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Item 9A. Controls and Procedures

2023-10-27 compared with 2022-10-28 · 430 added, 318 removed, 713 unchanged (51% of the section changed)

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ITEM 9B – OTHER INFORMATION

Rule 10b5-1 Trading Plans

The adoption or termination of contracts, instructions or written plans for the purchase or sale of our securities by our Section 16 officers and directors for the quarter ended August 31, 2023, each of which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (“Rule 10b5-1 Plan”), were as follows:

Name Title Action Date Adopted Expiration Date Aggregate # of Securities to be Purchased/Sold

Walter Woltosz (1)

Director Termination 7/15/2021 6/30/2023 480,000

Walter Woltosz (1)

Director Adoption 7/17/2023 10/3/2025 560,000

John Paglia (2)

Director Adoption 8/9/2023 7/31/2024 13,000

(1) On June 30, 2023, the pre-arranged stock trading plan pursuant to Rule 10b5-1, adopted by Walter Woltosz and his spouse on July 15, 2021 (the “Expired Plan”), automatically terminated pursuant to its terms.

The Expired Plan provided for the potential sale of up to 480,000 shares of Company common stock until June 30, 2023.

On July 17, 2023, Mr.

Woltosz and his spouse entered into a new pre-arranged stock trading plan pursuant to Rule 10b5-1 (the “New Plan”), which provides for the potential sale of up to 560,000 shares of Company common stock.

The New Plan expires on October 3, 2025, or upon the earlier completion of all authorized transactions under the New Plan.

(2) On August 9, 2023, John Paglia entered into a pre-arranged stock trading plan pursuant to Rule 10b5-1, which provides for (i) the potential exercise of vested stock options and the associated sale of up to 11,000 shares of Company common stock underlying such options, and (ii) the potential sale of up to an additional 2,000 shares of Company common stock.

The plan expires on July 31, 2024, or upon the earlier completion of all authorized transactions under the plan.

Other than those disclosed above, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” in each case as defined in Item 408 of Regulation S-K.

Please refer to the information included in Part II, Item 5 under the heading “Repurchases ” for information regarding the Company’s effective share repurchase program, including sales made by the Company under the ASR Agreement during the quarter ended August 31, 2023.

ITEM 9C – DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

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Information required by Item 10 is incorporated herein by reference from the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Report.

We have adopted the Corporate Code of Business Conduct and Ethics (the "code of ethics") that applies to each of our directors and employees, including our principal executive officer, principal financial officer, controller, and all other employees performing similar functions.

The code of ethics is publicly available on our website at https://www.simulations-plus.com/wp-content/uploads/Code-of-Ethics-11-12-2020.pdf.

If we make any substantive amendments to the code of ethics or grant any waiver, including any implicit waiver, from a provision of the code of ethics, we will disclose the nature of the amendment or waiver on that website or in a Current Report on Form 8-K.

We have adopted a Code of Conduct (the "code of conduct") that applies to each of our directors and employees, including our principal executive officer, principal financial officer, controller, and all other employees performing similar functions.

The code of conduct is publicly available on our website at https://www.simulations-plus.com/wp-content/uploads/SLP-Code-of-Conduct-09-25-23.pdf.

If we make any substantive amendments to the code of conduct or grant any waiver, including any implicit waiver, from a provision of the code of conduct, we will disclose the nature of the amendment or waiver on our website or in a Current Report on Form 8-K.

ITEM 11 – EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated herein by reference from the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report.

ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(1) Financial Statements.

The consolidated financial statements are included in this Annual Report on Form 10-K beginning on page F-1.

(2) Financial Statement Schedules.

All financial statement schedules have been omitted since the information is either not applicable or required or was included in the financial statements or notes included in this Annual Report on Form 10-K.

(3) List of Exhibits required by Item 601 of Regulation S-K.

See part (b) below.

(b) Exhibits.

The following exhibits are filed or furnished with this report.

Those exhibits marked with a (†) refer to management contracts or compensatory plans or arrangements.

EXHIBIT NUMBER DESCRIPTION

2.1 (4)^ Agreement and Plan of Merger, dated July 23, 2014, by and among the Company, Cognigen Corporation and the other parties thereto.

2.2 (12)^ Share Purchase and Contribution Agreement, dated March 31, 2020 .

3.1 (2) Articles of Incorporation of the Company.

3.2 (2) Amended and Restated Bylaws of the Company.

3.3 (15) Certificate of Amendment to the Amended and Restated Bylaws of Simulations Plus, Inc .

4.1 (1) Form of Common Stock Certificate.

4.2 (1) Share Exchange Agreement.

4.3(13) Revolving Line of Credit Note, dated as of March 31, 2020, by and between the Company, as borrower, and Wells Fargo Bank, National Association, as lender.

4.4(13) Credit Agreement, dated as of March 31, 2020, by and between the Company, as borrower, and Wells Fargo Bank, National Association, as lender.

10.1 (3)(†) The Company’s 2007 Stock Option Plan, as amended.

10.2 (10) Second Amendment to Lease by and between the Company and Crest Development LLC, dated as of May 1, 2016.

10.3 (5) Form of Indemnification Agreement.

10.4 (7) 2017 Equity Incentive Plan.

10.5 (6) Stock Purchase Agreement by and among Simulation Plus, Inc., DILIsym Services, Inc., The Shareholders’ Representative and The Shareholders of DILIsym Services, Inc., dated as of May 1, 2017.

10.6 (11)(†) Employment Agreement by and between the Company and Shawn O’Connor dated September 3, 2020 .

10.7 (14)(†) Employment Agreement by and between the Company and Will Frederick, dated December 1, 2020.

10.8 (15)(†) Separation Agreement, dated December 1, 2020, by and between the Company and John Kneisel .

10.9 (13) Third Amendment to Lease by and between the Company and Crest Development LLC, dated as of December 28, 2020.

2.1^ Agreement and Plan of Merger, dated July 23, 2014, by and among the Company, Cognigen Corporation and the other parties thereto, incorporated by reference to an Exhibit 2.1 to the Company’s Form 8-K/A filed November 18, 2014.

2.2^ Stock Purchase Agreement by and among Simulation Plus, Inc., DILIsym Services, Inc., the Shareholders’ Representative and the Shareholders of DILIsym Services, Inc., incorporated by reference to Exhibit 10.13 to the Company’s Form 10-Q filed July 10, 2017.

2.3^ Share Purchase and Contribution Agreement Relating to Lixoft, dated March 31, 2020, incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed April 2, 2020.

2.4^ Agreement and Plan of Merger, dated June 16, 2023, by and among Simulations Plus, Inc., Insight Merger Sub, Inc., Immunetrics, Inc.

and LaunchCyte LLC, incorporated by reference to an Exhibit 2.1 to the Company’s Form 8-K filed June 20, 2023.

3.1 Articles of Incorporation of the Company, incorporated by reference to an Exhibit 3.1 to the Company’s Form 10-K filed November 29, 2010.

3.2 Amended and Restated Bylaws of the Company, incorporated by reference to an exhibit to the Company’s Form 10-K filed November 29, 2010.

3.3 Certificate of Amendment to the Amended and Restated Bylaws of Simulations Plus, Inc., incorporated by reference to Appendix A to the Company’s Definitive Schedule 14A Proxy Statement filed December 31, 2018.

4.1 Form of Common Stock Certificate, incorporated by reference to the Company’s Registration Statement on Form SB-2 (Registration No.

333-6680) filed March 25, 1997.

4.2 Share Exchange Agreement, incorporated by reference to the Company’s Registration Statement on Form SB-2 (Registration No.

333-6680) filed March 25, 1997.

4.3* Description of Securities.

10.1(†) The Company’s 2007 Stock Option Plan, as amended, incorporated by reference to Exhibit 10.3 to the Company’s Form 10-K filed April 9, 2014.

10.2 Second Amendment to Lease by and between the Company and Crest Development LLC, dated as of May 1, 2016, incorporated by reference to Exhibit 10.4(d) to the Company’s Form 10-K filed November 14, 2016.

10.3 Form of Indemnification Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed August 10, 2016.

10.4(†) 2017 Equity Incentive Plan, incorporated by reference to Appendix A to the Company’s Definitive Schedule 14A Proxy Statement filed December 29, 2016.

10.5(†) Employment Agreement by and between the Company and Shawn O’Connor dated September 3, 2020 incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed September 9, 2020.

10.6(†) Employment Agreement by and between the Company and Will Frederick, dated December 1, 2020 incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed January 11, 2021.

10.7(†) Separation Agreement, dated December 1, 2020, by and between the Company and John Kneisel, incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed April 14, 2021.

10.8 Third Amendment to Lease by and between the Company and Crest Development LLC, dated as of December 28, 2020 incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed January 4, 2021.

10.9(†) Simulation Plus, Inc.

2021 Equity Incentive Plan.

2021 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed June 8, 2021.

10.10(†) First Amendment to Employment Agreement, by and between Simulations Plus, Inc.

and Shawn O’Connor, dated November 19, 2021.

10.12(†)* Employment Agreement by and between the Company and John DiBella, dated January 1, 2022.

10.13(†)* Employment Agreement by and between the Company and Brett Howell, dated January 1, 2022.

10.14(†)* Employment Agreement by and between the Company and Jill Fiedler-Kelly, dated January 1, 2022.

and Shawn O’Connor, dated November 19, 2021 incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed November 19, 2021.

10.11(†) Employment Agreement by and between the Company and John DiBella, dated January 1, 2022, incorporated by reference to Exhibit 10.12 to the Company’s Form 10-K filed October 28, 2022.

10.12(†) Employment Agreement by and between the Company and Brett Howell, dated January 1, 2022, incorporated by reference to Exhibit 10.13 to the Company’s Form 10-K filed October 28, 2022.

10.13(†) Employment Agreement by and between the Company and Jill Fiedler-Kelly, dated January 1, 2022, incorporated by reference to Exhibit 10.14 to the Company’s Form 10-K filed October 28, 2022.

10.14^ Confirmation for Fixed Dollar Accelerated Share Repurchase Transaction, dated as of January 11, 2023, by and between Simulations Plus, Inc.

and Morgan Stanley & Co.

LLC, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed January 12, 2023.

10.15 First Amendment to 2021 Equity Incentive Plan of Simulations Plus, Inc., dated February 9, 2023, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed February 13, 2023.

10.16 Fourth Amendment to Lease by and between the Company and Crest Development LLC, dated as of February 17, 2023, incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed April 7, 2023.

10.17^ Earnout Agreement by and among Simulations Plus, Inc., Insight Merger Sub, Inc., Immunetrics, Inc.

and LaunchCyte LLC, dated June 16, 2023, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed June 20, 2023.

10.18 Amended and Restated Employment Agreement between Simulations Plus, Inc.

and Steven Chang, dated June 16, 2023, incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed June 20, 2023.

21.1 * List of Subsidiaries.

23.1 * Consent of Independent Registered Public Accounting Firm.

31.1 * Section 302 – Certification of the Principal Executive Officer.

31.2 * Section 302 – Certification of the Principal Financial Officer.

32.1 * Section 906 – Certification of the Chief Executive Office and Chief Financial Officer.

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.

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.

32.1 ** Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*** Inline XBRL Instance Document

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101.PRE*** Inline XBRL Taxonomy Extension Presentation Linkbase Document

104*** Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101 attachments).

_____________________________

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* Filed herewith.

** Furnished herewith.

*** The XBRL related information in Exhibit 101 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

(†) Refers to management contracts or compensatory plans or arrangements.

(1) Incorporated by reference to the Company’s Registration Statement on Form SB-2 (Registration No.

333-6680) filed on March 25, 1997.

(2) Incorporated by reference to an exhibit to the Company’s Form 10-K for the fiscal year ended August 31, 2010.

(3) Incorporated by reference to an exhibit to the Company’s Form 10-Q filed April 9, 2014.

(4) Incorporated by reference to an exhibit to the Company’s Form 8-K/A filed November 18, 2014.

(5) Incorporated by reference to an exhibit to the Company’s Form 8-K filed August 10, 2016.

(6) Incorporated by reference to an exhibit to the Company’s Form 10-Q filed July 10, 2017.

(7) Incorporated by reference to Appendix A to the Company’s Schedule 14A filed December 29.

(8) Incorporated by reference to an exhibit to the Company’s Form 10-K for the fiscal year ended August 31, 2016.

(9) Incorporated by reference to an exhibit to the Company’s Form 8-K filed April 2, 2020.

(10) Incorporated by reference to an exhibit to the Company’s Form 8-K filed April 3, 2020.

(11) Incorporated by reference to an exhibit to the Company’s Form 8-K filed September 9, 2020.

(12) Incorporated by reference to Appendix A to the Company’s Definitive Schedule 14A filed December 31, 2018.

(13) Incorporated by reference to an exhibit to the Company’s Form 8-K filed January 4, 2021.

(14) Incorporated by reference to an exhibit to the Company’s Form 10-Q filed January 11, 2021.

(15) Incorporated by reference to an exhibit to the Company’s Form 10-Q filed April 14, 2021.

(16) Incorporated by reference to an exhibit to the Company’s Form 8-K filed June 8, 2021.

(17) Incorporated by reference to an exhibit to the Company’s Form 8-K filed November 19, 2021.

See Item 15(a)(2) above.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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.

October 27, 2023

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Chief Financial Officer (Principal financial officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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 and in the capacities and on the dates indicated.

Signature Title

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We have audited the accompanying consolidated balance sheets of Simulations Plus, Inc.

and Subsidiaries (the Company) as of August 31, 2022, and 2021, and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended August 31, 2022, and the related notes (collectively referred to as the financial statements).

and Subsidiaries (the Company) as of August 31, 2023, and 2022, and the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended August 31, 2023, and the related notes (collectively referred to as the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2023, and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended August 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition – Contract cost estimates

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2023, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet as of August 31, 2022, and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended August 31, 2022, and related notes, and our report dated October 28, 2022, expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet and the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows for the Company, and our report dated October 27, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts) 2022 2021

(in thousands, except share and per share amounts) August 31, 2023 August 31, 2022

Current assets

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Accounts receivable, net of allowance for doubtful accounts of $ 46 and $ 12

10,201 13,787

Prepaid income taxes 804 1,391

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Goodwill 19,099 12,921

Deferred tax assets 1,438 —

Other assets 425 439

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Operating lease liability 755 943

Contracts payable – net of current portion 3,330 —

Total liabilities 16,072 10,134

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Shareholders' equity

Preferred stock, $ 0.001 par value 10,000,000 shares authorized, no shares issued and outstanding

Preferred stock, $ 0.001 par value — 10,000,000 shares authorized;

no shares issued and outstanding

Common stock, $ 0.001 par value and additional paid-in capital — 50,000,000 shares authorized;

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Diluted 20,465 20,749 20,743

Other comprehensive (loss) income, net of tax

Other comprehensive income (loss), net of tax

Foreign currency translation adjustments 167 ( 265 ) ( 101 )

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Year ended August 31,

Years ended August 31,

(in thousands, except per common share amounts) 2023 2022 2021

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Shares issued - Lixoft — 1,166 666

Common stock issued for cash, net — — 107,747

Balance, end of period 144,974 138,512 133,418

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Declaration of dividends ( 4,809 ) ( 4,846 ) ( 4,811 )

Repurchase and retirement of common shares ( 20,000 ) — —

Net income 9,961 12,483 9,782

Balance, end of period 25,196 40,044 32,407

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss

Balance, beginning of period ( 308 ) ( 43 ) 58

Other comprehensive (loss) income ( 265 ) ( 101 ) 58

Other comprehensive income (loss) 167 ( 265 ) ( 101 )

Balance, end of period ( 141 ) ( 308 ) ( 43 )

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended August 31,

Years ended August 31,

(in thousands) 2023 2022 2021

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Depreciation and amortization 3,840 3,574 3,590

Change in value of contingent consideration 283 486 203

Amortization of investment premiums 1,678 2,350 —

Change in fair value of contingent consideration 680 283 486

Amortization of investment (discounts) premiums ( 1,134 ) 1,678 2,350

Stock-based compensation 4,828 3,037 2,750

Deferred income taxes ( 2,095 ) ( 270 ) ( 628 )

Loss (gain) from disposal of assets 6 — —

Impairment of other intangibles 500 — —

Currency translation adjustments 167 ( 265 ) ( 101 )

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Other liabilities 832 ( 1,437 ) 3,353

Accrued income taxes ( 7 ) — —

Deferred revenue 176 2,213 210

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Purchase of short-term investments ( 95,045 ) ( 100,846 ) ( 122,395 )

Proceeds from sale of short-term investments 109,121 100,229 —

Cash used to acquire subsidiaries — — ( 9,471 )

Cash received in acquisition — — 3,799

Proceeds from maturities of short-term investments 114,907 109,121 100,229

Purchased intangibles ( 601 ) — —

Acquisition of Immunetrics, net of cash acquired ( 8,223 ) — —

Capitalized computer software development costs ( 3,219 ) ( 3,151 ) ( 2,949 )

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Proceeds from the exercise of stock options 1,543 891 1,461

Proceeds from follow-on public offering, net — — 107,747

Net cash (used in) provided by financing activities ( 7,622 ) ( 4,684 ) 102,366

Repurchase and retirement of common shares ( 20,000 ) — —

Net cash used in financing activities ( 23,266 ) ( 7,622 ) ( 4,684 )

Net increase (decrease) in cash and cash equivalents 5,956 14,583 ( 12,223 )

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Stock issued for acquisition of Lixoft $ — $ 1,166 $ 666

Creation of contract liabilities for acquisition of subsidiaries $ — $ — $ 4,528

Creation of contract liabilities from acquisition of subsidiaries $ 5,900 $ — $ —

Right of use assets capitalized $ 227 $ 624 $ 905

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Simulations Plus, Inc.

(the "Company") was incorporated on July 17, 1996.

In September 2014, Simulations Plus acquired all of the outstanding equity interests of Cognigen Corporation ("Cognigen") and Cognigen became a wholly-owned subsidiary of Simulations Plus, Inc.

(“Simulations Plus”) was incorporated on July 17, 1996.

In September 2014, Simulations Plus acquired all of the outstanding equity interests of Cognigen Corporation (“Cognigen”) and Cognigen became a wholly owned subsidiary of Simulations Plus.

In June 2017, Simulations Plus acquired DILIsym Services, Inc.

(“DILIsym”) as a wholly owned subsidiary.

In April 2020, Simulations Plus, Inc.

acquired Lixoft, a French société par actions simplifiée ("Lixoft") as a wholly-owned subsidiary pursuant to a stock purchase and contribution agreement.

(Collectively, "Company", "we", "us", "our").

Effective September 1, 2021, the Company merged both Cognigen Corporation and DILIsym with and into Simulations Plus, Inc.

through short-form mergers (the “Mergers”).

To effectuate the Mergers, the Company filed Certificates of Ownership with the Secretaries of State of the states of Delaware (Cognigen’s and DILIsym’s state of incorporation) and California (the Company’s state of incorporation).

In April 2020, Simulations Plus acquired Lixoft, a French société par actions simplifiée (“Lixoft”), as a wholly owned subsidiary pursuant to a stock purchase and contribution agreement.

In June 2023, Simulations Plus acquired Immunetrics, Inc.

(“Immunetrics”) as a wholly owned subsidiary through a reverse triangular merger.

(Simulations Plus together with its subsidiaries, collectively, the “Company,” “we,” “us,” “our”).

Effective September 1, 2021, the Company merged both Cognigen and DILIsym with and into Simulations Plus through short-form mergers (the “Mergers”).

Consummation of the Mergers was not subject to approval of the Company’s stockholders and did not impact the rights of the Company’s stockholders.

On December 20, 2022, Simulations Plus International, Inc.

(“SLPI”), a Delaware corporation, was created as a wholly owned subsidiary of Simulations Plus in order to facilitate future international acquisitions, if any, and global integrations.

In furtherance of this objective, the Company added the trade name “SLP France” to Lixoft, and on April 25, 2023, Simulations Plus transferred its ownership of Lixoft to SLPI pursuant to a contribution and acceptance agreement, resulting in Lixoft becoming a wholly owned subsidiary of SLPI.

The transfer did not impact the rights of the Company’s stockholders.

Lines of Business

We are a premier developer of drug discovery and development software for modeling and simulation, and for the prediction of molecular properties utilizing both artificial intelligence (“AI”) as well as machine-learning-based technology.

We also provide consulting services ranging from early drug discovery through preclinical and clinical trial data analysis and for submissions to regulatory agencies.

Our software and consulting services are provided to major pharmaceutical, biotechnology, agrochemical, cosmetics, and food industry companies, and to regulatory agencies worldwide for use in the conduct of industry-based research.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We are a premier developer of drug discovery and development software for modeling and simulation, and for the prediction of molecular properties utilizing both artificial-intelligence-based and machine-learning-based technologies.

We also provide consulting services ranging from early drug discovery through preclinical and clinical development analysis and for submissions to regulatory agencies.

Our software and consulting services are provided to major pharmaceutical, biotechnology, agrochemical, cosmetics, and food industry companies and academic and regulatory agencies worldwide for use in the conduct of industry-based research.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Simulations Plus and, as of April 1, 2020, Lixoft.

The consolidated financial statements include the accounts of Simulations Plus and its wholly owned operating subsidiaries, Lixoft and Immunetrics.

All significant intercompany accounts and transactions are eliminated in consolidation.

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The following is a description of principal activities from which the Company generates revenue.

As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract.

Stand-alone selling prices are determined based on the prices at which the Company separately sells its services or goods.

As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract.

Standalone selling prices are determined based on the prices at which the Company separately sells its services or goods.

Revenue Components Typical Payment Terms

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Typical industry standards apply.

For certain software arrangements the Company hosts the licenses on servers maintained by the Company, Revenue for those arrangements is accounted as Software as a Service over the life of the contract.

These arrangements are a small portion of software revenues of the Company.

For certain software arrangements the Company hosts the licenses on servers maintained by the Company.

Revenue for those arrangements is accounted as Software as a Service over the life of the contract.

These arrangements account for a small portion of software revenues of the Company.

Consulting Contracts:

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As of August 31, 2023, remaining performance obligations were $ 11.8 million.

86 % of the remaining performance obligations are expected to be recognized over the next 12 months, with the remainder recognized thereafter.

Ninety-five percent of the remaining performance obligations are expected to be recognized over the next 12 months, with the remainder expected to be recognized thereafter.

Remaining performance obligations estimates are subject to change and are affected by several factors, including contract terminations and changes in the scope of contracts.

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The components of disaggregation of revenue for the years ended August 31, 2023, 2022, and 2021 were as follows:

Year ended August 31,

Years ended August 31,

(in thousands) 2023 2022 2021

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Geographical revenues for the years ended August 31, 2023, 2022, and 2021 were as follows:

(in thousands) Year ended August 31,

2022 2021 2020

Years ended August 31,

(in thousands) 2023 2022 2021

$ % of total $ % of total $ % of total

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We refer to contract liabilities as deferred revenue on our consolidated balance sheets.

Contract asset balances as of August 31, 2022, and August 31, 2021, were $ 1.7 million and $ 3.2 million, respectively.

Contract asset balances as of August 31, 2023, 2022, and 2021, were $ 2.7 million, $ 1.7 million, and $ 3.2 million, respectively.

During the year ended August 31, 2023, the Company recognized $ 2.6 million of revenue that was included in contract liabilities as of August 31, 2022, and during the year ended August 31, 2022, the Company recognized $ 0.6 million of revenue that was included in contract liabilities as of August 31, 2021.

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Accounts receivable balances will be charged off against the allowance for credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.

The activity in the allowance for credit losses related to our trade receivables is summarized as follows:

Years ended August 31,

(in thousands) 2023 2022 2021

Balance, beginning of period $ 12 $ 78 $ 50

Provision for expected credit losses 77 ( 66 ) 28

Write-offs ( 43 ) — —

Balance, end of period $ 46 $ 12 $ 78

The Company may invest excess cash balances in short-term and long-term marketable debt securities.

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For available-for-sale debt securities in an unrealized-loss position, we evaluate as of the balance sheet date whether the unrealized losses are attributable to a credit loss or other factors.

The portion of unrealized losses related to a credit loss is recognized in earnings, and the portion of unrealized loss not related to a credit loss is recognized in other comprehensive income.

The portion of unrealized losses related to a credit loss is recognized in earnings, and the portion of unrealized loss not related to a credit loss is recognized in other comprehensive income (loss).

We classify our investments in marketable debt securities based on the facts and circumstances present at the time of purchase of the securities.

We subsequently reassess the appropriateness of that classification at each reporting date.

During the year ended August 31, 2022, all of our investments were classified as held-to-maturity.

During the years ended August 31, 2023 and 2022, all of our investments were classified as held-to-maturity.

Capitalized Computer Software Development Costs

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Amortization of capitalized software development costs is calculated on a product-by-product basis on the straight-line method over the estimated economic life of the products (not to exceed five years ).

Amortization of software development costs amounted to $ 1.2 million, $ 1.4 million, and $ 1.2 million for the years ended August 31, 2022, 2021, and 2020, respectively.

Amortization of software development costs amounted to $ 1.5 million, $ 1.2 million, $ 1.4 million for the years ended August 31, 2023, 2022, and 2021, respectively.

We expect future amortization expense to vary due to increases in capitalized computer software development costs.

We test capitalized computer software development costs for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

We test capitalized computer software development costs for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Property and Equipment

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Furniture and fixtures 5 to 7 years

Leasehold improvements Shorter of life of asset or lease

Leasehold improvements Shorter of the asset life or lease term

Maintenance and minor replacements are charged to expense as incurred.

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Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.

Goodwill and intangible assets are tested for impairment at the reporting unit level, which is one level below or the same as an operating segment.

As of August 31, 2022, we determined that we have four reporting units:

Simulations Plus, Cognigen, DILIsym, and Lixoft.

We did not recognize any impairment charges during the periods ended August 31, 2022, 2021, and 2020.

Goodwill and the other assets and liabilities acquired as part of the Immunetrics acquisition have been assigned to a separate reporting unit.

The goodwill recorded in the Immunetrics reporting unit as of August 31, 2023, was $ 6.2 million.

Goodwill and intangible assets are tested for impairment at the reporting unit level, which is either one level below or the same level as an operating segment.

As of August 31, 2023, we determined that we have five reporting units:

Simulations Plus, Cognigen, DILIsym, Lixoft, and Immunetrics.

We recognized an impairment charge $ 0.5 million for the Cognigen trade name, as management's strategy is to no longer use the Cognigen trade name.

Reconciliation of Goodwill as of August 31, 2023, 2022, and 2021:

(in thousands) Cognigen DILIsym Lixoft Total

(in thousands) Cognigen DILIsym Lixoft Immunetrics Total

Balance, August 31, 2021 $ 4,789 $ 5,598 $ 2,534 $ — $ 12,921

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Value Accumulated

Amortization Net book

Simulations Plus

Amortization Net Book Value

Trade names None $ 4,210 $ — $ 4,210

Covenants not to compete Straight line 2 to 3 years

Other internal use software Straight line 3 to 5 years

Customer relationships Straight line 8 to 14 years

8,230 1,887 6,343

ERP Straight line 15 years

Customer relationships Straight line 8 years 1,100 1,100 —

Trade Name None 500 — 500

Customer relationships Straight line 10 years 1,900 997 903

Trade Name None 860 — 860

Customer relationships Straight line 14 years 2,550 437 2,113

Trade Name None 1,550 — 1,550

Covenants not to compete Straight line 3 years 60 48 12

2,112 207 1,905

$ 14,932 $ 2,107 $ 12,825

The following table summarizes other intangible assets as of August 31, 2022:

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Value Accumulated

Amortization Net book

Customer relationships Straight line 8 years $ 1,100 $ 963 $ 137

Trade Name None 500 — 500

Covenants not to compete Straight line 5 years 50 50 —

Customer relationships Straight line 10 years 1,900 807 1,093

Trade Name None 860 — 860

Covenants not to compete Straight line 4 years 80 80 —

Customer relationships Straight line 14 years 2,550 258 2,292

Trade Name None 1,550 — 1,550

Amortization Net Book Value

Trade names None $ 2,910 $ — $ 2,910

Covenants not to compete Straight line 3 years

Customer relationships Straight line 8 to 14 years

5,550 2,534 3,016

ERP Straight line 15 years

1,702 80 1,622

$ 10,222 $ 2,662 $ 7,560

Total amortization expense for the years ended August 31, 2023, 2022, and 2021 was $ 0.6 million, $ 0.6 million, and $ 0.5 million, respectively.

Future amortization of finite-lived intangible assets for the next five years is as follows:

Estimated future amortization of finite-lived intangible assets for the next five years is as follows:

(in thousands)

Business Acquisitions

The Company accounted for the acquisition of Lixoft using the acquisition method of accounting where the assets acquired and liabilities assumed are recognized based on their respective estimated fair values.

The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

Determining the fair value of certain acquired assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions, including, but not limited to, the selection of appropriate valuation methodology, projected revenue, expenses and cash flows, weighted average cost of capital, discount rates, estimates of advertiser and publisher turnover rates, and estimates of terminal values.

Business acquisitions are included in the Company's consolidated financial statements as of the date of the acquisition.

Years ending August 31,

Fair Value of Financial Instruments

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Level III Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

For certain of our financial instruments, including accounts receivable, accounts payable, and accrued compensation and other accrued expenses, the amounts approximate fair value due to their short maturities.

The following table summarizes fair value measurements as of August 31, 2022, and August 31, 2021, for assets and liabilities measured at fair value on a recurring basis:

For certain of our financial instruments, including accounts receivable, accounts payable, and accrued compensation and other accrued expenses, the carrying amounts are representative of their fair value due to their short maturities.

We invest a portion of our excess cash balances in short-term debt securities.

Investments at August 31, 2023, consisted of corporate bonds and term deposits with maturities remaining of less than 12 months.

Under the fair-value hierarchy, the fair market values of the Company’s cash equivalents and investments are Level I.

We may also invest excess cash balances in certificates of deposit, money market accounts, government-sponsored enterprise securities, and/or commercial paper.

We account for our investments in accordance with ASC 320, Investments – Debt and Equity Securities.

As of August 31, 2023 and 2022, all investments were classified as held-to-maturity securities, as we have the positive intent and ability to hold these securities until maturity.

We believe unrealized losses on investments were primarily caused by rising interest rates rather than changes in credit quality, and, accordingly, we have not recorded an allowance for credit losses on our debt securities as of August 31, 2023, and 2022.

The following tables summarize our short-term investments as of August 31, 2023, and August 31, 2022:

August 31, 2023

(in thousands) Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 51,567 $ — $ — $ 51,567

Short-term investments $ 76,668 $ — $ — $ 76,668

(in thousands) Amortized Cost Gross

Losses Fair Value

Commercial notes (due within one year) $ 53,940 $ — $ ( 115 ) $ 53,825

Term deposits (due within one year) 4,000 — — 4,000

Total $ 57,940 $ — $ ( 115 ) $ 57,825

August 31, 2022

(in thousands) Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 36,984 $ — $ — $ 36,984

Short-term investments $ 86,620 $ — $ — $ 86,620

Acquisition-related contingent consideration obligations $ — $ — $ 3,217 $ 3,217

As of August 31, 2022, we had no liability for contingent consideration related to our acquisition of Lixoft as the remaining contingent obligation was settled in May 2022.

As of August 31, 2021, we had a liability for contingent consideration related to our acquisition of Lixoft.

The fair value measurement of the contingent consideration obligations was determined using Level 3 inputs and was based on a discounted cash flow model using a probability-weighted income approach.

The liability is recorded as contracts payable on our consolidated balance sheets, and changes in the fair value of the contingent consideration obligations are recorded as other income (expense), net in our consolidated statements of operations and comprehensive income.

The following is a reconciliation of contingent consideration value:

(in thousands)

Value as of August 31, 2021 $ 3,217

Contingent consideration payments in cash ( 2,334 )

Contingent consideration payments in stock ( 1,166 )

Change in value of contingent consideration 283

Value as of August 31, 2022 $ —

The Company expenses marketing costs as incurred.

Marketing costs for the years ended August 31, 2022, 2021, and 2020 were $ 0.2 million, $ 0.1 million, and $ 0.1 million, respectively.

(in thousands) Amortized Cost Gross

Losses Fair Value

Commercial notes (due within one year) $ 72,168 $ — $ ( 839 ) $ 71,329

Term deposits (due within one year) 4,500 — — 4,500

Total $ 76,668 $ — $ ( 839 ) $ 75,829

As of August 31, 2023, the Company had a liability for contingent consideration related to its acquisition of Immunetrics.

The fair value measurement of the contingent consideration obligations are determined using Level 3 inputs.

The fair value of contingent consideration obligations are based on a discounted cash flow model using a probability-weighted income approach.

These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in markets.

Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period.

Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense the Company records in any given period.

Changes in the fair value of the contingent consideration obligations are recorded in the Company’s Consolidated Statement of Operations.

The following is a reconciliation of contingent consideration at fair value:

(in thousands) Amount

Contingent consideration at acquisition date 4,100

Change in fair value of contingent consideration 680

Contingent consideration as of August 31, 2023 $ 4,780

Business Combination

The acquisition method of accounting for business combinations requires us to use significant estimates and assumptions, including fair value estimates, as of the business combination date and to refine those estimates as necessary during the measurement period (defined as the period, not to exceed one year, in which we may adjust the provisional amounts recognized for a business combination).

Under the acquisition method of accounting, we recognize separately from goodwill the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree, generally at the acquisition date fair value.

We measure goodwill as of the acquisition date as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed.

Costs that we incur to complete the business combination, such as investment banking, legal, and other professional fees, are not considered part of consideration, and we recognize such costs as general and administrative expenses as they are incurred.

Under the acquisition method, we also account for acquired company restructuring activities that we initiate separately from the business combination.

Should the initial accounting for a business combination be incomplete by the end of a reporting period that falls within the measurement period, we report provisional amounts in our financial statements.

During the measurement period, we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date, and we record those adjustments to our financial statements.

We apply those measurement period adjustments that we determine to be material retrospectively to comparative information in our financial statements, including adjustments to depreciation and amortization expense.

Under the acquisition method of accounting for business combinations, if we identify changes to acquired deferred tax asset valuation allowances or liabilities related to uncertain tax positions during the measurement period, and they relate to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement period adjustment and we record the offset to goodwill.

We record all other changes to deferred tax asset valuation allowances and liabilities related to uncertain tax positions in current period income tax expense.

This accounting applies to all of our acquisitions regardless of acquisition date.

Research and Development Costs

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Intellectual property

On February 28, 2012, we bought out the royalty agreement with Enslein Research.

In February 2012, we bought out the royalty agreement with Enslein Research.

The cost of $ 0.1 million is being amortized over 10 years under the straight-line method.

On May 15, 2014, we entered into a termination and non-assertion agreement with TSRL, Inc., pursuant to which the parties agreed to terminate an exclusive software licensing agreement entered into between the parties in 1997.

In May 2014, we entered into a termination and non-assertion agreement with TSRL, Inc., pursuant to which the parties agreed to terminate an exclusive software licensing agreement entered into between the parties in 1997.

As a result, the Company obtained a perpetual right to use certain source code and data, and TSRL relinquished any rights and claims to any GastroPlus products and to any claims, royalties, or other payments under that 1997 agreement.

We agreed to pay TSRL total consideration of $ 6.0 million, which is being amortized over 10 years under the straight-line method.

On June 1, 2017, as part of the acquisition of DILIsym, the Company acquired certain developed technologies associated with the drug-induced liver disease (DILI).

In June 2017, as part of the acquisition of DILIsym, the Company acquired certain developed technologies associated with the drug-induced liver disease (DILI).

These technologies were valued at $ 2.9 million and are being amortized over 9 years under the straight-line method.

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The cost of $ 0.1 million is being amortized over 10 years under the straight-line method.

On April 1, 2020, as part of the acquisition of Lixoft, the Company acquired certain developed technologies associated with the Lixoft scientific software.

In April 2020, as part of the acquisition of Lixoft, the Company acquired certain developed technologies associated with the Lixoft scientific software.

These technologies were valued at $ 8.0 million and are being amortized over 16 years under the straight-line method.

In June 2023, we purchased certain developed technology of Immunetrics.

The cost of $ 1.1 million is being amortized over 5 years under the straight-line method.

The following table summarizes intellectual property as of August 31, 2023:

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Amortization Net Book

Royalty Agreement buy out-Enslein Research Straight line 10 years $ 75 $ 75 $ —

Termination/nonassertion agreement-TSRL Inc.

Straight line 10 years

$ 6,000 $ 5,575 $ 425

Developed technologies–DILIsym acquisition Straight line 9 years

2,850 1,978 872

Intellectual rights of Entelos Holding Company Straight line 10 years

Developed technologies–Immunetrics acquisition Straight line 5 years

1,080 45 1,035

Developed technologies–Lixoft acquisition Straight line 16 years

8,010 1,678 6,332

$ 17,990 $ 9,301 $ 8,689

The following table summarizes intellectual property as of August 31, 2022:

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Royalty Agreement buy out-Enslein Research Straight line 10 years

$ 75 $ 75 $ —

Termination/nonassertion agreement-TSRL Inc.

Straight line 10 years

6,000 4,975 1,025

Developed technologies–DILIsym acquisition Straight line 9 years

2,850 1,662 1,188

Intellectual rights of Entelos Holding Company Straight line 10 years

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8,010 1,196 6,814

$ 16,985 $ 7,928 $ 9,057

Total amortization expense for intellectual property agreements for the years ended August 31, 2023, 2022, and 2021 was $ 1.4 million, $ 1.4 million, and $ 1.4 million, respectively.

Future amortization of intellectual property for the next five years is as follows:

Estimated future amortization of intellectual property for the next five years is as follows:

(in thousands)

Years ending August 31,

Earnings per Share

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The components of basic and diluted earnings per share for the years ended August 31, 2023, 2022, and 2021 were as follows:

Years ended August 31,

(in thousands) 2023 2022 2021

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If we determine that the asset may not be recoverable, or if the carrying amount of an asset exceeds its estimated future undiscounted cash flows, we recognize an impairment charge to the extent of the difference between the fair value and the asset's carrying amount.

No impairment losses were recorded during the years ended August 31, 2022, 2021, and 2020.

As of August 31, 2023, we recognized a $ 0.5 million impairment charge related to the Cognigen trade name, and it is included in SG&A expenses.

The Cognigen trade name fair valuation was measured during the acquisition of Cognigen.

Management determined to no longer use the Cognigen trade name and to instead focus our marketing strategy on promoting the Simulations Plus brand and our portfolio of products and services.

As the Company's other acquired trade names relate to marketed products actively sold to customers, and following management's assessment of other possible triggering events that could indicate a risk of impairment, management concluded that no impairment of other intangible assets or goodwill was necessary.

No impairment losses were recorded during the years ended 2022 and 2021.

Recently Issued Accounting Standards

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”).

The amendment requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with ASC 606, Revenue from Contracts with Customers, as if the acquirer had originated the contract.

The amendment is intended to improve the accounting for acquired revenue contracts with customers in a business combination, related to the recognition of an acquired contract liability, and to payment terms and their effect on subsequent revenue recognized by the acquirer.

The amendment also provides certain practical expedients when applying the guidance.

ASU 2021-08 is effective for interim and annual periods beginning after December 15, 2022, on a prospective basis, with early adoption permitted.

The Company expects to adopt ASU 2021-08 in the first quarter of fiscal year 2024.

The Company is currently evaluating the potential impact of ASU 2021-08 to its consolidated financial statements.

Recently Adopted Accounting Standards

In October 2021, the FASB issued ASU 2021-08, Business Combinations - Accounting for contract assets and contract liabilities from contracts with customers (Topic 805), which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Revenues from contracts with customers (Topic 606).

For public companies, the guidance is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.

The Company adopted the guidance during fiscal year 2023.

The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), which requires business entities to disclose information about transactions with a government that are accounted for by applying a grant or contribution model by analogy (for example, IFRS guidance in IAS 20 or guidance on contributions for not-for-profit entities in ASC 958-605).

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The new guidance is effective for annual reporting periods beginning after December 15, 2021.

The Company does not expect that the adoption of this standard will have a material impact on its consolidated financial statements;

however, the Company expects to increase its disclosures with respect to government assistance beginning in the first quarter of fiscal year 2023.

The Company adopted the guidance during fiscal year 2023.

The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

NOTE 3 – OTHER INCOME (EXPENSE), NET

The components of other income (expense), net for the years ended August 31, 2023, 2022, and 2021, were as follows:

Year ended August 31,

Years ended August 31,

(in thousands) 2023 2022 2021

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Interest expense — — ( 22 )

Change in valuation of contingent consideration ( 283 ) ( 486 ) ( 203 )

Gain on sale of assets 1 — —

Change in fair valuation of contingent consideration ( 680 ) ( 283 ) ( 486 )

(Loss) gain on disposal of assets ( 6 ) 1 —

(Loss) gain on currency exchange ( 475 ) ( 231 ) 139

2 unchanged sentences

Property and equipment consisted of the following:

(in thousands) 2022 2021

(in thousands) August 31, 2023 August 31, 2022

Equipment $ 316 $ 346

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Depreciation expense was $ 0.2 million, $ 0.3 million, and $ 0.2 million for the years ended August 31, 2023, 2022, and 2021, respectively.

NOTE 5 – INVESTMENTS

The Company invests a portion of its excess cash balances in short-term debt securities.

Investments at August 31, 2022, consisted of corporate bonds and term deposits with maturities remaining of less than 12 months.

The Company may also invest excess cash balances in certificates of deposits, money market accounts, government-sponsored enterprise securities, and/or commercial paper.

The Company accounts for its investments in accordance with ASC 320, Investments – Debt and Equity Securities.

As of August 31, 2022, all investments were classified as held-to-maturity securities, as the Company has the positive intent and ability to hold these securities until maturity.

The Company believes unrealized losses on investments were primarily caused by rising interest rates rather than changes in credit quality and accordingly has not recorded an allowance for credit losses on its debt securities as of August 31, 2022, and 2021.

The following tables summarize the Company’s short-term investments as of August 31, 2022, and 2021:

August 31, 2022

(in thousands) Amortized Cost Gross

Losses Fair Value

Commercial notes (due within one year) $ 72,168 $ — $ ( 839 ) $ 71,329

Term deposits (due within one year) 4,500 4,500

Total $ 76,668 $ — $ ( 839 ) $ 75,829

August 31, 2021

(in thousands) Amortized Cost Gross

Losses Fair Value

Commercial notes (due within one year) $ 86,620 $ — $ ( 136 ) $ 86,484

Total $ 86,620 $ — $ ( 136 ) $ 86,484

NOTE 6 – CONTRACTS PAYABLE

DILIsym Acquisition Liabilities:

On June 1, 2017, we acquired DILIsym.

The agreement provided for a working capital adjustment, an 18-month $ 1.0 million holdback provision against certain representations and warranties, and an earnout agreement of up to an additional $ 5.0 million in earnout payments based on earnings over three years following acquisition.

The earnout liability was recorded at an estimated fair value.

Payments under the earnout liability started in fiscal year 2019.

In September 2018, $ 1.6 million was paid out under the first earnout payment.

A second earnout payment was made in August 2019 in the amount of $ 1.7 million.

The final payment of $ 1.8 million was paid in August 2020.

In addition, no claims were made against the holdback and the $ 1.0 million holdback provision was released eighteen months after June 1, 2017.

Lixoft Acquisition Liabilities :

On April 1, 2020, the Company acquired Lixoft.

The agreement provided for a 24-month $ 2.0 million holdback provision against certain representations and warranties, comprised of $ 1.3 million of cash and shares of common stock valued at $ 0.7 million issued and deposited into an escrow account at the date of the agreement.

In April 2022, the shares of common stock were released from escrow and $1.3 million of cash was paid to settle the holdback liability.

In addition, based on a revenue-growth formula for the two years subsequent to April 1, 2020, the agreement called for earnout payments up to $ 5.5 million (two-thirds' cash and one-third newly issued, unregistered shares of the Company’s common stock).

The former shareholders could earn up to $ 2.0 million the first year and $ 3.5 million in year two.

In June 2021, $ 2.0 million was paid out under the first earnout payment, which was comprised of $ 1.3 million of cash and shares of common stock valued at $ 0.7 million.

In May 2022, $ 3.5 million was paid out under the second earnout payment, which was comprised of $ 2.3 million cash and shares of common stock valued at $ 1.2 million.

As of August 31, 2022, and 2021 the following liabilities have been recorded:

(in thousands) August 31, 2022 August 31, 2021

Holdback liability $ — $ 1,333

Earnout liability — 3,217

Subtotal $ — $ 4,550

Current portion — 4,550

Long-term $ — $ —

NOTE 5 – COMMITMENTS AND CONTINGENCIES

We lease 9,255 square feet of office space in Lancaster, California, where our corporate headquarters are located.

The lease term extends to January 31, 2026, and the base rent is $ 17 thousand per month.

The lease agreement gives the Company the right, upon 180 days’ prior notice, to opt out of all or part of the last four years of the term, with no penalty.

On May 25, 2023, we entered into an amendment, effective October 1, 2023, to the lease agreement for our office space in Durham, North Carolina.

Prior to entering into the amendment, this lease was scheduled to terminate pursuant to its terms effective on September 30, 2023.

The amendment extends the lease through September 30, 2026, and effective October 1, 2023, reduces the leased square footage from 3,386 to approximately 1,510 , and reduces the monthly base rent from $ 8 thousand per month to $ 4 thousand per month with an annual increase of 3 %.

The amended lease agreement gives the Company the right, upon 9 months prior notice, to extend the lease for 60 months.

On February 17, 2023, we entered into an amendment, effective May 1, 2023, to the lease agreement for our office space in Lancaster, California, where our corporate headquarters are located.

Prior to entering into the amendment, this lease was scheduled to terminate pursuant to its terms effective on January 31, 2026.

The amendment extends the lease term through April 30, 2028, reduces the leased square footage from 9,255 to approximately 4,200 , and reduces the monthly base rent from $ 18 thousand per month to $ 8 thousand per month with an annual increase of 3 %.

The amended lease agreement gives the Company the right, upon 180 days’ prior notice, to opt out of all or part of the last three years of the lease term with no penalty.

We lease 4,317 square feet of office space in Buffalo, New York.

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The lease agreement provides the Company with two five-year renewal options and the right to terminate the lease with one year ’s prior written notice with certain penalties.

We previously leased 12,623 square feet of office space at a different location in Buffalo, New York.

That lease term extended to November 2021 and the base rent was $ 16 thousand per month.

We have a data center colocation space in Buffalo, New York, with a lease term through November 30, 2026, and rent of $ 4 thousand per month with an annual 3 % increase.

We lease 3386 square feet of office space in Durham, North Carolina.

The lease term extends to September 30, 2023, and the base rent is $ 8 thousand per month with an annual 3 % increase.

We lease 2,300 square feet of office space in Paris, France.

The lease term extends to November 30, 2024, and the rent is $ 5 thousand per month and adjusted each December based on a consumer price index.

The lease term extends to November 30, 2024, and the rent is $ 5 thousand per month, which amount is subject to adjustment each December based on a consumer price index.

We lease 7,141 square feet of office space in Pittsburgh, Pennsylvania.

The lease term extends to May 31, 2025, and the base rent is $ 10 thousand per month.

The lease agreement provides the Company with one five-year renewal option.

We have a data center colocation space in Buffalo, New York, with a lease term through November 30, 2026, and rent of $ 4 thousand per month with an annual 3 % increase.

Rent expense, including common area maintenance fees for the years ended August 31, 2023, 2022, and 2021 was $ 0.5 million, $ 0.6 million, and $ 0.7 million, respectively.

4 unchanged sentences

Total operating lease liabilities (including current portion) $ 1,197

Line of Credit

On March 31, 2020, the Company entered into a Credit Agreement with Wells Fargo Bank, N.A.

The Credit Agreement provided us with a credit facility of $ 3.5 million through April 15, 2022 (the "Termination Date"), on which date the Credit Agreement terminated in accordance with its terms.

As a result, we can no longer draw down against the line of credit.

We chose not to renew or pursue an alternative credit facility as we do not foresee a need to utilize such credit facility within the next twelve months.

As of the Termination Date, 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 executive officers that may require compensation payments upon termination.

We are not a party to any legal proceedings and are not aware of any pending legal proceedings of any kind.

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 years 2019 through 2022 are open for audit, and our state tax returns for fiscal years 2018 through 2022 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.

We are not a party to any legal proceedings and are not aware of any pending or threatened legal proceedings of any kind.

NOTE 6 – SHAREHOLDERS' EQUITY

Shares Outstanding

Shares of common stock outstanding for the years ended August 31, 2022, 2021, and 2020 were as follows:

Shares of Company common stock outstanding for the years ended August 31, 2023, 2022, and 2021 were as follows:

(in thousands) Years ended August 31,

2023 2022 2021

Common stock outstanding, beginning of year 20,142 19,923 17,592

Common stock issued during the year 119 218 2,331

Common stock outstanding, end of year 20,260 20,142 19,923

The Company’s Board of Directors declared cash dividends during the years ended August 31, 2022, and 2021.

Common stock outstanding, beginning of period 20,260 20,142 19,923

Common stock repurchased during the period * ( 492 ) — —

Common stock issued during the period 170 119 218

Common stock outstanding, end of period 19,938 20,260 20,142

*Common stock repurchased per the ASR Agreement, as discussed in further detail, below.

The Company’s Board of Directors declared cash dividends during the fiscal years 2023 and 2022.

The details of dividends paid are in the following tables:

(in thousands, except dividend per share) Fiscal Year 2022

(in thousands, except dividend per share) For the year ended August 31, 2023

Record Date Distribution Date Number of Shares

7 unchanged sentences

Total $ 4,809

(in thousands, except dividend per share)

Fiscal Year 2021

(in thousands, except dividend per share) For the year ended August 31, 2022

Record Date Distribution Date Number of Shares

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Stock Option Plans

On December 23, 2016, the Board of Directors adopted, and on February 23, 2017, the shareholders approved, the 2017 Equity Incentive Plan (the "2017 Plan"), under which a total of 1.0 million shares of common stock were reserved for issuance.

The 2017 plan would have terminated in December 2026.

The 2017 Plan was replaced by the Company’s 2021 Plan (as defined below), and as a result, no further issuances of shares may be made under the 2017 Plan.

On April 9, 2021, the Board of Directors adopted, and on June 23, 2021, the shareholders approved, the 2021 Equity Incentive Plan (the “2021 Plan”), under which a total of 1.3 million shares of common stock have been reserved for issuance.

On December 23, 2016, the Company’s Board of Directors adopted, and on February 23, 2017, its shareholders approved, the Company’s 2017 Equity Incentive Plan (the “2017 Plan”), under which a total of 1.0 million shares of common stock were initially reserved for issuance.

The 2017 plan would have terminated pursuant to its terms in December 2026;

however, the 2017 Plan was replaced by the Company’s 2021 Plan (as defined below), and as a result, no further issuances of shares may be made under the 2017 Plan.

On April 9, 2021, the Company’s Board of Directors adopted, and on June 23, 2021, its shareholders approved, the Company’s 2021 Equity Incentive Plan (the “2021 Plan,” and together with the 2017 Plan, the “Plans”), under which a total of 1.3 million shares of common stock were initially reserved for issuance.

On October 20, 2022, the Company’s Board of Directors approved, and on February 9, 2023, its shareholders approved, an amendment to the 2021 Plan to increase the number of shares of common stock authorized for issuance thereunder from 1.3 million shares to 1.55 million shares of common stock of the Company.

The 2021 Plan will terminate in 2031.

As of August 31, 2022, employees and directors held Qualified Incentive Stock Options ("ISOs") and Non-Qualified Stock Options ("NQSOs") to purchase 1.2 million shares of common stock at exercise prices ranging from $ 6.85 to $ 66.14 per share.

As of August 31, 2023, employees and directors of the Company held Qualified Incentive Stock Options (“ISOs”) and Non-Qualified Stock Options (“NQSOs”) to purchase an aggregate of 1.5 million shares of common stock at exercise prices ranging from $ 6.85 to $ 66.14 per share.

The following tables summarize information about stock options:

(in thousands, except per share and weighted-average amounts)

Transactions During Fiscal Year 2022

Activity for the year ended August 31, 2023 Number of

Options Weighted-Average

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Contractual Life

Outstanding, August 31, 2021 1,184 $ 25.63 6.47

Outstanding, August 31, 2022 1,245 $ 28.61 6.14 years

Granted 465 43.78

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Canceled/Forfeited ( 62 ) 43.14

Outstanding, August 31, 2022 1,245 $ 28.61 6.14

Vested and Exercisable, August 31, 2022 711 $ 17.65 4.47

Vested and Expected to Vest, August 31, 2022 1,236 $ 28.51 6.12

Outstanding, August 31, 2023 1,478 $ 34.62 6.62 years

Vested and Exercisable, August 31, 2023 696 $ 24.26 4.54 years

Vested and Expected to Vest, August 31, 2023 1,471 $ 34.56 6.61 years

(in thousands, except per share and weighted-average amounts)

Transactions During Fiscal Year 2021

Activity for the year ended August 31, 2022 Number of

Options Weighted-Average

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Contractual Life

Outstanding, August 31, 2020 1,224 $ 17.76 6.79

Outstanding, August 31, 2021 1,184 $ 25.63 6.47 years

Granted 255 42.13

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Canceled/Forfeited ( 90 ) 42.30

Outstanding, August 31, 2021 1,184 $ 25.63 6.47

Vested and Exercisable, August 31, 2021 619 $ 13.36 4.95

Vested and Expected to Vest, August 31, 2021 1,173 $ 25.69 6.47

Outstanding, August 31, 2022 1,245 $ 28.61 6.14 years

Vested and Exercisable, August 31, 2022 711 $ 17.65 4.47 years

Vested and Expected to Vest, August 31, 2022 1,236 $ 28.51 6.12 years

(in thousands, except per share and weighted-average amounts)

Transactions During Fiscal Year 2020

Activity for the year ended August 31, 2021 Number of

Options Weighted-Average

2 unchanged sentences

Contractual Life

Outstanding, August 31, 2019 1,163 $ 12.63 7.13

Outstanding, August 31, 2020 1,224 $ 17.76 6.79 years

Granted 226 57.60

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Canceled/Forfeited ( 62 ) 29.83

Outstanding, August 31, 2020 1,224 $ 17.76 6.79

Vested and Exercisable, August 31, 2020 596 $ 10.69 5.59

Vested and Expected to Vest, August 31, 2020 1,194 $ 17.75 6.77

Outstanding, August 31, 2021 1,184 $ 25.63 6.47 years

Vested and Exercisable, August 31, 2021 619 $ 13.36 4.95 years

Vested and Expected to Vest, August 31, 2021 1,173 $ 25.69 6.47 years

The following table summarizes the Intrinsic Value of options outstanding and options exercisable:

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Exercisable Intrinsic

Fiscal Year 2020 $ 51,273 $ 29,151 $ 4,086

Fiscal Year 2021 $ 25,705 $ 19,373 $ 11,554

Fiscal Year 2022 $ 39,208 $ 30,187 $ 3,572

The weighted-average remaining contractual life of options outstanding issued under the Plans, for both ISOs and NQSOs, was 6.14 years at August 31, 2022.

The total fair value of non-vested stock options as of August 31, 2022, was $ 9.1 million and is amortizable over a weighted-average period of 3.27 years.

As of August 31, 2023 $ 25,705 $ 19,373 $ 11,554

As of August 31, 2022 $ 39,208 $ 30,187 $ 3,572

As of August 31, 2021 $ 17,875 $ 15,742 $ 5,135

The total grant-date fair value of nonvested stock options as of August 31, 2023, was $ 15.6 million and is amortizable over a weighted-average period of 3.33 years.

The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model.

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In addition, option-valuation models require the input of highly subjective assumptions, including the expected stock price volatility.

The following table summarizes the fair value of the options, including both ISOs and NQSOs, granted during the current fiscal year 2022 and fiscal year 2021:

(in thousands, except prices) Fiscal Year 2022 Fiscal Year 2021

The following table summarizes the fair value of the options, including both ISOs and NQSOs, granted during the years ended August 31, 2023, 2022, and 2021:

(in thousands, except weighted-average amounts) 2023 2022 2021

Estimated fair value of awards granted $ 10,067 $ 4,597 $ 5,092

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Weighted-average dividend yield 0.55 % 0.58 % 0.42 %

Weighted-average expected life 6.59 years 6.63 years

The exercise prices for the options outstanding at August 31, 2022, ranged from $ 6.85 to $ 66.14 , and the information relating to these options is as follows:

(in thousands except prices)

Weighted-average expected life 6.55 years 6.59 years 6.63 years

The exercise prices for the options outstanding at August 31, 2023, ranged from $ 6.85 to $ 66.14 , and the information relating to these options are as follows:

(in thousands except prices and weighted-average amounts)

Exercise Price Awards Outstanding Awards Exercisable

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During the fiscal years ended August 31, 2023, 2022, and 2021, we issued 13,765 , 7,120 , and 5,620 shares of stock valued at $ 0.6 million, $ 0.4 million, and $ 0.3 million, respectively, to our nonmanagement directors as compensation for board-related duties.

The balance of our par-value common stock and additional paid-in capital as of August 31, 2022, was $ 11 thousand and $ 138.5 million, respectively, and the balance of our par-value common stock and additional paid-in capital as of August 31, 2021, was $ 10 thousand and $ 133.4 million, respectively.

The Company's par-value common stock and additional paid-in capital as of August 31, 2023, were $ 11 thousand and $ 145.0 million, respectively.

Share Repurchases

On January 11, 2023, the Company entered into an accelerated share repurchase agreement (the “ASR Agreement”) with Morgan Stanley & Co.

LLC (“Morgan Stanley”) to repurchase an aggregate of $ 20 million of the Company’s outstanding shares of common stock.

The ASR Agreement was executed as part of the Company’s existing $ 50 million share repurchase program.

Pursuant to the terms of the ASR Agreement, the Company made an initial payment, using available cash balances, of $ 20 million to Morgan Stanley and received an initial delivery of 408,685 shares of Company common stock from Morgan Stanley.

These 408,685 shares were retired and are treated as authorized, unissued shares.

At final settlement on May 20, 2023, based on the volume-weighted average price of the Company's common stock during the term of the ASR Agreement, Morgan Stanley delivered an additional 83,356 shares of Company common stock to the Company, which shares were also retired and treated as authorized, unissued shares.

NOTE 7 – INCOME TAXES

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Capitalized merger costs 696 703

Operating lease liability 285 —

Intellectual property — 7

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State tax deferred — 28

Capitalized Research & Development 1,079 —

Share-Based Compensation 1,104 —

Net Operating Loss Carryforward 2,142 —

Total deferred tax assets 6,540 2,121

3 unchanged sentences

Property and equipment ( 90 ) ( 109 )

Operating lease right-of-use assets ( 295 ) —

Unrealized Gain/(Loss) ( 122 ) —

State tax deferred — ( 30 )

2 unchanged sentences

Total deferred tax liabilities ( 5,102 ) ( 3,577 )

Net deferred tax liabilities $ ( 1,456 ) $ ( 1,726 )

Net deferred tax assets (liabilities) $ 1,438 $ ( 1,456 )

We follow ASC 740 with regard to our accounting for uncertainty in income taxes recognized in the financial statements.

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In making this assessment, we 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 assume that the tax position will be examined by taxing authorities.

Interest and penalties were immaterial for fiscal years 2022, 2021, and 2020, respectively.

Interest and penalties were immaterial for the years ended August 31, 2023, 2022, and 2021, respectively.

We file income tax returns with the IRS and various state jurisdictions as well as with the countries of India, Belgium and France.

Our federal income tax returns for fiscal year 2019 through 2022 are open for audit, and our state tax returns for fiscal year 2018 through 2022 remain open for audit.

Net Operating Loss is summarized as follows:

(in thousands) Amount

Federal NOL as of August 31, 2023 $ 17,775

Subject to expiration 14,440

Carried forward indefinitely 3,335

Amount to expire before Section 382 limitation lifts 9,333

Pennsylvania NOL as of August 31, 2023 16,054

Subject to expiration 16,054

Carried forward indefinitely —

Amount to expire before Section 382 limitation lifts 10,935

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.

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Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, trade accounts receivable, and short-term investments.

The Company holds cash and cash equivalents at banks located in California, with balances that often exceed FDIC insured limits.

In addition, we hold cash at a bank in France that is not FDIC-insured.

Historically, the Company has not experienced any losses in such accounts.

The Company holds cash and cash equivalents with balances that exceed FDIC insured limits.

Cash maintained in excess of these limits is on deposit with a large, national bank.

Accordingly, the Company does not have depository exposure to regional banks.

In addition, the Company holds cash at a bank in France that is not FDIC-insured.

Historically, the Company has not experienced any losses in such accounts, and management believes that the financial institutions at which its cash is held are stable;

however, no assurances can be provided.

While the Company may be exposed to credit losses due to the nonperformance of its counterparties, the Company does not expect the settlement of these transactions to have a material effect on its results of operations, cash flows, or financial condition.

The Company maintains cash at financial institutions that may, at times, exceed federally insured limits.

Revenue concentration shows that international sales accounted for 31 %, 30 %, and 31 % of revenue for the years ended August 31, 2023, 2022, and 2021, respectively.

Our three largest customers in terms of revenue accounted for 5 %, 3 %, and 3 % of revenue for fiscal year 2022.

Our three largest customers in terms of revenue accounted for 11 %, 4 %, and 3% of revenue for fiscal year 2021.

Our three largest customers in terms of revenue accounted for 9 %, 7 %, and 7 % of revenue for fiscal year 2020.

Accounts receivable concentrations show that our three largest customers in terms of accounts receivable each comprised between 4 % and 8 % of accounts receivable as of August 31, 2022, respectively;

our two largest customers in terms of accounts receivable comprised 5 % and 16 % of accounts receivable as of August 31, 2021, respectively.

Our three largest customers in terms of revenue accounted for 6 %, 4 %, and 3 % of revenue, respectively, for the year ended August 31, 2023.

Our three largest customers in terms of revenue accounted for 5 %, 3 %, and 3 % of revenue, respectively, for the year ended August 31, 2022.

Our three largest customers in terms of revenue accounted for 11 %, 4 %, and 3 % of revenue, respectively, for the year ended August 31, 2021.

Accounts receivable concentrations show that our three largest customers in terms of accounts receivable each comprised between 4 % and 6 % of accounts receivable as of August 31, 2023;

our three largest customers in terms of accounts receivable comprised between 4 % and 8 % of accounts receivable as of August 31, 2022.

We operate in the biosimulation market, which is highly competitive and changes rapidly.

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The Company does not allocate assets at the reportable segment level, as these are managed on an entity-wide group basis and, accordingly, the Company does not report asset information by segment.

The Company does not allocate operating expenses that are managed on an entity-wide group basis and, accordingly, the Company does not allocate and report operating expenses at segment level.

The Company does not allocate operating expenses that are managed on an entity-wide group basis and, accordingly, the Company does not allocate and report operating expenses at a segment level.

There are no internal revenue transactions between the Company’s segments.

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We maintain a 401(k) Plan for eligible employees.

We make matching contributions equal to 100 % of the employee’s elective deferral, not to exceed 4 % of the employee's total compensation.

We contributed $ 0.6 million, $ 0.5 million, and $ 0.5 million for fiscal years 2022, 2021, and 2020, respectively.

We make matching contributions equal to 100 % of the employee’s elective deferral, not to exceed 4 % of the employee’s gross salary.

We contributed $ 0.6 million, $ 0.6 million, and $ 0.5 million for the years ended August 31, 2023, 2022, and 2021, respectively.

NOTE 11 - ACQUISITION

On March 31, 2020, we entered into a Share Purchase and Contribution Agreement (the “SPCA”) with Lixoft.

Under the terms of the SPCA, we agreed to pay the former shareholders of Lixoft total consideration of up to $ 16.5 million, consisting of two-thirds cash and one-third newly issued, unregistered shares of our common stock.

At closing, we paid the former shareholders of Lixoft a total of $ 10.8 million, comprised of cash in the amount of $ 9.5 million and the issuance of 111,682 shares of our common stock valued at $ 3.7 million, net of adjustments and a $ 2.0 million holdback for representations and warranties.

In addition, we paid $ 3.5 million of excess working capital based on the March 31, 2020, financial statements of Lixoft.

In addition, the SPCA called for earnout payments of up to an additional $ 5.5 million, payable in two-thirds cash and one-third newly issued, unregistered shares of our common stock, based on a revenue-growth formula each year for the two years subsequent to April 1, 2020.

The former shareholders could earn up to $ 2 million the first year and $ 3.5 million in year two.

In June 2021, $ 2.0 million was paid out under the first earnout payment, which was comprised of $ 1.3 million of cash and shares of our common stock valued at $ 0.7 million.

In April 2022, we released from escrow and distributed the $ 2.0 million holdback consideration, consisting of $ 1.3 million in cash and shares of our common stock valued at $ 0.7 million (amounting to an aggregate of 20,326 unregistered shares of our common stock), to the former shareholders of Lixoft.

In May 2022, $ 3.5 million was paid out under the second earnout payment, which was comprised of $ 2.3 million of cash and shares of our common stock valued at $ 1.2 million (amounting to an aggregate of 23,825 unregistered shares of our common stock), to the former shareholders of Lixoft in accordance with the SPCA.

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 allocation of the purchase price for Lixoft:

On June 16, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Insight Merger Sub, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”), Immunetrics, a company specializing in quantitative systems pharmacology modeling, and LaunchCyte LLC, as representative of the stockholders of Immunetrics (the “Stockholder Representative”).

At closing of the Merger, certain key stockholders of Immunetrics delivered executed Joinder Agreements, pursuant to which they became parties to the Merger Agreement.

The Merger closed on June 16, 2023 (the “Closing”).

Pursuant to the Merger Agreement, at Closing, Merger Sub merged with and into Immunetrics through a reverse triangular merger, with Immunetrics surviving as a wholly-owned subsidiary of the Company (the “Surviving Corporation”) (the “Merger”).

As consideration for the Merger, the Company agreed to pay the stockholders, former holders of stock options and former holders of phantom shares of Immunetrics (collectively, the “Equityholders”) the following cash compensation (collectively, the “Merger Consideration”):

At Closing, a cash payment in the amount of $ 13,705,083 (i.e., $ 12.0 million plus Immunetrics’ Closing cash, net of estimated net working capital adjustments at Closing, minus Immunetrics’ estimated transaction expenses, minus the Closing estimated indebtedness, minus the Holdback Amount (as defined below), minus the Stockholder Representative Expense Fund (as defined below));

An amount equal to $ 1.8 million, which was held-back by the Company at Closing, to cover any negative net working capital adjustments (if any) and Immunetrics’ indemnification obligations under the Merger Agreement (the “Holdback Amount”);

Two future earn-out payments in the aggregate amount of up to $ 8.0 million (the “Earnout Payments”), subject to the terms described below.

Additionally, at Closing, the Company funded the payment of Stockholder Representative $ 250,000 as an expense fund to cover expenses that it incurs in its role as Stockholder Representative (the “Stockholder Representative Expense Fund”), the excess amount of which, if any, will be distributed to Immunetrics’ stockholders (subject to certain exceptions) at such time as the Stockholder Representative may determine in its sole discretion.

The Company deducted this payment from the closing price.

The Merger Consideration is subject to adjustment based on post-closing adjustments to net working capital, closing cash, indebtedness, and transaction expenses of Immunetrics within 90 days of closing.

The Merger Agreement contains standard representations, warranties, covenants, indemnification and other terms customary in similar transactions.

Concurrently with execution of the Merger Agreement, the Company, Merger Sub, Immunetrics and the Stockholder Representative entered into an Earnout Agreement, which sets forth the terms and conditions applicable to the Earnout Payments.

Pursuant to the Earnout Agreement, the Company shall pay the Equityholders an aggregate amount of up to $ 8.0 million of Earnout Payments if the Surviving Corporation achieves certain revenue milestones for the calendar years 2023 and 2024.

The primary purpose of this acquisition is to be able to capitalize on a tremendous growth opportunity by providing support for quantitative systems pharmacology (“QSP”) in a greater range of therapeutic areas, including oncology.

Under the acquisition method of accounting, the total purchase price reflects Immunetrics’ tangible and intangible assets and liabilities based on their estimated fair values at the date of the completion of the acquisition (June 16, 2023).

The following table summarizes the allocation of the preliminary purchase price for Immunetrics:

(in thousands)

Assets acquired, including cash of $ 3,799 and accounts receivable of $ 629

Developed technologies acquired 8,010

Estimated value of intangible assets acquired (customer lists, trade name etc.) 4,160

Estimated goodwill acquired 2,534

Liabilities assumed ( 1,118 )

Total consideration $ 18,593

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.

Base merger consideration $ 12,000

Fair value of earnout 4,100

Cash on hand 1,247

Adjustment to purchase price for closing indebtedness ( 122 )

Net working capital adjustment ( 377 )

D&O Tail ( 7 )

Bonus compensation to Immunetrics staff ( 1,586 )

Total purchase price 15,255

Fair value of identifiable assets acquired:

Accounts receivable 511

Security deposit 12

ROU asset 227

Deferred tax assets 799

Trade names 1,800

Customer relationships 3,780

Developed Tech 1,080

Non-competes 30

Fair value of liabilities assumed:

Lease liability 227

Selling shareholders' D&O tail responsibility 7

Deferred revenue 60

Fair value of identifiable assets acquired and liabilities assumed 9,077

Goodwill $ 6,178

The total purchase consideration related to Immunetrics acquisition consisted of cash consideration.

The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributed to the developed technologies and other intangibles as customer relationships and trade name.

Immunetrics is primarily attributable to the Services segment of the Company.

Goodwill acquired as part of Immunetrics acquisition has been assigned to a separate reporting unit and the assets and liabilities of Immunetrics are assigned to the same reporting unit, Immunetrics.

This goodwill is not expected to be deductible for income tax purposes.

Intangible assets consist of indefinite-lived intangible asset trade names and definite-lived intangibles as customer relationships, developed technologies, and covenants not to compete.

We amortize purchased definite-lived intangible assets on a straight-line basis over their respective useful lives.

The weighted-average life of the total acquired identifiable definite-lived intangible assets is 7.5 years.

The following table presents the details of intangible assets acquired.

Estimated useful life Amount

Indefinite-lived:

Trade names Indefinite $ 1,800

Definite-lived:

Customer relationships 9 years

Developed technologies 5 years

Covenants not to compete 2 years

Total definite-lived intangible assets 4,890

Total intangible assets $ 6,690

The total acquisition-related costs which includes activities for Immunetrics acquisition for the years ended August 31, 2023, 2022, and 2021 were $ 3.3 million, $ 0.3 million, and none , respectively.

These transactions costs are reflected in the Selling, general, and administrative expense line item within our consolidated statements of operations and comprehensive income as they were incurred.

Estimated future amortization of finite-lived intangible assets for the next five years is as follows:

(in thousands)

Years ending August 31, Amount

Consolidated Supplemental Pro Forma Information

The following unaudited consolidated supplemental pro forma information assumes that the acquisition of Immunetrics took place on September 1, 2021 for the income statement years ended August 31, 2023.

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Immunetrics to reflect the same expenses in the years ended August 31, 2023 and 2022.

The adjustments include costs of acquisition directly attributable to Immunetrics of $ 2.9 million consists of $ 1.6 million of bonus compensation and $ 1.3 million of other professional fees, and amortization of intangibles including developed technologies acquired during the merger, assuming the fair-value adjustments applied on September 1, 2021, together with consequential tax effects.

2023 * (Pro forma)

(in thousands) (unaudited) (unaudited)

Revenue $ 63,054 $ 57,010

Net income $ 11,422 $ 11,889

* Balances include actual results from acquisition date of June 16, 2023 through August 31, 2023.

NOTE 12 - GOVERNMENT ASSISTANCE

The Company receives government assistance in the form of cash grants which vary in size, duration, and conditions from domestic governmental agencies.

Accounting for the grant revenue does not fall under ASC 606, Revenue from Contracts with Customers, as the Government will not benefit directly from our offerings.

For government assistance in which no specific US GAAP applies, the Company accounts for such transactions as revenue and by analogy to a grant model.

Under such model, the Company recognizes the impact of the government assistance on the Consolidated Statements of Income upon complying with the conditions of the grant.

The grant revenue is recognized on a gross basis.

The Company's accounting policy is to recognize a benefit to the income statement over the duration of the program when the conditions attached to the grant are achieved.

If conditions are not satisfied the grants are often subject to reduction, repayment, or termination.

The Company classifies the impact of government assistance on the Consolidated Statements of Income as Services Revenue.

During the fiscal year ended August 31, 2023, government assistance received primarily consisted of the following:

The Company received assistance from domestic governmental agencies to provide reimbursement for various costs incurred for research and development.

These include direct grant awards and subawards.

The grants awarded are currently set to expire at various dates through 2025.

During the fiscal year ended August 31, 2023, the Company recognized $ 1.5 million within Services revenues on the Consolidated Statements of Operations and Comprehensive Income related to such assistance.

To the extent amounts have been earned but not yet funded, the amounts are in Account Receivable.

Computer equipment allowable by the grants is classified under Fixed Assets.

Subawards due to unrelated entities are classified under Accrued Expenses.

NOTE 13 - SUBSEQUENT EVENTS

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On Thursday, October 19, 2023, our Board of Directors declared a quarterly cash dividend of $ 0.06 per share to our shareholders.

The dividend in the amount of $ 1.2 million will be distributed on Wednesday, November 7, 2022, for shareholders of record as of Monday, October 31, 2022.

The dividend in the amount of approximately $ 1.2 million will be distributed on Monday, November 6, 2023, for shareholders of record as of Monday, October 30, 2023.

Effective September 1, 2023, the Company merged Immunetrics with and into Simulations Plus, Inc.

through a short-form mergers (the “Merger”).

To effectuate the Merger, the Company filed Certificates of Ownership with the Secretaries of State of the states of Delaware (Immunetrics’ state of incorporation) and California (Simulation Plus, Inc.’s state of incorporation).

Consummation of the Merger was not subject to approval of the Company’s stockholders and did not impact the rights of the Company’s stockholders.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures