym		1,372		2,087		(715	)		(34	)
Lixoft*		1,229		–		1,229			100
Total	$	10,701	$	9,401	$	1,300			14%

Cost of Revenue

(in thousands)	Three Months Ended November 30,
	2020		2019		Change ($)			Change (%)
Simulations Plus	$	711	$	744	$	(33	)		(4)%
Cognigen		1,145		1,271		(126	)		(10)
DILIsym		386		628		(242	)		(39)
Lixoft*		191		–		191			100
Total	$	2,433	$	2,643	$	(210	)		(8)%

Gross Margin

(in thousands)	Three Months Ended November 30,
	2020		2019		Change ($)			Change (%)
Simulations Plus	$	4,721	$	4,183	$	538			13%
Cognigen		1,523		1,116		407			36
DILIsym		986		1,459		(473	)		(32)
Lixoft*		1,038		–		1,038			100
Total	$	8,268	$	6,758	$	1,510			22%

*Lixoft was acquired on April 1, 2020.

Three Months Ended November 30, 2020 compared with Three Months Ended November 30, 2019

Simulations Plus

Revenue increased $505 thousand or 10%, primarily due to higher sales from GastroPlus ($357 thousand) and ADMET Software ($94 thousand). Cost of revenue decreased marginally during the periods. Gross margin increased $538 thousand or 13%, primarily due to the change in revenue.

Cognigen

Revenue increased $281 thousand or 12%, primarily due to an increase in grant revenue of $248 thousand. Cost of revenue decreased $126 thousand or 10%, primarily due to a reduction in salaries. Gross margin increased $407 thousand or 36%, primarily due to the increase in income.

DILIsym

Revenue decreased $715 thousand or 34%, primarily due to lower revenue from DILIsym consulting services. Cost of revenue decreased $242 thousand or 39%, primarily due to a decrease in contract research organization fees of $226 thousand. Gross margin decreased $473 thousand or 32%, primarily due to the change in revenue.

Lixoft

Revenue increased $1.2 million due to the purchase of Lixoft on April 1, 2020. Software sales of Monolix Suite generated 95% of total revenue and 5% was generated from consulting services. Cost of revenue increased $191 thousand, and gross margin was $1.0 million due to the purchase of Lixoft on April 1, 2020.

Liquidity and Capital Resources

Historically, our principal sources of capital have been cash flows from our operations. We have achieved continuous positive operating cash flow over the last eleven fiscal years. 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.

In August 2020, the company closed an underwritten public offering of 2,090,909 shares of its common stock to the public at $55.00 per share, which included the full exercise of the underwriters’ option to purchase 272,727 additional shares of common stock. The aggregate gross proceeds to the company from this offering were approximately $115 million, before deducting underwriting discounts and commissions; net proceeds were approximately $107.7 million. The offering was made pursuant to the Company’s automatic shelf registration statement on Form S-3 filed with the SEC on July 9, 2020.

Notwithstanding the foregoing, if cash generated from operations and the net proceeds from our underwritten public offering are insufficient to satisfy our capital requirements, we may draw from our revolving line of credit with the bank, or we may have to sell additional equity or debt securities or obtain expanded credit facilities. In the event such 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. If cash flows from operations became insufficient to continue operations at the current level, and if no additional financing was obtained, then management would restructure the Company in a way to preserve its pharmaceutical business while maintaining expenses within operating cash flows.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As of ~~May 31,~~November 30, 2020 and August 31, ~~2019,~~2020, we had cash and cash equivalents of ~~$7.35~~$27.7 million and ~~$11.44~~$49.2 million, respectively. We ~~do not~~ hold ~~any~~held-to-maturity short-term investments that are exposed to market risk ~~due~~related to changes in interest rates, which could ~~adversely~~ affect the value of our assets and liabilities. ~~In addition, we~~We do not hold any ~~instruments for~~ trading ~~purposes~~ and ~~investment.~~or available-for-sale securities. Some of our cash and cash equivalents are held in money market accounts; however, they are not exposed to ~~market rate~~market-rate risk.

In the three ~~and nine~~ months ended ~~May 31,~~November 30, 2020 and 2019, we sold ~~$1,453,000~~$869 thousand and ~~$1,402,000 and $3,800,000 and $3,273,000,~~$841 thousand, respectively of software through representatives in certain Asian markets in local currencies. As a result, our financial position, results of operations, and cash flows can be affected by fluctuations in foreign currency exchange rates, particularly fluctuations in the yen and RMB exchange rates. These transactions give rise to receivables that are denominated in currencies other than the entity’s functional currency. The value of these receivables ~~are~~is subject to ~~changes~~change because the receivables may become worth more or less due to changes in currency exchange rates. The majority of our software license agreements are denominated in U.S. dollars. We record foreign gains and losses as they are realized. We mitigate our risk from foreign currency fluctuations by adjusting prices in our foreign markets on a periodic basis. We base these changes on market conditions while working closely with our representatives. We do not hedge currencies or enter into derivative contracts.

Item 4. Controls and Procedures

Our 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, 2020. 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-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, 2020, that our disclosure controls and procedures were effective.

Changes in Internal Controls over Financial Reporting

No change in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

2232

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

For a description of our material pending legal proceedings, please see Note 7, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 1A.

Risk Factors

Please 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 year ended August 31, 2020, 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. 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 Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

EXHIBIT NUMBER		DESCRIPTION
~~31.1~~10.1 (1) †		~~Section 302 –~~ Employment Agreement by and between the Company and Shawn O’Connor, dated as of September 3, 2020.
10.2* †		Employment Agreement by and between the Company and William W. Frederick, dated as of December 1, 2020.
31.1*		Certification of the Principal Executive OfficerOfficer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
~~31.2~~31.2*		~~Section 302 –~~ Certification of the Principal Financial OfficerOfficer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
3232.1*		~~Section 906 –~~ Certification of the Chief Executive ~~Office~~Officer and Chief Financial OfficerOfficer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
~~101.INS~~101.INS*		XBRL Instance Document.
~~101.SCH~~101.SCH*		XBRL Taxonomy Extension Schema Document.
~~101.CAL~~101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.
~~101.DEF~~101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.
~~101.LAB~~101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.
~~101.PRE~~101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.
104*		Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

________________________

*^	~~Filed herewith~~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)	Incorporated by reference to the Company’s Form 8-K filed with the SEC on September 9, 2020.

2334

SIGNATURE

In 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 ~~July 24, 2020.~~January 11, 2021.

		Simulations Plus, Inc.


Date:	~~July 24, 2020~~January 11, 2021	By: /s/ ~~John R Kneisel~~Will Frederick
		~~John R. Kneisel~~Will Frederick

Chief Financial Officer

2435

	(Unaudited)		(Audited)
	May 31		August 31,
	2020		2019
ASSETS
Current assets
Cash and cash equivalents	$	7,354,496	$	11,435,499
Accounts receivable, net of allowance for doubtful accounts of $25,000 and $0		10,853,452		5,026,558
Revenues in excess of billings		2,838,072		3,233,659
Prepaid income taxes		392,099		765,110
Prepaid expenses and other current assets		745,468		704,316
Total current assets		22,183,587		21,165,142

Long-term assets
Capitalized computer software development costs,
net of accumulated amortization of $13,293,943 and $12,356,055		5,754,971		4,959,736
Property and equipment, net (note 4)		356,784		341,145
Operating lease right of use asset		1,019,408		–
Intellectual property, net of accumulated amortization of $4,729,270 and $3,948,750		12,275,730		5,026,249
Other intangible assets net of accumulated amortization of $1,503,481 and $1,210,000		7,146,519		3,280,000
Goodwill		12,792,171		10,387,198
Other assets		49,957		37,227
Total assets	$	61,579,127	$	45,196,697

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable	$	663,337	$	204,075
Accrued payroll and other expenses		2,137,383		1,639,038
Current portion - Contracts payable (note 5)		3,761,028		1,761,028
Billings in excess of revenues		269,232		798,549
Operating lease liability, current portion		525,454		–
Deferred revenue		428,611		380,787
Total current liabilities		7,785,045		4,783,477

Long-term liabilities
Deferred income taxes, net		2,775,398		2,731,616
Operating Lease Liability		489,463		–
Payments due under Contracts payable (note 5)		3,942,333		–
Total liabilities		14,992,239		7,515,093

Commitments and contingencies (note 6)

Shareholders' equity (note 7)
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 17,788,498 and 17,591,834 shares issued and outstanding		7,791		7,595
Additional paid-in capital		20,231,443		15,319,474
Accumulated Other Comprehensive Income (Loss)		30,460		–
Retained earnings		26,317,194		22,354,535
Total shareholders' equity	$	46,586,888	$	37,681,604
Total liabilities and shareholders' equity	$	61,579,127	$	45,196,697

	Common Stock				Additional Paid-In		Accumulated Other Comprehensive		Retained
	Shares		Amount		Capital		Income		Earnings			Total

Balance, August 31, 2018		17,416,445	$	7,417	$	13,453,668	$	–	$	18,461,540		$	31,922,625

Exercise of stock options		41,103		42		357,410		–		–			357,452
Stock-based Compensation		–		–		200,029		–		–			200,029
Shares issued to Directors for services		2,222		2		44,904		–		–			44,906
Adjustment for 606		–		–		–		–		(493,279	)		(493,279	)
Declaration of Dividend		–		–		–		–		(1,045,073	)		(1,045,073	)
Net income		–		–		–		–		1,535,947			1,535,947
Balance, November 30, 2018		17,459,770		7,461		14,056,011		–		18,459,135			32,522,607

Exercise of stock options		37,680		38		121,912		–		–			121,950
Stock-based Compensation		–		–		208,715		–		–			208,715
Shares issued to Directors for services		2,508		4		48,954		–		–			48,958
Declaration of Dividend		–		–		–		–		(1,048,887	)		(1,048,887	)
Net income		–		–		–		–		2,099,449			2,099,449
Balance, February 28, 2019		17,499,958		7,503		14,435,592		–		19,509,697			33,952,792

Exercise of stock options		25,849		26		103,747		–		–			103,773
Stock-based Compensation		–		–		224,654		–		–			224,654
Shares issued to Directors for services		2,176		2		49,023		–		–			49,025
Declaration of Dividend		–		–		–		–		(1,050,914	)		(1,050,914	)
Net income		–		–		–		–		2,888,706			2,888,706
Balance, May 31, 2019		17,527,983		7,531		14,813,016		–		21,347,489			36,168,036

Exercise of stock options		62,071		62		204,910		–		–			204,972
Stock-based Compensation		–		–		232,450		–		–			232,450
Shares issued to Directors for services		1,780		2		69,098		–		–			69,100
Declaration of Dividend		–		–		–		–		(1,052,181	)		(1,052,181	)
Net income		–		–		–		–		2,059,227			2,059,227
Balance, August 31, 2019		17,591,834	$	7,595	$	15,319,474	$	–	$	22,354,535		$	37,681,604

Right of use assets	$	902,553
Lease Liabilities, Current	$	537,017
Lease Liabilities, Long-term	$	365,536

Right of use asset	$	1,019,408
Lease Liabilities, Current	$	525,454
Lease Liabilities, Long-term	$	489,463
Operating lease costs	$	438,269
Weighted Average remaining lease term		2.31 years
Weighted Average Discount rate		4.28%

Value at August 31, 2019	$	1,761,028
Contingent consideration for Lixoft		4,609,000
Value at May 31, 2020	$	6,370,028

Disaggregation of Revenues:	Three Months Ended May 31, 2020		Nine Months Ended May 31, 2020
Software licenses
Point in time	$	6,622,671	$	16,116,466
Over time		230,047		734,339
Consulting services
Over time		5,445,318		15,198,198
Total Revenue	$	12,298,036	$	32,049,003

Equipment	$	775,767
Computer equipment		510,935
Furniture and fixtures		160,990
Leasehold improvements		114,004
Sub total		1,561,696
Less: Accumulated depreciation and amortization		(1,204,912	)
Net Book Value	$	356,784

	May 31, 2020		August 31, 2019
Holdback Liability - Lixoft	$	1,333,333	$	–
Earn-out Liability - Lixoft		4,609,000		–
Earn-out Liability - Dilisym		1,761,028		1,761,028
Sub Total	$	7,703,361	$	1,761,028
Less: Current Portion		3,761,028		1,761,028
Long-Term	$	3,942,333	$	–

FY2020
Record Date	Distribution Date	Number of Shares Outstanding on Record Date		Dividend per Share		Total Amount
10/25/2019	11/01/2019		17,606,314	$	0.06	$	1,056,379
1/27/2020	2/03/2020		17,645,639	$	0.06		1,058,740
4/24/2020	5/01/2020		17,769,134	$	0.06		1,066,148
Total						$	3,181,267

FY2019
Record Date	Distribution Date	Number of Shares Outstanding on Record Date		Dividend per Share		Total Amount
11/1/2018	11/08/2018		17,417,875	$	0.06	$	1,045,073
1/25/2019	2/1/2019		17,481,450	$	0.06		1,048,887
4/09/2019	5/01/2019		17,515,228	$	0.06		1,050,914
7/25/2019	8/1/2019		17,536,454	$	0.06		1,052,181
Total						$	4,197,055

Transactions in FY20	Number of Options			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life
Outstanding, August 31, 2019		1,163,259		$	12.63		7.13
Granted		180,000		$	33.83
Exercised		(78,807	)	$	8.46
Cancelled/Forfeited		(32,961	)	$	14.26
Expired		–		$	–
Outstanding, May 31, 2020		1,231,491		$	15.95		6.90
Exercisable, May 31, 2020		625,966		$	10.05		5.78

	Three months ended May 31, 2019
	Lancaster		Buffalo		North Carolina		Paris		Eliminations			Total
Net revenues	$	6,025	$	2,538	$	1,374	$	–	$	–		$	9,937
Income (loss) from operations		3,044		387		451		–		–			3,882
Total assets		40,130		10,147		12,927		–		(17,702	)		45,502
Capital expenditures		31		8		3		–		–			42
Capitalized software costs		351		27		44		–		–			422
Depreciation and amortization		440		92		146		–		–			678

	Nine months ended May 31, 2020
	Lancaster		Buffalo		North Carolina		Paris		Eliminations			Total
Net revenues	$	17,559	$	8,176	$	5,692	$	622	$	–		$	32,049
Income (loss) from operations		6,425		926		1,735		315		–			9,401
Total assets		57,145		10,730		14,288		19,424		(40,007	)		61,579
Capital expenditures		24		53		29		–		–			106
Capitalized software costs		1,523		40		93		76		–			1,732
Depreciation and amortization		1,301		263		451		119		–			2,134

	Nine months ended May 31, 2019
	Lancaster		Buffalo		North Carolina		Paris		Eliminations			Total
Net revenues	$	15,398	$	6,895	$	3,652	$	–	$	–		$	25,945
Income (loss) from operations		6,614		1,093		992		–		–			8,699
Total assets		40,130		10,147		12,927		–		(17,702	)		45,502
Capital expenditures		34		25		16		–		–			75
Capitalized software costs		1,135		93		134		–		–			1,362
Depreciation and amortization		1,366		272		432		–		–			2,070

Three months ended May 31, 2020
	North & South America		Europe		Asia		Total
Lancaster	$	3,401	$	1,719	$	1,608	$	6,728
Buffalo		3,039		–		–		3,039
North Carolina		1,685		130		94		1,909
Paris		537		85		–		622
Total	$	8,662	$	1,934	$	1,702	$	12,298

Assets acquired, Including cash of $3,799,134 and accounts receivable of $629,481	$	4,994,160
Developed Technologies Acquired		8,030,000
Estimated value of Intangibles assets acquired (Customer Lists, trade name etc.)		4,160,000
Estimated Goodwill acquired		2,404,973
Liabilities Assumed		(862,208	)
Total Consideration	$	18,726,925

	For the three-month period ended				For the nine-month period ended
	May 31, (in 1000’s) (Unaudited)				May 31, (in 1000’s) (Unaudited)
	(Pro forma)*		(Pro forma)		(Pro forma)*		(Pro forma)
	2020		2019		2020		2019
Net Sales	$	12,422	$	10,520	$	34,430	$	28,389
Net Income	$	3,565	$	2,860	$	8,442	$	7,076