COMMITMENTS AND CONTINGENCIES

6 Months Ended

Feb. 28, 2021

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 7: COMMITMENTS AND CONTINGENCIES

Leases

We lease approximately 9,255 square feet of space in Lancaster, California. The original lease had a five-year term with two, three-year options to extend. The initial five-year term expired in February 2011, and we extended the lease to February 2, 2014. In June 2013, the lease was amended to extend the term to February 2, 2017. The amended lease also provides for an annual base rent increase of 3% per year and two, two-year options to extend. In May 2016, we exercised the two, two-year options extending the term of the lease through February 2, 2021 at a fixed rate of $25 thousand per month. In December 2020, the lease was amended to extend the term to January 31, 2026. The amendment decreased the leased square footage from 13,500 sq. ft to 9,255 sq. ft, and correspondingly reduced the base rent from $25 thousand per month to $16.7 thousand per month. The amended lease also allows us to opt out of the last 4 years of the lease upon 180-day notice to the landlord with no penalty.

Our Cognigen subsidiary leases approximately 12,623 square feet of space in Buffalo, New York. The initial five-year term expired in October 2018 and was renewed for a three-year option extending it to November 2021. The new base rent is $16 thousand per month.

DILIsym leases approximately 2,700 square feet of space in Research Triangle Park, North Carolina. The initial three-year term was due to expire October 2020. An amendment to the initial lease became effective April 1, 2020, which added 686 square feet and extended the term of the lease to September 30, 2023. The new base rent is approximately $8 thousand per month with an annual 3% adjustment.

In Paris, France, Lixoft leases approximately 2,300 square feet of office space, which as of April 1, 2020, had minimum payments equaling $288 thousand. The lease is for a 9-year term, with an option to terminate every 3 years, and expires in November of 2024. The rent is $16 thousand per quarter (approximately $5.3 thousand per month) and can be adjusted each December based on a consumer price index.

Rent expense, including common area maintenance fees for the three months ended February 28, 2021, and February 29, 2020 was $147 thousand and $150 thousand, respectively, and $332 thousand and $295 thousand for the six months ended February 28, 2021 and February 29, 2020, respectively.

Future minimum lease payments under noncancelable operating leases with remaining terms of one year or more at February 28, 2021 were as follows:

(in thousands) Years Ending February 28,
2022	$	513
2023		370
2024		328
2025		244
2026		183
Future minimum lease payments	$	1,638

Line of Credit

On March 31, 2020, we entered into a Credit Agreement with Wells Fargo Bank, N.A. The Credit Agreement provides us with a credit facility of $3.5 million through April 15, 2022. As of February 28, 2021, there were no amounts drawn against the line of credit.

Employment Agreements

In the normal course of business, we have entered into employment agreements with certain of our key management personnel that may require compensation payments upon termination.

License Agreement

We had a royalty agreement with Dassault Systèmes Americas Corp. for access to their Metabolite Database for developing our Metabolite Module within ADMET Predictor™. The module was renamed the Metabolism Module when we released ADMET Predictor version 6 on April 19, 2012. Under this agreement, we paid a royalty of 25% of revenue derived from the sale of the Metabolism/Metabolite module. This agreement was renegotiated, and we do not bear any royalty obligations towards Dassault Systèmes Americas Corp. effective as of June 30, 2019. In addition, the license agreement terminated on September 5, 2020. We have not experienced any adverse impact on revenue since terminating the license agreement.

We are in the process of making arrangements to replace the database, which is expected to be completed by the end of fiscal year 2021.

Income Taxes

We follow guidance issued by the FASB with regard to our accounting for uncertainty in income taxes recognized in the financial statements. Such guidance prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to income tax expense. We file income tax returns with the IRS and various state jurisdictions as well as with the countries of India and France. Our federal income tax returns for fiscal year 2017 thru 2019 are open for audit, and our state tax returns for fiscal year 2016 through 2019 remain open for audit.

Our review of prior year tax positions using the criteria and provisions presented in guidance issued by FASB did not result in a material impact on our financial position or results of operations.

Legal Proceedings

We may be subject to litigation, claims, investigations and audits arising from time to time in the ordinary course of our business; however, at this time, we are not a party to any legal proceedings and are not aware of any pending, threatened, or unasserted legal proceedings of any kind.