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Item 7. Management’s Discussion and Analysis

2025-12-01 compared with 2024-10-30 · 120 added, 147 removed, 119 unchanged (69% of the section changed)

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You are cautioned that these forward-looking statements are not guarantees of future performance and those actual results or developments may differ materially from those projected in such statements.

Management Overview

Fiscal Year 2024 Financial Highlights:

• Consolidated revenues increased by $10.4 million, or 18%, to $70.0 million for the fiscal year ended August 31, 2024, compared to $59.6 million for the fiscal year ended August 31, 2023

• Consolidated gross profit decreased by $4.8 million, or 10%, to $43.2 million for the fiscal year ended August 31, 2024, compared to $47.9 million for the fiscal year ended August 31, 2023

• Income from operations decreased by $2.6 million, or 30%, to $6.1 million for the fiscal year ended August 31, 2024, from $8.7 million for the fiscal year ended August 31, 2023

• Net income remained unchanged at $10.0 million for the fiscal year ended August 31, 2024, compared to $10.0 million for the fiscal year ended August 31, 2023

• Diluted earnings per share remained unchanged at $0.49 for the fiscal year ended August 31, 2024, compared to $0.49 for the fiscal year ended August 31, 2023

Strategy Going Forward:

• Continue to invest in research and development to enhance and expand our scientific product functionality and service capabilities

• Continue to pursue customer collaborations to support expansion of our products and services portfolio

• Continue our aggressive marketing campaigns to open new market opportunities

• Continue to expand our sales and marketing staff and distributor channels

• Continue to recruit and retain exceptional scientific staff to support our product and services innovation

• Continue to seek strategic acquisitions that complement our existing solutions portfolio and expand our markets

Fiscal year 2024 was a successful year for the Company on several fronts.

We enhanced our leadership in modeling and simulation with the release of new technology.

We expanded our collaborations with industry and regulatory leaders.

We executed on our strategy to expand our business and market opportunity through acquisitions.

We also grew our scientific staff through excellent retention and recruiting efforts.

We believe the continued growth of our software and services business is the result of steadily increasing adoption and awareness of the value of simulation and modeling software tools across the pharmaceutical industry, the continuing push by regulatory agencies for increased use of modeling and simulation, and the expertise we offer as consultants to assist companies involved in the research and development of new medicines.

We continue to be a leader in the fast-growing global biosimulation market.

On June 16, 2023, the Company completed the acquisition of Immunetrics for an estimated consideration of $15.3 million.

The Company made the first cash earnout payment issuable pursuant to the Merger Agreement entered into in connection with the Immunetrics acquisition, in the aggregate amount of $2.5 million, to the former equity holders and employees of Immunetrics in 2023.

The Company has a remaining earnout obligation related to the Immunetrics acquisition for up to $5.5 million, as well as $1.8 million holdback liability, which are expected to be paid out and released, to the extent earned and less any applicable deductions, in early calendar year 2025.

On June 11, 2024, the Company entered into a Stock Purchase Agreement, pursuant to which it acquired Pro-ficiency for an estimated consideration of $100.2 million.

At closing, an aggregate of $1.0 of the purchase price was placed in escrow to fund payment obligations of the sellers with respect to post-closing purchase price adjustments and post-closing indemnification obligations of the sellers.

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.

Executive Overview

Our clients face many challenges.

Developing new therapies is time-consuming and expensive, requiring an average of 10-15 years and an average cost of approximately $2.2 billion to develop a single drug.

Drug sponsors must prioritize not only efficacy and safety of the drug, but also issues like drug-drug interactions, inclusion of patients representative of the indicated population, regulatory approvals, minimization of animal testing, safety and compliance during clinical trials, and commercial success.

Our MIDD software and services allow clients to use modeling and simulation to accelerate drug development, reduce the costs of R&D, comply with regulatory guidance and best practices, and increase confidence in the safety and efficacy of their drugs and biologics.

Our adaptive learning solutions support the success of clinical trials by accelerating recruitment of an appropriate patient population, increasing retention of participants, and by driving competency and compliance with trial protocols, while our medical communications solutions provide support in obtaining regulatory approval and commercialization of drugs.

The Company was previously headquartered in Southern California;

however, in support of the Company's remote work culture and plan to reduce excess office space to achieve its carbon footprint reduction targets, the Company fully exited four office locations in Lancaster, California;

Raleigh, North Carolina;

Buffalo, New York;

and Pittsburgh, Pennsylvania.

As a result, the company moved its headquarters from Lancaster, California, to Research Triangle Park, North Carolina, and also maintains a European office in Paris, France.

Results of Operations

Comparison of fiscal years 2024 and 2023

Comparison of fiscal years ended 2025 and 2024

(in thousands) Years ended % of Revenue

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General and administrative 20,941 22,351 26 % 32 % (1,410) (6) %

Impairments 77,221 — 98 % NM 77,221 NM

Total operating expenses 116,950 37,020 148 % 53 % 79,930 216 %

(Loss) income from operations (70,729) 6,131 (89) % 9 % (76,860) (1,254) %

Other income, net 1,352 6,280 2 % 9 % (4,928) (78) %

(Loss) income before income taxes (69,377) 12,411 (88) % 18 % (81,788) (659) %

Income tax benefit (expense) 4,659 (2,457) 6 % (4) % 7,116 (290) %

Net (loss) income $ (64,718) $ 9,954 (82) % 14 % $ (74,672) (750) %

Revenues increased by $9.2 million, or 13%, to $79.2 million for the fiscal year ended August 31, 2025, compared to $70.0 million for the fiscal year ended August 31, 2024.

This increase is attributable to twelve months of revenue or $11.7 million from the Pro-ficiency acquisition in fiscal year ended August 31, 2025, versus $2.3 million in fiscal year ended August 31, 2024.

Cost of revenues

Cost of revenues increased by $6.1 million, or 23%, for the fiscal year ended August 31, 2025, compared to the fiscal year ended August 31, 2024.

This increase is primarily due to a $3.2 million or 49%, increase in software-related cost and a $2.9 million or 14%, increase in service-related costs.

The software-related costs increase of $3.2 million or 49%, compared to the fiscal year ended August 31, 2024, was primarily due to $1.8 million from amortization of developed technology from the acquisition of Pro-ficiency, and $1.1 million of higher amortization of capitalized software cost driven by the release of GastroPlus in May 2024, offset by a decrease of $0.4 million of fully amortized TSRL in the third quarter of fiscal year 2024.

The service-related costs increase of $2.9 million or 14%, compared to the fiscal year ended August 31, 2024, was primarily due to additional pass-through cost of $4.2 million, offset by $1.4 million of lower accrued bonuses due to Company performance.

Gross profit increased by $3.1 million, or 7%, to $46.2 million for the fiscal year ended August 31, 2025, compared to $43.2 million for the fiscal year ended August 31, 2024.

Overall gross margin percentage was 58% and 62% for the fiscal year ended August 31, 2025 and August 31, 2024, respectively.

Gross margin decline is largely attributable to the underperformance of Pro-ficiency revenues.

Research and development

We incurred $9.8 million of R&D costs during the fiscal year ended August 31, 2025.

Of this amount, $3.0 million was capitalized as a part of capitalized software development costs and $6.9 million was expensed.

We incurred $9.0 million of research and development costs during the fiscal year ended August 31, 2024.

Of this amount, $3.3 million was capitalized and $5.8 million was expensed.

R&D spend increased by $0.8 million, or 9% , for the fiscal year ended August 31, 2025,

compared to the fiscal year ended August 31, 2024.

The increase is mainly attributable to R&D spend of $1.1 million due to increased headcount in fiscal year ended August 31, 2025 compared to the fiscal year ended August 31, 2024.

R&D spend as a percentage of revenue remained consistent at 8% to 9% range for both periods.

Sales and marketing expenses

Sales and marketing expenses increased by $3.0 million, or 34% , to $11.9 million for the fiscal year ended August 31, 2025, compared to $8.9 million for the fiscal year ended August 31, 2024.

This corresponds to a 2% increase in sales and marketing expense as a percentage of revenue.

The increase was primarily due to increased headcount costs of $1.3 million, $0.8 million increases to commissions to distributors, $0.5 million in higher event-related spending to enhance brand awareness and client engagement, $0.3 million incurred to support our business development efforts, and increased sales commission to employees of $0.2 million, offset by decrease in bonus expense of $0.3 million.

General, and administrative expenses

G&A expenses decreased $1.4 million, or 6%, to $20.9 million for the fiscal year ended August 31, 2025, compared to $22.4 million for the fiscal year ended August 31, 2024.

This corresponds to 5% decrease in G&A expense as a percentage of revenue.

The decrease is primarily driven by $2.7 million in mergers and acquisition expense, decrease in facility costs of $0.3 million driven by a reduction in office spaces, and a decrease of $0.4 million in bonus expense, offset by an increase in reorganization expense of $0.7 million in charges in connection with the restructuring, consisting of severance payments, employee benefits, and related costs, increase in $0.4 million of office space restructuring costs due to lease terminations, and an increase of $0.9 million from increased headcount.

During the fiscal year ended August 31, 2025, the Company identified the underperformance of revenue at certain reporting units relative to forecasts utilized in purchase price allocations and the significant stock price decline in relative terms and comparison to peers as a triggering event as of May 31, 2025, indicating goodwill, other intangibles and long-lived assets may be impaired.

As a result of the impairment test performed, the Company determined goodwill, other intangibles and certain long-lived assets were impaired for its Software and Services reporting units and recorded impairment charges of $37.1 million and $40.1 million, respectively.

No impairment was recognized for the fiscal year ended August 31, 2024.

Total other income was $1.4 million for the fiscal year ended August 31, 2025, compared to total other income of $6.3 million for the fiscal year ended August 31, 2024.

The decrease of $4.9 million is due to the decrease in interest income of $3.7 million, $1.0 million decrease in the fair value of the Immunetrics earnout liability, and a decrease of $0.4 million due to a foreign currency exchange .

Income tax benefit (expense)

Income tax benefit was $4.7 million for the fiscal year ended August 31, 2025, compared to income tax expense of $2.5 million for the fiscal year ended August 31, 2024.

Our effective tax rate decreased to 7% for the fiscal year ended August 31, 2025 from 20% for the fiscal year ended August 31, 2024 primarily due to the permanent item associated with the impairment of goodwill made during the fiscal year ended August 31, 2025.

Comparison of fiscal years ended 2024 and 2023

(in thousands) Years ended % of Revenue

August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023 $ Change % Change

Revenue $ 70,013 $ 59,577 100 % 100 % $ 10,436 18 %

Cost of revenue 26,862 11,630 38 % 20 % 15,232 131 %

Gross profit 43,151 47,947 62 % 80 % (4,796) (10) %

Research and development 5,754 4,504 8 % 8 % 1,250 28 %

Sales and marketing 8,915 6,558 13 % 11 % 2,357 36 %

General and administrative 22,351 27,660 32 % 46 % (5,309) (19) %

Impairments — 500 — % 1 % (500) (100) %

Total operating expenses 37,020 39,222 53 % 66 % (2,202) (6) %

Income from operations 6,131 8,725 9 % 15 % (2,594) (30) %

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Gross profit decreased by $4.8 million, or 10%, to $43.2 million for the fiscal year ended August 31, 2024, compared to $47.9 million for the fiscal year ended August 31, 2023.

The decrease in gross profit is primarily due to a decrease in gross profit for our services business of $6.5 million, or 43%, primarily resulting from the reorganization of our internal structure as well as additional services headcount from the Pro-ficiency acquisition, partially offset by an increase in gross profit for our software business of $1.7 million, or 5%, reflecting the strong revenue growth and operating leverage of our software business.

Overall gross margin percentage was 62% and 80% for the fiscal year ended August 31, 2024, and 2023, respectively.

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Additionally, part of the increase is due to a foreign currency exchange gain of $0.4 million for the fiscal year ended August 31, 2024 compared to a foreign currency exchange loss of $0.5 million for the fiscal year ended August 31, 2023, and an increase in interest income of $0.2 million from our investments in debt securities driven by an increase in interest rates.

Provision for income taxes

Income tax expense

The provision for income taxes was $2.5 million for the fiscal year ended August 31, 2024, compared to $1.7 million for the fiscal year ended August 31, 2023.

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This effect was partially offset by lower state income taxes during the fiscal year ended August 31, 2024.

Comparison of fiscal years 2023 and 2022

(in thousands) Years ended % of Revenue

August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022 $ Change % Change

Revenue $ 59,577 $ 53,906 100 % 100 % $ 5,671 11 %

Cost of revenue 11,630 10,822 20 % 20 % 808 7 %

Gross profit 47,947 43,084 80 % 80 % 4,863 11 %

Research and development 4,504 3,208 8 % 6 % 1,296 40 %

Sales and marketing 6,558 4,879 11 % 9 % 1,679 34 %

General and administrative 28,160 20,086 47 % 37 % 8,074 40 %

Total operating expenses 39,222 28,173 66 % 52 % 11,049 39 %

Income from operations 8,725 14,911 15 % 28 % (6,186) (41) %

Other income, net 2,970 204 5 % — % 2,766 1,356 %

Income before income taxes 11,695 15,115 20 % 28 % (3,420) (23) %

Provision for income taxes (1,734) (2,632) (3) % (5) % 898 (34) %

Net income $ 9,961 $ 12,483 17 % 23 % $ (2,522) (20) %

Revenues increased by $5.7 million, or 11%, to $59.6 million for the fiscal year ended August 31, 2023, compared to $53.9 million for the fiscal year ended August 31, 2022.

This increase is primarily due to an increase of $3.9 million, or 12% in software-related revenue driven by timing of the software license renewals and foreign currency exchange rate fluctuations when comparing the fiscal years ended August 31, 2023, and 2022 and a $1.8 million, or 8%, increase in service-related revenue driven by addition of Immunetrics services revenue.

Cost of revenues

Cost of revenues increased by $0.8 million, or 7%, for the fiscal year ended August 31, 2023, compared to the fiscal year ended August 31, 2022.

The increase is primarily due to an increase of $0.6 million, or 19%, in software-related cost of revenue and an increase of $0.2 million, or 3%, in service-related cost of revenue driven by addition of Immunetrics services cost when compared to the fiscal year ended August 31, 2022.

Gross profit increased by $4.9 million, or 11%, to $47.9 million for the fiscal year ended August 31, 2023, compared to $43.1 million, for the fiscal year ended August 31, 2022.

The increase in gross profit is primarily due to an increase in gross profit for our software business of $3.3 million, or 11%, and an increase in gross profit for our services business of $1.6 million, or 12%.

Overall gross margin percentage was 80% and 80% for the fiscal years ended August 31, 2023, and 2022, respectively.

Research and development

We incurred $7.8 million of research and development costs during fiscal year ended August 31, 2023.

Of this amount, $3.3 million was capitalized as a part of capitalized software development costs and $4.5 million was expensed.

We incurred $6.4 million of research and development costs during fiscal year ended August 31, 2022.

Of this amount, $3.2 million was capitalized and $3.2 million was expensed.

The overall increase in research and development costs is primarily due to development of the newest version of our MonolixSuite product, version 2023R1, which was released on February 28, 2023, the development of the newest version of our GastroPlus product, version X (“GPX®”), and the development of the newest version of our ADMET Predictor®, version 11, with significant enhancements to the AIDD module;

as well as an increase in personnel costs from market compensation adjustments following the Company’s engagement during fiscal year 2022 of an external consulting firm, Arthur J.

Gallagher & Co., to complete a full market study on the compensation payable to our employees compared to those of our “peers”.

The Company rebuilt its career grading system based on the results of the compensation study to ensure competitive and equitable pay for all our employees across the organization in base salary, cash bonus, and stock option grants.

We believe that the market study and resulting compensation adjustments were necessary in light of the highly competitive employment market to attract and retain superior talent.

Sales and marketing expenses

Sales and marketing expenses increased by $1.6 million, or 34%, to $6.6 million for the fiscal year ended August 31, 2023, compared to $4.9 million for the fiscal year ended August 31, 2022.

This corresponds to a 2% increase in sales and marketing expense as a percentage of revenue.

This increase was primarily due to a $1.7 million increase in employee and labor-related expenses from a 11% headcount increase to meet the robust and growing demand for our services, as well as market compensation adjustments following the Company’s engagement during fiscal year 2022 of an external consulting firm, Arthur J.

Gallagher & Co., to complete a full market study on the compensation payable to our employees compared to those of our “peers”.

We believe that the market study and resulting compensation adjustments were necessary in light of the highly competitive employment market to attract and retain superior talent.

The $1.7 million increase in personnel costs includes an increase in base salaries of $0.9 million, an increase in stock compensation of $0.5 million, and an increase in accrued bonuses of $0.2 million.

General and administrative expenses

G&A expenses increased by $8.1 million, or 40%, to $28.2 million for the fiscal year ended August 31, 2023, compared to $20.1 million for the fiscal year ended August 31, 2022.

This corresponds to a 10% increase in G&A expense as a percentage of revenue.

This increase was primarily due to a $3.8 million increase in employee and labor-related expenses from a 11% headcount increase to meet the robust and growing demand for our services, as well as market compensation adjustments following the Company’s engagement of an external consulting firm, Arthur J.

Gallagher & Co., during fiscal year 2022 to complete a full market study on the compensation payable to our employees compared to those of our “peers”.

The Company rebuilt its career grading system based on the results of the compensation study to ensure competitive and equitable pay for our employees across the organization in base salary, cash bonus, and stock option grants.

We believe that the market study and resulting compensation adjustments were necessary in light of the highly competitive employment market to attract and retain superior talent.

The $3.8 million increase in personnel costs includes an increase in base salaries of $0.7 million, an increase in accrued bonuses of $1.0 million, an increase in stock compensation of $1.1 million, and an increase in employee benefits of $0.4 million.

Additionally, the overall increase in G&A expenses is due to an increase in one-time charges such as merger and acquisition costs of $3.0 million, including a $1.6 million bonus compensation charge for Immunetrics employees, and an impairment charge of $0.5 million for the Cognigen trade name due to management strategy to no longer use the Cognigen trade name.

In addition, G&A also increased due to an increase in director compensation of $0.2 million, an increase in accounting and tax fees of $0.2 million, and an increase of $0.1 million due to the newly required excise tax on share repurchases completed during fiscal year 2023.

Total other income was $3.0 million for the fiscal year ended August 31, 2023, compared to total other income of $0.2 for the fiscal year ended August 31, 2022.

The increase is primarily due to an increase in interest income of $3.4 million driven by an increase in interest rates, partially offset by the change in the fair value of contingent consideration of $0.4 million mainly driven by increase in the fair value of contingent consideration by $0.7 million for the Immunetrics earnout, when compared to $0.2 million for the fiscal year ended August 31, 2022.

Provision for income taxes

The provision for income taxes was $1.7 million for the fiscal year ended August 31, 2023, compared to $2.6 million for the fiscal year ended August 31, 2022.

Our effective tax rate decreased to 15% mainly due to favorable foreign income tax rates for the fiscal year ended August 31, 2023, when compared to 17% for the fiscal year ended August 31, 2022.

Liquidity and Capital Resources

Our principal sources of capital have been a follow-on public offering in August 2020 for $107.7 million and cash flows from our operations.

We have achieved continuous positive operating cash flow over the last fourteen fiscal years.

Our principal sources of capital have been cash flows from our operations.

We expect existing cash, cash equivalents, short-term investments, cash generated by ongoing operations, and working capital will be sufficient to fund our operating activities and cash commitments for investing and financing activities and material capital expenditures for the next 12 months and beyond.

We continue to seek opportunities for strategic acquisitions, investments, and partnerships.

If one or more strategic opportunities are identified, a substantial portion of our cash reserves may be required to complete it.

If one or more strategic opportunities are identified, a substantial portion of our cash reserves may be required to complete the transaction.

If we identify an attractive strategic opportunity that would require more cash to complete than we are willing or able to use from our cash reserves, we may consider financing options to complete the transaction, including obtaining loans or selling our securities.

Additionally, our quest for strategic opportunities could result in a significant change to our liquidity position and/or our results of operations if any such opportunities are completed.

Except as discussed elsewhere in this Report, we are not aware of any trends or demands, commitments, events or uncertainties that are reasonably likely to result in a decrease in liquidity of our assets.

Additionally, our quest for strategic opportunities could result in a significant change to our liquidity position and/or our results of operations if any such transactions are completed.

Except as discussed elsewhere in this Annual Report, we are not aware of any trends or demands, commitments, events, or uncertainties that are reasonably likely to result in a decrease in liquidity of our assets.

Cash, Cash Equivalents, and Investments

At August 31, 2024, the Company had $10.3 million in cash and cash equivalents, $9.9 million in short-term investments, and working capital of $27.3 million.

As of August 31, 2025, the Company had $30.9 million in cash and cash equivalents, $1.5 million in short-term investments, and net working capital of $44.8 million.

Short-term investments consist of highly liquid investment-grade fixed-income securities, diversified among industries and issuers.

The investments are U.S.

dollar-denominated securities.

The investments are U.S.-dollar-denominated securities.

Our fixed-income investments are exposed to interest rate risk and credit risk.

The settlement risk related to these investments is insignificant, given that the short-term investments held are primarily highly liquid investment-grade fixed-income securities and can readily be converted to cash when needed.

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.

Operating Activities

Net cash provided by operating activities was $18.1 million for the fiscal year ended August 31, 2025, compared to $13.3 million for the fiscal year ended August 31, 2024.

The increase was driven by an increase in working capital of $1.6 million, primarily related to favorable changes in prepaid income taxes and prepaid expenses and an increase in operating results of $3.2 million (defined as net (loss) income adjusted for non-working capital items).

Net cash provided by operating activities was $13.3 million for the fiscal year ended August 31, 2024.

Our operating cash flows resulted in part from our net income of $10.0 million, which was generated by cash received from our customers, offset by cash payments we made to third parties for their services and employee compensation.

Our operating cash flows resulted in part from our net income of $10.0 million, which was generated by cash received from our clients, offset by cash payments we made to third parties for their services and employee compensation.

In addition, $4.2 million related to changes in balances of operating assets and liabilities was subtracted from net income and $7.6 million related to non-cash charges was added to net income to reconcile to cash flow from operations.

Net cash provided by operating activities was $21.9 million for the fiscal year ended August 31, 2023.

Our operating cash flows resulted primarily from our net income of $10.0 million.

In addition, $5.1 million related to changes in balances of operating assets and liabilities was added to net income and $6.8 million related to noncash charges was added to net income to reconcile to cash flow from operations.

Net cash provided by operating activities decreased by $8.5 million during the fiscal year ended August 31, 2024, compared to the fiscal year ended August 31, 2023.

This decrease was driven by working capital changes.

Investing Activities

Net cash provided by investing activities during the fiscal year ended August 31, 2025, was $3.6 million, primarily due from maturities of short-term investments of $14.0 million and sale of short-term investments of $1.0 million, partially offset by the purchase of short-term investments of $6.5 million, computer software development costs of $2.6 million, and issuance of a promissory note for $1.0 million.

Net cash used in investing activities during the fiscal year ended August 31, 2024, was $54.0 million, primarily due to the acquisition of Pro-ficiency of $98.8 million, purchase of short-term investments of $67.2 million and computer software development costs of $3.2 million, offset by proceeds from maturities of short-term investments of $71.1 million, and proceeds from sales of investments of $45.2 million.

Net cash provided by investing activities during the fiscal year ended August 31, 2023, was $7.4 million, primarily due to the proceeds from maturities of short-term investments of $114.9 million, offset by purchase of short-term investments of $95.0 million, acquisition of Immunetrics of $8.2 million, and computer software development costs of $3.2 million.

Financing Activities

Net cash used in financing activities during the fiscal year ended August 31, 2025, was $1.1 million, primarily due to payment of $1.6 million for the holdback related to the Immunetrics acquisition, partially offset by proceeds from the exercise of stock options totaling $0.4 million.

Net cash used in financing activities during the fiscal year ended August 31, 2024, was $6.6 million, primarily due to dividend payments totaling $4.8 million and the first cash earnout payments in the aggregate amount of $2.5 million to the former equity holders and employees of Immunetrics, partially offset by proceeds from the exercise of stock options totaling $0.7 million.

Net cash used in financing activities during fiscal year ended August 31, 2023, was $23.2 million, primarily due to share repurchases of $20.0 million and dividend payments totaling $4.8 million, offset by proceeds from the exercise of stock options totaling $1.5 million.

Pro-ficiency Acquisition

On June 11, 2024, the Company entered into a Stock Purchase Agreement, by and among the Company, 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 (the “Purchase Agreement”).

Pursuant to the Purchase Agreement, at closing on June 11, 2024 (the “Closing”), the Company purchased 100% of the issued and outstanding capital stock of Pro-ficiency (the “Acquisition”) from the Sellers for an aggregate purchase price of $100 million in cash, subject to post-closing adjustments for net working capital, closing cash, indebtedness, and transaction expenses (collectively, the “Purchase Price”).

An aggregate of $1 million of the Purchase Price was placed in escrow to fund payment obligations of the Sellers with respect to post-Closing Purchase Price adjustments and post-Closing indemnification obligations of the Sellers, and another portion of the Purchase Price was deposited into an account to reimburse the Seller Representative for any fees and expenses incurred by the Seller Representative in performing its duties under the Purchase Agreement as the representative of the Sellers.

As a result of the Acquisition, at Closing, Pro-ficiency became a wholly-owned subsidiary of the Company.

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

Subject to the provisions of the Purchase Agreement, the Sellers have agreed to indemnify the Company and its affiliates for losses resulting from breaches of representations, warranties and covenants of the Sellers and Pro-ficiency in the Purchase Agreement and for certain other specified matters.

The Sellers’ indemnification obligations are subject to various limitations, including, among other things, a deductible, caps, and time limitations.

In connection with the Acquisition, the Company obtained a customary buyer’s representation and warranty insurance policy (the “R&W Insurance Policy”) providing for up to $10 million in coverage in the case of breaches of representations and warranties of the Sellers and Pro-ficiency contained in the Purchase Agreement, subject to certain exclusions and an initial $0.5 million retention.

The Company, on the one hand, and the Sellers, on the other hand, each bore one-half of the cost of obtaining the R&W Insurance Policy.

Immunetrics Acquisition

The Company has a remaining obligation for the Immunetrics acquisition for up to $5.5 million and $1.8 million hold back liability which are expected to be paid out and released, to the extent earned and less any applicable deductions, in early calendar year 2025.

Refer to Note 6 – Shareholders’ Equity of the Notes to Financial Statements (Part I, Item 1 of this Report) for details regarding dividends.

As discussed elsewhere in this Report, our Board of Directors has determined to discontinue the Company’s quarterly cash dividend after the dividend distribution on August 5, 2024, and reallocate these funds to our capital allocation strategy for investing in growth initiatives that are intended to generate long-term shareholder value.

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

Anyone considering investing in our stock should not rely on such investment to provide dividend income.

Share Repurchases

For the fiscal year ended August 31, 2024, we did not repurchase any shares of Company stock and for the fiscal year ending August 31, 2023, we repurchased 492,041 shares of Company common stock through our share repurchase program.

All repurchases were made using cash resources.

For the fiscal years ended August 31, 2025, and August 31, 2024, respectively, we did not repurchase any shares of Company stock.

As of August 31, 2025, $30 million remains available for additional repurchases under our authorized repurchase program.

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Actual results could differ from those estimates.

Significant accounting policies for us include revenue recognition, accounting for capitalized software development costs, valuation of stock options, and accounting for income taxes.

Critical Accounting Estimates for us include revenue recognition, accounting for capitalized software development costs, accounting for intangible assets and goodwill, valuation of stock options, business acquisitions and accounting for income taxes.

Revenue Recognition

We generate revenue primarily from the sale of software licenses, software and providing consulting services to the pharmaceutical industry for drug development.

We generate revenue primarily from the sale of software licenses, providing consulting services, and customizing a software platform tailored to the pharmaceutical industry for drug development.

The Company determines revenue recognition through the following steps:

Identification of the contract, or contracts, with a customer

Identification of the contract, or contracts, with a client

Identification of the performance obligations in the contract

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The Company considers the nature and significance of each specific performance obligation under a contract when allocating the proceeds under each contract.

Accounting for contracts includes significant judgement in the estimation of estimated hours/cost to be incurred on consulting contracts, and the di minimis nature of the post-sales costs associated with software sales.

Accounting for contracts includes significant judgment in the estimation of hours/cost to be incurred on consulting contracts, and the de minimis nature of the post-sales costs associated with software sales.

Capitalized Computer Software Development Costs

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Amortization of capitalized computer 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, respectively 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.

Amortization of software development costs amounted to $3.1 million, $2.1 million, and $1.5 million for the fiscal years ended August 31, 2025, 2024, and 2023 respectively.

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

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

Intangible Assets and Goodwill

The Company performs valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and recognizes the assets acquired and liabilities assumed at their acquisition date fair value.

Acquired intangible assets include customer relationships, software, trade name, and noncompete agreements.

The Company determines the appropriate useful life by performing an analysis of expected cash flows based on historical experience of the acquired businesses.

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.

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 client relationships, software, trade names, and noncompete agreements.

We determine the appropriate useful life of intangible assets 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 is not amortized, instead it is tested for impairment annually or when events or circumstances change that would indicate that goodwill 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 the Company's use of the acquired assets or the strategy for the Company's overall business, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.

Goodwill and indefinite-lived intangible assets are tested for impairment on the last day of the fiscal year 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 is tested for impairment at the reporting unit level, which is one level below or the same as an operating segment.

As of August 31, 2024, after completion of the Company's internal reorganization, the Company determined that it had six reporting units:

CHEM, PBPK, QSP, CPP, MC, and ALI.

As of August 31, 2024, the entire balance of goodwill was attributed to four of the Company's reporting units, CPP, QSP, ALI, and MC.

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.

As of August 31, 2023, we recognized $0.5 million of impairment charge for the Cognigen trade name, as management determined we will no longer use the Cognigen trade name.

Management determined that this impairment is immaterial and has no bearing on any other intangible assets including goodwill.

No impairment losses were recorded during the fiscal years ended August 31, 2024, and 2022, respectively.

The company announced the reorganization of its internal structure at the end of the third quarter of fiscal 2025, and reorganized the internal structure to align products and services into integrated solution areas.

The Company changed the composition of our reporting units under ASC 350, Intangibles - Goodwill and Other as part of our Q4 2025 reorganization.

Because each former reporting unit moved in its entirety into a single new reporting unit, the related carrying amounts, including goodwill, were carried forward without reallocation.

Consistent with ASC 350, we evaluated goodwill immediately before and immediately after the change and assessed the fair value to be the same.

Prior to the reorganization, the Company had nine reporting units, Cheminformatics ("CHEM") software, Physiologically Based Pharmacokinetics ("PBPK") software, PBPK services, Clinical Pharmacology and Pharmacometrics ("CPP") software, CPP services, Quantitative Systems Pharmacology ("QSP") software, QSP Services, Adaptive Learning & Insights ("ALI") software, and Medical Communications ("MC") services.

Following the reorganization, management began to review operating performance and allocate resources based on two new reporting units, Software and Services.

The former reporting unit's goodwill and net assets directly combine into the new reporting units, and as such, the Company did not reassign goodwill to the new reporting units.

Former reporting unit New reporting unit

CHEM - Software Software

PBPK - Software

QSP - Software

CPP - Software

ALI - Software

PBPK - Services Services

QSP - Services

CPP - Services

MC - Services

When evaluating these assets for impairment, we may first perform a qualitative assessment to determine whether it is more likely than not that a reporting unit is impaired, known as Step 0.

If we do not perform a qualitative assessment, or if we determine that it is not more likely than not that the fair value of the reporting unit exceeds its carrying amount, we would calculate the estimated fair value of the reporting unit using discounted cash flows or a combination of discounted cash flow and market approaches.

The Company performed a qualitative assessment immediately after the reorganization and determined that no indicators of impairment existed.

The change in reporting units did not impact the Company’s consolidated financial statements for prior periods.

However, beginning in the fourth quarter of fiscal 2025, segment results and goodwill disclosures reflect the new reporting unit structure.

No impairment losses were recorded during the fiscal year ended August 31, 2024.

As of August 31, 2023, we recognized a $0.5 million impairment charge for the Cognigen trade name, as management determined we will no longer use the Cognigen trade name.

Business Acquisitions

The Company accounted for the acquisitions of Cognigen, DILIsym, Lixoft, Immunetrics, and Pro-ficiency using the acquisition method of accounting where the assets acquired and liabilities assumed are recognized based on their respective estimated fair values.

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

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

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Research and Development Costs

Research and development costs are charged to expense as incurred until technological feasibility has been established, or when the costs are for maintenance and minor modification of existing software products that do not add significant new capabilities to the products.

These costs include salaries, laboratory experiment, and purchased software that was developed by other companies and incorporated into, or used in the development of, our final products.

R&D costs are charged to expense as incurred until technological feasibility has been established, or when the costs are for maintenance and minor modification of existing software products that do not add significant new capabilities to the products.

These costs include salaries and benefits, laboratory experiments, and purchased software that was developed by other companies and incorporated into, or used in the development of, our final products.

The Company accounts for income taxes in accordance with ASC 740-10, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been included in the financial statements or tax returns.

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The Company accounts for stock options in accordance with ASC 718-10, “Compensation-Stock Compensation.” Under this method, compensation costs include the estimated grant-date fair value of awards amortized over the options’ vesting period.

Stock-based compensation costs, not including shares issued to directors for services, was $6.0 million, $4.3 million, and $2.7 million, for the fiscal years ending August 31, 2024, 2023, and 2022, respectively.

Stock-based compensation costs, not including shares issued to directors for services, were $6.1 million, $6.0 million, and $4.3 million for the fiscal years ended August 31, 2025, 2024, and 2023, respectively.

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 7. Management’s Discussion and Analysis