What changed in this filing

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Item 1. Business

2021-10-27 compared with 2020-11-16 · 575 added, 605 removed, 30 unchanged (98% of the section changed)

ITEM 1 –BUSINESS

As used in this report, each of the terms

“we,” “us,” “our,” the “Company” and “Simulations Plus” refers to Simulations

and its wholly owned subsidiaries Cognigen Corporation, of Buffalo, New York;

As used in this Annual Report Form 10-K, each

of the terms “we,” “us,” “our,” the “Company” and “Simulations Plus” refers

to Simulations Plus, Inc.

and its wholly owned subsidiaries (both current and previous, as applicable) Cognigen Corporation, of Buffalo,

DILIsym Services, Inc.

of Research Triangle

Park, North Carolina;

and Lixoft of Paris, France, unless otherwise stated or the context otherwise requires.

Simulations Plus, Inc., incorporated

in 1996, is a premier developer of modeling and simulation software for drug discovery and development, including the prediction

of properties of molecules utilizing artificial-intelligence- and machine-learning-based technology.

We also provide consulting

services ranging from early drug discovery through preclinical and clinical trial development to regulatory submissions in support

of product approval.

of Research Triangle Park, North Carolina;

and Lixoft of Paris, France, unless otherwise stated or the

context otherwise requires.

Simulations Plus, Inc.,

incorporated in 1996, is a premier developer of modeling and simulation software for drug discovery and development, including the prediction

of properties of molecules utilizing both artificial intelligence (“AI”) as well as machine-based technology.

We also provide

consulting services ranging from early drug discovery through preclinical and clinical trial development to regulatory submissions in

support of product approval.

Our software and consulting services are provided to major pharmaceutical, biotechnology, agrochemical, cosmetics,

and food industry companies and to academic and regulatory agencies worldwide for use in the conduct of industry-based research.

SLP is headquartered in Southern California, with offices in Buffalo, NY, Research Triangle Park, NC, and Paris, France.

The Company’s

common stock trades on the Nasdaq Capital Market under the symbol “SLP”.

We are a global leader focused on improving

the ways scientists use knowledge and data to predict the properties and outcomes of pharmaceutical and biotechnology agents by

providing a wide range of early discovery, preclinical, and clinical consulting services and software.

is headquartered in Southern California, with offices in Buffalo, NY, Research Triangle Park, NC, and Paris, France.

Our common stock

has traded on the Nasdaq Global Select Market under the symbol “SLP” since May 13, 2021, prior to which it traded on the Nasdaq

Capital Market under the same symbol.

We are a global leader,

delivering relevant, cost-effective software and creative and insightful consulting services.

Pharmaceutical and biotechnology companies

use our software programs and scientific consulting services to guide early drug discovery (molecule design screening and lead optimization),

preclinical, and clinical development programs, and development of generic medicines after patent expiration, including using our software

products and services to enhance their understanding of the properties of potential new medicines and to use emerging data to improve

formulations, select and justify dosing regimens, support the generics industry, optimize clinical trial designs, and simulate outcomes

in special populations, such as in elderly and pediatric patients.

SEGMENT INFORMATION

During the year ended

August 31, 2021, our business was organized into four reportable segments, based on the following business divisions:

(i) Simulations

Plus, (ii) Cognigen, (iii) DILIsym, and (iv) Lixoft.

Simulations Plus

Simulations Plus is focused

on improving the way scientists use knowledge and data to predict the properties and outcomes of pharmaceutical and biotechnology agents

by providing a wide range of early discovery, preclinical, and clinical consulting services and software.

Our innovations in integrating

new and existing science in medicinal and computational chemistry, pharmaceutical science, biology, physiology, and machine learning

into our software have enabled us to be a leading software provider for physiologically based pharmacokinetics (PBPK) modeling

and simulation, pharmacometric modeling and simulation, prediction of molecular properties from structure, and prediction of the

propensity of drugs to induce liver injury or to treat nonalcoholic fatty liver disease.

Our scientific consulting staff draw upon

extensive experience across multiple therapeutic areas and a full range of modeling and simulation techniques to assist our clients

across the full spectrum of drug development.

We generate revenue by delivering relevant,

cost-effective software and creative and insightful consulting services.

Pharmaceutical and biotechnology companies use our software

programs and scientific consulting services to guide early drug discovery (molecule design screening and lead optimization), preclinical,

and clinical development programs, including using our software products and services to enhance their understanding of the properties

of potential new medicines and to use emerging data to improve formulations, select and justify dosing regimens, support the generics

industry, optimize clinical trial designs, and simulate outcomes in special populations, such as in elderly and pediatric patients.

Simulations Plus acquired Cognigen Corporation

(Cognigen) as a wholly owned subsidiary in September 2014.

Cognigen was originally incorporated in 1992.

Through the integration

of Cognigen into Simulations Plus, Simulations Plus became a leading provider of population modeling and simulation contract research

services for the pharmaceutical and biotechnology industries.

Our clinical-pharmacology-based consulting services include pharmacokinetic

and pharmacodynamic modeling, clinical trial simulations, data programming, and technical writing services in support of regulatory

We have also developed software for harnessing cloud-based computing in support of modeling and simulation activities

and secure data archiving, and we provide consulting services to improve interdisciplinary collaborations and research and development

productivity.

Simulation Plus acquired DILIsym Services,

(DILIsym) as a wholly owned subsidiary in June 2017.

The acquisition of DILIsym positioned the Company as the leading provider

of Drug Induced Liver Injury (DILI) modeling and simulation software and related scientific consulting services.

In addition to

the DILIsym® software for analysis of potential drug-induced liver injury, DILIsym Services, Inc.

also has developed a simulation

program for analyzing nonalcoholic fatty liver disease (NAFLD) called NAFLDsym™.

Both the DILIsym and NAFLDsym software programs

require outputs from physiologically based pharmacokinetics (PBPK) software as inputs.

Outputs generated by the GastroPlus™

PBPK software that are required by DILIsym software can be automatically mapped to DILIsym applications;

thus, the integration

of these technologies provides a seamless capability for analyzing the potential for drug-induced liver injury for new drug compounds

and for investigating the potential for new therapeutic agents to treat NAFLD.

Since the acquisition, DILIsym has applied its mechanistic

modeling resources in other disease areas including idiopathic pulmonary fibrosis (IPF).

Simulations Plus acquired Lixoft as a

wholly owned subsidiary on April 1, 2020.

Lixoft brings to Simulations Plus its powerful software products, Monolix, Simulx and

PKanalix, which can take modeling projects from data exploration to clinical trial simulations.

In addition, Lixoft provides training

and focused consulting services which can accelerate pharmacometric studies.

Lixoft’s technologies were developed as a result

of a research program led by the French national research institute for digital science and technology (Inria), on nonlinear mixed

effect models for advanced population analysis, pharmacometrics, pre-clinical, and clinical trial modeling and simulation.

continues to work with Inria.

We currently offer eleven software products

for pharmaceutical research and development:

five simulation programs that provide time-dependent results based on solving large

sets of differential equations:

MembranePlus™;

and NAFLDsym™;

programs that are based on predicting and analyzing static (not time-dependent) properties of chemicals:

ADMET Predictor®;

MedChem Designer™;

and MedChem Studio™ (the combination of ADMET Predictor, MedChem Designer, and MedChem Studio is

called our ADMET Design Suite™);

a program which is designed for rapid clinical trial data analysis and regulatory submissions

called PKPlus™;

a program called KIWI™ from our Cognigen division that provides an integrated platform for data analysis

and reporting through our proprietary secure cloud;

and in April 2020 with the acquisition of Lixoft, we added the Monolix Suite™

of products – a modeling and simulation solution that allows nonparametric analyses, population PKPD analyses, and modeling

and clinical trial simulation.

flagship product, originally introduced in 1998, and currently our largest single source of software revenue, is GastroPlus.

mechanistically simulates the absorption, pharmacokinetics, pharmacodynamics, and drug-drug interactions of compounds administered

to humans and animals and is currently one of the most widely used commercial software of its type by industry, the U.S.

Drug Administration (FDA), the U.S.

National Institutes of Health (NIH), and other government agencies in the U.S.

and around the

goal with GastroPlus is to integrate the most advanced science into user-friendly software to enable researchers and regulators

to perform sophisticated analyses of complex compound behaviors in humans and laboratory animals.

GastroPlus is one of the most

widely used program in the world for physiologically based biopharmaceutics (PBBM)/PBPK modeling with a user base including early

pharmaceutical research and development, biopharmaceuticals, food, cosmetics, and general toxicology.

We work to release updated

versions of the program on an ongoing basis.

In June 2019, we released Version 9.7 of

This version added several important new capabilities, including improvements to population simulations, dissolution,

absorption, PBPK models, and drug-drug interactions, among others.

The ability to add lysosomal trapping effect to PBPK tissues

New mechanistic pregnancy PBPK model (with fetus compartment)

Additional solubility inputs for different drug forms (crystalline, amorphous)

New standard compound models (substrates/inhibitors/inducers) in the DDI Module

Expanded fed state conditions based on meal type

New ability to allow different tissue model types (perfusion- or permeability-limited) between parent and metabolites or victim perpetrator in metabolite tracking/DDI simulations

PK/PD model additions to PKPlus Module

Updates to the dermal absorption (TCAT) model through our Cosmetics Europe project

New effect of immune response with intramuscular injection models

Updated default populations for extensive, intermediate, and poor metabolizers based on specific genotypes

vitro transdermal model:

as part of the Research Collaboration Agreement (RCA) awarded by the FDA in September 2018 to improve

the TCAT model in GastroPlus, we developed a novel simulation tool to analyze data from in vitro skin penetration studies

to better inform in vivo predictions within GastroPlus.

Because of the widespread use of GastroPlus,

we have been able to enter into both funded and unfunded collaborations with industry and government agencies to drive advances

to modeling and simulation science.

In all, Simulations Plus owns the intellectual property developed within the GastroPlus program,

and updates are integrated into future versions and made available to clients:

Ocular absorption model:

in September 2014,

we entered into an RCA with the FDA to enhance the Ocular Compartmental Absorption and Transit (OCAT™) model within the Additional

Dosage Routes Module of GastroPlus.

The objective of this agreement was to provide a tool for generic drug companies and the FDA

to assess the likely bioequivalence of generic drug formulations dosed to the eye.

After a successful second year, the RCA was

extended for two additional years in September 2016, with primary tasks completed in September 2018.

Additional functionality was

further requested by the FDA, and a new funded contract was awarded for the 2018-19 period.

In May 2020, we were awarded yet another

grant from the FDA to support interspecies translation for ocular drug delivery in GastroPlus.

Long-acting injectable (LAI) product models:

in September 2015, we were awarded an RCA by the FDA to expand the capabilities of GastroPlus to simulate the dosing of long-acting

injectable microspheres for both small and large molecules (biologics).

Under this agreement, we developed simulation models to

deal with the very slow dissolution/decomposition of microsphere carrier materials that gradually release active drugs over periods

as long as weeks or months.

After a successful second year, the RCA was renewed for the third year in September 2017 and was completed

in September 2018.

In September 2019, we entered a new funded collaboration with a clinical-stage biotechnology company to develop

an intra-articular (IA) delivery model, using much of the technology developed through the LAI collaboration with the FDA.

collaboration enhances the GastroPlus PBBM/PBPK model for drug dosing into joints through IA injection products and incorporates

mechanistic models for different species and population groups that assist in efficient evaluation of IA injection strategies.

Transdermal absorption model:

we entered a research collaboration with a large European consortium to further develop and validate the mechanistic Transdermal

Compartmental Absorption and Transit (TCAT™) model in GastroPlus.

This project contributed substantially to improvements

in the program, specifically directed toward the predictions of local exposure within the skin layer following topical administration

of various chemicals.

In September 2018, we were awarded another funded RCA by the FDA to integrate drug product quality attributes

into the mechanistic TCAT™ model in GastroPlus.

This grant award focuses on the incorporation of drug product quality attributes

into PBPK models developed for dermatological topical dosage forms and transdermal delivery systems.

Virtual bioequivalence trials:

2019, we entered a new funded collaboration with a large pharmaceutical company to develop the Virtual Bioequivalence (BE) Trial

Simulator™ in GastroPlus.

This collaboration will enhance the GastroPlus PBBM/PBPK platform to evaluate population and formulation

variability on the BE of different products.

We intend to improve virtual BE trial simulation methodologies and efficiently address

regulatory concerns as model results are reviewed.

Oral absorption – Advanced Compartmental

Absorption and Transit (ACAT™) model:

in November 2019, we entered a new funded collaboration with a large pharmaceutical

company to modify the mechanistic ACAT™ model in GastroPlus to support gastrointestinal disease research.

This collaboration

will enhance and advance understanding of local drug disposition in gut tissue and improve the accuracy of drug concentration predictions

to assist with the development of new therapies for gastrointestinal diseases.

new and existing science in medicinal and computational chemistry, pharmaceutical science, biology, physiology, AI and machine learning

into our software have enabled us to be a leading software provider for modeling and simulation, and prediction of molecular properties

from structure.

We acquired Cognigen

Corporation (“Cognigen”) in September 2014.

With the acquisition of Cognigen, the Company became a leading provider of population

modeling and simulation contract research services for the pharmaceutical and biotechnology industries.

Our consulting services include

modeling, clinical trial simulations, data programming, and technical writing services in support of regulatory submissions.

Effective September 1, 2021, we merged Cognigen with and into Simulations

through a short-form merger (the “Cognigen Merger”).

To effectuate the Cognigen Merger, we filed Certificates of

Ownership with the Secretaries of State of the states of Delaware (Cognigen’s state of incorporation) and California (the Company’s

state of incorporation).

Consummation of the Cognigen Merger was not subject to approval of our stockholders and did not materially impact

the rights of our stockholders.

We acquired DILIsym Services,

(“DILIsym”) in June 2017.

The acquisition of DILIsym positioned the Company as a leading provider of Quantitative Systems

Toxicology services including Drug Induced Liver Injury (“DILI”) modeling and related consulting services as well as simulation

programs for analyzing nonalcoholic fatty liver disease (NAFLD).

DILIsym has subsequently expanded its capabilities to include Quantitative

Systems Pharmacology services in areas including idiopathic pulmonary fibrosis (IPF) and Radasym.

Effective September 1,

2021, we merged DILIsym with and into Simulations Plus, Inc.

through a short-form merger (the “DILIsym Merger”).

To effectuate

the DILIsym Merger, we filed Certificates of Ownership with the Secretaries of State of the states of Delaware (DILIsym’s state

of incorporation) and California (the Company’s state of incorporation).

Consummation of the DILIsym Merger was not subject to approval

of our stockholders, and did not materially impact the rights of our stockholders.

We acquired Lixoft as

a wholly owned subsidiary in April 2020.

Lixoft brings to the Company MonolixSuite ®, which can take modeling projects

from data exploration to clinical trial simulations.

In addition, Lixoft provides training and consulting services designed to accelerate

pharmacometric studies.

Lixoft’s technologies were developed as a result of a research program led by the French national research

institute for digital science and technology (Inria).

Below is a summary of

revenue percentages by reportable segment for the fiscal years ended August 31:

Simulations Plus, Inc.

Going forward, we expect to report segment information

based on our two business units (software business and consulting services business) in addition to reporting by division.

We currently offer twelve software products for

pharmaceutical research and development as follows:

· Three simulation products that provide time-dependent

results based on solving large sets of differential equations:

o GastroPlus ®

o MembranePlus™

· Two products that predict and analyze static

properties of chemicals utilizing both artificial intelligence as well as machine learning technologies:

o ADMET Predictor ®

o MedChem Designer™

· Five products that are based on mechanistic,

mathematical models:

· Two products designed for modeling and simulation

that allow for population analyses and rapid clinical trial data analysis and regulatory submissions:

o MonolixSuite ® (the combination of Monolix, PKanalix, and Simulx).

Software Business

Our software business represented 60% of our total

revenue during the year ended August 31, 2021, and was primarily generated by the following products:

Our flagship product, originally introduced in

1998, and currently our largest single source of software revenue, is GastroPlus.

GastroPlus mechanistically simulates the absorption

and drug interaction of compounds administered to humans and animals and is currently one of the most widely used commercial software

products of its type by industry and regulatory agencies in the U.S.

and globally.

Our goal with GastroPlus is to integrate the most

advanced science into user-friendly software to enable researchers and regulators to perform sophisticated analyses of complex compound

behaviors in humans and laboratory animals.

We work to release updated versions of the program on an ongoing basis.

In February 2021, GastroPlus version 9.8.1, which

included new mechanisms and updated documentation for key drug interaction standards models, was released.

This version added important

new capabilities, including improvements to population simulations, additional dosage route models, drug interactions, and new enhancements

when importing chemical structures, among others.

Because of the widespread use of GastroPlus, we

have been able to enter into both funded and unfunded collaborations with industry and government agencies to drive advances to modeling

and simulation science.

In all such collaborations, we own the intellectual property developed within the GastroPlus program, and updates

are integrated into future versions and made available to clients.

Recent collaborations include:

bioequivalence trials:

in October 2019, we entered a funded

collaboration with a large pharmaceutical company to develop the Virtual Bioequivalence (“BE”)

Trial Simulator™ in GastroPlus.

This collaboration enhances the GastroPlus platform

to evaluate population and formulation variability on the BE of different products.

absorption – Advanced Compartmental Absorption and Transit (ACAT™) model:

November 2019, we entered a new funded collaboration with a large pharmaceutical company

to modify the mechanistic ACAT™ model in GastroPlus to support gastrointestinal disease

In January 2021, we entered into a new funded collaboration with a different large

pharmaceutical company to add novel mechanisms for oral peptide formulations within the ACAT™

model to expand oral absorption modeling beyond small molecules.

cavity absorption model :

October 2020, through a joint proposal with the St.

Louis College of Pharmacy at University

of Health Sciences and Pharmacy in St.

Louis, we were awarded a new funded cooperative agreement

from the FDA to establish novel in vitro/in silico models for the oral cavity route

of administration in GastroPlus.

· Unfunded research collaborations :

to the active funded efforts with the FDA and industry described above, we also have two unfunded RCAs with the FDA:

Office of Generic Drugs (OGD) that began in 2014, and one announced in July 2019 with the Center for Veterinary Medicine (CVM).

With OGD, the objective is directed toward the FDA’s evaluation of mechanistic IVIVCs ( in vitro-in vivo correlations)

to determine whether a mechanistic absorption modeling (MAM) can relate laboratory ( in vitro ) dissolution experiment results

to the behavior of dosage forms in humans and animals ( in vivo ) better than traditional empirical methods.

With CVM, the

objective is to use GastroPlus, with in vitro and in vivo data, to investigate how bioequivalence (BE) of non-systemically

absorbed products can be evaluated in canines without the need for clinical endpoint trials.

In October 2020, through a joint proposal

Louis College of Pharmacy at University of Health Sciences and Pharmacy in St.

Louis, we were awarded a new funded

cooperative agreement from the FDA to establish novel in vitro/in silico models for the oral cavity route of administration

in GastroPlus to accelerate pharmaceutical research and regulatory assessment of innovative and generic drug products delivered

DDDPlus mechanistically simulates in

vitro (laboratory) experiments that measure the rate of dissolution of a drug as well as, if desired, the additives (excipients)

in a particular dosage form (e.g., powder, tablet, capsule, or injectable solids) under a variety of experimental conditions.

unique software program is used by formulation scientists in industry and the FDA to:

(1) understand the physical mechanisms affecting

the disintegration and dissolution rates of various formulations, (2) reduce the number of cut-and-try attempts to design new drug

formulations, (3) design in vitro dissolution experiments to better mimic in vivo (animal and human) conditions,

and (4) justify product specifications.

Version 6.0 of DDDPlus was released in January 2019 and offered a series of new capabilities,

simulation of the in vitro dissolution of long-acting injectable dosage forms (funded by an FDA grant supporting GastroPlus development)

simulation of the in vitro dissolution of controlled release bead formulations

new simulation of artificial stomach-duodenum (ASD) experiments

ability to fit models from precipitation experiments

new dissolution apparatus models

improved output reporting

MembranePlus™

Like DDDPlus, MembranePlus mechanistically

simulates laboratory experiments, but in this case, the experiments are for measuring permeability or clearance of drug-like molecules

through various membranes, including several different standard cell cultures (Caco-2, MDCK), as well as hepatocytes.

of such simulations derives from the fact that when the same molecules are measured in different laboratories using (supposedly)

the same experimental conditions, the results are often significantly different.

These differences are caused by a complex interplay

of factors in how the experiment was set up and run.

MembranePlus simulates these experiments with their specific experimental

details, and this enables scientists to better interpret how results from specific experimental protocols can be used to predict

permeability or clearance mechanisms in human and animals.

In vitro transdermal model:

of the RCA awarded by the FDA in September 2018 to improve the TCAT model in GastroPlus, we developed a novel simulation tool to

analyze data from in vitro skin penetration studies to better inform in vivo predictions within GastroPlus.

The standalone PKPlus program, originally

based on the internal PKPlus Module in GastroPlus that has been available since 2000, provides the full level of functionality

needed by pharmaceutical industry scientists to perform the analyses and generate the outputs needed to fully satisfy regulatory

agency requirements for noncompartmental analysis (NCA) and provides limited support for compartmental PK modeling.

PKPlus version 2.5 was released in July

This version incorporated a wide variety of requested features from current users, including:

Import CDISC SEND packages with PC domain as source data

Improved command-line functionality

64-bit system optimization for improved performance

Streamlined auto-reports

Additional workflow refinements

Automated PK/TK data analysis:

2019, we entered a new funded collaboration with a large pharmaceutical company to enhance PKPlus.

Following a rigorous evaluation

of multiple commercial offerings, our partner selected PKPlus as the pharmacokinetics/toxicokinetic (PK/TK) modeling program to

support the internal data platform that connects their global teams.

Our objectives for this project are to design the next-generation

engine that automates the import and mapping of data, selection of calculation templates, and generation of reports within a streamlined,

validated system.

We also have two unfunded RCAs with the FDA:

one with the Office of Generic Drugs (“OGD”) that began

in 2014, and one announced in July 2019 with the Center for Veterinary Medicine (“CVM”).

ADMET Predictor

ADMET (Absorption, Distribution, Metabolism,

Excretion, and Toxicity) Predictor is a top-ranked, chemistry-based computer program that takes molecular structures (i.e., drawings

of molecules represented in various formats) as inputs and uses machine learning technology to predict approximately 175 different

properties for them at an average rate of over 200,000 compounds per hour on a modern laptop computer.

This capability allows chemists

to generate estimates for a large number of important molecular properties without the need to synthesize and test the molecules,

as well as to generate estimates of unknown properties for molecules that have been synthesized, but for which only a limited number

of experimental properties have been measured.

Thus, a chemist can assess the likely success of a large number of existing molecules

in a company’s chemical library, as well as molecules that have never been made, by providing only their molecular structures,

either by drawing them using a tool such as our MedChem Designer software, or by automatically generating large numbers of molecules

using various computer algorithms, including those embedded in our MedChem Studio™ Module.

The optional ADMET Modeler™ Module

in ADMET Predictor enables scientists to use their own experimental data to quickly create proprietary high-quality predictive

models using the same powerful artificial intelligence (AI) engine we use to build our top-ranked property predictions.

Version 9.5 of ADMET Predictor was released

in April 2019, adding:

Novel approaches to calculate uncertainty estimates on all regression models

New machine learning models for important metabolism and transporter endpoints

New machine learning models for AMES mutagenicity, a primary toxicity endpoint required during risk assessment

New Structure Sensitivity Analysis visualization tool to easily map atom-level contributions to model predictions

Improved rat-specific models to more accurately inform HTPK Simulation predictions

Improved Pipeline Pilot and KNIME components to extend deployment options and enterprise support for ADMET Predictor

Updates to output displays in MedChem Designer™

We have made significant investments in

two key areas with recent versions:

improving integration of our top-ranked ADMET Predictor and GastroPlus models to leverage our

novel ‘Discovery PBPK’ approaches for chemists and safety researchers, and further enhancing our best-in-class machine

learning engine to assist with drug discovery.

Recent publications from pharmaceutical and chemical companies describing how they

have leveraged our ‘Discovery PBPK’ methods to guide lead optimization and risk assessment illustrate how our unique

offerings provide substantial value in these spaces.

ADMET (Absorption, Distribution, Metabolism, Excretion,

and Toxicity) Predictor is a top-ranked, chemistry-based computer program that takes molecular structures as inputs and uses machine learning

technology to predict different properties for them.

This capability allows chemists to generate estimates for many important molecular

properties without the need to synthesize and test the molecules.

A chemist can then assess the likely success of many existing molecules

in a company’s chemical library, as well as molecules that have never been made.

The optional ADMET Modeler™ AIDD (Artificial

Intelligence-driven Drug Design) Module in ADMET Predictor enables scientists to use their own experimental data to quickly create proprietary

high-quality predictive models using the same powerful AI engine we use to build our top-ranked property predictions.

Version 10.2 of ADMET Predictor marketed as

APX.2, was released in April 2021, which added many new features including, but not limited to:

(i) new capabilities in the High

Throughput Pharmacokinetic (“HTPK”) Simulation Module which integrates machine learning and physiologically based

pharmacokinetic (PBPK) technologies to guide lead selection, (ii) new intravenous (IV) bolus route of administration to complement

oral dosing options, (iii) Multi-dosing for more complex administration regimens, (iv) plasma concentration versus time curve

overlay for easy comparison across compounds, (v) Additional options for dose optimization to support universal safety and efficacy

We have made significant investments in two key

areas with recent versions:

improving integration of our top-ranked ADMET Predictor and GastroPlus models to leverage our novel ‘Discovery

PBPK’ approaches for chemists and safety researchers, and further enhancing our best-in-class machine learning engine to assist

with drug discovery.

Recent collaborations include:

· Drug discovery workflows :

in December 2019,

we entered into a new collaboration agreement with Bayer AG to advance our ADMET Predictor machine learning software for use within

integrated drug discovery workflows by developing improved structure and tautomer handling capabilities that will support data

integrity across the different discovery platforms.

High-throughput pharmacokinetic (HTPK)

in December 2019, we entered into a new collaboration agreement with Bayer AG to advance our ADMET Predictor

machine learning software for use within integrated drug discovery workflows by developing improved structure and tautomer handling capabilities

that will support data integrity across the different discovery platforms.

· High-throughput pharmacokinetic (HTPK) simulations:

in April 2020, we entered into a new collaboration agreement with a large pharmaceutical company to develop enhanced

capabilities in our existing HTPK Simulation Module which will incorporate PBPK modeling into the partner’s discovery platform

to support compound screening activities.

MedChem Designer™

MedChem Designer was initially a molecule-drawing

program, or “sketcher”, but now has capabilities far exceeding those of other molecule-drawing programs because of

its integration with ADMET Predictor.

We provide MedChem Designer for free because we believe that in the long run it will help

to increase demand for ADMET Predictor.

Over 34,000 copies of MedChem Designer have been downloaded by scientists around the world

Our free version includes a small set of ADMET Predictor’s best-in-class property predictions, allowing the chemist

to modify molecular structures and then see a few key properties very quickly.

When used with a license for ADMET Predictor, MedChem

Designer becomes a de novo molecule design tool.

With it, a researcher can draw one or more molecular structures, then click

on the ADMET Predictor icon and have approximately 175 properties for each structure calculated in seconds, including our proprietary

ADMET Risk™ index which provides a single number that instantly compares the effects of different structural changes in many

Researchers can also click on an icon to generate the likely metabolites of a molecule and then predict all the properties

of those metabolites from ADMET Predictor, including each of their ADMET Risk scores.

Drug development programs rely increasingly

on modeling and simulation analyses to support decision-making and submissions to regulatory agencies.

To ensure high-quality reliable

analyses, organizations must not only apply high-quality science, but must also be able to support the science with validated and

reproducible results.

KIWI is a cloud-based web application that

provides scientists with a secure, validated, enterprise-scale environment wherein they can efficiently organize, process, maintain,

and communicate the volume of data and results generated over the duration of a drug development program.

KIWI enables global teams

to collaborate on model-based decision-making and has been proven to support and encourage interdisciplinary discussions about

the model development process and the interpretation of results.

In addition to providing a structured workflow

for model-based analyses, key features of the application include powerful visualization tools to support exploratory analyses,

a data repository to facilitate management and organization of data and documents, and a Model Wizard module to streamline coding

and model development.

New versions of KIWI are released on a

regular basis.

KIWI Version 2 was released in December 2017, KIWI 3 was released in August 2018, and KIWI 4 was released in June

In fiscal year 2020, we have:

further improved the visualization tools,

introduced kiwiConnect, an R-based API to improve interaction and interconnectivity between R and KIWI, and

completed a major update to the Oracle database infrastructure, including new hardware, additional storage, and increased bandwidth.

The DILIsym software is a quantitative

systems pharmacology (QSP) program that has been in development since 2011.

QSP software models are based on the fundamental understanding

of complex biological pathways, disease processes, and drug mechanisms of action, integrating information from experiments and

forming hypotheses for the next experimental model.

DILIsym deals with the propensity for some drug molecules to induce temporary

or permanent changes in biological functions within liver cells (hepatocytes) that can result in damage to the liver (i.e., drug-induced

liver injury or DILI).

Version 8A of the DILIsym software was

released in January of 2019.

This version is delivered as a secure executable file that incorporates new proprietary code enabling

tighter integration with our GastroPlus PBPK software.

A number of important new capabilities were added, including new exemplar

compounds, new biomarkers, and new mechanisms of DILI.

DILIsym version X is expected to be released in late Fall of 2020.

X will be a completely refactored, much faster, and more user-friendly software tool.

Where DILIsym is used to investigate the

likelihood that a known drug molecule would cause injury to the liver, NAFLDsym is concerned with a liver that is already diseased

(NAFLD/NASH) by excess fat, fibrosis, and inflammation, and investigates the likelihood that various molecules might provide therapeutic

benefits to treat or cure the disease.

DILIsym can be considered a “shrink wrap” software product, usable across many

companies and drug development projects.

NAFLDsym, on the other hand, requires modification for each of a number of different mechanisms

of action that potential new drug compounds could use to treat the disease, and so is a customized tool used in consulting projects

for each new client project.

NAFLDsym version 2A was released in the summer of 2019 for licensing and consulting use.

now includes the three most important components of NAFLD/NASH:

steatosis, inflammation, and fibrosis, along with a host of other

important updates.

RENAsym will be focused on investigating

and predicting drug-induced kidney injury, or acute kidney injury (AKI).

RENAsym will be another “shrink wrap” software

product, usable across many companies and drug development projects.

The software will utilize predictions of drug exposure in

the kidney from PBPK platforms such as GastroPlus, along with in vitro data related to certain kidney injury mechanisms,

to make predictions.

The first expected release of RENAsym will be available in summer of 2021.

The initial development is being

funded via an NIH small business grant.

IPFsym is a software tool that will investigate the likelihood

that various molecules might provide beneficial therapeutic benefits to treat or cure idiopathic pulmonary fibrosis (IPF).

like NAFLDsym, requires modification for each of a number of different mechanisms of action that potential new drug compounds could

use to treat the disease, and so is a customized tool used in consulting projects for each new client project.

IPFsym is targeted

for release for licensing and consulting use in late 2020.

The software will include the most important mechanisms of IPF and will

be closely coupled with GastroPlus for drug concentration predictions within the lungs.

Monolix Suite

The Monolix Suite is a unique solution

for modeling and simulation for pharmaceutical companies, biotechs, and hospitals.

capabilities in our existing HTPK Simulation Module which will incorporate PBPK modeling into the partner’s discovery platform to

support compound screening activities.

In September 2020, we entered an accelerated second phase of this collaboration with the sponsor

company to add further enhancements to the HTPK Simulation Module calculations and workflows.

· Artificial Intelligence Drug Discovery (“AIDD”)

Module validation:

in September 2020, we entered into a collaborative research agreement with a large pharmaceutical company to

apply the AIDD Module to an active therapeutic program.

We worked with the partner to define the multi-objective parameters against which

the lead molecule(s) were to be optimized.

In April 2021, we received initial experimental results from 10 candidate molecules selected

for synthesis and testing.

In August 2021, the second phase of experimental results were received.

Peer-reviewed manuscripts of the methodology

and results are expected to be jointly published with our collaboration partner in 2022.

The MonolixSuite is a unique solution for modeling

and simulation for pharmaceutical companies, biotechnology enterprises, and hospitals.

It supports nonparametric analyses, population

PKPD analyses and modeling, and clinical trial simulation.

analyses and modeling, and clinical trial simulation.

The extended MonolixSuite contains three main products:

Monolix, Simulx,

and PKanalix.

These products are interconnected and interoperable, i.e., the user can go from one application to another one without

changing anything in terms of data set or of biological models.

The products are used by many pharmaceutical

companies across the globe at each step of drug development, from preclinical to first-in-human, clinical, and post approval.

These products are well established in the research and drug development communities and have been accepted by most regulatory

Lixoft's technologies come from an eight-year

research program in modeling and biostatistics led by Inria and sponsored by the pharmaceutical industry.

The extended MonolixSuite

was developed in view of the increasing importance of pharmacometrics experts in drug development, taking a modeling project from

the first data exploration up to clinical trial simulations.

Monolix (Nonlinear mixed-effects models

or “MOdèles NOn LInéaires à effets miXtes” in French) is a platform of reference for model-based drug

It combines the most advanced algorithms with unique ease of use.

Pharmacometricians of preclinical and clinical

groups can rely on Monolix for population analysis and to model PK/PD and other complex biochemical and physiological processes.

is an easy, fast, and powerful tool for parameter estimation in nonlinear mixed-effects models, model diagnosis and assessment,

and advanced graphical representation.

Simulx is a powerful and flexible

simulator for clinical trial pharmacometrics that runs on top of the Lixoft simulation engine.

It allows simulation of any type

of model output (continuous, event, categorical…).

It directly connects with Monolix for seamless modeling and simulation,

or can be used as a standalone application to simulate a new model.

Potential applications include comparison of different trial

designs, extrapolation to different populations, non-adherence to treatment, optimal dosing, and dose individualization after

therapeutic drug monitoring.

Simulx is currently available

via the comprehensive R package mlxR.

Starting with the 2020 version, it will have a user interface to easily define groups of

simulations as well as simulation outcomes to compare.

PKanalix performs analysis on PK data sets.

Several analyses are performed including:

noncompartmental analysis (NCA),

compartmental analysis (CA) consisting in finding parameters of a model representing the PK as the dynamics in compartments for each individual.

Notice that this compartmental analysis does not include population analysis that could be performed in Monolix.

PKanalix provides

a clear user interface with a simple workflow to perform NCA and CA analysis in an efficient way.

Consulting Services

Monolix, Simulx, and PKanalix.

Monolix 2020R1 was released in November 2020, which combines the most advanced algorithms with a unique ease of use.

The products are

used by pharmaceutical companies across the globe at each step of drug development, from preclinical to first-in-human, clinical, and

post-approval.

Consulting Services Business

Our scientists and engineers have extensive

expertise in drug absorption via various dosing routes (oral, intravenous, subcutaneous, intramuscular, ocular, nasal/pulmonary,

and dermal), pharmacokinetics, pharmacodynamics, drug-drug interactions and others related to the drug development process.

have attended over 200 scientific meetings worldwide in the past four years, often speaking and presenting.

We conduct contracted

consulting studies for large customers (including many of the top twenty global pharmaceutical companies) who have particularly

complex problems and who recognize our expertise in solving them, as well as for smaller customers who prefer to have studies

run by our scientists rather than to license our software and train someone to use it.

The demand for our consulting services

has been steadily increasing, and we have expanded our consulting teams to meet the increased workload.

We have a reputation for high-quality

analyses and regulatory reporting of data collected during preclinical experiments as well as clinical trials of new and existing

pharmaceutical products, typically working on 80-100 drug projects per year.

Traditionally, model-based analysis of clinical trial

data was different from the modeling analysis offered by GastroPlus or our quantitative systems toxicology/pharmacology software

(DILIsym and NAFLDsym);

the former relied more on statistical and semi-mechanistic models, whereas the latter is based on very

detailed mechanistic models.

Statistical models rely on direct observation and mathematical equations that are used to fit data

collected across multiple studies along with describing the variability within and between patients.

Mechanistic models are based

on a detailed understanding of the human body and the chemistry of the drug and involve deep mathematical and scientific representation

of the phenomena involved in drug dissolution/precipitation, absorption, distribution, metabolism, and elimination.

Collectively,

the models support safety and efficacy decisions, first-in-human estimations, formulation optimization, and drug-drug interaction

Beginning in 2014, the FDA and other regulatory agencies began to emphasize the need to encourage mechanistic PBPK

modeling and simulation in clinical pharmacology, with final guidance documents completed in 2018, and we have seen the benefit

of having our clinical pharmacology teams across all three divisions working together to achieve this goal.

To date, there have

been approximately 40 approved drug products on the market today whose submissions were informed by results from GastroPlus.

PRODUCT DEVELOPMENT

Development of our software is focused

on expanding product lines, designing enhancements to our core technologies, and integrating existing and new products into our

principal software architecture and platform technologies.

We intend to continue to offer regular updates to our products and to

continue to look for opportunities to expand our existing suite of products and services.

To date, we have developed products internally,

sometimes also licensing or acquiring products, or portions of products, from third parties.

These arrangements at times have required

that we pay royalties to third parties.

We intend to continue to license or otherwise acquire technology or products from third

parties when it makes business sense to do so.

MARKETING AND DISTRIBUTION

We distribute our products and offer our

services throughout the world.

We market our pharmaceutical software

and consulting services through attendance and presentations at scientific meetings, exhibits at trade shows, seminars at pharmaceutical

companies and government agencies, our website, and various communication channels to our database of prospects and customers.

At various scientific meetings around the world each year there are numerous presentations and posters reporting research that

was performed using our software.

expertise in drug absorption via various dosing routes, pharmacokinetics, pharmacodynamics, drug-drug interactions and other areas

related to the drug development process.

We conduct contracted consulting studies for large customers with complex problems and who

recognize our expertise in solving them, as well as for smaller customers.

The demand for our consulting services has been steadily

increasing, and we have expanded our consulting teams to meet the increased workload.

Our consulting services business represented 40%

of our total revenue during the year ended August 31, 2021, and was primarily generated by the following services:

in 2014, the FDA and other regulatory agencies began to emphasize the need to encourage mechanistic PBPK modeling and simulation in clinical

pharmacology, with final guidance documents completed in 2018.

New draft guidance documents, which were released in October 2020 focused

on additional biopharmaceutics applications for oral drug product development, manufacturing changes, and controls.

This has resulted

in an increased need for our scientific consulting staff to drawn upon its extensive experience across multiple therapeutic areas

of modeling and simulation methods to provide consulting-related services in support of this sophisticated

We support Model-Informed Drug Discovery and Development throughout the entire product lifecycle, from discovery through

translational research and clinical development when an organization does not have the time or resources to use our software directly.

More specifically, our clients seek out our consulting services to acquire scientific, therapeutic-area-related modeling and simulation

expertise that they do not have in-house.

Our clinical-pharmacology-based consulting services

include population pharmacokinetic and pharmacodynamic modeling, exposure-response analyses, clinical trial simulations, data programming,

and technical writing services in support of regulatory submissions.

In addition to modeling and simulation consulting services, we provide

expertise and assistance with development-related decision-making and support for regulatory interactions related to dose selection, clinical

trial design, and understanding of the determinants of safety and efficacy for new medicines.

creative and insightful consulting services to support our quantitative systems pharmacology/quantitative systems toxicology (“ QSP/QST”)

modeling focused on nonalcoholic fatty liver safety NAFLD, and nonalcoholic steatohepatitis (“NASH”), IPF, heart disease,

liver and kidney safety, and radiation syndrome, as well as other areas.

SALES AND MARKETING

We market our software and consulting services

globally through attendance and presentations at scientific meetings, exhibits at trade shows, seminars at pharmaceutical companies and

government agencies, our website, and various communication channels to our database of prospects and customers.

At various scientific

meetings around the world each year there are numerous presentations and posters reporting research that was performed using our software.

Many of these presentations are from industry and FDA scientists;

some are from our staff.

peer-reviewed scientific journal articles are published, and conference presentations delivered, each year using our software,

mostly by our customers, further supporting its use in a wide range of preclinical and clinical studies.

Our sales and marketing efforts are handled

primarily internally by sales and marketing staff and with our scientific team and several senior management staff assisting our

marketing and sales staff with trade shows, seminars, and customer trainings both online and on-site.

We also have independent

distributors in Japan, China, India, and Korea who sell and market our products with support from our scientists and engineers.

We provide support to the GastroPlus User

Group in Japan, which was organized by Japanese researchers in 2009.

In early 2013, a group of scientists in Europe and North America

organized another GastroPlus User Group following the example set in Japan.

Over 1,000 members have joined this group to date.

We support this group through coordination of online meetings each month and managing the user group website for exchange of information

among members.

These user groups provide us valuable feedback with respect to desired new features and suggested interface changes.

Our pharmaceutical software products are

designed and developed by our development teams managed out of offices in California, North Carolina (Research Triangle Park),

New York (Buffalo), and Paris, France.

We also employ people who are able to work remotely using collaboration software.

and services are delivered electronically.

In our pharmaceutical software and services

business, we compete against a number of established companies that provide screening, testing, and research services, and products

that are not based on simulation software.

There are also software companies whose products do not compete directly with, but are

sometimes closely related to, ours.

Our competitors in this field include some companies with financial, personnel, research, and

marketing resources that are larger than ours.

Our flagship product, GastroPlus, is a leading commercial PBPK modeling platform

and has one significant competitor;

others could be developed over time, but with the high barrier to entry, it would be difficult

to validate new software to levels required to support regulatory submissions.

Our PKPlus software product competes with one major

and a few minor software programs.

MedChem Studio, MedChem Designer, and ADMET Predictor/ADMET Modeler operate in a more competitive

Several other companies presently offer simulation or modeling software, or simulation-software-based services, to

the pharmaceutical industry.

Lixoft’s Monolix Suite competes with a few established software products offered within the

pharmaceutical software industry.

We believe DILIsym and NAFLDsym enjoy a unique market position, with no significant competition.

Major pharmaceutical companies conduct

drug discovery and development efforts through their internal development staffs and through outsourcing.

Smaller companies generally

need to outsource a greater percentage of this effort.

Thus, we compete not only with other software suppliers and scientific consulting

service providers, but also with the in-house development and scientific consulting teams at some of the larger pharmaceutical

Although competitive products exist, both

new licenses and license renewals for our software products have continued to grow.

We believe that we enjoy a dominant market

share in this segment.

We believe our GastroPlus, ADMET Predictor/ADMET Modeler, MedChem Studio, MedChem Designer, DDDPlus, MembranePlus,

PKPlus, KIWI, DILIsym, NAFLDsym and Monolix Suite software offerings are each unique in their combination of capabilities and

remain a focus of our marketing strategy.

Numerous peer-reviewed scientific journal articles

are published, and conference presentations delivered, each year using our software, mostly by our customers, further supporting its use

in a wide range of preclinical and clinical studies.

Our sales and marketing efforts are handled primarily

internally by sales and marketing staff and with our scientific team and several senior management staff assisting our marketing and sales

staff with trade shows, seminars, and customer training both online and on-site.

We also have independent distributors in Japan, China,

India, and Korea as well as in South America who sell and market our products with support from our scientists and engineers.

We also launched our MIDD+ (Model-Informed Drug

Development) scientific conference in March 2021, where speakers shared their real-world impact using modeling & simulation technology.

During the two-day event, representatives from the U.S.

FDA Offices of Clinical Pharmacology, New Drug Products, Research and Standards,

Translational Sciences, the Center for Drug Evaluation and Research, and the National Center for Toxicological Research, as well as ANVISA

and Health Canada, provided case studies and software demonstrations on wide range of topics.

The event also featured a panel discussion

on the ascent of model-informed drug development and the increasing importance of developing next generation technology.

We compete against a number of established companies

that provide screening, testing, and research services, and products that are not based on simulation software.

There are also software

companies whose products do not compete directly with us but are sometimes closely related to, ours.

Our competitors in this field include

some companies with financial, personnel, research, and marketing resources that are larger than ours.

Major pharmaceutical companies conduct drug discovery

and development efforts through their internal development staff and outsourcing.

Smaller companies generally need to outsource a greater

percentage of this effort.

Thus, we compete not only with other software suppliers and scientific consulting service providers but also

with the in-house development and scientific consulting teams at some of the larger pharmaceutical companies.

Based on our technical knowledge and expertise,

the Company is strategically placed to offer modeling and simulation consulting services to companies.

Our clients seek out our

services for multiple reasons:

(1) to acquire scientific, therapeutic-area-related modeling expertise that they do not have in-house,

(2) to address a need for modeling and simulation efforts beyond the capacity of in-house resources, (3) to fulfill their modeling

requirements more efficiently than they could do in-house, and (4) to utilize our software when they do not have the in-house expertise

We apply our software and assist companies in such areas as:

physiologically based

pharmacokinetic modeling (PBPK), pharmacokinetic/pharmacodynamic (PK/PD) data analysis;

and quantitative systems pharmacology/toxicology

We compete against numerous service providers, ranging from departments within large contract research organizations (CROs)

to independent consulting organizations of various sizes as well as individual consultants .

We believe the key factors in our ability

to successfully compete in this field are our ability to:

(1) continue to invest in research and development, and develop and support

industry-leading simulation and modeling software and related products and services, (2) develop and maintain a proprietary database

of results of physical experiments that serve as a basis for simulated studies and empirical models, (3) continue to attract and

retain a highly skilled scientific and engineering team, (4) aggressively promote our products and services to our global market,

and (5) develop and maintain relationships with research and development departments of pharmaceutical companies, universities,

and government agencies.

In addition, we actively seek strategic

acquisitions to expand both our pharmaceutical software and services business.

we believe that we are strategically positioned to offer competitive modeling and simulation consulting services to companies.

seek out our services for multiple reasons including, without limitation:

(i) to acquire scientific, therapeutic-area-related modeling

expertise that they do not have in-house, (ii) to address a need for modeling and simulation efforts beyond the capacity of in-house resources,

(iii) to fulfill their modeling requirements more efficiently than they could do in-house, and (iv) to utilize our software when they

do not have the in-house expertise to do so.

We apply our software and assist companies in such areas as physiologically

based pharmacokinetic modeling (“PBPK”), pharmacokinetic/pharmacodynamic (PK/PD) data analysis, and quantitative systems

pharmacology/toxicology (QSP/QST).

We compete against numerous service providers, ranging from departments within large contract research

organizations (“CROs”) to independent consulting organizations of various sizes as well as individual consultants .

We believe the key factors in our ability to successfully

compete in this field are our ability to:

(i) continue to invest in research and development, and develop and support industry-leading

simulation and modeling software and related products and services, (ii) develop and maintain a proprietary database of results of physical

experiments that serve as a basis for simulated studies and empirical models, (iii) continue to attract and retain a highly-skilled scientific

and engineering team, (iv) aggressively promote our products and services to our global market, and (v) develop and maintain relationships

with research and development departments of pharmaceutical companies, universities, and government agencies.

In addition, we actively seek strategic acquisitions

to expand both our pharmaceutical software portfolio and services offerings.

TRAINING AND TECHNICAL SUPPORT

Customer training and technical support

are important factors in customer satisfaction for our pharmaceutical products, and we believe we are an industry leader in providing

strong customer training and technical support in our business areas.

We provide in-house seminars at customers’ and potential

customers’ sites, as well at selected universities to train students who will soon be industry scientists.

These seminars

often serve as initial training in the event the potential customer decides to license or evaluate our software.

Technical support

is provided after the sale of any software in the form of on-site training (at the customer’s expense), web meetings and

telephone, fax, and e-mail assistance to the customer’s users during the customer’s license period.

We provide free telephone, e-mail, and

web-based support for all of our pharmaceutical software products worldwide from our offices in the United States.

Technical support

for pharmaceutical software is provided by our life sciences teams and our inside sales and support staff.

Technical support for

pharmaceutical software products is generally minimal, averaging a few person-hours per product sale.

Customer training and technical support are important

factors in customer satisfaction for our pharmaceutical products, and we believe we are an industry leader in providing strong customer

training and technical support in our business areas.

We provide in-house seminars at customers’ and potential customers’

sites, as well as at selected universities to train students who will soon be industry scientists.

These seminars often serve as initial

training in the event the potential customer decides to license or evaluate our software.

Technical support is provided after the sale

of any software in the form of on-site training (at the customer’s expense), web meetings and telephone, fax, and e-mail assistance

to the customer’s users during the customer’s license period.

We provide telephone, e-mail, and web-based support

for all of our software products.

Technical support for our software is provided by our life sciences teams and our inside sales and support

Technical support for our software products is generally minimal.

We provide support to the GastroPlus User Group

in Japan, which was organized by Japanese researchers in 2009.

In early 2013, a group of scientists in Europe and North America organized

another GastroPlus User Group following the example set in Japan.

Over 1,300 members have joined this group to date.

We support this group

through coordination of online meetings each month and managing the user group website for exchange of information among members.

user groups provide us valuable feedback for desired new features and suggested interface changes.

RESEARCH AND DEVELOPMENT

Research and development (R&D) activities

include both enhancement of existing products and development of new products.

The development of our software is focused on

expanding our product portfolio, designing enhancements to our core technologies, and integrating existing and new products into our principal

software architecture and platform technologies.

We intend to continue to offer regular updates to our products and to continue to look

for opportunities to expand our existing suite of products and services.

To date, we have developed products internally,

sometimes also licensing or acquiring products, or portions of products, from third parties.

In certain instances, these arrangements

have required that we pay royalties to third parties;

we have paid no royalties during the year ended August 31, 2021.

We intend to continue

to license or otherwise acquire technology or products from third parties when it makes business sense to do so.

Research and development (“R&D”)

activities include both enhancement of existing products and development of new products.

Development of new products and adding functionality

to existing products are capitalized in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification

(ASC) 985-20, “Costs of Software to Be Sold Leased, or Marketed”.

R&D expenditures, which primarily relate to both

capitalized and expensed salaries, R&D supplies, laboratory testing, and R&D consulting, were approximately $5,328,000

during fiscal year 2020, of which $2,353,000 was capitalized.

R&D expenditures were approximately $4,268,000 during fiscal

year 2019, of which $1,768,000 was capitalized.

R&D expenditures during fiscal year 2018 were approximately $3,936,000 of which

$2,145,000 was capitalized.

Our customers include large, medium-sized,

and smaller biotech and pharmaceutical companies, universities, and regulatory agencies and other government organizations.

We concentrate on serving the needs of our customers in drug discovery, development, clinical trials, and post-patent generic

formulation development.

Our current customer base is highly fragmented;

in 2020 three of our customers were each 9%, 7% and 7%

of our revenues.

With those exceptions, no other customers made up more than 9% of our revenues in the last 3 years.

We have traditionally experienced seasonal

revenue weakness during our fiscal fourth quarter (June-August) due to summer vacations and reduced activities at our customers’

Our net sales figures for any quarter are not necessarily indicative of sales for any future period;

our pharmaceutical

software is typically licensed on an annual basis which means renewal revenues are usually recognized in the same quarter year

In recent years as we have grown revenues, we have seen a bit of flattening from quarter to quarter and we have reported

seasonally higher revenue in our second and third quarters.

This is due to pharmaceutical industry buying patterns as well as our

revenue recognition policies for software, consulting service slowdowns due to vacations, and lower customer and employee conference

attendance in those periods.

to existing products are capitalized in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards

Codification (“ASC”) 985-20, “Costs of Software to Be Sold, Leased, or Marketed.” R&D expenditures, which

primarily relate to both capitalized and expensed salaries, R&D supplies, laboratory testing, and R&D consulting, were approximately

$6.9 million during fiscal year 2021, of which $2.9 million was capitalized.

R&D expenditures were approximately $5.3 million during

fiscal year 2020, of which $2.3 million was capitalized.

R&D expenditures during fiscal year 2019 were approximately $4.3 million

of which $1.8 million was capitalized.

Our software products are designed and developed

by our development teams managed out of offices in California, North Carolina (Research Triangle Park), New York (Buffalo), and Paris,

We also employ people who can work remotely using collaboration software.

Our products and services are delivered electronically.

Our customers include biotech and pharmaceutical companies,

universities, and regulatory agencies and other government organizations.

We concentrate on serving the needs of our customers in

drug discovery, development, clinical trials, and post-patent generic formulation development.

Our current customer base is highly

in 2021, three of our customers each accounted for 11%, 4% and 3% of our revenues, respectively.

With the one exception, no

other customers made up more than 11% of our revenues in the last four years.

Our revenues exhibit seasonal fluctuations, with

the first fiscal quarter (September-November) and fourth fiscal quarter (June-August) generally having the lowest revenues due to vacations

and reduced activities at our customers’ sites.

In addition, as revenue has grown in recent years, we have seen some flattening

from quarter to quarter due to higher revenue in our second and third quarters.

This is due to pharmaceutical industry buying patterns

as well as our revenue recognition policies for software, consulting service slowdowns due to vacations, and lower customer and employee

conference attendance in those periods.

Revenues for any quarter are not necessarily indicative of revenues for any future

however, because our pharmaceutical software is licensed on an annual basis, renewals are usually within the same quarter year

ENVIRONMENTAL MATTERS

believe we are in compliance in all material respects with all applicable environmental laws.

Presently, we do not anticipate

that such compliance will have a material effect on capital expenditures, earnings, or competitive position with respect to any

of our operations.

We believe we are in compliance in all material

respects with all applicable environmental laws.

Presently, we do not anticipate that such compliance will have a material effect on capital

expenditures, earnings, or competitive position with respect to any of our operations.

HUMAN CAPITAL RESOURCES

As of August 31, 2020, Simulations Plus

and its subsidiaries Cognigen Corporation, DILIsym, and Lixoft, employed a total of 137 persons, including 129 full-time employees

and 8 part-time employees, consisting of 95 in scientific, technical, and research and development, 8 in marketing and sales, and

34 in administration and accounting.

Currently 73 employees hold PhDs.

(including PharmDs) in their respective science or engineering

disciplines, and 26 employees hold one or more Master’s degrees.

Most of the senior management team and all of the members

of our Board of Directors hold graduate degrees.

We believe that our future success will

depend, in part, on our ability to continue to attract, hire, and retain qualified personnel.

We continue to seek additions to

our science and technical staff, although the competition for such personnel in the pharmaceutical industry is intense.

our employees is represented by a labor union, and we have never experienced a work stoppage.

We believe that our relations with

our employees are good.

are committed to our people, and we embrace a culture of engagement, empowerment, and equity.

Over 90 percent of our global employees

are employed full-time, and more than two-thirds work within our life sciences software or consulting divisions.

Given the specialized

nature of our business, candidates for our open positions are strategically selected for their unique education and skills.

of our employees have advanced degrees in mathematics, chemistry, biomedical engineering, and/or the pharmaceutical sciences;

half hold doctorate degrees and approximately one-fifth hold master’s degrees.

As of Augu st

31, 2021, we employed a total of 146 persons, including 135 full-time employees and 11 part-time employees, consisting of 92 in scientific,

technical, and research and development, 10 in marketing and sales, and 44 in administration and accounting.

Currently 73 employees hold

(including PharmDs) in their respective science or engineering disciplines, and 31 employees hold one or more Master’s degrees.

Most of the senior management team and all of the members of our Board of Directors hold graduate degrees.

We believe that our future success will depend,

in part, on our ability to continue to attract, hire, and retain qualified personnel.

We continue to seek additions to our science and

technical staff, although the competition for such personnel in the pharmaceutical industry is intense.

None of our employees is represented

by a labor union, and we have never experienced a work stoppage.

We believe that our relations with our employees are good.

Diversity, Equity and Inclusion

2020, we expanded our Human Resources team to implement unified and consistent policies, procedures, and employee training across all

of our business units.

In our recruitment and hiring, we embrace diversity with the knowledge that it can lead to greater innovation,

and in our workplace, we foster inclusion so all employees feel they are a part of our team with equal access to all opportunities.

of our goals is to continue expanding our focus on diversity, equity and inclusion.

In terms of gender equity, women comprise 46% of

our workforce and men comprise 54%.

Training and Awareness Programs

In 2020, we expanded our Human Resources team and

broadened our capabilities to include, among other responsibilities, a new focus on training and development.

Company-wide, we have analyzed

all of our positions, including job descriptions and salary bands, and are creating career paths for the different functions within our

organization.

We will use these career paths as a basis for promoting employee career development and growth within the organization,

as well as in recruiting and hiring new talent.

As we finalize the career paths, we are also committed

to conducting a Talent Gap Analysis, a process by which we will design and implement a comprehensive training program to be integrated

into the annual Performance Review cycle.

This employee training program will include several key components of career development such

as technical and soft skills, leadership development, and mandated employee compliance training.

In addition to these new employee training and development

initiatives, we have an ongoing program of cross-specialty training consisting of presentations by expert modelers from each division.

These monthly sessions serve to familiarize all divisions with the applications and techniques unique to each division and, in so doing,

create opportunities to find synergies, expand the knowledge base across all divisions, and build a shared sense of purpose.

Health & Safety

We place a high value on maintaining a clean,

safe, and healthy environment for our employees.

We believe that we have in place effective procedures to identify, evaluate, and mitigate

potential risks associated with our operations, although we believe such risks are minimal.

The well-being of our employees, whether they

are working in our divisional offices or remotely from home offices, is paramount.

We believe that we are substantially in compliance

with all applicable laws, regulations, and standards, and we make every effort to be attentive and responsive to our employees’

In our offices, we have provided employees with ergonomic equipment, including ergonomic chairs and standing desks, and for their

home offices, we provide an allowance for the purchase of home office equipment.

We also consider open and transparent channels

of communication to be as a critical component of our employee health and wellness program.

Toward this end, on a quarterly basis, we

hold a company-wide virtual meeting to keep our employees engaged, informed, and apprised of activities occurring at the company and at

each division, including quarterly financial results, future goals, and notable milestones.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY

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through copyrights and trade secrets.

Our intellectual property consists primarily of source code for computer programs and data

files for various applications of those programs in the pharmaceutical software businesses.

The expertise of our staff is a considerable

asset closely related to intellectual property, and attracting and retaining highly qualified scientists and engineers is essential

to our business.

Our intellectual property consists primarily of source code for computer programs and data files

for various applications of those programs in the pharmaceutical software businesses.

The expertise of our staff is a considerable asset

closely related to intellectual property, and attracting and retaining highly qualified scientists and engineers is essential to our business.

EFFECT OF GOVERNMENT REGULATIONS

The Company believes that its operations

are substantially in compliance with all applicable laws and regulations, and that it holds all necessary permits to operate its

business in each jurisdiction in which its facilities are located.

We believe that our operations are substantially

in compliance with all applicable laws and regulations and that it holds all necessary permits to operate our business in each jurisdiction

in which our facilities are located.

Laws and government regulations are subject to change and interpretation.

Our pharmaceutical software products are tools used in research and development and are neither approved nor approvable by the

FDA or other government agencies.

Our pharmaceutical software

products are tools used in research and development and are neither approved nor approvable by the FDA or other government agencies.

No significant pollution or other types

of hazardous emission result from our operations and it is not anticipated that our operations will be materially affected

by federal, state or local provisions concerning environmental controls.

Our costs of complying with environmental, health and safety

requirements have not been material.

Furthermore, compliance with federal, state and local requirements regulating the discharge of materials

into the environment, or otherwise relating to the protection of the environment, have not had, nor are they expected to have, any material

effect on the capital expenditures, earnings or competitive position of the Company.

COMPANY WEBSITE

We maintain a corporate Internet website

We maintain a corporate website at:

www.simulations-plus.com.

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in or otherwise to be regarded as part of this Annual Report.

We file reports with the SEC which are available on our website free

We file reports with the SEC which are available on our website free of

These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, “Section

16” filings on Form 3, Form 4, and Form 5, and other related filings, each of which is provided on our website as soon as

reasonably practical after we electronically file such materials with or furnish them to the SEC.

In addition, the SEC maintains

a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file

electronically with the SEC, including the Company.

16” filings on Form 3, Form 4, and Form 5, and other related filings, each of which is provided on our website as soon as reasonably

practical after we electronically file such materials with or furnish them to the SEC.

In addition, the SEC maintains a website (www.sec.gov)

that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC,

including the Company.

ENVIRONMENTAL, SOCIAL,

We are committed

to providing consistent and excellent return to our shareholders, all while maintaining a strong sense of good corporate citizenship that

places a high value on the welfare of our employees, the communities in which we operate, and the world as a whole.

We believe that effectively

prioritizing and managing our Environmental, Social, and Governance (“ESG”) topics will help create long-term value

for our investors.

We also believe that transparently disclosing the goals and relevant metrics related to our ESG programs will allow

our stakeholders to be informed about our progress.

The topics covered in this section are identified

through third-party ESG reporting frameworks, standards and metrics, such as the Sustainability Accounting Standards Board (“SASB”),

and United Nations Sustainable Development Goals.

More information on our key ESG programs, goals and commitments, and key metrics can

be found on our website in our 2020 ESG Report.

Our ESG highlights include the following:

COVID-19 Response

employee health and safety always a top priority, we proactively implemented a COVID-19 Contingency Plan in late February of 2020, prior

to the state-issued stay-at-home orders.

The comprehensive plan included information on prevention measures, travel restrictions, when

and how to quarantine, the Families First Coronavirus Response Act, sick leave arrangements, including caring for family members affected

by COVID-19, and workplace safety measures.

At the time, as part of our ongoing flexible work initiative to give employees the option

of telecommuting or working remotely, over 40 percent of our workforce was already working from home, however in response to the COVID-19

pandemic, we took quick action to ensure the safety of the rest of our workforce by supporting them in setting up home offices.

that initial plan was disseminated, additional updates from management have included the most up-to-date information from the U.S.

of State, Center for Disease Control (‘CDC”) and World Health Organization (“WHO”), and we have, at all times,

encouraged employees to keep management informed of the need for any additional support.

Our COVID-19 Contingency Plan communication

and our Policy for Returning to Work During the Coronavirus Pandemic specify several CDC-recommended measures to mitigate the spread

of COVID-19 in the workplace, including that masks be worn in the office, the importance of social and physical distancing and frequent

hand-washing, and that employees are to remain home if feeling unwell and self-quarantine following any possible exposure to the virus.

In addition to these measures, we have increased sanitation procedures and updated our travel policy to ensure the safety of those employees

who have resumed working in the office and those who travel for business.

continue to monitor mandates, guidelines and recommendations issued by the CDC, WHO and local governments as they are released, and revise

our COVID-19 Contingency Plan communication and our Policy for Returning to Work During the Coronavirus Pandemic accordingly.

Environmental Matters

We participate in a recycling program through our local waste management facility to divert all recyclable materials

– bottles, cans, plastics, paper, and cardboard – from landfills.

Across the Company, our facilities provide for recycling,

and our electronic waste is sent to local approved e-waste recycling centers.

· Our operations are built on continual improvements in efficiency and clean energy.

From 2012 to 2019, our Cognigen

division redesigned its data center to be more energy efficient as part of our ongoing and increasing commitment to reduce our environmental

footprint and energy usage.

An example of an upgrade is the installation of an uninterruptible power supply with hot and cold dial separation,

and regulating the temperature and airflow through in-row cooling units with high efficiency fans based on cooling needs.

· We are also attentive to our energy use in our office operations.

For instance, our Lancaster facility recently

switched to renewable energy.

Lancaster Choice Energy (“LCE”) is the locally run power program created by the City of Lancaster,

and we now proudly participate in LCE’s Smart Choice 100% renewable energy program.

Our decision to opt in to the program not only

contributes to the city’s goal of becoming one of the world’s first net-zero cities, but also reflects our dedication to creating

positive impacts on the environment and local communities.

· We believe we are in compliance in all material respects with all applicable environmental laws.

Presently, we do

not anticipate that such compliance will have a material effect on capital expenditures, earnings, or competitive position with respect

to any of our operations.

Social Impact and

Supporting our Communities

Our support for the academic community is broad and deep.

We provide certain distinguished professors at academic

institutions with free reference site licenses for nonprofit research and teaching, including providing free access to our software in

university instruction.

In addition to reference site licenses, academic and research institutions are entitled to a 95% discount off

commercial license fees, and we offer students and professors either free or substantially reduced fees to attend our training courses

and workshops.

In recent years, we have sponsored several students with awards given by the Society of Toxicology.

We provide sponsorships to numerous conferences, symposia, and associations such as the American Conference on Pharmacometrics

(ACoP), American Association of Pharmaceutical Scientists (AAPS), American Chemical Society (ACS), Controlled Release Society (CRS), Groupe

de Métabolisme et Pharmacocinétique (GMP), and the Gordon Research Conferences.

· At the local level, we promote a culture of voluntarism, and we offer our employees the flexibility they need to

participate, from sponsoring and participating in charity golf tournaments to volunteering to serve hot meals to the disadvantaged.

recent years, we have joined the global GivingTuesday movement and donated food, clothing, and financial support to several organizations

that serve those in need in our communities.

· Our commitment to community, to education, and to gender equity can best be summarized by how we have, for more than

a decade, funded a summer scholarship to Tech Trek, a one-week residential science, technology, engineering, and math (“STEM”)

camp founded and operated by the American Association of University Women (AAUW) that is designed to inspire young women to attend college,

to major in STEM fields, and to pursue STEM careers.

Our own female scientists, who are excellent role models for these young women, have

volunteered their time to personally present our Tech Trek scholarship each year.

Customer Privacy &

Data Security

· We value customer privacy and the data we collect are only as needed to deliver company information, software products,

and consulting services.

Our website includes our comprehensive Privacy Policy, which details what and how data are collected, how data

are used and stored, and the options for controlling personal data, including opting-out, accessing, updating, or deleting it.

· In recognition of the critical importance of Data Security to our operations, including Cybersecurity, Data Protection

and Customer Privacy, our executive leadership team conducts a thorough examination of all elements of Data Security.

Our objective is

to ensure the security, confidentiality, and privacy of our systems and information assets, and to follow and be compliant with all relevant

laws, regulations, and guidelines, including, but not limited to:

and State Data Privacy Laws

o The EU’s General Data Protection Regulation (“GDPR”)

o Pharmaceutical Good Practice Quality Guidelines, including FDA 21 CFR Part 11

o Sarbanes-Oxley Act

o Personal Information Protection Law of the People’s Republic of China (“PIPL”)

Our corporate-level IT department brings greater consistency, efficiency, and functional IT support across all

The IT department is responsible for centralizing divisional data processing, storage, and backup capabilities at each of our

geographical locations.

The IT department is also responsible for ensuring that corporate IT policies are aligned and compliant with all

applicable regulatory provisions and current best practices.

· Our corporate-level Data Protection Officer (DPO) is responsible for establishing and maintaining a Personal Data

Privacy program throughout the Company that is compliant with applicable data privacy laws and legislation at the state and federal levels,

as well as the EU’s GDPR, and China’s PIPL.

The DPO is leading our efforts to further build and implement a company-wide Personal

Data Protection and Customer Privacy framework, protocols, and training.

· Our ongoing program of employee training in security awareness keeps our staff fully informed about potential

cyber threats - such as phishing and malware – with periodic random phishing tests .

Business Ethics

From the Company’s inception, we have placed the highest emphasis on conducting our business with honesty and

The highest ethical standards are expected of management and employees alike, and we continuously strive to create a corporate

culture of honesty, integrity, and trust.

Throughout our operations and in our dealings with our stakeholders, we endeavor to engender

the confidence that the Company’s conduct is beyond reproach.

The policies we have developed are intended to:

o Define and disseminate our core values and the legal requirements applicable to good business conduct and ethical behavior

o Offer guidance in understanding Company policies, interpreting laws, and handling Company-related issues and situations

o Foster clear, ethical behaviors and conduct to create an atmosphere of respect, trust, cooperation, and collaboration

throughout the Company and its activities

o Provide clear and well-defined procedures by which employees can easily obtain information, ask questions, and, if necessary,

report any suspected violations of any of our Business Ethics policies

· In addition to abiding by all applicable laws, all management and employees are required to comply fully with our

Corporate Code of Business Conduct and Ethics (“CCBCE”) which sets forth the Company’s values, business culture, and

· The Company was founded on the belief that our software technologies could lead to important advances in healthcare,

thereby improving patient outcomes, advancing and improving global health, and bettering the lives of humankind.

This objective cannot

be accomplished without a commitment to Human Rights, and we are committed to ensuring that, in our day-to-day business practices, in

our business relationships, and in matters of employment, we will uphold our own principles as delineated in our Corporate Code of Business

Conduct and Ethics.

Furthermore, we support the principles set forth in the United Nations International Bill of Human Rights, specifically

the Universal Declaration of Human Rights, and the ILO Declaration on Fundamental Principles and Rights at Work.

As we evolve this policy,

we will look to the UN Guiding Principles on Business and Human Rights (UNGPs) for guidance.

are committed to ensuring strong corporate governance practices on behalf of our shareholders

and other stakeholders.

We believe strong corporate governance provides the foundation for

financial integrity and shareholder confidence.

Directors is responsible for the oversight of risks facing the Company, while our management

is responsible for the day-to-day management of risk.

The Board, as a whole, directly oversees

our strategic and business risk, including risks related to financial reporting, compensation

practices, ESG, and product developments.

More information about our corporate governance

features can be found in our Proxy Statement for the 2022 Annual Meeting of Shareholders

(the “ Proxy Statement ”) ,

which will be filed within 120 days after August

31, 2021, the close of our fiscal year covered by this Annual Report.

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Item 1. Business