11. SUBSEQUENT EVENTS

6 Months Ended

Feb. 29, 2020

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 11 - SUBSEQUENT EVENTS:

Dividend Declared

On April 7, 2020, our Board of Directors declared a quarterly cash dividend of $0.06 per share to our shareholders. The dividend will be distributed on Friday, May 1, 2020, for shareholders of record as of Friday, April 24, 2020.

Acquisition of Subsidiary – Lixoft of Paris, France

On March 31, 2020, Simulations Plus, Inc., a California corporation (the “Company”) entered into a Share Purchase and Contribution Agreement (the “Purchase Agreement”) with the owners of Lixoft, a French société par actions simplifiée (the “Transferors”) whereby the Company shall acquire 100% of the equity interests of Lixoft from the Transferors on a debt-free basis which shall result in Lixoft becoming a wholly-owned subsidiary of the Company (the “Transaction”).

As consideration for the Transaction, the Company shall provide up to US$16,500,000 in aggregate consideration to the Transferors consisting of two-thirds (2/3) cash and one-third (1/3) in newly issued shares of restricted common stock of the Company (the “Shares”), as follows:

· US$11,000,000 shall be issued at closing (the “Closing Consideration”) consisting of:

o US$7,333,333 in cash; plus

o US$3,666,667 in Shares

· Up to US$5,500,000 issuable in connection with future earnout payments (2/3 cash and 1/3 Shares) (the “Earnout Consideration”):

o Number of Shares to be determined by the volume-weighted average price of the Company’s common stock for the thirty (30) trading days immediately preceding each earnout reference date;

o Subject to customary exchange rate provisions defining an acceptable range of USD/EUR exchange rate fluctuation;

o Payable in two installments: 12 months and 24 months after closing if and to the extent certain year-over-year performance thresholds are met

A portion of the Closing Consideration, totaling US$2,000,000 (2/3 in cash and 1/3 in Shares), shall be held back (with the Shares being held in an escrow account) against any indemnification claims by the Company for a period of 24 months after the closing of the Transaction.

In addition, at closing, the cash consideration at closing payable to Transferors will be increased by the amount by which Lixoft’s cash on hand exceeds US$150,000, which amount the Company estimates to be approximately US$3,600,000 (“Excess Cash”), and reduced by the amount of Lixoft’s indebtedness and transaction expenses at closing. The aforementioned consideration is subject to adjustment in the event certain working capital targets differ from working capital at closing.

The Shares issued in the Transaction shall not have registration rights and may not be sold for a period of two years after closing of the Transaction.

Lixoft shall be responsible for all taxes relating to all periods prior to and up to the closing of the Transaction. Certain members of senior management of Lixoft have agreed to remain employed and/or consulting with the Company for a period of three years after the closing of the Transaction and shall enter into customary employment/consulting arrangements, including non-competition and non-solicitation provisions for such period.

On April 1, 2020, the Company consummated the acquisition of 100% of the equity interests of Lixoft pursuant to the terms of the Purchase Agreement, with Lixoft becoming a wholly-owned subsidiary of the Company.

Under the terms of the Purchase Agreement, on April 1, 2020 the Company paid the Transferors cash in the amount of US$9,460,000, consisting of the cash Closing Consideration, plus Excess Cash, less the cash portion of the holdback consideration (described below) and the issuance of $3,666,667 worth shares of the Company’s common stock (111,682 shares of the Company’s common stock valued at approximately US$32.79 per share based upon the volume-weighted average price (the “Average Price”) of the Company’s shares of common stock for the thirty (30)-consecutive-trading-day period ending two trading days prior to April 1, 2020), of which 20,326 shares of the Company’s common stock were issued to an escrow account as holdback consideration. The Purchase Agreement provides for a two-year market stand-off period in which the newly-issued shares may not be sold by the recipients thereof.

As described above, a portion of the consideration paid at closing to the Transferors, totaling US$2,000,000, shall be held back against any indemnification claims by the Company for a period of 24 months after the closing of the Transaction. At the release date, subject to any offsets, the $2,000,000 in holdback consideration will be released, comprised of cash in the amount of US$1,333,333.33 and the release of US$666,666.67 worth of shares of the Company’s common stock from escrow (20,326 shares based on the original Average Price of approximately US$32.79).

Outbreak of the COVID-19 illness

An outbreak of a new strain of coronavirus, COVID-19, occurred in China in December 2019 and has spread around the world. The Center for Disease Control (CDC) has recognized this outbreak as a pandemic which has caused shutdowns to businesses and cities worldwide while disrupting supply chains, business operations, travel, consumer confidence, and business sentiment. The situation is ever evolving and its effects both short-term and long-term remain unknown. The majority of significant economic disruption experienced by businesses worldwide have occurred subsequent to our recent fiscal quarter ended February 29, 2020. The extent to which the COVID-19 outbreak impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact. The Company is in the process of monitoring and assessing the effect of the COVID-19 outbreak.

Line of Credit

On March 31, 2020, the Company entered into an agreement for a $3.5 million dollar line of credit with a bank, secured by the assets of the Company. Interest is due monthly at either (i) the bank’s base rate(prime), or (ii) a fixed rate per annum rate at LIBOR + 1.75% at the company’s discretion. Amounts outstanding under the agreement are due and payable April 15, 2022.