Item 9A. Controls and Procedures
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of December 31, 2022. The term “disclosure controls and procedures,” means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as of December 31, 2022 because of the material weakness in our internal control over financial reporting described below.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company, as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by our board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Management assessed our internal control over financial reporting as of December 31, 2022, using the criteria established in Internal Control - Integrated Framework (2013) set forth by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on the results of its evaluation, management has concluded that our internal control over financial reporting was not effective as of December 31, 2022, due to a material weakness in our internal control over financial reporting. The material weakness related to a deficiency in the design of our control in our revenue process to determine whether performance milestones in a newly executed drug discovery arrangement were probable of achievement and the constraint on variable consideration in the form of milestone payments can be removed. The deficiency was a result of ineffective risk assessment as our existing controls were designed insufficiently to identify a change in timing of performance milestones in the newly executed contract.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness described above resulted in a $1.7 million understatement of drug discovery revenue and a related understatement of contract assets that were corrected prior to the issuance of our consolidated financial statements as of and for the year ended December 31, 2022.
Our independent registered public accounting firm, KPMG LLP, who audited the consolidated financial statements included in this Annual Report on Form 10-K, issued an adverse opinion on the effectiveness of our internal control over financial reporting. KPMG LLP’s report is included in Item 8 of this Annual Report.
Remediation Plan and Status
Our Board of Directors and management are committed to maintaining a strong internal control environment. We have developed a detailed remediation plan and are making progress in what will be a multi-step process to fully remediate
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the material weakness described above. Specifically, as of December 31, 2022, we are in the process of implementing and expanding our controls and procedures in our revenue process in order to timely identify changes to the timing of when a performance milestone becomes probable of achievement in drug discovery arrangements and to ensure such determinations are made through the end of the reporting period. In addition, we will continue to assess risks on an ongoing basis to timely identify changes in our business that may create new exposures or risk categories, and we plan to conduct a comprehensive review and, as applicable, update our existing internal control framework to ensure that we have identified, developed, and deployed the appropriate business process controls to address the new exposures or risk categories that are identified.
The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We believe the measures described above will remediate this material weakness and strengthen our internal control over financial reporting. As we continue to evaluate and work to remediate this material weakness, we may determine to take additional measures to address these deficiencies or determine to modify certain of the remediation measures described above.
Changes in Internal Control Over Financial Reporting
Other than the changes related to the ongoing remediation efforts described above, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth quarter of 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Internal Controls
Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud due to inherent limitations of internal controls. Because of such limitations, there is risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting or disclosure controls and procedures. However, these inherent limitations are known features of the disclosure and financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item 10 is incorporated herein by reference from the information that will be contained in our proxy statement related to the 2023 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year ended December 31, 2022 pursuant to General Instruction G(3) of Form 10-K.
We have adopted a written code of business conduct and ethics that applies to our directors, officers, and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We have posted a current copy of the code on our website, www.schrodinger.com. In addition, we intend to post on our website all disclosures that are required by law or Nasdaq listing standards concerning any amendments to, or waivers from, any provision of the code. Our website is not incorporated by reference into this Annual Report and you should not consider any information contained in or accessible from our website to be a part of this Annual Report.
Item 11. Executive Compensation.
The information required by this Item 11 is incorporated herein by reference from the information that will be contained in our proxy statement related to the 2023 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year ended December 31, 2022 pursuant to General Instruction G(3) of Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item 12 is incorporated herein by reference from the information that will be contained in our proxy statement related to the 2023 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year ended December 31, 2022 pursuant to General Instruction G(3) of Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item 13 is incorporated herein by reference from the information that will be contained in our proxy statement related to the 2023 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year ended December 31, 2022 pursuant to General Instruction G(3) of Form 10-K.
Item 14. Principal Accountant Fees and Services.
The information required by this Item 14 is incorporated herein by reference from the information that will be contained in our proxy statement related to the 2023 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year ended December 31, 2022 pursuant to General Instruction G(3) of Form 10-K.
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PART IV
Item 15. Exhibits and Financial Statement Schedules.
(1) Financial Statements
The following documents are included on page s F-2 through F-11 att ached hereto and are filed as part of this Annual Report.
Page
Reports of Independent Registered Public Accounting Firm
F- 2
Consolidated Balance Sheets as of December 31, 2022 and 2021
F- 6
Consolidated Statements of Operations for the Years ended December 31, 2022, 2021, and 2020
F- 7
Consolidated Statements of Comprehensive Loss for the Years ended December 31, 2022, 2021, and 2020
F- 8
Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Years ended December 31, 2022, 2021, and 2020
F- 9
Consolidated Statements of Cash Flows for the Years ended December 31, 2022, 2021, and 2020
F- 10
Notes to Consolidated Financial Statements
F- 11
(2) Financial Statement Schedules
All financial statement schedules have been omitted because they are not applicable, not required, or the information required is shown in the consolidated financial statements or the notes thereto.
(3) Exhibits
The exhibits filed as part of this Annual Report are listed below.
Exhibit
Number Description of Exhibit Form File No. Exhibit Filing Date Filed Herewith
3.1 Restated Certificate of Incorporation
8-K 001-39206 3.1 2/10/2020
3.2 Amended and Restated Bylaws
8-K 001-39206 3.2 2/10/2020
4.1 Specimen Stock Certificate evidencing the shares of common stock
S-1/A 333-235890 4.1 1/27/2020
4.2 Amended and Restated Share Exchange Agreement, dated January 24, 2020, by and between the Registrant and Bill & Melinda Gates Foundation Trust
S-1/A 333-235890 4.2 1/27/2020
4.3 Description of Securities Registered Under Section 12 of the Exchange Act
10-K 001-39206 4.3 3/4/2021
10.1 Amended and Restated Investors’ Rights Agreement, dated as of November 9, 2018, by and among the Registrant and the other parties thereto, as amended
S-1/A 333-235890 10.1 1/27/2020
10.2+ 2010 Stock Plan, as amended
S-1 333-235890 10.2 1/10/2020
10.3+ Form of Notice of Stock Option Grant and Stock Option Agreement under 2010 Stock Plan
S-1 333-235890 10.3 1/10/2020
10.4+ 2020 Equity Incentive Plan
S-1/A 333-235890 10.4 1/27/2020
10.5+ Form of Stock Option Agreement and Form of Restricted Stock Unit Agreement for U.S. Participants under the 2020 Equity Incentive Plan
10-K 001-39206 10.5 2/24/2022
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10.6+ Form of Stock Option Agreement for Non-U.S. Participants under the 2020 Equity Incentive Plan
10-Q 001-39206 10.2 11/12/2020
10.7+ Form of Restricted Stock Unit Agreement for Non-U.S. Participants under the 2020 Equity Incentive Plan
10-K 001-39206 10.6 2/24/2022
10.8+ 2020 Employee Stock Purchase Plan
S-1/A 333-235890 10.6 1/27/2020
10.9+ Third Amended and Restated Director Compensation Policy
10-Q 001-39206 10.3 5/4/2022
10.10+ Senior Executive Incentive Compensation Plan
S-1 333-235890 10.8 1/10/2020
10.11+ Amended and Restated Executive Severance and Change in Control Benefits Plan, as amende d
8-K 001-39206 10.2 8/18/2022
10.12+ Employment Agreement, dated May 11, 2010, by and between the Registrant and Ramy Farid
S-1 333-235890 10.10 1/10/2020
10.13+ Employment Agreement, dated August 16, 2022, by and between the Registrant and Geoffrey Porges
8-K 001-39206 10.1 8/18/2022
10.14+ Employment Agreement, dated November 14, 2018, by and between the Registrant and Joel Lebowitz
S-1 333-235890 10.11 1/10/2020
10.15+ Employment Agreement, dated March 17, 2003, by and between the Registrant and Jenny Herman
X
10.16+ Transition, Separation and Release of Claims Agreement, dated as of February 28, 2022, by and between the Registrant and Joel Lebowitz
8-K 001-39206 10.1 3/2/2022
10.17+ Consulting Agreement, dated as of February 28, 2022, by and between the Registrant and Joel Lebowitz
8-K 001-39206 10.2 3/2/2022
10.18+ Employment Agreement, dated May 14, 2018, by and between the Registrant and Karen Akinsanya
S-1 333-235890 10.14 1/10/2020
10.19+ Employment Agreement, dated April 27, 2010, by and between the Registrant and Yvonne Tran
S-1 333-235890 10.16 1/10/2020
10.20+ Employment Agreement, dated September 11, 2006, by and between the Registrant and Patrick Lorton
S-1 333-235890 10.17 1/10/2020
10.21+ Employment Agreement, dated March 9, 2009, by and between the Registrant and Robert Abel
S-1 333-235890 10.19 1/10/2020
10.22+ Consultant Agreement, dated July 1, 1999, between the Registrant and Richard A. Friesner, as amended
10-Q 001-39206 10.1 11/3/2022
10.23+ Form of Indemnification Agreement between the Registrant and each of its Executive Officers and Directors
S-1 333-235890 10.21 1/10/2020
10.24 Office Lease Agreement, dated April 5, 2021, by and between the Registrant and SPUSV5 1540 Broadway, LLC
8-K 001-39206 10.1 4/8/2021
10.25 First Amendment to Lease, dated May 19, 2022, by and between the Registrant and SPUSV5 1540 Broadway, LLC
10-Q 001-39206 10.1 8/4/2022
10.26 Lease, dated August 6, 2008, between One Main Place Portland – Oregon, Inc., Landlord, and Registrant, Tenant, as amended
S-1 333-235890 10.23 1/10/2020
10.27 Office Lease Amendment, dated May 6, 2021, by and between Registrant and MADISON-OFC ONE MAIN PLACE OR LLC
10-Q 001-39206 10.2 8/12/2021
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10.28† Agreement, dated as of May 5, 1994, between The Trustees of Columbia University in the City of New York and Registrant, as amended
S-1 333-235890 10.24 1/10/2020
10.29† Agreement, dated as of July 15, 1998, between The Trustees of Columbia University in the City of New York and Registrant, as amended
S-1 333-235890 10.25 1/10/2020
10.30† Agreement, dated as of September 2001, between The Trustees of Columbia University in the City of New York and Schrödinger, LLC, as amended
S-1 333-235890 10.26 1/10/2020
10.31† Agreement, dated as of June 19, 2003, between The Trustees of Columbia University in the City of New York and Schrödinger, LLC
S-1 333-235890 10.27 1/10/2020
10.32† Software and Patent License Agreement, dated May 27, 2008, between The Trustees of Columbia University in the City of New York and Schrödinger, LLC
S-1 333-235890 10.28 1/10/2020
10.33† Services Royalty Amendment, dated November 1, 2008, by and between The Trustees of Columbia University in the City of New York and Schrödinger, LLC
S-1 333-235890 10.29 1/10/2020
10.34† Services Agreement, dated June 25, 2013, between D.E. Shaw India Software Private Limited and Schrödinger, LLC, as amended
S-1 333-235890 10.30 1/10/2020
10.35† License and Software Development Agreement, dated March 14, 2013, by and between D. E. Shaw Research LLC and Schrödinger, LLC
S-1 333-235890 10.31 1/10/2020
10.36† Amended and Restated License and Software Development Agreement, dated May 20, 2014, by and between D. E. Shaw Research, LLC and Schrödinger, LLC
S-1 333-235890 10.32 1/10/2020
10.37+ Global Bonus Plan
S-1/A 333-235890 10.33 1/27/2020
10.38† Independent Contractor Agreement, dated June 23, 2020, by and between the Registrant and Gates Ventures, LLC
10-Q 001-39206 10.2 8/10/2020
10.39† Collaboration and License Agreement, dated November 22, 2020, by and between the Registrant and Bristol-Myers Squibb Company
10-K 001-39206 10.37 3/4/2021
10.40† First Amendment to Collaboration and License Agreement, dated December 21, 2022, by and between the Registrant and Bristol-Myers Squibb Company
X
10.41+ 2021 Inducement Equity Incentive Plan, as amended
10-Q 001-39206 10.4 11/3/2022
10.42+ Nonstatutory Stock Option Agreement under 2021 Inducement Equity Incentive Plan
10-K 001-39206 10.39 3/4/2021
10.43+ Form of Option Agreement for Non-U.S. Participants under the 2021 Inducement Equity Incentive Plan
10-Q 001-39206 10.3 8/4/2022
10.44+ Restricted Stock Unit Agreement for U.S. Participants under 2021 Inducement Equity Incentive Plan
10-K 001-39206 10.40 3/4/2021
10.45+ Restricted Stock Unit Agreement for Non-U.S. Participants under 2021 Inducement Equity Incentive Plan
10-K 001-39206 10.41 3/4/2021
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10.46+ Schrödinger, Inc. 2022 Equity Incentive Plan
8-K 001-39206 99.1 6/16/2022
10.47+ Form of Option Agreement for U.S. Participants under the 2022 Equity Incentive Plan
10-Q 001-39206 10.4 8/4/2022
10.48+ Form of Option Agreement for Non-U.S. Participants under the 2022 Equity Incentive Plan
10-Q 001-39206 10.5 8/4/2022
10.49+ Form of Restricted Stock Unit Agreement for U.S. Participants under the 2022 Equity Incentive Plan
10-Q 001-39206 10.6 8/4/2022
10.50+ Form of Restricted Stock Unit Agreement for Non-U.S. Participants under the 2022 Equity Incentive Plan
10-Q 001-39206 10.7 8/4/2022
21.1 Subsidiaries of the Registrant
X
23.1 Consent of KPMG LLP, independent registered public accounting firm
X
31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1# Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
32.2# Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
101.INS Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. X
101.SCH Inline XBRL Taxonomy Extension Schema Document. X
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. X
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. X
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101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X
104 Cover page formatted as Inline XBRL and contained in Exhibit 101. X
† Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
# The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report, are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Schrödinger, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report, irrespective of any general incorporation language contained in such filing.
+ Management contract or compensatory plan or arrangement filed in response to Item 15(a)(3) of the Instructions to the Annual Report on Form 10-K.
Item 16. Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized .
SCHRÖDINGER, INC.
Date: February 28, 2023
By: /s/ Ramy Farid
Ramy Farid, Ph.D.
President and Chief Executive Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name Title Date
/s/ Ramy Farid President and Chief Executive Officer, Director February 28, 2023
Ramy Farid, Ph.D. (Principal Executive Officer)
/s/ Geoffrey Porges, MBBS Executive Vice President and Chief Financial Officer February 28, 2023
Geoffrey Porges (Principal Financial Officer)
/s/ Jenny Herman Senior Vice President, Finance and Corporate Controller February 28, 2023
Jenny Herman (Principal Accounting Officer)
/s/ Michael Lynton Chairman of the Board February 28, 2023
Michael Lynton
/s/ Jeffrey Chodakewitz Director February 28, 2023
Jeffrey Chodakewitz, M.D.
/s/ Richard Friesner Director February 28, 2023
Richard Friesner, Ph.D.
/s/ Gary Ginsberg Director February 28, 2023
Gary Ginsberg
/s/ Rosana Kapeller-Libermann Director February 28, 2023
Rosana Kapeller-Libermann, M.D., Ph.D.
/s/ Arun Oberoi Director February 28, 2023
Arun Oberoi
/s/ Gary Sender Director February 28, 2023
Gary Sender
/s/ Nancy Thornberry Director February 28, 2023
Nancy Thornberry
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