11. ACQUISITION/MERGER WITH LIXOFT

9 Months Ended

May 31, 2020

Business Combinations [Abstract]

ACQUISITION/MERGER WITH LIXOFT

NOTE 11: ACQUISITION/MERGER WITH LIXOFT

On March 31, 2020, the Company entered into a Stock Purchase and Contribution Agreement (the “Agreement”) with Lixoft, a French société par actions simplifiée (“Lixoft”). On April 1 2020, the Company consummated the acquisition of all outstanding equity interests of Lixoft pursuant to the terms of the Agreement, with Lixoft becoming a wholly owned subsidiary of the Company. 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, as described below, the Company will pay the former shareholders of Lixoft total consideration of up to $16,500,000, consisting of two-thirds cash and one-third newly issued, unregistered shares of the Company’s common stock. In addition, the Company will pay $3,456,029 of excess working capital based on the March 31, 2020 financial statements of Lixoft.

On April 1, 2020, the Company paid the former shareholders of Lixoft a total of $10,789,362, comprised of cash in the amount of $9,460,129 and the issuance of 111,682 shares of the Company’s common stock valued at $3,662,337 (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 the Company’s shares of common stock for the 30-consecutive-trading-day period ending two trading days prior to April 1, 2020). The actual stock price at April 1, 2020 was $34.92, so the total value of the stock issued was approximately $3,900,000, of which 9,669 shares are held in an escrow for 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, the Company will pay the former shareholders of Lixoft a total of $2,000,000, comprised of $1,333,333 of cash and the release from an escrow shares of stock valued at $666,337 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.

In addition, the agreement calls for earn-out payments up to an additional $5,500,000, two-thirds cash and one-third newly issued, unregistered shares of the Company’s 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 $2,000,000 the first year and $3,500,000 in year two. The Earn-out 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:

Assets acquired, Including cash of $3,799,134 and accounts receivable of $629,481	$	4,994,160
Developed Technologies Acquired		8,030,000
Estimated value of Intangibles assets acquired (Customer Lists, trade name etc.)		4,160,000
Estimated Goodwill acquired		2,404,973
Liabilities Assumed		(862,208	)
Total Consideration	$	18,726,925

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.

Consolidated supplemental Pro Forma information

The following consolidated supplemental pro forma information assumes that the acquisition of Lixoft took place on September 1, 2018 for the income statement for the three-month and nine-month periods ended May 31, 2020. These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Lixoft to reflect the same expenses in the three-month period ended May 31, 2019. 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, 2018, together with consequential tax effects.

	For the three-month period ended				For the nine-month period ended
	May 31, (in 1000’s) (Unaudited)				May 31, (in 1000’s) (Unaudited)
	(Pro forma)*		(Pro forma)		(Pro forma)*		(Pro forma)
	2020		2019		2020		2019
Net Sales	$	12,422	$	10,520	$	34,430	$	28,389
Net Income	$	3,565	$	2,860	$	8,442	$	7,076

*Balances include two months actual results for Lixoft.