Simulations Plus, Inc. 10-K

ITEM 1 –BUSINESS As used in this Report, each of the terms “we,” “us,” “our,” the “Company,” and “Simulations Plus” refers to Simulations Plus, Inc. and its wholly owned subsidiaries (both current and previous, as applicable), Simulations Plus International, Inc. (“SLPI”), which owns 100% of the outstanding equity interests of Lixoft of Paris, France, and Immunetrics, Inc., unless otherwise stated or the context otherwise requires. On December 20, 2022, SLPI, a Delaware corporation, was created as a wholly owned subsidiary of Simulations Plus, Inc. 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, Inc. 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. On June 16, 2023, Simulations Plus, Inc. acquired Immunetrics, Inc. (“Immunetrics”) through a reverse triangular merger. Pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), at closing, Simulation Plus, Inc.’s newly created wholly owned subsidiary, Insight Merger Sub, Inc., merged with and into Immunetrics, with Immunetrics surviving as a wholly owned subsidiary of the Company. 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. OVERVIEW Simulations Plus, Inc., incorporated in 1996, is a premier developer of modeling and simulation software for drug discovery and development, including the prediction of properties of molecules utilizing both artificial intelligence (“AI”) and machine-based technology. We also provide consulting services ranging from early drug discovery through preclinical and clinical trial development to regulatory submissions supporting product approval. 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. The Company is headquartered in Southern California, with offices in Buffalo, NY, Research Triangle Park, NC, Pittsburgh, PA, and Paris, France. Our common stock has traded on the Nasdaq Global Select Market under the symbol “SLP” since May 13, 2021, prior to which it traded on the Nasdaq Capital Market under the same symbol. We are a global leader, delivering relevant, cost-effective software and creative and insightful consulting services. Pharmaceutical and biotechnology companies and hospitals use our software programs and scientific consulting services to guide early drug discovery (molecule design screening and lead optimization), preclinical, and clinical development programs, and the development of generic medicines after patent expiration, including using our software products and services to enhance their understanding of the properties of potential new therapies and to use emerging data to improve formulations, select and justify dosing regimens, support generic pharmaceutical product development, optimize clinical trial designs, and simulate outcomes in special populations, such as in elderly and pediatric patients. SEGMENT INFORMATION During the year ended August 31, 2023, our business was organized into two reportable segments, software and services. SOFTWARE General We currently offer twelve software products for pharmaceutical research and development, as follows: • Three simulation products that provide time-dependent results based on solving large sets of mechanistic differential equations: ◦ GastroPlus ® ◦ DDDPlus™ 2 Table of Contents ◦ MembranePlus™ • Two products that predict and analyze static properties of chemicals utilizing both AI and machine-learning technologies: ◦ ADMET Predictor ® ◦ MedChem Designer™ • Six products that are based on mechanistic, mathematical models: ◦ DILIsym ® ◦ NAFLDsym ® ◦ ILDsym™ ◦ IPFsym ® ◦ RENAsym ® ◦ MITOsym ® • One product designed for modeling and simulation that allows for population analyses, rapid clinical trial data analyses and regulatory submissions: ◦ MonolixSuite™ (the combination of Monolix (c) , PKanalix (c) , and Simulx (c) ). Our software business represented 61% of our total revenue during the year ended August 31, 2023, primarily generated by the following products: GastroPlus Our flagship product, initially introduced in 1998, and currently our largest single source of software revenue, is GastroPlus. GastroPlus mechanistically simulates the absorption and drug interaction of compounds administered to humans and animals. It is currently one of the most widely used commercial software products of its type by industry and regulatory agencies in the U.S. and globally. Our goal with GastroPlus is to integrate the most advanced science into user-friendly software to enable researchers and regulators to perform sophisticated analyses of complex compound behaviors in humans and laboratory animals. We work to release updated versions of the program on an ongoing basis. In October 2022, GastroPlus version 9.8.3, which included new mechanisms and updated documentation for key drug interaction standards models, was released. This version also added important new capabilities, including improvements to nonalcoholic fatty liver disease (“NAFLD”) and nonalcoholic steatohepatitis (“NASH”) disease population simulations to inform the NAFLDsym® platform, additional dosage route models, and improved reporting templates for the Monolix™ software to support the statistical analysis of virtual physiologically-based pharmacokinetic (“PBPK”) population results. Because of the widespread use of GastroPlus, we have been able to enter both funded and unfunded collaborations with industry and government agencies to drive advances to modeling and simulation science. In all such collaborations, we own the intellectual property developed within the GastroPlus program, and updates are integrated into future versions and made available to all clients. In the year ended August 31, 2023, we received six funded grants from the U.S. FDA to enhance PBPK modeling science. Recent collaborations include: • Animal health models: in November 2022, we entered into a funded collaboration with the University of Bath and the FDA to improve the accuracy of drug concentrations predicted locally within gut tissue and to outline novel strategies for applying in vitro systems and in silico models to assess new formulation approaches for addressing GI diseases. • Long-acting injectable (LAI) formulation model: in October 2022, through a joint proposal with the University of Florida’s College of Pharmacy, we were awarded a newly funded contract from the FDA to advance in vitro and (patho) physiology-based PBPK models to understand and predict pulmonary absorption and tissue retention of inhaled drugs. MonolixSuite 3 Table of Contents The MonolixSuite is a unique solution for modeling and simulation for pharmaceutical companies, biotechnology enterprises, and hospitals. It supports nonparametric analyses, population analyses and modeling, and clinical trial simulation. The extended MonolixSuite contains three main products: Monolix, Simulx, and PKanalix. Monolix 2023R1 was released in March 2023, which combines the most advanced algorithms with a unique ease of use. The products are used by pharmaceutical companies across the globe at each step of drug development, from preclinical to first-in-human, clinical, and post-approval. ADMET Predictor ADMET (Absorption, Distribution, Metabolism, Excretion, and Toxicity) Predictor is a top-ranked, chemistry-based computer program that takes molecular structures as inputs and uses AI/machine-learning technology to predict different properties for them. This capability allows chemists to generate estimates for many important molecular properties without the need to synthesize and test the molecules. A chemist can then assess the likely success of many existing molecules in a company’s chemical library, as well as molecules that have never been made. The optional ADMET Modeler™ Module in ADMET Predictor enables scientists to use their own experimental data to quickly create proprietary high-quality predictive models using the same powerful AI engine we use to build our top-ranked property predictions. Version 11 of ADMET Predictor was released in July 2023, which added many new features including: • New industry partner data that more than doubles the training dataset of ionization constants (“pKa”), leading to enhanced predictive accuracy and wider applicability of our S+pKa model • New functionality to perform 3D virtual screening based on shape and pharmacophore-feature similarity • New CYP inhibition (“Ki”) models to allow for rapid drug-drug interaction (“DDI”) risk assessment • Significant enhancements to the AI-driven drug design (“AIDD”) module We have made significant investments in three key areas with recent versions: improving integration of our top-ranked ADMET Predictor and GastroPlus models to leverage our novel high-throughput pharmacokinetic (“HTPK”) simulation approaches for chemists and safety researchers, enhancing our best-in-class AI/machine-learning engine to assist with drug discovery, and advancing on our innovative AIDD Module to apply generative AI technology to design and optimize lead molecules for any combination of properties. Recent collaborations include: • Machine-learning models for ionization constants ( “ pKa ” ): in August 2022, we entered into a new collaboration with a large pharmaceutical company to leverage their expansive internal databases to improve the accuracy of predictions, and extend the chemical coverage space, of our pKa models using the novel AI/machine-learning and atomic descriptor calculation methods within ADMET Predictor. In February 2023, we entered another new data-sharing collaboration with a large agrochemicals company to further extend our top-rated AI/machine learning models for predicting ionization descriptors and endpoints. • Drug design collaboration using the AIDD Module: in March 2023, we entered into a collaborative research agreement with the Polish Academy of Sciences (“PAS”) to jointly design new compounds for the RORγ/RORγT nuclear receptors using our cutting-edge AI/machine learning (“ML”) technology in the ADMET Predictor® software platform. Emerging intellectual property, in the form of encouraging lead compounds, will be jointly owned by the Company and PAS for further development opportunities. • Strategic collaboration to discover anticancer therapies using the AIDD Module: in March 2023, we entered into a strategic research collaboration with the Sino-American Cancer Foundation (“SACF”) to leverage our staff and AIDD Module to support the discovery and design of novel inhibitors of methylenetetrahydrofolate dehydrogenase 2 (“MTHFD2”), an emerging cancer target. SACF will provide upfront funding to the Company to design a set number of compounds for efficacy against MTHFD2 which will be exclusive to SACF. Subsequent milestone payments will be made to the Company as key research and development goals are met. 4 Table of Contents SERVICES General Our scientists and engineers have extensive expertise in drug absorption via various dosing routes, pharmacokinetics, pharmacodynamics, drug-drug interactions, and other areas related to the drug development process. We conduct contracted consulting studies for large customers with complex problems who recognize our expertise in solving them, as well as for smaller customers. The demand for our consulting services has been steadily increasing, and we have expanded our consulting teams to meet the increased workload. Our services business represented 39% of our total revenue during the year ended August 31, 2023, primarily generated by the following service offerings: PKPD Our clinical-pharmacology-based consulting services include population pharmacokinetic and pharmacodynamic (“PKPD”) modeling, exposure-response analyses, clinical trial simulations, data programming, and technical writing services in support of regulatory submissions. In addition to modeling and simulation consulting services, we provide expertise and assistance with development-related decision-making and support for regulatory interactions related to dose selection, clinical trial design, and understanding of the determinants of safety and efficacy for new medicines. QSP/QST We provide creative and insightful consulting services to support our quantitative systems pharmacology/quantitative systems toxicology (“QSP/QST”) modeling focused on NAFLD, and NASH, idiopathic pulmonary fibrosis (“IPF”), heart disease, liver and kidney safety, as well as other areas. PBPK In 2014, the FDA and other regulatory agencies began to emphasize the need to encourage mechanistic PBPK modeling and simulation in clinical pharmacology, with final guidance documents completed in 2018. New draft guidance documents, which were released in October 2020, focused on additional biopharmaceutics applications for oral drug product development, manufacturing changes, and controls. This has resulted in an increased need for our scientific consulting staff to drawn upon its extensive experience across multiple therapeutic areas of modeling and simulation methods to provide consulting-related services in support of this sophisticated technique. We support Model-Informed Drug Discovery and Development throughout the entire product lifecycle, from discovery through translational research and clinical development, when an organization does not have the time or resources to use our software directly. More specifically, our clients seek out our consulting services to acquire scientific, therapeutic-area-related modeling and simulation expertise that they do not have in-house. Early Drug Discovery ( “ EDD ” ) At Simulations Plus, we have a team of experts, including computational and medicinal chemists, cheminformatics specialists, and drug development professionals with decades of experience, all here to facilitate small and large companies’ drug discovery and development journeys. With our EDD services offering, we provide end-to-end in silico drug design and optimization services as well as help with individual steps in the process, including: • AIDD enabled drug discovery and optimization • High-throughput screening (“HTS”) library design and hit visualization and analysis • QSAR/QSPR modeling and simulation 5 Table of Contents Below is a summary of revenue percentages by each of our software and services businesses for the fiscal years ended August 31: 2023 2022 2021 Software 61 % 61 % 60 % Services 39 % 39 % 40 % Total 100 % 100 % 100 % SALES AND MARKETING We market our software and services globally through attendance and presentations at scientific meetings, exhibits at trade shows, seminars at pharmaceutical companies and government agencies, online presentations, our website, and various communication channels to our database of prospects and customers. At various yearly scientific meetings worldwide, numerous presentations and posters report research performed using our software. Many of these presentations are from industry and FDA scientists; some are from our staff. Numerous peer-reviewed scientific journal articles are published, and conference presentations are delivered each year using our software, primarily by our customers, further supporting its use in a wide range of preclinical and clinical studies. Our sales and marketing efforts are handled primarily internally by sales and marketing staff, with our scientific team and several senior management staff assisting our marketing and sales staff with trade shows, seminars, and customer training both online and on-site. During fiscal year 2023, the Company invested in learning management software which streamlined our ability to offer online training to customers. In addition, enhancements were made to our customer relationship management software providing insights about our targeted markets and customers. We also have independent distributors in Japan, China, India, South Korea, and Brazil, who sell and market our products with support from our scientists and engineers. In March 2021, we launched our MIDD+ (Model-Informed Drug Development) scientific conference, where speakers shared their real-world impact using modeling and simulation technology. During the two-day event, representatives from the U.S. FDA Offices of Clinical Pharmacology, New Drug Products, Research and Standards, and Translational Sciences, and from the U.S. FDA Centers of Drug Evaluation and Research and the National Center for Toxicological Research, as well as ANVISA (The Brazilian Health Regulatory Agency) and Health Canada, provided case studies and software demonstrations on a wide range of topics. The event also featured a panel discussion on the ascent of model-informed drug development and the increasing importance of developing next-generation technology. The conference was well received, and we hosted it again in February 2022 and February 2023. COMPETITION We compete against a number of established companies that provide screening, testing, and research services, and products that are not based on simulation software. There are also software companies whose products do not compete directly with ours but are sometimes closely related. Our competitors in this field include some companies with financial, personnel, research, and marketing resources that are larger than ours. Major pharmaceutical companies conduct drug discovery and development efforts through their internal development staff and outsourcing. Smaller companies generally need to outsource a greater percentage of this effort. Thus, we compete not only with other software suppliers and scientific consulting service providers, but also with the in-house development and scientific consulting teams at some of the larger pharmaceutical companies. Based on our technical knowledge and expertise, we believe that we are strategically positioned to offer competitive modeling and simulation consulting services to companies. Our clients seek out our services for multiple reasons including: (i) to acquire scientific, therapeutic-area-related modeling expertise that they do not have in-house, (ii) to address a need for modeling and simulation efforts beyond the capacity of in-house resources, (iii) to fulfill their modeling requirements more efficiently than they could do in-house, and (iv) to utilize our software when they do not have the in-house expertise to do so. We apply our software and assist companies in such areas as PKPD, PBPK, and QSP/QST. We compete against numerous service providers, ranging from departments within large contract research organizations ("CROs") to independent consulting organizations of various sizes, as well as individual consultants. 6 Table of Contents We believe the key factors in our ability to successfully compete in this field are our ability to: (i) continue to invest in research and development, and develop and support industry-leading simulation and modeling software and related products and services, (ii) develop and maintain a proprietary database of results of physical experiments that serve as a basis for simulated studies and empirical models, (iii) continue to attract and retain a highly-skilled scientific and engineering team, (iv) aggressively promote our products and services to our global market, and (v) develop and maintain relationships with research and development departments of pharmaceutical companies, universities, and government agencies. In addition, we are actively seeking strategic acquisitions to expand both our pharmaceutical software portfolio and services offerings. TRAINING AND TECHNICAL SUPPORT Customer training and technical support are important factors in customer satisfaction for our products, and we believe we are an industry leader in providing strong customer training and technical support in our business areas. We provide in-house seminars at customers’ and potential customers’ sites, as well as at selected universities to train students who will soon be industry scientists. These seminars often serve as initial training in the event the potential customer decides to license or evaluate our software. Technical support is provided after the sale of any software in the form of on-site training (at the customer’s expense), web meetings and telephone, fax, and e-mail assistance to the customer’s users during the customer’s license period. Technical support for our software is provided by our life sciences teams and our inside sales and support staff. We have found that most clients need minimal technical support for our software products. We provide support to the GastroPlus User Group in Japan, which was organized by Japanese researchers in 2009. In early 2013, a group of scientists in Europe and North America organized another GastroPlus User Group following the example set in Japan. Over 1,575 members have joined this group to date. We support this group through coordination of online meetings each month and managing the user group website for exchange of information among members. These user groups provide us valuable feedback for desired new features and suggested interface changes. RESEARCH AND DEVELOPMENT The development of our software is focused on expanding our product portfolio, designing enhancements to our core technologies, and integrating existing and new products into our principal software architecture and platform technologies. We intend to continue to offer regular updates to our products and to continue to look for opportunities to expand our existing suite of products and services. To date, we have developed products internally, sometimes also licensing or acquiring products, or portions of products, from third parties. In certain instances, these arrangements have required that we pay royalties to third parties; we paid no royalties during the year ended August 31, 2023. We intend to continue to license or otherwise acquire technology or products from third parties when we believe that it makes business sense to do so. Research and development ("R&D") activities include both enhancement of existing products and development of new products. Development of new products and adding functionality to existing products are capitalized in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 985-20, “Costs of Software to Be Sold, Leased, or Marketed.” R&D expenditures, which primarily relate to both capitalized and expensed salaries, R&D supplies, and R&D consulting, were $7.8 million during fiscal year 2023, of which $3.3 million was capitalized. R&D expenditures were $6.4 million during fiscal year 2022, of which $3.2 million was capitalized. R&D expenditures during fiscal year 2021 were $6.9 million, of which $2.9 million was capitalized. Our software products are designed and developed by our development teams, which work remotely using collaboration software. Our products and services are delivered electronically. 7 Table of Contents CUSTOMERS Our customers include companies involved in pharmaceuticals, biotechnology, agrotechnology, and cosmetics, as well as universities, hospitals, and government research organizations. We concentrate on serving the needs of our customers in drug discovery, development, clinical trials, and post-patent generic formulation development. Our current customer base is highly fragmented. For the year ended August 31, 2023, our three largest customers in terms of revenue each accounted for 6%, 4%, and 3% of our revenues, respectively. SEASONALITY Our revenues exhibit seasonal fluctuations, with the first fiscal quarter (September-November) generally having the lowest revenues. This is due to pharmaceutical industry buying patterns as well as our revenue recognition policies for software, consulting service slowdowns due to summer vacations in the previous quarter, and lower customer and employee conference attendance in those periods. Revenues for any quarter are not necessarily indicative of revenues for any future period; however, because our pharmaceutical software is licensed on an annual basis, renewals are usually within the same quarter year after year, even though there are certain instances in which the license renewal term may not immediately follow the initial license term, and therefore result in a shift of certain customer revenues to a subsequent quarter. ENVIRONMENTAL REGULATORY MATTERS We believe we are in compliance in all material respects with all applicable environmental laws. Presently, we do not anticipate that efforts to maintain such compliance will have a material effect on capital expenditures, earnings, or competitive position with respect to any of our operations. HUMAN CAPITAL RESOURCES We are committed to our people, and we embrace a culture of engagement, empowerment, and equity. Over 95% of our global employees are employed full-time, and more than 75% work within our life sciences software or consulting divisions. Given the specialized nature of our business, candidates for our open positions are strategically selected for their unique education and skills. The majority of our employees have advanced degrees with over 70% of our technical and scientific staff holding a doctoral degrees in mathematics, chemistry, biomedical engineering, and/or the pharmaceutical sciences. As of August 31, 2023, we employed a total of 197 persons, including 192 full-time employees and 5 part-time employees, consisting of 127 in scientific, technical, and research and development, 18 in marketing and sales, and 52 in administration, operations, and accounting. We believe that our future success will depend, in part, on our ability to continue to attract, hire, and retain qualified personnel. To continue to support the endeavor, we have focused heavily on our total rewards program, which includes components of compensation, training, time off, recognition and support for business travel. At the end of 2022, we were recognized by Comparably for several workplace accolades including Best Company for Women, A+ culture rating and A+ Diversity rating. We continue to seek additions to our science and technical staff, although the competition for such personnel in the pharmaceutical industry is intense. We added 10 new scientists via direct recruiting and 19 scientific and technical staff with the acquisition of Immunetrics this past year. We also achieved a turnover rate of under 8%. None of our employees are represented by a labor union, and we have never experienced a work stoppage. We believe that our relations with our employees are good. Diversity, Equity, and Inclusion We embrace diversity with the knowledge that it can lead to greater innovation, and in our workplace, we foster inclusion, so all employees feel they are a part of our team with equal access to all opportunities. One of our goals is to continue expanding our focus on diversity, equity, and inclusion. In terms of gender equity, women currently comprise 48% of our workforce and 52% of our scientific staff. We have also increased racial diversity with over 39% of our employees from minority backgrounds. We have implemented the ADP workforce now platform, which allows us to access and better understand trends in our staff and hiring relative to diversity. We are utilizing the recruitment platform to track our applicants and push job postings out to reach as many diverse applicants as possible. We continue to refine our policies and benefits to be inclusive, and implemented a new parental leave program in 2023 allowing all of our employees to take company paid time off after birth or adoption. 8 Table of Contents Compensation, Training, and Awareness Programs We are continuing to refine career paths for the different functions within our organization. We use these career paths as a basis for promoting employee career development and growth within the organization, as well as in recruiting and hiring new talent. We have continued the effort to provide top tier benefits and in fiscal year 2023, we also added a paid parental leave program. Over the past two years, we have focused on mandated compliance, soft-skill and data privacy training. In the coming year, we will be rolling out an education and training reimbursement program that will allow all employees access to company paid technical, leadership or skills training opportunities. In addition to these new employee training and development initiatives, we have an ongoing program of cross-specialty training consisting of presentations by expert modelers from each division. These monthly sessions serve to familiarize all divisions with the applications and techniques unique to each division and, in so doing, create opportunities to find synergies, expand the knowledge base across all divisions, and build a shared sense of purpose. Health & Safety We place a high value on maintaining a clean, safe, and healthy environment for our employees. In 2023, we implemented a new Human Rights Policy confirming our commitment to basic human rights worldwide. We also updated our Code of Conduct to ensure we require our employees and vendors work within our established principals of ethics. The well-being of our employees, whether they are working in our divisional offices or remotely from home offices, is paramount. We believe that we are substantially in compliance with all applicable laws, regulations, and standards, and we make every reasonable effort to be attentive and responsive to our employees’ needs. In our offices, we have provided employees with ergonomic equipment, including ergonomic chairs and standing desks, and for their home offices, we provide an allowance for the purchase of home office equipment. We continue to provide very competitive health and wellness benefits, and in 2023, we ran a wellness challenge that had monetary incentives to encourage a healthy and less sedentary lifestyle. We also consider open and transparent channels of communication to be a critical component of our employee health and wellness program. Toward this end, on a quarterly basis, we hold a company-wide virtual meeting to keep our employees engaged, informed, and apprised of activities occurring at the company and at each division, including quarterly financial results, future goals, and notable milestones. INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS We primarily protect our intellectual property through copyrights and trade secrets. Our intellectual property consists primarily of source code for computer programs and data files for various applications of those programs in the pharmaceutical software businesses. The expertise of our staff is a considerable asset closely related to intellectual property and attracting and retaining highly qualified scientists and engineers is essential to our business. EFFECT OF GOVERNMENT REGULATIONS We believe that our operations are substantially in compliance with all applicable laws and regulations and that we hold all necessary permits to operate our business in each jurisdiction in which our facilities are located. Laws and government regulations are subject to change and interpretation. Our pharmaceutical software products are tools used in research and development and are neither approved nor approvable by the FDA or other government agencies. No significant pollution or other types of hazardous emission result from our operations and it is not anticipated that our operations will be materially affected by federal, state, or local provisions concerning environmental controls. Our costs of complying with environmental, health, and safety requirements have not been material. Furthermore, compliance with federal, state, and local requirements regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have not had, nor are they expected to have, any material effect on the capital expenditures, earnings, or competitive position of the Company. COMPANY WEBSITE We maintain a corporate website at: www.simulations-plus.com. 9 Table of Contents The contents of this website are not incorporated in or otherwise to be regarded as part of this Report. We file reports with the SEC, which are available on our website free of charge. These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, “Section 16” filings on Form 3, Form 4, and Form 5, and other related filings, each of which is provided on our website as soon as reasonably practical after we electronically file such materials with or furnish them to the SEC. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including the Company. ENVIRONMENTAL, SOCIAL, GOVERNANCE We are committed to providing consistent and excellent return to our shareholders, all while maintaining a strong sense of good corporate citizenship that places a high value on the welfare of our employees, the communities in which we operate, and the world as a whole. We believe that effectively prioritizing and managing our Environmental, Social, and Governance ("ESG") factors will help create long-term value for our investors. We also believe that transparently disclosing the goals and relevant metrics related to our ESG programs will allow our stakeholders to be informed about our progress. The topics covered in this section are identified through third-party ESG reporting frameworks, standards and metrics, such as the Sustainability Accounting Standards Board ("SASB"), and United Nations Sustainable Development Goals ("SDGs"). More information regarding our key ESG programs, goals and commitments, and key metrics can be found on our website and within our 2022 ESG Update and 2020 ESG Report. Our ESG highlights include the following: Environmental Matters We participate in a recycling program through our local waste management facilities to divert all recyclable materials – bottles, cans, plastics, paper, and cardboard – from landfills. Across the Company, our facilities provide for recycling, and our electronic waste is sent to local approved e-waste recycling centers. We have achieved 90% reduction in energy usage for data center cooling. We have implemented a policy of using exclusively IT hardware vendors that embrace environmental sustainability. We are continuing with the commitment to work-from-home, with 74% employees working remotely. Greenhouse gas emission: Our purpose is to calculate the greenhouse gas (GHG) emissions for better visibility of environmental impact. We have identified our base year to calculate emissions inventory for the year ended August 31, 2023. We have used control approach to identify and determine the organizational boundaries. Our U.S.A. offices are in Pittsburgh-PA with 7,141 square feet of leased office space, Lancaster-CA with 4,200 square feet of leased office space, Buffalo-NY with 4,317 square feet of leased office space, and Raleigh-NC with 1,510 square feet of leased office space. Our Data Center is located in Buffalo-NY. We lease 2,300 square feet of office in Paris, France. Currently, we have identified our U.S.A. offices including data center for calculating GHG emissions. Scope: Scope 1: Scope 1 covers emissions are direct greenhouse (GHG) emissions that occur from sources that are controlled or owned by an organization (e.g., emissions associated with fuel combustion in boilers, furnaces, vehicles). Scope 1 is not applicable to our organization as it does not own or control any sources that produces direct greenhouse gas emissions (GHG). Scope 2: The Scope 2 Guidance standardizes how corporations measure emissions from purchased or acquired electricity, steam, heat, and cooling (called “scope 2 emissions”). We have identified electricity as our source of greenhouse gas (GHG) emissions that produces greenhouse gas (GHG) emissions. 10 Table of Contents Scope 3: Scope 3 encompasses emissions that are not produced by the company itself and are not the result of activities from assets owned or controlled by them, but by those that it’s indirectly responsible for up and down its value chain. An example of this is when we buy, use and dispose of products from suppliers. Scope 3 emissions include all sources not within the scope 1 and 2 boundaries. We believe that we do not produce greenhouse gas (GHG) emissions that falls within Scope 3. We have identified and determined our source of emission is the electricity usage at facilities referenced within organizational boundaries in U.S.A. We have used EPA Simplified GHG Emissions Calculator (SGEC) for calculating the GHG emission. For the year ended August 31, 2023, using the SGEC calculator, the total CO2 equivalent GHG emissions is 470.6 metric tons. Our operations are built on continual improvements in efficiency and clean energy. We are attentive to energy use in our office operations and strive to only use what is necessary for business purposes. In 2023, we reduced the footprint of our US-based facilities by 35%, decreasing it from 19,300 sf to 12,400 sf. We also implemented LearnUpon LMS and Adobe e-signature to reduce travel for in-person training and the need for printed materials, with virtual on-demand programs using only digital materials. We believe we are in compliance in all material respects with all applicable environmental laws. Presently, we do not anticipate that such compliance will have a material effect on capital expenditures, earnings, or competitive position with respect to any of our operations. Social Impact and Supporting our Communities • We donated $100,000 to four different charities selected by our employees. • We released ILDsym® version 1A, which targets treatments to reduce the progression of ILD in patients with systemic sclerosis (SSc), an underserved condition. • Our support for the academic community is broad and deep. We provide certain distinguished professors at academic institutions with free reference site licenses for nonprofit research and teaching, including providing free access to our software in university instruction. In addition to reference site licenses, academic and research institutions are entitled to a 95% discount off commercial license fees, and we offer students and professors either free or substantially reduced fees to attend our training courses and workshops. In recent years, we have sponsored several students with awards given by the Society of Toxicology. In 2022, we provided 245 free software licenses to recipients in 53 countries through our University+ program to support the next generation of scientists. In 2023, we expanded our University+ program to provide 307 free software licenses to recipients in 51 different countries to further promote education in our industry and support the next generation of scientists. • We provide sponsorships to numerous conferences, symposia, and associations such as the American Conference on Pharmacometrics ("ACoP"), American Association of Pharmaceutical Scientists ("AAPS"), American Chemical Society ("ACS"), Controlled Release Society ("CRS"), Groupe de Métabolisme et Pharmacocinétique ("GMP"), and the Gordon Research Conferences. • We encourage employees to volunteer in their local communities, and we offer our employees the flexibility they need to participate, from sponsoring and participating in charity golf tournaments to volunteering to serve hot meals to the disadvantaged. In recent years, we have joined the global GivingTuesday movement and donated food, clothing, and financial support to several organizations that serve those in need in our communities. • We focus on maintaining policies that support our social commitments worldwide. This past year we updated our Company privacy policy and processes in the PDP Program to reflect changes to global personal data protection laws and developed and implemented a Human Rights Policy to support our Company commitment to all basic human rights around the globe. Our People • Our commitment to our people lies in our continued efforts to support and value our most important asset, our employees. 11 Table of Contents • This past year we conducted an employee engagement survey and received over 80% engagement to ensure culture alignment and success of internal programs and to further support their needs. • In 2023, we established a paid parental leave program to support working parents and implemented a new recognition system to encourage peer to peer and leader to employee recognition. • We also implemented a program to ensure that all our employee have the opportunity to attend in person employee events to collaborate face to face with their colleagues around the globe. • This past year, we added additional supplemental benefits to our health benefit offerings increased our focus on physical and mental wellness with all our teams through an online wellness challenge hosted by the Company. • We continue to engage with our employees and listen to their feedback in order to work toward building a culture of trust, collaboration and transparency. • We have conducted compensation benchmarking study with external compensation consultant, and aligned all roles to market salary ranges. Customer Privacy & Data Security • We value customer privacy, and the data we collect are only as needed to deliver company information, software products, and consulting services. Our website includes our comprehensive Privacy Policy, which details what and how data are collected, how data are used and stored, and the options for controlling personal data, including opting out, accessing, updating, or deleting it. • In recognition of the critical importance of Data Security to our operations, including Cybersecurity, Data Protection, and Customer Privacy, our leadership team conducts a thorough examination of all elements of Data Security. Our objective is to ensure the security, confidentiality, and privacy of our systems and information assets, and to follow and be compliant with all relevant laws, regulations, and guidelines, including, but not limited to: ◦ U.S. and State Data Privacy Laws ◦ The EU’s General Data Protection Regulation ("GDPR") ◦ Pharmaceutical Good Practice Quality Guidelines, including FDA 21 CFR Part 11 ◦ The Sarbanes-Oxley Act ◦ The Personal Information Protection Law of the People’s Republic of China ("PIPL") • Our corporate-level IT department brings greater consistency, efficiency, and functional IT support across all divisions. The IT department is responsible for centralizing divisional data processing, storage, and backup capabilities at each of our geographical locations. The IT department is also responsible for ensuring that corporate IT policies are aligned and compliant with all applicable regulatory provisions and current best practices. • We have appointed VeraSafe as our Data Protection Officer ("DPO"). The DPO is responsible for ensuring that we have a Personal Data Protection program that is compliant with data privacy laws such as the EU’s GDPR, UK GDPR, China’s PIPL, and data privacy laws enacted at the state level, as applicable to us. Our corporate Personal Data Protection program includes policies, practices, and training directed to protecting personal data. Business Ethics • From the Company’s inception, we have placed the highest emphasis on conducting our business with honesty and integrity. The highest ethical standards are expected of management and employees alike, and we continuously strive to create a corporate culture of honesty, integrity, and trust. Throughout our operations and in our dealings with our stakeholders, we endeavor to engender the confidence that the Company’s conduct is beyond reproach. • The policies we have developed are intended to: 12 Table of Contents ◦ Define and disseminate our core values and the legal requirements applicable to good business conduct and ethical behavior ◦ Offer guidance in understanding Company policies, interpreting laws, and handling Company-related issues and situations ◦ Foster clear, ethical behaviors and conduct to create an atmosphere of respect, trust, cooperation, and collaboration throughout the Company and its activities ◦ Provide clear and well-defined procedures by which employees can easily obtain information, ask questions, and, if necessary, report any suspected violations of any of our Business Ethics policies • In addition to abiding by all applicable laws, all management and employees are required to comply fully with our Code of Conduct, which sets forth the Company’s values, business culture, and practices. The Code of Conduct also governs conduct between our employees and our customers and vendors with whom we do business. Because many of our customers are companies in the pharmaceutical and biotech industries, we have incorporated in our Code of Conduct the principles of the Pharmaceutical Supply Chain Initiative, including Leadership, Partnering, Presence, Consistency & Quality, Learning, and Innovation & Discovery. Human Rights • The Company was founded on the belief that our software technologies could lead to important advances in healthcare, thereby improving patient outcomes, advancing and improving global health, and bettering the lives of humankind. This objective cannot be accomplished without a commitment to human rights, and we are committed to ensuring that, in our day-to-day business practices, in our business relationships, and in matters of employment, we will uphold our own principles as delineated in our Code of Conduct. Furthermore, we support the principles set forth in the United Nations International Bill of Human Rights, specifically the Universal Declaration of Human Rights, and the ILO Declaration on Fundamental Principles and Rights at Work and have a written Human Rights Policy to uphold these commitments. As we evolve this policy, we will look to the UN Guiding Principles on Business and Human Rights ("UNGPs") for guidance. Governance • We are committed to ensuring strong corporate governance practices on behalf of our shareholders and other stakeholders. We believe strong corporate governance provides the foundation for financial integrity and shareholder confidence. Our Board of Directors is responsible for the oversight of risks facing the Company, while our management is responsible for the day-to-day management of risk. The Board has three committees: Audit Committee, Compensation Committee, and Nominating & Corporate Governance Committee. The Board, as a whole, directly oversees our strategic and business risk, including risks related to financial reporting, compensation practices, cybersecurity, ESG, and product developments. In addition, all our employees, contractors, and vendors are required to follow our Code of Conduct as a part of our good governance practice. We have increased gender and racial diversity of the Board of Directors with appointment of new independent director. Our ESG steering committee oversees and executes matters related to ESG. More information about our corporate governance features can be found in our Proxy Statement for the 2024 Annual Meeting of Shareholders (the "Proxy Statement" ) , which we intend to file with the SEC within 120 days after August 31, 2023, the close of our fiscal year covered by this Report.