Simulations Plus, Inc. 10-K

ITEM 9A – CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our Chief Executive Officer and our Chief Financial Officer, after evaluating our “disclosure controls and procedures” (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this Report (the “Evaluation Date”), have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, where appropriate, to allow timely decisions regarding required disclosure. Management Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP. Management assessed our internal control over financial reporting as of August 31, 2024, the end of our fiscal year. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on this assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with U.S. GAAP. We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors. Inherent Limitations on Effectiveness of Controls Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Changes in Internal Control over Financial Reporting No change in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 42 Table of Contents ITEM 9B – OTHER INFORMATION Rule 10b5-1 Trading Plans The adoption or termination of contracts, instructions or written plans for the purchase or sale of our securities by our Section 16 officers and directors for the quarter ended August 31, 2024, each of which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (“Rule 10b5-1 Plan”), were as follows: Name Title Action Date Adopted Expiration Date Aggregate # of Securities to be Purchased/Sold John DiBella (1) Business Unit President Adoption 07/24/2024 10/25/2025 69,689 Jill-Fiedler-Kelly (2) Business Unit President Adoption 08/08/2024 10/25/2025 20,000 Brett Howell (3) Business Unit President Termination 01/09/2023 07/31/2024 28,875 John Paglia (4) Director Termination 08/09/2023 07/31/2024 13,000 (1) On July 24, 2024, John DiBella , entered into a pre-arranged stock trading plan pursuant to Rule 10b5-1, which provides for (i) the potential exercise of vested stock options and the associated sale of up to 26,889 shares of Company common stock underlying such options, and (ii) the potential sale of up to an additional 42,800 shares of Company common stock. The plan expires on October 25, 2025, or upon the earlier completion of all authorized transactions under the plan. (2) On July 24, 2024, Jill Fiedler-Kelly , entered into a pre-arranged stock trading plan pursuant to Rule 10b5-1, which provides for the potential exercise of vested stock options and the associated sale of up to 20,000 shares of Company common stock underlying such options. The plan expires on October 25, 2025, or upon the earlier completion of all authorized transactions under the plan. (3) On July 31, 2024 , the pre-arranged stock trading plan pursuant to Rule 10b5-1, adopted by Brett Howell on January 9, 2023, automatically terminated pursuant to its terms. The expired plan provided for the potential sale of up to 28,875 shares of Company common stock until July 31, 2024. (4) On July 31, 2024 , the pre-arranged stock trading plan pursuant to Rule 10b5-1, adopted by John Paglia on August 9, 2023, automatically terminated pursuant to its terms. The expired plan provided for (i) the potential exercise of vested stock options and the associated sale of up to 11,000 shares of Company common stock underlying such options, and (ii) the potential sale of up to an additional 2,000 shares of Company common stock until July 31, 2024. Other than those disclosed above, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” in each case as defined in Item 408 of Regulation S-K. Please refer to the information included in Part II, Item 5 under the heading “Repurchases” for information regarding the Company’s effective share repurchase program. ITEM 9C – DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 43 Table of Contents PART III ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE Information required by this item is incorporated herein by reference from the Company’s definitive proxy statement, to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Report (the “Proxy Statement”). We have adopted a Code of Conduct (the "code of conduct") that applies to each of our directors and employees, including our principal executive officer, principal financial officer, controller, and all other employees performing similar functions. The code of conduct is publicly available on our website in the “Investors” section of our corporate website at www.simulations-plus.com under “Investors – Shareholder Information.” If we make any substantive amendments to the code of conduct or grant any waiver, including any implicit waiver, from a provision of the code of conduct, we will disclose the nature of the amendment or waiver on our website or in a Current Report on Form 8-K. ITEM 11 – EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the Proxy Statement. ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated by reference to the Proxy Statement. ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item is incorporated by reference to the Proxy Statement. ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES Our independent registered public accounting firm is Rose, Snyder & Jacobs LLP, Encino, CA, Auditor Firm ID: 468 . The information required by this item is incorporated by reference to the Proxy Statement. 44 Table of Contents PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES EXHIBIT NUMBER DESCRIPTION 2.1^ Agreement and Plan of Merger, dated July 23, 2014, by and among the Company, Cognigen Corporation and the other parties thereto, incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K/A filed November 18, 2014. 2.2^ Stock Purchase Agreement by and among Simulations Plus, Inc., DILIsym Services, Inc., the Shareholders’ Representative and the Shareholders of DILIsym Services, Inc., incorporated by reference to Exhibit 10.13 to the Company’s Form 10-Q filed July 10, 2017. 2.3^ Share Purchase and Contribution Agreement Relating to Lixoft, dated March 31, 2020, incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed April 2, 2020. 2.4^ Agreement and Plan of Merger, dated June 16, 2023, by and among Simulations Plus, Inc., Insight Merger Sub, Inc., Immunetrics, Inc. and LaunchCyte LLC, incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed June 20, 2023. 2.5^+ Stock Purchase Agreement, by and among the Company, Pro-ficiency Holdings, Inc. (“Pro-ficiency”), each of the stockholders of Pro-ficiency (collectively, the “Sellers”) and WRYP Stockholders Services, LLC, solely in its capacity as the Sellers’ Representative, dated June 11, 2024, incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed June 12, 2024. 3.1 Articles of Incorporation of the Company, incorporated by reference to an Exhibit 3.1 to the Company’s Form 10-K filed November 29, 2010. 3.2 Amended and Restated Bylaws of the Company, incorporated by reference to an exhibit to the Company’s Form 10-K filed November 29, 2010. 3.3 Certificate of Amendment to the Amended and Restated Bylaws of Simulations Plus, Inc., incorporated by reference to Appendix A to the Company’s Definitive Schedule 14A Proxy Statement filed December 31, 2018. 4.1 Form of Common Stock Certificate, incorporated by reference to the Company’s Registration Statement on Form SB-2 (Registration No. 333-6680) filed March 25, 1997. 4.2 Share Exchange Agreement, incorporated by reference to the Company’s Registration Statement on Form SB-2 (Registration No. 333-6680) filed March 25, 1997. 4.3 Description of Securities, incorporated by reference to Exhibit 4.1 to the Company’s 10-K filed October 27, 2023. 10.1(†) The Company’s 2007 Stock Option Plan, as amended, incorporated by reference to Exhibit 10.3 to the Company’s Form 10-K filed April 9, 2014. 10.2 Second Amendment to Lease by and between the Company and Crest Development LLC, dated as of May 1, 2016, incorporated by reference to Exhibit 10.4(d) to the Company’s Form 10-K filed November 14, 2016. 10.3 Form of Indemnification Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed August 10, 2016. 10.4(†) 2017 Equity Incentive Plan, incorporated by reference to Appendix A to the Company’s Definitive Schedule 14A Proxy Statement filed December 29, 2016. 10.5 Third Amendment to Lease by and between the Company and Crest Development LLC, dated as of December 28, 2020 incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed January 4, 2021. . 10.6(†) Simulation Plus, Inc. 2021 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed June 8, 2021. 10.7^ Confirmation for Fixed Dollar Accelerated Share Repurchase Transaction, dated as of January 11, 2023, by and between Simulations Plus, Inc. and Morgan Stanley & Co. LLC, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed January 12, 2023. 10.8 First Amendment to 2021 Equity Incentive Plan of Simulations Plus, Inc., dated February 9, 2023, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed February 13, 2023. 10.9 Fourth Amendment to Lease by and between the Company and Crest Development LLC, dated as of February 17, 2023, incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed April 7, 2023. 10.10^ Earnout Agreement by and among Simulations Plus, Inc., Insight Merger Sub, Inc., Immunetrics, Inc. and LaunchCyte LLC, dated June 16, 2023, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed June 20, 2023. 10.11(†) Amended and Restated Employment Agreement between Simulations Plus, Inc. and Shawn O’Connor, dated November 1, 2023, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed November 1, 2023. 10.12(†) Amended and Restated Employment Agreement between Simulations Plus, Inc. and Will Frederick, dated November 1, 2023, incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed November 1, 2023. 10.13(†) Amended and Restated Employment Agreement between Simulations Plus, Inc. and John DiBella, dated November 1, 2023, incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed November 1, 2023. 10.14(†) Amended and Restated Employment Agreement between Simulations Plus, Inc. and Jill Fiedler-Kelly, dated November 1, 2023, incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K filed November 1, 2023. 45 Table of Contents 10.15(†) Second Amendment to 2021 Equity Incentive Plan, of Simulations Plus, Inc., dated February 8, 2024, incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed February 12, 2024. 19.1 * Simulations Plus, Inc. Insider Trading Policy 21.1 * List of Subsidiaries. 23.1 * Consent of Independent Registered Public Accounting Firm. 24.1 * Power of Attorney (see signature page) 31.1 * Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 * Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 ** Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 97.1 * Simulations Plus, Inc. Compensation Recovery Policy 101.INS*** Inline XBRL Instance Document 101.SCH*** Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents 104*** Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101 attachments). _____________________________ * Filed herewith. ** Furnished herewith. *** The XBRL related information in Exhibit 101 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document. ^ Schedules, exhibits, and similar supporting attachments or agreements are omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish a supplemental copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon request. † Refers to management contracts or compensatory plans or arrangements. + Portions of the exhibit, marked by brackets, have been omitted because the omitted information (i) is not material and (ii) would likely cause competitive harm if publicly disclosed. 46 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. October 30, 2024 SIMULATIONS PLUS, INC. By: /s/ Will Frederick Will Fredrick Chief Financial Officer & Chief Operating Officer (Principal financial officer) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Will Frederick his or her true and lawful attorney-in-fact and agent, with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. 47 Table of Contents Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title /s/ Shawn O’Connor Chief Executive Officer (Principal executive officer) Shawn O’Connor October 30, 2024 /s/ Walter S. Woltosz Chairman of the Board of Directors Walter S. Woltosz October 30, 2024 /s/ Dr. Lisa LaVange Director Dr. Lisa LaVange October 30, 2024 /s/ Dr. Daniel Weiner Director Dr. Daniel Weiner October 30, 2024 /s/ Sharlene Evans Director Sharlene Evans October 30, 2024 /s/ Dr. John K. Paglia Director Dr. John K. Paglia October 30, 2024 /s/ Will Frederick Chief Financial Officer & Chief Operating Officer (Principal financial officer and principal accounting officer) Will Frederick October 30, 2024 48 Table of Contents SIMULATIONS PLUS, INC. & SUBSIDIARIES CONTENTS August 31, 2024, 2023 and 2022 Page REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F- 2 - F-4 FINANCIAL STATEMENTS Consolidated Balance Sheets F- 5 Consolidated Statements of Operations and Comprehensive Income F- 6 Consolidated Statements of Shareholders’ Equity F- 7 Consolidated Statements of Cash Flows F- 8 Notes to Consolidated Financial Statements F- 9 – F- 33 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Simulations Plus, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Simulations Plus, Inc. and Subsidiaries (the Company) as of August 31, 2024, and 2023, and the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended August 31, 2024, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2024, and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended August 31, 2024, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of August 31, 2024, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated October 30, 2024, expressed an unqualified opinion. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue Recognition – Contract progress estimates Description of the Matter As discussed in Note 2 to the Consolidated Financial Statements, the Company earns a portion of its revenue through consulting service agreements. For performance obligations related to services that are required to be recognized over time, the Company generally measures its progress to completion using an input measure of total labor hours incurred divided by total labor hours expected to be incurred. F-2 Table of Contents Auditing revenue recognition is complex and highly judgmental due to the variability and uncertainty associated with the Company’s assessment of measure of progress. Changes in these estimates would have a significant effect on the amount of revenue recognized. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls that address the risk of material misstatement of consulting services revenue including those associated with estimated labor hours expected to be incurred. We tested controls over management’s process to collect, review, and approve the data used in assessing revenue recognized over time. To test the measures of progress used for performance obligations related to services that are required to be recognized over time, our audit procedures included, among others, evaluating the appropriateness of the Company’s accounting policy for each type of arrangement, testing the identified measure of performance by reading contracts with customers, including all amendments, and reviewing the contract analyses prepared by management. We evaluated whether the selected measures of progress towards satisfaction of performance obligations were applied consistently. We also tested the completeness and accuracy of the underlying data used for the measure of progress. Rose, Snyder & Jacobs LLP We have served as the Company’s auditor since 2004. Encino, California October 30, 2024 F-3 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Simulations Plus, Inc. Opinion on Internal Control over Financial Reporting We have audited Simulations Plus, Inc. and Subsidiaries (the Company’s) internal control over financial reporting as of August 31, 2024, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2024, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet and the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows for the Company, and our report dated October 30, 2024 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Rose, Snyder & Jacobs LLP Encino, CA October 30, 2024 F-4 Table of Contents SIMULATIONS PLUS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) August 31, 2024 August 31, 2023 ASSETS Current assets Cash and cash equivalents $ 10,311 $ 57,523 Accounts receivable, net of allowance for credit losses of $ 149 and $ 46 9,136 10,201 Prepaid income taxes 2,197 804 Prepaid expenses and other current assets 7,753 3,904 Short-term investments 9,944 57,940 Total current assets 39,341 130,372 Long-term assets Capitalized computer software development costs, net of accumulated amortization of $ 18,727 and $ 17,199 12,499 11,335 Property and equipment, net 812 671 Operating lease right-of-use assets 1,027 1,247 Intellectual property, net of accumulated amortization of $ 5,490 and $ 9,301 23,130 8,689 Other intangible assets, net of accumulated amortization of $ 3,177 and $ 2,107 23,210 12,825 Goodwill 96,078 19,099 Deferred tax assets — 1,438 Other assets 542 425 Total assets $ 196,639 $ 186,101 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 602 $ 144 Accrued compensation 4,513 4,392 Accrued expenses 2,043 659 Contracts payable - current portion 2,440 3,250 Operating lease liability - current portion 475 442 Deferred revenue 1,996 3,100 Total current liabilities 12,069 11,987 Long-term liabilities Deferred income taxes, net 1,608 — Operating lease liability - net of current portion 531 755 Contracts payable - net of current portion — 3,330 Total liabilities 14,208 16,072 Commitments and contingencies — — Shareholders' equity Preferred stock, $ 0.001 par value — 10,000,000 shares authorized; no shares issued and outstanding $ — $ — Common stock, $ 0.001 par value and additional paid-in capital — 50,000,000 shares authorized; 20,051,134 and 19,937,961 shares issued and outstanding 152,328 144,974 Retained earnings 30,354 25,196 Accumulated other comprehensive loss ( 251 ) ( 141 ) Total shareholders' equity 182,431 170,029 Total liabilities and shareholders' equity $ 196,639 $ 186,101 The accompanying notes are an integral part of these Consolidated Financial Statements. F-5 Table of Contents SIMULATIONS PLUS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME Years ended August 31, (in thousands, except per common share amounts) 2024 2023 2022 Revenues Software $ 41,024 $ 36,517 $ 32,642 Services 28,989 23,060 21,264 Total revenues 70,013 59,577 53,906 Cost of revenues Software 6,478 3,627 3,060 Services 20,384 8,003 7,762 Total cost of revenues 26,862 11,630 10,822 Gross profit 43,151 47,947 43,084 Operating expenses Research and development 5,754 4,504 3,208 Sales and marketing 8,915 6,558 4,879 General and administrative 22,351 28,160 20,086 Total operating expenses 37,020 39,222 28,173 Income from operations 6,131 8,725 14,911 Other income 6,280 2,970 204 Income before income taxes 12,411 11,695 15,115 Provision for income taxes ( 2,457 ) ( 1,734 ) ( 2,632 ) Net income $ 9,954 $ 9,961 $ 12,483 Earnings per share Basic $ 0.50 $ 0.50 $ 0.62 Diluted $ 0.49 $ 0.49 $ 0.60 Weighted-average common shares outstanding Basic 19,987 20,075 20,196 Diluted 20,301 20,465 20,749 Other comprehensive (loss) income, net of tax Foreign currency translation adjustments ( 105 ) 167 ( 265 ) Unrealized losses on available-for-sale securities ( 5 ) — — Comprehensive income $ 9,844 $ 10,128 $ 12,218 The accompanying notes are an integral part of these Consolidated Financial Statements. F-6 Table of Contents SIMULATIONS PLUS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years ended August 31, (in thousands, except per common share amounts) 2024 2023 2022 Common stock and additional paid in capital Balance, beginning of period $ 144,974 $ 138,512 $ 133,418 Exercise of stock options 731 1,543 891 Stock-based compensation 6,023 4,319 2,686 Shares issued to Directors for services 600 600 351 Shares issued - Lixoft — — 1,166 Balance, end of period 152,328 144,974 138,512 Retained earnings Balance, beginning of period 25,196 40,044 32,407 Declaration of dividends ( 4,796 ) ( 4,809 ) ( 4,846 ) Repurchase and retirement of common shares — ( 20,000 ) — Net income 9,954 9,961 12,483 Balance, end of period 30,354 25,196 40,044 Accumulated other comprehensive loss Balance, beginning of period ( 141 ) ( 308 ) ( 43 ) Other comprehensive (loss) income ( 110 ) 167 ( 265 ) Balance, end of period ( 251 ) ( 141 ) ( 308 ) Total shareholders’ equity $ 182,431 $ 170,029 $ 178,248 Cash dividends declared per common share $ 0.24 $ 0.24 $ 0.24 The accompanying notes are an integral part of these Consolidated Financial Statements. F-7 Table of Contents SIMULATIONS PLUS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended August 31, (in thousands) 2024 2023 2022 Cash flows from operating activities Net income $ 9,954 $ 9,961 $ 12,483 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 5,665 3,840 3,574 Change in fair value of contingent consideration ( 1,639 ) 680 283 Amortization of investment discounts ( 1,116 ) ( 1,134 ) 1,678 Stock-based compensation 6,538 4,828 3,037 Deferred income taxes ( 1,765 ) ( 2,095 ) ( 270 ) Loss from disposal of assets — 6 — Impairment of other intangibles — 500 — Currency translation adjustments ( 105 ) 167 ( 265 ) (Increase) decrease in Accounts receivable 3,129 4,097 ( 3,936 ) Prepaid income taxes ( 1,393 ) 587 ( 379 ) Prepaid expenses and other assets ( 2,143 ) ( 501 ) 1,081 Increase (decrease) in Accounts payable ( 477 ) ( 81 ) ( 162 ) Other liabilities ( 768 ) 832 ( 1,437 ) Accrued income taxes — ( 7 ) — Deferred revenue ( 2,560 ) 176 2,213 Net cash provided by operating activities 13,320 21,856 17,900 Cash flows from investing activities Purchases of property and equipment ( 566 ) ( 453 ) ( 819 ) Purchase of short-term investments ( 67,159 ) ( 95,045 ) ( 100,846 ) Proceeds from maturities of short-term investments 71,089 114,907 109,121 Proceeds from sales of investments 45,177 — — Purchased intangibles ( 541 ) ( 601 ) — Business acquisition, net of cash acquired ( 98,773 ) ( 8,223 ) — Capitalized computer software development costs ( 3,194 ) ( 3,219 ) ( 3,151 ) Net cash (used in) provided by investing activities ( 53,967 ) 7,366 4,305 Cash flows from financing activities Payment of dividends ( 4,796 ) ( 4,809 ) ( 4,846 ) Payments on contracts payable ( 2,500 ) — ( 3,667 ) Proceeds from the exercise of stock options 731 1,543 891 Repurchase and retirement of common shares — ( 20,000 ) — Net cash used in financing activities ( 6,565 ) ( 23,266 ) ( 7,622 ) Net (decrease) increase in cash and cash equivalents ( 47,212 ) 5,956 14,583 Cash and cash equivalents, beginning of period $ 57,523 $ 51,567 $ 36,984 Cash and cash equivalents, end of period $ 10,311 $ 57,523 $ 51,567 Supplemental disclosures of cash flow information Income taxes paid $ 5,689 $ 3,204 $ 3,233 Non-Cash Investing and Financing Activities Stock issued for acquisition of Lixoft $ — $ — $ 1,166 Creation of contract liabilities from acquisition of subsidiaries $ — $ 5,900 $ — Right of use assets capitalized $ 212 $ 227 $ 624 The accompanying notes are an integral part of these Consolidated Financial Statements. F-8 Table of Contents Simulations Plus, Inc. Notes to Consolidated Financial Statements For the Fiscal Year Ended August 31, 2024 NOTE 1 – DESCRIPTION OF BUSINESS At the beginning of fiscal year 2024, the Company reorganized its internal structure to create a more integrated and cohesive operating platform based on key product and services offerings rather than separate divisions based on its prior acquisitions. This business unit restructuring is engendering greater scientific collaboration and knowledge sharing within the Company that leads to identifying new opportunities that both advance the Company’s business objectives and deepen client relationships. Continuing with our strategic plan of aligning our business units around products and services, the Pro-ficiency acquisition resulted in two new business units, Adaptive Learning & Insights and Medical Communications, giving the Company six business units that include: • Cheminformatics (“CHEM”); • Physiologically Based Pharmacokinetics (“PBPK”); • Clinical Pharmacology and Pharmacometrics (“CPP”); • Quantitative Systems Pharmacology (“QSP”); • Adaptive Learning & Insights (“ALI”); and • Medical Communications (“MC”). For more than 25 years, Simulations Plus has been a leading provider in the biosimulation market, offering end-to-end solutions across the drug development continuum, including guiding early drug discovery, establishing pre-clinical protocols, developing clinical programs, enabling clinical trial operations, facilitating regulatory submissions for product approval, and supporting commercial market launches. We are 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 learning technology. 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. Our customers use our software programs and scientific consulting 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. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, among other estimates, assumptions used in the allocation of the transaction price to separate performance obligations, estimates towards the measure of progress of completion on fixed-price service contracts, the determination of fair values and useful lives of long-lived assets as well as intangible assets, goodwill, allowance for credit losses for accounts receivable, recoverability of deferred tax assets, recognition of deferred revenue, determination of fair value of equity-based awards, and assumptions used in testing for impairment of long-lived assets. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements. Revenue Recognition We generate revenue primarily from the sale of software licenses and by providing consulting services to the pharmaceutical industry for drug development. In accordance with ASC 606, we determine revenue recognition through the following steps: F-9 Table of Contents i. Identification of the contract, or contracts, with a customer ii. Identification of the performance obligations in the contract iii. Determination of the transaction price iv. Allocation of the transaction price to the performance obligations in the contract v. Recognition of revenue when, or as, we satisfy a performance obligation Components of Revenue The following is a description of principal activities from which the Company generates revenue. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. Standalone selling prices are determined based on the prices at which the Company separately sells its services or goods. Software Revenues: Software revenues are generated primarily from sales of software licenses at the time the software is unlocked, and the term commences. The license period typically is one year or less. Along with the license, a di minimis amount of customer support is provided to assist the customer with the software. Should the customer need more than a di minimis amount of support, they can choose to enter into a separate contract for additional training. Most software is installed on our customers’ servers and the Company has no control of the software once the sale is made except for the licensing parameters that control numbers of users, modules, and expiration dates. Payments are generally due upon invoicing on a net-30 basis, unless other payment terms are negotiated with the customer based on customer history. Typical industry standards apply. For certain software arrangements the Company hosts the licenses on servers maintained by the Company. Revenue for those arrangements is accounted as Software as a Service over the life of the contract. These arrangements account for a small portion of software revenues of the Company. Consulting Contracts: Consulting services provided to our customers are generally recognized over time as the contracts are performed and the services are rendered. The Company measures its consulting revenue based on time expended compared to total estimated hours to complete a project. The Company believes the method chosen for its contract revenue best depicts the transfer of benefits to the customer under the contracts. Payments are generally due upon invoicing on a net-30 basis, unless other payment terms are negotiated with the customer based on customer history. Typical industry standards apply. Grant revenue: The Company receives government assistance in the form of cash grants which vary in size, duration, and conditions from domestic governmental agencies. Accounting for the grant revenue does not fall under ASC 606, Revenue from Contracts with Customers. For government assistance in which no specific US GAAP applies, the Company accounts for such transactions as revenue and by analogy to a grant model. The grant revenue is recognized on a gross basis. The grant revenue is recognized over the duration of the program when the conditions attached to the grant are achieved. If conditions are not satisfied, the grants are often subject to reduction, repayment, or termination. The Company classifies the impact of government assistance on the accompanying Consolidated Statements of Operations and Comprehensive Income as services revenue. The Company received assistance from domestic governmental agencies to provide reimbursement for various costs incurred for research and development. These include direct grant awards and subawards. The grants awarded are currently set to expire at various dates through 2025. The Company recognized $ 1.0 million, $ 1.1 million, and $ 0.7 million for the fiscal years ended August 31, 2024, 2023, and 2022, respectively, within Services revenues on the Consolidated Statements of Operations and Comprehensive Income related to such assistance. Amounts that have been earned but not yet funded are included in Accounts Receivable. Computer equipment allowable by the grants are classified under Fixed Assets. Subawards due to unrelated entities are classified under Accrued Expenses. Remaining Performance Obligations F-10 Table of Contents As of August 31, 2024, remaining performance obligations were $ 10.8 million. Ninety-seven percent of the remaining performance obligations are expected to be recognized over the next twelve months , with the remainder expected to be recognized thereafter. Disaggregation of Revenues The components of revenue for the fiscal years ended August 31, 2024, 2023, and 2022 were as follows: Years ended August 31, (in thousands) 2024 2023 2022 Software licenses Point in time $ 40,068 $ 35,369 $ 31,587 Over time 956 1,148 1,055 Services Over time 28,989 23,060 21,264 Total revenues $ 70,013 $ 59,577 $ 53,906 Contract Balances Contract asset excluding accounts receivable balances as of August 31, 2024, 2023, and 2022, were $ 5.9 million, $ 2.7 million, and $ 1.7 million, respectively. During the fiscal year ended August 31, 2024, the Company recognized $ 2.9 million of revenue that was included in contract liabilities as of August 31, 2023, and during the fiscal year ended August 31, 2023, the Company recognized $ 2.6 million of revenue that was included in contract liabilities as of August 31, 2022. Deferred Commissions Sales commissions earned by our sales force and our commissioned sales representatives are considered incremental and recoverable costs of obtaining a contract with a customer. We apply the practical expedient as described in ASC 340-40-25-4 to expense costs as incurred for sales commissions, since the amortization period of the asset that we otherwise would have recognized is one year or less. This expense is included in the consolidated statements of operations and comprehensive income as sales and marketing expense. Cash and Cash Equivalents For purposes of the statements of cash flows, we consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Restricted cash that was included within cash and cash equivalents as presented within our consolidated balance sheets as of August 31, 2024 and our consolidated statements of cash flows for the fiscal year ended August 31, 2024 was $ 0.1 million. The Company determined this to be immaterial. The restriction required us to maintain a minimum cash deposit in the Pro-ficiency bank account to collateralize an outstanding corporate credit card balance. The associated corporate credit card program was terminated as part of the integration of Pro-ficiency and the cash restriction was removed as of October 4, 2024. Accounts Receivable and Allowance for Credit Losses The Company extends credit to its customers in the normal course of business. The Company evaluates its allowance for credit losses based on its estimate of the collectability of its trade accounts receivable. As part of this assessment, the Company considers various factors including the financial condition of the individual companies with which it does business, the aging of receivable balances, historical experience, changes in customer payment terms, current market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, the Company’s estimates and judgments with respect to the collectability of its receivables are subject to greater uncertainty than in more stable periods. Accounts receivable balances will be charged off against the allowance for credit losses after all means of collection have been exhausted and the potential for recovery is considered remote. The activity in the allowance for credit losses related to our trade receivables is summarized as follows: F-11 Table of Contents Years ended August 31, (in thousands) 2024 2023 2022 Balance, beginning of period $ 46 $ 12 $ 78 Provision for credit losses 189 77 ( 66 ) Write-offs ( 86 ) ( 43 ) — Balance, end of period $ 149 $ 46 $ 12 Investments The Company may invest excess cash balances in short-term and long-term marketable debt securities. Investments may consist of certificates of deposit, money market accounts, government-sponsored enterprise securities, corporate bonds, and/or commercial paper within the parameters of our Investment Policy and Guidelines. The Company accounts for its investments in marketable securities in accordance with ASC 320, Investments – Debt and Equity Securities. This statement requires debt securities to be classified into three categories: Held-to-maturity—Debt securities that the entity has the positive intent and ability to hold to maturity are measured at amortized cost and are presented at the net amount expected to be collected. Any change in the allowance for credit losses during the period is reflected in earnings. Discounts and premiums to par value of the debt securities are amortized to interest income/expense over the term of the security. Trading Securities—Debt securities that are bought and held primarily for the purpose of selling in the near term are reported at fair value, with unrealized gains and losses included in earnings. Available-for-Sale (“AFS”)—Debt securities not classified as either securities held-to-maturity or trading securities are reported at fair value. For AFS debt securities in an unrealized-loss position, we evaluate as of the balance sheet date whether the unrealized losses are attributable to a credit loss or other factors. The portion of unrealized losses related to a credit loss is recognized in earnings, and the portion of unrealized loss not related to a credit loss is recognized in other comprehensive income (loss). For AFS debt securities, the unrealized gains and losses are included in other comprehensive income until realized, at which time they are reported through net income. We classify our investments in marketable debt securities based on the facts and circumstances present at the time of purchase of the securities. We subsequently reassess the appropriateness of that classification at each reporting date. As of August 31, 2024, all of our investments were classified as AFS, as we sold the previously classified held-to-maturity securities to fund our acquisition of Pro-ficiency. All of our investments were classified as held-to-maturity for the fiscal year ended August 31, 2023. Research & Development and Capitalized Software Development Costs 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 $ 9.0 million during fiscal year 2024, of which $ 3.3 million was capitalized. R&D expenditures were $ 7.8 million during fiscal year 2023, of which $ 3.3 million was capitalized. R&D expenditures during fiscal year 2022 were $ 6.4 million, of which $ 3.2 million was capitalized. Software development costs are capitalized in accordance with ASC 985-20. Capitalization of software development costs begins upon the establishment of technological feasibility and is discontinued when the product is available for sale. The establishment of technological feasibility and the ongoing assessment for recoverability of capitalized software development costs require considerable judgment by management with respect to certain external factors including, but not limited to, technological feasibility, anticipated future gross revenue, estimated economic life, and changes in software and hardware technologies. Capitalized software development costs are comprised primarily of salaries and direct payroll-related costs and the purchase of existing software to be used in our software products. F-12 Table of Contents Amortization of capitalized software development costs is calculated on a product-by-product basis on the straight-line method over the estimated economic life of the products (not to exceed five years ). Amortization of software development costs amounted to $ 2.1 million, $ 1.5 million, and $ 1.2 million for the fiscal years ended August 31, 2024, 2023, and 2022 , respectively. We expect future amortization expense to vary due to increases in capitalized computer software development costs. The Company assesses capitalized computer software development costs for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Property and Equipment Property and equipment are recorded at cost, or fair market value for property and equipment acquired in business combinations, less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives as follows: Equipment 5 years Computer equipment 3 to 7 years Furniture and fixtures 5 to 7 years Leasehold improvements Shorter of the asset life or lease term Maintenance and minor replacements are charged to expense as incurred. Gains and losses on disposals are included in the results of operations. Internal-use Software We have capitalized certain internal-use software costs in accordance with ASC 350-40, which are included in intangible assets. The amortization of such costs is classified as general and administrative expenses on the consolidated statements of operations. Maintenance of and minor upgrades to internal-use software are also classified as general and administrative expenses as incurred. Leases We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities (current and long-term) in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at the commencement date. The operating lease ROU asset also includes any lease payments made at or before the commencement date and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. Supplemental information related to operating leases was as follows as of August 31, 2024: (in thousands) ROU assets $ 1,027 Lease liabilities, current $ 475 Lease liabilities, long-term $ 531 Operating lease costs $ 503 Weighted-average remaining lease term 2.42 years Weighted-average discount rate 5.46 % Business units and internal restructuring F-13 Table of Contents Consistent with the reorganization of our internal structuring to move away from divisions based on our prior acquisitions to business units organized around key product and service offerings, as of August 31, 2024, our reporting units now include the following business units: • Cheminformatics, or CHEM; • Physiologically Based Pharmacokinetics, or PBPK; • Quantitative Systems Pharmacology, or QSP; • Clinical Pharmacology and Pharmacometrics, or CPP; • Adaptive Learning & Insights, or ALI; and • Medical Communications, or MC. As part of this reorganization, we also took the opportunity to evaluate our departmental structure with a focus on continuing to improve operational performance and profitability. Accordingly, we moved all services personnel into cost of revenues departments, all research and development (“R&D”) personnel into R&D expense departments, all sales and marketing personnel into sales and marketing expense departments, and all overhead personnel into general and administrative expense departments. To provide investors improved visibility to our progress, we also decided to report separately our sales and marketing expenses from our general and administrative expenses. Intangible Assets and Goodwill We perform valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and recognize the assets acquired and liabilities assumed at their acquisition-date fair value. Acquired intangible assets include customer relationships, software, trade names, and noncompete agreements. We determine the appropriate useful life by performing an analysis of expected cash flows based on historical experience of the acquired businesses. Finite-lived intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the pattern in which the majority of the economic benefits are expected to be consumed. Finite-lived intangible assets subject to amortization are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets. Goodwill and indefinite-lived intangible assets are tested for impairment annually or when events or circumstances change that would indicate that they might be impaired. Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations. Goodwill and the other assets and liabilities acquired as part of the Immunetrics acquisition have been assigned to our QSP reporting unit. Goodwill and the other assets and liabilities acquired as part of the Pro-ficiency acquisition have been assigned to our ALI and MC reporting units. Goodwill and intangible assets are tested for impairment at the reporting unit level, which is either one level below or the same level as an operating segment. Reconciliation of Goodwill for the fiscal year ended August 31, 2024: (in thousands) CPP QSP ALI MC Total Balance, August 31, 2022 $ 7,323 $ 5,598 $ — $ — $ 12,921 Addition — 6,178 — — 6,178 Impairments — — — — — Balance, August 31, 2023 $ 7,323 $ 11,776 $ — $ — $ 19,099 Addition — — 31,108 45,871 76,979 Impairments — — — — — Balance, August 31, 2024 $ 7,323 $ 11,776 $ 31,108 $ 45,871 $ 96,078 The following table summarizes other intangible assets as of August 31, 2024: F-14 Table of Contents (in thousands) Amortization Period Acquisition Value Accumulated Amortization Net Book Value Trade names None $ 12,610 $ — $ 12,610 Covenants not to compete Straight line 2 to 3 years 100 23 77 Other internal use software Straight line 3 to 13 years 608 47 561 Customer relationships Straight line 8 to 14 years 10,540 2,726 7,814 ERP Straight line 15 years 2,529 381 2,148 $ 26,387 $ 3,177 $ 23,210 The following table summarizes other intangible assets as of August 31, 2023: (in thousands) Amortization Period Acquisition Value Accumulated Amortization Net Book Value Trade names None $ 4,210 $ — $ 4,210 Covenants not to compete Straight line 2 years 30 3 27 Other internal use software Straight line 3 to 13 years 350 10 340 Customer relationships Straight line 8 to 14 years 8,230 1,887 6,343 ERP Straight line 15 years 2,112 207 1,905 $ 14,932 $ 2,107 $ 12,825 Total amortization expense for the fiscal years ended August 31, 2024, 2023, and 2022 was $ 1.1 million, $ 0.6 million, and $ 0.6 million , respectively. Estimated future amortization of finite-lived intangible assets for the next five fiscal years are as follows: (in thousands) Years Ending August 31, Amount 2025 $ 1,288 2026 $ 1,272 2027 $ 1,221 2028 $ 1,059 2029 $ 1,059 Fair Value of Financial Instruments Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The categories are as follows: Level Input: Input Definition: Level I Inputs that are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date. Level II Inputs, other than quoted prices included in Level I, that are observable for the asset or liability through corroboration with market data at the measurement date. Level III Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. For certain of our financial instruments, including accounts receivable, accounts payable, and accrued compensation and other accrued expenses, the carrying amounts are representative of their fair values due to their short maturities. F-15 Table of Contents We invest a portion of our excess cash balances in short-term debt securities. Short-term debt securities investments as of August 31, 2024, and 2023, consisted of corporate bonds and term deposits with maturities remaining of less than 12 months. In addition, under the fair-value hierarchy, the fair market values of the Company’s cash equivalents and investments are Level I. We may also invest excess cash balances in certificates of deposit, money market accounts, government-sponsored enterprise securities, and/or commercial paper. We account for our investments in accordance with ASC 320, Investments – Debt and Equity Securities. As of August 31, 2024, all investments were classified as AFS securities, as we recently sold securities previously classified as held-to-maturity to fund the acquisition that closed on June 11, 2024, as discussed in Note 12. Unrealized losses on investments as of August 31, 2024 were insignificant and not indicative of a change in credit quality, thus no allowance for credit losses has been recorded. Unrealized losses on investments as of August 31, 2023 were primarily caused by rising interest rates rather than changes in credit quality, thus we did not record an allowance for credit losses. The following tables summarize our short-term investments as of August 31, 2024, and 2023: August 31, 2024 (in thousands) Amortized cost Unrealized gains Unrealized losses Fair value Level 1: Term deposits (due within one year) $ 1,500 $ — $ — $ 1,500 Corporate debt securities (due within one year) 8,448 — ( 4 ) 8,444 Total Level 1 9,948 — ( 4 ) 9,944 Level 2: — — — — Level 3: — — — — Total available-for-sale securities $ 9,948 $ — $ ( 4 ) $ 9,944 August 31, 2023 (in thousands) Amortized cost Unrealized gains Unrealized losses Fair value Level 1: Term deposits (due within one year) $ 4,000 $ — $ — $ 4,000 U.S. government and agency securities (due within one year) 4,453 — ( 5 ) 4,448 Commercial paper (due within one year) 9,070 — ( 9 ) 9,061 Corporate debt securities (due within one year) 40,417 — ( 101 ) 40,316 Total Level 1 57,940 — ( 115 ) 57,825 Level 2: — — — — Level 3: — — — — Total held-to-maturity securities $ 57,940 $ — $ ( 115 ) $ 57,825 As of August 31, 2024 and 2023 , the Company had a liability for contingent consideration related to its acquisition of Immunetrics. The fair value measurement of the contingent consideration obligations is determined using Level 3 inputs. The fair value of contingent consideration obligations is based on a discounted cash flow model using a probability-weighted income approach. These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in markets. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense the Company records in any given period. Changes in the fair value of the contingent consideration obligations are recorded in the Company’s Consolidated Statement of Operations . The following is a reconciliation of contingent consideration at fair value: F-16 Table of Contents (in thousands) Amount Contingent consideration at August 31, 2023 $ 4,780 Contingent consideration payment ( 2,500 ) Change in fair value of contingent consideration ( 1,640 ) Contingent consideration at August 31, 2024 $ 640 Business Combination The acquisition method of accounting for business combinations requires us to use significant estimates and assumptions, including fair value estimates, as of the business combination date and to refine those estimates as necessary during the measurement period (defined as the period, not to exceed one year, in which we may adjust the provisional amounts recognized for a business combination). Under the acquisition method of accounting, we recognize separately from goodwill the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree, generally at the acquisition-date fair value. We measure goodwill as of the acquisition-date as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed. Costs that we incur to complete the business combination, such as investment banking, legal, and other professional fees, are not considered part of consideration, and we recognize such costs as general and administrative expenses as they are incurred. Under the acquisition method, we also account for acquired-company restructuring activities that we initiate separately from the business combination. Should the initial accounting for a business combination be incomplete by the end of a reporting period that falls within the measurement period, we report provisional amounts in our financial statements. During the measurement period, we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date, and we record those adjustments to our financial statements. We apply those measurement-period adjustments that we determine to be material retrospectively to comparative information in our financial statements, including adjustments to depreciation and amortization expense. Under the acquisition method of accounting for business combinations, if we identify changes to acquired deferred-tax asset valuation allowances or liabilities related to uncertain tax positions during the measurement period, and they relate to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement period adjustment and we record the offset to goodwill. We record all other changes to deferred-tax asset valuation allowances and liabilities related to uncertain tax positions in current-period income tax expense. This accounting applies to all of our acquisitions regardless of acquisition date. During the fiscal years ended August 31, 2024, 2023, and 2022, the Company recorded mergers and acquisitions expense of $ 2.6 million, $ 3.3 million, and $ 0.3 million, respectively. The Company records mergers and acquisition expenses in general and administrative expenses in the consolidated statements of operations and comprehensive income. Research and Development Costs Research and development costs are charged to expense as incurred until technological feasibility has been established. These costs include salaries, laboratory experiments, and purchased software that was developed by other companies and incorporated into, or used in the development of, our final products. Income Taxes We account for income taxes in accordance with ASC 740, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities. Intellectual property F-17 Table of Contents In May 2014, we entered into a termination and non-assertion agreement with TSRL, Inc., pursuant to which the parties agreed to terminate an exclusive software licensing agreement entered into between the parties in 1997. As a result, the Company obtained a perpetual right to use certain source code and data, and TSRL relinquished any rights and claims to any GastroPlus products and to any claims, royalties, or other payments under that 1997 agreement. We agreed to pay TSRL total consideration of $ 6.0 million, which was amortized over 10 years under the straight-line method and is fully amortized as of August 31, 2024. In June 2017, as part of the acquisition of DILIsym, the Company acquired certain developed technologies associated with drug-induced liver disease (“DILI”). These technologies were valued at $ 2.9 million and are being amortized over 9 years under the straight-line method. In September 2018, we purchased certain intellectual property rights of Entelos Holding Company. The cost of $ 0.1 million is being amortized over 10 years under the straight-line method. In April 2020, as part of the acquisition of Lixoft, the Company acquired certain developed technologies associated with the Lixoft scientific software. These technologies were valued at $ 8.0 million and are being amortized over 16 years under the straight-line method. In June 2023, we purchased certain developed technology of Immunetrics. The cost of $ 1.1 million is being amortized over 5 years under the straight-line method. In June 2024, we purchased certain developed technology of Pro-ficiency. The cost of $ 16.6 million is being amortized over 5 years under the straight-line method. The following table summarizes intellectual property as of August 31, 2024: (in thousands) Amortization Period Acquisition Value Accumulated Amortization Net Book Value Developed technologies–DILIsym acquisition Straight line 9 years 2,850 2,294 556 Intellectual rights of Entelos Holding Company Straight line 10 years 50 30 20 Developed technologies–Lixoft acquisition Straight line 16 years 8,010 2,173 5,837 Developed technologies–Immunetrics acquisition Straight line 5 years 1,080 261 819 Developed technologies–Pro-ficiency acquisition Straight line 5 years $ 16,630 $ 732 $ 15,898 $ 28,620 $ 5,490 $ 23,130 The following table summarizes intellectual property as of August 31, 2023: (in thousands) Amortization Period Acquisition Value Accumulated Amortization Net Book Value Termination/nonassertion agreement-TSRL Inc. Straight line 10 years $ 6,000 $ 5,575 $ 425 Developed technologies–DILIsym acquisition Straight line 9 years 2,850 1,978 872 Intellectual rights of Entelos Holding Company Straight line 10 years 50 25 25 Developed technologies–Lixoft acquisition Straight line 16 years 8,010 1,678 6,332 Developed technologies–Immunetrics acquisition Straight line 5 years 1,080 45 1,035 $ 17,990 $ 9,301 $ 8,689 Total amortization expense for intellectual property agreements was $ 2.2 million, $ 1.4 million, and $ 1.4 million for the fiscal years ended August 31, 2024, 2023, and, 2022 , respectively. Estimated future amortization of intellectual property for the next five fiscal years are as follows: F-18 Table of Contents (in thousands) Years Ending August 31, Amount 2025 $ 4,363 2026 $ 4,287 2027 $ 4,047 2028 $ 4,002 2029 $ 3,094 Earnings per Share We report earnings per share in accordance with ASC 260. Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed similarly to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The components of basic and diluted earnings per share for the fiscal years ended August 31, 2024, 2023, and 2022 were as follows: Years ended August 31, (in thousands) 2024 2023 2022 Numerator Net income attributable to common shareholders $ 9,954 $ 9,961 $ 12,483 Denominator Weighted-average number of common shares outstanding during the period 19,987 20,075 20,196 Dilutive effect of stock options 314 390 553 Common stock and common stock equivalents used for diluted earnings per share 20,301 20,465 20,749 Stock-Based Compensation Compensation costs related to stock options are determined in accordance with ASC 718. Compensation cost is calculated based on the grant-date fair value estimated using the Black-Scholes pricing model and then amortized on a straight-line basis over the requisite service period. Stock-based compensation costs related to stock options, not including shares issued to directors for services, was $ 6.0 million, $ 4.3 million, and $ 2.7 million for the fiscal years ended August 31, 2024, 2023, and 2022, respectively. Impairment of Long-lived Assets We account for the impairment and disposition of long-lived assets in accordance with ASC 360. Long-lived assets to be held and used are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable. We measure recoverability by comparing the carrying amount of an asset to the expected future undiscounted net cash flows generated by the asset. If we determine that the asset may not be recoverable, or if the carrying amount of an asset exceeds its estimated future undiscounted cash flows, we recognize an impairment charge to the extent of the difference between the fair value and the asset's carrying amount. No impairment losses were recorded for the fiscal year ended August 31, 2024. As of August 31, 2023, we recognized a $ 0.5 million impairment charge related to the Cognigen trade name, and it is included in G&A expenses . The Cognigen trade name fair valuation was measured during the acquisition of Cognigen. Management determined to no longer use the Cognigen trade name and to instead focus our marketing strategy on promoting the Simulations Plus brand and our portfolio of products and services. As the Company's other acquired trade names relate to marketed products actively sold to customers, and following management's assessment of other possible triggering events that could indicate a risk of impairment, management concluded that no impairment of other intangible assets or goodwill was necessary. No impairment losses were recorded for the fiscal year ended August 31, 2022. Recently Issued Accounting Standards F-19 Table of Contents In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-06 - Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative (“ASU 2023-06”). ASU 2023-06 incorporates 14 of the 27 disclosure requirements published in SEC Release No. 33-10532 - Disclosure Update and Simplification into various topics within the Accounting Standards Codification (“ASC”). ASU 2023-06's amendments represent clarifications to, or technical corrections of, current requirements. For SEC registrants, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. Early adoption is prohibited. The Company does not expect ASU 2023-06 to have a material effect on its consolidated financial statements. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the ASU to determine its impact on the Company’s disclosures. In December 2023, the FASB issued a new standard to improve income tax disclosures. The guidance requires disclosure of disaggregated income taxes paid, prescribes standardized categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. The amendments will be effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis. Retrospective application is permitted. The Company is currently evaluating the ASU to determine its impact on the Company’s disclosures. NOTE 3 – OTHER INCOME The components of other income for the fiscal years ended August 31, 2024, 2023, and 2022 were as follows: Years ended August 31, (in thousands) 2024 2023 2022 Interest income $ 4,375 $ 4,131 $ 717 Change in fair valuation of contingent consideration 1,639 ( 680 ) ( 283 ) (Loss) gain on disposal of assets — ( 6 ) 1 Realized losses from sale of AFS securities ( 125 ) — — Realized gains from sale of AFS securities 5 — — Gain (loss) on currency exchange 386 ( 475 ) ( 231 ) Total other income $ 6,280 $ 2,970 $ 204 NOTE 4 – PROPERTY AND EQUIPMENT Property and equipment consisted of the following: (in thousands) August 31, 2024 August 31, 2023 Equipment $ 67 $ 316 Computer equipment 1,272 809 Furniture and fixtures 56 48 Leasehold improvements 20 24 Construction in progress — 134 Subtotal 1,415 1,331 Less accumulated depreciation ( 603 ) ( 660 ) Total $ 812 $ 671 Depreciation expense was $ 0.3 million, $ 0.2 million, and $ 0.3 million for the fiscal years ended August 31, 2024, 2023, and 2022, respectively. F-20 Table of Contents NOTE 5 – COMMITMENTS AND CONTINGENCIES Leases Rent expense, including common area maintenance fees, was $ 0.5 million, $ 0.5 million, and $ 0.6 million for the fiscal years ended August 31, 2024, 2023, and 2022, respectively. Lease liability maturities as of August 31, 2024, were as follows: (in thousands) Years Ending August 31, Amount 2025 $ 522 2026 407 2027 145 2028 68 2029 — Total undiscounted liabilities 1,142 Less: imputed interest ( 136 ) Total operating lease liabilities (including current portion) $ 1,006 Employment Agreements In the normal course of business, the Company has entered into employment agreements with certain of its executive officers that may require compensation payments upon termination. Income Taxes We follow guidance issued by the FASB with regard to our accounting for uncertainty in income taxes recognized in the financial statements. Such guidance prescribes a recognition threshold of more-likely-than-not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position, and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to income tax expense. We file income tax returns with the IRS and various state jurisdictions as well as with the countries of India and France. Our federal income tax returns for fiscal years 2020 through 2023 are open for audit, and our state tax returns for fiscal years 2019 through 2023 remain open for audit. Our review of prior-year tax positions using the criteria and provisions presented in guidance issued by FASB did not result in a material impact on our financial position or results of operations. Litigation We are not a party to any legal proceedings and are not aware of any pending or threatened legal proceedings of any kind. NOTE 6 – SHAREHOLDERS' EQUITY Shares Outstanding Shares of Company's common stock outstanding for the fiscal years ended August 31, 2024, 2023, and 2022 were as follows: F-21 Table of Contents Years ended August 31, (in thousands) 2024 2023 2022 Common stock outstanding, beginning of period 19,938 20,260 20,142 Common stock repurchased during the period — ( 492 ) — Common stock issued during the period 113 170 119 Common stock outstanding, end of period 20,051 19,938 20,260 Dividends The Company’s Board of Directors declared cash dividends during the fiscal years ended August 31, 2024 and 2023. The Board of Directors determined to discontinue the Company’s quarterly cash dividend after the dividend distribution on August 5, 2024. The details of dividends paid are in the following tables: (in thousands, except dividend per share) For The Year Ended August 31, 2024 Record Date Distribution Date Number of Shares Outstanding on Record Date Dividend per Share Total Amount 10/30/2023 11/06/2023 19,939 $ 0.06 $ 1,196 1/29/2024 2/05/2024 19,973 $ 0.06 1,198 4/29/2024 5/06/2024 19,998 $ 0.06 1,200 7/29/2024 8/05/2024 20,046 $ 0.06 1,202 Total $ 4,796 (in thousands, except dividend per share) For The Year Ended August 31, 2023 Record Date Distribution Date Number of Shares Outstanding on Record Date Dividend per Share Total Amount 10/31/2022 11/07/2022 20,299 $ 0.06 $ 1,218 1/30/2023 2/06/2023 19,924 $ 0.06 1,195 4/24/2023 5/01/2023 19,999 $ 0.06 1,200 7/31/2023 8/07/2023 19,931 $ 0.06 1,196 Total $ 4,809 Stock Option Plans On December 23, 2016, the Company’s Board of Directors adopted, and on February 23, 2017, its shareholders approved, the Company’s 2017 Equity Incentive Plan (the “2017 Plan”), under which a total of 1.0 million shares of common stock were initially reserved for issuance. The 2017 plan would have terminated pursuant to its terms in December 2026; however, the 2017 Plan was replaced by the Company’s 2021 Plan (as defined below), and as a result, no further issuances of shares may be made under the 2017 Plan. On April 9, 2021, the Company’s Board of Directors adopted, and on June 23, 2021, its shareholders approved, the Company’s 2021 Equity Incentive Plan (the “2021 Plan,” and together with the 2017 Plan, the “Plans”), under which a total of 1.3 million shares of common stock were initially reserved for issuance. On October 20, 2022, the Company’s Board of Directors approved, and on February 9, 2023, its shareholders approved, an amendment to the 2021 Plan to increase the number of shares of common stock authorized for issuance thereunder from 1.3 million shares to 1.55 million shares of common stock of the Company. Thereafter, on October 19, 2023, the Company’s Board of Directors approved, and on February 8, 2024, its shareholders approved, an amendment to the 2021 Plan to further increase the number of shares of common stock authorized for issuance thereunder from 1.55 million to 2.5 million shares of common stock of the Company. The 2021 Plan will terminate in 2031. F-22 Table of Contents As of August 31, 2024, employees and directors of the Company held Qualified Incentive Stock Options (“ISOs”) and Non-Qualified Stock Options (“NQSOs”) to purchase an aggregate of 1.9 million shares of common stock at exercise prices ranging from $ 6.85 to $ 66.14 per share. The following table summarizes information about stock options: (in thousands, except per share and weighted-average amounts) Activity for the year ended August 31, 2024 Number of Options Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contractual Life Outstanding, August 31, 2023 1,478 $ 34.62 6.62 years Granted 594 40.76 Exercised ( 114 ) 12.40 Canceled/Forfeited ( 52 ) 42.95 Outstanding, August 31, 2024 1,906 $ 37.64 6.91 years Vested and Exercisable, August 31, 2024 822 $ 31.19 4.82 years Vested and Expected to Vest, August 31, 2024 1,843 $ 37.53 6.83 years (in thousands, except per share and weighted-average amounts) Activity for the year ended August 31, 2023 Number of Options Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contractual Life Outstanding, August 31, 2022 1,245 $ 28.61 6.14 years Granted 465 43.78 Exercised ( 170 ) 12.59 Canceled/Forfeited ( 62 ) 43.14 Outstanding, August 31, 2023 1,478 $ 34.62 6.62 years Vested and Exercisable, August 31, 2023 696 $ 24.26 4.54 years Vested and Expected to Vest, August 31, 2023 1,471 $ 34.56 6.61 years (in thousands, except per share and weighted-average amounts) Activity for the year ended August 31, 2022 Number of Options Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contractual Life Outstanding, August 31, 2021 1,184 $ 25.63 6.47 years Granted 255 42.13 Exercised ( 104 ) 16.15 Canceled/Forfeited ( 90 ) 42.30 Outstanding, August 31, 2022 1,245 $ 28.61 6.14 years Vested and Exercisable, August 31, 2022 711 $ 17.65 4.47 years Vested and Expected to Vest, August 31, 2022 1,236 $ 28.51 6.12 years The total grant-date fair value of nonvested stock options as of August 31, 2024, was $ 22.0 million and is amortizable over a weighted-average period of 3.25 years. The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-valuation model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. In addition, option-valuation models require the input of highly subjective assumptions, including the expected stock price volatility. F-23 Table of Contents The following table summarizes the fair value of the options, including both ISOs and NQSOs, granted during the fiscal years ended August 31, 2024, 2023, and 2022: (in thousands, except weighted-average amounts) 2024 2023 2022 Estimated fair value of awards granted $ 11,902 $ 10,067 $ 4,597 Unvested Forfeiture Rate 5.53 % 0.22 % 1.04 % Weighted-average grant price $ 40.76 $ 43.78 $ 42.13 Weighted-average market price $ 40.76 $ 43.78 $ 42.13 Weighted-average volatility 44.63 % 46.14 % 42.80 % Weighted-average risk-free rate 4.77 % 4.29 % 1.74 % Weighted-average dividend yield 0.59 % 0.55 % 0.58 % Weighted-average expected life 6.59 years 6.55 years 6.59 years The exercise prices for the options outstanding at August 31, 2024, ranged from $ 6.85 to $ 66.14 per share, and the information relating to these options is as follows: (in thousands except prices and weighted-average amounts) Exercise Price Per Share Awards Outstanding Awards Exercisable Low High Quantity Weighted -Average Remaining Contractual Life Weighted-Average Exercise Price Quantity Weighted-Average Remaining Contractual Life Weighted-Average Exercise Price $ 6.85 $ 9.77 125 1.48 years $ 9.70 125 1.48 years $ 9.70 $ 9.78 $ 18.76 144 2.48 years $ 10.08 144 2.48 years $ 10.08 $ 18.77 $ 33.40 178 4.65 years $ 25.68 161 4.59 years $ 24.98 $ 33.41 $ 47.63 1,164 8.39 years $ 41.35 215 7.22 years $ 41.08 $ 47.64 $ 66.14 295 6.87 years $ 55.53 177 6.40 years $ 57.32 1,906 6.91 years $ 37.64 822 4.82 years $ 31.19 During the fiscal years ended August 31, 2024, 2023, and 2022, we issued 15,200 , 13,765 , and 7,120 shares of stock valued at $ 0.6 million, $ 0.6 million , and $ 0.4 million, respectively, to our nonmanagement directors as compensation for board-related duties. The Company's par-value common stock and additional paid-in capital as of August 31, 2024, were $ 11 thousand and $ 152.3 million, respectively. Share Repurchases No share repurchases were made during the fiscal year ended August 31, 2024. On December 29, 2022, our Board of Directors authorized and approved a share repurchase program for up to $ 50 million of the outstanding shares of our common stock, and on January 11, 2023, we entered into an accelerated share repurchase agreement (the “ASR Agreement”) with Morgan Stanley & Co. LLC (“Morgan Stanley”) to repurchase an aggregate of $ 20 million of our outstanding shares of common stock as part of the share repurchase program, which was settled in full in May 2023. The share repurchase program has no expiration date but may be terminated at any time at our Board of Directors’ discretion. F-24 Table of Contents In January 2023, we received an initial delivery of an aggregate of 408,685 shares of our common stock from Morgan Stanley pursuant to the ASR Agreement, in exchange for which we made an initial payment of $ 20 million to Morgan Stanley. These 408,685 shares were retired and are treated as authorized, unissued shares. At final settlement on May 20, 2023, based on the volume-weighted average price of our common stock during the term of the ASR Agreement, Morgan Stanley delivered an additional 83,356 shares of Company common stock to us, which shares were also retired and treated as authorized, unissued shares. After completion of the repurchases under the ASR Agreement, $ 30 million remains available for additional repurchases under our authorized repurchase program. NOTE 7 – INCOME TAXES We utilize ASC 740 to account for income taxes which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities. The Company is subject to the Global Intangible Low-Taxed Income (“GILTI”) rules, and has an annual GILTI inclusion income and deduction. Based on our assessment, we have not recorded a liability for uncertain tax positions. The components of the income tax provision for the years ended August 31, 2024, 2023, and 2022 were as follows: (in thousands) 2024 2023 2022 Current Federal $ 3,291 $ 2,990 $ 2,518 State 742 696 611 Foreign 3 144 ( 228 ) Total current tax expense 4,036 3,830 2,901 Deferred Federal ( 1,466 ) ( 1,818 ) ( 4 ) State ( 113 ) ( 278 ) ( 265 ) Total deferred federal and state ( 1,579 ) ( 2,096 ) ( 269 ) Total $ 2,457 $ 1,734 $ 2,632 A reconciliation of the expected income tax computed using the federal statutory income tax rate to the Company's effective income tax rate is as follows for the years ended August 31, 2024, 2023, and 2022: F-25 Table of Contents 2024 2023 2022 Income tax computed at federal statutory tax rate 21.0 % 21.0 % 21.0 % State taxes, net of federal benefit 3.5 4.7 3.2 Meals & entertainment 0.1 0.1 — Stock-based compensation 3.9 2.1 0.6 Other permanent differences ( 0.2 ) 3.3 0.4 Research and development credit ( 1.3 ) ( 2.2 ) ( 2.2 ) Foreign-tax-related differences ( 7.0 ) ( 8.2 ) ( 3.2 ) Change in prior year estimated taxes ( 0.2 ) ( 6.0 ) ( 2.4 ) Total 19.8 % 14.8 % 17.4 % Significant components of the Company's deferred tax assets and liabilities for income taxes for the fiscal years ended August 31, 2024, and 2023 are as follows: (in thousands) 2024 2023 Deferred tax assets: Accrued compensation $ 681 $ 865 Deferred revenue 186 103 Capitalized merger costs 707 696 Operating lease liability 255 285 Research and development credits 157 274 State taxes — ( 19 ) Allowance for credit losses 67 11 Capitalized research & development 3,933 1,079 Share-based compensation 1,676 1,104 Net operating loss carryforward 3,336 2,142 Total deferred tax assets 10,998 6,540 Deferred tax liabilities: Property and equipment ( 111 ) ( 90 ) Operating lease right-of-use assets ( 259 ) ( 295 ) Unrealized loss ( 40 ) ( 122 ) State tax deferred ( 25 ) — Intellectual property ( 9,012 ) ( 2,353 ) Capitalized computer software development costs ( 3,086 ) ( 2,242 ) Prepaid expenses ( 73 ) — Total deferred tax liabilities ( 12,606 ) ( 5,102 ) Net deferred tax assets (liabilities) $ ( 1,608 ) $ 1,438 F-26 Table of Contents We follow ASC 740 with regard to our accounting for uncertainty in income taxes recognized in the financial statements. Such guidance prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, we determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and assume that the tax position will be examined by taxing authorities. Interest and penalties were insignificant for the fiscal years ended August 31, 2024, 2023, and 2022, respectively. We file income tax returns with the IRS and various state jurisdictions as well as with the countries of India and France. Our federal income tax returns for fiscal year 2020 through 2023 are open for audit, and our state tax returns for fiscal year 2019 through 2023 remain open for audit. Based on our assessment, we have not recorded any liability for uncertain tax positions in the consolidated financial for the fiscal years ended August 31, 2024, 2023, and 2022, respectively. The Company had no uncertain tax position for all open tax years. Net Operating Loss is summarized as follows: (in thousands) Amount Federal NOL as of August 31, 2024 $ 22,754 Subject to expiration 14,075 Carried forward indefinitely 8,679 Amount to expire before Section 382 limitation lifts 9,333 Pennsylvania NOL as of August 31, 2024 15,800 Subject to expiration 15,800 Carried forward indefinitely — Amount to expire before Section 382 limitation lifts 11,047 North Carolina NOL as of August 31, 2024 1,979 Subject to expiration 1,979 Carried forward indefinitely — Amount to expire before Section 382 limitation lifts — California R&D Credit as of August 31, 2024 199 Subject to expiration — Carried forward indefinitely 199 Our review of prior-year tax positions using the criteria and provisions presented in guidance issued by FASB did not result in a material impact on our financial position or results of operations. F-27 Table of Contents NOTE 8 – CONCENTRATIONS AND UNCERTAINTIES Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, trade accounts receivable, and short-term investments. The Company holds cash and cash equivalents with balances that exceed FDIC-insured limits. Cash maintained in excess of these limits is on deposit with a large, national bank. Accordingly, the Company does not have depository exposure to regional banks. In addition, the Company holds cash at a bank in France that is not FDIC-insured. Historically, the Company has not experienced any losses in such accounts, and management believes that the financial institutions at which its cash is held are stable; however, no assurances can be provided. While the Company may be exposed to credit losses due to the nonperformance of its counterparties, the Company does not expect the settlement of these transactions to have a material effect on its results of operations, cash flows, or financial condition. Revenue concentration shows that international sales accounted for 28 %, 31 %, and 30 % of revenue for the fiscal years ended August 31, 2024, 2023, and 2022, respectively. Our four largest customers in terms of revenue accounted for 7 %, 3 %, 3 %, and 2 % of revenue, respectively, for the fiscal year ended August 31, 2024. Our three largest customers in terms of revenue accounted for 6 %, 4 %, and 3 % of revenue, respectively, for the fiscal year ended August 31, 2023. Our three largest customers in terms of revenue accounted for 5 %, 3 %, and 3 % of revenue, respectively, for the fiscal year ended August 31, 2022. Accounts-receivable concentrations show that our six largest customers in terms of accounts receivable each comprised between 3 % and 9 % of accounts receivable as of August 31, 2024; our three largest customers in terms of accounts receivable comprised between 4 % and 6 % of accounts receivable as of August 31, 2023. We operate in the biosimulation market, which is highly competitive and changes rapidly. Our operating results could be significantly affected by our ability to develop new products and find new distribution channels for new and existing products. NOTE 9 – SEGMENT REPORTING The Company applies ASC 280, Segment Reporting, in determining reportable segments. The Company has two reportable segments: Software and Services. Segment information is presented in the same manner that the chief operating decision maker (“CODM”) reviews certain financial information based on these reportable segments. The CODM reviews revenue and gross profit for both of the reportable segments. Gross profit is defined as revenue less cost of revenue incurred by the segment. No operating segments have been aggregated to form the reportable segments. The Company does not allocate assets at the reportable segment level, as these are managed on an entity-wide group basis and, accordingly, the Company does not report asset information by segment. The Company does not allocate operating expenses that are managed on an entity-wide group basis and, accordingly, the Company does not allocate and report operating expenses at a segment level. There are no internal revenue transactions between the Company’s segments. The following tables summarize the results for each segment for the fiscal years ended August 31, 2024, 2023, and 2022: (in thousands) Year ended August 31, 2024 Software Services Total Revenues $ 41,024 $ 28,989 $ 70,013 Cost of revenues 6,478 20,384 26,862 Gross profit $ 34,546 $ 8,605 $ 43,151 Gross margin 84 % 30 % 62 % Our software business and services business represented 59 % and 41 % of total revenue, respectively, for the fiscal year ended August 31, 2024. F-28 Table of Contents (in thousands) Year ended August 31, 2023 Software Services Total Revenues $ 36,517 $ 23,060 $ 59,577 Cost of revenues 3,627 8,003 11,630 Gross profit $ 32,890 $ 15,057 $ 47,947 Gross margin 90 % 65 % 80 % Our software business and services business represented 61 % and 39 % of total revenue, respectively, for the fiscal year ended August 31, 2023. (in thousands) Year ended August 31, 2022 Software Services Total Revenues $ 32,642 $ 21,264 $ 53,906 Cost of revenues 3,060 7,762 10,822 Gross profit $ 29,582 $ 13,502 $ 43,084 Gross margin 91 % 63 % 80 % Our software business and services business represented 61 % and 39 % of total revenue, respectively, for the fiscal year ended August 31, 2022. The Company allocates revenues to geographic areas based on the locations of its customers. Geographical revenues for the fiscal years ended August 31, 2024, 2023, and 2022 were as follows: Years ended August 31, (in thousands) 2024 2023 2022 $ % of total $ % of total $ % of total Americas $ 50,473 72 % $ 40,817 69 % $ 37,681 70 % EMEA 14,072 20 % 11,713 20 % 10,388 19 % Asia Pacific 5,468 8 % 7,047 12 % 5,837 11 % Total $ 70,013 100 % $ 59,577 100 % $ 53,906 100 % NOTE 10 – EMPLOYEE BENEFIT PLAN We maintain a 401(k) Plan for eligible employees. We make matching contributions equal to 100 % of the employee’s elective deferral, not to exceed 4 % of the employee’s gross salary. We contributed $ 0.8 million, $ 0.6 million, and $ 0.6 million for the fiscal years ended August 31, 2024, 2023, and 2022, respectively. NOTE 11 - ACQUISITIONS On June 16, 2023, the Company completed the acquisition of Immunetrics for an estimated consideration of $ 15.3 million. The Company has a remaining obligation for the Immunetrics acquisition for up to $ 5.5 million and $ 1.8 million hold back liability. The Company made the first cash earnout payments in the aggregate amount of $ 2.5 million to the former equity holders and employees of Immunetrics in March 2024. The primary purpose of this acquisition is to be able to capitalize on a tremendous growth opportunity by providing support for quantitative systems pharmacology (“QSP”) in a greater range of therapeutic areas, including oncology. Under the acquisition method of accounting, the total purchase price reflects Immunetrics’ tangible and intangible assets and liabilities based on their estimated fair values at the date of the completion of the acquisition (June 16, 2023). The following table summarizes the allocation of the preliminary purchase price for Immunetrics: F-29 Table of Contents (in thousands) Base merger consideration $ 12,000 Fair value of earnout 4,100 Cash on hand 1,247 Adjustment to purchase price for closing indebtedness ( 122 ) Net working capital adjustment ( 377 ) D&O tail insurance ( 7 ) Bonus compensation to Immunetrics staff ( 1,586 ) Total purchase price 15,255 Fair value of identifiable assets acquired: Cash 1,132 Accounts receivable 511 Security deposit 12 ROU asset 227 Deferred tax assets 799 Trade names 1,800 Customer relationships 3,780 Developed Tech 1,080 Non-competes 30 9,371 Fair value of liabilities assumed: Lease liability 227 Selling shareholders' D&O tail insurance responsibility 7 Deferred revenue 60 294 Fair value of identifiable assets acquired and liabilities assumed 9,077 Goodwill $ 6,178 The total purchase consideration related to Immunetrics acquisition consisted of cash consideration. The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributed to the developed technologies and other intangibles as customer relationships and trade name. Immunetrics is primarily attributable to the Services segment of the Company. Goodwill acquired as part of Immunetrics acquisition has been assigned to a separate reporting unit and the assets and liabilities of Immunetrics are assigned to the same reporting unit, Immunetrics. This goodwill is not expected to be deductible for income tax purposes. Intangible assets consist of indefinite-lived intangible asset trade names and definite-lived intangibles as customer relationships, developed technologies, and covenants not to compete. We amortize purchased definite-lived intangible assets on a straight-line basis over their respective useful lives. The weighted-average life of the total acquired identifiable definite-lived intangible assets is 7.5 years. The following table presents the details of intangible assets acquired. F-30 Table of Contents (in thousands) Estimated useful life Amount Indefinite-lived: Trade names Indefinite $ 1,800 Definite-lived: Customer relationships 9 years 3,780 Developed technologies 5 years 1,080 Covenants not to compete 2 years 30 Total definite-lived intangible assets 4,890 Total intangible assets $ 6,690 On June 11, 2024, the Company entered into a stock purchase agreement, pursuant to which it acquired Pro-ficiency Holdings, Inc. (“Pro-ficiency”) for estimated consideration of $ 100.2 million. The primary purpose of this acquisition was to bring together two businesses, each with complementary expertise and services that are grounded in science and focused on applying advanced technologies like AI to enhance actionable data analytics. Under the acquisition method of accounting, the total purchase price reflects Pro-ficiency’s tangible and intangible assets and liabilities based on their estimated fair values at the date of the completion of the acquisition (June 11, 2024). The following table summarizes the allocation of the preliminary purchase price for Pro-ficiency: F-31 Table of Contents (in thousands) Base merger consideration $ 100,000 Net working capital adjustment ( 85 ) Excess cash adjustment 1,731 Adjustment to purchase price for closing indebtedness ( 1,484 ) Total purchase price 100,162 Fair value of identifiable assets acquired: Cash 2,513 Accounts receivable 2,064 Prepaids and other current assets 1,807 ROU asset 212 Trade names 8,400 Customer relationships 2,310 Developed technology 16,630 Non-competes 70 Other non-current assets 17 34,023 Fair value of liabilities assumed: Accounts payable 935 Payroll and other current liabilities 2,302 Deferred revenue 1,456 Lease liability 212 Deferred tax liabilities 4,811 Other liabilities 1,124 10,840 Fair value of identifiable assets acquired and liabilities assumed 23,183 Goodwill $ 76,979 The total purchase consideration related to the Pro-ficiency acquisition consisted of cash consideration. The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributed to the developed technologies and other intangibles such as customer relationships and trade names. Proficiency is structured into two business units: ALI and MC. ALI primarily contributes to the software segment and MC primarily contributes to the services segment of the Company. Goodwill acquired as part of the Pro-ficiency acquisition has been assigned to the ALI and MC reporting units and the assets and liabilities of Pro-ficiency are assigned to the same reporting units. This goodwill is not expected to be deductible for income tax purposes. Intangible assets consist of indefinite-lived intangible asset trade names and definite-lived intangibles as customer relationships, developed technologies, and covenants not to compete. We amortize purchased definite-lived intangible assets on a straight-line basis over their respective useful lives. The weighted-average life of the total acquired identifiable definite-lived intangible assets is 5.3 years. The following table presents the details of intangible assets acquired. F-32 Table of Contents Estimated useful life Amount Indefinite-lived: Trade names Indefinite $ 8,400 Definite-lived: Customer relationships 10 years 2,310 Developed technologies 5 years 16,630 Non-competes 3 years 70 Total definite-lived intangible assets 19,010 Total intangible assets $ 27,410 Estimated future amortization of finite-lived intangible assets for the next five years is as follows: (in thousands) Years ending August 31, Amount 2025 $ 3,580 2026 $ 3,580 2027 $ 3,580 2028 $ 3,557 2029 $ 3,557 Consolidated Supplemental Pro Forma Information The following unaudited consolidated supplemental pro forma information assumes that the acquisition of Pro-ficiency took place on September 1, 2022 for the income statement years ended August 31, 2024. These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Pro-ficiency to reflect the same expenses in the fiscal years ended August 31, 2024 and 2023. The adjustments include costs of acquisition directly attributable to Pro-ficiency of $ 2.3 million and amortization of intangibles including developed technologies acquired during the acquisition, assuming the fair-value adjustments applied on September 1, 2022, together with consequential tax effects. The adjustments also consist of acquisition costs directly attributable to Immunetrics of $ 2.9 million consisting of $ 1.6 million of bonus compensation and $ 1.3 million of other professional fees, and amortization of intangibles including developed technologies acquired during the merger, assuming the fair-value adjustments applied on September 1, 2022, together with consequential tax effects. The pro forma information in below table includes actual revenues and net loss of $ 2.3 million and $ 1.9 million, respectively for Pro-ficiency from the acquisition date of June 11, 2024 to August 31, 2024 and the revenues and net loss of $ 1.3 million and $ 0.4 million, respectively, for Immunetrics from the acquisition date of June 16, 2023 to August 31, 2023. (Pro forma) 2024 * (Pro forma) 2023 (in thousands) (unaudited) (unaudited) Revenue $ 83,243 $ 76,892 Net (loss) income $ 7,790 $ 4,547 * Balances include actual results from acquisition date of June 16, 2023 through August 31, 2023 for Immunetrics and from acquisition date of June 11, 2024 through August 31, 2024 for Pro-ficiency business. NOTE 12 - SUBSEQUENT EVENTS None. F-33