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Item 1A. Risk Factors

2025-12-01 compared with 2024-10-30 · 177 added, 121 removed, 262 unchanged (53% of the section changed)

ITEM 1A – RISK FACTORS

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

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

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

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

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

We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control.

Additional risks not currently known to us or that we currently believe are immaterial also may impair our business operations and our liquidity.

The risks described below could cause our actual results to differ materially from those contained in the forward-looking statements we have made in this Report, the information incorporated herein by reference, and those forward-looking statements we may make from time to time.

The risks described below could cause our actual results to differ materially from those contained in the forward-looking statements we have made in this Annual Report, the information incorporated herein by reference, and those forward-looking statements we may make from time to time.

You should understand that it is not possible to predict or identify all such factors.

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Certain Risks Related to Our Marketplace and Environment

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

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

Our products are currently used primarily by modeling and simulation specialists in companies involved in pharmaceuticals, biotechnology, agrotechnology, and cosmetics, as well as universities, hospitals, and government research organizations.

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

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

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

If successfully implemented, these strategies would increase the usage of our software and services by pharmacologists or pharmacometricians operating within our existing pharmaceutical, biotechnology, and chemical customers, as well as by new customers in other industries.

However, if our strategies are not successfully implemented, our products and services may not achieve market acceptance or penetration in targeted new departments within our existing customers or in new industries.

If successfully implemented, these strategies would increase the usage of our software and services by pharmacologists or pharmacometricians operating within our existing pharmaceutical, biotechnology, and chemical clients, as well as by new clients in other industries.

As a result, we may incur additional costs and expend additional resources without being able to sustain or increase revenue.

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

In recent years, there has been a steady increase in the recognition by regulatory and academic institutions of the role that modeling and simulation can play in the biopharmaceutical development and approval process, as demonstrated by new regulations and guidance encouraging the use of modeling and simulation in the biopharmaceutical discovery, development, testing, clinical trial and approval process, which has positively impacted our business.

Changes in government or regulatory policy, or a stagnation or reversal in the trend toward increasing the acceptance of and reliance upon use of computer modeling and simulation in the drug approval process, could decrease the demand for our products and services or lead our customers to cease use of, or to recommend against the use of, our products and services.

A decrease in, or resistance to, the acceptance of model-informed drug development and development by regulatory authorities or academic institutions could damage our reputation or reduce the demand for our products and services.

In recent years, there has been a steady increase in the recognition by regulatory agencies and academic institutions of the role that modeling and simulation can play in the biopharmaceutical development and approval process, as demonstrated by new regulations and guidance encouraging the use of modeling and simulation in the drug development and approval process, which has positively impacted our business.

Changes in government or regulatory policy, or a stagnation or reversal in the trend toward increasing the acceptance of and reliance upon use of computer modeling and simulation in the drug development and approval process, could decrease the demand for our products and services or lead our clients to cease use of, or to recommend against the use of, our products and services.

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

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

Our pharmaceutical and biotechnology customers’ demand for our products is impacted by continued demand for their products and by our customers’ research and development costs.

Demand for our customers’ products could decline, and prices charged by our customers for their products may decline, as a result of governmental regulations and increasing competition, including competition from companies manufacturing generic drugs.

In addition, our customers’ expenses could continue to increase as a result of increasing costs of complying with government regulations and other factors.

A decrease in demand for our customers’ products, pricing pressures associated with the sales of these products, and additional costs associated with product development, could cause our customers to reduce research and development expenditures.

Our pharmaceutical and biotechnology clients’ demand for our products is impacted by continued demand for their products and by their research and development costs.

Demand for our clients’ products could decline, and prices charged by our clients for their products may decline, as a result of governmental regulations and/or increasing competition, including competition from companies manufacturing generic drugs.

In addition, our clients’ expenses could continue to increase as a result of increasing costs of complying with government regulations and other factors.

A decrease in demand for our clients’ products, pricing pressures associated with the sales of these products, and additional costs associated with product development, could cause our clients to reduce research and development expenditures.

Although our products increase productivity and reduce costs in many areas, because our products and services depend on such research and development expenditures, our revenues may be significantly reduced.

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The market for our modeling and simulation software products for the life science market is intensely competitive.

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

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

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

Rapid advances in AI and ML could also enable new or existing competitors to automate aspects of modeling, simulation or data analysis reducing demand for our proprietary tools or consulting services if we do not innovate at the same pace.

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

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

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

In addition, some of our customers spend significant internal resources in order to develop their own software.

Moreover, we intend to leverage our scientific informatics platform in order to enable our customers to more effectively utilize the vast amounts of information stored in both their databases and public data sources in order to make informed scientific and business decisions during the research and development process.

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

In addition, some of our clients spend significant internal resources in order to develop their own software.

Moreover, we intend to leverage our scientific informatics platform in order to enable our clients to more effectively utilize the vast amounts of information stored in both their databases and public data sources in order to make informed scientific and business decisions during the research and development process.

This strategy could lead to competition from much larger companies that provide general data storage and management software.

There can be no assurance that our current or potential competitors will not develop products, services, or technologies that are comparable to, superior to, or render obsolete, the products, services, and technologies we offer.

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

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

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

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Although the average price of our software licenses has increased or remained relatively constant for fiscal years 2025, 2024, and 2023, we may experience a decline in the future.

In response to increased competition and general adverse economic conditions in this market, we may be required to modify our pricing practices.

In response to increased competition, decrease in a need for our products and services and general adverse economic conditions in this market, we may be required to modify our pricing practices.

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

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We maintain insurance coverage for protection against many risks of liability.

The extent of our insurance coverage is under continuous review and is modified as we deem it necessary.

The extent of our insurance coverage is under continuous review and is modified as we deem necessary.

Despite this insurance, it is possible that claims or liabilities against us may have a material adverse impact on our financial position or results of operations.

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

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

Governmental agencies throughout the world, but particularly in the U.S., strictly regulate the drug development process.

Our business involves helping pharmaceutical and biotechnology companies, among others, navigate the regulatory drug approval process.

Accordingly, many regulations, and often new regulations, are expected to result in higher regulatory standards and often additional revenues for companies that service these industries.

However, some changes in regulations, such as a relaxation in regulatory requirements or the introduction of streamlined or expedited drug approval procedures, or an increase in regulatory requirements that we have difficulty satisfying or that make our services less competitive, could eliminate or substantially reduce the demand for our services.

In addition, we may not be able to obtain any insurance coverage, or adequate insurance coverage, when our existing insurance coverage expires and our premiums or coverage terms could change at renewal.

Any negative commentaries made by any regulatory agencies or any failure by us to comply with applicable regulations and related guidance could harm our reputation and operating results, and compliance with new regulations and guidance may result in additional costs.

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Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business, and damage our reputation.

Our sales cycle is lengthy, and customers may delay entering into contracts or decide not to adopt our products or solutions after we have expended significant time and resources and supported evaluation by them of our technology, which could result in delays in recognizing revenue and negatively impact our results of operations.

Ongoing negotiations and evaluation projects for new products, with new customers or in new markets may not result in significant revenues for us if we are unable to close new engagements on terms favorable to us in a timely manner, or at all.

Our sales cycle is lengthy, and clients may delay entering into contracts or decide not to adopt our products or solutions after we have expended significant time and resources and supported evaluation by them of our technology, which could result in delays in recognizing revenue and negatively impact our results of operations.

Ongoing negotiations and evaluation projects for new products, with new clients or in new markets may not result in significant revenues for us if we are unable to close new engagements on terms favorable to us in a timely manner, or at all.

Unexpected delays in our sales cycle could cause our revenues to fall short of expectations.

Further, the timing and length of negotiations required to enter into agreements with our customers and the ultimate enforcement of complex negotiated contractual provisions as we intended is difficult to predict.

Further, the timing and length of negotiations required to enter into agreements with our clients and the ultimate enforcement of complex negotiated contractual provisions as we intended is difficult to predict.

If we do not successfully negotiate certain key complex contractual provisions, there are disputes regarding such provisions, or if they are not enforceable as we intended, our revenues and results of operations would suffer.

Further, if we were to incur significant effort and then fail to enter into final contracts with prospective customers, or if a contract is terminated earlier than expected, our revenues and results of operations could suffer.

Further, if we were to incur significant effort and then fail to enter into final contracts with prospective clients, or if a contract is terminated earlier than expected, our revenues and results of operations could suffer.

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

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

We have intangible assets, including goodwill, capitalized computer software development costs, intellectual property, and other intangible assets, on our balance sheet due to our acquisitions of businesses.

We have intangible assets, including goodwill, capitalized computer software development costs, intellectual property, and other intangible assets, on our Consolidated Balance sheets due to our acquisitions of businesses.

The initial identification and valuation of these intangible assets and the determination of the estimated useful lives at the time of acquisition involve use of management judgments and estimates.

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To the extent goodwill or intangibles are impaired, their carrying value will be written down to their implied fair value and a charge will be made to our income from continuing operations.

For example, in fiscal 2025, we recorded impairment charges related to Pro-ficiency following lower-than-expected performance and market capitalization decline.

Such an impairment charge could materially and adversely affect our operating results.

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To achieve market acceptance, new or enhanced products or services can require long development and testing periods, which may result in delays in scheduled introduction.

Any delays in the release schedule for new or enhanced products or services may delay market acceptance of these products or services and may result in delays in new customer orders for these new or enhanced products or services, or the loss of customer orders.

Any delays in the release schedule for new or enhanced products or services may delay market acceptance of these products or services and may result in delays in new client orders for these new or enhanced products or services, or the loss of client orders.

In addition, new or enhanced products or services may contain a number of undetected errors or “bugs” when they are first released.

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

In addition, political and economic changes, including the imposition of import restrictions or tariffs, geopolitical instability, international conflicts and terrorist acts, throughout the world may interfere with our or our customers’ activities in particular locations and result in a material adverse effect on our business, financial condition, and operating results.

In addition, political and economic changes, including the imposition of import restrictions or tariffs, geopolitical instability, international conflicts and terrorist acts, throughout the world may interfere with our or our clients’ activities in particular locations and result in a material adverse effect on our business, financial condition, and operating results.

Potential trade restrictions, exchange controls, adverse tax consequences, and legal restrictions may affect the repatriation of funds into the U.S.

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Contract research services create a risk of liability.

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

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

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

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We may seek to develop and market new services and products that complement or expand our existing business or service offerings.

We cannot guarantee that we will be able to identify new technologies of interest to our customers.

We cannot guarantee that we will be able to identify new technologies of interest to our clients.

Even if we are able to identify new technologies of interest, we may not be able to negotiate license agreements on acceptable terms, or at all.

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

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

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

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

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difficulties in achieving business and continuing financial success;

difficulties and expenses incurred in assimilating and integrating operations, services, products, technologies, or pre-existing relationships with our customers, distributors, and suppliers;

difficulties and expenses incurred in assimilating and integrating operations, services, products, technologies, or pre-existing relationships with our clients, distributors, and suppliers;

challenges with developing and operating new businesses, including those which are materially different from our existing businesses and which may require the development or acquisition of new internal capabilities and expertise;

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new technologies and products developed by others which cause businesses or assets we acquire to become less valuable;

and risks that disagreements or disputes with prior owners of an acquired business, technology, service, or product may result in litigation expenses and dilution of our management’s attention.

and risks that disagreements or disputes with prior owners of an acquired business, technology, service, or product may result in litigation expenses and

dilution of our management’s attention.

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

Conversely, a sustained weakening of the U.S.

dollar could adversely affect our business in certain foreign-currency markets, because while our exports may become more competitively priced abroad, revenues earned in foreign currencies would translate into fewer U.S.

dollars, and costs incurred in U.S.

dollars for foreign operations could rise when converted.

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

We believe that operating results for any particular quarter are not necessarily a meaningful indication of future results.

Nonetheless, fluctuations in our quarterly operating results could negatively affect the market price of our common stock.

We believe that operating results for any particular quarter or fiscal year are not necessarily a meaningful indication of future results.

Nonetheless, fluctuations in our quarterly or annual operating results could negatively affect the market price of our common stock.

Our results of operations in any quarter or annual period have varied in the past and may vary from quarter to quarter or year to year.

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

changes in customer budget cycles;

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

changes in client budget cycles;

changes in the mix of our products and services;

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

general economic factors, including factors relating to disruptions in the world credit and equity markets and the related impact on our customers’ access to capital;

general economic factors, including factors relating to disruptions in the world credit and equity markets and the related impact on our clients’ access to capital;

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

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Foreign currency exchange-rate hedges, transactions, re-measurements, or translations could materially impact our consolidated financial statements.

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

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

Accordingly, unexpected revenue shortfalls may decrease our gross margins and could cause significant changes in our operating results from year to year.

As a result, in future quarters, our operating results could fall below the expectations of securities analysts or investors, in which event our stock price would likely decrease.

If our customers cancel their contracts or terminate or delay their clinical trials, we may lose or delay revenues and our business may be adversely impacted.

Certain of our customer contracts are subject to cancellation by our customers at any time with limited notice.

Customers engaged in clinical trials may terminate or delay a clinical trial for various reasons, including the failure of the tested product to satisfy safety or efficacy requirements, unexpected or undesired clinical results, decisions to de-emphasize a particular product or forgo a particular clinical trial, decisions to downsize clinical development programs, insufficient patient enrollment or investigator recruitment, and production problems resulting in shortages of required clinical supplies.

Any termination or delay in the clinical trials would likely result in a consequential delay or termination in those customers’ service contracts.

We have experienced terminations and delays of our customer service contracts in the past (although no such past terminations have had a significant impact on our results of operations), and we expect to experience additional terminations and delays in the future.

The termination of single-study arrangements could result in decreased revenues and the delay of our customers’ clinical trials could result in delayed professional services revenues, which could adversely impact our business.

If our security is breached, our business could be disrupted, our operating results could be harmed, and customers could be deterred from using our products and services.

Our business relies on the secure electronic transmission, storage, and hosting of sensitive information, including clinical data, financial information, and other sensitive information relating to our customers, company, and workforce.

If our clients cancel their contracts or terminate or delay their clinical trials, we may lose or delay revenues and our business may be adversely impacted.

Certain of our client contracts are subject to cancellation by our clients at any time with limited notice.

Clients engaged in clinical trials may terminate or delay a clinical trial for various reasons, including the failure of the tested product to satisfy safety or efficacy requirements, unexpected or undesired clinical results, decisions to de-emphasize a particular product or forgo a particular clinical trial, decisions to downsize clinical development programs, insufficient patient enrollment or investigator recruitment, and production problems resulting in shortages of required clinical supplies.

Any termination or delay in the clinical trials would likely result in a consequential delay or termination in those clients’ service contracts.

We have experienced terminations and delays of our client service contracts in the past (although no such past terminations have had a significant impact on our results of operations), and we expect to experience additional terminations and delays

in the future.

The termination of single-study arrangements could result in decreased revenues and the delay of our clients’ clinical trials could result in delayed professional services revenues, which could adversely impact our business.

If our security is breached, our business could be disrupted, our operating results could be harmed, and clients could be deterred from using our products and services.

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

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Moreover, unauthorized access, use, or disclosure of such sensitive information could result in contractual or other liability.

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

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

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

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

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

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

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

The collection, retention, use, disclosure, and other processing of such personal information is governed, by the applicable data privacy and cybersecurity laws.

While we do not consider our service offerings to generally cause us to be considered a covered entity under HIPAA, HIPAA does require the use of standard contract language in contracts with our customers who are covered entities under HIPAA which define our obligations to safeguard the protected health information of patients if provided by our covered-entity customers.

While we do not consider our service offerings to generally cause us to be considered a covered entity under HIPAA, HIPAA does require the use of standard contract language in contracts with our clients who are covered entities under HIPAA which define our obligations to safeguard the protected health information of patients if provided by our covered-entity clients.

We have adopted policies, practices, procedures, and training to safeguard the receipt, maintenance, processing, retention and transmission of such personal information.

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

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

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

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

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Most state data privacy laws also impose monetary penalties for violations of the respective law.

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

The interpretation and application of the new state

data privacy laws are still evolving, which provides some uncertainty.

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

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

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

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

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

by some regulatory authorities, there remains the possibility that challenges will be raised to the sufficiency of such transfer mechanisms which has created uncertainty.

In view of the trend for enactment of data privacy laws globally, we have implemented a comprehensive data privacy management program that includes physical, technological, and operational safeguards (such as policies, notices, processes, contractual provisions, and employee trainings) to help ensure that we process personal information about our employees and personal information received from our customers in a compliant manner.

We have also appointed VeraSafe, a global leader in privacy law and data protection, as our Data Protection Officer.

We have also appointed Margaret Richardson as our Data Protection Officer.

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

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

Substantially all of the computer hardware necessary to provide Cognigen solutions to our customers is located at our internal hosting facility in Buffalo, New York.

In addition to our dedicated hosting facility, we utilize third-party cloud computing services from Amazon Web Services ("AWS") to help us efficiently scale our cloud-based solutions and provide training.

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

Substantially all of the computer hardware necessary to provide our Service and Consulting solutions to our clients is located at our colocation facility located in New York.

In addition to the colocation facility, Simulations Plus utilizes third-party cloud computing services from Amazon Web Services ("AWS") to help support our cloud-based solutions and provide training.

Because we cannot easily switch our AWS-serviced operations to another cloud provider, any disruption of or interference with our use of AWS would impact our operations, and our business would be adversely impacted.

Our systems and operations or those of AWS could suffer damage or interruption from human error, fire, flood, power loss, telecommunications failure, break-ins, terrorist attacks, acts of war, and similar events.

The occurrence of a natural disaster, an act of terrorism or other unanticipated problems at our or AWS’ hosting facilities could result in lengthy interruptions in our service.

Although we and AWS maintain backup facilities and disaster recovery services in the event of a system failure, these may be insufficient or fail.

Any system failure, including network, software, or hardware failure, which causes an interruption in our Buffalo data center or our use of AWS, or that causes a decrease in responsiveness of our cloud-based solutions, could damage our reputation and cause us to lose customers, which could harm our business and results of operations.

Our business may be harmed if our customers and potential customers believe our service is unreliable.

The occurrence of a natural disaster, an act of terrorism or other unanticipated problems at the colocation or AWS’ hosting facilities could result in lengthy interruptions in our service.

Although SLP and AWS maintain backup facilities and disaster recovery plans in the event of a system failure, these may be insufficient or fail.

Any system failure, including network, software, or hardware failure, which causes an interruption in the colocation data center or our use of AWS, or that causes a decrease in responsiveness of our cloud-based solutions, could damage our reputation, and cause us to lose clients, which could harm our business and results of operations.

Our business may be harmed if our clients and potential clients believe our service is unreliable.

Simulations Plus has developed a detailed Disaster Recovery Plan to mitigate any interruption.

We rely on third-party cloud infrastructure and related services to deliver and operate our software platforms, and any disruption, limitation, or change in these cloud services could adversely affect our business, financial condition, and

results of operations.

Our software, adaptive learning, and analytics solutions depend on third-party cloud service providers for computing, storage, networking, and data management infrastructure.

We currently use AWS and may also utilize other cloud providers for hosting, content delivery, analytics, and AI services.

These cloud environments are critical to operating our platforms and storing large volumes of scientific, clinical, and commercial data.

If any of these third-party providers experience interruptions, capacity constraints, cybersecurity incidents, or performance degradation, or if we or our clients encounter technical issues in connecting to their platforms, our software and services could become slow, unreliable, or unavailable.

Even temporary outages could harm our reputation, trigger service-level penalties under client contracts, and cause clients to delay renewals or choose competing solutions.

Because many of the services we use are proprietary to our cloud providers, we may have limited ability to quickly migrate workloads to alternative vendors without incurring substantial costs or service disruption.

Our dependence on a small number of cloud vendors also exposes us to risks of pricing increases, changes in service terms, data egress or storage costs, and regional availability limitations.

Additionally, cloud service failures can originate not only from the primary vendor but from underlying networks, software updates, or third-party subprocessors integrated into those environments.

If our providers fail to maintain adequate security, availability, or compliance certifications (such as SOC 2 or ISO 27001), or if regulatory changes restrict cross-border data transfers or cloud usage for certain types of clinical data, we may need to re-architect or relocate infrastructure, resulting in additional expense and operational complexity.

Any material disruption, data loss, increase in cost, or limitation in the performance, features, or availability of third-party cloud services could adversely affect our business, results of operations, and reputation.

Defects or errors in our software applications could harm our reputation, result in significant cost to us and impair our ability to market our solutions.

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In addition, material performance problems or defects in our solutions may arise in the future.

Material defects in our cloud-based solutions could result in a reduction in revenues, delay in market acceptance of our solutions, or credits or refunds to our customers.

In addition, such defects may lead to the loss of existing customers and difficulty in attracting new customers, diversion of development resources, or harm to our reputation.

Material defects in our cloud-based solutions could result in a reduction in revenues, delay in market acceptance of our solutions, or credits or refunds to our clients.

In addition, such defects may lead to the loss of existing clients and difficulty in attracting new clients, diversion of development resources, or harm to our reputation.

Correction of defects or errors could prove to be impossible or impractical.

The costs incurred in correcting any defects or errors or in responding to resulting claims or liability may be substantial and could adversely affect our operating results.

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

As part of our current business model, we deliver our software over the Internet and store and manage hundreds of terabytes of data for our customers, resulting in substantial information technology infrastructure and ongoing technological challenges, which we expect to continue to increase over time.

If we do not reliably meet these data storage and management requirements, or if we experience any failure or interruption in the delivery of our services over the Internet, customer satisfaction and our reputation could be harmed, leading to reduced revenues and increased expenses.

Our hosting services are subject to service-level agreements and, in the event that we fail to meet guaranteed service or performance levels, we could be subject to customer credits or termination of these customer contracts.

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

As part of our current business model, we deliver our software over the Internet and store and manage hundreds of terabytes of data for our clients, resulting in substantial information technology infrastructure and ongoing technological challenges, which we expect to continue to increase over time.

If we do not reliably meet these data storage and management requirements, or if we experience any failure or interruption in the delivery of our services over the Internet, client satisfaction and our reputation could be harmed, leading to reduced revenues and increased expenses.

Our hosting services are subject to service-level agreements and, if we fail to meet guaranteed service or performance levels, we could be subject to client credits or termination of these client contracts.

If the cost of meeting these data storage and management requirements increases, our results of operations could be harmed.

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Some of our software solutions utilize software covered by open-source licenses.

Open-source software is typically freely accessible, usable and modifiable, and is used by our development team in an effort to reduce development costs to speed up the development process.

Open-source software is typically freely accessible, usable and modifiable, and is used by our development team to reduce development costs to speed up the development process.

Certain open-source software licenses require a user who intends to distribute the open-source software as a component of the user’s software to disclose publicly part or all of the source code to the user’s software.

In addition, certain open-source software licenses require the user of such software to make any derivative works of the open-source code available to others on unfavorable terms or at no cost.

addition, certain open-source software licenses require the user of such software to make any derivative works of the open-source code available to others on unfavorable terms or at no cost.

This can subject previously proprietary software to open-source license terms.

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This could make it difficult for us to stop infringement or the misappropriation of our intellectual property rights.

Our attempts to protect our intellectual property may be challenged by others or invalidated through administrative process or litigation, and agreement terms that address noncompetition are difficult to enforce in many jurisdictions and may not be enforceable in any particular case.

In addition, there remains the possibility that others will “reverse engineer” our products in order to introduce competing products, or that others will develop competing technology independently.

In addition, there remains the possibility that others will “reverse engineer” our products to introduce competing products, or that others will develop competing technology independently.

If we resort to legal proceedings to enforce our intellectual property rights or to determine the validity and scope of the intellectual property or other proprietary rights of others, the proceedings could be burdensome and expensive, even if we were to prevail.

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Current and future litigation against us, which may arise in the ordinary course of our business, could be costly and time-consuming to defend.

We are subject to claims that arise in the ordinary course of business, such as claims brought by our customers in connection with commercial disputes and employment claims made by our current or former employees.

We are subject to claims that arise in the ordinary course of business, such as claims brought by our clients in connection with commercial disputes and employment claims made by our current or former employees.

Third parties may in the future assert intellectual property rights to technologies that are important to our business and demand back royalties or demand that we license their technology.

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A claim brought against us that is uninsured or underinsured could result in unanticipated costs, negatively affecting our business, results of operations, and financial condition.

We could incur substantial costs resulting from product liability claims relating to our products or services or our customers’ use of our products or services.

Any failure or errors in a customer’s clinical trial caused or allegedly caused by our products or services could result in a claim for substantial damages against us by our customers or the clinical trial participants, regardless of our responsibility for the failure.

Although we are generally entitled to indemnification under our customer contracts against claims brought against us by third parties arising out of our customers’ use of our products, we might find ourselves entangled in lawsuits against us that, even if unsuccessful, may divert our resources and energy and adversely affect our business.

Further, in the event we seek indemnification from a customer, a court may not enforce our indemnification right if the customer challenges it or the customer may not be able to fund any amounts for indemnification owed to us.

In addition, our existing insurance coverage may not continue to be available on reasonable terms or may not be available in amounts sufficient to cover one or more large claims, or the insurer may disclaim coverage as to any future claim.

We could incur substantial costs resulting from product liability claims relating to our products or services or our clients’ use of our products or services.

Any failure or errors in a client’s clinical trial caused or allegedly caused by our products or services could result in a claim for substantial damages against us by our clients or the clinical trial participants, regardless of our responsibility for the failure.

Although we are generally entitled to indemnification under our client contracts against claims brought against us by third parties arising out of our clients’ use of our products, we might find ourselves entangled in lawsuits against us that, even if unsuccessful, may divert our resources and energy and adversely affect our business.

Further, in the event we seek indemnification from a client, a court may not enforce our indemnification right if the client challenges it or the client may not be able to fund any amounts for indemnification owed to us.

In addition, our existing insurance coverage may not continue to be available on reasonable terms or may not be available in amounts sufficient to cover one or more large

claims, or the insurer may disclaim coverage as to any future claim.

Our business depends on the clinical trial market, and a downturn in this market could cause our revenues to decrease.

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Other developments that may affect these industries and harm our operating results include product liability claims, changes in government regulation, changes in governmental price controls or third-party reimbursement practices, and changes in medical practices.

Disruptions in the world credit and equity markets may also result in a global downturn in spending on research and development and clinical trials and may impact our customers’ access to capital and their ability to pay for our solutions.

Disruptions in the world credit and equity markets may also result in a global downturn in spending on research and development and clinical trials and may impact our clients’ access to capital and their ability to pay for our solutions.

Any decrease in research and development expenditures or in the size, scope, or frequency of clinical trials could materially adversely affect our business, results of operations, or financial condition.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Certain Risks Related to Ownership of Our Common Stock

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

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

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

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

Accordingly, investors must rely on sales of their shares after price

appreciation, which may not occur, as the only way to realize any return on their investment.

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

We may, but are not obligated to, provide public guidance on our expected operating and financial results for future periods.

Any such guidance will be comprised of forward-looking statements subject to the risks and uncertainties described in this prospectus and in our other public filings and public statements.

Any such guidance will be comprised of forward-looking statements subject to the risks and uncertainties described in this Annual Report and in our other public filings and public statements.

Our actual results may not always be in line with or exceed any guidance we have provided, especially in times of economic uncertainty.

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

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

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

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

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

factors affecting the broader life-sciences, biotechnology, and software industries, including market sentiment toward technology-enables drug development;

our operating results;

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

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

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or foreign regulatory actions affecting us or our industry;

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

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

trading volume of our common stock;

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

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

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

In addition, differing performance trends between our Software and Services solutions, such as slower growth or lower margins in one segment may effect investor sensitivity or contribute to fluctuations in our stock price.

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

In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer.

If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business, which could seriously harm our financial position.

If any of our shareholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business, which could seriously harm our financial position.

Any adverse determination in litigation could also subject us to significant liabilities.

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

If securities or industry analysts issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.

The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our business as well as the stock indices that our common stock is included in.

If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our operating results fail to meet the expectations of analysts, our stock price would likely decline.

If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, or if the S&P 600 removes us from its index, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

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

If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

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

We may choose to raise additional capital due to market conditions or strategic considerations.

To the extent that additional capital is raised through the sale of equity, convertible debt or other equity-linked securities, the issuance of these securities could result in dilution to our stockholders or result in downward pressure on the price of our common stock.

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

To the extent that additional capital is raised through the sale of equity, convertible debt or other equity-linked securities, the issuance of these securities could result in dilution to our shareholders or result in downward pressure on the price of our common stock.

We cannot guarantee that our share repurchase program will be fully consummated or that it will enhance long-term

shareholder value, and share repurchases could increase the volatility of the price of our common stock.

Pursuant to the share repurchase program authorized by our Board of Directors on December 29, 2022, we are authorized to repurchase up to an aggregate of $50 million of outstanding shares of our common stock from time to time through a combination of open market repurchases, privately negotiated transactions, 10b5-1 trading plans, accelerated stock repurchase transactions, and/or other transactions, in accordance with federal securities laws.

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

Risks Relating to Artificial Intelligence and Machine Learning

The use of AI in our products and services may result in reputational harm and competitive harm.

We use AI and ML in our business, including using AI in our modeling and simulation software for drug discovery and development, including the prediction of properties of molecules utilizing both AI and ML technology.

As with many technological innovations, there are significant risks and challenges involved in maintaining and deploying these technologies.

AI algorithms or training methodologies may be flawed.

Datasets may be overbroad or insufficient and information generated by AI may be illegal or harmful.

There may also be insufficient back-testing.

The rapid evolution and increased adoption of AI technologies may intensify our exposure to cybersecurity incidents or misuse of data.

There can be no assurance that our use of AI/ML will improve our product performance or profitability;

instead, it could adversely affect our business, result of operations, or reputation.

Our use of artificial intelligence and machine learning may result in legal and regulatory risks.

The ownership, licensing, and protection of intellectual property rights associated with AI and ML have not been fully addressed by U.S.

courts, and there remains uncertainty and ongoing litigation in different jurisdictions as to the degree and extent of protection warranted for AI technologies and relevant system inputs and outputs.

The Courts and regulators have not clearly defined the scope for AI-generated content, algorithms, or trained models.

If we fail to secure or maintain protection for the intellectual property rights concerning technologies developed using AI or ML, or later have our intellectual property rights invalidated or otherwise diminished, our competitors may be able to take advantage of our research and development efforts to develop competing products, which could adversely affect our business, reputation, financial condition, or results of operations.

Moreover, the use or adoption of AI and ML in our technology may expose us to breach of a data or software license, website terms of service claims, claimed violations of privacy rights or other tort claims.

The global regulatory landscape surrounding AI is also rapidly evolving, and the use of ML technologies may become subject to regulation under new laws or new applications of existing laws.

In the U.S., there is increasing uncertainty as to the federal government’s future approach to AI regulation, including as to the continued applicability of the Executive Order 14110 of October 30, 2023, which, among other things, established extensive new standards for AI safety and security.

In January 2025, President Trump revoked this 2023 executive order and directed federal agencies to review actions taken under that executive order and develop a new action plan with respect to AI-related matters.

As such, the federal government has announced plans to develop new AI Innovation and Safety Framework, but timing and scope of implementation remains uncertain.

Additionally, other jurisdictions may decide to adopt similar or more restrictive legislation that may render the use of such technologies challenging.

For example, the EU AI Act (which could become applicable to us depending on the global expansion of our business) came into force on August 1, 2024, and will generally become fully applicable after a two-year transitional period.

The EU AI Act introduces various requirements for AI systems and models placed on the market or put into service in the EU, including specific transparency and other requirements for general purpose AI systems and the models on which those systems are based.

states are considering enacting or have already enacted regulations concerning the use of AI technologies, including those focused on consumer protection, and depending on the scope of AI regulation at the federal level, some states may move to regulate AI model development and deployment.

Further, at both the U.S.

federal and state level, there have been various proposals (and in some cases laws enacted) addressing “deepfakes” and other AI-generated synthetic media.

If we fail to comply with applicable AI/ML- related laws or regulations, we could face civil or criminal penalties, enforcement actions, or prohibitions on the use of specific technologies.

Additionally, Governmental regulation and laws related to AI may also increase the burden and cost of research and development or require increased transparency that makes it more difficult to protect our intellectual property, increase operating costs, and adversely affect our financial condition and results of operations.

Risks Relating to Government Regulation

We receive government assistance in the form of cash grants.

The interruption of or termination or failure to fund one or more of these grants, or other actions taken by Department of Government Efficiency (“DOGE”) could have an adverse impact on our business, financial condition, results of operations and cash flows.

We receive government assistance in the form of cash grants which vary in size, duration and conditions from domestic governmental agencies, to provide reimbursement for various costs incurred for research and development.

These include direct grant awards and subawards.

government has and may continue to implement initiatives focused on efficiencies, affordability and cost growth and other changes, such as those pursued by the recently created DOGE.

On January 20, 2025, President Trump announced an executive order establishing the DOGE to maximize government efficiency and productivity.

In February 2025, President Trump stated that he has directed DOGE to review spending for potential waste and fraud.

Subsequent guidance has rescinded or narrowed earlier broad spending pauses but agencies continue to implement evolving directives.

Pressures on and uncertainty surrounding the U.S.

federal government’s budget and potential changes in budgetary priorities, including partial or intermittent government shutdowns, could adversely affect our revenue, financial condition, and results of operations in ways that are indeterminate at this time.

These initiatives and changes to procurement practices may change the way grants and government assistance is provided, if at all, which may affect whether and how we pursue opportunities to provide our products and services, which may have an adverse impact on our business, financial condition, results of operations and cash flows.

Risk Relating to a Federal Government Shutdown

We receive funding from U.S.

federal and state agencies in the form of research and development grants and sub-awards, and some of our clients, including academic and government research organizations, also depend on federal appropriations.

A lapse in appropriations or an extended federal government shutdown could delay or suspend the award, renewal, or reimbursement of these grants, and could also disrupt our clients’ projects that rely on federal funding.

During a shutdown, most agencies cannot obligate new funds or process grant payments, and peer-review and contracting activities are typically suspended.

As of the date of this Report, the United States federal government is operating under a partial shutdown affecting multiple science and health agencies.

The duration and scope of this shutdown are uncertain.

If it continues or recurs, we could experience delays in receiving grant reimbursements, interruptions in grant review cycles, or reductions in the availability of new awards.

Our clients could also defer or cancel work that depends on federal funding.

Any significant delay or loss of this funding, or of federally supported projects with our clients, could adversely affect our revenue, cash flows, and results of operations.

A prolonged shutdown could also create broader uncertainty in the life-sciences and regulatory environment that may slow industry investment and purchasing decisions, which could have a material adverse effect on our business and financial condition.

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

Governmental agencies throughout the world, but particularly in the U.S., strictly regulate the drug development process.

Our business involves helping pharmaceutical and biotechnology companies, among others, navigate the regulatory drug approval process.

Accordingly, many regulations, and often new regulations, are expected to result in higher regulatory standards and often additional revenues for companies that service these industries.

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

What changed 10-K

Item 1A. Risk Factors