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11. ACQUISITION/MERGER WITH COGNIGEN CORPORATION | 3 Months Ended
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Nov. 30, 2014
Business Combinations [Abstract] |
11. ACQUISITION/MERGER WITH COGNIGEN CORPORATION | On July 23, 2014, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Cognigen Corporation (“Cognigen”). On September 2, 2014, the Company consummated the acquisition of all outstanding equity interests of Cognigen pursuant to the terms of the Merger Agreement, with Cognigen merging with and into a newly-formed, wholly-owned subsidiary of the Company. We believe the combination of Simulations Plus and Cognigen provides substantial future potential based on the complementary strengths of each of the companies. Under the terms of the Merger Agreement, as described below, the Company will pay the former shareholders of Cognigen total consideration of $7,000,000, consisting of $2,800,000 of cash and $4,200,000 worth of newly issued, unregistered shares of the Company’s common stock. On September 2, 2014, the Company paid the former shareholders of Cognigen a total of $5,200,000, comprised of cash in the amount of $2,080,000 and the issuance of 491,159 shares of the Company’s common stock valued at $3,120,000 (under the terms of the Merger Agreement a price of approximately $6.35 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 September 2, 2014). The actual stock price at September 2, 2014 was $6.67, so the total value of the stock issued was approximately $3,277,000. The Merger Agreement provides for a two-year market standoff period in which the newly issued shares may not be sold by the recipients thereof. Within three business days following the two-year anniversary of July 23, 2014 (the date of the Merger Agreement) and subject to any offsets, the Company will pay the former shareholders of Cognigen a total of $1,800,000, comprised of $720,000 of cash and the issuance of 170,014 shares of stock valued at $1,080,000 under the formula described above. The Merger Agreement provides for a targeted working capital adjustment to be made 120 days after the closing date. Currently the amount of this adjustment has been preliminarily estimated to be $26,707 and is included in the following table showing estimated assets, liabilities, and total consideration. Under the acquisition method of accounting, the total estimated purchase price is allocated to Cognigen’s tangible and intangible assets and liabilities based on their estimated fair values at the date of the completion of the acquisition (September 2, 2014). The following table summarizes the preliminary allocation of the purchase price for Cognigen:
Assets acquired, including accounts receivable of $934,000 and estimated Contracts receivable of $530,000 |  | $ | 1,524,389 |
Fixed assets acquired |  |  | 458,351 |
Estimated value of software acquired |  |  | 200,000 |
Estimated value of Intangibles acquired (Customer Lists, trade name etc.) |  |  | 1,600,000 |
Estimated amount due to sellers - Working Capital Adjustment |  |  | (26,707 | )
Current Liabilities assumed |  |  | (644,499 | )
Goodwill |  |  | 4,789,248 |
Estimated Deferred income taxes |  |  | (662,500 | )
Total Consideration |  | $ | 7,238,282 |
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. The accounting for this acquisition has not been completed, as further valuations and analyses are required to establish beginning fair market values and the implication on deferred taxes. The amounts shown are provisional, and do not include any adjustments for charges that will result from integration activities related to the acquisition. Additional assets or liabilities may be recorded that could affect the amounts. During the measurement period, any such adjustments to provisional amounts would increase or decrease goodwill. Adjustments that occur after the end of the measurement period will be recognized in the post-combination current period operations. Consolidated supplemental Pro Forma information The following consolidated supplemental pro forma information assumes that the acquisition of Cognigen took place on September 1, 2013 for the income statements for the three month period ended November 30, 2013. These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Cognigen to reflect the same expenses in the period ended November 30, 2013 that were incurred in the current three months ended November 30, 2014. The adjustments include costs of acquisition of $410,000, the amortization of intangibles acquired during the merger, and depreciation changes to reflect the value of the fixed assets acquired that would have occurred assuming the fair value adjustments to fixed assets had been applied on September 1, 2013, together with consequential tax effects.
|  | For the three months ended November 30 ( in 1000’s) |
|  | 2014 |  |  | 2013 |
Net Sales |  | $ | 4,086 |  |  | $ | 3,834 |
Net Income |  | $ | 529 |  |  | $ | 492 |
Earnings per share |  |  |  |  |  |  |  |
Basic |  | $ | 0.03 |  |  | $ | 0.03 |
Diluted |  | $ | 0.03 |  |  | $ | 0.03 |

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References No definition available. + Details
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