10. ACQUISITION/MERGER WITH SUBSIDIARIES

6 Months Ended

Feb. 28, 2018

Business Combinations [Abstract]

ACQUISITION/MERGER WITH SUBSIDIARIES

DILIsym Services, Inc.

On May 1, 2017, the Company entered into a Stock Purchase Agreement (the “Stock Agreement”) with DILIsym Services, Inc. (“DILIsym”). On June 1, 2016, the Company consummated the acquisition of all outstanding equity interests of DILIsym pursuant to the terms of the Stock Agreement, with DILIsym becoming a wholly owned subsidiary of the Company. We believe the combination of Simulations Plus and DILIsym provides substantial future potential based on the complementary strengths of each of the companies.

Under the terms of the Stock Agreement, as described below, the Company will pay the former shareholders of DILIsym total consideration of approximately $10,463,000.

On June 1, 2017, the Company paid the former shareholders of DILIsym a total of $4,515,982, which included a $4,000,000 initial payment and a preliminary working capital payment of $515,982. Additional working capital adjustments of $247,328 were due under the agreement and were paid subsequent to August 31, 2017.

Within three business days following the eighteen-month anniversary of the date of the Stock Agreement, May 1, 2017, and subject to any offsets, the Company will pay the former shareholders of DILIsym a total of $1,000,000. The agreement calls for Earn-out payments up to an additional $5,000,000 based on a formula of pretax earnings over the next three years. The Earn-out liability has been recorded at fair value.

Under the acquisition method of accounting, the total estimated purchase price is allocated to DILIsym’s tangible and intangible assets and liabilities based on their estimated fair values at the date of the completion of the acquisition (June 1, 2017). The following table summarizes the preliminary allocation of the purchase price for DILIsym:

Assets acquired, including accounts receivable of $255,000 and estimated Contracts receivable of $153,000	$	2,298,569
Developed Technologies Acquired		2,850,000
Estimated value of Intangibles acquired (Customer Lists, trade name etc.)		2,840,000
Current Liabilities assumed		(911,049	)
Goodwill		5,597,950
Estimated Deferred income taxes		(2,212,160	)
Total Consideration	$	10,463,310

Goodwill has been 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. Based on the structure of the transaction, the Company does not anticipate benefiting from any tax deductions in future periods for recognized goodwill.

PROFORMA INFORMATION (UNAUDITED)

Consolidated supplemental Pro Forma information

The following consolidated supplemental pro forma information assumes that the acquisition of DILIsym took place on September 1, 2016 for the income statement for the three-month and six-month periods ended February 28, 2017. These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of DILIsym to reflect the same expenses in the three-month period ended February 28, 2017. 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, 2016, together with consequential tax effects.

	For the three-month period ended				For the six-month period ended
	February 28, (in 1000’s) (Unaudited)				February 28, (in 1000’s) (Unaudited)
	(Actual)		(Pro forma)		(Actual)		(Pro forma)
	2018		2017		2018		2017
Net Sales	$	7,357	$	6,621	$	14,425	$	12,578
Net Income	$	3,475	$	1,284	$	5,191	$	2,557