4. COMMITMENTS AND CONTINGENCIES

12 Months Ended

Aug. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Note 4. COMMITMENTS AND CONTINGENCIES

Leases

Our original lease for approximately 13,500 square feet of space was under a five-year term with two (2), three (3)-year options to extend the lease. The base rent was $18,445 per month plus common area maintenance fees with annual 4% increase on the base rent. We made an amendment to our original lease which will end on February 2, 2014 with one remaining extension of three (3) years at an annual increase of 4% per year. The amended lease extends to February 2, 2017, with an annual increase of 3% per year and has an option of two (2) two (2)-year extensions. The current base rent amount of $24,272 per month remains the same; however, we have three (3) months’ free base rent during the months of June, July and August of 2013. We will record these three (3) months as a discount divided equally through the first term of this amended lease from June 2013 through January 2017. The amended lease is filed with the Securities and Exchange Commission (“SEC”) as an exhibit in our Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2013 filed with the SEC on July 10, 2013.

Rent expense, including common area maintenance fees for the year ended August 31, 2013 and 2012 were $305,636 and $293,089, respectively.

After the sale of Words+, we entered into a month to month sublease agreement commencing January 1, 2012 under which Words+ pays 20% of the monthly rent we pay to our landlord, plus 20% of facility-related operating expenses. We report our gross lease expense under Selling, General and Administrative expense; however, the sublease payments received from Words+ are reported under Other Income. The sublease to Words+ ended at February 28, 2013, when it closed its business operation.

Future minimum lease payments under non-cancelable operating leases with remaining terms of one year or more at August 31, 2013 were as follows:

Years Ending August 31,
2014	$	291,269
2015		297,094
2016		306,007
2017		129,526
	$	1,023,896

On October 30, 2006, the Company entered into an equipment lease agreement. In this agreement, the Company leased a Ricoh Copier/Printer for 36 months with the option of earlier termination with a 60-day written notice. On October 30, 2009, we renewed the same agreement for another 36 months with an increment of 1 cent per copy on color printing which reflects their material cost. On April 17, 2012, we entered into a new lease agreement with ARC, a successor of Ricoh, former leasing company, for 36 months under the same term as the existing agreement which we pay as we use. 

Employment Agreement

On August 22, 2013, the Company entered into an employment agreement with its President/Chief Executive Officer that expires in August 2014. The employment agreement provides for an annual base salary of $300,000 per year, and a performance bonus in an amount equal to 5% of the Company’s net income before taxes of the previous fiscal year, not to exceed $60,000. The agreement also provides Employee stock options, exercisable for five years, to purchase ten (10) shares of Common Stock for each one thousand dollars ($1,000) of net income before taxes at the end of each fiscal year up to a maximum of 20,000 options over the term of the agreement. The Company may terminate the agreement upon 30 days written notice if termination is without cause. The Company's only obligation would be to pay its President the greater of a) 12 months salary or b) the remainder of the term of the employment agreement from the date of notice of termination.

For fiscal year 2013, the Compensation Committee awarded a $30,000 performance bonus to Walter Woltosz, our President/Chief Executive Officer, which was paid in September 2013.

For fiscal year 2012, the Compensation Committee awarded a $30,000 performance bonus to Walter Woltosz, our President/Chief Executive Officer, which was paid in September 2012.

License Agreement

In 1997, the Company entered into an agreement with Therapeutic Systems Research Laboratory ("TSRL") to develop a computer simulation software program of the absorption of drug compounds in the gastrointestinal tract. Upon execution of a definitive License Agreement on July 9, 1997, TSRL received an initial payment of $75,000, and thereafter, the Company is obligated to pay a royalty of 20% of the net sales of the basic GastroPlus software without additional modules.

In September 2007, we entered into an agreement with Enslein Research, Inc. (“Enslein”) to jointly create a new metabolism module as part of ADMET Predictor. The fee for the exclusive license to the Enslein Data, in the form of a royalty, is 50% of the gross sales revenues of the ADMET Predictor Enslein Metabolism Module, and a $50,000 bonus at the time the cumulative revenue from ADMET Predictor Enslein Metabolism Module sales reaches $250,000. On February 28, 2012, we signed a buyout agreement with Enslein for $75,000, and are amortizing its cost over 10 years after this date.

We also have a royalty agreement with Accelrys, Inc. (the original agreement was entered into with Symyx Technologies in March 2010; Symyx Technologies later merged with Accelrys, Inc.) for Metabolite Database access for developing our Metabolite module which was renamed as Metabolism module when we released ADMET Predictor version 6 on April 19, 2012. Under this agreement, we pay 25% of revenue derived from the sale of Metabolism/Metabolite module.

For the years ended August 31, 2013 and 2012, we incurred total royalty expense of approximately $646,000 and $601,000, respectively.

Legal Matters

We are not a party to any litigation at this time and we are not aware of any pending litigation of any kind.