-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EURp5xZine527RErzUhqkv442qBwCzWCI0B+ef3lEQmqUq5d6yriJ0XAwDAwK9tO JFicV7+MtDQlThRgaRgvWg== 0000950148-98-000073.txt : 19980121 0000950148-98-000073.hdr.sgml : 19980121 ACCESSION NUMBER: 0000950148-98-000073 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980120 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMULATIONS PLUS INC CENTRAL INDEX KEY: 0001023459 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 954595609 FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 333-05600-LA FILM NUMBER: 98509425 BUSINESS ADDRESS: STREET 1: 40015 SIERRA HIGHWAY STREET 2: BLDG B-145 CITY: PALMDALE STATE: CA ZIP: 93550 BUSINESS PHONE: 8052668500 MAIL ADDRESS: STREET 1: 40015 SIERRA HWY BLDG B0-110 STREET 2: 40015 SIERRA HWY BLDG B0-110 CITY: PALMDALE STATE: CA ZIP: 93550 10QSB 1 FORM 10QSB 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCAHNGE ACT OF 1934 For the quarterly period ended November 30, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECRITIES EXCHANGE ACT OF 1937 For the transition period from _________ to _________ Commission file number: 000-21665 SIMULATIONS PLUS, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 95-4595609 (State or other jurisdiction of (I.R.S. Employer Incorporation or Organization) identification No.) 40015 SIERRA HIGHWAY, B-110 PALMDALE, CA 93550 (Address of principal executive offices including zip code) (805) 266-9294 (Registrant's telephone number, including area code) NOT APPLICABLE (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] The number of shares outstanding of the Issuer's common stock, par value $0.001 per share, as of January 14, 1998, was 3,350,000. 2 SIMULATIONS PLUS, INC. FORM 10-QSB FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1997 Table of Contents
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet at November 30, 1997 (unaudited) 3 Consolidated Statements of Operations for the three months ended November 30, 1997 and 1996 (unaudited) 4 Consolidated Statements of Cash Flows for the three months ended November 30, 1997 and 1996 (unaudited) 5 Notes to Consolidated Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis or Plan of Operations General 9 Results of Operations 10 Liquidity and Capital Resources 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 3. Defaults upon Senior Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 Signature 15 Exhibit Index 16
2 3 SIMULATIONS PLUS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET November 30, 1997 (Unaudited) ASSETS Current assets: Cash and cash equivalents (note 2) 717,196 Investments (note 3) 917,598 Accounts receivable, net of allowance for doubtful accounts of $15,000 243,032 Prepaid Expenses 32,414 Income tax receivable 51,596 Inventory 172,587 ---------- Total Current Assets 2,134,423 ---------- Capitalized computer software development costs, net of accumulated amortization (note 7) 882,585 Furniture and equipment, net (note 4) 227,135 Other assets 7,313 ========== 3,251,456 ========== LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Accounts payable 60,833 Accrued payroll and other expenses 145,994 Accrued warranty and service costs 52,870 Current portion of capitalized lease obligations 27,997 ---------- Total Current 287,693 liabilities ---------- Capitalized lease obligations, net of current portion 53,820 ---------- Total Liabilities 341,513 ---------- Shareholders' equity Common stock: $.001 par value, authorized 20,000,000 shares, issued and outstanding 3,350,000 (note 5 & 6) 3,350 Additional paid-in capital 4,595,771 Accumulated deficit (1,689,178) ---------- Total shareholders' equity 2,909,943 ========== 3,251,456 ==========
The accompanying footnotes are an integral part of these statements. 3 4 SIMULATIONS PLUS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For the three months ended November 30, 1997 and 1996 (Unaudited)
Three months ended ------------------------- 11/30/97 11/30/96 ---------- ---------- Net sales 543,063 541,816 Cost of sales 329,363 253,570 ---------- ---------- Gross Profit 213,700 288,246 ---------- ---------- Operating expenses: Selling, General & Administrative 611,886 505,037 Research and Development 137,283 30,526 ---------- ---------- Total Operating Expenses 749,169 535,563 ---------- ---------- Loss from operations (535,469) (247,317) Other income (expenses): Income from grant 75,000 17,159 Interest revenue 20,408 153 Interest expense (3,029) (17,310) ---------- ---------- Loss before provision for Income taxes (443,089) (247,315) Provision (benefit) for income taxes 0 (38,800) ---------- ---------- Net loss (443,089) (208,515) ========== ========== Net loss per share (0.13) (0.09) ========== ========== Weighted Ave. # of common shares outstanding 3,350,000 2,390,000
The accompanying footnotes are an integral part of these statements. 4 5 SIMULATIONS PLUS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended November 31, 1997 and 1996 (Unaudited)
Three months ended ------------------------- 11/30/97 11/30/96 ---------- ---------- Cash flows from operating activities: Net Loss (443,089) (208,515) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization of furniture and equipment 8,698 7,373 Amortization of capitalized software development costs 52,227 18,619 (Increase) decrease in: Accounts receivable 132,019 (42,571) Inventory 50,211 6,662 Other assets (4,731) 17,852 Income tax receivable 5,830 Increase (decrease) in: Accounts payable (79,709) 93,703 Accrued payroll and other expenses (4,715) 23,810 Accrued warranty and service costs 1,011 ---------- ---------- Net cash used in operating activities (282,248) (83,067) ---------- ---------- Cash flows from investing activities: Purchase of Investment (917,598) Purchase of furniture and equipment (45,387) (41,147) Capitalized computer software development cost (188,092) (131,645) ---------- ---------- Net cash used in investing activities (1,151,077) (172,792) ---------- ---------- Cash flows from financing activities: Increase in book overdraft 31,226 Proceeds from line of credit, net 6,461 Payments on capitalized lease obligations (6,240) (4,005) Increase in deferred offering costs (251,923) Proceeds from notes payable 300,000 ---------- ---------- Net cash provided by (used in) financing activities (6,240) 81,759 ---------- ---------- Net decrease in cash (1,439,565) (174,100) Cash, beginning of period 2,156,761 174,100 ---------- ---------- Cash, end of period 717,196 0 ========== ==========
The accompanying footnotes are an integral part of these statements. 5 6 SIMULATIONS PLUS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 1: GENERAL As contemplated by the Securities and Exchange Commission under Item 310(b) of Regulation S-B, the accompanying 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. (the "Company"), the interim data include 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. Note 2: CASH AND CASH EQUIVALENTS The Company maintains cash deposits at banks located in California. Deposits at each bank are insured by the Federal Deposit Insurance Corporation up to $100,000. As of November 30, 1997, the Company had on deposit with a high-quality financial institution cash and cash equivalents in the amount of $622,077 that are uninsured. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. Note 3: INVESTMENTS In October 1997, the Company purchased commercial notes in the aggregate amount of $917,598 through a high-quality financial institution. These notes are all highly rated commercial notes with the average yield of 5.942% at the time of purchase, and mature at the different time periods. The Company has not experienced any losses in such notes and believes it is not exposed to any significant credit risk on the investments. Note 4: FURNITURE AND EQUIPMENT Furniture and equipment consist of the following: Equipment $ 40,555 Computer equipment 346,324 Furniture and fixtures 43,925 Leasehold improvements 5,900 --------- 436,704 Less accumulated depreciation 209,569 --------- $ 227,135 =========
6 7 Note 5: PROMISSORY NOTES PAYABLE In August and September 1996, the Company entered into two Subscription Agreements whereby the Company issued two notes in the amount of $200,000 and $300,000, respectively, and issued 100,000 and 150,000 warrants, respectively, to purchase shares of common stock. The warrants are exercisable at $4.00 per share and expire five years from the date of grant. The notes were repaid upon completion of the Company's Initial Public Offering ("IPO") in June 1997. In December 1996 and January 1997, the Company entered into Subscription Agreements whereby the Company issued 10% promissory notes (the "Bridge Notes") in the aggregate amounts of $1,100,000 to certain lenders (the "Bridge Lenders") and issued 280,000 Warrants (the "Bridge Warrants") to purchase Common Stock. The Bridge Warrants are exercisable at $2.50 per share and expire five years from the date of grant. The Bridge Lenders have agreed not to resell or otherwise transfer such Bridge Warrants or the Shares of Common Stock issuable upon exercise thereof until 365 days after the completion of the Company's IPO. The principal and unpaid interest on the Bridge Notes were repaid after the Company's IPO in June 1997. Note 6: STOCKHOLDERS' EQUITY Initial Public Offering On June 18, 1997, the Company completed an IPO of 1,150,000 shares, resulting in net proceeds to the Company of approximately $4,400,000 after paying underwriters' fees and costs associated with the offering. Issuance of Underwriters Warrant The Company issued to the underwriters in the IPO, in consideration for $100, a warrant to purchase 115,000 shares, at a per share exercise price of $6.00 per share. The warrant is exercisable through June 17, 2001. Note 7: SOFTWARE DEVELOPMENT COSTS Software development costs are capitalized in accordance with Statement of Financial Accounting Standards (SFAS) No. 86 "Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise 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 7 8 development costs are comprised primarily of salaries and direct payroll related costs, and the purchase of existing software to be used in the Company's software products. Amortization of capitalized software development costs is provided on a product-by-product basis on the straight-line method over the estimated economic life of the products (not to exceed three years). Management periodically compares estimated net realizable value by product to the amount of software development costs capitalized for that product to ensure the amount capitalized is not in excess of the amount to be recovered through revenues. Any such excess of capitalized software development costs to the expected net realizable value is expensed at that time. Note 8: Income Taxes The Company used the liability method of accounting for income taxed pursuant to SFAS No. 109 "Accounting for Income Taxes." Note 9: Related Party Transactions In connection with the company's IPO, the Company agreed to grant to its president warrants to purchase up to 300,000 shares of the Company's common stock. The number of warrants to be granted will be based on net income for the year ended August 31, 1998, but cannot exceed 300,000 shares. All such warrants granted will be exercisable for a period of five years at an exercise price of $5.00 per share. Any difference between the price of the Company common stock and the exercise price of $5.00 per share on the measurement date will be recorded as an expense in accordance with APB25. 8 9 Item 2. Management's Discussion and Analysis or Plan of Operations The following discussion should be read in conjunction with the financial statements and the notes thereto appearing elsewhere in this quarterly report on Form 10-QSB for the quarter ended November 30, 1997 (the "Form 10-QSB"). In addition to historical information, this Form 10-QSB contains forward-looking statements. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled "Management's Discussion and Analysis or Plan of Operations." Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. Simulations Plus, Inc. undertakes no obligation to publicly revise these forward-looking statements, or to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in other documents that the Company has filed and will continue to file from time to time with the Securities and Exchange Commission. GENERAL Simulations Plus, Inc. ("Simulations Plus" or the "Company") was incorporated in 1996 to develop, market and support software for the educational and pharmaceutical industries, and to continue the operations of its wholly-owned subsidiary, Words+, Inc., which was incorporated in 1981. Words+, Inc. develops, markets and supports hardware and software products for persons with severe disabilities. Simulations Plus's existing products consist of five of its expanding series of FutureLabTM educational simulation software titles, which were first released in May 1997. These are Circuits for Physical Science, Gravity for Physical Science, Universal Gravitation for Physical Science, Optics for Physical Science, and Ideal Gas for Chemistry. The Company is currently developing additional new titles as well as converting the titles from Visual Basic for Windows only to Visual C++ for both Macintosh and Windows platforms. The conversion effort, begun in May 1997, has taken longer than anticipated, but is now nearing completion. Upon completion, the development team will accelerate the development of new titles to expand the Company's Educational Simulation Software product line. FutureLab(TM) software has received recognition from Computers in Physics magazine, which declared it a winner in its eighth annual software contest, as well as from two educational institutions who perform rigorous educational software evaluation. Simulations Plus is also involved in the development of simulation software for the pharmaceutical industry. Two programs are currently under development: HelixGen(TM) and GastroPlus(TM). HelixGen predicts the shape of the receptor sites of certain transmembrane proteins for the purpose of analytically determining whether new candidate drug compounds will bind to those sites. GastroPlus predicts the rate and location of absorption of new candidate drug compounds in the human gastro-intestinal tract for the purpose of determining whether new candidate drug compounds will be absorbed into the blood 9 10 stream from the gastro-intestinal tract. Among the Company's goals in this area are to provide comprehensive, highly accurate simulations that can save a great deal of time and money in the development of pharmaceutical products, and to reduce the need for animal testing in the future. In 1997, the Company executed a License Agreement with Therapeutic Systems Research Laboratories, Inc. ("TSRL") to have exclusive rights to TSRL's technology and database for drug compound absorption in animal and human test subjects. Through the formation of this strategic alliance with TSRL, the development costs and time for GastroPlus were significantly reduced. The Company has not yet completed the development of any of its pharmaceutical simulations programs, and has not yet offered any for sale; however, the GastroPlus program is beginning final Beta testing and is expected to be released by the end of February 1998. Words+, Inc.' products consist of a catalog of software and hardware products designed to provide communication and computer access for persons with severe disabilities. The Company's most famous user is theoretical astrophysicist Professor Stephen Hawking, author of the best-selling A Brief History of Time. (The Company's Pegasus LITE communication device received a Computerworld Smithsonian Finalist Award in June 1997.) Words+, Inc. released a new software program called Abbreviate! in November 1997. It allows the user to create a personal library of frequently-used abbreviations for use in virtually any Windows-based program. The company is currently pursuing distribution relationships with a number of major software manufacturers for Abbreviate!, as well as implementing an aggressive marketing program. No assurance can be given that Words+, Inc. will be successful in establishing such distribution relationships or, if successful, that such distribution relationships will be on terms that are acceptable or favorable to Words+, Inc. Abbreviate! was named PC Week magazine's "Tool of the Week" in their December 1, 1997 issue. 10 11 RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996. The following table sets forth the Company's consolidated statements of operations (in thousands) and the percentages that such items bear to net sales: (Due to rounding, the numbers appearing in the following table may not foot; Please refer to the Company's consolidated statements of operations.)
Three Months Ended -------------------------------------- 11/30/97 11/30/96 -------------------------------------- Net sales $ 543 100.0% $ 542 100.0% Cost of sales 329 60.6 254 46.9 -------------------------------------- Selling, general and administrative 612 112.7 505 93.2 Research and development 137 25.2 31 5.7 -------------------------------------- Total operating expenses 749 137.9 536 98.9 -------------------------------------- Loss from operations (535) (98.5) (247) (45.6) Income from grant 75 13.8 17 3.1 Interest revenue 20 3.7 0 0 Interest expense (3) (0.6) (17) (3.1) Provision (benefit) for taxes 0 0 (39) (7.2) -------------------------------------- Net loss $(443) (81.6)% $(209) (38.6)% ======================================
Net Sales Net sales increased $1,000, or 0.2%, to $543,000 in the first fiscal quarter of 1998 from $542,000 in the first fiscal quarter of 1997. Words+, Inc.'s sales decreased approximately $10,000 but this decline is offset of the $11,000 sales generated from Simulations Plus. Cost of Sales Cost of sales increased $75,000, or $29.5%, to $329,000 in the first fiscal quarter of 1998 from $254,000 in the first fiscal quarter of 1997. Management attributes this increase is primarily to the amortization of Capitalized Software. The sales of newly released educational simulation software have not yet increased to a level to cover the systematic amortization of Capitalized Software cost. The amortization cost increased $34,000, or 188.9%, to $52,000 in the first fiscal quarter of 1998 from $18,000 in the first fiscal quarter of 1997. For Words+, hardware sales, which have a lower margin than software sales, constituted a higher percentage of total sales in the first fiscal quarter of 1998 than in the first fiscal quarter of 1997, resulting in increased cost of sales in the first fiscal quarter of 1998. 11 12 Selling, General and Administrative Expenses Selling, general and administrative expenses increased $107,000, or 21.2%, to $612,000 in the first fiscal quarter of 1998 from $505,000 in the first fiscal quarter of 1997 primarily due to the expansion of the Company's simulation software efforts as the Company added staff and other associated overhead costs, and due to the expansion of the sales force for Words+. A portion of the increase was also due to higher professional fees necessary to be a public company, increases in salaries and wages, and increased printing and advertising costs. Research and Development The Company incurred approximately $163,000 of research and development costs during the first quarter of 1997 and $31,000 was expensed. In the first quarter of 1998, the Company incurred $325,000 of research and development costs, of which $188,000 was capitalized and $137,000 was expensed. The 89.8% increase in research and development expenditure from the first quarter of 1997 to the first quarter of 1998 was due to the expanded development work on educational and pharmaceutical simulation software begun in September 1997. Income from Grant During the first fiscal quarter of 1997, the Company received the final $17,000 of a $51,000 grant (Phase I) from the National Science Foundation (the "NSF") to develop software to allow physically-disabled students to perform simulated laboratory experiments on a computer, which became the beginning of the development of the FutureLab(TM) series of educational simulation software. In the first fiscal quarter of 1998, the Company received the first $75,000 of a $300,000 grant (Phase II) from the NSF to further develop the FutureLab(TM) series. Interest Revenue Interest revenue for the first fiscal quarter of 1998 increased to $20,000 from $0 in the first fiscal quarter of 1997. This increase is primarily to the interest earned on funds received from IPO proceeds, currently invested in highly rated commercial notes. Interest Expense Interest expense for the first fiscal quarter of 1998 decreased by $14,000, or 82.4%, to $3,000 from $17,000 in the first fiscal quarter of 1997. This decrease is attributable primarily to the decline of the finance charges incurred in the first fiscal quarter of 1997 for the Bridge Loans, which does not exist in the first fiscal quarter of 1998 because such Bridge Notes were repaid in June 1997. 12 13 Net Loss Net loss for the three months ended November 30, 1998 increased by $234,000, or 112.0%, to $443,000 in the first fiscal quarter of 1998 compared to $209,000 in the first fiscal quarter of 1997. Management attributes this decline primarily to the increase in Cost of sales, the increase in Selling, General and Administrative expenses, and increase in Research and Development expense compared to the three months ended November 30, 1997. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of capital have been cash flows from its operations, a bank line of credit, cash loans from the officers on an as-needed basis, and proceeds from the Company's IPO. The Company has available a $100,000 revolving line of credit from a bank. Interest is payable on a monthly basis at the bank's prime rate plus 3.0%. The outstanding balance under the revolving line of credit as of November 30, 1997 and November 30, 1996 was $0 and $100,000 respectively. The revolving line of credit is not secured by any of the assets of the Company but is personally guaranteed by Mr. Walter S. Woltosz, the Company's Chief Executive Officer, President and Chairman of the Board of Directors. In 1996, the Company was awarded a $51,000 Phase I SBIR grant from the National Science Foundation, the purpose of which was to help fund the Company's development of educational simulation software for the school and home study markets. In October 1997, the Company was also awarded a follow-on $300,000 Phase II grant for the same purpose, which will be paid in four equal payments of $75,000 semi-annually. The first payment on such grant was received in October 1997. The Company believes that the net proceeds from the sale of the shares of Common Stock offered in the IPO, together with existing capital and anticipated funds from operations, will be sufficient to meet its anticipated cash needs for working capital and capital expenditures for at least the next 13 months. Thereafter, if cash generated from operations is insufficient to satisfy the Company's capital requirements, the Company may have to sell additional equity or debt securities or obtain expanded credit facilities. In the event such financing is needed in the future, there can be no assurance that such financing will be available to the Company, or, if available, that it will be in amounts and on terms acceptable to the Company. 13 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on form 8-K (a) Exhibits: 27.1 Financial Data Schedule. (b) Reports on Form 8-K None. 14 15 SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Simulations Plus, Inc. Date: January 20, 1998 By: /s/ MOMOKO BERAN ------------------------------------- Momoko Beran Chief Financial Officer 15 EX-27 2 EXHIBIT 27
5 3-MOS AUG-31-1998 SEP-01-1997 NOV-30-1997 717,196 917,598 258,032 15,000 172,587 2,134,423 436,704 209,569 3,251,456 287,693 0 0 0 3,350 2,906,593 3,251,456 543,063 543,063 329,363 749,169 0 0 3,029 (443,089) 0 (443,089) 0 0 0 (443,089) (0.13) (0.13)
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