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 | |
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 10th10th Street West
Lancaster, CA93534-7059
(Address of principal executive offices including zip code)
(661) (661) 723-7723
(Registrant’s telephone number, including area code)
Securities registered pursuant to SectionSECURITIES REGISTERED PURSUANT TO SECTION 12(b) of the Act:
OF THE ACT:
Title of | ||
Each Class Common Stock, par value $0.001 per share | Trading Symbol SLP | Name of Each Exchange on Which Registered NASDAQ Stock Market LLC |
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-acceleratednonaccelerated 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 | |
☒ 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, 2020April 12, 2021 was 17,820,057, ; 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/A10-Q
For the Quarterly Period Ended May 31, 2020February 28, 2021
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
SIMULATIONS PLUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) | (Audited) | |||||||||||||||
May 31 | August 31, | (Unaudited) | (Audited) | |||||||||||||
2020 | 2019 | February 28, | August 31, | |||||||||||||
(in thousands, except share and per share amounts) | 2021 | 2020 | ||||||||||||||
ASSETS | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 7,354,496 | $ | 11,435,499 | $ | 42,385 | $ | 49,207 | ||||||||
Accounts receivable, net of allowance for doubtful accounts of $25,000 and $0 | 10,853,452 | 5,026,558 | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $100 and $50 | 11,306 | 7,422 | ||||||||||||||
Revenues in excess of billings | 2,838,072 | 3,233,659 | 3,837 | 3,093 | ||||||||||||
Prepaid income taxes | 392,099 | 765,110 | 1,250 | 970 | ||||||||||||
Prepaid expenses and other current assets | 745,468 | 704,316 | 1,408 | 1,596 | ||||||||||||
Short-term investments | 75,367 | 66,804 | ||||||||||||||
Total current assets | 22,183,587 | 21,165,142 | 135,553 | 129,092 | ||||||||||||
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 | ||||||||||||||
Capitalized computer software development costs, net of accumulated amortization of $14,271 and $13,582 | 6,871 | 6,087 | ||||||||||||||
Property and equipment, net | 924 | 438 | ||||||||||||||
Operating lease right of use assets | 1,532 | 927 | ||||||||||||||
Intellectual property, net of accumulated amortization of $5,801 and $5,087 | 11,184 | 11,898 | ||||||||||||||
Other intangible assets, net of accumulated amortization of $1,917 and $1,642 | 6,733 | 7,008 | ||||||||||||||
Goodwill | 12,792,171 | 10,387,198 | 12,921 | 12,921 | ||||||||||||
Other assets | 49,957 | 37,227 | 51 | 51 | ||||||||||||
Total assets | $ | 61,579,127 | $ | 45,196,697 | $ | 175,769 | $ | 168,422 | ||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable | $ | 663,337 | $ | 204,075 | $ | 400 | $ | 351 | ||||||||
Accrued payroll and other expenses | 2,137,383 | 1,639,038 | 2,891 | 2,251 | ||||||||||||
Current portion - Contracts payable (note 5) | 3,761,028 | 1,761,028 | ||||||||||||||
Current portion - contracts payable | 2,000 | 2,000 | ||||||||||||||
Billings in excess of revenues | 269,232 | 798,549 | 258 | 141 | ||||||||||||
Operating lease liability, current portion | 525,454 | – | 469 | 463 | ||||||||||||
Deferred revenue | 428,611 | 380,787 | 523 | 300 | ||||||||||||
Total current liabilities | 7,785,045 | 4,783,477 | 6,541 | 5,506 | ||||||||||||
Long-term liabilities | ||||||||||||||||
Deferred income taxes, net | 2,775,398 | 2,731,616 | 2,360 | 2,354 | ||||||||||||
Operating Lease Liability | 489,463 | – | ||||||||||||||
Payments due under Contracts payable (note 5) | 3,942,333 | – | ||||||||||||||
Operating lease liability | 1,064 | 463 | ||||||||||||||
Payments due under contracts payable | 4,307 | 4,064 | ||||||||||||||
Total liabilities | 14,992,239 | 7,515,093 | 14,272 | 12,387 | ||||||||||||
Commitments and contingencies (note 6) | ||||||||||||||||
Commitments and contingencies | ||||||||||||||||
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 | – | ||||||||||||||
Shareholders' equity | ||||||||||||||||
Preferred stock, $ | par value shares authorized, shares issued and outstanding0 | 0 | ||||||||||||||
Common stock, $ | par value and additional paid in capital — shares authorized, and shares issued and outstanding130,713 | 128,541 | ||||||||||||||
Retained earnings | 26,317,194 | 22,354,535 | 30,730 | 27,436 | ||||||||||||
Accumulated other comprehensive income | 54 | 58 | ||||||||||||||
Total shareholders' equity | $ | 46,586,888 | $ | 37,681,604 | 161,497 | 156,035 | ||||||||||
Total liabilities and shareholders' equity | $ | 61,579,127 | $ | 45,196,697 | $ | 175,769 | $ | 168,422 |
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.Condensed Consolidated Financial Statements.
SIMULATIONS PLUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
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 |
3 |
SIMULATIONS PLUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITYOPERATIONS AND COMPREHENSIVE INCOME
For the ninethree and six months ended May 31,February 28, 2021 and February 29, 2020 and the year ended August 31, 2019
(UNAUDITED) (continued)
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 |
(in thousands, except per common share amounts) | Three Months Ended | Six Months Ended | ||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenues | $ | 13,147 | $ | 10,350 | $ | 23,848 | $ | 19,751 | ||||||||
Cost of revenues | 2,911 | 2,666 | 5,344 | 5,309 | ||||||||||||
Gross margin | 10,236 | 7,684 | 18,504 | 14,442 | ||||||||||||
Operating expenses | ||||||||||||||||
Selling, general, and administrative | 5,458 | 4,110 | 9,866 | 7,623 | ||||||||||||
Research and development | 1,292 | 748 | 2,101 | 1,274 | ||||||||||||
Total operating expenses | 6,750 | 4,858 | 11,967 | 8,897 | ||||||||||||
Income from operations | 3,486 | 2,826 | 6,537 | 5,545 | ||||||||||||
Other income (expense) | ||||||||||||||||
Interest income | 58 | 12 | 119 | 22 | ||||||||||||
Interest expense | (22 | ) | 0 | (22 | ) | 0 | ||||||||||
Change in value of contingent consideration | (122 | ) | 0 | (243 | ) | 0 | ||||||||||
Income/(Loss) on currency exchange | 23 | (2 | ) | 28 | 2 | |||||||||||
Total other income (expense) | (63 | ) | 10 | (118 | ) | 24 | ||||||||||
Income before provision for income taxes | 3,423 | 2,836 | 6,419 | 5,569 | ||||||||||||
Provision for income taxes | (212 | ) | (686 | ) | (729 | ) | (1,361 | ) | ||||||||
Net Income | $ | 3,211 | $ | 2,150 | $ | 5,690 | $ | 4,208 | ||||||||
Earnings per share | ||||||||||||||||
Basic | $ | 0.16 | $ | 0.12 | $ | 0.28 | $ | 0.24 | ||||||||
Diluted | $ | 0.15 | $ | 0.12 | $ | 0.27 | $ | 0.23 | ||||||||
Weighted-average common shares outstanding | ||||||||||||||||
Basic | 20,006 | 17,638 | 19,968 | 17,624 | ||||||||||||
Diluted | 20,842 | 18,316 | 20,786 | 18,306 | ||||||||||||
Other Comprehensive Income (Loss), net of tax | ||||||||||||||||
Foreign currency translation adjustments | (4 | ) | 0 | (4 | ) | 0 | ||||||||||
Comprehensive Income | $ | 3,207 | $ | 2,150 | $ | 5,686 | $ | 4,208 |
The accompanying notes are an integral part of these financial statements.Condensed Consolidated Financial Statements.
4 |
SIMULATIONS PLUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSHAREHOLDERS' EQUITY
For the ninethree and six months ended May 31,February 28, 2021 and February 29, 2020 and May 31, 2019
(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 | $ | – |
(in thousands, except per common share amounts) | Three Months Ended | Six Months Ended | ||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Common stock and additional paid in capital | ||||||||||||||||
Balance, beginning of period | $ | 129,253 | $ | 15,830 | $ | 128,541 | $ | 15,327 | ||||||||
Exercise of stock options | 656 | 167 | 836 | 303 | ||||||||||||
Stock-based compensation | 717 | 345 | 1,166 | 640 | ||||||||||||
Shares issued to Directors for services | 87 | 72 | 170 | 144 | ||||||||||||
Balance, end of period | $ | 130,713 | $ | 16,414 | $ | 130,713 | $ | 16,414 | ||||||||
Retained earnings | ||||||||||||||||
Balance, beginning of period | $ | 28,720 | $ | 23,357 | $ | 27,436 | $ | 22,355 | ||||||||
Declaration of dividend | (1,201 | ) | (1,059 | ) | (2,396 | ) | (2,115 | ) | ||||||||
Net income | 3,211 | 2,150 | 5,690 | 4,208 | ||||||||||||
Balance, end of period | $ | 30,730 | $ | 24,448 | $ | 30,730 | $ | 24,448 | ||||||||
Accumulated other comprehensive income | ||||||||||||||||
Balance, beginning of period | $ | 58 | $ | – | $ | 58 | $ | – | ||||||||
Other comprehensive income (loss) | (4 | ) | – | (4 | ) | – | ||||||||||
Balance, end of period | $ | 54 | $ | – | $ | 54 | $ | – | ||||||||
Total shareholders’ equity | – | – | 156,035 | – | ||||||||||||
Other comprehensive income (loss) | – | – | – | – | ||||||||||||
Total shareholders’ equity | $ | 161,497 | $ | 40,862 | $ | 161,497 | $ | 40,862 | ||||||||
Common dividends declared per common share | $ | 0.06 | $ | 0.06 | $ | 0.12 | $ | 0.12 |
The accompanying notes are an integral part of these financial statements.Condensed Consolidated Financial Statements.
5 |
Simulations Plus, Inc.SIMULATIONS PLUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended | ||||||||
(in thousands) | February 28, 2021 | February 29, 2020 | ||||||
Cash flows from operating activities | ||||||||
Net income | $ | 5,690 | $ | 4,208 | ||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
Depreciation and amortization | 1,776 | 1,345 | ||||||
Change in value of contingent consideration | 243 | 0 | ||||||
Amortization of note premiums | 1,276 | 0 | ||||||
Stock-based compensation | 1,336 | 784 | ||||||
Deferred income taxes | 6 | (17 | ) | |||||
Currency translation adjustments | (4 | ) | 0 | |||||
(Increase) decrease in | ||||||||
Accounts receivable | (3,884 | ) | (2,218 | ) | ||||
Revenues in excess of billings | (744 | ) | (880 | ) | ||||
Prepaid income taxes | (280 | ) | 308 | |||||
Prepaid expenses and other assets | 188 | 92 | ||||||
Increase (decrease) in | ||||||||
Accounts payable | 51 | 421 | ||||||
Accrued payroll and other expenses | 640 | (114 | ) | |||||
Billings in excess of revenues | 117 | 93 | ||||||
Deferred revenue | 223 | (197 | ) | |||||
Net cash provided by operating activities | 6,634 | 3,825 | ||||||
Cash flows used in investing activities | ||||||||
Purchases of property and equipment | (583 | ) | (73 | ) | ||||
Purchases of short-term investments | (40,789 | ) | 0 | |||||
Proceeds from sale of short-term investments | 30,950 | 0 | ||||||
Capitalized computer software development costs | (1,474 | ) | (1,127 | ) | ||||
Net cash used in investing activities | (11,896 | ) | (1,200 | ) | ||||
Cash flows used in financing activities | ||||||||
Payment of dividends | (2,396 | ) | (2,115 | ) | ||||
Proceeds from the exercise of stock options | 836 | 303 | ||||||
Net cash used in financing activities | (1,560 | ) | (1,812 | ) | ||||
Net increase (decrease) in cash and cash equivalents | (6,822 | ) | 813 | |||||
Cash and cash equivalents, beginning of year | 49,207 | 11,436 | ||||||
Cash and cash equivalents, end of period | $ | 42,385 | $ | 12,249 | ||||
Supplemental disclosures of cash flow information | ||||||||
Income taxes paid | $ | 878 | $ | 1,066 | ||||
Non-Cash Investing and Financing Activities | ||||||||
Right of use assets capitalized | $ | 905 | $ | 903 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6 |
SIMULATIONS PLUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2019
(Unaudited)
NOTE 1: GENERAL
This report on Form 10-Q/A10-Q for the quarter ended May 31, 2020February 28, 2021, should be read in conjunction with the Company's annual reportour 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)(“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-ownedwholly 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 designsWe are a premier developer of drug discovery and developsdevelopment software for modeling and simulation, and for the prediction of molecular properties utilizing artificial intelligence and machine learning based technology. We also provide consulting services ranging from early drug discovery through preclinical and clinical trial data analysis and for submissions to regulatory agencies. Our software and consulting services are provided to major pharmaceutical, simulation softwarebiotechnology, agrochemical, cosmetics, food industry companies, and to promote cost-effective solutions to a number of problems in pharmaceutical research andregulatory agencies worldwide for use in the educationconduct 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.industry-based research.
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 arehave 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.
We generate revenue primarily from the sale of software licenses and by providing consulting services to the pharmaceutical industry for drug development.
The Company determines
7 |
In accordance with Accounting Standards Codification Topic 606 (ASC Topic 606), “Revenue from Contracts with Customers”, we determine 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, |
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 hasWe have 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 |
· | Transaction Price Allocated to Future Performance Obligations : ASC 606 requires that
|
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considerswe consider 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’sour trade accounts receivable balances. If we determine that the financial conditions of any of our customers have 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. We account for our 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. 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.
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.
We classify our investments in marketable debt securities based on the facts and circumstances present at the time of purchase of the securities. During the quarter ended February 28, 2021, all of our investments were classified as held-to-maturity.
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 usingon 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$365 thousand and $322,552$314 thousand for the three months ended May 31,February 28, 2021 and February 29, 2020, and 2019, respectively and $937,888$690 thousand and $1,006,339$628 thousand for the ninesix months ended May 31,February 28, 2021 and February 29, 2020, and 2019, respectively. We expect future amortization expense to vary due to increases in capitalized computer software development costs.
We test capitalized computer software development costs for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over the estimated useful lives as follows:
Property and Equipment estimated useful lives | |
Equipment | 5 years |
Computer equipment | 3 to 7 years |
Furniture and fixtures | 5 to 7 years |
Leasehold improvements | Shorter of life of asset or lease |
Maintenance
9 |
Internal-use Software
We have 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”, we have 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 replacementsupgrades 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:
Supplemental balance sheet information related to operating leases was as follows as of May 31, 2020:February 28, 2021:
Right of use asset | $ | 1,019,408 | ||||||
Schedule of lease cost | ||||||||
(in thousands) | ||||||||
Right of use assets | $ | 1,532 | ||||||
Lease Liabilities, Current | $ | 525,454 | $ | 469 | ||||
Lease Liabilities, Long-term | $ | 489,463 | $ | 1,064 | ||||
Operating lease costs | $ | 438,269 | $ | 314 | ||||
Weighted Average remaining lease term | 2.31 years | 3.0 years | ||||||
Weighted Average Discount rate | 4.28% | 3.79% |
GoodwillIntangible Assets and indefinite-lived assetsGoodwill
The Company performsWe perform 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 dateacquisition-date fair value. Acquired intangible assets include customer relationships, software, trade names, and non-competenoncompete agreements. The Company determinesWe determine 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'sour use of the acquired assets or the strategy for the Company'sour 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, 2020, the CompanyFebruary 28, 2021, we determined that it haswe have four reporting units,units: Simulations Plus, Cognigen, Corporation, DILIsym Services, Inc. and Lixoft. When testing goodwill for impairment, the Companywe first performsperform 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 iswe are 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'sour 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'sour 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, 2020,February 28, 2021, the entire balance of goodwill was attributed to three of the Company'sour reporting units,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 CompanyWe did not recognize any impairment charges during the three-monththree months and nine-month periodssix months ended May 31, 2020February 28, 2021 and 2019.February 29, 2020.
Reconciliation of Goodwill for the period ended May 31, 2020:as of February 28, 2021:
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, February 28, 2021 | $ | 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 bonusbonuses 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, 2020February 28, 2021 and August 31, 20192020 for assets and liabilities measured at fair value on a recurring basis:
Schedule of fair value measurements | ||||||||||||||||
February 28, 2021: | ||||||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Cash and cash equivalents | $ | 42,385 | $ | 0 | $ | 0 | $ | 42,385 | ||||||||
Short-term investments | $ | 75,367 | $ | 0 | $ | 0 | 75,367 | |||||||||
Acquisition-related contingent consideration obligations | $ | 0 | $ | 0 | $ | 4,974 | $ | 4,974 |
MayAugust 31, 2020:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||
(in thousands) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 7,354,496 | $ | – | $ | – | $ | 7,354,496 | $ | 49,207 | $ | 0 | $ | 0 | $ | 49,207 | ||||||||||||||||
Short-term investments | $ | 66,804 | $ | 0 | $ | 0 | $ | 66,804 | ||||||||||||||||||||||||
Acquisition-related contingent consideration obligations | $ | – | $ | – | $ | 6,370,028 | $ | 6,370,028 | $ | 0 | $ | 0 | $ | 4,731 | $ | 4,731 |
August 31, 2019:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Cash and cash equivalents | $ | 11,435,499 | $ | – | $ | – | $ | 11,435,499 | ||||||||
Acquisition-related contingent consideration obligations | $ | – | $ | – | $ | 1,761,028 | $ | 1,761,028 |
11 |
As of May 31, 2020,February 28, 2021 and August 31, 2019, the Company has2020, we had a liability for contingent consideration related to its acquisitionsour acquisition of the DILIsym Services, Inc. and Lixoft. The fair-valuefair 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-valuefair 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 recordswe record in any given period. Changes in the value of the contingent consideration obligations are recorded in the Company’sour 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 | ||||
(in thousands) | ||||
Value at August 31, 2020 | $ | 4,731 | ||
Contingent consideration payments | 0 | |||
Change in value of contingent consideration | 243 | |||
Value at February 28, 2021 | $ | 4,974 |
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,experiments, 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 accountsWe account 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 endyear-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.
Intellectual property
The following table summarizes intellectual property as of February 28, 2021: | ||||||||||||||
(in thousands) | Amortization Period | Acquisition Value | Accumulated Amortization | Net Book Value | ||||||||||
Royalty Agreement buy out-Enslein Research | Straight line 10 years | $ | 75 | $ | 67 | $ | 8 | |||||||
Termination/nonassertion agreement-TSRL Inc. | Straight line 10 years | 6,000 | 4,075 | 1,925 | ||||||||||
Developed technologies–DILIsym acquisition | Straight line 9 years | 2,850 | 1,188 | 1,662 | ||||||||||
Intellectual rights of Entelos Holding Corp. | Straight line 10 years | 50 | 12 | 38 | ||||||||||
Developed technologies–Lixoft acquisition | Straight line 16 years | 8,010 | 459 | 7,551 | ||||||||||
$ | 16,985 | $ | 5,801 | $ | 11,184 |
On February 28, 2012, we bought out a royalty agreement with Enslein Research of Rochester, New York.
12 |
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 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,February 28, 2021 and February 29, 2020 was $357 thousand and 2019 was $315,936 and $232,292,$232 thousand, respectively, and total amortization expense for the ninesix months ended May 31, 2020February 28, 2021 and 2019 was $780,520 and $696,876 respectively. Accumulated amortization as of May 31,February 29, 2020 was $4,729,270$714 thousand and $3,948,750 as of August 31, 2019.$465 thousand, respectively.
Other intangible assets
Schedule of other intangible assets | ||||||||||||||
The following table summarizes the Company’s other intangible assets as of February 28, 2021: | ||||||||||||||
(in thousands) | Amortization Period | Acquisition Value | Accumulated Amortization | Net Book Value | ||||||||||
Cognigen | ||||||||||||||
Customer relationships | Straight line 8 years | $ | 1,100 | $ | 894 | $ | 206 | |||||||
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 | 713 | 1,187 | ||||||||||
Trade name | None | 860 | 0 | 860 | ||||||||||
Covenants not to compete | Straight line 4 years | 80 | 75 | 5 | ||||||||||
Lixoft | ||||||||||||||
Customer relationships | Straight line 14 years | 2,550 | 167 | 2,383 | ||||||||||
Trade name | None | 1,550 | 0 | 1,550 | ||||||||||
Covenants not to compete | Straight line 3 years | 60 | 18 | 42 | ||||||||||
$ | 8,650 | $ | 1,917 | $ | 6,733 |
Intangible assets
The following table summarizes the Company’s other intangible assets as of MayAugust 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 not 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 not to compete | Straight line 3 years | 60 | 8 | 52 | ||||||||||
$ | 8,650 | $ | 1,642 | $ | 7,008 |
AmortizationTotal amortization expense for each ofother intangible assets for the three-monththree months ended February 28, 2021 and nine-month periodsFebruary 29, 2020 was $138 thousand and $87 thousand, respectively, and total amortization expense for the six months ended May 31,February 28, 2021 and February 29, 2020 was $275 thousand and May 31, 2019 was $119,731 and $293,481 as compared to $89,375 and $268,125,$174 thousand, respectively. According to policy in addition to normal amortization, these assets are tested for impairment as needed.
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 ninesix months ended May 31,February 28, 2021 and February 29, 2020 and 2019 were as follows:
Three months ended | Nine months ended | |||||||||||||||||||||||||||||||
Schedule of earnings per share | ||||||||||||||||||||||||||||||||
(in thousands) | Three Months ended | Six Months Ended | ||||||||||||||||||||||||||||||
5/31/2020 | 5/31/2019 | 5/31/2020 | 5/31/2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
Numerator: | ||||||||||||||||||||||||||||||||
Net income attributable to common shareholders | $ | 2,935,569 | $ | 2,888,706 | $ | 7,143,925 | $ | 6,524,102 | $ | 3,211 | $ | 2,150 | $ | 5,690 | $ | 4,208 | ||||||||||||||||
Denominator: | ||||||||||||||||||||||||||||||||
Weighted-average number of common shares outstanding during the period | 17,735,354 | 17,519,849 | 17,661,189 | 17,472,922 | 20,006 | 17,638 | 19,968 | 17,624 | ||||||||||||||||||||||||
Dilutive effect of stock options | 691,518 | 576,346 | 672,407 | 535,414 | 836 | 678 | 818 | 682 | ||||||||||||||||||||||||
Common stock and common stock equivalents used for diluted earnings per share | 18,426,872 | 18,096,195 | 18,333,596 | 18,008,336 | 20,842 | 18,316 | 20,786 | 18,306 |
14 |
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 $287,115$ thousand and $224,654$ thousand for the three months ended May 31,February 28, 2021 and February 29, 2020, and 2019, respectively, and $926,747$ million and $633,398$ thousand for the ninesix months ended May 31,February 28, 2021 and February 29, 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 Developmentdevelopment expense.
Impairment of Long-lived Assets
The Company accountsWe account for the impairment and disposition of long-lived assets in accordance with ASC 350, “Intangibles – Goodwill and Other” and ASC 360, “Property and Equipment”. 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 ninesix months ended May 31, 2020February 28, 2021 and 2019.February 29, 2020.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments in ASU 2020-04 provide temporary optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions to ease the potential accounting and financial reporting burden associated with transitioning away from reference rates that are expected to be discontinued, including the London Interbank Offered Rate (“LIBOR”). This ASU is effective as of March 12, 2020 through December 31, 2022. The adoption of the new standard has not had and is not expected to have a material impact on our financial statements or related disclosures.
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 of2018. We adopted this ASU 2016-02 are to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.September 1, 2019.
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
The Company adopted Topic 606 effective September 1, 2018 using 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 to the Company relates to the timing of revenue recognition for one of its payment contracts. Under 606 the revenues under the contract are being recognized as time is expended and costs are being expensed as incurred. Under ASC 605 revenues were recognized as invoiced and certain costs were capitalized as development.
We generate revenue primarily from the sale of software licenses and providing consulting services to the pharmaceutical industry for drug development.
The Company determines revenue recognition through the following steps:
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.
|
|
|
| |
|
|
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. It is anticipated these revenues will be recognized within the next two and ½ years.
Contract liabilities
Liabilities
During the three and six months ended February 28, 2021, we recognized $104 thousand and nine months period ended May$400 thousand, respectively, of revenue that was included in contract liabilities as of August 31, 2020, and during the Companythree and six months ended February 29, 2020, we recognized $109,000$338 thousand and $882,000$773 thousand, respectively, of revenue that was included in contract liabilities as of August 31, 2019.
Disaggregation of Revenues
The components of disaggregation of revenue for the three and six months ended February 28, 2021 and February 29, 2020 were as follows:
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 |
Schedule of disaggregation of revenues | ||||||||||||||||
(in thousands) | Three Months Ended | Six Months Ended | ||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Software licenses: | ||||||||||||||||
Point in time | $ | 7,536 | $ | 5,131 | $ | 13,472 | $ | 9,494 | ||||||||
Over time | 291 | 254 | 503 | 504 | ||||||||||||
Consulting services: | ||||||||||||||||
Over time | 5,320 | 4,965 | 9,873 | 9,753 | ||||||||||||
Total revenue | $ | 13,147 | $ | 10,350 | $ | 23,848 | $ | 19,751 |
NOTE 5: CONTRACTS PAYABLERemaining Performance Obligations
Remaining performance obligations that do not fall under the expedients require us to perform various consulting and software development services of approximately $3.8 million. It is anticipated that a majority of these revenues will be recognized within the next twelve months.
NOTE 4: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
Schedule of property and equipment | ||||||||
(in thousands) | February 28, 2021 | August 31, 2020 | ||||||
Equipment | $ | 1,012 | $ | 865 | ||||
Computer equipment | 583 | 548 | ||||||
Furniture and fixtures | 161 | 161 | ||||||
Leasehold improvements | 123 | 114 | ||||||
Construction in progress | 391 | 0 | ||||||
Sub total | 2,270 | 1,688 | ||||||
Less: accumulated depreciation | (1,346 | ) | (1,250 | ) | ||||
Net book value | $ | 924 | $ | 438 |
NOTE 5: INVESTMENTS
We invest a portion of our excess cash balances in short-term debt securities. Investments at February 28, 2021 consisted of corporate bonds with maturities remaining of less than 12 months. We may also invest excess cash balances in certificates of deposit, money market accounts, government-sponsored enterprise securities, corporate bonds and/or commercial paper. We account for investments in accordance with FASB ASC 320, Investments – Debt and Equity Securities. At February 28, 2021, all investments were classified as held-to-maturity securities.
The following tables summarize our short-term investments as of February 28, 2021 and August 31, 2020:
Schedule of short term investment | ||||||||||||||||
February 28, 2021 | ||||||||||||||||
(in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
Commercial notes (due within one year) | $ | 75,367 | $ | 0 | $ | (65 | ) | $ | 75,302 | |||||||
Total | $ | 75,367 | $ | 0 | $ | (65 | ) | $ | 75,302 |
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 |
16 |
NOTE 6: CONTRACTS PAYABLE
DILIsym Acquisition Liabilities:
On June 1, 2017, the Companywe 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-outearnout agreement of up to an additional $5,000,000$5.0 million in Earn-outearnout payments based on earnings over the next three years.years following acquisition. The Earn-outearnout liability has been recorded at an estimated fair value. Payments under the Earn-outearnout liability started in FYfiscal year 2019. In September 2018, $1,556,644$1.6 million was paid out under the first earn-outearnout payment, a second earn-outearnout 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 holdback provision was released eighteen months after June 1, 2017.
Lixoft Acquisition Liabilities:
On April 1, 2020, the Companywe acquired Lixoft. The agreement provided for a twenty-four24 month $2,000,000$2.0 million holdback escrow 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-outearnout payments of up to $5,500,000 (two thirds$5.5 million (two-thirds cash and one-third newly issued, unregisteredrestricted shares of the Company’sour 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, 2020February 28, 2021 and August 31, 20192020 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) | February 28, 2021 | August 31, 2020 | ||||||
Holdback liability — Lixoft | $ | 1,333 | $ | 1,333 | ||||
Earnout liability — Lixoft | 4,974 | 4,731 | ||||||
Sub total | $ | 6,307 | $ | 6,064 | ||||
Less: current portion | 2,000 | 2,000 | ||||||
Long-term portion | $ | 4,307 | $ | 4,064 |
NOTE 6: 7: COMMITMENTS AND CONTINGENCIES
Leases
We lease approximately 13,5009,255 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 Companywe 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. In December 2020, the lease was amended to extend the term to January 31, 2026. The amendment decreased the leased square footage from 13,500 sq. ft to 9,255 sq. ft, and correspondingly reduced the base rent from $25 thousand per month to $16.7 thousand per month. The new extension agreement allowed the Company with 90 days’ noticeamended lease also allows us to opt out of the remaining lease in the last two4 years of the termlease upon payment of a recapture payment equal180-day notice to the 3% base payment increase that would have been due under the original agreement.landlord with no penalty.
17 |
Our BuffaloCognigen 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 OctoberNovember 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 amendment2020, which added 686 square feet and extended the term of the lease to September 30, 2023. The new base rent is $7,500approximately $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 (approximately $5.3 thousand per month) 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,February 28, 2021, and February 29, 2020 was $147 thousand and 2019 was $168,381 and $147,581,$150 thousand, respectively, and $463,074$332 thousand and $436,357$295 thousand for the ninesix months ended May 31,February 28, 2021 and February 29, 2020, and 2019, respectively.
Future minimum lease payments under non-cancelablenoncancelable operating leases with remaining terms of one year or more at May 31, 2020February 28, 2021 were as follows:
Years Ending May 31, | ||||||||
2021 | $ | 560,554 | ||||||
Future minimum lease payments | ||||||||
(in thousands) Years Ending February 28, | ||||||||
2022 | 268,440 | $ | 513 | |||||
2023 | 174,719 | 370 | ||||||
2024 | 64,118 | 328 | ||||||
$ | 1,067,831 | |||||||
2025 | 244 | |||||||
2026 | 183 | |||||||
Future minimum lease payments | $ | 1,638 |
Line of Credit
On March 31, 2020, Simulations Plus, Inc.we entered into a Credit Agreement with Wells Fargo Bank, N.A. The Credit Agreement has provided Simulations Plus, Inc.provides us with a credit facility of $3,500,000$3.5 million through April 15, 2022.2022. As of May 31, 2020,February 28, 2021, there were no0 amounts drawn against the line of credit.
Employment Agreements
In the normal course of business, the Company haswe have entered into employment agreements with certain of itsour key management personnel that may require compensation payments upon termination.
License Agreement
The CompanyWe 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 doeswe do not bear any royalty obligations towards Dassault Systèmes Americas Corp. effective as of June 30, 2019. In addition, the license agreement will terminateterminated on September 5, 2020. We incurred royalty expense (benefit) of ($137,496) and $55,924, respectively, forhave not experienced any adverse impact on revenue since terminating 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.license agreement.
We are in the process of making arrangements to replace the database, which is expected to be completed by the end of fiscal year 2021.
18 |
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 with the countries of India and France for our Paris division.France. Our federal income tax returns for fiscal years 2016 through 2018year 2017 thru 2019 are open for audit, and our state tax returns for fiscal year 20152016 through 20182019 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
DividendDividends
The Company’sOur Board of Directors declared cash dividends during fiscal years 20202021 and 2019.2020. 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 | ||||||||
1/25/2021 | 2/01/2021 | 20,010 | $ | 0.06 | 1,201 | |||||||||
Total | $ | 2,396 |
(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
Plans
On February 23, 2007, the Board of Directors adopted and the shareholders approved the 2007 Stock Option Plan under which a total of 1,000,0001.0 million shares of common stock had beenwere reserved for issuance. On February 25, 2014 the shareholders approved an additional 1,000,0001.0 million shares increasing the total number of shares that mayavailable 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.
19 |
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 million shares of common stock has beenwere 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, subject to shareholder approval, 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, which was submitted for shareholder approval at our 2021 annual shareholder meeting, was not approved by the shareholders. As a result, we expect to submit a new equity plan for adoption by the Board of Directors and shareholders in May 2021. If approved, the new equity incentive plan will replace the 2017 Equity Incentive Plan, except that outstanding awards granted prior to the adoption of the new equity incentive plan will continue to be governed by the 2017 Equity Incentive Plan.
As of May 31, 2020,February 28, 2021, employees and directors hold stock optionsQualified Incentive Stock Options (“ISOs”) and Non-Qualified Stock Options (“NQSOs) to purchase 1,231,4911.3 million shares of common stock at exercise prices ranging from $6.75$6.85 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) Transactions during the six months ended February 28, 2021 | Number of Options | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Contractual Life | |||||||||
Outstanding, August 31, 2020 | 1,224 | $ | 17.76 | 6.79 | ||||||||
Granted | 206 | $ | 57.83 | |||||||||
Exercised | (134 | ) | $ | 13.11 | ||||||||
Cancelled/Forfeited | (34 | ) | $ | 26.19 | ||||||||
Outstanding, February 28, 2021 | 1,262 | $ | 24.57 | 6.88 | ||||||||
Exercisable, February 28, 2021 | 657 | $ | 11.68 | 5.31 |
The weighted-average remaining contractual life of options outstanding issued under the Plan, both Qualified ISOISOs and Non-Qualified SO,NQSOs, was years at May 31, 2020.February 28, 2021. The total fair value of non-vestednonvested stock options as of May 31, 2020February 28, 2021 was $17,328,000$ million and is amortizable over a weighted average period of 3.46 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 valuationoption-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 2020six months ended February 28, 2021 and fiscal year 2019:2020:
Schedule of fair value of options | ||||||||
(in thousands except pricing) | Six months ended February 28, 2021 | Fiscal Year 2020 | ||||||
Estimated fair value of awards granted | $ | 4,657 | $ | 2,997 | ||||
Unvested forfeiture rate | 0% | 0% | ||||||
Weighted average grant price | $ | 57.83 | $ | 39.23 | ||||
Weighted average market price | $ | 57.83 | $ | 39.23 | ||||
Weighted average volatility | 40.47% | 33.56% | ||||||
Weighted average risk-free rate | 0.60% | 1.39% | ||||||
Weighted average dividend yield | 0.41% | 0.65% | ||||||
Weighted average expected life | years | years |
YTD FY 2020 | FY 2019 | |||||||
Estimated fair value of awards granted | $ | 1,996,200 | $ | 1,928,820 | ||||
Unvested Forfeiture Rate | 0% | 6.20% | ||||||
Weighted average grant price | $ | 33.83 | $ | 22.78 | ||||
Weighted average market price | $ | 33.83 | $ | 22.69 | ||||
Weighted average volatility | 32.27% | 31.61% | ||||||
Weighted average risk-free rate | 1.62% | 2.59% | ||||||
Weighted average dividend yield | 0.71% | 1.10% | ||||||
Weighted average expected life | 6.68 years | 6.64 years |
20 |
The exercise prices for the options outstanding at May 31, 2020February 28, 2021 ranged from $6.75$6.85 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 |
(in thousands except prices)
Schedule of options by exercise price range | ||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||
$ | 6.85 | $ | 8.00 | 150 | years | $ | 6.85 | 150 | years | $ | 6.85 | |||||||||||||||||||
$ | 8.01 | $ | 16.00 | 470 | years | $ | 9.93 | 402 | years | $ | 9.89 | |||||||||||||||||||
$ | 16.01 | $ | 24.00 | 191 | years | $ | 20.47 | 65 | years | $ | 20.42 | |||||||||||||||||||
$ | 24.01 | $ | 38.00 | 189 | years | $ | 33.45 | 39 | years | $ | 33.82 | |||||||||||||||||||
$ | 38.01 | $ | 52.00 | 15 | years | $ | 38.59 | 1 | years | $ | 38.81 | |||||||||||||||||||
$ | 52.01 | $ | 61.84 | 247 | years | $ | 58.53 | 0 | – | $ | 0 | |||||||||||||||||||
1,262 | years | $ | 24.57 | 657 | years | $ | 11.68 |
During the three and nine-month periodssix months ended May 31, 2020, the CompanyFebruary 28, 2021 we issued 1,905 and 6,175 shares of stock to non-management directors of the Company valued at $72,483$87 and $217,382, respectively$170 thousand to our nonmanagement directors as compensation for services rendered to the Company.us.
In August 2020, we closed an underwritten public offering of approximately 115 million before deducting underwriting discounts and commissions. Net proceeds were approximately $107.7 million. The offering was made pursuant to our automatic shelf registration statement on Form S-3 filed with the SEC on July 9, 2020.
million shares of our common stock to the public at $ per share, which included the full exercise of the underwriters’ option to purchase approximately thousand additional shares of common stock. The aggregate gross proceeds to the company from this offering were approximately $The balance of par value common stock and additional paid in capital as of February 28, 2021 was $10 thousand and $130.7 million, respectively.
NOTE 8: 9: CONCENTRATIONS AND UNCERTAINTIES
Financial instruments that potentially subject the Companyus to concentration of credit risk consist principally of cash, cash equivalents, and trade accounts receivable. The Company holdsreceivable and short-term investments. We hold cash and cash equivalents at banks located in California and North Carolina with balances that often exceed FDIC insuredFDIC-insured limits. In addition, we hold cash at a bank in France that is not FDIC-insured. Historically, the Company haswe have not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.accounts. However, considering the current banking environment, the Company iswe are investigating alternative ways to minimize itsour exposure to such risks. While the Companywe may be exposed to credit losses due to the nonperformance of itsour counterparties, the Company doeswe do not expect the settlement of these transactions to have a material effect on itsour results of operations, cash flows, or financial condition. The Company maintainsWe maintain cash at financial institutions that may, at times, exceed federally insured limits. At May 31, 2020 the CompanyAs of February 28, 2021 we had cash and cash equivalents exceeding insured limits by approximately $6,300,000.$12.7 million.
Revenue concentration shows that international sales accounted for 32%34% and 36%33% of net sales for the ninesix months ended May 31,February 28, 2021 and February 29, 2020, respectively. Two customers accounted for 13%and 2019, respectively.5% of net sales during the six months ended February 28, 2021. Three customers accounted for 8%7%, 7%6% (a dealer account in Japan representing various customers), and 7%6% of net sales during the ninesix months ended May 31,February 29, 2020. Three
21 |
Accounts receivable concentration shows that four customers accounted for 9%comprised 15%, 8%10%, 6%, and 5% (a dealer account in Japan representing various customers) of accounts receivable at February 28, 2021. Accounts receivable concentration shows that four customers comprised 10% (a dealer account in Japan representing various customers), 5%, 5%and 7% of net sales during the nine months ended May 31, 2019.
Accounts receivable concentration shows that seven customers comprised 10% (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, 2019February 29, 2020.
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. ConsolidationDuring 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 ReportingGEOGRAPHIC 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 periodsthree and six months ended May 31, 2020February 28, 2021 and 2019 (in thousands, because of rounding numbers may not foot):February 29, 2020:
Schedule of consolidated results from reportable segments | ||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands) | Three Months Ended February 28, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
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 | $ | 6,646 | $ | 2,783 | $ | 2,114 | $ | 1,604 | $ | – | $ | 13,147 | ||||||||||||||||||||||||||||||||||||
Income from operations before income taxes | $ | 2,121 | $ | 279 | $ | 260 | $ | 826 | $ | – | $ | 3,486 | ||||||||||||||||||||||||||||||||||||
Total assets | 57,145 | 10,730 | 14,288 | 19,424 | (40,007 | ) | 61,579 | $ | 165,712 | $ | 12,712 | $ | 15,242 | $ | 21,420 | $ | (39,317 | ) | $ | 175,769 | ||||||||||||||||||||||||||||
Capital expenditures | 7 | 12 | 13 | – | – | 32 | $ | 232 | $ | 126 | $ | 5 | $ | 15 | $ | – | $ | 378 | ||||||||||||||||||||||||||||||
Capitalized software costs | 494 | 4 | 32 | 76 | – | 606 | $ | 588 | $ | 5 | $ | 35 | $ | 118 | $ | – | $ | 746 | ||||||||||||||||||||||||||||||
Depreciation and amortization | 430 | 88 | 151 | 119 | – | 788 | $ | 485 | $ | 84 | $ | 149 | $ | 193 | $ | – | $ | 911 |
*Lixoft was purchased on April 1, 2020.
(in thousands) | Three Months Ended February 29, 2020 | |||||||||||||||||||
Simulations Plus | Cognigen | DILIsym | Eliminations | Total | ||||||||||||||||
Revenues | $ | 5,904 | $ | 2,750 | $ | 1,696 | $ | – | $ | 10,350 | ||||||||||
Income from operations | $ | 2,004 | $ | 276 | $ | 546 | $ | – | $ | 2,826 | ||||||||||
Total assets | $ | 42,881 | $ | 10,465 | $ | 13,555 | $ | (17,702 | ) | $ | 49,199 | |||||||||
Capital expenditures | $ | 9 | $ | 20 | $ | 13 | $ | – | $ | 42 | ||||||||||
Capitalized software costs | $ | 573 | $ | 16 | $ | 31 | $ | – | $ | 620 | ||||||||||
Depreciation and amortization | $ | 435 | $ | 89 | $ | 151 | $ | – | $ | 675 |
(in thousands) | Six Months Ended February 28, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
Three months ended May 31, 2019 | Simulations Plus | Cognigen | DILIsym | Lixoft* | Eliminations | Total | ||||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||||
Revenues | $ | 12,078 | $ | 5,451 | $ | 3,486 | $ | 2,833 | $ | – | $ | 23,848 | ||||||||||||||||||||||||||||||||||||
Income from operations before income taxes | $ | 4,486 | $ | 485 | $ | 215 | $ | 1,351 | $ | – | $ | 6,537 | ||||||||||||||||||||||||||||||||||||
Total assets | 40,130 | 10,147 | 12,927 | – | (17,702 | ) | 45,502 | $ | 165,712 | $ | 12,712 | $ | 15,242 | $ | 21,420 | $ | (39,317 | ) | $ | 175,769 | ||||||||||||||||||||||||||||
Capital expenditures | 31 | 8 | 3 | – | – | 42 | $ | 371 | $ | 189 | $ | 5 | $ | 18 | $ | – | $ | 583 | ||||||||||||||||||||||||||||||
Capitalized software costs | 351 | 27 | 44 | – | – | 422 | $ | 1,156 | $ | 5 | $ | 78 | $ | 235 | $ | – | $ | 1,474 | ||||||||||||||||||||||||||||||
Depreciation and amortization | 440 | 92 | 146 | – | – | 678 | $ | 936 | $ | 165 | $ | 298 | $ | 377 | $ | – | $ | 1,776 |
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 |
*Lixoft was purchased on April 1, 2020.
(in thousands) | Six Months Ended February 29, 2020 | |||||||||||||||||||||||||||||||||||||||||||
Nine months ended May 31, 2019 | Simulations Plus | Cognigen | DILIsym | Eliminations | Total | |||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||
Revenues | $ | 10,830 | $ | 5,137 | $ | 3,784 | $ | – | $ | 19,751 | ||||||||||||||||||||||||||||||||||
Income from operations | $ | 3,907 | $ | 316 | $ | 1,322 | $ | – | $ | 5,545 | ||||||||||||||||||||||||||||||||||
Total assets | 40,130 | 10,147 | 12,927 | – | (17,702 | ) | 45,502 | $ | 42,881 | $ | 10,465 | $ | 13,555 | $ | (17,702 | ) | $ | 49,199 | ||||||||||||||||||||||||||
Capital expenditures | 34 | 25 | 16 | – | – | 75 | $ | 17 | $ | 41 | $ | 15 | $ | – | $ | 73 | ||||||||||||||||||||||||||||
Capitalized software costs | 1,135 | 93 | 134 | – | – | 1,362 | $ | 1,030 | $ | 36 | $ | 61 | $ | – | $ | 1,127 | ||||||||||||||||||||||||||||
Depreciation and amortization | 1,366 | 272 | 432 | – | – | 2,070 | $ | 870 | $ | 175 | $ | 300 | $ | – | $ | 1,345 |
In addition, the Company allocateswe allocate revenues to geographic areas based on the locations of itsour customers. Geographical revenues for the three months and ninesix months ended May 31,February 28, 2021 and February 29, 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 February 28, 2021 | |||||||||||||||
Americas | EMEA | Asia Pacific | Total | |||||||||||||
Simulations Plus | $ | 2,884 | $ | 2,350 | $ | 1,412 | $ | 6,646 | ||||||||
Cognigen | 2,783 | 0 | 0 | 2,783 | ||||||||||||
DILIsym | 2,067 | 45 | 2 | 2,114 | ||||||||||||
Lixoft | 928 | 676 | 0 | 1,604 | ||||||||||||
Total | $ | 8,662 | $ | 3,071 | $ | 1,414 | $ | 13,147 |
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 February 29, 2020 | |||||||||||||||
Americas | EMEA | Asia Pacific | Total | |||||||||||||
Simulations Plus | $ | 2,607 | $ | 1,610 | $ | 1,687 | $ | 5,904 | ||||||||
Cognigen | 2,750 | 0 | 0 | 2,750 | ||||||||||||
DILIsym | 1,469 | 126 | 101 | 1,696 | ||||||||||||
Total | $ | 6,826 | $ | 1,736 | $ | 1,788 | $ | 10,350 |
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 |
(in thousands) | Six Months Ended February 28, 2021 | |||||||||||||||
Americas | EMEA | Asia Pacific | Total | |||||||||||||
Simulations Plus | $ | 5,403 | $ | 4,239 | $ | 2,436 | $ | 12,078 | ||||||||
Cognigen | 5,451 | 0 | 0 | 5,451 | ||||||||||||
DILIsym | 3,393 | 66 | 27 | 3,486 | ||||||||||||
Lixoft | 1,538 | 1,255 | 40 | 2,833 | ||||||||||||
Total | $ | 15,785 | $ | 5,560 | $ | 2,503 | $ | 23,848 |
(in thousands) | Six Months Ended February 29, 2020 | |||||||||||||||
Americas | EMEA | Asia Pacific | Total | |||||||||||||
Simulations Plus | $ | 5,153 | $ | 2,757 | $ | 2,920 | $ | 10,830 | ||||||||
Cognigen | 5,137 | 0 | 0 | 5,137 | ||||||||||||
DILIsym | 3,207 | 451 | 126 | 3,784 | ||||||||||||
Total | $ | 13,497 | $ | 3,208 | $ | 3,046 | $ | 19,751 |
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$131 thousand and $116,839$109 thousand for the three months ended May 31,February 28, 2021 and February 29, 2020, and 2019, respectively and $325,220$252 thousand and $295,777$202 thousand for the ninesix months ended May 31,February 28, 2021 and February 29, 2020, and 2019 respectively.
NOTE 11: ACQUISITION/MERGER WITH LIXOFT12: ACQUISITION
On March 31, 2020, the Companywe 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 consummatedwe completed the acquisition of all outstanding equity interests of Lixoft pursuant to the terms of the Agreement, with Lixoft becoming aour wholly owned subsidiary of the Company.subsidiary. 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 Companywe 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’sour common stock. In addition, the Companywe 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 Companywe 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’sour 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’sour 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 the2020. 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 Companywe 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 releaseshares 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 agreementAgreement calls for earn-outearnout payments up to an additional $5,500,000,$5.5 million, two-thirds cash and one-third newly issued, unregistered shares of the Company’sour 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-outearnout 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 beenwas 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, 20182019 for the income statement for the three-monththree and nine-month periodssix months ended May 31, 2020.February 28, 2021. These amounts have been calculated after applying the Company’sour accounting policies and adjusting the results of Lixoft to reflect the same expenses in the three-month periodthree and six months ended May 31, 2019.February 29, 2020. The adjustments include costs of acquisition, and amortization of intangibles and other technologies acquired during the merger, assuming the fair-valuefair value adjustments applied on September 1, 2018,2019, together with consequential tax effects.
Schedule of Pro Forma Information | ||||||||||||||||||||||||||||||||
For the three-month period ended | For the nine-month period ended | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||
May 31, (in 1000’s) (Unaudited) | May 31, (in 1000’s) (Unaudited) | For the three months ended | For the six months ended | |||||||||||||||||||||||||||||
(Pro forma)* | (Pro forma) | (Pro forma)* | (Pro forma) | (Actual) | (Pro forma) | (Actual) | (Pro forma) | |||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | February 28, 2021 | February 29, 2020 | February 28, 2021 | February 29, 2020 | |||||||||||||||||||||||||
Net Sales | $ | 12,422 | $ | 10,520 | $ | 34,430 | $ | 28,389 | $ | 13,147 | $ | 11,486 | $ | 23,848 | $ | 22,007 | ||||||||||||||||
Net Income | $ | 3,565 | $ | 2,860 | $ | 8,442 | $ | 7,076 | $ | 3,211 | $ | 2,777 | $ | 5,690 | $ | 5,293 |
*Balances include two months actual results for Lixoft.
NOTE 12 - 13: SUBSEQUENT EVENTS:
Dividend DeclaredEVENTS
On July 7, 2020,Friday, April 9, 2021, our Board of Directors declared a quarterly cash dividend of $0.06 per share to our shareholders. The dividend amount of $1.2 million will be distributed on Monday, AugustMay 3, 2020,2021, for shareholders of record as of Monday, July 27, 2020.April 26, 2021.
Item 2. Management's Discussion and Analysis of Financial Condition and Results 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 on Form 10-K for the year ended August 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on November 16, 2020 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. Our 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.
26 |
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 us 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 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 cloud-based communication and collaboration platform for exploratory data analysis, population PK/PD modeling and reporting called KIWITM; 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.
27 |
Software business
Our software business represented 59% of our total revenue during the first six months of fiscal year 2021, and was 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 (DDI) 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 February 2021, GastroPlus version 9.8.1, which included new mechanisms and updated documentation for key DDI standards 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 (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™
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 41% of our total revenue during the first six months of fiscal year 2021, and was primarily generated by the following services:
PKPD
Our clinical-pharmacology-based consulting services include population pharmacokinetic and pharmacodynamic modeling, exposure-response analyses, clinical trial simulations, data programming, and technical writing services in support of regulatory submissions. In addition to modeling and simulation consulting services, we provide expertise and assistance with development-related decision making and support for regulatory interactions related to dose selection, clinical trial design, and understanding of the determinants of safety and efficacy for new medicines.
28 |
QSP/QST
We provide creative and insightful consulting services to support our QSP/QST modeling focused on heart failure, liver safety, and 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. New draft guidance documents were released in October 2020 focused on additional applications for biopharmaceuticals. This has resulted in an increased need for us to provide consulting-related services to support this sophisticated technique. We support Model Informed Drug Discovery and Development throughout the entire product lifecycle: from discovery through translation 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
Three Months Ended February 28, 2021 compared with Three Months Ended February 29, 2020:
(in thousands) | Three Months Ended | |||||||||||||||
February 28, 2021 | February 29, 2020 | $ Change | % Change | |||||||||||||
Revenues | $ | 13,147 | $ | 10,350 | $ | 2,797 | 27 | % | ||||||||
Cost of revenues | 2,911 | 2,666 | 245 | 9 | ||||||||||||
Gross margin | 10,236 | 7,684 | 2,552 | 33 | ||||||||||||
Selling, general and administrative | 5,458 | 4,110 | 1,348 | 33 | ||||||||||||
Research and development | 1,292 | 748 | 544 | 73 | ||||||||||||
Total operating expenses | 6,750 | 4,858 | 1,892 | 39 | ||||||||||||
Income from operations | 3,486 | 2,826 | 660 | 23 | ||||||||||||
Other income (expense) | (63 | ) | 10 | (73 | ) | (730 | ) | |||||||||
Income before provision for income taxes | 3,423 | 2,836 | 587 | 21 | ||||||||||||
(Provision for) income taxes | (212 | ) | (686 | ) | 474 | (69 | ) | |||||||||
Net income | $ | 3,211 | $ | 2,150 | $ | 1,061 | 49 | % |
Revenues
Consolidated revenues increased by $2.8 million or 27% to $13.1 million for the three months ended February 28, 2021 compared to consolidated revenue of approximately $10.3 million for the three months ended February 29, 2020. This increase is primarily due to a $2.4 million or 45% increase in consolidated software-related revenue, and a $0.4 million or 7% increase in consolidated consulting and analytical study revenues when comparing the three months ended February 28, 2021 and February 29, 2020.
Cost of Revenues
Consolidated cost of revenues increased by $0.2 million, or 9%, to $2.9 million for the three months ended February 28, 2021 compared to $2.7 million for the three months period ended February 29, 2020. The increase is primarily due to a $0.2 million or 9% increase in labor-related contract research organization fees for the DILIsym division.
29 |
Gross Margin
Consolidated gross margin increased by approximately $2.5 million or 33% to $10.2 million for the three months ended February 28, 2021 compared to $7.7 million for the three months ended February 29, 2020. The higher gross margin is primarily due to the addition of the Lixoft division, which contributed $1.4 million to the increase, as well as the Simulations Plus division’s gross margin increase of $0.8 million or 16%. The gross margin for the Cognigen and DILIsym Divisions both increased by approximately $0.2 million, respectively, for the quarter.
Overall gross margin percentage increased by 4% to 78% for the three months ended February 28, 2021 from 74% for the three months period ended February 29, 2020.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses increased by approximately $1.4 million, or 33% to $5.5 million for the three months period ended February 28, 2021 from $4.1 million for the three months period ended February 29, 2020. As a percent of revenues, Selling, general, and administrative expense increased from 40% to 42% for the same comparative periods.
The increase in Selling, General, and Administrative expense was primarily due to the following:
· | Salaries and wages increased by $0.7 million due to higher corporate salaries, bonuses, and severance costs, as well as an increase in headcount and higher contract labor costs; |
· | Payroll tax expense increased $0.3 million due to higher headcount and wages; |
· | Insurance expense increased by $0.1 million due to cost increases, higher employee counts and increased liability-related insurance. |
Research and Development Costs
Total research and development costs increased by $0.7 million for the three months ended February 28, 2021 compared to the three months ended February 29, 2020. During the second quarter of fiscal year 2021, we incurred approximately $2.0 million of research and development costs; of this amount, $0.7 million was capitalized and $1.3 million was expensed. For the three months ended February 29, 2020, we incurred approximately $1.3 million of research and development costs; of this amount, approximately $0.6 million was capitalized and approximately $0.7 million was expensed.
Other Income (Expense)
Total other expense was $63 thousand for the three months ended February 28, 2021 compared to total other income of $10 thousand for the three months ended February 29, 2020. The variance of $73 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 $0.2 million for the three months ended February 28, 2021 compared to $0.7 million for the same period in the previous year. Our effective tax rate decreased 18.0% to 6.2% for the three months ended February 28, 2021 from 24.2% during the same period of the previous year primarily due to the disqualified disposition of options exercised.
30 |
Six Months Ended February 28, 2021 compared with Six Months Ended February 29, 2020:
(in thousands) | Six Months Ended | |||||||||||||||
February 28, 2021 | February 29, 2020 | Change ($) | Change (%) | |||||||||||||
Revenues | $ | 23,848 | $ | 19,751 | $ | 4,097 | 21 | % | ||||||||
Cost of revenues | 5,344 | 5,309 | 35 | 1 | ||||||||||||
Gross margin | 18,504 | 14,442 | 4,062 | 28 | ||||||||||||
Selling, general and administrative | 9,866 | 7,623 | 2,243 | 29 | ||||||||||||
Research and development | 2,101 | 1,274 | 827 | 65 | ||||||||||||
Total operating expenses | 11,967 | 8,897 | 3,070 | 35 | ||||||||||||
Income from operations | 6,537 | 5,545 | 992 | 18 | ||||||||||||
Other income (expense) | (118 | ) | 24 | (142 | ) | (592 | ) | |||||||||
Income before provision for income taxes | 6,419 | 5,569 | 850 | 15 | ||||||||||||
Provision for income taxes | (729 | ) | (1,361 | ) | 632 | (46 | ) | |||||||||
Net income | $ | 5,690 | $ | 4,208 | $ | 1,482 | 35 | % |
Revenues
Consolidated revenues increased by$4.1 million or 21% to $23.8 million for the six months ended February 28, 2021 compared to approximately $19.7 million for the six months ended February 29, 2020.
This increase is primarily due to a $4.0 million or 40% increase in consolidated software-related revenue when comparing the six months ended February 28, 2021 and February 29, 2020.
Cost of Revenues
Consolidated cost of revenues increased slightly for the six months ended February 28, 2021 compared to the six months ended February 29, 2020. The increase is primarily due to higher amortization of software development costs with the purchase of Lixoft, offset by lower salary contracts for the Cognigen division.
Gross Margin
Consolidated gross margin increased $4.1 million or 28% to $18.5 million for the six months ended February 28, 2021 compared to $14.4 million for the six months ended February 29, 2020.
The higher gross margin is primarily due to the addition of the Lixoft division, which contributed $2.5 million to the increase, as well as the Simulations Plus division’s gross margin increase of $1.4 million or 15%. The Cognigen Division gross margin increased $0.6 million or 22%. This was offset by a decrease for DILIsym Divisions’ gross margin of $0.3 million or 11% for the quarter.
Overall gross margin percentage increased by 5% to 78% for the six months ended February 28, 2021 from 73% for the six months ended February 29, 2020.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses increased $2.2 million, or 29% to $9.9 million for the six months ended February 28, 2021 from approximately $7.7 million for the six months ended February 29, 2020. As a percent of revenues, Selling, general, and administrative expense increased from 39% to 41% for the same comparative periods.
31 |
The increase in Selling, General, and Administrative expense was primarily due to the following:
· | Salaries and wage increased by $1.1 million due to higher corporate salaries, bonuses, and severance costs, as well as an increase in headcount and higher contract labor costs; |
· | Payroll tax expense increased $0.5 million due to higher headcount and wages; |
· | Insurance expense increased by $0.2 million due to cost increases, higher employee counts and increased liability-related insurance; |
· | Professional fees increased by $0.2 million primarily due to higher accounting costs. |
Research and Development Costs
Total research and development costs increased by $1.1 million for the six months ended February 28, 2021 compared to the six months ended February 29, 2020. During the first two quarters of fiscal year 2021, we incurred approximately $3.5 million of research and development costs; of this amount, $1.4 million was capitalized and $2.1 million was expensed. For the six months ended February 29, 2020 we incurred approximately $2.4 million of research and development costs; of this amount, $1.1 million was capitalized and $1.3 million was expensed.
Other Income (Expense)
Total other expense was $118 thousand for the six months ended February 28, 2021 compared to total other income of $24 thousand for the six months ended February 29, 2020. The variance of $142 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 $0.7 million for the six months ended February 28, 2021 compared to $1.4 million for the same period in the previous year. Our effective tax rate decreased 13.0% to 11.4% for the six months ended February 28, 2021 from 24.4% during the same period of the previous year primarily due to the disqualified disposition of options exercised.
Segment Results of Operations
Three Months Ended February 28, 2021 compared with Three Months Ended February 29, 2020:
Revenues
(in thousands) | Three Months Ended | |||||||||||||||
February 28, 2021 | February 29, 2020 | Change ($) | Change (%) | |||||||||||||
Simulations Plus | $ | 6,646 | $ | 5,904 | $ | 742 | 13 | % | ||||||||
Cognigen | 2,783 | 2,750 | 33 | 1 | ||||||||||||
DILIsym | 2,114 | 1,696 | 418 | 25 | ||||||||||||
Lixoft* | 1,604 | – | 1,604 | 100 | ||||||||||||
Total | $ | 13,147 | $ | 10,350 | $ | 2,797 | 27 | % |
32 |
Cost of Revenues
(in thousands) | Three Months Ended | |||||||||||||||
February 28, 2021 | February 29, 2020 | Change ($) | Change (%) | |||||||||||||
Simulations Plus | $ | 773 | $ | 846 | $ | (73 | ) | (9 | )% | |||||||
Cognigen | 1,224 | 1,341 | (117 | ) | (9 | ) | ||||||||||
DILIsym | 725 | 479 | 246 | 51 | ||||||||||||
Lixoft* | 189 | – | 189 | 100 | ||||||||||||
Total | $ | 2,911 | $ | 2,666 | $ | 245 | 9 | % |
Gross Margin
(in thousands) | Three Months Ended | |||||||||||||||
February 28, 2021 | February 29, 2020 | Change ($) | Change (%) | |||||||||||||
Simulations Plus | $ | 5,873 | $ | 5,058 | $ | 815 | 16 | % | ||||||||
Cognigen | 1,559 | 1,409 | 150 | 11 | ||||||||||||
DILIsym | 1,389 | 1,217 | 172 | 14 | ||||||||||||
Lixoft* | 1,415 | – | 1,415 | 100 | ||||||||||||
Total | $ | 10,236 | $ | 7,684 | $ | 2,552 | 33 | % |
*Lixoft was acquired on April 1, 2020.
Simulations Plus
For the three months ended February 28, 2021, the revenue increase of $0.7 million or 13%, compared to the three months ended February 29, 2020 was primarily due to higher sales from GastroPlus ($0.5 million) and ADMET Software ($0.2 million). Cost of revenue decreased $0.1 million during the same periods and gross margin increased $0.8 million or 16%, primarily due to the change in revenue.
Cognigen
For the three months ended February 28, 2021, revenue increased marginally compared to the three months ended February 29, 2020. Cost of revenues decreased $0.1 million or 9%, primarily due to a reduction in salaries. Gross margin increased $0.2 million or 11%, primarily due to the decrease in the cost of revenues.
DILIsym
For the three months ended February 28, 2021, the revenue increase of $0.4 million or 25% compared to the three months ended February 29, 2020 was primarily due to higher revenue from DILIsym consulting services of $0.3 million. Cost of revenue increased $0.2 million or 51%, primarily due to an increase in contract research organization fees. Gross margin increased $0.2 million or 14%.
Lixoft
For the three months ended February 28, 2021, the revenue increase of $1.6 million compared to the three months ended February 29, 2020 was primarily due to the purchase of Lixoft on April 1, 2020. Software sales of Monolix Suite generated 97% of total revenue and 3% was generated from consulting services. Cost of revenue and gross margin increases of $0.2 million and $1.4 million, respectively, were both due to the purchase of Lixoft on April 1, 2020.
33 |
Six Months Ended February 28, 2021 compared with Six Months Ended February 29, 2020:
Revenues
(in thousands) | Six Months Ended | |||||||||||||||
February 28, 2021 | February 29, 2020 | Change ($) | Change (%) | |||||||||||||
Simulations Plus | $ | 12,078 | $ | 10,830 | $ | 1,248 | 12 | % | ||||||||
Cognigen | 5,451 | 5,137 | 314 | 6 | ||||||||||||
DILIsym | 3,486 | 3,784 | (298 | ) | (8 | ) | ||||||||||
Lixoft* | 2,833 | – | 2,833 | 100 | ||||||||||||
Total | $ | 23,848 | $ | 19,751 | $ | 4,097 | 21 | % |
Cost of Revenues
(in thousands) | Six Months Ended | |||||||||||||||
February 28, 2021 | February 29, 2020 | Change ($) | Change (%) | |||||||||||||
Simulations Plus | $ | 1,484 | $ | 1,591 | $ | (107 | ) | (7 | )% | |||||||
Cognigen | 2,370 | 2,611 | (241 | ) | (9 | ) | ||||||||||
DILIsym | 1,110 | 1,107 | 3 | – | ||||||||||||
Lixoft* | 380 | – | 380 | 100 | ||||||||||||
Total | $ | 5,344 | $ | 5,309 | $ | 35 | 1 | % |
Gross Margin
(in thousands) | Six Months Ended | |||||||||||||||
February 28, 2021 | February 29, 2020 | Change ($) | Change (%) | |||||||||||||
Simulations Plus | $ | 10,594 | $ | 9,239 | $ | 1,355 | 15 | % | ||||||||
Cognigen | 3,081 | 2,526 | 555 | 22 | ||||||||||||
DILIsym | 2,376 | 2,677 | (301 | ) | (11 | ) | ||||||||||
Lixoft* | 2,453 | – | 2,453 | 100 | ||||||||||||
Total | $ | 18,504 | $ | 14,442 | $ | 4,062 | 28 | % |
*Lixoft was acquired on April 1, 2020.
Simulations Plus
For the six months ended February 28, 2021, the revenue increase of $1.2 million or 12% compared to the six months ended February 29, 2020 was primarily due to higher sales from GastroPlus ($0.9 million) and ADMET Software ($0.3 million). Cost of revenue decreased $0.1 million or 7% during the same periods, and gross margin increased $1.4 million or 15%, primarily due to the change in revenue.
34 |
Cognigen
For the six months ended February 28, 2021, the revenue increase of $0.3 million or 6% compared to the six months ended February 29, 2020 was primarily due to an increase in grant revenue. Cost of revenue decreased $0.2 million or 9%, primarily due to a reduction in salaries during the same periods. Gross margin increased by approximately $0.6 million or 22%.
DILIsym
For the six months ended February 28, 2021, the revenue decrease of $0.3 million or 8% compared to the six months ended February 29, 2020 was primarily due to lower revenue from DILIsym consulting services. Cost of revenue increased slightly during the same periods. Gross margin decreased $0.3 million or 11%, primarily due to the change in revenue.
Lixoft
For the six months ended February 28, 2021, the revenue increase of $2.8 million compared to the six months ended February 29, 2020 was due to the purchase of Lixoft on April 1, 2020. Software sales of Monolix Suite generated 96% of total revenue and 4% was generated from consulting services. Cost of revenue increased $0.4 million, and gross margin was $2.5 million due to the purchase of Lixoft on April 1, 2020.
Liquidity and Capital Resources
Historically, liquidity is provided by available cash and cash equivalents, cash generated from operations and access to capital markets.
In August 2020, we closed an underwritten public offering of 2,090,909 shares of our 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 us 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 our automatic shelf registration statement on Form S-3 filed with the SEC on July 9, 2020.
On March 31, 2020, we entered into a Stock Purchase and Contribution Agreement (the “Agreement”) with Lixoft. On April 1, 2020, we completed the acquisition of all outstanding equity interests of Lixoft pursuant to the terms of the Agreement, with Lixoft becoming our wholly owned subsidiary. 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, we agreed to pay the former shareholders of Lixoft total consideration of up to $16.5 million, consisting of two-thirds cash and one-third newly issued, unregistered shares of our common stock. At closing, we paid the former shareholders of Lixoft a total of $10.8 million, comprised of cash in the amount of $9.5 million and the issuance of 111,682 shares of our common stock valued at $3.7 million, net of adjustments and a holdback for representations and warranties. In addition, we paid $3.5 million of excess working capital based on the March 31, 2020 financial statements of Lixoft. In addition, the Agreement calls for earnout payments up to an additional $5.5 million, two-thirds cash and one-third newly issued, unregistered shares of our 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 million the first year and $3.5 million in year two. See Note 12, Acquisition, to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a further description of the Agreement.
Operating Activities
Net cash provided by operating activities was $6.6 million for the six months ended February 28, 2021. Our operating cash flows resulted primarily from our net income of $5.7 million, which was generated by cash received from our customers, offset by cash payments we made to third parties for their services and employee compensation. In addition, net cash outflow from changes in balances of operating assets and liabilities was $3.7 million, offset by non-cash charges of $4.6 million. The change in operating assets and liabilities was primarily a result of an increase in accounts receivable.
35 |
Net cash provided by operating activities was $3.8 million for the six months ended February 29, 2020. Our operating cash flows resulted primarily from our net income of $4.2 million, which was generated by cash received from our customers, offset by cash payments we made to third parties for their services and employee compensation. In addition, net cash outflow from changes in balance of operating assets and liabilities was $2.5 million, offset by non-cash charges of $2.1 million. The change in operating assets and liabilities was primarily a result of an increase in accounts receivable, revenue in excess of billings and a decrease in deferred revenue, offset by an increase in accounts payable and a decrease in prepaid income taxes.
Investing Activities
Cash used for investing activities during the six months ended February 28, 2021 of $11.9 million was primarily due to the purchase of short-term investments of $40.8 million, the costs associated with the development of computer software of $1.5 million and the purchase of equipment of $0.6 million, offset by the proceeds from the sale of short-term investments of $31.0 million. Cash used for investing activities during the six months ended February 29, 2020 of $1.2 million was primarily due to costs associated with the development of computer software.
Financing Activities
For the six months ended February 28, 2021, net cash used by financing activities of $1.6 million, was primarily driven by the payment of dividends totaling $2.4 million, partially offset by proceeds from the exercise of stock options totaling $0.8 million. Net cash used by financing activities for the comparable period in fiscal year 2020 of $1.8 million, was primarily due to dividend payments totaling $2.1 million, partially offset by proceeds of $0.3 million from the exercise of stock options.
Cash and Working Capital
Cash and cash equivalents were $42.4 million as of February 28, 2021 compared to $49.2 million as of August 31, 2020.
At February 28, 2021, we had working capital of $129.0 million, a ratio of current assets to current liabilities of 20.7 and a ratio of debt to equity of 0.1. At August 31, 2020, we had working capital of $123.6 million, a ratio of current assets to current liabilities of 23.4 and a ratio of debt to equity of 0.1.
Based upon our current operating plans, we believe that our existing cash and cash equivalents, together with anticipated funds from operations, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for the foreseeable future. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect.
Critical Accounting Estimates
Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to recoverability and useful lives of long-lived assets, stock compensation, valuation of derivative instruments, allowances, contingent consideration, contingent value rights, fixed payment arrangements and going concern. Management bases its estimates and judgments on historical experience and on various other factors, including the COVID-19 pandemic, that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The methods, estimates, and judgments used by us in applying these critical accounting policies have a significant impact on the results we report in our condensed consolidated financial statements. Our significant accounting policies and estimates are included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2020, filed with the SEC on November 16, 2020.
36 |
Information regarding our significant accounting policies and estimates can also be found in Note 2, Significant Accounting Policies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As of May 31, 2020 and August 31, 2019, we had cash and cash equivalents of $7.35 million and $11.44 million, respectively. We do not hold any investments that are exposedThere has been no material change in our exposure to market risk due to changesfrom that described in interest rates, which could adversely affect the valueItem 7A of our assetsAnnual Report on Form 10-K for the year ended August 31, 2020.
Item 4. Controls and liabilities. In addition, we do not hold any instruments for trading purposes and investment. SomeProcedures
Our management, with the participation of our cashChief Executive Officer and cash equivalentsour Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of February 28, 2021. 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 helddesigned to ensure that information required to be disclosed by a company in money market accounts; however, they are not exposedthe 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 market rate risk.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 February 28, 2021, that our disclosure controls and procedures were effective.
In the three and nine months ended May 31, 2020 and 2019, we sold $1,453,000 and $1,402,000 and $3,800,000 and $3,273,000, respectively, of software through representativesChanges 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 subject to changes 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 pricesInternal Controls over Financial Reporting
No change in our foreign markets on a periodic basis. We base these changes on market conditions while working closely withinternal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) occurred during our representatives. We do not hedge currenciesmost recent fiscal quarter that has materially affected, or enter into derivative contracts.is reasonably likely to materially affect, our internal control over financial reporting.
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 | |
10.2*† | Separation Agreement, dated December 1, 2020, by and between the Company and John Kneisel | |
31.1* | Certification of the Principal Executive | |
XBRL Instance Document. | ||
XBRL Taxonomy Extension Schema Document. | ||
XBRL Taxonomy Extension Calculation Linkbase Document. | ||
XBRL Taxonomy Extension Definition Linkbase Document. | ||
XBRL Taxonomy Extension Label Linkbase Document. | ||
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 |
† | Those exhibits marked with a (†) refer to management contracts or compensatory plans or arrangements. |
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.April 14, 2021.
Simulations Plus, Inc. | ||
Date: | By: /s/ | |
Chief Financial Officer |