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

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

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.

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.

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.

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.

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.

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:

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.

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:

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.

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:

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:

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.

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

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.

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

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.

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

Intellectual property

The following table summarizes intellectual property as of 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

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.

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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