Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended November 30, 2021May 31, 2022
OR
oTransmission Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to ______

Commission file number: 001-32046

 

slp-20220531_g1.jpg
Simulations Plus, Inc.

Inc.

(Name of registrant as specified in its charter)

California95-4595609
(State or other jurisdiction of Incorporation or Organization)(I.R.S. Employer identification No.)

42505 10th Street West

Lancaster,, CA93534-7059

(Address of principal executive offices including zip code)

(661)723-7723

(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) 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 filing requirements for the past 90 days. Yes Yesx No

o

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 Yesx No

o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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):

☒   xLarge accelerated Filero☐   Accelerated Filer
☐   oNon-accelerated FileroSmaller reporting company
oEmerging 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.

o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   oNo

x

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of January 4,June 30, 2022, was 20,175,426.

20,235,562.



Table of Contents
Simulations Plus, Inc.

FORM 10-Q

For the Quarterly Period Ended November 30, 2021

May 31, 2022

Table of Contents

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Part I. FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements

SIMULATIONS PLUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

       
  (Unaudited)  (Audited) 
  November 30,  August 31, 
(in thousands, except share and per share amounts) 2021  2021 
ASSETS      
Current assets      
Cash and cash equivalents $41,680  $36,984 
Accounts receivable, net of allowance for doubtful accounts of $12 and $78  11,823   9,851 
Revenue in excess of billings  1,483   3,150 
Prepaid income taxes  584   1,012 
Prepaid expenses and other current assets  1,676   1,696 
Short-term investments  82,660   86,620 
Total current assets  139,906   139,313 
Long-term assets        
Capitalized computer software development costs, net of accumulated amortization of $14,734 and $14,438  8,189   7,646 
Property and equipment, net  2,339   1,838 
Operating lease right-of-use assets  1,146   1,276 
Intellectual property, net of accumulated amortization of $6,873 and $6,516  10,112   10,469 
Other intangible assets, net of accumulated amortization of $2,319 and $2,186  6,331   6,464 
Goodwill  12,921   12,921 
Other assets  50   51 
Total assets $180,994  $179,978 
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
Current liabilities        
Accounts payable $19  $387 
Accrued payroll and other expenses  3,967   5,604 
Contracts payable - current portion  4,671   4,550 
Billings in excess of revenue  52   117 
Operating lease liability - current portion  338   382 
Deferred revenue  568   534 
Total current liabilities  9,615   11,574 
         
Long-term liabilities        
Deferred income taxes, net  2,113   1,726 
Operating lease liability  810   896 
Total liabilities  12,538   14,196 
         
Commitments and contingencies      
         
Shareholders' equity        
Preferred stock, $0.001 par value 10,000,000 shares authorized, 0 shares issued and outstanding  0   0 
Common stock, $0.001 par value and additional paid-in capital —50,000,000 shares authorized, 20,168,796 and 20,141,521 shares issued and outstanding  134,512   133,418 
Retained earnings  34,224   32,407 
Accumulated other comprehensive loss  (280)  (43)
Total shareholders' equity  168,456   165,782 
Total liabilities and shareholders' equity $180,994  $179,978 

(Unaudited)(Audited)
(in thousands, except share and per share amounts)May 31, 2022August 31, 2021
ASSETS
Current assets
Cash and cash equivalents$42,353 $36,984 
Accounts receivable, net of allowance for doubtful accounts of $12 and $7818,587 9,851 
Prepaid income taxes322 1,012 
Prepaid expenses and other current assets3,472 4,846 
Short-term investments80,120 86,620 
Total current assets144,854 139,313 
Long-term assets
Capitalized computer software development costs, net of accumulated amortization of $15,376 and $14,4388,974 7,646 
Property and equipment, net607 1,838 
Operating lease right-of-use assets1,533 1,276 
Intellectual property, net of accumulated amortization of $7,585 and $6,5169,400 10,469 
Other intangible assets, net of accumulated amortization of $2,635 and $2,1867,717 6,464 
Goodwill12,921 12,921 
Other assets217 51 
Total assets$186,223 $179,978 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable$426 $387 
Accrued payroll and other expenses2,947 5,604 
Contracts payable - current portion— 4,550 
Operating lease liability - current portion459 382 
Deferred revenue2,083 651 
Total current liabilities5,915 11,574 
Long-term liabilities
Deferred income taxes, net1,680 1,726 
Operating lease liability1,069 896 
Total liabilities8,664 14,196 
Commitments and contingencies00
Shareholders' equity
Preferred stock, $0.001 par value 10,000,000 shares authorized, no shares issued and outstanding— — 
Common stock, $0.001 par value and additional paid-in capital —50,000,000 shares authorized, 20,234,654 and 20,141,521 shares issued and outstanding137,556 133,418 
Retained earnings40,297 32,407 
Accumulated other comprehensive loss(294)(43)
Total shareholders' equity177,559 165,782 
Total liabilities and shareholders' equity$186,223 $179,978 

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

3

3


SIMULATIONS PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

For the three and nine months ended May 31, 2022 and 2021
(Unaudited)

         
  Three Months Ended November 30, 
(in thousands, except per common share amounts) 2021  2020 
       
Revenue        
Software $7,362  $6,212 
Services  5,055   4,489 
Total revenue  12,417   10,701 
Cost of revenue        
Software  735   812 
Services  2,021   1,621 
Total cost of revenue  2,756   2,433 
Gross profit  9,661   8,268 
Operating expenses        
Research and development  882   809 
Selling, general, and administrative  4,988   4,408 
Total operating expenses  5,870   5,217 
         
Income from operations  3,791   3,051 
         
Other income (expense)        
Interest income  64   61 
Change in valuation of contingent consideration  (121)  (121)
Gain on sale of assets  1   0 
Gain on currency exchange  121   5 
Total other income (expense), net  65   (55)
         
Income before income taxes  3,856   2,996 
Provision for income taxes  (830)  (517)
Net Income $3,026  $2,479 
         
Earnings per share        
Basic $0.15  $0.12 
Diluted $0.15  $0.12 
         
Weighted-average common shares outstanding        
Basic  20,150   19,930 
Diluted  20,746   20,799 
         

Other comprehensive income (loss), net of tax

        
Foreign currency translation adjustments  (237)  0 
Comprehensive income $2,789  $2,479 

(in thousands, except per common share amounts)Three Months EndedNine Months Ended
2022202120222021
Revenues
Software$9,647 $8,298 $26,767 $22,337 
Services5,312 4,479 15,405 14,288 
Total revenues14,959 12,777 42,172 36,625 
Cost of revenues    
Software730 800 2,245 2,448 
Services1,829 1,671 5,900 5,367 
Total cost of revenues2,559 2,471 8,145 7,815 
Gross profit12,400 10,306 34,027 28,810 
Operating expenses    
Research and development655 670 2,439 2,771 
Selling, general, and administrative6,799 5,094 17,371 14,960 
Total operating expenses7,454 5,764 19,810 17,731 
 
Income from operations4,946 4,542 14,217 11,079 
    
Other income (expense), net(112)(51)(169)
    
Income before income taxes4,834 4,491 14,223 10,910 
Provision for income taxes(747)(704)(2,701)(1,433)
Net income$4,087 $3,787 $11,522 $9,477 
    
Earnings per share    
Basic$0.20 $0.19 $0.57 $0.47 
Diluted$0.20 $0.18 $0.56 $0.46 
Weighted-average common shares outstanding
Basic20,212 20,105 20,180 20,014 
Diluted20,768 20,802 20,731 20,750 
Other Comprehensive income, net of tax
Foreign currency translation adjustments24 40 (251)36 
Comprehensive Income$4,111 $3,827 $11,271 $9,513 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

4

4


SIMULATIONS PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

For the three and nine months ended May 31, 2022 and 2021
(Unaudited)

         
(in thousands, except per common share amounts) Three Months Ended November 30, 
  2021  2020 
Common stock and additional paid in capital        
Balance, beginning of period $133,418  $128,541 
Exercise of stock options  372   180 
Stock-based compensation  634   449 
Shares issued to Directors for services  88   83 
Balance, end of period $134,512  $129,253 
         
Retained earnings        
Balance, beginning of period $32,407  $27,436 
Declaration of dividend  (1,209)  (1,195)
Net income  3,026   2,479 
Balance, end of period $34,224  $28,720 
         
Accumulated other comprehensive income (loss)        
Balance, beginning of period $(43) $58 
Other comprehensive loss  (237)   
Balance, end of period $(280) $58 
Total shareholders’ equity  165,782    
Other comprehensive income (loss)      
Total shareholders’ equity $168,456  $158,031 
Cash dividends declared per common share $0.06  $0.06 

(in thousands, except per common share amounts)Three Months EndedNine Months Ended
2022202120222021
Common stock and additional paid in capital
Balance, beginning of period$135,472 $130,713 $133,418 $128,541 
Exercise of stock options152 576 693 1,412 
Stock-based compensation679 618 2,016 1,784 
Shares issued to Directors for services87 87 263 257 
Shares issued - Lixoft1,166 — 1,166 — 
Balance, end of period$137,556 $131,994 $137,556 $131,994 
Retained earnings
Balance, beginning of period$37,422 $30,730 $32,407 $27,436 
Declaration of dividend(1,212)(1,207)(3,632)(3,603)
Net income4,087 3,787 11,522 9,477 
Balance, end of period$40,297 $33,310 $40,297 $33,310 
Accumulated other comprehensive income (loss)
Balance, beginning of period$(318)$54 $(43)$58 
Other comprehensive income (loss)24 40 (251)36 
Balance, end of period$(294)$94 $(294)$94 
Total shareholders’ equity177,559 165,398 177,559 165,398 
Cash dividends declared per common share$0.06 $0.06 $0.18 $0.18 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5

5


SIMULATIONS PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

       
  Three Months Ended November 30, 
(in thousands) 2021  2020 
Cash flows from operating activities        
Net income $3,026  $2,479 
Adjustments to reconcile net income to net cash provided by operating activities        
Depreciation and amortization  845   865 
Change in value of contingent consideration  121   121 
Amortization of investment premiums  610   630 
Stock-based compensation  722   532 
Deferred income taxes  387   47 
Currency translation adjustments  (237)  0 
(Increase) decrease in        
Accounts receivable  (1,972)  91 
Revenue in excess of billings  1,667   256 
Prepaid income taxes  428   410 
Prepaid expenses and other assets  21   (141)
Increase (decrease) in        
Accounts payable  (368)  (15)
Accrued payroll and other expenses  (1,637)  49 
Billings in excess of revenue  (65)  65 
Deferred revenue  34   (56)
Net cash provided by operating activities  3,582   5,333 
         
Cash flows provided by (used in) investing activities        
Purchases of property and equipment  (561)  (205)
Purchases of short-term investments  (12,717)  (30,959)
Proceeds from sale of short-term investments  16,067   6,018 
Capitalized computer software development costs  (838)  (728)
Net cash provided by (used in) investing activities  1,951   (25,874)
         
Cash flows used in financing activities        
Payment of dividends  (1,209)  (1,195)
Proceeds from the exercise of stock options  372   180 
Net cash used in financing activities  (837)  (1,015)
         
Net increase (decrease) in cash and cash equivalents  4,696   (21,556)
Cash and cash equivalents, beginning of year  36,984   49,207 
Cash and cash equivalents, end of period $41,680  $27,651 
         
Supplemental disclosures of cash flow information        
Income taxes paid $23  $57 

Nine Months Ended May 31,
(in thousands)20222021
Cash flows from operating activities
Net income$11,522 $9,477 
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization2,724 2,662 
Change in value of contingent consideration283 364 
Amortization of investment premiums1,493 1,752 
Stock-based compensation2,279 2,041 
Deferred income taxes(46)(84)
Currency translation adjustments(251)36 
(Increase) decrease in
Accounts receivable(8,736)(5,540)
Prepaid income taxes690 478 
Prepaid expenses and other assets1,208 (796)
Increase (decrease) in
Accounts payable32 (51)
Accrued payroll and other expenses(2,657)363 
Deferred revenue1,432 228 
Net cash provided by operating activities9,973 10,930 
Cash flows from investing activities
Purchases of property and equipment(740)(966)
Purchases of short-term investments(70,924)(63,964)
Proceeds from sale of short-term investments75,932 68,068 
Capitalized computer software development costs(2,266)(2,273)
Net cash provided by investing activities2,002 865 
Cash flows from financing activities
Payment of dividends(3,632)(3,603)
Payments on contracts payable(3,667)— 
Proceeds from the exercise of stock options693 1,412 
Net cash used in financing activities(6,606)(2,191)
Net increase in cash and cash equivalents5,369 9,604 
Cash and cash equivalents, beginning of year36,984 49,207 
Cash and cash equivalents, end of period$42,353 $58,811 
Supplemental disclosures of cash flow information
Income taxes paid$2,001 $893 
Non-cash investing and financing activities
Right of use assets capitalized$624 $905 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6

6


SIMULATIONS PLUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1: GENERAL

This reportQuarterly Report on Form 10-Q for the quarter ended November 30, 2021May 31, 2022 should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended August 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on October 27, 2021. 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 includesinclude 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”) was incorporated on July 17, 1996. In September 2014, Simulations Plus acquired all of the outstanding equity interests of Cognigen Corporation (“Cognigen”) and Cognigen became a wholly owned subsidiary of Simulations Plus, Inc. In June 2017, Simulations Plus acquired DILIsym Services, Inc. (“DILIsym”) as a wholly owned subsidiary. In April 2020, Simulations Plus, Inc. acquired Lixoft, a French société par actions simplifiée (“Lixoft”), as a wholly owned subsidiary pursuant to a stock purchase and contribution agreement. (Collectively,agreement (Simulations Plus together with its subsidiaries, collectively, the “Company,” “we,” “us,” “our”).

Effective September 1, 2021, the Company merged Cognigen and DILIsym with and into Simulations Plus, Inc. through short form mergers (the “Mergers”). To effectuate the Mergers, the Company filed Certificates of Ownership with the Secretaries of State of the states of Delaware (Cognigen’s and DILIsym’s state of incorporation) and California (Simulation Plus’ state of incorporation). Consummation of the Mergers was not subject to approval of the Company’s stockholders and did not impact the rights of the Company’s stockholders.

Lines of Business

We are a premier developer of drug discovery and development software for modeling and simulation, and for the prediction of molecular properties utilizing artificial intelligence (“AI”) and machine learning basedmachine-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, biotechnology, agrochemical, cosmetics, and food industry companies. They are also provided to academic agencies for use in the conduct of industry-based research and to regulatory agencies for product approval.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Simulations Plus Inc. and its wholly owned subsidiaries.subsidiaries as applicable for the periods presented. All significant intercompany accounts and transactions have been eliminated upon consolidation.

Use of Estimates

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

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7


Reclassifications

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

Revenue Recognition

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

In accordance with Accounting Standards Codification Topic 606 (ASC("ASC Topic 606)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, we satisfy a performance obligation
Remaining Performance Obligations
Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and unbilled amounts that will be recognized as revenue in future periods. As of May 31, 2022, remaining performance obligations were approximately $13.2 million. Approximately 89% of the remaining performance obligations are expected to be recognized over the next 12 months, with the remainder recognized thereafter. Remaining performance obligations estimates are subject to change and are affected by several factors, including contract terminations and changes in the scope of contracts.
Disaggregation of Revenue
The components of disaggregation of revenue for the three and nine months ended May 31, 2022 and 2021 were as follows:
(in thousands)Three Months Ended
May 31,
Nine Months Ended
May 31,
2022202120222021
Software licenses:
Point in time$9,380 $8,098 $25,980 $21,570 
Over time267 200 787 703 
Consulting services:
Over time5,312 4,479 15,405 14,352 
Total revenue$14,959 $12,777 $42,172 $36,625 
Contract Balances
We receive payments from customers based upon contractual billing schedules, while we recognize revenue when, or as, we satisfy our performance obligations. This timing difference results in accounts receivable, contract assets, and contract liabilities. We record accounts receivable when the right to consideration becomes unconditional. We record a contract asset if the right to consideration is conditioned on something other than the passage of time, such as our future performance. Contract assets are included in prepaid expenses and other current assets on our condensed consolidated balance sheets. We record a contract liability when we have an obligation to transfer goods or services to a customer for which we have received consideration from a customer. We refer to contract liabilities as deferred revenue on our condensed consolidated balance sheets.
Contract asset balances as of May 31, 2022 and August 31, 2021 were $1.8 million and $3.2 million, respectively.
8

During the three and nine months ended May 31, 2022, we recognized $68 thousand and $608 thousand, respectively, of revenue that was included in contract liabilities as of August 31, 2021, and during the three and nine months ended May 31, 2021, we recognized $30 thousand and $430 thousand, respectively, of revenue that was included in contract liabilities as of August 31, 2020.
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, we satisfy a performance obligation

Deferred Commissions

Sales commissions earned by our sales force and our commissioned sales representatives are considered incremental and recoverable costs of obtaining a contract with a customer. SalesWe apply the practical expedient as described in ASC 340-40-25-4 to expense costs as incurred for sales commissions, for new contracts are deferred and then amortized on a straight-line basis over asince the amortization period of benefit. We determine 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. Amortizationasset that we otherwise would have recognized is one year or less. This expense is included in sales and marketing expenses on the condensed consolidated statements of operations.

Practical Expedientsoperations and Exemptions

We 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 less; few, if any, of the longer-term contracts have commissions associated with them. This expense is included in the condensed consolidated statements of operations as selling, general, and administrative expense.

·

Transaction Price Allocated to Future Performance Obligations: ASC 606 requires that we disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of November 30, 2021. ASC 606 provides certain practical expedients that limit the requirement to disclose the aggregate amount of transaction price allocated to unsatisfied performance obligations.

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

comprehensive income as selling, general, and administrative expense.

Cash and Cash Equivalents

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

8

Accounts Receivable

We analyze and Allowances for Credit Losses

The Company extends credit to its customers in the agenormal course of customerbusiness. The Company evaluates its allowance for credit losses based on its estimate of the collectability of its trade accounts receivable. As part of this assessment, the Company considers various factors including the financial condition of the individual companies with which it does business, the aging of receivable balances, historical bad-debt experience, customer creditworthiness, and changes in customer payment terms, when makingcurrent market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, the Company’s estimates ofand judgments with respect to the collectability of our trade accountsits receivables is subject to greater uncertainty than in more stable periods. 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 inbalances will be charged off against the allowance may be made. Accounts receivable are written off when reasonablefor credit losses after all means of collection attempts have failed.

been exhausted and the potential for recovery is considered remote.

Investments
Investments

The Company 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 within the parameters of our Investment Policy and Guidelines. The Company accounts for its investments 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 reportedmeasured at amortized cost.cost and are presented at the net amount expected to be collected. Any change in the allowance for credit losses during the period is reflected in earnings. 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 withvalue. For available-for-sale debt securities in an unrealized gainsloss position, we evaluate as of the balance sheet date whether the unrealized losses are attributable to a credit loss or other factors. The portion of unrealized losses excluded fromrelated to a credit loss is recognized in earnings, and reported asthe portion of unrealized loss not related to a separate component of shareholders’ equity.

credit loss is recognized in other comprehensive income.

We classify our investments in marketable debt securities based on the facts and circumstances present at the time of purchase of the securities. We subsequently reassess the appropriateness of that classification at each reporting date. During the quarter ended November 30, 2021,May 31, 2022, all of our investments were classified as held-to-maturity.

9

Capitalized Computer Software Development Costs

Software development costs are capitalized in accordance with FASB ASC 985-20, Costs of Software to Be Sold, Leased, or Marketed.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 revenue, estimated economic life, and changes in software and hardware technologies. Capitalized software development costs are comprised primarily of salaries and direct payroll-related costs and the purchase of existing software to be used in our software products.

Amortization of capitalized software development costs is calculated on a product-by-product basis on the straight-line method over the estimated economic life of the products (not to exceed five years). Amortization of software development costs amounted to $296$314 thousand and $325$344 thousand for the three months ended November 30,May 31, 2022 and 2021, respectively, and 2020,$938 thousand and $1.0 million for the nine months ended May 31, 2022 and 2021, 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.

9

Property and Equipment

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

Property and Equipment estimated useful lives
Equipment5 years
Computer equipment3 to 7 years
Furniture and fixtures5 to 7 years
Leasehold improvementsShorter of life of asset or lease

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

Leases

Supplemental balance sheet information related to operating leases was as follows as of November 30, 2021: 

Balance sheet information related to operating leases   
(in thousands)   
Right-of-use assets $1,146 
Lease liabilities, current $338 
Lease liabilities, long-term $810 
Operating lease costs $141 
Weighted average remaining lease term  2.25 years 
Weighted average discount rate  3.79% 

May 31, 2022:

(in thousands)
Right-of-use assets$1,533 
Lease liabilities, current$459 
Lease liabilities, long-term$1,069 
Operating lease costs$394 
Weighted average remaining lease term3.30 years
Weighted average discount rate3.41 %
10

Intangible Assets and Goodwill

We perform valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and recognize the assets acquired and liabilities assumed at their acquisition-date fair value. Acquired intangible assets include customer relationships, software, trade names, and noncompete agreements. We 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,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 our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.

10

Goodwill is tested for impairment at the reporting unit level, which is one level below or the same as an operating segment. As of November 30, 2021,May 31, 2022, we determined that we have four4 reporting units: Simulations Plus, Cognigen, DILIsym, and Lixoft. When testing goodwill for impairment, we first perform 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. We 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 our 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 our software, technology, patents, and trademarks. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.

As of November 30, 2021,May 31, 2022, the entire balance of goodwill was attributed to three of our reporting units: Cognigen, DILIsym, and Lixoft. Intangible assets subject to amortization are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. We did 0tnot recognize any impairment charges during the three and nine months ended November 30, 2021May 31, 2022 and 2020.

2021.

Reconciliation of Goodwill as of November 30, 2021: 

Schedule of reconciliation of goodwill            
(in thousands) Cognigen  DILIsym  Lixoft  Total 
Balance, August 31, 2021 $4,789  $5,598  $2,534  $12,921 
Addition  0   0   0   0 
Impairments  0   0   0   0 
Balance, November 30, 2021 $4,789  $5,598  $2,534  $12,921 

May 31, 2022:

(in thousands)CognigenDILIsymLixoftTotal
Balance, August 31, 2021$4,789 $— $5,598 $— $2,534 $12,921 
Addition— — — — — — 
Impairments— — — — — — 
Balance, May 31, 2022$4,789 $5,598 $2,534 $12,921 
11

Fair Value of Financial Instruments

Assets and liabilities recorded at fair value in the Condensed Consolidated 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 IInputs that are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level IIInputs, 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 IIIUnobservable 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, and accrued payroll and other expenses, accrued bonuses to officers, and accrued warranty and service costs, the amounts approximate fair value due to their short maturities.

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The following table summarizes fair value measurements at November 30, 2021May 31, 2022 and August 31, 2021 for assets and liabilities measured at fair value on a recurring basis:

November 30, 2021: 

Schedule of fair value measurements                
(in thousands) Level 1  Level 2  Level 3  Total 
Cash and cash equivalents $41,680  $0  $0  $41,680 
Short-term investments $82,364  $0  $0  $82,364 
Acquisition-related contingent consideration obligations $0  $0  $3,338  $3,338 

August 31, 2021:

(in thousands) Level 1  Level 2  Level 3  Total 
Cash and cash equivalents $36,984  $0  $0  $36,984 
Short-term investments $86,484  $0  $0  $86,484 
Acquisition-related contingent consideration obligations $0  $0  $3,217  $3,217 

May 31, 2022:
(in thousands)Level 1Level 2Level 3Total
Cash and cash equivalents$42,353 $— $— $42,353 
Short-term investments$79,801 $— $— $79,801 
Acquisition-related contingent consideration obligations$— $— $— $ 
August 31, 2021:
(in thousands)Level 1Level 2Level 3Total
Cash and cash equivalents$36,984 $— $— $36,984 
Short-term investments$86,484 $— $— $86,484 
Acquisition-related contingent consideration obligations$— $— $3,217 $3,217 
As of November 30, 2021May 31, 2022, we had no liability for contingent consideration related to our acquisition of Lixoft, and as of August 31, 2021, we had a liability for contingent consideration related to our acquisition of Lixoft. The fair value measurement of the contingent consideration obligations is determined using Level 3 inputs. The fair value of contingent consideration obligations is based on a discounted cash flow model using a probability-weighted income approach. These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense we record in any given period. ChangesThe liability is recorded as contracts payable on the condensed consolidated balance sheet, and changes in the value of the contingent consideration obligations are recorded as other income (expense), net in our Condensed Consolidated Statement of Operations.

Operations and Comprehensive Income.

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The following is a reconciliation of contingent consideration value:

Reconciliation of contingent consideration    
(in thousands)   
Value at August 31, 2021 $3,217 
Contingent consideration payments  0 
Change in value of contingent consideration  121 
Value at November 30, 2021 $3,338 

(in thousands)
Value at August 31, 2021$3,217 
Contingent consideration payments - cash(2,334)
Contingent consideration payments - stock(1,166)
Change in value of contingent consideration283 
Value at May 31, 2022$
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 experiments, and purchased software that was developed by other companies and incorporated into, or used in the development of, our final products.

Income Taxes

We 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-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.

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Intellectual property

The following table summarizes intellectual property as of November 30, 2021: 

Schedule of intellectual property           
(in thousands) Amortization
Period
 Acquisition
Value
  Accumulated
Amortization
  Net Book
Value
 
Royalty Agreement buy out-Enslein Research Straight line 10 years $75  $73  $2 
Termination/nonassertion agreement-TSRL Inc. Straight line 10 years  6,000   4,525   1,475 
Developed technologies–DILIsym acquisition Straight line 9 years  2,850   1,425   1,425 
Intellectual rights of Entelos Holding Corp. Straight line 10 years  50   16   34 
Developed technologies–Lixoft acquisition Straight line 16 years  8,010   834   7,176 
    $16,985  $6,873  $10,112 

May 31, 2022:

(in thousands)Amortization
Period
Acquisition
Value
Accumulated
Amortization
Net Book
Value
Royalty Agreement buy out-Enslein ResearchStraight line 10 years$75 $75 $— 
Termination/nonassertion agreement-TSRL Inc.Straight line 10 years6,000 4,825 1,175 
Developed technologies–DILIsym acquisitionStraight line 9 years2,850 1,583 1,267 
Intellectual rights of Entelos Holding Corp.Straight line 10 years50 19 31 
Developed technologies–Lixoft acquisitionStraight line 16 years8,010 1,083 6,927 
$16,985 $7,585 $9,400 
The following table summarizes intellectual property as of August 31, 2021:

(in thousands) Amortization
Period
 Acquisition
Value
  Accumulated
Amortization
  Net Book
Value
 
Royalty Agreement buy out-Enslein Research Straight line 10 years $75  $71  $4 
Termination/nonassertion agreement-TSRL Inc. Straight line 10 years  6,000   4,375   1,625 
Developed technologies–DILIsym acquisition Straight line 9 years  2,850   1,346   1,504 
Intellectual rights of Entelos Holding Corp. Straight line 10 years  50   15   35 
Developed technologies–Lixoft acquisition Straight line 16 years  8,010   709   7,301 
    $16,985  $6,516  $10,469 

(in thousands)Amortization
Period
Acquisition
Value
Accumulated
Amortization
Net Book
Value
Royalty Agreement buy out-Enslein ResearchStraight line 10 years$75 $— $71 $
Termination/nonassertion agreement-TSRL Inc.Straight line 10 years6,000 — 4,375 1,625 
Developed technologies–DILIsym acquisitionStraight line 9 years2,850 — 1,346 1,504 
Intellectual rights of Entelos Holding Corp.Straight line 10 years50 — 15 35 
Developed technologies–Lixoft acquisitionStraight line 16 years8,010 — 709 7,301 
$16,985 $6,516 $10,469 
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Amortization expense for intellectual property agreements for the three months ended November 30,May 31, 2022 and 2021 and 2020 was $357$354 thousand and $357$358 thousand, respectively, and amortization expense for intellectual property agreements for the nine months ended May 31, 2022 and 2021 was $1.1 million and $1.1 million, respectively.

Other intangible assets

The following table summarizes our other intangible assets as of November 30, 2021:  

Schedule of other intangible assets           
(in thousands) Amortization
Period
 Acquisition
Value
  Accumulated
Amortization
  Net Book
Value
 
Cognigen              
Customer relationships Straight line 8 years $1,100  $997  $103 
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   855   1,045 
Trade name None  860   0   860 
Covenants not to compete Straight line 4 years  80   80   0 
Lixoft              
Customer relationships Straight line 14 years  2,550   304   2,246 
Trade name None  1,550   0   1,550 
Covenants not to compete Straight line 3 years  60   33   27 
    $8,650  $2,319  $6,331 

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May 31, 2022:

(in thousands)Amortization
Period
Acquisition
Value
Accumulated
Amortization
Net Book
Value
Simulations Plus
ERPStraight line 15 years$1,702 $52 $1,650 
Cognigen
Customer relationshipsStraight line 8 years1,100 1,065 35 
Trade nameNone500 — 500 
Covenants not to competeStraight line 5 years50 50 — 
DILIsym
Customer relationshipsStraight line 10 years1,900 951 949 
Trade nameNone860 — 860 
Covenants not to competeStraight line 4 years80 80 — 
Lixoft
Customer relationshipsStraight line 14 years2,550 394 2,156 
Trade nameNone1,550 — 1,550 
Covenants not to competeStraight line 3 years60 43 17 
$10,352 $2,635 $7,717 

The following table summarizes our other intangible assets as of August 31, 2021:

(in thousands) Amortization
Period
 Acquisition
Value
  Accumulated
Amortization
  Net Book
Value
 
Cognigen              
Customer relationships Straight line 8 years $1,100  $963  $137 
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   807   1,093 
Trade name None  860   0   860 
Covenants not to compete Straight line 4 years  80   80   0 
Lixoft              
Customer relationships Straight line 14 years  2,550   258   2,292 
Trade name None  1,550   0   1,550 
Covenants not to compete Straight line 3 years  60   28   32 
    $8,650  $2,186  $6,464 

(in thousands)Amortization
Period
Acquisition
Value
Accumulated
Amortization
Net Book
Value
Cognigen
Customer relationshipsStraight line 8 years$1,100 $963 $137 
Trade nameNone500 — 500 
Covenants not to competeStraight line 5 years50 50 — 
DILIsym
Customer relationshipsStraight line 10 years1,900 807 1,093 
Trade nameNone860 — 860 
Covenants not to competeStraight line 4 years80 80 — 
Lixoft
Customer relationshipsStraight line 14 years2,550 258 2,292 
Trade nameNone1,550 — 1,550 
Covenants not to competeStraight line 3 years60 28 32 
$8,650 $2,186 $6,464 
Amortization expense for other intangible assets for the three months ended November 30,May 31, 2022 and 2021 and 2020 was $133$160 thousand and $137$137 thousand, respectively, and amortization expense for other intangible assets for the nine months ended May 31, 2022 and 2021 was $449 thousand and $412 thousand, respectively. According to policy inIn addition to normal amortization, these assets are tested for impairment as needed.

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Earnings per Share

We report earnings per share in accordance with FASB ASC 260-10. Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares available.outstanding. Diluted earnings per share is computed similarly to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The components of basic and diluted earnings per share for the three and nine months ended November 30,May 31, 2022 and 2021 and 2020 were as follows:

Schedule of earnings per share        
  Three months ended November 30, 
(in thousands) 2021  2020 
Numerator:      
Net income attributable to common shareholders $3,026  $2,479 
         
Denominator:        
Weighted-average number of common shares outstanding during the period  20,150   19,930 
Dilutive effect of stock options  596   869 
Common stock and common stock equivalents used for diluted earnings per share  20,746   20,799 

(in thousands)Three Months Ended
May 31,
Nine Months Ended
May 31,
2022202120222021
Numerator:
Net income attributable to common shareholders$4,087 $3,787 $11,522 $9,477 
Denominator:
Weighted-average number of common shares outstanding during the period20,212 20,105 20,180 20,014 
Dilutive effect of stock options556 697 551 736 
Common stock and common stock equivalents used for diluted earnings per share20,768 20,802 20,731 20,750 
Stock-Based Compensation

Compensation costs related to stock options are determined in accordance with FASB ASC 718-10, “Compensation-Stock Compensation”, using the modified prospective method. Under this method, compensation. 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 related to stock options, not including shares issued to Directorsdirectors for services, was $634$679 thousand and $449$618 thousand for the three months ended November 30,May 31, 2022 and 2021, respectively, and 2020,$2.0 million and $1.8 million for the nine months ended May 31, 2022 and 2021, respectively. This expense is included in the condensed consolidated statements of operations as selling, general, and administration and research and development expense.

14

Impairment of Long-lived Assets

We 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 threenine months ended November 30, 2021May 31, 2022 and 2020.

2021.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various areas related to the accounting for income taxes and improve consistent application of Topic 740. The guidance eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside-basis differences related to changes in ownership of equity-method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and the accounting for the enacted changes in tax laws or rates, as well as the accounting for the step-up in the tax basis of goodwill. ASU 2019-12 is effective for us beginning in fiscal 2022. The adoption of the new standard is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2020, the FASB issued ASU No. 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 consolidated financial statements or related disclosures.

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In October 2021, the FASB issued Accounting Standards UpdateASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). The amendment requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with ASC 606, Revenue from Contracts with Customers, as if the acquirer had originated the contract. The Updateamendment is intended to improve the accounting for acquired revenue contracts with customers in a business combination, related to the recognition of an acquired contract liability, and to payment terms and their effect on subsequent revenue recognized by the acquirer. The amendment also provides certain practical expedients when applying the guidance. ASU 2021-08 is effective for interim and annual periods beginning after December 15, 2022, on a prospective basis, with early adoption permitted. The Company expects to adopt ASU 2021-08 in the first quarter of fiscal year 2024. The Company is currently evaluating the potential impact of ASU 2021-08 to its consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, “GovernmentGovernment Assistance (Topic 832), which requires business entities to disclose information about transactions with a government that are accounted for by applying a grant or contribution model by analogy (for example, IFRS guidance in IAS 20 or guidance on contributions for not-for-profit entities in ASC 958-605). For transactions within scope, the new standard requires the disclosure of information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction. The new guidance is effective for annual reporting periods beginning after December 15, 2021. The Company does not expect that the adoption of this standard will have a material impact on its condensed consolidated financial statements; however, the Company expects to increase its disclosures with respect to government assistance beginning in the first quarter of fiscal year 2023.

15

NOTE 3: REVENUE RECOGNITION

Contract Liabilities

During the three months ended November 30, 2021 and 2020, we recognized $353 thousand and $296 thousand of revenue that was included in contract liabilities as of August 31, 2021, and 2020, respectively.

Disaggregation of Revenue

OTHER INCOME (EXPENSE), NET

The components of disaggregation of revenueother income (expense), net for the three and nine months ended November 30,May 31, 2022 and 2021, and 2020 were as follows:

Schedule of disaggregation of revenue      
(in thousands) Three Months Ended November 30, 
  2021  2020 
Software licenses:      
Point in time $7,107  $6,001 
Over time  255   211 
         
Consulting services:        
Over time  5,055   4,489 
Total revenue $12,417  $10,701 

Remaining Performance Obligations

Remaining performance obligations that do not fall under the expedients require us to perform various consulting and software development services of approximately $3.5 million. It is anticipated that a majority of these revenues will be recognized within the next twelve months.

(in thousands)Three Months Ended
May 31,
Nine Months Ended
May 31,
2022202120222021
Interest income$139 $37 $278 $156 
Interest expense— — — (22)
Change in valuation of contingent consideration(40)(121)(283)(364)
Gain on sale of assets— — — 
Gain (loss) on currency exchange(211)33 10 61 
Total other income (expense), net$(112)$(51)$6 $(169)
NOTE 4: INVESTMENTS
PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

Schedule of property and equipment   
(in thousands) November 30, 2021  August 31, 2021 
Equipment $677  $606 
Computer equipment  383   293 
Furniture and fixtures  36   36 
Leasehold improvements  13   13 
Construction in progress*  1,702   1,302 
Sub total  2,811   2,250 
Less: accumulated depreciation  (472)  (412)
Net book value $2,339  $1,838 

*Includes ERP costs associated with the development of internal-use software.

NOTE 5: INVESTMENTS

We invest a portion of our excess cash balances in short-term debt securities within the parameters of our Investment Policy and Guidelines. Investments as of November 30, 2021,May 31, 2022, consisted of corporate bonds and term deposits with maturities remaining of less than 12twelve 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.Securities. As of November 30, 2021,May 31, 2022, all investments were classified as held-to-maturity securities.

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The following tables summarize our short-term investments as of November 30, 2021May 31, 2022 and August 31, 2021:

November 30, 2021

Schedule of short term investments                
(in thousands) Amortized Cost  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  Fair Value 
             
Commercial notes (due within one year) $82,660  $0  $(296) $82,364 
Total $82,660  $0  $(296) $82,364 

August 31, 2021

(in thousands) Amortized Cost  

Gross

Unrealized

Gains

  

Gross

Unrealized

Losses

  Fair Value 
             
Commercial notes (due within one year) $86,620  $0  $(136) $86,484 
Total $86,620  $0  $(136) $86,484 
May 31, 2022
(in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Commercial notes (due within one year)$75,620 $— $(319)$75,301 
Term deposits (due within one year)$4,500 $— $— $4,500 
Total$80,120 $— $(319)$79,801 
August 31, 2021
(in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Commercial notes (due within one year)$86,620 $— $(136)$86,484 
Total$86,620 $— $(136)$86,484 

NOTE 6: 5: CONTRACTS PAYABLE

Lixoft Acquisition Liabilities:

On April 1, 2020, we acquired Lixoft. The agreement provided for a 24-month, $2.0 million holdback provision against certain representations and warrantees,warranties, comprised of $1.3 million of cash and shares of common stock valued at $667 thousand$0.7 million issued and deposited into an escrow account at the date of the agreement. In April 2022, the shares of common stock were released from escrow and $1.3 million of cash was paid to settle the holdback liability. In addition, based on a revenue-growth formula for the two years subsequent to April 1, 2020, the agreement callscalled for earnout payments of up to $5.5 million (two-thirds cash and one-third newly issued, unregistered shares of our common stock). The former shareholders of Lixoft cancould earn up to $2.0 million the first year and $3.5 million in year two. In June 2021, $2.0$2.0 million was paid out under the first earnout payment, which was comprised of $1.3 million of cash and $666 thousand worthshares of common stock.

stock valud at $0.7 million. In May 2022, $3.5 million was paid out under the second earnout payment, which was comprised of $2.3 million cash and shares of common stock valud at $1.2 million.

As of November 30, 2021May 31, 2022 and August 31, 2021, the following liabilities have been recorded:

Schedule of Liabilities      
(in thousands) November 30,
2021
  August 31,
2021
 
Holdback liability $1,333  $1,333 
Earnout liability  3,338   3,217 
Sub total $4,671  $4,550 
Less: current portion  4,671   4,550 
Long-term portion $0  $0 

17
(in thousands)May 31,
2022
August 31,
2021
Holdback liability$— $1,333 
Earnout liability— 3,217 
Sub total$— $4,550 
Less: current portion— 4,550 
Long-term portion$— $— 

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NOTE 7: 6: COMMITMENTS AND CONTINGENCIES

Leases

We lease approximately 9,255 square feet of office space in Lancaster, California, where our corporate headquarters are located. The lease term extends to January 31, 2026, and the base rent is approximately $17 thousand per month. The lease agreement gives the Company the right, upon 180 days’ prior notice, to opt out of all or part of the last four years of the term, with no penalty.

We lease approximately 4,317 square feet of office space in Buffalo, New York. The lease term extends to November 30, 2026, and the base rent is approximately $7 thousand per month with an annual 2% increase. The lease agreement provides the Company with two five-year renewal options and the right to terminate the lease with one year’s prior written notice with certain penalties. We previously leased approximately 12,623 square feet of office space at a different location in Buffalo, New York. That lease term extended to November 2021 and the base rent was approximately $16 thousand per month.

We lease approximately 3,386 square feet of office space in Durham, North Carolina. The lease term extends to September 30, 2023, and the base rent is approximately $8 thousand per month with an annual 3% increase.

We lease approximately 2,300 square feet of office space in Paris, France. The lease term extends to November 2024 and the rent is approximately $5 thousand per month and adjusted each December based on a consumer price index.

We lease approximately 64 square feet consisting of 3 server cabinets in a data center colocation space in Buffalo, New York. The lease term extends to November 30, 2026 and the rent is $4 thousand per month with an annual 3% increase.
Rent expense, including common area maintenance fees for the three months ended November 30May 31 2022 and 2021, and 2020 was $156$138 thousand and $185$167 thousand, respectively, and $414 thousand and $499 thousand for the nine months ended May 31, 2022 and 2021, respectively.

Future minimum

The following table presents maturities of operating lease payments under noncancelable operating leases with remaining terms of one year or moreliabilities on an undiscounted basis as of November 30, 2021 were as follows:

Future minimum lease payments    
(in thousands)
Years Ending November 30,
   
2022 $373 
2023  357 
2024  261 
2025  200 
2026  33 
Total undiscounted liabilities  1,224 
Less: imputed interest  (76)
Total future minimum lease payments $1,148 

May 31, 2022:

(in thousands)
Years Ending May 31,
2023$509 
2024438 
2025363 
2026269 
202750 
Total undiscounted liabilities1,629 
Less: imputed interest(101)
Total operating lease liabilities (including current portion)$1,528 
Line of Credit

On March 31, 2020, we entered into a Credit Agreement with Wells Fargo Bank, N.A. The Credit Agreement providesprovided us with a credit facility of $3.5$3.5 million through April 15, 2022. (the “Termination Date”), on which date the Credit Agreement terminated in accordance with its terms. As a result, we can no longer draw down against the line of credit. We chose not to renew or pursue an alternative credit facility as we do not foresee a need to utilize such credit facility within the next twelve months. As of November 30, 2021,the Termination Date, there were 0no amounts drawn against the line of credit.

Employment Agreements

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

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Income Taxes

We follow guidance issued by the FASB with regard to our accounting for uncertainty in income taxes recognized in the financial statements. Such guidance prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position, and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to income tax expense. We file income tax returns with the IRS and various state jurisdictions as well as with the countries of India and France. Our federal income tax returns for fiscal years 2018 through 20202021 are open for audit, and our state tax returns for fiscal years 2017 through 20202021 remain open for audit.

Our review of prior year tax positions using the criteria and provisions presented in guidance issued by FASB did not result in a material impact on our financial position or results of operations.

Litigation

We are not a party to any legal proceedings and are not aware of any pending, threatened, or unasserted legal proceedings of any kind.

NOTE 8: 7: SHAREHOLDERS’ EQUITY

Shares Outstanding

Shares of common stock outstanding for the quartersthree and nine months ended November 30,May 31, 2022 and 2021 and 2020 were as follows:

Schedule of common stock outstanding        
  November 30, 
  2021  2020 
Common stock outstanding, beginning of quarter  20,141,521   19,923,277 
Common stock issued during the year  27,275   35,483 
Common stock outstanding, end of quarter  20,168,796   19,958,760 

Three Months Ended
May 31,
Nine Months Ended
May 31,
2022202120222021
Common stock outstanding, beginning of the period20,181,784 20,059,528 20,141,521 19,923,277 
Common stock issued during the period52,870 61,512 93,133 197,763 
Common stock outstanding, end of the period20,234,654 20,121,040 20,234,654 20,121,040 
Dividends

Our Board of Directors declared cash dividends during fiscal years 2022 and 2021. The details of the dividends paid are in the following tables:

Schedule of dividends declared and paid              
(in thousands, except dividend per share) Fiscal Year 2022       
Record Date Distribution Date Number of Shares
Outstanding on
Record Date
  Dividend per
Share
  Total Amount 
10/25/2021 11/01/2021  20,148  $0.06   1,209 
Total           $1,209 

(in thousands, except dividend per share) 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 
4/26/2021 5/03/2021  20,115  $0.06   1,207 
7/26/2021 8/02/2021  20,139  $0.06   1,208 
Total           $4,811 

19

(in thousands, except dividend per share)Fiscal Year 2022
Record DateDistribution DateNumber of Shares
Outstanding on
Record Date
Dividend per
Share
Total Amount
10/25/202111/01/202120,148 $0.06 1,209 
1/31/20222/07/202220,178 $0.06 1,211 
4/25/20225/02/202220,207 $0.06 1,212 
Total$3,632 

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(in thousands, except dividend per share)Fiscal Year 2021
Record DateDistribution DateNumber of Shares
Outstanding on
Record Date
Dividend per
Share
Total Amount
10/26/202011/02/202019,924 $0.06 $1,195 
1/25/20212/01/202120,010 $0.06 1,201 
4/26/20215/03/202120,115 $0.06 1,207 
7/26/20218/02/202120,139 $0.06 1,208 
Total$4,811 
Stock Option Plans

On February 23, 2007, the Company’s Board of Directors adopted, and theits shareholders approved, the 2007 Stock Option Plan (the “2007 Plan”), under which a total of 1.0 million shares of common stock were reserved for issuance. On February 25, 2014, the shareholders approved an additional 1.0 million shares, increasing the total number of shares available to be granted under the 2007 Plan to 2.0 million. This plan terminated in February 2017 by its term.

terms.

On December 23, 2016, the Company’s Board of Directors adopted, and on February 23, 2017, its shareholders approved, the Company’s 2017 Equity Incentive Plan (the “2017 Plan”), under which a total of 1.0 million shares of common stock were reserved for issuance. The plan2017 Plan will terminate in December 2026. The 2017 Plan was replaced by the Company’s 2021 Plan (as defined below), and as a result, no further issuances of shares may be made under the 2017 Plan.

On April 9, 2021, the Company’s Board of Directors adopted, and on June 23, 2021, its shareholders approved, the Company’s 2021 Equity Incentive Plan (the “2021 Plan,” and together with the 2007 Plan and 2017 Plan, the “Plans”), under which 1.3 million shares of common stock were reserved for issuance. The 2021 Plan became effective as of April 9, 2021, and the Company may issue equity awards to permitted recipients thereunder. The maximum contractual life of the plan is ten years.

As of November 30, 2021,May 31, 2022, employees and directors hold Incentive Stock Options (“ISOs”) and Non-Qualified Stock Options (“NQSOs)NQSOs”) to purchase approximately 1.3 million shares of common stock at exercise prices ranging from $6.85 to $66.14.

The following table summarizes information about stock options:

Schedule of stock option activity         

(in thousands, except per share and weighted-average amounts)

Transactions during the three months ended November 30, 2021

 Number of
Options
  Weighted-
Average
Exercise
Price
Per Share
  Weighted-
Average
Remaining
Contractual
Life (Years)
 
Outstanding, August 31, 2021  1,184  $25.63   6.47 
Granted  189  $39.19     
Exercised  (28) $16.88     
Cancelled/Forfeited  (15) $37.33     
Outstanding, November 30, 2021  1,330  $27.61   6.74 
Exercisable, November 30, 2021  624  $14.47   4.78 

The weighted-average remaining contractual life of options outstanding issued under the Plans, both ISOs and NQSOs, was 6.74 years at November 30, 2021.

(in thousands, except per share and weighted-average amounts)Number of
Options
Weighted-
Average
Exercise
Price
Per Share
Weighted-
Average
Remaining
Contractual
Life (Years)
Transactions during the nine months ended May 31, 2022
Outstanding, August 31, 20211,184 $25.63 6.47
Granted232 $41.40 
Exercised(76)$15.93 
Cancelled/Forfeited(64)$41.04 
Outstanding, May 31, 20221,276 $28.31 6.33
Exercisable, May 31, 2022722 $16.96 4.66
The total fair value of nonvested stock options as of November 30, 2021May 31, 2022 was $8.0$7.5 million and is amortizable over a weighted average period of 3.543.33 years.

The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-valuation model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility.

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The following table summarizes the fair value of the options, including both ISOs and NQSOs, granted during the threenine months ended November 30, 2021May 31, 2022 and fiscal year 2021:

Schedule of fair value of options      
(in thousands except pricing) 

Three Months Ended

November 30, 2021

  Fiscal Year 2021 
Estimated fair value of awards granted $3,029  $5,092 
Unvested forfeiture rate  0%   0% 
Weighted average grant price $39.19  $57.60 
Weighted average market price $39.19  $57.60 
Weighted average volatility  41.89%   40.49% 
Weighted average risk-free rate  1.44%   0.64% 
Weighted average dividend yield  0.62%   0.42% 
Weighted average expected life  6.60 years   6.63 years 

(in thousands except pricing)Nine Months Ended
May 31, 2022
Fiscal Year 2021
Estimated fair value of awards granted$4,066 $— $5,092 
Unvested forfeiture rate%%
Weighted average grant price$41.40 $57.60 
Weighted average market price$41.40 $57.60 
Weighted average volatility42.71 %40.49 %
Weighted average risk-free rate1.62 %0.64 %
Weighted average dividend yield0.59 %0.42 %
Weighted average expected life6.59 years6.63 years
The exercise prices for the options outstanding at November 30, 2021May 31, 2022 ranged from $6.85 to $66.14, and the information relating to these options is as follows:

Schedule of options by exercise price range                
(in thousands except prices)                   
Exercise Price  Awards Outstanding  Awards Exercisable 
Low  High  Quantity  Weighted
Average
Remaining
Contractual
Life
  Weighted
Average
Exercise
Price
  Quantity  Weighted
Average
Remaining
Contractual
Life
  Weighted
Average
Exercise
Price
 
$6.85  $9.77   310   3.55 years  $8.39   310   3.55 years  $8.39 
$9.78  $18.76   227   5.09 years  $10.35   169   5.05 years  $10.43 
$18.77  $33.40   280   7.17 years  $25.20   89   6.44 years  $23.64 
$33.41  $49.62   258   9.35 years  $38.27   33   7.76 years  $35.44 
$49.63  $66.14   255   8.97 years  $58.23   23   8.69 years  $60.98 
         1,330   6.74 years  $27.61   624   4.78 years  $14.47 

(in thousands except prices)
Exercise PriceAwards OutstandingAwards Exercisable
LowHighQuantityWeighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
QuantityWeighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
$6.85 $9.77 296 3.02 years$8.33 296 3.02 years$8.33 
$9.78 $18.76 208 4.58 years$10.37 207 4.58 years$10.35 
$18.77 $33.40 253 6.64 years$25.15 129 6.26 years$24.11 
$33.41 $47.63 240 8.86 years$38.37 34 7.31 years$35.75 
$47.64 $66.14 279 8.69 years$57.06 56 8.39 years$58.93 
1,276 6.33 years$28.31 722 4.66 years$16.96 
During the three and nine months ended November 30, 2021 weMay 31, 2022, the Company issued 1,7351,875 and 5,326 shares of stock valued at $88$87 thousand and $263 thousand, respectively, to our non-management directors as compensation for board-related duties.

The balance of par value common stock and additional paid-in capital as of November 30, 2021,May 31, 2022, was $10$11 thousand and $134.5$137.5 million, respectively.

NOTE 9: 8: CONCENTRATIONS AND UNCERTAINTIES

Financial instruments that potentially subject us to concentration of credit risk consist principally of cash, cash equivalents, trade accounts receivable, and short-term investments. We hold cash and cash equivalents at banks located in California and with balances that often exceed FDIC-insured limits. In addition, we hold cash at a bank in France that is not FDIC-insured. Historically, we have not experienced any losses in such accounts. However, we are investigating alternative ways to minimize our exposure to such risks. While we may be exposed to credit losses due to the nonperformance of our counterparties, we do not expect the settlement of these transactions to have a material effect on our results of operations, cash flows, or financial condition. We maintain cash and cash equivalents at financial institutions that may, at times, exceed federally insured limits.

Revenue concentration shows that international sales accounted for 31%30% and 33%31% of net sales for the threenine months ended November 30,May 31, 2022 and 2021, and 2020, respectively. Four customers accounted for 7%5%, 5%4%, 5%3%, and 5%3% of net sales during the threenine months ended November 30, 2021.May 31, 2022. Three customers accounted for 17%12%, 7%4%, and 5%4% of net sales during the threenine months ended November 30, 2020.

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May 31, 2021.

21


Accounts receivable concentration shows that fivefour customers each comprised between 5%5% and 21%6% of accounts receivable as of November 30, 2021May 31, 2022, compared to fivefour customers each comprising between 6%7% and 21%10% of accounts receivable as of November 30, 2020.

May 31, 2021.

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

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

NOTE 10: 9: SEGMENT AND GEOGRAPHIC REPORTING

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

Results for each business unit segment and consolidated results for the three and nine months ended November 30,May 31, 2022 and 2021 and 2020 were as follows:

Schedule of consolidated results from reportable segments            
(in thousands) Three Months Ended November 30, 2021 
  Software  Services  Total 
Revenue $7,362  $5,055  $12,417 
Cost of revenue  735   2,021   2,756 
Gross profit $6,627  $3,034  $9,661 
Gross margin  90%   60%   78% 

(in thousands)Three Months Ended May 31, 2022
SoftwareServicesTotal
Revenue$9,647 $5,312 $14,959 
Cost of revenue730 1,829 2,559 
Gross profit$8,917 $3,483 $12,400 
Gross margin92 %66 %83 %
Our software business and services business represented 59%64% and 41%36% of total revenue, respectively, for the three months ended November 30, 2021.

(in thousands) Three Months Ended November 30, 2020 
  Software  Services  Total 
Revenue $6,212  $4,489  $10,701 
Cost of revenue  812   1,621   2,433 
Gross profit $5,400  $2,868  $8,268 
Gross margin  87%   64%   77% 

May 31, 2022.

(in thousands)Three Months Ended May 31, 2021
SoftwareServicesTotal
Revenue$8,298 $4,479 $12,777 
Cost of revenue800 1,671 2,471 
Gross profit$7,498 $2,808 $10,306 
Gross margin90 %63 %81 %
Our software business and services business represented 58%65% and 42%35% of total revenue, respectively, for the three months ended November 30, 2020. 

May 31, 2021.

(in thousands)Nine Months Ended May 31, 2022
SoftwareServicesTotal
Revenue$26,767 $15,405 $42,172 
Cost of revenue2,245 5,900 8,145 
Gross profit$24,522 $9,505 $34,027 
Gross margin92 %62 %81 %
22

Our software business and services business represented 63% and 37% of total revenue, respectively, for the nine months ended May 31, 2022.
(in thousands)Nine Months Ended May 31, 2021
SoftwareServicesTotal
Revenue$22,337 $14,288 $36,625 
Cost of revenue2,448 5,367 7,815 
Gross profit$19,889 $8,921 $28,810 
Gross margin89 %62 %79 %
Our software business and services business represented 61% and 39% of total revenue, respectively, for the nine months ended May 31, 2021.
Revenue by product and consolidated revenue for the three and nine months ended November 30,May 31, 2022 and 2021 and 2020 were as follows:

Schedule of geographical revenues                
(in thousands) November 30, 
  2021  2020 
Software revenue                
GastroPlus $3,985   54%  $3,336   54% 
MonolixSuite  1,570   21      1,165   19    
ADMET Predictor  1,459   20      1,172   19    
Other  348   5      539   8    
Total software revenue $7,362   100%  $6,212   100% 
                 
Services revenue                
PKPD $2,326   46%  $2,245   50% 
QSP/QST  1,466   29      1,122   25    
PBPK  859   17      628   14    
Other  404   8      494   11    
Total services revenue $5,055   100%  $4,489   100% 
Total consolidated revenue $12,417      $10,701     

22

(in thousands)Three Months Ended May 31,
20222021
Software revenue
GastroPlus$6,434 67 %$5,426 65 %
MonolixSuite1,025 11 %948 11 %
ADMET Predictor1,593 17 %1,488 18 %
Other595 %436 %
Total software revenue$9,647 100 %$8,298 100 %
Services revenue
PKPD$2,482 47 %$1,925 43 %
QSP/QST1,197 23 %1,180 26 %
PBPK1,351 25 %739 17 %
Other282 %635 14 %
Total services revenue$5,312 100 %$4,479 100 %
Total consolidated revenue$14,959 $12,777 

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(in thousands)Nine Months Ended May 31,
20222021
Software revenue
GastroPlus$15,869 59 %$13,245 59 %
MonolixSuite4,817 18 %3,664 16 %
ADMET Predictor4,419 17 %3,872 17 %
Other1,662 %1,556 %
Total software revenue$26,767 100 %$22,337 100 %
Services revenue
PKPD$7,030 46 %$6,755 47 %
QSP/QST4,190 27 %4,047 28 %
PBPK3,158 20 %2,312 16 %
Other1,027 %1,174 %
Total services revenue$15,405 100 %$14,288 100 %
Total consolidated revenue$42,172 $36,625 
Revenue by division and consolidated revenue for the three and nine months ended November 30,May 31, 2022 and 2021 and 2020 were as follows:

(in thousands) November 30, 
  2021  2020 
Simulations Plus $6,515   52%  $5,432   51% 
Cognigen  2,503   20      2,668   25    
DILIsym  1,717   14      1,372   13    
Lixoft  1,682   14      1,229   11    
Total $12,417   100%  $10,701   100% 

(in thousands)Three Months Ended May 31,
20222021
Simulations Plus$9,412 63 %$7,916 62 %
Cognigen2,745 18 %2,536 20 %
DILIsym1,723 12 %1,331 10 %
Lixoft1,079 %994 %
Total$14,959 100 %$12,777 100 %
(in thousands)Nine Months Ended May 31,
20222021
Simulations Plus$23,916 57 %$19,994 55 %
Cognigen7,685 18 %7,987 22 %
DILIsym5,542 13 %4,817 13 %
Lixoft5,029 12 %3,827 10 %
Total$42,172 100 %$36,625 100 %
In addition, we allocate revenue to geographic areas based on the locations of our customers. Revenue for each geographical area and consolidated revenue for the three and nine months ended November 30,May 31, 2022 and 2021 and 2020 were as follows:

(in thousands) November 30, 
  2021  2020 
Americas $8,459   68%  $7,123   67% 
EMEA  3,025   24      2,478   23    
Asia Pacific  933   8      1,100   10    
Total $12,417   100%  $10,701   100% 
(in thousands)Three Months Ended May 31,
20222021
Americas$11,163 75 %$9,651 76 %
EMEA1,925 13 %1,462 11 %
Asia Pacific1,871 13 %1,664 13 %
Total$14,959 100 %$12,777 100 %
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(in thousands)Nine Months Ended May 31,
20222021
Americas$29,318 70 %$25,436 69 %
EMEA8,656 21 %7,022 19 %
Asia Pacific4,198 10 %4,167 11 %
Total$42,172 100 %$36,625 100 %

NOTE 11: 10: EMPLOYEE BENEFIT PLAN

We maintain a 401(k) Plan for all eligible employees, and we make matching contributions equal to 100% of the employee’s elective deferral, not to exceed 4% of total employee compensation. We can also elect to make a profit-sharing contribution. Our contributions to this 401(K) Plan amounted to $114$134 thousand and $121$151 thousand for the three months ended November 30,May 31, 2022 and 2021, respectively, and 2020, respectively.

NOTE 12: ACQUISITION

On March 31, 2020, we entered into a Stock Purchase$442 thousand and Contribution Agreement (the “Agreement”) with Lixoft, a French société par actions simplifiée (“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 benefit based on the complementary strengths of each of the companies.

Under the terms of the Agreement, as described below, we will pay the former shareholders of Lixoft total consideration of up to $16.5 million, consisting of two-thirds cash and one-third newly issued, unregistered shares of our common stock. 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$403 thousand for the two years subsequent to April 1, 2020. The former shareholders can earn up to $2.0 million the first yearnine months ended May 31, 2022 and $3.5 million in year two. The earnout liability has been recorded at fair value. In June 2021, under the terms of the Lixoft acquisition agreement, the Company made an earnout payment of $2.0 million (two-thirds cash and one-third newly issued, unregistered shares of common stock) to the former shareholders of Lixoft.

For further details regarding the remaining holdback and earnout liabilities, please see Note 6, Contracts Payable, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

respectively.

NOTE 13: 11: SUBSEQUENT EVENTS

On Thursday, JanuaryWednesday, July 6, 2022, our Board of Directors declared a quarterly cash dividend of $0.06 per share to our shareholders. The dividend amount of approximately $1.2 million will be distributed on Monday, February 7,August 1, 2022, for shareholders of record as of Monday, January 31,July 25, 2022.

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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, 2021, filed with the Securities and Exchange Commission (“SEC”) on October 27, 2021, 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 technologies. 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. They are also provided to academic agencies for use in education and in the conduct of industry-based research and to regulatory agencies for product approval. The Company is headquartered in Southern California, with additional offices in Buffalo, NY,NY; Durham, NC,NC; and Paris, France. Our common stock has traded on the Nasdaq Global Select Market under the symbol “SLP” since May 13, 2021, prior to which it traded on the Nasdaq Capital Market under the same symbol.

We generate revenue are a global leader,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, and development of generic medicines after patent expiration, 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.

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Impacts of the COVID-19 Pandemic on our Business

For a discussion of the impacts on, and risks to, our business from COVID-19, please refer to “Our business is subject to risks arising from epidemic diseases, such as the recent outbreak of the COVID-19 illness” included in Item 1A Risk Factors in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021, filed with the SEC on October 27, 2021.

RECENT DEVELOPMENTS

Short-Form Mergers

Effective September 1, 2021, the Company merged Cognigen Corporation and DILIsym, Services, Inc. (wholly owned subsidiaries of the Company) with and into Simulations Plus, Inc. through short-form mergers (the “Mergers”). To effectuate the Mergers, the Company filed Certificates of Ownership with the Secretaries of State of the states of Delaware (Cognigen’s and DILIsym’s state of incorporation) and California (the Company’s state of incorporation). Consummation of the Mergers was not subject to approval of the Company’s stockholders and did not impact the rights of the Company’s stockholders.

Summary Results of Operations

Comparison of Three Months Ended November 30, 2021May 31, 2022 and 2020:

(in thousands) Three Months Ended November 30, 
  2021  2020  $ Change  % Change 
Revenue $12,417  $10,701  $1,716   16% 
Cost of revenue  2,756   2,433   323   13% 
Gross profit  9,661   8,268   1,393   17% 
Research and development  882   809   73   9% 
Selling, general and administrative  4,988   4,408   580   13% 
Total operating expenses  5,870   5,217   653   13% 
Income from operations  3,791   3,051   740   24% 
Other income (expense), net  65   (55)  120   (218)%
Income before provision for income taxes  3,856   2,996   860   29% 
Provision for income taxes  (830)  (517)  (313)  61% 
Net income $3,026  $2,479  $547   22% 

2021:

(in thousands)Three Months Ended May 31,
20222021$ Change% Change
Revenue$14,959 $12,777 $2,182 17 %
Cost of revenue2,559 2,471 88 %
Gross profit12,400 10,306 2,094 20 %
Research and development655 670 (15)(2)%
Selling, general and administrative6,799 5,094 1,705 33 %
Total operating expenses7,454 5,764 1,690 29 %
Income from operations4,946 4,542 404 %
Other income (expense), net(112)(51)(61)120 %
Income before income taxes4,834 4,491 343 %
Provision for income taxes(747)(704)(43)%
Net income$4,087 $3,787 $300 %
Revenue

Consolidated revenue increased by approximately $1.7$2.2 million or 16%17% to $12.4$15.0 million for the three months ended November 30, 2021,May 31, 2022, compared to consolidated revenue of approximately $10.7$12.8 million for the three months ended November 30, 2020.May 31, 2021. This increase is primarily due to a $1.2$1.3 million or 19%16% increase in software-related revenue as well asand a $566$833 thousand or 13%19% increase in service-related revenue when compared to the three months ended November 30, 2021 and 2020.

May 31, 2021.

Cost of Revenue

Consolidated cost of revenue increased by approximately $323$88 thousand or 13%,4% to $2.8$2.6 million for the three months ended November 30, 2021,May 31, 2022, compared to approximately $2.4$2.5 million for the three months ended November 30, 2020.May 31, 2021. The increase is primarily due to higher labor-relateda $158 thousand or 9% increase in service-related cost of revenue, of $367 thousand, partially offset by a $70 thousand or 9% decrease in technical support costssoftware-related cost of $40 thousand.

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revenue when compared to the three months ended May 31, 2021.

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Gross Profit

Consolidated gross profit increased by approximately $1.4$2.1 million or 17%20% to $9.7$12.4 million for the three months ended November 30, 2021May 31, 2022, compared to approximately $8.3$10.3 million for the three months ended November 30, 2020.May 31, 2021. The higher gross profit is primarily due to an increase in gross profit for our software business of approximately $1.2$1.4 million or 23%,19% and ana $675 thousand or 24% increase in gross profit for our services business of approximately $166 thousand or 6%.

business.

Overall gross margin percentage increased by approximately 1% to 78%was 83% and 81% for the three months ended November 30,May 31, 2022 and 2021, from 77% for the three months ended November 30, 2020.

respectively.

Research and Development Costs

Total research and development costs increaseddecreased by $221$56 thousand for the three months ended November 30, 2021May 31, 2022, compared to the three months ended November 30, 2020.May 31, 2021. During the three months ended November 30, 2021,May 31, 2022, we incurred approximately $1.7$1.4 million of research and development costs; of this amount, $838$759 thousand was capitalized and $882$655 thousand was expensed. During the three months ended November 30, 2020,May 31, 2021, we incurred approximately $1.5 million of research and development costs; of this amount approximately $700$800 thousand was capitalized and $809$670 thousand was expensed.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses increased by approximately $580 thousand$1.7 million or 13%33% to approximately $5.0$6.8 million for the three months ended November 30, 2021,May 31, 2022, up from $4.4$5.1 million for the three months ended November 30, 2020.May 31, 2021. The increase was primarily due to higher salary, bonus and other compensation costs of $237 thousand, an increase in payroll taxespersonnel costs of $131$537 thousand, driven largely by inflationary wage pressure and a $103tight labor market, an increase in travel costs of $193 thousand, and an increase in insurance costs related to higher liability-related insurance, and a $93 thousand increase in commission costs.

expense of $154 thousand.

As a percent of revenue, consolidated selling, general, and administrative expenses decreasedincreased from 41%40% to 40%45% for the same comparative periods.

Other Income/Expense, Income (Expense), net

Total other incomeexpense was $65$112 thousand for the three months ended November 30, 2021May 31, 2022, compared to total other expense of $55$51 thousand for the three months ended November 30, 2020.May 31, 2021. The variance of $120$61 thousand was primarily due to increasescurrency-exchange loss of $244 thousand, partially offset by an increase in currency-exchange gainsinterest income of $116$102 thousand and a decrease in loss due to change in value of contingent consideration of $81 thousand.

Provision for Income Taxes

Provision for income taxes was $830$747 thousand for the three months ended November 30, 2021May 31, 2022, compared to $517$704 thousand for the same period in the previous year. Our effective tax rate increased 4.2%decreased by less than 1% to 21.5%15% for the three months ended November 30, 2021May 31, 2022, from 17.3%16% during the same period of the previous year.

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Comparison of Nine Months Ended May 31, 2022 and 2021:
(in thousands)Nine Months Ended May 31,
20222021$ Change% Change
Revenue$42,172 $36,625 $5,547 15 %
Cost of revenue8,145 7,815 330 %
Gross profit34,027 28,810 5,217 18 %
Research and development2,439 2,771 (332)(12)%
Selling, general and administrative17,371 14,960 2,411 16 %
Total operating expenses19,810 17,731 2,079 12 %
Income from operations14,217 11,079 3,138 28 %
Other income (expense), net(169)175 (104)%
Income before income taxes14,223 10,910 3,313 30 %
Provision for income taxes(2,701)(1,433)(1,268)88 %
Net income$11,522 $9,477 $2,045 22 %
Revenue
Consolidated revenue increased by $5.5 million or 15% to $42.2 million for the nine months ended May 31, 2022, compared to consolidated revenue of $36.6 million for the nine months ended May 31, 2021. This increase is primarily due to a $4.4 million or 20% increase in software-related revenue, as well as a $1.1 million or 8% increase in service-related revenue when comparing the nine months ended May 31, 2022 and 2021.
Cost of Revenue
Consolidated cost of revenue increased by $330 thousand or 4% to $8.1 million for the nine months ended May 31, 2022, compared to $7.8 million for the nine months ended May 31, 2021. The increase is primarily due to a $533 thousand or 10% increase in service-related cost of revenue, partially offset by a decrease of $203 thousand in software-related cost of revenue when compared to the nine months ended May 31, 2022 and 2021.
Gross Profit
Consolidated gross profit increased by $5.2 million or 18% to $34.0 million for the nine months ended May 31, 2022, compared to $28.8 million for the nine months ended May 31, 2021. The higher gross profit is due to an increase in gross profit for our software business of $4.6 million or 23% and an increase in gross profit for our services business of $584 thousand or 7%.
Overall gross margin percentage was 81% and 79% for the nine months ended May 31, 2022 and 2021, respectively.
Research and Development Costs
Total research and development costs decreased by $366 thousand for the nine months ended May 31, 2022, compared to the nine months ended May 31, 2021. During the nine months ended May 31, 2022, we incurred $4.7 million of research and development costs; of this amount, $2.3 million was capitalized and $2.4 million was expensed. During the nine months ended May 31, 2021, we incurred $5.1 million of research and development costs; of this amount $2.3 million was capitalized and $2.8 million was expensed.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased by $2.4 million or 16% to $17.4 million for the nine months ended May 31, 2022, from $15.0 million for the nine months ended May 31, 2021. The increase was primarily due to an increase in personnel costs of $1.7 million, an increase in insurance costs of $442 thousand related to cyber and D&O premiums, and an increase in travel costs of $255 thousand.
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As a percent of revenue, consolidated selling, general, and administrative expenses remained consistent at 41% for the same comparative periods.
Other Income (Expense), net
Total other income was $6 thousand for the nine months ended May 31, 2022 compared to total other expense of $169 thousand for the nine months ended May 31, 2021. The variance of $175 thousand was primarily due to an increase in net interest income of $144 thousand.
Provision for Income Taxes
Provision for income taxes was $2.7 million for the nine months ended May 31, 2022, compared to $1.4 million for the same period in the previous year. Our effective tax rate increased 6% to 19% for the nine months ended May 31, 2022 compared to 13% for the same period of the previous year.
Segment Results of Operations by Business Unit

Comparison of Three Months Ended November 30, 2021May 31, 2022 and 2020:

Revenue

(in thousands) Three Months Ended November 30, 
  2021  2020  Change ($)  Change (%) 
Software $7,362  $6,212  $1,150   19% 
Services  5,055   4,489   566   13% 
Total $12,417  $10,701  $1,716   16% 

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2021:

Revenue

(in thousands)Three Months Ended May 31,
20222021Change ($)Change (%)
Software$9,647 $8,298 $1,349 16 %
Services5,312 4,479 833 19 %
Total$14,959 $12,777 $2,182 17 %
Cost of Revenue

(in thousands) Three Months Ended  November 30, 
  2021  2020  Change ($)  Change (%) 
Software $735  $812  $(77)  (9)%
Services  2,021   1,621   400   25% 
Total $2,756  $2,433  $323   13% 

(in thousands)Three Months Ended May 31,
20222021Change ($)Change (%)
Software$730 $800 $(70)(9)%
Services1,829 1,671 158 %
Total$2,559 $2,471 $88 4 %
Gross Profit

(in thousands) Three Months Ended November 30, 
  2021  2020  Change ($)  Change (%) 
Software $6,627  $5,400  $1,227   23% 
Services  3,034   2,868   166   6% 
Total $9,661  $8,268  $1,393   17% 

(in thousands)Three Months Ended May 31,
20222021Change ($)Change (%)
Software$8,917 $7,498 $1,419 19 %
Services3,483 2,808 675 24 %
Total$12,400 $10,306 $2,094 20 %
Software Business

For the three months ended November 30, 2021,May 31, 2022, the revenue increase of $1.2$1.3 million or 19%16%, compared to the three months ended November 30, 2020,May 31, 2021, was primarily due to higher sales from GastroPlus and MonolixSuite of $649 thousand and $405 thousand, respectively.$1.0 million. Cost of revenue decreased $77$70 thousand or 9% during the same periods primarily due to lower technical support costsa decrease in amortization of $40capitalized software. Gross profit increased $1.4 million or 19% during the same periods, primarily due to the increase in revenue.
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Services Business
For the three months ended May 31, 2022, the revenue increase of $833 thousand or 19%, compared to the three months ended May 31, 2021, was primarily due to an increase in revenue from PBPK of $612 thousand and lower amortization costsan increase in revenue from PKPD of $29$557 thousand, partially offset by decreases in other services revenue. Cost of revenue increased $158 thousand or 9%, primarily due to an increase in CRO services of $105 thousand. Gross marginprofit increased $675 thousand or 24%.
Comparison of Nine Months Ended May 31, 2022 and 2021:
Revenue
(in thousands)Nine Months Ended May 31,
20222021Change ($)Change (%)
Software$26,767 $22,337 $4,430 20 %
Services15,405 14,288 1,117 %
Total$42,172 $36,625 $5,547 15 %
Cost of Revenue
(in thousands)Nine Months Ended May 31,
20222021Change ($)Change (%)
Software$2,245 $2,448 $(203)(8)%
Services5,900 5,367 533 10 %
Total$8,145 $7,815 $330 4 %
Gross Profit
(in thousands)Nine Months Ended May 31,
20222021Change ($)Change (%)
Software$24,522 $19,889 $4,633 23 %
Services9,505 8,921 584 %
Total$34,027 $28,810 $5,217 18 %
Software Business
For the nine months ended May 31, 2022, the revenue increase of $4.4 million or 20%, compared to the nine months ended May 31, 2021, was primarily due to higher sales from GastroPlus, MonolixSuite, and ADMET Predictor of $2.6 million, $1.2 million, and $547 thousand, respectively. Cost of revenue decreased $203 thousand or 8% during the same periods primarily due to a decrease in amortization of capitalized software. Gross profit increased $4.6 million or 23% during the same periods, primarily due to the increase in revenue.

Services Business

For the threenine months ended November 30, 2021,May 31, 2022, the revenue increase of $566 thousand$1.1 million or 13%8%, compared to the threenine months ended November 30, 2020,May 31, 2021, was primarily due to an increase in revenue from PBPK of $846 thousand, an increase from PKPD of $275 thousand, and an increase in QSP/QST consulting services and analytical studies of $436 thousand and $116 thousand, respectively.$143 thousand. Cost of revenue increased $400by $533 thousand or 25%10%, primarily due to an increase in salaries for analytical studies of $173 thousand, trainingpersonnel costs of $93 thousand, salary contracts of $61$235 thousand and subcontractor costsan increase in CRO services of $57$224 thousand. Gross marginprofit increased $166$584 thousand or 6%.

7% during the same periods, primarily due to the increase in revenue.

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Liquidity and Capital Resources

As of November 30, 2021,May 31, 2022, the Company had $41.7$42.4 million in cash and cash equivalents, $82.7$80.1 million in short-term investments, and $130.3$138.9 million in working capital. Our principal sources of capital have been cash flows from our operations and a public offering in 2020. We have achieved continuous positive operating cash flow over the last twelve fiscal years.

On March 31, 2020, we entered into a Credit Agreement with Wells Fargo Bank, N.A. The Credit Agreement provided us with a credit facility of $3.5 million through April 15, 2022 (the “Termination Date”), on which date the Credit Agreement terminated in accordance with its terms. As a result, we can no longer draw down against the line of credit. We chose not to renew or pursue an alternative credit facility as we do not foresee a need to utilize such credit facility within the next twelve months. As of the Termination Date, there were no amounts drawn against the line of credit.
On March 31, 2020, we entered into a Share Purchase and Contribution Agreement (the “Agreement”) with Lixoft. 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 $2.0 million 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 called for earnout payments up to an additional $5.5 million, payable in 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 could earn up to $2 million the first year and $3.5 million in year two. In June 2021, $2.0 million was paid out under the first earnout payment, which was comprised of $1.3 million of cash and $0.7 million worth of common stock. In April 2022, we released and distributed the $2.0 million holdback consideration, consisting of $1.3 million in cash and shares of common stock valued at $0.7 million (amounting to an aggregate of 20,326 unregistered shares of common stock), to the former shareholders of Lixoft. In May 2022, we released and distributed $3.5 million in earnout consideration, consisting of $2.3 million in cash and shares of common stock valued at $1.2 million (amounting to an aggregate of 23,825 unregistered shares of common stock), to the former shareholders of Lixoft in accordance with the Agreement.
We believe that our existing capital and anticipated funds from operations will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for the foreseeable future. Thereafter, if cash generated from operations is insufficient to satisfy our capital requirements, we may draw from our revolving line of credit with the bank, or we may have to sell additional equity or debt securities or obtain expandeda new credit facilities.facility. In the event such financing is needed in the future, there can be no assurance that such financing will be available to us, or, if available, that it will be in amounts and on terms acceptable to us. If cash flows from operations became insufficient to continue operations at the current level, and if no additional financing was obtained, then management would restructure the Company in a way to preserve its pharmaceutical business while maintaining expenses within operating cash flows.

We continue to seek opportunities for strategic acquisitions. If one or more such acquisitions is identified, a substantial portion of our cash reserves may be required to complete it; however, we intend to maintain sufficient cash reserves after any acquisition to provide reasonable assurance that outside financing will not be necessary to continue operations. If we identify an attractive acquisition that would require more cash to complete than we are willing or able to use from our cash reserves, we will consider financing options to complete the acquisition, including obtaining loans and issuing additional securities.

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WeExcept as discussed elsewhere in this report, we are not aware of any trends or demands, commitments, events, or uncertainties that are reasonably likely to result in a decrease in liquidity of our assets. The trend over the last ten years has been increasing cash deposits from our operating cash flows, and we expect that trend to continue for the foreseeable future.

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Cash Flows

Operating Activities

Net cash provided by operating activities was $3.6$10.0 million for the threenine months ended November 30, 2021.May 31, 2022. Our operating cash flows resulted primarily from our net income of $3.0$11.5 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 $1.8$8.0 million, offset by non-cash charges of $2.4$6.5 million. The change in operating assets and liabilities was primarily a result of an increase in accounts receivable.

Net cash provided by operating activities was $5.3$10.9 million for the threenine months ended November 30, 2020.May 31, 2021. Our operating cash flows resulted primarily from our net income of $2.5$9.5 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 inflowoutflow from changes in balancebalances of operating assets and liabilities was $0.6$5.4 million, andoffset by non-cash charges were $2.2of $6.8 million. The change in operating assets and liabilities was primarily a result of a decreasean increase in prepaid incomes taxes and revenue in excess of billings.

accounts receivable.

Investing Activities

Net cash provided by investing activities during the threenine months ended November 30, 2021May 31, 2022, of approximately $2.0 million was primarily due to the proceeds from the sale of short-term investments of 16.1$75.9 million, partially offset by the purchase of short-term investments of $12.7$70.9 million and the purchase of computer software development costs of $838 thousand.

$2.3 million.

Cash used forprovided by investing activities during the threenine months ended November 30, 2020May 31, 2021, of $25.9 million$865 thousand was primarily due to the purchase of short-term investments of $31.0 and the purchase of computer software development costs of $728 thousand, partially offset by the proceeds from the sale of short-term investments of $6.0$68.1 million, partially offset by the purchase of short-term investments of $64.0 million, the costs associated with the development of computer software of $2.3 million and the purchase of equipment of $1.0 million.

Financing Activities

For the threenine months ended November 30, 2021,May 31, 2022, net cash used in financing activities of $837 thousand$6.6 million was primarily due to payments on contracts payable of $3.7 million comprised of $2.3 million for the final earnout payment and $1.3 million to settle the holdback liability related to the Lixoft acquisition, and dividend payments totaling $1.2$3.6 million, partially offset by proceeds from the exercise of stock options totaling $372$693 thousand.

Net

For the nine months ended May 31, 2021, net cash used forby financing activities for the three months ended November 30, 2020, of $1.0$2.2 million was primarily due to dividend paymentsdriven by the payment of dividends totaling $1.2$3.6 million, partially offset by proceeds from the exercise of stock options totaling $1.4 million.

Cash and

Working Capital

As of November 30, 2021, the Company had $41.7 million in cash and cash equivalents and $82.7 million in short-term investments.

We have achieved continuous positive operating cash flow over the last twelve fiscal years.

At November 30, 2021,May 31, 2022, we had working capital of $130.3$138.9 million, a ratio of current assets to current liabilities of 14.624.5 and a ratio of debt to equity of less than 0.1. At August 31, 2021, we had working capital of $127.7 million, a ratio of current assets to current liabilities of 12.0 and a ratio of debt to equity of 0.1.

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Contractual Obligations

The following table provides aggregate information regarding our contractual obligations as of November 30, 2021:

(in thousands) Payments due by period 
Contractual obligations: Total  1 year  2–3
years
  4–5
years
  More than
5 years
 
    
Operating lease obligations $1,224  $373  $618  $233  $ 
Contracts payable  4,671   4,671          
Total $5,895  $5,044  $618  $233  $ 

May 31, 2022:

(in thousands)Payments due by period
Contractual obligations:Total1 year2–3 years4–5 yearsMore than 5 years
Operating lease obligations$1,629 $509 $801 $319 $— 
Total$1,629 $509 $801 $319 $— 
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Known Trends ofor Uncertainties

Although we have not seen any significant reduction in total revenue to date, we did see a reduction in PKPD services during the year ended August 31, 2021, primarily resulting from project disruptions due to customer delays, holds, and drug development program cancellations.

We have also seen some consolidation in the pharmaceutical industry during economic downturns, although these consolidations have not had a negative effect on our total revenue from that industry. Should consolidations and downsizing in the industry continue to occur, those events could adversely impact our revenue and earnings going forward.

The world has been affected by the COVID-19 pandemic. Although there has not been a substantial impact on our sales revenue to date, until the pandemic has passed, there remains uncertainty as to the effect on our business in both the short and long term.

We believe that the need for improved productivity in the research and development activities directed toward developing new medicines will continue to result in increasing adoption of simulation and modeling tools such as those we produce. New product developments in the pharmaceutical business segments could result in increased revenue and earnings if they are accepted by our markets; however, there can be no assurances that new products will result in significant improvements to revenue or earnings. For competitive reasons, we do not disclose all of our new product development activities.

Our continued quest for acquisitions could result in a significant change to revenue and earnings if one or more such acquisitions are completed.

The potential for growth in new markets (e.g., healthcare) is uncertain. We will continue to explore these opportunities until such time as we either generate sales or determine that resources would be more efficiently used elsewhere.

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, 2021 (the “Annual Report”), filed with the SEC on October 27, 2021.

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.

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Item 3.    Quantitative and Qualitative Disclosures about Market Risk

There

As of May 31, 2022, there has been no material change in our exposure to market risk from that described in Item 7A of our Annual Report on Form 10-K for the year ended August 31, 2021.

Report.

Item 4.    Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of November 30, 2021.May 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, management concluded as of November 30, 2021May 31, 2022 that our disclosure controls and procedures were effective.

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Changes in Internal Controls over Financial Reporting

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

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PART II. OTHER INFORMATION

Item 1.Legal Proceedings

Item 1.    Legal Proceedings
For a description of our material pending legal proceedings, please see Note 7,6, 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

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, 2021, 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. AdditionalExcept as set forth below, there have been no material updates or changes to the risk factors previously disclosed in our Annual Report; provided, however, additional risks not currently known or currently material to us may also harm our business.

We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability due to the ongoing military conflict between Russia and Ukraine. Our business, financial condition, and results of operations could be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.
U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. We are continuing to monitor the situation in Ukraine and globally and assessing its potential impact on our business.
Additionally, the recent military conflict in Ukraine has led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia. Additional potential sanctions and penalties have also been proposed and/or threatened. Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds.
Although our business has not been materially impacted by the ongoing military conflict between Russian and Ukraine to date, it is impossible to predict the extent to which our operations, or those of our customers, suppliers, and manufacturers, will be impacted in the short and long term, or the ways in which the conflict may impact our business. The extent and duration of the military action, sanctions, and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described in this Quarterly Report on Form 10-Q and our Annual Report.
We may be adversely affected by the effects of inflation.
Inflation has the potential to adversely affect our liquidity, business, financial condition, and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers. The existence of inflation in the economy has resulted in, and may continue to result in, higher interest rates and capital costs, shipping costs, supply shortages, increased costs of labor, weakening exchange rates, and other similar effects. As a result of inflation, we have experienced and may continue to experience, cost increases. Although we may take measures to mitigate the impact of this inflation, if these measures are not effective, our business, financial condition, results of operations, and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impact our results of operations and when the cost of inflation is incurred.
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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
As discussed elsewhere in this report, on April 1, 2022, the Company released from escrow an aggregate of 20,326 unregistered shares of the Company’s common stock to the former shareholders of Lixoft as partial payment of a $2.0 million holdback of the closing consideration payable pursuant to that Share Purchase and Contribution Agreement entered into by and among the Company and the former shareholders of Lixoft, dated March 31, 2020 (the "Agreement"). The shares had an aggregate value of $0.7 million.
On May 5, 2022, the Company issued an aggregate of 23,825 unregistered shares of the Company’s common stock to the former shareholders of Lixoft pursuant to the Agreement. The shares had an aggregate value of $1.2 million and were issued as a portion of an earnout payment in connection with the satisfaction of certain year-over-year performance thresholds set forth in the Agreement.

The shares released as partial payment of the $2.0 million holdback and issued as partial payment of the earnout were issued in a transaction not involving a public offering in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Regulation S promulgated thereunder.
The Company did not sell any other unregistered equity securities during the period covered by this report that were not otherwise disclosed in a Current Report on Form 8-K.
Item 3.Defaults Upon Senior Securities

Item 3.    Defaults Upon Senior Securities
None.

Item 4.Mine Safety Disclosures

Item 4.    Mine Safety Disclosures
Not applicable.

Item 5.    Item 5.
Other Information

None.

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None.
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Item 6.    Exhibits

EXHIBIT NUMBERDESCRIPTION
2.1(3)^
2.2(5)^
3.1(2)
3.2(2)
3.3(4)
4.1(1)Form of Common Stock CertificateCertificate.
4.2(1)Share Exchange AgreementAgreement.
4.3(6)
4.4(6)
10.1(7)†
31.1*
31.2*
32.1*
101.INS*Inline XBRL Instance Document.
101.SCH*Inline XBRL Taxonomy Extension Schema Document.
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*Cover Page Interactive Data File – 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.

________________________

^Schedules and exhibits omitted pursuant to Item 601(b)(2) of Registration S-K. The registrant agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request.
*Filed herewith
Those exhibits marked with a (†) refer to management contracts or compensatory plans or arrangements.
(1)Incorporated by reference to the Company’s Registration Statement on Form SB-2 (Registration No. 333-6680) filed on March 25, 1997.
(2)Incorporated by reference to an exhibit to the Company’s Form 10-K for the fiscal year ended August 31, 2010.
(3)Incorporated by reference to an exhibit to the Company’s Form 8-K/A filed November 18, 2014.
(4)Incorporated by reference to Appendix A to the Company’s Definitive Schedule 14A filed December 31, 2018.
(5)Incorporated by reference to an exhibit to the Company’s Form 8-K filed April 2, 2020.
(6)Incorporated by reference to an exhibit to the Company’s Form 8-K filed April 3, 2020.
(7)Incorporated by reference to the Company’s Form 8-K filed with the SEC on November 19, 2021.

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___________________________

^    Schedules and exhibits omitted pursuant to Item 601(b)(2) of Registration S-K. The registrant agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request.
*    Filed herewith
†    Those exhibits marked with a (†) refer to management contracts or compensatory plans or arrangements.
(1)Incorporated by reference to the Company’s Registration Statement on Form SB-2 (Registration No. 333-6680) filed on March 25, 1997.
(2)Incorporated by reference to an exhibit to the Company’s Form 10-K for the fiscal year ended August 31, 2010.
(3)Incorporated by reference to an exhibit to the Company’s Form 8-K/A filed November 18, 2014.
(4)Incorporated by reference to Appendix A to the Company’s Definitive Schedule 14A filed December 31, 2018.
(5)Incorporated by reference to an exhibit to the Company’s Form 8-K filed April 2, 2020.
(6)Incorporated by reference to an exhibit to the Company’s Form 8-K filed April 3, 2020.
(7)Incorporated by reference to the Company’s Form 8-K filed with the SEC on November 19, 2021.
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SIGNATURE

In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lancaster, State of California, on January 7,July 8, 2022.

Simulations Plus, Inc.
Date:January 7,July 8, 2022By:
/s/  /s/ Will Frederick
Will Frederick
Chief Financial Officer

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