NOTE 6: COMMITMENTS AND CONTINGENCIES Leases We lease approximately 13,500 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 the Company exercised the two, two-year options extending the term of the lease through February 2, 2021 at a fixed rate of $25,000 per month. The new extension agreement allowed the Company with 90 days notice to opt out of the remaining lease in the last two years of the term upon payment of a recapture payment equal to the 3% base payment increase that would have been due under the original agreement. Our Buffalo 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 to extending it to October 2021. The new base rent is $16,147 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. This amendment added 686 square feet and extended the term of the lease to September 30, 2023. The new base rent is $7,500 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 $229,843. 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 $16,555 per quarter and can be adjusted each December based on a consumer price index. Rent expense, including common area maintenance fees for the three months ended May 31, 2020, and 2019 was $168,381 and $147,581, respectively, and $463,074 and $436,357 for the nine months ended May 31, 2020 and 2019, respectively. Future minimum lease payments under non-cancelable operating leases with remaining terms of one year or more at May 31, 2020 were as follows: Years Ending May 31, 2021 $ 560,554 2022 268,440 2023 174,719 2024 64,118 $ 1,067,831 Line of Credit On March 31, 2020, Simulations Plus, Inc. entered into a Credit Agreement with Wells Fargo Bank, N.A. The Credit Agreement, has provided Simulations Plus, Inc. with a credit facility of $3,500,000 through April 15, 2022. As of May 31, 2020, there were no amounts drawn against the line of credit. Employment Agreements In the normal course of business, the Company has entered into employment agreements with certain of its key management personnel that may require compensation payments upon termination. License Agreement The Company had a royalty agreement with Dassault Systemes 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 recently renegotiated, and the Company does not bear any royalty obligations towards Dassault Systemes Americas Corp. effective as of June 30, 2019. In addition, the license agreement will terminate on September 5, 2020. We incurred royalty expense (benefit) of ($137,496) and $55,924, respectively, for the three months ended May 31, 2020 and 2019, respectively and ($26,055) and $147,495 for the nine months ended May 31, 2020 and 2019, respectively. 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 unrecognized tax benefits in income tax expense. Interest and penalties totaled $-0- for fiscal year 2019. We file income tax returns with the IRS and various state jurisdictions, India and France for our Paris division. Our federal income tax returns for fiscal years 2016 through 2018 are open for audit, and our state tax returns for fiscal year 2015 through 2018 remain open for audit. In addition, certain elements of prior tax years, such as R&amp;D credits, may remain open and may be subject to future 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. Litigation We are not a party to any legal proceedings and are not aware of any pending legal proceedings of any kind.