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Item 1A. Risk Factors

2024-10-30 compared with 2023-10-27 · 58 added, 234 removed, 325 unchanged (47% of the section changed)

ITEM 1A – RISK FACTORS

You should carefully consider the risks described below, as well as the other information in this Report, including our financial statements and the related notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before investing in our publicly traded securities.

The occurrence of any of the events or developments described below could harm our business, financial condition, operating results, and/or growth prospects.

The risks described below are not the only ones facing us.

The risks described below are not the only ones we face.

Our business is also subject to the risks that affect many other companies, such as competition, technological obsolescence, labor relations, general economic conditions, geopolitical changes, and international operations.

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Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties.

Risk Factor Summary

Below is a summary of the principal factors that make an investment in our common stock speculative or risky.

This summary does not address all of the risks that we face.

Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below and should be carefully considered, together with other information included in this Report.

• Our business is subject to risks arising from epidemic diseases, such as the COVID-19 illness.

• Our ability to sustain or increase revenues will depend upon our success in entering new markets, continuing to increase our customer base, and in deriving additional revenues from our existing customers.

• A decrease in, or resistance to, the acceptance of model-informed biopharmaceutical discovery and development could damage our reputation or reduce the demand for our products and services.

• Consolidation within the pharmaceutical and biotechnology industries may continue to lead to fewer potential customers for our products and services.

• We face strong competition, and increasing competition and costs within the industries and markets we operate in may negatively affect the demand for our products and services.

• Health care reform and restrictions on reimbursement may affect the customers that purchase or license our products or services, which may negatively affect our results of operations and financial condition.

• We are subject to price pressures in some of the markets we serve.

• Our operations may be interrupted by the occurrence of a natural disaster or other catastrophic event.

• Our insurance coverage may not be sufficient to avoid material impact on our financial position or results of operations resulting from claims or liabilities against us.

• Changes in government regulation or in practices relating to the industries in which we operate, including potential health care reform, could decrease the need for the services we provide.

• Any failure by us to comply with applicable regulations and related guidance could harm our reputation and operating results, and compliance with new regulations and guidance may result in additional costs.

• Our sales cycle is lengthy, and customers may delay entering into contracts or decide not to adopt our products or solutions after we have expended significant time and resources and supported evaluation by them of our technology.

• Many of our contracts are fixed price and may be delayed or terminated or reduced in scope for reasons beyond our control, or we may underprice or overrun cost estimates with these contracts, potentially resulting in financial losses.

• We could experience a breach of the confidentiality of the information we hold or of the security of our computer systems.

• Impairment of goodwill or intangible assets may adversely impact future results of operations.

• Software defects or malfunctions in our products could negatively impact our reputation and results of operations.

• Delays in the release of new or enhanced products or services or undetected errors in our products or services may result in increased cost to us, delayed market acceptance of our products, and delayed or lost revenue.

• We are subject to various risks associated with the operation of a global business, including foreign currency exchange rate risk and complex regulatory frameworks, amongst other things.

• Changes in applicable tax laws or regulations and the resolution of tax disputes could negatively affect us.

• Contract research services create a risk of liability.

• Upgrading our software could result in implementation issues and business disruptions.

• The industries in which we operate have a history of intellectual property litigation, involvement in intellectual property lawsuits is often very costly.

• We may not be able to successfully develop and market new services and products.

• Failure on our part to retain key personnel and to recruit adequate replacements could harm our business.

• Failure to successfully select and integrate the businesses and technologies we acquire could harm our business.

• Our periodic operating results fluctuate and may continue to fluctuate in the future, and if we fail to meet the expectations of analysts or investors, our stock price and the value of your investment could decline substantially.

• Loss of our major customers could materially and adversely affect our business.

• A significant portion of our operating expenses is relatively fixed and planned expenditures are based in part on expectations regarding future revenues.

• If our security is breached or we fail to properly protect customer data, our business could be disrupted, our operating results could be harmed, and customers could be deterred from using our products and services.

• Changes in and/or failure to comply with other applicable laws, regulations, and interpretations of such laws and regulations could materially adversely affect our reputation, business and financial performance.

• We rely upon a single internal hosting facility and Amazon Web Services to deliver certain solutions to our customers and any disruption of or interference with our hosting systems, operations, or use of the Amazon Web Services could harm our business and results of operations.

• If we are not able to reliably meet our data storage and management requirements, or if we experience any failure or interruption in the delivery of our services over the Internet, our business could be harmed.

• Some of our software solutions and services utilize open-source software, and any failure to comply with the terms of one or more of these open-source licenses could adversely affect our business.

• We may be unable to adequately enforce or defend our ownership and use of our intellectual property rights.

• Litigation or claims made against us, which may arise in the ordinary course of our business, could be costly and time-consuming to defend.

• Our business depends on the clinical trial market, and a downturn in this market could harm our business.

• Any failure to do maintain proper and effective internal control over financial reporting in the future could impair our ability to produce timely and accurate financial statements or comply with applicable laws and regulations.

• As a public company, we may incur significant administrative workload and expenses in connection with new and changing compliance requirements.

• Cash expenditures associated with our acquisition of Immunetrics may create certain liquidity and cash flow risks.

• The business acquired through the Immunetrics acquisition may not perform as we or the market expects, which could have an adverse effect on the price of our common stock.

• The obligations and liabilities of Immunetrics, some of which may be unanticipated or unknown, may be greater than we have anticipated, which may diminish the value of the Immunetrics business to us.

• Our Board of Directors may (in its discretion) suspend the quarterly dividend that we typically pay, and, consequently, which could negatively impact your ability to achieve a return on your investment.

• If our operating and financial performance in any given period does not meet any guidance that we provide to the public, the market price of our common stock may decline.

• The price of our common stock may fluctuate significantly, and investors could lose all or part of their investment.

• If securities or industry analysts issue an adverse or misleading opinion regarding our stock, or our inclusion in the S&P 600 discontinues, our stock price and trading volume could decline.

• We may raise capital through the issuance of our common stock, convertible debt, or equity-linked securities, which could result in dilution to our stockholders or a negative impact on the price of our common stock.

• We cannot guarantee that our share repurchase program will be fully consummated or that it will enhance long-term shareholder value, and share repurchases could increase the volatility of the price of our common stock.

• Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and our financial condition and results of operations.

Certain Risks Related to Our Business

Our business is subject to risks arising from epidemic diseases, such as the outbreak of the COVID-19 illness.

The occurrence of regional epidemics or a global pandemic, such as COVID-19, may adversely affect our operations, financial condition, and results of operations.

In the last few years, the COVID-19 pandemic has had widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices.

The extent to which global pandemics impact our business going forward will depend on factors such as the duration and scope of the pandemic;

governmental, business, and individuals' actions in response to the pandemic;

and the impact on economic activity including the possibility of recession or financial market instability.

Certain Risks Related to Our Marketplace and Environment

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One component of our overall business strategy is to derive more revenues from our existing customers by expanding their use of our products and services.

Such strategy would have our customers utilize our scientific informatics platforms and our tools and components to leverage vast amounts of information stored in both corporate databases and public data sources in order to make informed scientific and business decisions during the research and development process.

In addition, we seek to expand into new markets, and new areas within our existing markets, by acquiring businesses in these markets, attracting and retaining personnel knowledgeable in these markets, identifying the needs of these markets, and developing marketing programs to address these needs.

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This, in turn, could negatively impact our reputation and/or have a material adverse impact on our business prospects and results of operations.

Consolidation within the pharmaceutical and biotechnology industries may continue to lead to fewer potential customers for our products and services .

A significant portion of our customer base consists of pharmaceutical and biotechnology companies.

Consolidation within the pharmaceutical and biotechnology industries may result in fewer customers for our products and services.

Although the industry consolidation that has taken place over the past 20 years has not prevented our business from growing to date, if one of the parties to a consolidation uses the products or services of our competitors, we may lose existing customers as a result of such consolidation.

Increasing competition and increasing costs within the pharmaceutical and biotechnology industries, drug development and services industry, and the life science market for modeling and simulation software and cheminformatics products may affect the demand for our products and services, which may affect our results of operations and financial condition .

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We currently face competition from other scientific software providers, larger technology and solutions companies, in-house development by our customers and academic and government institutions, and the open-source community.

Additionally, our clinical pharmacology business unit often competes for business not only with other clinical research organization, but also with internal discovery and development departments within our larger clients.

Some of our competitors and potential competitors have longer operating histories in certain segments of our industry than we do and could have greater financial, technical, marketing, research and development, and other resources.

Many of our competitors offer products and services directed at more specific markets than those we target, enabling these competitors to focus a greater proportion of their efforts and resources on these markets.

Some offerings that compete with our products are developed and made available at lower cost by government organizations and academic institutions, and these entities may be able to devote substantial resources to product development and also offer their products to users for little or no charge.

We also face competition from open-source software initiatives, in which developers provide software and intellectual property free over the Internet.

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There can be no assurance that our competitors will not adapt more quickly than we to technological advances and customer demands, thereby increasing such competitors’ market share relative to ours.

Increased competition could lead to price and other concessions that might adversely affect our operating results.

Any material decrease in demand for our technologies or services may have a material adverse effect on our business, financial condition, and results of operations.

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Changes in our pricing model could adversely affect our revenues and earnings.

Our operations may be interrupted by the occurrence of a natural disaster or other catastrophic event at our primary facilities.

Our research and development operations and administrative functions are primarily conducted at our facilities in Lancaster, California;

Buffalo, New York;

Paris, France;

Research Triangle Park, North Carolina;

and Pittsburgh, Pennsylvania.

Although we have contingency plans in effect for natural disasters or other catastrophic events, the occurrence of such events could still disrupt our operations.

For example, our Lancaster, California facility is located in a state that is particularly susceptible to earthquakes and wildfires.

Any natural disaster or catastrophic event in our facilities or the areas in which they are located could have a significant negative impact on our operations.

Our insurance coverage may not be sufficient to avoid material impact on our financial position or results of operations resulting from claims or liabilities against us, and we may not be able to obtain insurance coverage in the future.

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In addition, we may not be able to obtain any insurance coverage, or adequate insurance coverage, when our existing insurance coverage expires.

For example, we do not carry earthquake insurance for our facilities in Lancaster, California, because we do not believe the costs of such insurance are reasonable in relation to the potential risk for our part of California.

Changes in government regulation or in practices relating to the pharmaceutical or biotechnology industries, including potential health care reform, could decrease the need for the services we provide.

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Some contracts also entitle us to a predetermined termination fee and irrevocably committed costs/expenses.

We could experience a breach of the confidentiality of the information we hold or of the security of our computer systems.

We operate large and complex computer systems that contain significant amounts of client data.

As a routine element of our business, we collect, analyze, and retain substantial amounts of data pertaining to the clinical study data analysis we conduct for our clients.

Unauthorized third parties could attempt to gain entry to such computer systems for the purpose of stealing data or disrupting the systems.

We believe that we have taken appropriate measures to protect them from intrusion, and we continue to improve and enhance our systems in this regard, but in the event that our efforts are unsuccessful, we could suffer significant harm.

Our contracts with our clients typically contain provisions that require us to keep confidential the information generated from these studies.

In the event the confidentiality of such information was compromised, we could suffer significant harm.

Impairment of goodwill or intangible assets may adversely impact future results of operations.

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Certain Risks Related to Our Operations

Software defects or malfunctions in our products could hurt our reputation among our customers, result in delayed or lost revenue, and expose us to liability.

Our business and the level of customer acceptance of our products depend upon the continuous, effective, and reliable operation of our software and related tools and functions.

To the extent that defects cause our software to malfunction, and our customers’ use of our products is interrupted, our reputation could suffer, and our revenue could decline or be delayed while such defects are remedied.

We may also be subject to liability for the defects and malfunctions of third-party technology partners and others with whom our products and services are integrated.

Delays in the release of new or enhanced products or services or undetected errors in our products or services may result in increased cost to us, delayed market acceptance of our products, and delayed or lost revenue.

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We derive a significant portion of our total revenue from our operations in international markets.

During the years ended August 31, 2023, 2022, and 2021, 31%, 30%, and 31%, respectively, of our total revenue was derived from our international operations.

Our global business may be affected by local economic conditions, including inflation, recession, and currency-exchange-rate fluctuations.

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These risks, individually or in the aggregate, could have an adverse effect on our results of operations and financial condition.

For example, we are subject to compliance with the U.S.

Foreign Corrupt Practices Act and similar anti-bribery laws, which generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business.

While our employees, distributors, and agents are required to comply with these laws, we cannot be sure that our internal policies and procedures will always protect us from violations of these laws despite our commitment to legal compliance and corporate ethics.

The occurrence or allegation of these types of risks may adversely affect our business, performance, prospects, value, financial condition, and results of operations.

The drug discovery and development services industry is highly competitive.

Our clinical pharmacology division often competes for business not only with other clinical research organization (“CROs”), but also with internal discovery and development departments within our larger clients, who may have greater resources than ours.

We also compete with universities and teaching hospitals for outsourced services.

We compete based on a variety of factors, including without limitation:

• reputation for on-time quality performance

• reputation for regulatory compliance

• expertise and experience in multiple specialized areas

• scope and breadth of service and product offerings across the drug discovery and development spectrum

• ability to provide flexible and customized solutions to support our clients’ drug discovery and development needs

• price/value

• technological expertise and efficient drug development processes

• financial stability

• accessibility of client data through secure portals

• ability to acquire, process, analyze, and report data in an accurate manner

If we do not compete successfully, our business could suffer.

Increased competition could lead to price and other concessions that might adversely affect our operating results.

The drug discovery and development services industry has continued to see a trend towards consolidation, particularly among biotechnology companies, who are acquisition targets for each other and for larger pharmaceutical companies.

If this trend continues, it is likely to produce more competition among the larger companies and CROs generally, with respect to both clients and acquisition candidates.

In addition, while there are substantial barriers to entry for large, global competitors with broad-based services, small, specialized entities considering entering the CRO industry will continue to find lower barriers to entry, and private equity firms may determine that there are opportunities to acquire and consolidate these companies, thus further increasing possible competition.

More generally, our competitors or others might develop technologies, services, or products that are more effective or more commercially attractive than our current or future technologies, services, or products, or that render our technologies, services, or products less competitive or obsolete.

If competitors introduce superior technologies, services, or products and we cannot make enhancements to ours to remain competitive, our competitive position, and in turn our business, revenue, and financial condition, would be materially and adversely affected.

In the aggregate, these competitive pressures may affect the attractiveness of our technologies, services, or products and could adversely affect our financial results.

Changes in applicable U.S.

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Changes in tax laws or tax rulings may have a significant adverse impact on our effective tax rate.

For example, the U.S.

and many countries where we do business are actively considering or have recently enacted changes in relevant tax, accounting, and other laws, regulations, and interpretations.

Recently, the Biden Administration committed to increasing the corporate income tax rate, and to increasing the tax rate applied to profits earned outside the U.S.

If enacted, the impact of these potential new rules could be material to our tax provision and the value of our deferred tax assets and liabilities.

Further, in the ordinary course of a global business, there are many intercompany transactions and calculations where the ultimate tax determination could change if tax laws or tax rulings were to be modified.

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Although we believe that our income and non-income-based tax estimates are appropriate, there is no assurance that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals.

Given the unpredictability of possible further changes to the U.S.

Given the unpredictability of possible changes to the U.S.

or foreign tax laws and regulations and their potential interdependency, it is very difficult to predict the cumulative effect of such tax laws and regulations on our results of operations and cash flow, but such laws and regulations (and changes thereto) could adversely impact our financial results.

Contract research services create a risk of liability.

As a CRO, we face a range of potential liabilities which may include:

• Errors or omissions in reporting of study detail in preclinical studies that may lead to inaccurate reports, which may undermine the usefulness of a study or data from the study, or which may potentially advance studies absent the necessary support or inhibit studies from proceeding to the next level of testing

• Risks associated with our possible failure to properly care for our clients’ property, such as data, research models, records, work in progress, or other archived materials

As a clinical research organization (“CRO”), we face a range of potential liabilities including, without limitation, that errors or omissions in reporting of study detail in preclinical studies that may lead to inaccurate reports, which may undermine the usefulness of a study or data from the study, or which may potentially advance studies absent the necessary support or inhibit studies from proceeding to the next level of testing;

and risks associated with our possible failure to properly care for our clients’ property, such as data, research models, records, work in progress, or other archived materials.

Contractual risk transfer indemnifications generally do not protect us against liability arising from certain of our own actions, such as negligence or misconduct.

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We also often contractually indemnify our clients (subject to a limitation of liability), similar to the way they indemnify us, and we may be materially adversely affected if we have to fulfill our indemnity obligations.

Furthermore, there can be no assurance that we nor a party required to indemnify us will be able to maintain such insurance coverage (either at all or on terms acceptable to us).

Upgrading our software could result in implementation issues and business disruptions.

We update our software on a regular basis and are continually in the process of refactoring our software programs.

In doing so, we face the possibility that existing users will find the software unacceptable, or new users may not be as interested as they have been in the past versions.

Translation errors might introduce new software bugs that will not be caught.

The drug discovery and development industry has a history of patent and other intellectual property litigation, involvement in intellectual property lawsuits is often very costly.

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We have employment agreements with our CEO, CFO, and certain of our other members of our leadership team that range from one to three years.

If our CEO, CFO, division presidents, or other members of senior management do not continue in their present positions, our business may suffer.

If our CEO, CFO, business unit presidents, or other members of senior management do not continue in their present positions, our business may suffer.

Because of the specialized scientific nature of our business, we are highly dependent upon attracting and retaining qualified scientific and technical and managerial personnel.

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If we are not successful in selecting and integrating the businesses and technologies we acquire, or in managing our current and future divestitures, our business may suffer.

Over the years, we have expanded our business through acquisitions, including our most recent acquisition of Immunetrics.

Over the years, we have expanded our business through acquisitions.

We continue to search to acquire businesses and technologies and form strategic alliances.

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We risk spending time and money investigating and negotiating with potential acquisition or alliance partners, but not completing transactions.

Even if completed, acquisitions and alliances, including our most recent acquisition of Immunetrics, involve numerous risks which may include:

Even if completed, acquisitions and alliances, involve numerous risks which may include:

difficulties in achieving business and continuing financial success;

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In the event that an acquired business or technology or an alliance does not meet our expectations, our results of operations may be adversely affected.

Some of the same risks exist when we decide to sell a business, site, or product line.

In addition, divestitures could involve additional risks, including, without limitation, the following:

difficulties in the separation of operations, services, products, and personnel, and the need to agree to retain or assume certain current or future liabilities in order to complete the divestiture.

We evaluate the performance and strategic fit of our businesses.

These and any divestitures may result in significant write-offs, including those related to goodwill and other intangible assets, which could have an adverse effect on our results of operations and financial condition.

In addition, we may encounter difficulty in finding buyers or alternative exit strategies at acceptable prices and terms and in a timely manner.

We may not be successful in managing these or any other significant risks that we encounter in divesting a business, site, or product line, and as a result, we may not achieve some or all of the expected benefits of the divestitures.

Our quarterly and annual operating results fluctuate and may continue to fluctuate in the future, and if we fail to meet the expectations of analysts or investors, our stock price and the value of your investment could decline substantially .

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changes in customer budget cycles;

• the number and scope of ongoing client engagements

the commencement, postponement, delay, progress, completion, or cancellation of client contracts in the quarter;

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competitive pricing pressures;

• the extent of cost overruns

buying patterns of our clients;

• budget cycles of our clients

• the effect of potential acquisitions and consequent integration

the costs and effects of potential acquisitions and integration thereof into or business;

the timing of new product releases by us or our competitors;

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changes in tax laws, rules, regulations, and tax rates in the locations in which we operate;

• the timing and charges associated with completed acquisitions and other events, including our most recent acquisition of Immunetrics

the financial performance of our investments;

• exchange rate fluctuations

We derive a significant percentage of our revenues from a concentrated group of customers and the loss of more than one of our major customers could materially and adversely affect our business, results of operations or financial condition.

Three customers accounted for 6%, 4%, and 3%, respectively, of revenue for fiscal year 2023.

Three customers accounted for 5%, 3%, and 3%, respectively, of revenues for fiscal year 2022.

Three customers accounted for 11%, 4% and 3%, respectively, of revenues for fiscal year 2021.

The loss of any of our major customers could have a material adverse effect on our results of operations and financial condition.

We may not be able to maintain our customer relationships, and our customers may delay payment under, or fail to renew, their agreements with us, which could adversely affect our business, results of operations, or financial condition.

Any reduction in the amount of revenues that we derive from these customers, without an offsetting increase in new revenues to other customers, could have a material adverse effect on our operating results.

A significant change in the liquidity or financial position of our customers could also have a material adverse effect on the collectability of our accounts receivable, our liquidity, and our future operating results.

and exchange rate fluctuations.

We conduct business outside the U.S., which exposes us to foreign currency exchange rate risk, amongst other risk, and could have a negative impact on our financial results.

We operate on a global basis.

In the three years ended August 31, 2023, 2022, and 2021, we had revenues of $7.3 million, $6.7 million, and $4.8 million, respectively, denominated in foreign currency in certain Asian and European markets.

As we continue to increase our international operations, our revenues and expenditures in foreign currencies are expected to become more material and subject to greater foreign currency exchange-rate fluctuations.

Also, our foreign distributors typically sell our products in local currency, which impacts the price to foreign consumers.

Additionally, Lixoft's functional currency is the Euro.

Additionally, SLP France's functional currency is the Euro.

Future foreign currency exchange rate fluctuations and global credit markets may cause changes in the U.S.

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As a result, we face some risk of a deliberate or unintentional incident involving unauthorized access to our computer systems (including, among other methods, cyberattacks or social engineering) that could result in misappropriation or loss of assets or sensitive information, data corruption, or other disruption of business operations.

Our contracts with our clients typically contain provisions that require us to keep confidential the information generated from these studies.

In the event the confidentiality of such information was compromised, we could suffer significant harm.

In light of this risk, we have devoted significant resources to protecting and maintaining the confidentiality of our information, including implementing security and privacy programs and controls, training our workforce, and implementing new technology.

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In addition, any real or perceived compromise of our security or disclosure of sensitive information may result in lost revenues by deterring customers from using or purchasing our products and services in the future or prompting them to use competing service providers.

Changes in and/or failure to comply with other laws, regulations, and interpretations of such laws and regulations specific to the businesses and jurisdictions in which we operate could materially adversely affect our reputation, market position, or our business and financial performance.

Changes in and/or failure to comply with applicable data privacy laws, regulations, and interpretations of such laws and regulations could materially adversely affect our reputation, market position, or our business and financial performance.

The collection, use, disclosure, storage, disposal, protection and other processing of information about individuals, in particular healthcare data and sensitive personal information, is highly regulated in the United States, EU, and other jurisdictions, including but not limited to, under the U.S.

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privacy, security and breach notification and healthcare information laws;

the European Union’s General Data Protection Directive (“GDPR” and its national implementing laws);

United Kingdom’s data privacy laws (The Data Protection Act 2018 (“UK GDPR”)), data privacy laws in other countries around the world (e.g., China’s Personal Information Protection Law (“PIPL”)), as well as data privacy laws in individual states in the U.S.

(e.g., the California Consumer Privacy and Protection Act (“CCPA”) and the California Privacy Rights Act (“CPRA”)).

the EU GDPR and its national implementing laws;

the UK GDPR, data privacy laws in other countries around the world (e.g., China’s PIPL), as well as data privacy laws in individual states in the U.S.

(e.g., the California Consumer Privacy and Protection Act (“CCPA”), the California Privacy Rights Act (“CPRA”), the New York State Personal Privacy Protection Law (“PPPL”) and the New York Privacy Act (“NYPA”)).

Although we require our customers who send their clinical data to us for analyses to provide it in de-identified form within the meaning of HIPAA, in certain parts of our business, such as in conjunction with certain services we offer customers, we may process personal information relating to persons who have been, are, and may in the future be involved in clinical trials.

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In addition to the laws specifically passed to regulate the processing of personal information, the Federal Trade Commission (the “FTC”) and many state attorneys may generally interpret federal, state and local consumer protection laws to impose evolving standards for the handling and security of personal information.

Thus, such consumer protection laws may require us to publicly disclose how we process personal information about individual consumers and choices such individuals may have about the way we handle their personal information.

The interpretation and application of the consumer protection laws to personal information are still evolving and remain uncertain.

As noted above, certain states have also adopted personal data privacy laws.

For example, the CCPA and CPRA impose obligations and restrictions on businesses regarding their collection, use, and sharing of personal information of, as well as defining certain data privacy rights to, California residents.

For example, the CCPA, CPRA, PPPL and NYPA impose obligations and restrictions on businesses regarding their collection, use, and sharing of personal information of, as well as defining certain data privacy rights to, California and New York residents, respectively.

Such data privacy rights include the right to access or have deleted their personal information that is processed by businesses and the right to opt out of certain sharing or processing of their personal information.

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The interpretation and application of the new state data privacy laws are still evolving, which provides some uncertainty.

The GDPR and the UK GDPR also impose numerous requirements on companies that process personal data of residents from those respective jurisdictions, including requirements relating to processing health and other sensitive personal data, cross-border transfers, notice and consent, and contractual obligations with vendors and service providers who process personal data on behalf of a business.

Both the GDPR and UK GDPR also provide individuals who are residents with certain data privacy rights with respect to an individual’s personal data processed by a business such as, for example, the right of access, the right to rectification, the right to erasure, the right to restrict processing, and the right to data portability.

The GDPR permits data protection authorities to impose significant penalties for violations of the GDPR including potential fines of up to €20 million or 4% of annual global revenues, whichever is greater.

The EU GDPR and the UK GDPR also impose numerous requirements on companies that process personal data of residents from those respective jurisdictions, including requirements relating to processing health and other sensitive personal data, cross-border transfers, notice and consent, and contractual obligations with vendors and service providers who process personal data on behalf of a business.

Both the EU GDPR and UK GDPR also provide individuals who are residents with certain data privacy rights with respect to an individual’s personal data processed by a business such as, for example, the right of access, the right to rectification, the right to erasure, the right to restrict processing, and the right to data portability.

The EU GDPR permits data protection authorities to impose significant penalties for violations of the EU GDPR including potential fines of up to €20 million or 4% of annual global revenues, whichever is greater.

The UK GDPR provides for similar penalties for violations of the UK GDPR.

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Legal developments in Europe have created complexity and uncertainty regarding transfers of personal data from the EU to the United States.

Recently, the EU and the U.S.

Recently, the EU or UK and the U.S.

agreed to a new Data Privacy Framework which will allow businesses to transfer data from the EU to the US in a secure and compliant way.

We also currently rely on the standard contractual clauses with our customers to transfer personal data outside the EU to the U.S., among other data transfer mechanisms pursuant to the GDPR or the UK GDPR.

While the standard contractual clauses and the new Data Privacy Framework have been determined to be adequate personal data transfer mechanism for transfer of personal information from the EU to the U.S.

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As data protection laws expand in number and scope with relevance to the kinds of personal information we process, we may need to modify our data privacy program and practices, and incur additional expenses, to accommodate such expansion and adjustments.

Any failure by us to properly protect customer data we possess or are deemed to possess, in connection with the conduct of clinical trials, could subject us to significant liability.

Our customers use our solutions to collect, manage, and report information in connection with the conduct of clinical trials.

This information may be considered our customers’ proprietary information.

Since we receive and process our customers’ data from customers utilizing our hosted solutions, there is a risk that we could be liable if there were a breach of any obligation to a protected person under contract, standard of practice, or regulatory requirement.

If we fail to properly protect our customers’ data that is in our possession or deemed to be in our possession, we could be subjected to significant liability and our reputation would be harmed.

We rely upon a single internal hosting facility and Amazon Web Services to deliver certain solutions to our customers and any disruption of or interference with our hosting systems, operations, or use of the Amazon Web Services could harm our business and results of operations.

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Our success is heavily dependent upon our intellectual property and other proprietary rights.

We rely upon a combination of trademark, trade secret, copyright, patent, and unfair competition laws, as well as license and access agreements and other contractual provisions, to protect our intellectual property and other proprietary rights.

We rely upon a combination of trademark, trade secret, copyright, and unfair competition laws, as well as license and access agreements and other contractual provisions, to protect our intellectual property and other proprietary rights.

In addition, we attempt to protect our intellectual property and proprietary information by requiring certain of our employees and consultants to enter into confidentiality, noncompetition, and assignment-of-inventions agreements.

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As our business expands both organically and through acquisitions, we may be unable to effectively adapt our current systems to our changing business needs and may fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting which could impair our ability to produce timely and accurate financial statements or comply with applicable laws and regulations.

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), and other applicable securities rules and regulations.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), and other applicable securities rules and regulations.

Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming, and/or costly, and increase demand on our systems and resources.

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If we or our independent registered public accounting firm were to identify a material weakness, and/or if we are unable to assert that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline, and we may be subject to investigation by the SEC.

As a public company, we may incur significant administrative workload and expenses in connection with new and changing compliance requirements .

As a public company with common stock listed on The Nasdaq Global Select Market, we must comply with various laws, regulations, and requirements.

New laws and regulations, as well as changes to existing laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act, the Dodd-Frank Act, and rules adopted by the SEC and by the Nasdaq Global Select Market, may result in increased general and administrative expenses and a diversion of management’s time and attention as we respond to new requirements.

Cash expenditures associated with the acquisition of Immunetrics may create certain liquidity and cash flow risks for us.

We incurred significant transaction costs and integration costs in connection with our acquisition of Immunetrics on June 16, 2023.

While we expected that the transactions costs would be incurred, there are many factors beyond our control that could affect the total amount of the integration expenses associated with the acquisition.

Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately.

In addition to integration-related expenses that we will incur, pursuant to the Merger Agreement we agreed to pay the equity holders of Immunetrics up to $1.8 million that was held back at closing and an aggregate of $8.0 million in earnout payments if Immunetrics achieves specified financial goals through December 31, 2024.

Cash expenditures associated with our recent acquisitions may create certain liquidity and cash flow risks for us.

We incurred significant transaction costs and integration costs in connection with our acquisition of Immunetrics on June 16, 2023 and Pro-ficiency on June 11, 2024.

Moreover, many of the expenses related to the Pro-ficiency acquisition, including integration-related expenses, that will be incurred are, by their nature, difficult to estimate accurately.

To the extent the integration expenses are higher than anticipated, we may experience liquidity or cash flow issues.

The Immunetrics business we acquired may not perform as we or the market expects, which could have an adverse effect on the price of our common stock.

The Immunetrics business, which was merged into the Company through a short form merger in September 2023, may not perform as we or the market expects.

Risks associated with the Immunetrics acquisition include, without limitation:

• integrating businesses is a difficult, expensive, and time-consuming process, and the failure to successfully integrate our businesses with the business of Immunetrics in the expected time frame could adversely affect our financial condition and results of operation

• the addition of Immunetrics has increased the size of our operations, and, if we are not able to manage our expanded operations effectively, our common stock price may be adversely affected

• the extent to which we may realize the expected synergies and cost savings is uncertain at this time

• the success of the Immunetrics acquisition will also depend upon relationships with third parties and Immunetrics’ and our pre-existing customers, which relationships may be affected by customer preferences or public attitudes about the Immunetrics acquisition.

In addition, pursuant to the Merger Agreement entered into in connection with the Immunetrics acquisition, we agreed to pay the equity holders of Immunetrics up to $1.8 million that was held back at closing and an aggregate of $8.0 million in earnout payments, consisting of two payouts of up to $4.0 million each, if Immunetrics achieves specified financial during the calendar years 2023 and 2024.

The Company made the first cash earnout payment, in the aggregate amount of $2.5 million, to the former equity holders and employees of Immunetrics in March 2024.

The second earnout payments, if earned, will be payable and the holdback, less any applicable deductions, will be released in early calendar year 2025.

The Pro-ficiency business we acquired may not perform as we or the market expects, which could have an adverse effect on the price of our common stock.

The Pro-ficiency business, which we acquired Company in June 2024, may not perform as we or the market expects.

Risks associated with the Pro-ficiency acquisition include, without limitation:

(i) integrating businesses is a difficult, expensive, and time-consuming process, and the failure to successfully integrate our businesses with the business of Pro-ficiency in the expected time frame could adversely affect our financial condition and results of operation;

(ii) the addition of Pro-ficiency and its subsidiaries has increased the size of our operations, and, if we are not able to manage our expanded operations effectively, our common stock price may be adversely affected;

(ii) the extent to which we may realize the expected synergies and cost savings is uncertain at this time;

and (iii) the ultimate success of the Pro-ficiency acquisition will also depend upon relationships with third parties and Pro-ficiency’s and our pre-existing customers, which relationships may be affected by customer preferences or public attitudes about the Pro-ficiency acquisition.

Any adverse changes in these relationships could adversely affect our business, financial condition, and results of operations.

The obligations and liabilities of Immunetrics, some of which may be unanticipated or unknown, may be greater than we have anticipated, which may diminish the value of Immunetrics to us.

Immunetrics’ obligations and liabilities, some of which may not have been fully disclosed to us, may be greater than we have anticipated.

The obligations and liabilities of Immunetrics could have a material adverse effect on our business or Immunetrics’ value to us or on our business, financial condition, or results of operations.

Although we have held back $1.8 million of the merger consideration to cover any negative net working capital adjustments (if any) and Immunetrics’ indemnification obligations under the Merger Agreement, such holdback amount may not be sufficient to cover all claims brought against us or Immunetrics in the future in relation to Immunetrics’ business or operations.

In the event that we are responsible for liabilities substantially in excess of the $1.8 million holdback amount and/or any other amounts recovered through rights to indemnification or alternative remedies that might be available to us, or any applicable insurance, we could suffer consequences that would substantially reduce our earnings and cash flows or otherwise materially and adversely affect our business, financial condition, or results of operations.

The obligations and liabilities of Pro-ficiency, some of which may be unanticipated or unknown, may be greater than we have anticipated, which may diminish the value of Pro-ficiency to us.

Pro-ficiency’s obligations and liabilities, some of which may not have been fully disclosed to us, may be greater than we have anticipated.

The obligations and liabilities of Pro-ficiency could have a material adverse effect on our business or Pro-ficiency’s value to us or on our business, financial condition, or results of operations.

Although $1.0 million of the acquisition consideration was placed in escrow to cover any negative net working capital adjustments (if any) and Pro-ficiency’s indemnification obligations under the Stock Purchase Agreement entered into in connection with the acquisition, such escrowed amount may not be sufficient to cover all claims brought against us or Pro-ficiency in the future in relation to Pro-ficiency’s business or operations.

In the event that we are responsible for liabilities substantially in excess of the $1.0 million escrow amount and/or any other amounts recovered through rights to indemnification or alternative remedies that might be available to us, or the $10 million representation and warranty insurance policy we purchased in connection with the acquisition or any applicable insurance, we could suffer consequences that would substantially reduce our earnings and cash flows or otherwise materially and adversely affect our business, financial condition, or results of operations.

Certain Risks Related to Ownership of Our Common Stock

We have been paying quarterly dividends on shares of our common stock, and although there has been a consistent track record of paying these dividends, our Board of Directors may suspend the dividend, and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

Should our Board of Directors suspend the dividend and decide to use those funds to invest more into our business, you may not receive any dividends on your investment in our common stock for the foreseeable future and the success of an investment in shares of our common stock will depend upon any future appreciation in its value.

Shares of our common stock may depreciate in value or may not appreciate in value.

We have discontinued the quarterly dividends on shares of our common stock and do not expect to pay any cash dividends for the foreseeable future.

Our Board of Directors has determined to suspend the quarterly dividends that we have historically paid to holders of our common stock and to use those funds to invest more into our business instead.

We do not expect to pay dividends to our stockholders at any time in the foreseeable future.

Accordingly, investors must rely on sales of their shares after price appreciation, which may not occur, as the only way to realize any return on their investment.

If our operating and financial performance in any given period does not meet any guidance that we provide to the public, the market price of our common stock may decline.

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Even if we do issue public guidance, there can be no assurance that we will continue to do so in the future.

The price of our common stock may fluctuate significantly, and investors could lose all or part of their investments.

Shares of our common stock were sold in our initial public offering (“IPO”) in 1996 at a price of $1.25 per share (on a post-split basis), and our common stock has subsequently traded as high as $90.92 and as low as $0.38 from our IPO through August 31, 2023.

However, an active, liquid, and orderly market for our common stock on the Nasdaq Global Select Market or otherwise may not be sustained, which could depress the trading price of our common stock.

The trading price of our common stock may be subject to wide fluctuations in response to various factors, some of which are beyond our control, including without limitation:

• our quarterly or annual earnings or those of other companies in our industry

• announcements by us or our competitors of significant contracts or acquisitions

• changes in accounting standards, policies, guidance, interpretations, or principles

• general economic and stock market conditions, including disruptions in the world credit and equity markets

• the failure of securities analysts to cover our common stock or changes in financial estimates by analysts

• future sales of our common stock

• the other factors described in these “Risk Factors”

In recent years, the stock market in general, and the market for technology-related companies in particular, has experienced wide price and volume fluctuations.

This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry.

The price of our common stock could fluctuate based upon factors that have little to do with our performance, and these fluctuations could materially reduce our stock price.

In the past, some companies, including companies in our industry, have had volatile market prices for their securities and have had securities class action suits filed against them.

The filing of a lawsuit against us, regardless of the outcome, could have a material adverse effect on our business, financial condition, and results of operations, as it could result in substantial legal costs and a diversion of our management’s attention and resources.

The price of our common stock may be volatile, and our stockholders may not be able to resell shares of our common stock at or above the price they paid.

The trading price of our common stock is volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control.

The trading price of our common stock may be volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control.

Factors that could cause volatility in the market price of our common stock include, but are not limited to:

• achievement of expected software product and consulting service revenues and profitability, including the effects of seasonality on our results of operations, as well as adjustments to our revenues forecasts

• announcements of new products by us or our competitors

• announcements or developments in any intellectual property infringement actions in which we may become involved

our operating results;

• results from, or any delays in, clinical trial programs of our clients and their need for our services

• changes or developments in laws or regulations applicable to our products

• consolidation within the pharmaceutical and biotechnology industries leading to fewer potential customers for our products and services

delays in the release of new or enhanced products or services or undetected errors in our products or services may result in increased cost to us, delayed market acceptance of our products, and delayed or lost revenue;

• adverse actions taken by regulatory agencies with respect to our clinical trials, manufacturing supply chain, or sales and marketing activities

• the success of our efforts to acquire or develop additional products

• announcements concerning our competitors or the pharmaceutical industry in general

• actual or anticipated fluctuations in our operating results

announcements of new products or services by us or our competitors;

the success of our efforts to acquire or develop additional products and services;

the loss of any of our key scientific or management personnel;

changes or developments in laws or regulations applicable to our products or services;

FDA or other U.S.

or foreign regulatory actions affecting us or our industry or other healthcare reform measures in the United States

• changes in financial estimates or recommendations by securities analysts

or foreign regulatory actions affecting us or our industry;

consolidation within the pharmaceutical and biotechnology industries leading to fewer potential customers for our products and services;

trading volume of our common stock;

sales of our common stock by us, our executive officers and directors, or our stockholders in the future;

• general economic and market conditions and overall fluctuations in the United States equity markets, including volatility related to the coronavirus outbreak and related health concerns and/or global political instability

• the loss of any of our key scientific or management personnel

and general economic and market conditions and overall fluctuations in the United States equity markets, including volatility related to the coronavirus outbreak and related health concerns and/or global political instability.

Broad market fluctuations may adversely affect the trading price or liquidity of our common stock.

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We cannot guarantee that we will repurchase any additional shares, and there can be no assurance that any share repurchases will enhance shareholder value because the stock price of our common stock may decline below the levels at which we effected repurchases.

Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and our financial condition and results of operations.

Actual events involving reduced or limited liquidity, defaults, nonperformance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds, have in the past and may in the future lead to market-wide liquidity problems.

For example, in March 2023, Silicon Valley Bank and Signature Bank, and subsequently in May 2023 First Republic Bank, were closed and taken over by the Federal Deposit Insurance Corporation (“FDIC”) as receiver.

Although we did not have any cash or cash equivalent balances on deposit with Silicon Valley Bank, Signature Bank, First Republic Bank, or any other regional banks, investor concerns regarding the U.S.

or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all.

Any decline in available funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations.

Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our liquidity and our current and/or projected business operations and financial condition and results of operations.

ITEM 1B – UNRESOLVED STAFF COMMENTS

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 1A. Risk Factors