Equibles

10-Q

Simulations Plus, Inc. (SLP)

10-Q 2021-04-14 For: 2021-02-28
View Original
Added on April 06, 2026

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Security Exchange Act of 1934 for the quarterly period ended February 28, 2021
OR
☐ Transmission Report Pursuant to Section 13 or 15(d) of the Security Exchange Act of 1937 for the transition period from ______ to ______

Commission file number:

001-32046

Simulations Plus, Inc.

(Name of registrant as specified in its charter)

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

42505 10th Street West

Lancaster, CA 93534-7059

(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<br><br> <br>Common Stock, par value $0.001 per share Trading Symbol<br><br> <br><br><br> <br>SLP Name of Each Exchange on Which Registered<br><br> <br>NASDAQ Stock Market LLC

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

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

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

☐   Large accelerated filer ☐   Accelerated<br>filer
☒  Non-accelerated Filer ☒   Smaller reporting company
☐   Emerging Growth Company

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

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

The number of shares outstanding of the registrant’s

common stock, par value $0.001 per share, as of April 12, 2021 was 20,107,895; no shares of preferred stock were outstanding.

Simulations Plus, Inc.

FORM 10-Q

For the Quarterly Period Ended February 28,2021

Table of Contents

PART I. FINANCIAL INFORMATION
Page
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at February 28, 2021 and August 31, 2020 3
Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended February 28, 2021 and February 29, 2020 4
Condensed Consolidated Statements of Shareholders’ Equity for the three and six months ended February 28, 2021 and February 29, 2020 5
Condensed Consolidated Statements of Cash Flows for the six months ended February 28, 2021 and February 29, 2020 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
Item 3. Quantitative and Qualitative Disclosures about Market Risk 37
Item 4. Controls and Procedures 37
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 38
Item 1A. Risk Factors 38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 38
Item 3. Defaults upon Senior Securities 38
Item 4. Mine Safety Disclosures 38
Item 5. Other Information 38
Item 6. Exhibits 38
Signatures 39 
| 2 |

| --- |

Part I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

SIMULATIONS PLUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Audited)
August 31,
(in thousands, except share and per share amounts) 2020
ASSETS
Current assets
Cash and cash equivalents 42,385 $ 49,207
Accounts receivable, net of allowance for doubtful accounts of 100 and 50 11,306 7,422
Revenues in excess of billings 3,837 3,093
Prepaid income taxes 1,250 970
Prepaid expenses and other current assets 1,408 1,596
Short-term investments 75,367 66,804
Total current assets 135,553 129,092
Long-term assets
Capitalized computer software development costs, net of accumulated amortization of 14,271 and 13,582 6,871 6,087
Property and equipment, net 924 438
Operating lease right of use assets 1,532 927
Intellectual property, net of accumulated amortization of 5,801 and 5,087 11,184 11,898
Other intangible assets, net of accumulated amortization of 1,917 and 1,642 6,733 7,008
Goodwill 12,921 12,921
Other assets 51 51
Total assets 175,769 $ 168,422
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 400 $ 351
Accrued payroll and other expenses 2,891 2,251
Current portion - contracts payable 2,000 2,000
Billings in excess of revenues 258 141
Operating lease liability, current portion 469 463
Deferred revenue 523 300
Total current liabilities 6,541 5,506
Long-term liabilities
Deferred income taxes, net 2,360 2,354
Operating lease liability 1,064 463
Payments due under contracts payable 4,307 4,064
Total liabilities 14,272 12,387
Commitments and contingencies
Shareholders' equity
Preferred stock, 0.001 par value 10,000,000 shares authorized, no shares issued and outstanding – –
Common stock, 0.001 par value and additional paid in capital —50,000,000 shares authorized, 20,059,528 and 19,923,277 shares issued and outstanding 130,713 128,541
Retained earnings 30,730 27,436
Accumulated other comprehensive income 54 58
Total shareholders' equity 161,497 156,035
Total liabilities and shareholders' equity 175,769 $ 168,422

All values are in US Dollars.

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

| 3 |

| --- |

SIMULATIONS PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSAND COMPREHENSIVE INCOME

For the three and six months ended February28, 2021 and February 29, 2020

(in thousands, except per common share amounts) Three Months Ended Six Months Ended
(Unaudited) (Unaudited)
2021 2020 2021 2020
Revenues $ 13,147 $ 10,350 $ 23,848 $ 19,751
Cost of revenues 2,911 2,666 5,344 5,309
Gross margin 10,236 7,684 18,504 14,442
Operating expenses
Selling, general, and administrative 5,458 4,110 9,866 7,623
Research and development 1,292 748 2,101 1,274
Total operating expenses 6,750 4,858 11,967 8,897
Income from operations 3,486 2,826 6,537 5,545
Other income (expense)
Interest income 58 12 119 22
Interest expense (22 ) – (22 ) –
Change in value of contingent consideration (122 ) – (243 ) –
Income/(Loss) on currency exchange 23 (2 ) 28 2
Total other income (expense) (63 ) 10 (118 ) 24
Income before provision for income taxes 3,423 2,836 6,419 5,569
Provision for income taxes (212 ) (686 ) (729 ) (1,361 )
Net Income $ 3,211 $ 2,150 $ 5,690 $ 4,208
Earnings per share
Basic $ 0.16 $ 0.12 $ 0.28 $ 0.24
Diluted $ 0.15 $ 0.12 $ 0.27 $ 0.23
Weighted-average common shares outstanding
Basic 20,006 17,638 19,968 17,624
Diluted 20,842 18,316 20,786 18,306
Other Comprehensive Income (Loss), net of tax
Foreign currency translation adjustments (4 ) – (4 ) –
Comprehensive Income $ 3,207 $ 2,150 $ 5,686 $ 4,208

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

| 4 |

| --- |

SIMULATIONS PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS'EQUITY

For the three and six months ended February28, 2021 and February 29, 2020

(in thousands, except per common share amounts) Three Months Ended Six Months Ended
(Unaudited) (Unaudited)
2021 2020 2021 2020
Common stock and additional paid in capital
Balance, beginning of period $ 129,253 $ 15,830 $ 128,541 $ 15,327
Exercise of stock options 656 167 836 303
Stock-based compensation 717 345 1,166 640
Shares issued to Directors for services 87 72 170 144
Balance, end of period $ 130,713 $ 16,414 $ 130,713 $ 16,414
Retained earnings
Balance, beginning of period $ 28,720 $ 23,357 $ 27,436 $ 22,355
Declaration of dividend (1,201 ) (1,059 ) (2,396 ) (2,115 )
Net income 3,211 2,150 5,690 4,208
Balance, end of period $ 30,730 $ 24,448 $ 30,730 $ 24,448
Accumulated other comprehensive income
Balance, beginning of period $ 58 $ – $ 58 $ –
Other comprehensive income (loss) (4 ) – (4 ) –
Balance, end of period $ 54 $ – $ 54 $ –
**Total shareholders’**equity – – 156,035 –
Other comprehensive income (loss) – – – –
Total shareholders’ equity $ 161,497 $ 40,862 $ 161,497 $ 40,862
Common dividends declared per common share $ 0.06 $ 0.06 $ 0.12 $ 0.12

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

| 5 |

| --- |

SIMULATIONS PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended
(in thousands) February 28, 2021 February 29, 2020
Cash flows from operating activities
Net income $ 5,690 $ 4,208
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 1,776 1,345
Change in value of contingent consideration 243 –
Amortization of note premiums 1,276 –
Stock-based compensation 1,336 784
Deferred income taxes 6 (17 )
Currency translation adjustments (4 ) –
(Increase) decrease in
Accounts receivable (3,884 ) (2,218 )
Revenues in excess of billings (744 ) (880 )
Prepaid income taxes (280 ) 308
Prepaid expenses and other assets 188 92
Increase (decrease) in
Accounts payable 51 421
Accrued payroll and other expenses 640 (114 )
Billings in excess of revenues 117 93
Deferred revenue 223 (197 )
Net cash provided by operating activities 6,634 3,825
Cash flows used in investing activities
Purchases of property and equipment (583 ) (73 )
Purchases of short-term investments (40,789 ) –
Proceeds from sale of short-term investments 30,950 –
Capitalized computer software development costs (1,474 ) (1,127 )
Net cash used in investing activities (11,896 ) (1,200 )
Cash flows used in financing activities
Payment of dividends (2,396 ) (2,115 )
Proceeds from the exercise of stock options 836 303
Net cash used in financing activities (1,560 ) (1,812 )
Net increase (decrease) in cash and cash equivalents (6,822 ) 813
Cash and cash equivalents, beginning of year 49,207 11,436
Cash and cash equivalents, end of period $ 42,385 $ 12,249
Supplemental disclosures of cash flow information
Income taxes paid $ 878 $ 1,066
Non-Cash Investing and Financing Activities
Right of use assets capitalized $ 905 $ 903

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

| 6 |

| --- |

SIMULATIONS PLUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1: GENERAL

This report on Form 10-Q for the quarter ended February 28, 2021, should be read in conjunction with the our Annual Report on Form 10-K for the year ended August 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on November 16, 2020. As contemplated by the SEC under Article 8 of Regulation S-X, the accompanying consolidated financial statements and footnotes have been condensed and therefore do not contain all disclosures required by generally accepted accounting principles. The interim financial data are unaudited; however, in the opinion of Simulations Plus, Inc. ("we", "our", "us"), the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. Results for interim periods are not necessarily indicative of those to be expected for the full year.

Organization

Simulations Plus, Inc. (“Simulations Plus”) 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, “Company”, “we”, “us”, “our”).

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 and machine learning based technology. We also provide consulting services ranging from early drug discovery through preclinical and clinical trial data analysis and for submissions to regulatory agencies. Our software and consulting services are provided to major pharmaceutical, biotechnology, agrochemical, cosmetics, food industry companies, and to regulatory agencies worldwide for use in the conduct of industry-based research.

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. 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.

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.

| 7 |

| --- |

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

i. Identification of the contract, or contracts, with a customer
ii. Identification of the performance obligations in the contract
iii. Determination of the transaction price
iv. Allocation of the transaction price to the performance obligations in the contract
v. Recognition of revenue when, or as, 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. Sales commissions for new contracts are deferred and then amortized on a straight-line basis over a period of benefit. We determined the period of benefit by taking into consideration our customer contracts, our technology, and other factors. Sales commissions for renewal contracts are deferred and then amortized on a straight-line basis over the related contractual renewal period. Amortization expense is included in sales and marketing expenses on the condensed consolidated statements of operations.

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

Practical Expedients and Exemptions

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*.*
· Transaction Price Allocated to Future Performance Obligations: ASC 606 requires that we disclose the aggregate amount of transaction price that is allocated to<br> performance obligations that have not yet been satisfied as of February 28, 2021. ASC 606 provides certain practical expedients that<br> limit the requirement to disclose the aggregate amount of transaction price allocated to unsatisfied performance obligations.<br><br> <br><br><br> <br>We applied the practical expedient to<br> not disclose the amount of transaction price allocated to unsatisfied performance obligations when the performance obligation is part<br> of a contract that has an original expected duration of one year or less.
--- ---

Cash and Cash Equivalents

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

Accounts Receivable

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

| 8 |

| --- |

Investments

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

Held-to-maturity—Debt securities that the entity has the positive intent and ability to hold to maturity are reported at amortized cost. Discounts and premiums to par value of the debt securities are amortized to interest income/expense over the term of the security. No gains or losses on investment securities are realized until they are sold or a decline in fair value is determined to be other-than-temporary.

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

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

We classify our investments in marketable debt securities based on the facts and circumstances present at the time of purchase of the securities. During the quarter ended February 28, 2021, all of our investments were classified as held-to-maturity.

Capitalized Computer Software Development Costs

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

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

Amortization of capitalized software development

costs is calculated on a product-by-product basis 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 $365 thousand and $314 thousand for the three months ended February 28, 2021 and February 29, 2020, respectively and $690 thousand and $628 thousand for the six months ended February 28, 2021 and February 29, 2020, respectively. We expect future amortization expense to vary due to increases in capitalized computer software development costs.

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

Property and Equipment

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

Property and Equipment estimated useful lives
Equipment 5 years
Computer equipment 3 to 7 years
Furniture and fixtures 5 to 7 years
Leasehold improvements Shorter of life of asset or lease 
| 9 |

| --- |

Internal-use Software

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

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

Leases

Supplemental balance sheet information related to operating leases was as follows as of February 28, 2021:

Schedule of lease cost
(in thousands)
Right of use assets $ 1,532
Lease Liabilities, Current $ 469
Lease Liabilities, Long-term $ 1,064
Operating lease costs $ 314
Weighted Average remaining lease term 3.0 years
Weighted Average Discount rate 3.79%

Intangible Assets and Goodwill

We perform valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and recognizes the assets acquired and liabilities assumed at their acquisition-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, 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 February 28, 2021, we determined that we have four 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.

| 10 |

| --- |

As of February 28, 2021, the entire balance of goodwill was attributed to three of the 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 not recognize any impairment charges during the three months and six months ended February 28, 2021 and February 29, 2020.

Reconciliation of Goodwill as of February 28, 2021:

Schedule of reconciliation of goodwill
(in thousands) Cognigen DILIsym Lixoft Total
Balance, August 31, 2020 $ 4,789 $ 5,598 $ 2,534 $ 12,921
Addition – – – –
Impairments – – – –
Balance, February 28, 2021 $ 4,789 $ 5,598 $ 2,534 $ 12,921

Fair Value of Financial Instruments

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

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

For certain of our financial instruments, including accounts receivable, accounts payable, accrued payroll and other expenses, accrued 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 February 28, 2021 and August 31, 2020 for assets and liabilities measured at fair value on a recurring basis:

Schedule of fair value measurements
February 28, 2021:
(in thousands) Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 42,385 $ – $ – $ 42,385
Short-term investments $ 75,367 $ – $ – 75,367
Acquisition-related contingent consideration obligations $ – $ – $ 4,974 $ 4,974

August 31, 2020:

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

| --- |

As of February 28, 2021 and August 31, 2020, 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. Changes in the value of the contingent consideration obligations are recorded in our Consolidated Statement of Operations.

The following is a reconciliation of contingent consideration value:

Reconciliation of contingent consideration value
(in thousands)
Value at August 31, 2020 $ 4,731
Contingent consideration payments –
Change in value of contingent consideration 243
Value at February 28, 2021 $ 4,974

Research and Development Costs

Research and development costs are charged to expense as incurred until technological feasibility has been established. These costs include salaries, laboratory 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.

Intellectual property

The following table summarizes intellectual property as of February 28, 2021:
(in thousands) Amortization<br> Period Acquisition<br> Value Accumulated<br> Amortization Net Book <br> Value
Royalty Agreement buy out-Enslein Research Straight line 10 years $ 75 $ 67 $ 8
Termination/nonassertion agreement-TSRL Inc. Straight line 10 years 6,000 4,075 1,925
Developed technologies–DILIsym acquisition Straight line 9 years 2,850 1,188 1,662
Intellectual rights of Entelos Holding Corp. Straight line 10 years 50 12 38
Developed technologies–Lixoft acquisition Straight line 16 years 8,010 459 7,551
$ 16,985 $ 5,801 $ 11,184 
| 12 |

| --- |

The following table summarizes intellectual property as of August 31, 2020:

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

Total amortization expense for intellectual property

agreements for the three months ended February 28, 2021 and February 29, 2020 was $357 thousand and $232 thousand, respectively, and total amortization expense for the six months ended February 28, 2021 and February 29, 2020 was $714 thousand and $465 thousand, respectively.

Other intangible assets

Schedule of other intangible assets
The following table summarizes the Company’s other intangible assets as of February 28, 2021:
(in thousands) Amortization<br> Period Acquisition<br> Value Accumulated<br> Amortization Net Book <br> Value
Cognigen
Customer relationships Straight line 8 years $ 1,100 $ 894 $ 206
Trade name None 500 – 500
Covenants not to compete Straight line 5 years 50 50 –
DILIsym
Customer relationships Straight line 10 years 1,900 713 1,187
Trade name None 860 – 860
Covenants not to compete Straight line 4 years 80 75 5
Lixoft
Customer relationships Straight line 14 years 2,550 167 2,383
Trade name None 1,550 – 1,550
Covenants not to compete Straight line 3 years 60 18 42
$ 8,650 $ 1,917 $ 6,733 
| 13 |

| --- |

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

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

Total amortization expense for other intangible

assets for the three months ended February 28, 2021 and February 29, 2020 was $138 thousand and $87 thousand, respectively, and total amortization expense for the six months ended February 28, 2021 and February 29, 2020 was $275 thousand and $174 thousand, respectively. According to policy in addition to normal amortization, these assets are tested for impairment as needed.

Earnings per Share

We report earnings per share in accordance with FASB ASC 260-10. Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The components of basic and diluted earnings per share for the three and six months ended February 28, 2021 and February 29, 2020 were as follows:

Schedule of earnings per share
(in thousands) Three Months ended Six Months Ended
2021 2020 2021 2020
Numerator:
Net income attributable to common shareholders $ 3,211 $ 2,150 $ 5,690 $ 4,208
Denominator:
Weighted-average number of common shares outstanding during the period 20,006 17,638 19,968 17,624
Dilutive effect of stock options 836 678 818 682
Common stock and common stock equivalents used for diluted earnings per share 20,842 18,316 20,786 18,306 
| 14 |

| --- |

Stock-Based Compensation

Compensation costs related to stock options are

determined in accordance with FASB ASC 718-10, “Compensation-Stock Compensation”, using the modified prospective method. Under this method, compensation cost is calculated based on the grant-date fair value estimated in accordance with FASB ASC 718-10, amortized on a straight-line basis over the options’ vesting period. Stock-based compensation expense was $804 thousand and $417 thousand for the three months ended February 28, 2021 and February 29, 2020, respectively, and $1.3 million and $784 thousand for the six months ended February 28, 2021 and February 29, 2020, respectively. This expense is included in the condensed consolidated statements of operations as Selling, general, and administration and Research and development expense.

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, “Propertyand 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 six months ended February 28, 2021 and February 29, 2020.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04*, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting* (“ASU 2020-04”). The amendments in ASU 2020-04 provide temporary optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions to ease the potential accounting and financial reporting burden associated with transitioning away from reference rates that are expected to be discontinued, including the London Interbank Offered Rate (“LIBOR”). This ASU is effective as of March 12, 2020 through December 31, 2022. The adoption of the new standard has not had and is not expected to have a material impact on our financial statements or related disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in "Leases (Topic 840)" and generally requires all leases to be recognized in the consolidated balance sheet. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. We adopted this ASU on September 1, 2019.

NOTE 3: REVENUE RECOGNITION

Contract Liabilities

During the three and six months ended

February 28, 2021, we recognized $104 thousand and $400 thousand, respectively, of revenue that was included in contract liabilities as of August 31, 2020, and during the three and six months ended February 29, 2020, we recognized $338 thousand and $773 thousand, respectively, of revenue that was included in contract liabilities as of August 31, 2019.

Disaggregation of Revenues

The components of disaggregation of revenue for the three and six months ended February 28, 2021 and February 29, 2020 were as follows:

Schedule of disaggregation of revenues
(in thousands) Three Months Ended Six Months Ended
2021 2020 2021 2020
Software licenses:
Point in time $ 7,536 $ 5,131 $ 13,472 $ 9,494
Over time 291 254 503 504
Consulting services:
Over time 5,320 4,965 9,873 9,753
Total revenue $ 13,147 $ 10,350 $ 23,848 $ 19,751 
| 15 |

| --- |

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 $3.8 million. It is anticipated that a majority of these revenues will be recognized within the next twelve months.

NOTE

4: PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

Schedule of property and equipment
(in thousands) February 28, 2021 August 31, 2020
Equipment $ 1,012 $ 865
Computer equipment 583 548
Furniture and fixtures 161 161
Leasehold improvements 123 114
Construction in progress 391 –
Sub total 2,270 1,688
Less: accumulated depreciation (1,346 ) (1,250 )
Net book value $ 924 $ 438

NOTE 5: INVESTMENTS

We invest a portion of our excess cash balances in short-term debt securities. Investments at February 28, 2021 consisted of corporate bonds with maturities remaining of less than 12 months. We may also invest excess cash balances in certificates of deposit, money market accounts, government-sponsored enterprise securities, corporate bonds and/or commercial paper. We account for investments in accordance with FASB ASC 320, Investments – Debt and Equity Securities. At February 28, 2021, all investments were classified as held-to-maturity securities.

The following tables summarize our short-term investments as of February 28, 2021 and August 31, 2020:

Schedule of short term investment
February 28, 2021
(in thousands) Amortized Cost Gross<br> <br>Unrealized<br> <br>Gains Gross<br> <br>Unrealized<br> <br>Losses Fair Value
Commercial notes (due within one year) $ 75,367 $ – $ (65 ) $ 75,302
Total $ 75,367 $ – $ (65 ) $ 75,302

August 31, 2020

(in thousands) Amortized Cost Gross<br> <br>Unrealized<br> <br>Gains Gross<br> <br>Unrealized<br> <br>Losses Fair Value
Commercial notes (due within one year) $ 66,804 $ – $ (61 ) $ 66,743
Total $ 66,804 $ – $ (61 ) $ 66,743 
| 16 |

| --- |

NOTE 6: CONTRACTS PAYABLE

DILIsym Acquisition Liabilities:

On June 1, 2017, we acquired DILIsym. The agreement provided for a working capital adjustment, an eighteen-month $1.0 million holdback provision against certain representations and warranties, and an earnout agreement of up to an additional $5.0 million in earnout payments based on earnings over three years following acquisition. The earnout liability has been recorded at an estimated fair value. Payments under the earnout liability started in fiscal year 2019. In September 2018, $1.6 million was paid out under the first earnout payment, a second earnout payment was made in August 2019 in the amount of $1.7 million. The final payment of $1.8 million was paid in August 2020. In addition, no claims were made against the holdback and the $1.0 million holdback provision was released eighteen months after June 1, 2017.

Lixoft Acquisition Liabilities:

On April 1, 2020, we acquired Lixoft. The agreement provided for a 24 month $2.0 million holdback escrow provision against certain representations and warrantees, comprised of $1.3 million of cash and shares of stock valued at $667 thousand issued at the date of the agreement. In addition, based on a revenue growth formula for the two years subsequent to April 1, 2020, the agreement calls for earnout payments of up to $5.5 million (two-thirds cash and one-third newly issued, restricted shares of our common stock). The former shareholders of Lixoft can earn up to $2.0 million the first year and $3.5 million in year two.

As of February 28, 2021 and August 31, 2020 the following liabilities have been recorded:

Schedule of Liabilities
(in thousands) February 28, <br> 2021 August 31, <br> 2020
Holdback liability — Lixoft $ 1,333 $ 1,333
Earnout liability — Lixoft 4,974 4,731
Sub total $ 6,307 $ 6,064
Less: current portion 2,000 2,000
Long-term portion $ 4,307 $ 4,064

NOTE 7: COMMITMENTS AND CONTINGENCIES

Leases

We lease approximately 9,255 square feet of space in Lancaster, California. The original lease had a five-year term with two, three-year options to extend. The initial five-year term expired in February 2011, and we extended the lease to February 2, 2014. In June 2013, the lease was amended to extend the term to February 2, 2017. The amended lease also provides for an annual base rent increase of 3% per year and two, two-year options to extend. In May 2016, we exercised the two, two-year options extending the term of the lease through February 2, 2021 at a fixed rate of $25 thousand per month. In December 2020, the lease was amended to extend the term to January 31, 2026. The amendment decreased the leased square footage from 13,500 sq. ft to 9,255 sq. ft, and correspondingly reduced the base rent from $25 thousand per month to $16.7 thousand per month. The amended lease also allows us to opt out of the last 4 years of the lease upon 180-day notice to the landlord with no penalty.

| 17 |

| --- |

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

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

In Paris, France, Lixoft leases approximately 2,300 square feet of office space, which as of April 1, 2020, had minimum payments equaling $288 thousand. The lease is for a 9-year term, with an option to terminate every 3 years, and expires in November of 2024. The rent is $16 thousand per quarter (approximately $5.3 thousand per month) and can be adjusted each December based on a consumer price index.

Rent expense, including common area maintenance

fees for the three months ended February 28, 2021, and February 29, 2020 was $147 thousand and $150 thousand, respectively, and $332 thousand and $295 thousand for the six months ended February 28, 2021 and February 29, 2020, respectively.

Future minimum lease payments under noncancelable operating leases with remaining terms of one year or more at February 28, 2021 were as follows:

Future minimum lease payments
(in thousands) <br>Years Ending February 28,
2022 $ 513
2023 370
2024 328
2025 244
2026 183
Future minimum lease payments $ 1,638

Line of Credit

On March 31, 2020, we entered into a Credit Agreement with Wells Fargo Bank, N.A. The Credit Agreement provides us with a credit facility of $3.5 million through April 15, 2022. As of February 28, 2021, there were no 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.

License Agreement

We had a royalty agreement with Dassault Systèmes Americas Corp. for access to their Metabolite Database for developing our Metabolite Module within ADMET Predictor™. The module was renamed the Metabolism Module when we released ADMET Predictor version 6 on April 19, 2012. Under this agreement, we paid a royalty of 25% of revenue derived from the sale of the Metabolism/Metabolite module. This agreement was renegotiated, and we do not bear any royalty obligations towards Dassault Systèmes Americas Corp. effective as of June 30, 2019. In addition, the license agreement terminated on September 5, 2020. We have not experienced any adverse impact on revenue since terminating the license agreement.

We are in the process of making arrangements to replace the database, which is expected to be completed by the end of fiscal year 2021.

| 18 |

| --- |

Income Taxes

We follow guidance issued by the FASB with regard to our accounting for uncertainty in income taxes recognized in the financial statements. Such guidance prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to 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 year 2017 thru 2019 are open for audit, and our state tax returns for fiscal year 2016 through 2019 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.

Legal Proceedings

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

NOTE 8: SHAREHOLDERS’ EQUITY

Dividends

Our Board of Directors declared cash dividends during fiscal years 2021 and 2020. The details of the dividends paid are in the following tables:

Schedule of dividends declared and paid
(in thousands, except dividend per share amounts) Fiscal Year 2021
Record Date Distribution Date Number of Shares<br> Outstanding on <br> Record Date Dividend per <br> Share Total<br> Amount
10/26/2020 11/02/2020 19,924 $ 0.06 $ 1,195
1/25/2021 2/01/2021 20,010 $ 0.06 1,201
Total $ 2,396
(in thousands, except dividend per share amounts Fiscal Year 2020
--- --- --- --- --- --- --- --- ---
Record Date Distribution Date Number of Shares<br> Outstanding on <br> Record Date Dividend per <br> Share Total <br> Amount
10/25/2019 11/01/2019 17,606 $ 0.06 $ 1,056
1/27/2020 2/03/2020 17,646 $ 0.06 1,059
4/24/2020 5/01/2020 17,769 $ 0.06 1,066
7/27/2020 8/03/2020 17,820 $ 0.06 1,069
Total $ 4,250

Stock Option Plans

On February 23, 2007, the Board of Directors adopted and the shareholders approved the 2007 Stock Option Plan under which a total of 1.0 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 Stock Option Plan to 2.0 million. This plan terminated in February 2017 by its term.

| 19 |

| --- |

On December 23, 2016 the Board of Directors adopted,

and on February 23, 2017 the shareholders approved, the 2017 Equity Incentive Plan under which a total of 1.0 million shares of common stock were reserved for issuance. This plan will terminate in December 2026 by its term.

On November 20, 2020, the Board of Directors adopted an amendment to the 2017 Equity Incentive Plan to, subject to shareholder approval, increase the number of shares reserved for issuance under the plan from 1.0 million shares of common stock to 1.75 million shares of common stock. The amendment, which was submitted for shareholder approval at our 2021 annual shareholder meeting, was not approved by the shareholders. As a result, we expect to submit a new equity plan for adoption by the Board of Directors and shareholders in May 2021. If approved, the new equity incentive plan will replace the 2017 Equity Incentive Plan, except that outstanding awards granted prior to the adoption of the new equity incentive plan will continue to be governed by the 2017 Equity Incentive Plan.

As of February 28, 2021, employees and directors hold Qualified Incentive Stock Options (“ISOs”) and Non-Qualified Stock Options (“NQSOs) to purchase 1.3 million shares of common stock at exercise prices ranging from $6.85 to $61.84.

The following table summarizes information about stock options:

Schedule of stock option activity
(in<br> thousands, except per share and weighted-average amounts)<br> <br>Transactions during the six months ended February 28, 2021 Number of <br> Options Weighted-<br> Average<br> Exercise <br> Price <br> Per Share Weighted-<br> Average <br> Remaining<br> Contractual <br> Life
Outstanding, August 31, 2020 1,224 $ 17.76 6.79
Granted 206 $ 57.83
Exercised (134 ) $ 13.11
Cancelled/Forfeited (34 ) $ 26.19
Outstanding, February 28, 2021 1,262 $ 24.57 6.88
Exercisable, February 28, 2021 657 $ 11.68 5.31

The weighted-average remaining contractual life

of options outstanding issued under the Plan, both ISOs and NQSOs, was 6.88 years at February 28, 2021. The total fair value of nonvested stock options as of February 28, 2021 was $20.1 million and is amortizable over a weighted average period of 3.73 years.

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

The following table summarizes the fair value of the options, including both ISOs and NQSOs, granted during the six months ended February 28, 2021 and fiscal year 2020:

Schedule of fair value of options
(in thousands except pricing) Six months ended February 28, 2021 Fiscal Year 2020
Estimated fair value of awards granted $ 4,657 $ 2,997
Unvested forfeiture rate 0% 0%
Weighted average grant price $ 57.83 $ 39.23
Weighted average market price $ 57.83 $ 39.23
Weighted average volatility 40.47% 33.56%
Weighted average risk-free rate 0.60% 1.39%
Weighted average dividend yield 0.41% 0.65%
Weighted average expected life 6.64 years 6.67 years 
| 20 |

| --- |

The exercise prices for the options outstanding at February 28, 2021 ranged from $6.85 to $61.84, and the information relating to these options is as follows:

(in thousands except prices)

Schedule of options by exercise price range
Exercise Price Awards Outstanding Awards Exercisable
Low High Quantity Weighted <br> Average<br> Remaining<br> Contractual <br> Life Weighted<br> Average<br> Exercise <br> Price Quantity Weighted<br> Average<br> Remaining<br> Contractual <br> Life Weighted<br> Average<br> Exercise<br> Price
$ 6.85 $ 8.00 150 3.50 years $ 6.85 150 3.50 years $ 6.85
$ 8.01 $ 16.00 470 5.55 years $ 9.93 402 5.48 years $ 9.89
$ 16.01 $ 24.00 191 7.21 years $ 20.47 65 6.41 years $ 20.42
$ 24.01 $ 38.00 189 8.66 years $ 33.45 39 8.63 years $ 33.82
$ 38.01 $ 52.00 15 9.09 years $ 38.59 1 8.98 years $ 38.81
$ 52.01 $ 61.84 247 9.68 years $ 58.53 – – $ –
1,262 6.88 years $ 24.57 657 5.31 years $ 11.68

During the three and six months ended February

28, 2021 we issued 1,105 and 2,380 shares of stock valued at $87 and $170 thousand to our nonmanagement directors as compensation for services rendered to us.

In August 2020, we closed an underwritten

public offering of approximately 2.1 million shares of our common stock to the public at $55.00 per share, which included the full exercise of the underwriters’ option to purchase approximately 273 thousand additional shares of common stock. The aggregate gross proceeds to the company from this offering were approximately $115 million before deducting underwriting discounts and commissions. Net proceeds were approximately $107.7 million. The offering was made pursuant to our automatic shelf registration statement on Form S-3 filed with the SEC on July 9, 2020.

The balance of par value common stock and additional paid in capital as of February 28, 2021 was $10 thousand and $130.7 million, respectively.

NOTE 9: 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 North Carolina 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, considering the current banking environment, 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 at financial institutions that may, at times, exceed federally insured limits. As of February 28, 2021 we had cash and cash equivalents exceeding insured limits by $12.7 million.

Revenue concentration shows that international

sales accounted for 34% and 33% of net sales for the six months ended February 28, 2021 and February 29, 2020, respectively. Two customers accounted for 13% and 5% of net sales during the six months ended February 28, 2021. Three customers accounted for 7%, 6% (a dealer account in Japan representing various customers), and 6% of net sales during the six months ended February 29, 2020.

| 21 |

| --- |

Accounts receivable concentration shows that four

customers comprised 15%, 10%, 6%, and 5% (a dealer account in Japan representing various customers) of accounts receivable at February 28, 2021. Accounts receivable concentration shows that four customers comprised 10% (a dealer account in Japan representing various customers), 5%, 5% and 5% at February 29, 2020.

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

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

NOTE 10: SEGMENT AND GEOGRAPHIC REPORTING

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

Results for each segment and consolidated results are as follows for the three and six months ended February 28, 2021 and February 29, 2020:

Schedule of consolidated results from reportable segments
(in thousands) Three Months Ended February 28, 2021
Simulations Plus Cognigen DILIsym Lixoft* Eliminations Total
Revenues $ 6,646 $ 2,783 $ 2,114 $ 1,604 $ – $ 13,147
Income from operations before income taxes $ 2,121 $ 279 $ 260 $ 826 $ – $ 3,486
Total assets $ 165,712 $ 12,712 $ 15,242 $ 21,420 $ (39,317 ) $ 175,769
Capital expenditures $ 232 $ 126 $ 5 $ 15 $ – $ 378
Capitalized software costs $ 588 $ 5 $ 35 $ 118 $ – $ 746
Depreciation and amortization $ 485 $ 84 $ 149 $ 193 $ – $ 911

*Lixoft was purchased on April 1, 2020.

(in thousands) Three Months Ended February 29, 2020
Simulations Plus Cognigen DILIsym Eliminations Total
Revenues $ 5,904 $ 2,750 $ 1,696 $ – $ 10,350
Income from operations $ 2,004 $ 276 $ 546 $ – $ 2,826
Total assets $ 42,881 $ 10,465 $ 13,555 $ (17,702 ) $ 49,199
Capital expenditures $ 9 $ 20 $ 13 $ – $ 42
Capitalized software costs $ 573 $ 16 $ 31 $ – $ 620
Depreciation and amortization $ 435 $ 89 $ 151 $ – $ 675 
| 22 |

| --- | | (in thousands) | Six Months Ended February 28, 2021 | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Simulations Plus | | Cognigen | | DILIsym | | Lixoft* | | Eliminations | | | Total | | | Revenues | $ | 12,078 | $ | 5,451 | $ | 3,486 | $ | 2,833 | $ | – | | $ | 23,848 | | Income from operations before income taxes | $ | 4,486 | $ | 485 | $ | 215 | $ | 1,351 | $ | – | | $ | 6,537 | | Total assets | $ | 165,712 | $ | 12,712 | $ | 15,242 | $ | 21,420 | $ | (39,317 | ) | $ | 175,769 | | Capital expenditures | $ | 371 | $ | 189 | $ | 5 | $ | 18 | $ | – | | $ | 583 | | Capitalized software costs | $ | 1,156 | $ | 5 | $ | 78 | $ | 235 | $ | – | | $ | 1,474 | | Depreciation and amortization | $ | 936 | $ | 165 | $ | 298 | $ | 377 | $ | – | | $ | 1,776 |

*Lixoft was purchased on April 1, 2020.

(in thousands) Six Months Ended February 29, 2020
Simulations Plus Cognigen DILIsym Eliminations Total
Revenues $ 10,830 $ 5,137 $ 3,784 $ – $ 19,751
Income from operations $ 3,907 $ 316 $ 1,322 $ – $ 5,545
Total assets $ 42,881 $ 10,465 $ 13,555 $ (17,702 ) $ 49,199
Capital expenditures $ 17 $ 41 $ 15 $ – $ 73
Capitalized software costs $ 1,030 $ 36 $ 61 $ – $ 1,127
Depreciation and amortization $ 870 $ 175 $ 300 $ – $ 1,345

In addition, we allocate revenues to geographic areas based on the locations of our customers. Geographical revenues for the three and six months ended February 28, 2021 and February 29, 2020 were as follows:

Schedule of geographical revenues
(in thousands) Three Months Ended February 28, 2021
Americas EMEA Asia Pacific Total
Simulations Plus $ 2,884 $ 2,350 $ 1,412 $ 6,646
Cognigen 2,783 – – 2,783
DILIsym 2,067 45 2 2,114
Lixoft 928 676 – 1,604
Total $ 8,662 $ 3,071 $ 1,414 $ 13,147
(in thousands) Three Months Ended February 29, 2020
--- --- --- --- --- --- --- --- ---
Americas EMEA Asia Pacific Total
Simulations Plus $ 2,607 $ 1,610 $ 1,687 $ 5,904
Cognigen 2,750 – – 2,750
DILIsym 1,469 126 101 1,696
Total $ 6,826 $ 1,736 $ 1,788 $ 10,350 
| 23 |

| --- | | (in thousands) | Six Months Ended February 28, 2021 | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Americas | | EMEA | | Asia Pacific | | Total | | | Simulations Plus | $ | 5,403 | $ | 4,239 | $ | 2,436 | $ | 12,078 | | Cognigen | | 5,451 | | – | | – | | 5,451 | | DILIsym | | 3,393 | | 66 | | 27 | | 3,486 | | Lixoft | | 1,538 | | 1,255 | | 40 | | 2,833 | | Total | $ | 15,785 | $ | 5,560 | $ | 2,503 | $ | 23,848 | | (in thousands) | Six Months Ended February 29, 2020 | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Americas | | EMEA | | Asia Pacific | | Total | | | Simulations Plus | $ | 5,153 | $ | 2,757 | $ | 2,920 | $ | 10,830 | | Cognigen | | 5,137 | | – | | – | | 5,137 | | DILIsym | | 3,207 | | 451 | | 126 | | 3,784 | | Total | $ | 13,497 | $ | 3,208 | $ | 3,046 | $ | 19,751 |

NOTE 11: 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 Plan amounted to $131 thousand and $109 thousand for the three months ended February 28, 2021 and February 29, 2020, respectively and $252 thousand and $202 thousand for the six months ended February 28, 2021 and February 29, 2020, respectively.

NOTE 12: ACQUISITION

On March 31, 2020, we entered into a Stock Purchase and Contribution Agreement (the “Agreement”) with Lixoft. On April 1, 2020, we completed the acquisition of all outstanding equity interests of Lixoft pursuant to the terms of the Agreement, with Lixoft becoming our wholly owned subsidiary. We believe the combination of Simulations Plus and Lixoft provides substantial potential 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, we will pay $3.5 million of excess working capital based on the March 31, 2020 financial statements of Lixoft.

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

| 24 |

| --- |

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

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

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

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

Consolidated supplemental Pro Forma information

The following unaudited consolidated supplemental pro forma information assumes that the acquisition of Lixoft took place on September 1, 2019 for the income statement for the three and six months ended February 28, 2021. These amounts have been calculated after applying our accounting policies and adjusting the results of Lixoft to reflect the same expenses in the three and six months ended February 29, 2020. The adjustments include costs of acquisition, and amortization of intangibles and other technologies acquired during the merger, assuming the fair value adjustments applied on September 1, 2019, together with consequential tax effects.

Schedule of Pro Forma Information
(Unaudited) (Unaudited)
For the three months ended For the six months ended
(Actual) (Pro forma) (Actual) (Pro forma)
February 28, 2021 February 29, 2020 February 28, 2021 February 29, 2020
Net Sales $ 13,147 $ 11,486 $ 23,848 $ 22,007
Net Income $ 3,211 $ 2,777 $ 5,690 $ 5,293

NOTE 13: SUBSEQUENT EVENTS

On Friday, April 9, 2021, our Board of Directors declared a quarterly cash dividend of $0.06 per share to our shareholders. The dividend amount of $1.2 million will be distributed on Monday, May 3, 2021, for shareholders of record as of Monday, April 26, 2021.

| 25 |

| --- |

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This document and the documents incorporated in this document by reference contain forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact contained in this document and the materials accompanying this document are forward-looking statements.

The forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to our management. Frequently, but not always, forward-looking statements are identified by the use of the future tense and by words such as “believes,” expects,” “anticipates,” “intends,” “will,” “may,” “could,” “would,” “projects,” “continues,” “estimates” or similar expressions. Forward-looking statements are not guarantees of future performance and actual results could differ materially from those indicated by the forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by the forward-looking statements.

The forward-looking statements contained or incorporated by reference in this document are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”) and are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. These statements include declarations regarding our plans, intentions, beliefs, or current expectations.

Among the important factors that could cause actual results to differ materially from those indicated by forward-looking statements are the risks and uncertainties described under “Risk Factors” in our Annual Report on Form 10-K for the year ended August 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on November 16, 2020 and elsewhere in this document and in our other filings with the SEC.

Forward-looking statements are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this document are made as of the date of this document and we do not undertake any obligation to update forward-looking statements to reflect new information, subsequent events, or otherwise.

General

BUSINESS

OVERVIEW

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

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

| 26 |

| --- |

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

Simulations Plus acquired Cognigen Corporation (Cognigen) as a wholly owned subsidiary in September 2014. Cognigen was originally incorporated in 1992. Through the integration of Cognigen into Simulations Plus, Simulations Plus became a leading provider of population modeling and simulation contract research services for the pharmaceutical and biotechnology industries. Our clinical-pharmacology-based consulting services include pharmacokinetic and pharmacodynamic modeling, clinical trial simulations, data programming, and technical writing services in support of regulatory submissions. We have also developed software for harnessing cloud-based computing in support of modeling and simulation activities and secure data archiving, and we provide consulting services to improve interdisciplinary collaborations and research and development productivity.

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

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

PRODUCTS

General

We currently offer eleven software products for pharmaceutical research and development: five simulation programs that provide time-dependent results based on solving large sets of differential equations: GastroPlus; DDDPlus™; MembranePlus™; DILIsym; and NAFLDsym^®^; three programs that are based on predicting and analyzing static (not time-dependent) properties of chemicals: ADMET Predictor; MedChem Designer™; and MedChem Studio™ (the combination of ADMET Predictor, MedChem Designer, and MedChem Studio is called our ADMET Design Suite); a program which is designed for rapid clinical trial data analysis and regulatory submissions called PKPlus™; a cloud-based communication and collaboration platform for exploratory data analysis, population PK/PD modeling and reporting called KIWI^TM^; and in April 2020 with the acquisition of Lixoft, we added the Monolix Suite of products – a modeling and simulation solution that allows nonparametric analyses, population PKPD analyses, and modeling and clinical trial simulation.

| 27 |

| --- |

Software business

Our software business represented 59% of our total revenue during the first six months of fiscal year 2021, and was primarily generated by the following products:

GastroPlus^®^

Our flagship product, originally introduced in 1998, and currently our largest single source of software revenue, is GastroPlus. GastroPlus mechanistically simulates the absorption, pharmacokinetics, pharmacodynamics, and drug-drug interactions (DDI) of compounds administered to humans and animals and is currently one of the most widely used commercial software of its type by industry, the U.S. Food and Drug Administration (FDA), the U.S. National Institutes of Health (NIH), and other government agencies in the U.S. and around the world. In February 2021, GastroPlus version 9.8.1, which included new mechanisms and updated documentation for key DDI standards models, was released.

ADMET Predictor^®^

ADMET Predictor is a top-ranked, chemistry-based computer program that takes molecular structures (i.e., drawings of molecules represented in various formats) as inputs and uses artificial intelligence/machine learning technologies to predict approximately 175 different properties for them at an average rate of over 200,000 compounds per hour on a modern laptop computer. This capability allows chemists to generate estimates for a large number of important molecular properties without the need to synthesize and test the molecules, as well as to generate estimates of unknown properties for molecules that have been synthesized, but for which only a limited number of experimental properties have been measured. In September 2020, ADMET Predictor® Version 10.0 (APX), which integrates Artificial Intelligence-driven Drug Design (AIDD) with PBPK, was released.

DILIsym^®^

The DILIsym software is a quantitative systems pharmacology (“QSP”) program that was introduced in 2011. QSP software models are based on the fundamental understanding of complex biological pathways, disease processes, and drug mechanisms of action, integrating information from experiments and forming hypotheses for the next experimental model. DILIsym deals with the propensity for some drug molecules to induce temporary or permanent changes in biological functions within liver cells (hepatocytes) that can result in damage to the liver (i.e., drug-induced liver injury or DILI).

Monolix Suite^™^

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

Consulting Services

Our consulting business represented 41% of our total revenue during the first six months of fiscal year 2021, and was primarily generated by the following services:

PKPD

Our clinical-pharmacology-based consulting services include population pharmacokinetic and pharmacodynamic modeling, exposure-response analyses, clinical trial simulations, data programming, and technical writing services in support of regulatory submissions. In addition to modeling and simulation consulting services, we provide expertise and assistance with development-related decision making and support for regulatory interactions related to dose selection, clinical trial design, and understanding of the determinants of safety and efficacy for new medicines.

| 28 |

| --- |

QSP/QST

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

PBPK

Beginning in 2014, the FDA and other regulatory agencies began to emphasize the need to encourage mechanistic PBPK modeling and simulation in clinical pharmacology, with final guidance documents completed in 2018. New draft guidance documents were released in October 2020 focused on additional applications for biopharmaceuticals. This has resulted in an increased need for us to provide consulting-related services to support this sophisticated technique. We support Model Informed Drug Discovery and Development throughout the entire product lifecycle: from discovery through translation research and clinical development when an organization does not have the time or resources to use our software, directly. More specifically, our clients seek out our consulting services to acquire scientific, therapeutic-area-related modeling and simulation expertise that they do not have in-house.

Summary Results of Operations

Three Months Ended February 28, 2021 compared with Three MonthsEnded February 29, 2020:

(in thousands) Three Months Ended
February 28, 2021 February 29, 2020 Change % Change
Revenues $ 13,147 $ 10,350 27 %
Cost of revenues 2,911 2,666 9
Gross margin 10,236 7,684 33
Selling, general and administrative 5,458 4,110 33
Research and development 1,292 748 73
Total operating expenses 6,750 4,858 39
Income from operations 3,486 2,826 23
Other income (expense) (63 ) 10 ) (730 )
Income before provision for income taxes 3,423 2,836 21
(Provision for) income taxes (212 ) (686 ) (69 )
Net income $ 3,211 $ 2,150 49 %

All values are in US Dollars.

Revenues

Consolidated revenues increased by $2.8 million or 27% to $13.1 million for the three months ended February 28, 2021 compared to consolidated revenue of approximately $10.3 million for the three months ended February 29, 2020. This increase is primarily due to a $2.4 million or 45% increase in consolidated software-related revenue, and a $0.4 million or 7% increase in consolidated consulting and analytical study revenues when comparing the three months ended February 28, 2021 and February 29, 2020.

Cost of Revenues

Consolidated cost of revenues increased by $0.2 million, or 9%, to $2.9 million for the three months ended February 28, 2021 compared to $2.7 million for the three months period ended February 29, 2020. The increase is primarily due to a $0.2 million or 9% increase in labor-related contract research organization fees for the DILIsym division.

| 29 |

| --- |

Gross Margin

Consolidated gross margin increased by approximately $2.5 million or 33% to $10.2 million for the three months ended February 28, 2021 compared to $7.7 million for the three months ended February 29, 2020. The higher gross margin is primarily due to the addition of the Lixoft division, which contributed $1.4 million to the increase, as well as the Simulations Plus division’s gross margin increase of $0.8 million or 16%. The gross margin for the Cognigen and DILIsym Divisions both increased by approximately $0.2 million, respectively, for the quarter.

Overall gross margin percentage increased by 4% to 78% for the three months ended February 28, 2021 from 74% for the three months period ended February 29, 2020.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses increased by approximately $1.4 million, or 33% to $5.5 million for the three months period ended February 28, 2021 from $4.1 million for the three months period ended February 29, 2020. As a percent of revenues, Selling, general, and administrative expense increased from 40% to 42% for the same comparative periods.

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

· Salaries and wages increased by $0.7 million due to higher corporate salaries, bonuses, and severance costs, as well as an increase in headcount and higher contract labor costs;
· Payroll tax expense increased $0.3 million due to higher headcount and wages;
· Insurance expense increased by $0.1 million due to cost increases, higher employee counts and increased liability-related insurance.

Research and Development Costs

Total research and development costs increased by $0.7 million for the three months ended February 28, 2021 compared to the three months ended February 29, 2020. During the second quarter of fiscal year 2021, we incurred approximately $2.0 million of research and development costs; of this amount, $0.7 million was capitalized and $1.3 million was expensed. For the three months ended February 29, 2020, we incurred approximately $1.3 million of research and development costs; of this amount, approximately $0.6 million was capitalized and approximately $0.7 million was expensed.

Other Income (Expense)

Total other expense was $63 thousand for the three months ended February 28, 2021 compared to total other income of $10 thousand for the three months ended February 29, 2020. The variance of $73 thousand is primarily due to a change in the valuation of contingent consideration, partially offset by an increase in interest income resulting from short-term investments.

Provision for Income Taxes

The provision for income taxes was $0.2 million for the three months ended February 28, 2021 compared to $0.7 million for the same period in the previous year. Our effective tax rate decreased 18.0% to 6.2% for the three months ended February 28, 2021 from 24.2% during the same period of the previous year primarily due to the disqualified disposition of options exercised.

| 30 |

| --- |

Six Months Ended February 28, 2021 compared with Six Months EndedFebruary 29, 2020:

(in thousands) Six Months Ended
February 28, 2021 February 29, 2020 Change () Change (%)
Revenues $ 23,848 $ 19,751 21 %
Cost of revenues 5,344 5,309 1
Gross margin 18,504 14,442 28
Selling, general and administrative 9,866 7,623 29
Research and development 2,101 1,274 65
Total operating expenses 11,967 8,897 35
Income from operations 6,537 5,545 18
Other income (expense) (118 ) 24 ) (592 )
Income before provision for income taxes 6,419 5,569 15
Provision for income taxes (729 ) (1,361 ) (46 )
Net income $ 5,690 $ 4,208 35 %

All values are in US Dollars.

Revenues

Consolidated revenues increased by$4.1 million or 21% to $23.8 million for the six months ended February 28, 2021 compared to approximately $19.7 million for the six months ended February 29, 2020.

This increase is primarily due to a $4.0 million or 40% increase in consolidated software-related revenue when comparing the six months ended February 28, 2021 and February 29, 2020.

Cost of Revenues

Consolidated cost of revenues increased slightly for the six months ended February 28, 2021 compared to the six months ended February 29, 2020. The increase is primarily due to higher amortization of software development costs with the purchase of Lixoft, offset by lower salary contracts for the Cognigen division.

Gross Margin

Consolidated gross margin increased $4.1 million or 28% to $18.5 million for the six months ended February 28, 2021 compared to $14.4 million for the six months ended February 29, 2020.

The higher gross margin is primarily due to the addition of the Lixoft division, which contributed $2.5 million to the increase, as well as the Simulations Plus division’s gross margin increase of $1.4 million or 15%. The Cognigen Division gross margin increased $0.6 million or 22%. This was offset by a decrease for DILIsym Divisions’ gross margin of $0.3 million or 11% for the quarter.

Overall gross margin percentage increased by 5% to 78% for the six months ended February 28, 2021 from 73% for the six months ended February 29, 2020.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses increased $2.2 million, or 29% to $9.9 million for the six months ended February 28, 2021 from approximately $7.7 million for the six months ended February 29, 2020. As a percent of revenues, Selling, general, and administrative expense increased from 39% to 41% for the same comparative periods.

| 31 |

| --- |

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

· Salaries and wage increased by $1.1 million due to higher corporate salaries, bonuses, and severance costs, as well as an increase in headcount and higher contract labor costs;
· Payroll tax expense increased $0.5 million due to higher headcount and wages;
· Insurance expense increased by $0.2 million due to cost increases, higher employee counts and increased liability-related insurance;
· Professional fees increased by $0.2 million primarily<br> due to higher accounting costs.

Research and Development Costs

Total research and development costs increased by $1.1 million for the six months ended February 28, 2021 compared to the six months ended February 29, 2020. During the first two quarters of fiscal year 2021, we incurred approximately $3.5 million of research and development costs; of this amount, $1.4 million was capitalized and $2.1 million was expensed. For the six months ended February 29, 2020 we incurred approximately $2.4 million of research and development costs; of this amount, $1.1 million was capitalized and $1.3 million was expensed.

Other Income (Expense)

Total other expense was $118 thousand for the six months ended February 28, 2021 compared to total other income of $24 thousand for the six months ended February 29, 2020. The variance of $142 thousand is primarily due to a change in the valuation of contingent consideration, partially offset by an increase in interest income resulting from short-term investments.

Provision for Income Taxes

The provision for income taxes was $0.7 million for the six months ended February 28, 2021 compared to $1.4 million for the same period in the previous year. Our effective tax rate decreased 13.0% to 11.4% for the six months ended February 28, 2021 from 24.4% during the same period of the previous year primarily due to the disqualified disposition of options exercised.

Segment Results of Operations

Three Months Ended February 28, 2021 comparedwith Three Months Ended February 29, 2020:

Revenues

(in thousands) Three Months Ended
February 28, 2021 February 29, 2020 Change () Change (%)
Simulations Plus $ 6,646 $ 5,904 13 %
Cognigen 2,783 2,750 1
DILIsym 2,114 1,696 25
Lixoft* 1,604 – 100
Total $ 13,147 $ 10,350 27 %

All values are in US Dollars.

| 32 |

| --- |

Cost of Revenues

(in thousands) Three Months Ended
February 28, 2021 February 29, 2020 Change () Change (%)
Simulations Plus $ 773 $ 846 ) (9 )%
Cognigen 1,224 1,341 ) (9 )
DILIsym 725 479 51
Lixoft* 189 – 100
Total $ 2,911 $ 2,666 9 %

All values are in US Dollars.

Gross Margin

(in thousands) Three Months Ended
February 28, 2021 February 29, 2020 Change () Change (%)
Simulations Plus $ 5,873 $ 5,058 16 %
Cognigen 1,559 1,409 11
DILIsym 1,389 1,217 14
Lixoft* 1,415 – 100
Total $ 10,236 $ 7,684 33 %

All values are in US Dollars.

*Lixoft was acquired on April 1, 2020.

Simulations Plus

For the three months ended February 28, 2021, the revenue increase of $0.7 million or 13%, compared to the three months ended February 29, 2020 was primarily due to higher sales from GastroPlus ($0.5 million) and ADMET Software ($0.2 million). Cost of revenue decreased $0.1 million during the same periods and gross margin increased $0.8 million or 16%, primarily due to the change in revenue.

Cognigen

For the three months ended February 28, 2021, revenue increased marginally compared to the three months ended February 29, 2020. Cost of revenues decreased $0.1 million or 9%, primarily due to a reduction in salaries. Gross margin increased $0.2 million or 11%, primarily due to the decrease in the cost of revenues.

DILIsym

For the three months ended February 28, 2021, the revenue increase of $0.4 million or 25% compared to the three months ended February 29, 2020 was primarily due to higher revenue from DILIsym consulting services of $0.3 million. Cost of revenue increased $0.2 million or 51%, primarily due to an increase in contract research organization fees. Gross margin increased $0.2 million or 14%.

Lixoft

For the three months ended February 28, 2021, the revenue increase of $1.6 million compared to the three months ended February 29, 2020 was primarily due to the purchase of Lixoft on April 1, 2020. Software sales of Monolix Suite generated 97% of total revenue and 3% was generated from consulting services. Cost of revenue and gross margin increases of $0.2 million and $1.4 million, respectively, were both due to the purchase of Lixoft on April 1, 2020.

| 33 |

| --- |

Six Months Ended February 28, 2021 compared with Six Months EndedFebruary 29, 2020:

Revenues

(in thousands) Six Months Ended
February 28, 2021 February 29, 2020 Change () Change (%)
Simulations Plus $ 12,078 $ 10,830 12 %
Cognigen 5,451 5,137 6
DILIsym 3,486 3,784 ) (8 )
Lixoft* 2,833 – 100
Total $ 23,848 $ 19,751 21 %

All values are in US Dollars.

Cost of Revenues

(in thousands) Six Months Ended
February 28, 2021 February 29, 2020 Change () Change (%)
Simulations Plus $ 1,484 $ 1,591 ) (7 )%
Cognigen 2,370 2,611 ) (9 )
DILIsym 1,110 1,107 –
Lixoft* 380 – 100
Total $ 5,344 $ 5,309 1 %

All values are in US Dollars.

Gross Margin

(in thousands) Six Months Ended
February 28, 2021 February 29, 2020 Change () Change (%)
Simulations Plus $ 10,594 $ 9,239 15 %
Cognigen 3,081 2,526 22
DILIsym 2,376 2,677 ) (11 )
Lixoft* 2,453 – 100
Total $ 18,504 $ 14,442 28 %

All values are in US Dollars.

*Lixoft was acquired on April 1, 2020.

Simulations Plus

For the six months ended February 28, 2021, the revenue increase of $1.2 million or 12% compared to the six months ended February 29, 2020 was primarily due to higher sales from GastroPlus ($0.9 million) and ADMET Software ($0.3 million). Cost of revenue decreased $0.1 million or 7% during the same periods, and gross margin increased $1.4 million or 15%, primarily due to the change in revenue.

| 34 |

| --- |

Cognigen

For the six months ended February 28, 2021, the revenue increase of $0.3 million or 6% compared to the six months ended February 29, 2020 was primarily due to an increase in grant revenue. Cost of revenue decreased $0.2 million or 9%, primarily due to a reduction in salaries during the same periods. Gross margin increased by approximately $0.6 million or 22%.

DILIsym

For the six months ended February 28, 2021, the revenue decrease of $0.3 million or 8% compared to the six months ended February 29, 2020 was primarily due to lower revenue from DILIsym consulting services. Cost of revenue increased slightly during the same periods. Gross margin decreased $0.3 million or 11%, primarily due to the change in revenue.

Lixoft

For the six months ended February 28, 2021, the revenue increase of $2.8 million compared to the six months ended February 29, 2020 was due to the purchase of Lixoft on April 1, 2020. Software sales of Monolix Suite generated 96% of total revenue and 4% was generated from consulting services. Cost of revenue increased $0.4 million, and gross margin was $2.5 million due to the purchase of Lixoft on April 1, 2020.

Liquidity and Capital Resources

Historically, liquidity is provided by available cash and cash equivalents, cash generated from operations and access to capital markets.

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

On March 31, 2020, we entered into a Stock Purchase and Contribution Agreement (the “Agreement”) with Lixoft. On April 1, 2020, we completed the acquisition of all outstanding equity interests of Lixoft pursuant to the terms of the Agreement, with Lixoft becoming our wholly owned subsidiary. We believe the combination of Simulations Plus and Lixoft provides substantial future potential based on the complementary strengths of each of the companies. Under the terms of the Agreement, we agreed to pay the former shareholders of Lixoft total consideration of up to $16.5 million, consisting of two-thirds cash and one-third newly issued, unregistered shares of our common stock. At closing, we paid the former shareholders of Lixoft a total of $10.8 million, comprised of cash in the amount of $9.5 million and the issuance of 111,682 shares of our common stock valued at $3.7 million, net of adjustments and a holdback for representations and warranties. In addition, we paid $3.5 million of excess working capital based on the March 31, 2020 financial statements of Lixoft. In addition, the Agreement calls for earnout payments up to an additional $5.5 million, two-thirds cash and one-third newly issued, unregistered shares of our common stock based on a revenue growth formula each year for the two years subsequent to April 1, 2020. The former shareholders can earn up to $2 million the first year and $3.5 million in year two. See Note 12, Acquisition, to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a further description of the Agreement.

Operating Activities

Net cash provided by operating activities was $6.6 million for the six months ended February 28, 2021. Our operating cash flows resulted primarily from our net income of $5.7 million, which was generated by cash received from our customers, offset by cash payments we made to third parties for their services and employee compensation. In addition, net cash outflow from changes in balances of operating assets and liabilities was $3.7 million, offset by non-cash charges of $4.6 million. The change in operating assets and liabilities was primarily a result of an increase in accounts receivable.

| 35 |

| --- |

Net cash provided by operating activities was $3.8 million for the six months ended February 29, 2020. Our operating cash flows resulted primarily from our net income of $4.2 million, which was generated by cash received from our customers, offset by cash payments we made to third parties for their services and employee compensation. In addition, net cash outflow from changes in balance of operating assets and liabilities was $2.5 million, offset by non-cash charges of $2.1 million. The change in operating assets and liabilities was primarily a result of an increase in accounts receivable, revenue in excess of billings and a decrease in deferred revenue, offset by an increase in accounts payable and a decrease in prepaid income taxes.

InvestingActivities

Cash used for investing activities during the six months ended February 28, 2021 of $11.9 million was primarily due to the purchase of short-term investments of $40.8 million, the costs associated with the development of computer software of $1.5 million and the purchase of equipment of $0.6 million, offset by the proceeds from the sale of short-term investments of $31.0 million. Cash used for investing activities during the six months ended February 29, 2020 of $1.2 million was primarily due to costs associated with the development of computer software.

Financing Activities

For the six months ended February 28, 2021, net cash used by financing activities of $1.6 million, was primarily driven by the payment of dividends totaling $2.4 million, partially offset by proceeds from the exercise of stock options totaling $0.8 million. Net cash used by financing activities for the comparable period in fiscal year 2020 of $1.8 million, was primarily due to dividend payments totaling $2.1 million, partially offset by proceeds of $0.3 million from the exercise of stock options.

Cash and Working Capital

Cash and cash equivalents were $42.4 million as of February 28, 2021 compared to $49.2 million as of August 31, 2020.

At February 28, 2021, we had working capital of $129.0 million, a ratio of current assets to current liabilities of 20.7 and a ratio of debt to equity of 0.1. At August 31, 2020, we had working capital of $123.6 million, a ratio of current assets to current liabilities of 23.4 and a ratio of debt to equity of 0.1.

Based upon our current operating plans, we believe that our existing cash and cash equivalents, together with anticipated funds from operations, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for the foreseeable future. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect.

Critical Accounting Estimates

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to recoverability and useful lives of long-lived assets, stock compensation, valuation of derivative instruments, allowances, contingent consideration, contingent value rights, fixed payment arrangements and going concern. Management bases its estimates and judgments on historical experience and on various other factors, including the COVID-19 pandemic, that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The methods, estimates, and judgments used by us in applying these critical accounting policies have a significant impact on the results we report in our condensed consolidated financial statements. Our significant accounting policies and estimates are included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2020, filed with the SEC on November 16, 2020.

| 36 |

| --- |

Information regarding our significant accounting policies and estimates can also be found in Note 2, Significant Accounting Policies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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, 2020.

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 February 28, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are 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 February 28, 2021, that our disclosure controls and procedures were effective.

Changes in Internal Controls over FinancialReporting

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.

| 37 |

| --- |

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Please carefully consider the information set forth in this Quarterly Report on Form 10-Q and the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended August 31, 2020, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K, as well as other risks and uncertainties, could materially and adversely affect our business, results of operations and financial condition, which in turn could materially and adversely affect the trading price of shares of our Common Stock. Additional risks not currently known or currently material to us may also harm our business.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits
EXHIBIT NUMBER DESCRIPTION
--- ---
10.1 (1) Third Amendment to Lease, dated as of December 28, 2020
10.2*† Separation Agreement, dated December 1, 2020, by and between the Company and John Kneisel
31.1* Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2* Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1* Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101.INS* XBRL Instance Document.
101.SCH* XBRL Taxonomy Extension Schema Document.
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB* XBRL Taxonomy Extension Label Linkbase Document.
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document.
104* Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

________________________

* Filed herewith
(1) Incorporated by reference to the Company’s Form 8-K filed with the SEC on January 4, 2021.
† Those exhibits marked with a (†) refer to management contracts or compensatory plans or arrangements. 
| 38 |

| --- |

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 April 14, 2021.

Simulations Plus, Inc.
Date: April 14, 2021 By: /s/ Will Frederick
Will Frederick
Chief Financial Officer
--- 
| 39 |

| --- |

Exhibit 10.2

FIRST SEPARATION AGREEMENT

AND

GENERAL RELEASE OF CLAIMS

THIS FIRST SEPARATION AGREEMENT AND GENERAL RELEASE OF CLAIMS (hereinafter "First Agreement") is entered into by and between John Kneisel (hereinafter "Mr. Kneisel") and Simulations Plus, Inc. (hereinafter "Employer") (Mr. Kneisel and Employer hereinafter collectively referred to as "the Parties").

RECITALS

**A.**Employer is a corporation and is doing business in the State of California.

**B.**Mr. Kneisel has been employed by Employer as its Chief Financial Officer (hereinafter "CFO") pursuant to a written Employment Agreement dated February 8, 2020 (hereinafter "Employment Agreement").

**C.**In August, 2020 Employer informed Mr. Kneisel that it was going to terminate his employment for other than cause.

D.             In lieu of terminating Mr. Kneisel's employment immediately and offering the severance pay set forth in the Employment Agreement, the Parties agreed that Mr. Kneisel would continue to work as the CFO while Employer searches for a new CFO, then continue to work in a reduced capacity, assisting with the transition and responding to questions through the end of the first quarter Fiscal Year 2021 financial reporting cycle anticipated to be January 15, 2021.

**E.**Mr. Kneisel requested to remain employed through February 28, 2021. Employer and Mr. Kneisel agree that Mr. Kneisel will continue to be employed by Employer from January 15, 2021 through February 28, 2021, on inactive status, assisting Employer by responding to questions, and providing assistance regarding transition and pending matters when asked, while continuing to receive his full salary and benefits.

**F.**In exchange for continued modified employment through December 31, 2020, and for continued inactive employment from January 15, 2020 through February 28, 2021, the other consideration set forth in this First Agreement and the consideration set forth in the Second Separation Agreement and General Release of Claims ("Second Agreement") once Mr. Kneisel's employment terminates and he signs the Second Agreement, Mr. Kneisel desires to settle and compromise any and all possible claims and disputes he has against Employer arising out of their relationship to date, and to provide for a general release of any and all such claims.

AGREEMENT

1.       Modification and Termination of Employment. Mr. Kneisel agrees that he will continue in his role as CFO until a new CFO has been hired by Employer. Mr. Kneisel will continue as a regular employee through January 15, 2021, even though his duties will be modified and it is not expected that he will perform full-time services once the new CFO has been hired. Mr. Kneisel further agrees that his employment status with Employer will change from modified, active status to inactive status as of January 15, 2021. Mr. Kneisel will continue in that status, not working in the office, and only providing assistance regarding transition and pending matters when asked, until February 28, 2021. Mr. Kneisel shall perform no other duties during this period of inactive status, and will not be asked to initiate any work, take on any new assignments, or interact with any third party on behalf of Employer. Mr. Kneisel agrees that he is only entitled to remain employed with Employer through February 28, 2021. Once Mr. Kneisel's employment terminates, Mr. Kneisel will be eligible to sign the Second Agreement and receive the consideration set forth in that agreement.

  1. Consideration. In consideration of the covenants and releases given herein, upon Mr. Kneisel's execution of this First Agreement, Mr. Kneisel will be eligible to receive the following consideration:

    1

**a.**Continued Employment and Salary. Pursuant to the terms of this First Agreement, in lieu of termination of his employment, Mr. Kneisel will continue to be employed through February 28, 2021, on modified duty and then on inactive status, and will receive his regular annual salary of Two Hundred Sixteen Thousand Nine Hundred Eighty-Four Dollars ($216,984), payable in equal monthly installments, on regular pay days, less applicable federal and California payroll tax deductions, through February 28, 2021;

**b.**Health Insurance. Mr. Kneisel will continue to receive the medical insurance benefits that he is currently receiving, paid for by Employer, which will remain in effect through the end of February, 2021; and

c. Post Termination Separation Pay. After Mr. Kneisel's employment terminates, Mr. Kneisel will be eligible to receive the consideration set forth in the Second Agreement after he signs that agreement.

  1. Release.

a.      Release. Mr. Kneisel does hereby unconditionally, irrevocably and absolutely release and discharge Employer and each of its past, present and future owners, directors, affiliates, officers, employees, agents, administrators, attorneys, stockholders, insurers, divisions, successors and assigns, and any related holding, parent, sister, affiliate or subsidiary corporations from any and all loss, liability, claims, demands, causes of action or suits of any type, whether in law and/or in equity, related directly or indirectly, or in any way connected with any transactions, affairs or occurrences between them to date, including, but not limited to, Mr. Kneisel's employment with Employer and the termination of said employment. This First Agreement specifically applies, without limitation, to any and all wage and wage-related claims arising out of or related to Mr. Kneisel's employment with Employer, including any claims for unpaid wages (including minimum wage, overtime, vacation pay, bonuses, and premium pay), claims for interest and/or penalties (including waiting time penalties, inaccurate wage statement penalties or any other applicable penalties), claims for unpaid expenses, contract claims, including claims arising out of the Employment Agreement, tort claims, claims for wrongful termination, and claims arising under Title VII of the Civil Rights Act of 1991, the Americans with Disabilities Act, the Equal Pay Act, the Worker Adjustment and Retraining Notification Act, the Employee Retirement Income Security Act, the Sarbanes-Oxley Act of 2002, the Immigration and Nationality Act, the California Fair Employment and Housing Act, the Fair Labor Standards Act, the Family and Medical Leave Act, the California Family Rights Act, the California Labor Code, the California Business and Professions Code, and any and all federal or state statutes or laws governing wages and/or discrimination, harassment or retaliation in employment. Nothing in Section 3 of this First Agreement shall be construed to mean that Mr. Kneisel is releasing or waiving claims to enforce this First Agreement, workers' compensation claim, claims for unemployment insurance benefits, claims for any vested retirement, or claims that, by law, cannot be waived.

**b.**Section 1542 Waiver. Mr. Kneisel does expressly waive all of the benefits and rights granted to him pursuant to California Civil Code section 1542, which reads as follows:

A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected her or her settlement with the debtor or released party.

Mr. Kneisel does certify that he has read all of this First Agreement, including the release provisions contained herein and the quoted Civil Code section, and that he fully understands all of the same. Mr. Kneisel hereby expressly agrees that this First Agreement shall extend and apply to all unknown, unsuspected and unanticipated injuries and damages, as well as those that are now disclosed.

**c.**No Further Action. Except as set forth in Section 3(d), Mr. Kneisel irrevocably and absolutely agrees that he will not prosecute nor allow to be prosecuted on his behalf, in any administrative agency, whether federal or state, or in any court, whether federal or state, any claim or demand of any type related to the matters released above, it being the intention of the Parties that with the execution by Mr. Kneisel of this release, Employer and each of its past, present and future owners, directors, affiliates, officers, employees, agents, administrators, attorneys, stockholders, insurers, divisions, successors and assigns, and any related holding, parent, sister, affiliate or subsidiary corporations will be absolutely, unconditionally and forever discharged of and from all obligations to or on behalf of Mr. Kneisel related in any way to the matters discharged herein.

| 2 |

| --- |

d. Protected Rights. Mr. Kneisel understands that nothing contained in this Agreement limits Mr. Kneisel's ability to file a charge or complaint with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission, or any other federal, state or local government agency or commission ("Government Agencies"), including an Age Discrimination in Employment Act charge or complaint, although he may have no right to relief by reason of the claims he has released herein. Mr. Kneisel further understands that this Agreement does not limit Mr. Kneisel's ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to Employer. Nothing in this Agreement shall restrict or limit any right Mr. Kneisel may have to receive a whistleblower award or bounty for information provided to the Securities and Exchange Commission.

**4.**Confidentiality of Employer's Information. Mr. Kneisel acknowledges that during the course of Mr. Kneisel's employment with Employer, Mr. Kneisel has been privy to confidential and/or privileged information important to Employer and known to him only by virtue of employment with Employer. Mr. Kneisel further acknowledges that Mr. Kneisel has continuing obligations to Employer beyond Mr. Kneisel's last date of employment pursuant to the California Uniform Trade Secrets Act. Furthermore, in consideration of the consideration provided by Employer pursuant to this First Agreement, Mr. Kneisel further agrees to the confidentiality terms that follow. Prior to Mr. Kneisel's termination of employment, Mr. Kneisel will only use Employer's Confidential Information for the benefit of Employer and shall not disclose nor use it for any other purpose. Following the termination of Mr. Kneisel's employment, Mr. Kneisel shall neither disclose, nor use, any information of Employer, or its affiliated or related companies, which Employer has treated as confidential, proprietary, or trade secret ("Confidential Information"). The only allowed disclosure of Confidential Information is (i) with prior written consent of Employer; (ii) after the information is generally available to the public other than by reason of a breach by Mr. Kneisel of Mr. Kneisel's agreement to maintain confidentiality; (iii) after the information has been acquired by Mr. Kneisel through independent means and without a breach of Mr. Kneisel's duties to Employer under this First Agreement or otherwise; or (iv) pursuant to the order of a court or other tribunal with jurisdiction if Mr. Kneisel has given Employer adequate notice so that Employer may contest any such process. Mr. Kneisel must take all necessary and appropriate steps to protect and safeguard all proprietary, confidential, and sensitive information of Employer and is to return all copies, including any and all soft copies or computer versions, of any and all of Employer's materials in Mr. Kneisel's possession, whether or not such materials are Confidential Information.

**5.**Confidentiality Agreement. Mr. Kneisel agrees that Mr. Kneisel shall treat this First Agreement as confidential and shall not disclose either the existence or any of the content of this First Agreement to third parties, other than within the attorney-client privilege, as required or compelled by legal process, or to Mr. Kneisel's spouse, attorneys, accountants, or financial advisors. The Parties agree that this is a material term of this First Agreement.

**6.**Non-Disparagement. Mr. Kneisel agrees that he will not make any communication with any person or entity whatsoever, or any third-party media outlet, Facebook, Twitter, Linkedln, or other social media service or personal website, containing any derogatory, disparaging, critical or negative statements, publications or comments, either written, oral or otherwise, referencing, relating to, about or regarding Employer or any of Employer's current or former employees, officers, directors or owners. Mr. Kneisel further agrees that he will take all reasonable steps to prevent others from making such statements on his behalf. Notwithstanding the above, this section will in no way prevent Mr. Kneisel from testifying truthfully pursuant to an enforceable subpoena or court order.

7. Entire Agreement. The Parties further declare and represent that no promise, inducement or agreement not herein expressed has been made to them and that this First Agreement and the Second Agreement contain the full and entire agreement between and among the Parties, and that the terms of this First Agreement are contractual and not a mere recital.

**8.**Applicable Law. The validity, interpretation, and performance of this First Agreement shall be construed and interpreted according to the laws of the State of California.

**9.**Dispute Resolution. Except as set forth in Section 3(d), any dispute arising out of or related to this First Agreement shall be resolved through binding arbitration through JAMS in Riverside, California, under the then current applicable rules of JAMS. Each party shall be responsible for its or his own costs and attorneys' fees in connection with the arbitration, as well as half of the costs of the arbitration.

| 3 |

| --- |

**10.**Knowing and Voluntary Agreement. Mr. Kneisel acknowledges that he has carefully read and fully understands all the provisions and effects of this First Agreement. Mr. Kneisel further acknowledges that he has been given the opportunity to consult with his own independent legal counsel with respect to the matters referenced in this First Agreement. Mr. Kneisel acknowledges that he has fully discussed this First Agreement with his attorney or has voluntarily chosen to sign this First Agreement without consulting an attorney, fully understanding the consequences of this First Agreement. Mr. Kneisel further acknowledges that he is entering into this First Agreement without coercion or duress from Employer and that neither Employer nor any of its agents or attorneys has made any representations or promises concerning the terms or effects of this First Agreement other than those set forth in this First Agreement

**11.**Complete Defense. This First Agreement may be pleaded as a full and complete defense and may be used as the basis for an injunction against any action, suit or proceeding which may be prosecuted, instituted or attempted by either party in breach thereof.

**12.**Counterparts. This First Agreement may be executed in counterparts and, if so executed, each such counterpart shall have the force and effect of an original. A facsimile or electronic signature shall have the same force and effect as an original signature. The Parties agree where practicable to permit the use of DocuSign, an electronic signature technology, to expedite the execution of this Agreement, pursuant to California Civil Code Section 1633.7.

**13.**Severability. If any provision of this First Agreement, or part thereof, is held invalid, void or voidable as against public policy or otherwise, the invalidity shall not affect other provisions, or parts thereof, which may be given effect without the invalid provision or part. To this extent, the provisions, and parts thereof, of this First Agreement are declared to be severable.

**14.**No Admission of Liability. It is understood that this First Agreement is not an admission of any liability by any person, firm, association or corporation but is in compromise of a disputed claim.

15.       Successors and Assigns. This First Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, legal representatives, successors and assigns.

| 4 |

| --- |

IN WITNESS WHEREOF, the undersigned have executed this First Agreement on the dates shown below.

Dated: 12/01/2020 /s/ John Kneisel
John Kneisel
Simulations Plus, Inc.
Dated: 12/01/2020 /s/ Shawn O’Connor
Chief Executive Officer 
| 5 |

| --- |

Exhibit 31.1

RULE 13A-14(A) CERTIFICATION

SIMULATIONS PLUS, INC.

a California corporation

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Shawn O’Connor, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Simulations Plus, Inc., a California corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
--- ---
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
--- ---
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
--- ---
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its condensed subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
--- ---
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
--- ---
(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
--- ---
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
--- ---
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
--- ---
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and
--- ---
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
--- ---

Dated: April 14, 2021

By: /s/ Shawn O’Connor      ****<br><br> <br>Shawn O’Connor<br><br> <br>Chief Executive Officer<br><br> <br>(Principal Executive Officer)

Exhibit 31.2

RULE 13A-14(A) CERTIFICATION

SIMULATIONS PLUS, INC.

a California corporation

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Will Frederick, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Simulations Plus, Inc., a California corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
--- ---
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
--- ---
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
--- ---
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its condensed subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
--- ---
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
--- ---
(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
--- ---
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
--- ---
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
--- ---
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
--- ---
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
--- ---

Dated: April 14, 2021

By: /s/ Will Frederick****<br><br> <br>Will Frederick<br><br> <br>Chief Financial Officer<br><br> <br>(Principal Financial Officer)

Exhibit 32.1

CERTIFICATIONS PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Quarterly Report of Simulations Plus, Inc., a California corporation (the “Company”), on Form 10-Q for the quarter ended February 28, 2021, as filed with the Securities and Exchange Commission, Shawn O’Connor, Chief Executive Officer of the Company and Will Frederick, Chief Financial Officer of the Company, respectively, do each hereby certify, pursuant to 18 U.S.C. § 1350, that to his/her knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the report fairly presents, in all material respects, the financial condition and result of operations of the Company.
--- ---

/s/  Shawn O’Connor

Shawn O’Connor

Chief Executive Officer

(Principal Executive Officer)

April 14, 2021

/s/  Will Frederick

Will Frederick

Chief Financial Officer

(Principal Financial Officer)

April 14, 2021

(A signed original of this written statement required by Section 906 has been provided to Simulations Plus, Inc. and will be retained by Simulations Plus, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.)

Report a Problem

Category
Description
Email (optional, for follow-up)