GastroPlus®

total revenue during the year ended August 31, 2022, primarily generated by the following products:

Because of the widespread use of GastroPlus, we were the only non-European company invited to join the European Innovative Medicines Initiative (IMI) program for Oral Bioavailability Tools (OrBiTo). OrBiTo was an international collaboration among 27 industry, academic, and government organizations working in the area of oral absorption of pharmaceutical products. Because we are outside of the European Union, our participation in this project was at our own expense, while other members were compensated for their work; however, we were a full member with access to all of the data and discussions of all other members. We believe our investment to participate in this initiative enabled us to benefit from, and to contribute to, advancing the prediction of human oral bioavailability from preclinical data, and ensured that we are well-known to member pharmaceutical companies and regulatory agencies.

In September 2014, we entered into a research collaboration agreement (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 companies and the FDA to assess the likely bioequivalence of generic drug formulations dosed to the eye. Under this RCA, we received up to $200,000 per year. This RCA could be renewed for up to a total of three years based on the progress achieved during the project. 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.

We were awarded another RCA by the FDA in September 2015; this one to expand the capabilities of GastroPlus to simulate the dosing of long-acting injectable microspheres for both small and large molecules (biologics). This type of dosage form is usually injected via subcutaneous or intramuscular routes. This RCA also provides up to $200,000 per year for up to three years. Under this agreement, we are developing simulation models to deal with the very slow dissolution/decomposition of the microsphere carrier material that gradually releases the active drug 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, with further extensions under consideration with the FDA and/or large pharmaceutical company sponsor(s).

In September 2018, we were pleased to announce that 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, for $250,000 per year for up to two years, will focus on the incorporation of drug product quality attributes into dermal physiologically-based pharmacokinetic (PBPK) models developed for dermatological topical dosage forms and transdermal delivery systems.

In July 2018 we entered into a one-year funded 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 will contribute substantially to improvements in the program, specifically directed toward the predictions of local exposure within the skin layer following topical administration of various chemicals. We expect the developments under this agreement will aid companies and regulatory agencies as they strive to implement an animal-free chemical safety assessment program.

In addition to the two active funded efforts with the FDA described above, 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). With OGD, the objective is directed toward the FDA’s evaluation of mechanistic IVIVCs (in vitro-in vivo correlations) to determine whether 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, within vitroandin 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 May 2018, we released Version 9.6 of GastroPlus. Version 9.6 provided the following new functionalities and advanced decision-making tools for preclinical and early clinical trial simulation and modeling analysis:

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. Already the most widely used program in the world for PBPK modeling, the addition of these new capabilities is expected to expand the user base in the early pharmaceutical research and development process, while also helping us to further penetrate biopharmaceuticals, food, cosmetics, and general toxicology markets. We work to release updated versions of the program on an ongoing basis.

MembranePlus™

Similar to DDDPlus, MembranePlus mechanistically simulates laboratory experiments, but in this case, the experimentsuse. The products 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. The value 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.

PKPlus™

In August 2016, we released a standalone software product called PKPlus, based on the internal PKPlus Module in GastroPlus that has been available since 2000. The PKPlus Module in GastroPlus provides quick and easy fitting of compartmental pharmacokinetic (PK) models as well as a simple noncompartmental analysis (NCA) for intravenous and extravascular (oral, dermal, ocular, pulmonary, etc.) doses; however, the PKPlus Module in GastroPlus was not designed to meet all of the requirements for performing these analyses for Phase 2 and 3 clinical trials, nor to produce report-quality output for regulatory submissions. The standalone PKPlus program provides the full level of functionality needed by pharmaceutical industry scientistscompanies across the globe at each step of drug development, from preclinical to perform the analysesfirst-in-human, clinical, and generate the outputs needed to fully satisfy regulatory agency requirements for both more complex NCA as well as compartmental PK modeling.

PKPlus version 2.5 was released in July 2019. This new version incorporates a wide variety of requested features from current users, including:

Starting with version 2.0, we provide PKPlus for free to academics because we believe it will help educate the next generation of scientists entering the industries we serve and drive demand for the product. Hundreds of copies of PKPlus have been downloaded by universities around the world to date.

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 learningmachine-learning technology to predict approximately 150 different properties for them at an average rate of over 100,000 compounds per hour on a modern laptop computer.them. This capability allows chemists to generate estimates for a large number ofmany 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, amolecules. A chemist can then assess the likely success of a large number ofmany 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 software.

ADMET Predictor has been top-ranked for predictive accuracy in multiple peer-reviewed, independent comparison studies for many years, while generating its results at a very high throughput rate. Although the state of the art of this type of software does not enable identifying the best molecule in a series, it does allow early screening of molecules that are highly likely to fail as potential drug candidates (i.e., the worst molecules, which is typically the majority of a virtual chemical library) before synthesizing and testing them. Thus, millions of virtual compounds can be created and screened in a day, compared to potentially months or years of work to actually synthesize and test a much smaller number of actual compounds.

made.

Version 9.5Predictor, marketed as APX.4, was released in April 2019, adding:

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

PRODUCT DEVELOPMENT

Developmentrevenue percentages by each 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 sometimes require 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. We currently have one license agreement, pursuant to which a small royalty is paid based on revenues on each licenseservices businesses for the Metabolism Module in ADMET Predictor.

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fiscal years ended August 31:

						2022						2021						2020
Software						61		%				60		%				52		%
Services						39		%				40		%				48		%
Total						100		%				100		%				100		%

In 1997 we entered into an exclusive software licensing agreement with TSRL, Inc. (Therapeutic Systems Research Laboratories) pursuant to which TSRL licensed certain software technology and databases to us, and we paid royalties to TSRL. On May 15, 2014, we and TSRL entered into a termination and nonassertion agreement pursuant to which the parties agreed to terminate the 1997 exclusive software licensing agreement. As a result, the Company obtained a perpetual right to use certain source code and data, and TSRL relinquished any rights and claims to any GastroPlus products and to any claims to royalties or other payments under that agreement, and we agreed to pay TSRL total consideration of $6,000,000. All payments were made as of April 2017. The total consideration is being amortized at a constant rate of $150,000 per quarter until it is completely amortized, after which no further expense will be incurred. To date, this has resulted in expense savings over $1,750,000 compared to the royalty payments that would have been paid to TSRL if paid consistent with past practices.

MARKETING

SALES AND DISTRIBUTION

We distribute our products and offer our services in North America, South America, Europe, Japan, Australia, New Zealand, India, Singapore, Taiwan, Korea, and the People’s Republic of China.

MARKETING

We market our pharmaceutical software and consulting services globally through attendance and presentations at scientific meetings, exhibits at trade shows, seminars at pharmaceutical companies and government agencies, through our website, and using various communication channels to our database of prospects and customers. At various yearly scientific meetings around the world each year there areworldwide, numerous presentations and posters presented in which the reportedreport research was performed using our software. Many of these presentations are from industry and FDA scientists; some are from our staff. In addition, more than 100Numerous peer-reviewed scientific journal articles posters,are published, and podiumconference presentations are typically publisheddelivered each year using our software, mostlyprimarily 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 trainingstraining both online and on-site. We also have independent distributors in Japan, China, India, South Korea, and KoreaBrazil, who also sell and market our products with support from our scientists and engineers.

We provide support

In March 2021, we launched our MIDD+ (Model-Informed Drug Development) scientific conference, where speakers shared their real-world impact using modeling and simulation technology. During the two-day event, representatives from the U.S. FDA Offices of Clinical Pharmacology, New Drug Products, Research and Standards, and Translational Sciences, and from the U.S. FDA Centers of Drug Evaluation and Research and the National Center for Toxicological Research, as well as ANVISA (The Brazilian Health Regulatory Agency) and Health Canada, provided case studies and software demonstrations on a 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. In February 2022, we hosted the 2022 Model-Informed Drug Development (MIDD+) scientific conference where attendees from 57 countries spent two days focusing on advancing Model-Informed Drug Development. The conference was focused on delivering real-world case studies using modeling and simulation. Tracks included dedicated sessions covering all stages of the drug development process, including discovery, preclinical, clinical, and post-approval/generics. In 2022, the Medicines and Healthcare products Regulatory Agency in the United Kingdom was added to the GastroPlus User Group in Japan, which was organized by Japanese researchers in 2009. In early 2013, a group of scientists in EuropeRegulatory Affairs panel, 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 monthspeakers from many pharmaceutical and managing the user group web site for exchange of information among members. These user groups provide us valuable feedback with respect to desired new features and suggested interface changes.

PRODUCTION

Our pharmaceutical software products are designed and developed by our development teams in California, North Carolina (Research Triangle Park), and New York (Buffalo), we also employee people who are able to work remotely using collaboration software. Our products and services are now delivered electronically – we no longer provide CD-ROMs and printed manuals or reports.

biotech companies presented their latest research.

COMPETITION

In our pharmaceutical software and services business, we

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 ours but are sometimes closely related to, ours.related. 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 the most widely used 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 environment. Several other companies presently offer simulation or modeling software, or simulation-software-based services, to the pharmaceutical industry. We believe DILIsym and NAFLDsym enjoy a unique market position, with no significant competition.

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Major pharmaceutical companies conduct drug discovery and development efforts through their internal development staffsstaff and through outsourcing. Smaller companies generally need to outsource a greater percentage of this research.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.

Although competitive products exist, both new licenses and license renewals for GastroPlus have continued to grow. We believe that we enjoy a dominant market share in this segment. We believe our ADMET Predictor/ADMET Modeler, MedChem Studio, MedChem Designer, DDDPlus, MembranePlus, PKPlus, KIWI, DILIsym, and NAFLDsym software offerings are each unique in their combination of capabilities and remain a focus of our marketing strategy.

Based on our technical knowledge and expertise, the Company iswe believe that we are strategically placedpositioned to offer competitive modeling and simulation consulting services to companies. Our clients seek out our services for multiple reasons: (1)reasons including, without limitation: (i) to acquire scientific, therapeutic area related ortherapeutic-area-related modeling expertise that they do not have in-house, (2)(ii) to address an excess ofa need for modeling and simulation requirementsefforts beyond the capacity of in-house resources, (3)(iii) to fulfill their modeling requirements more efficiently than they could do in-house, and (4)(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 (as PKPD, PBPK,) , pharmacokinetic/pharmacodynamic (PK/PD) data analysis; and quantitative systems pharmacology/toxicology (QSP/T).QSP/QST. We compete against numerous service providers, ranging from departments within large contract research organizations (CROs)("CROs") to independent consulting organizations of various sizes as well as individual consultants.

consultants.

We believe the key factors in our ability to successfully compete in this field are our ability to: (1)(i) continue to invest in research and development, and develop and support industry-leading simulation and modeling software and related products and services,(2) (ii) develop and maintain a proprietary database of results of physical experiments that serve as a basis for simulated studies and empirical models, (3)(iii) continue to attract and retain a highly skilledhighly-skilled scientific and engineering team, (4)(iv) aggressively promote our products and services to our global market, and (5)(v) develop and maintain relationships with research and development departments of pharmaceutical companies, universities, and government agencies

agencies.

In addition, we are actively seekseeking strategic acquisitions to expand both our pharmaceutical software portfolio and services business.

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 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.

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

We provide telephone, e-mail, and web-based support for all of our pharmaceutical software products worldwide.products. Technical support for pharmaceutical software products sales is minimal, averaging a few person-hours per month.

We provide free telephone, e-mail and web-based support for all of our pharmaceutical software products worldwide from our offices in the U.S. Technical support for pharmaceutical software is provided by our life sciences teams and our inside sales and support staff. TechnicalWe have found that most clients need minimal technical support for pharmaceuticalour software products is generally minimal, averagingproducts.

We provide support to the GastroPlus User Group in Japan, which was organized by Japanese researchers in 2009. In early 2013, a few person-hour product sale.

group of scientists in Europe and North America organized another GastroPlus User Group following the example set in Japan. Over 1,450 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 for desired new features and suggested interface changes.

RESEARCH AND DEVELOPMENT

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 paid no royalties during the year ended August 31, 2022. We intend to continue to license or otherwise acquire technology or products from third parties when we believe that it makes business sense to do so.

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Research and development (R&D)("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)("FASB") Accounting Standards Codification (ASC)("ASC") 985-20, “Costs of Software to Be Sold, Leased, or Marketed”.Marketed.” R&D expenditures, which primarily relate to both capitalized and expensed salaries, R&D supplies, laboratory testing, and R&D consulting, were approximately $4,264,000$6.4 million during fiscal year 2019,2022, of which $1,764,000$3.2 million was capitalized. R&D expenditures were approximately $3,936,000$6.9 million during fiscal year 2018,2021, of which $2,145,000$2.9 million was capitalized. R&D expenditures during fiscal year 20172020 were approximately $2,743,000$5.3 million of which $1,376,000$2.3 million was capitalized.

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Our software products are designed and developed by our development teams which work remotely using collaboration software. Our products and services are delivered electronically.

CUSTOMERS

Our customers include large, medium-sizedcompanies involved in pharmaceuticals, biotechnology, agrotechnology, and smaller biotechcosmetics, as well as universities, hospitals, and pharmaceutical companies, universities, and regulatory agencies and other government research 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,fragmented; in 2019 two2022, our three largest customers in terms of our customers wererevenue each 8%accounted for 5%, 3%, and another was 7%3% of our revenues, respectively.

Our revenues exhibit seasonal fluctuations, with those exceptions no other customers made up more than 7% of our revenues in the last 3 years.

SEASONALITY

We have traditionally experienced seasonal revenue weakness during ourfirst fiscal quarter (September-November) and fourth fiscal quarter (June-August) generally having the lowest revenues due to summer vacations and reduced activities at our customers’ sites. ThoughThis is due to pharmaceutical industry buying patterns as well as our net sales figuresrevenue 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 salesrevenues for any future period,period; however, because our pharmaceutical software is typically licensed on an annual basis, which means renewals are usually fall inwithin the same quarter year after year.

year, even though there are certain instances in which the license renewal term may not immediately follow the initial license term and therefore result in a shift of certain customer revenues to a subsequent quarter.

ENVIRONMENTAL RUGULATORY MATTERS

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.

EMPLOYEES

HUMAN CAPITAL RESOURCES

We 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. The majority of our employees have advanced degrees in mathematics, chemistry, biomedical engineering, and/or the pharmaceutical sciences; approximately half hold doctorate degrees and approximately one-fourth hold master’s degrees.

As of August 31, 2019, Simulations Plus and its subsidiaries Cognigen Corporation and DILIsym,2022, we employed a total of 111163 persons, including 107157 full-time employees and 46 part-time employees, consisting of 78113 in scientific, technical, and research and development, 821 in marketing and sales, and 2529 in administration and accounting. Currently 5275 employees hold Ph.Ds.PhDs. (including PharmDs) in their respective science or engineering disciplines, and 2440 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. To continue to support the endeavor we have implemented an employee referral program and have added a dedicated corporate recruiter to our team to further these efforts. We continue to seek additions to our life sciences teamscience and technical staff, although the competition for such personnel in the pharmaceutical industry is intense.intense, we hired over 20 scientists this past year. None of our employees isare represented by a labor union, and we have never experienced a work stoppage. We believe that our relations with our employees are good.

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Diversity, Equity and Inclusion

In 2020 and 2021, we expanded our Human Resources team to implement unified and consistent policies, procedures, and employee training across all of our business units. In 2022, we added an internal recruiter to focus on expanding our recruitment and hiring presence in the market. 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. One of our goals is to continue expanding our focus on diversity, equity and inclusion. In terms of gender equity, women currently comprise 49% of our workforce.

Compensation, Training and Awareness Programs

In 2022, Company-wide, we engaged an external consulting team to assist in analyzing all of our positions, including job descriptions and our compensation program, and are continuing to refine career paths for the different functions within our organization. We 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.

The past year we focused on mandated compliance, data privacy and soft-skills training throughout the organization. As we finalize the career paths, we are also committed to including additional training opportunities for technical and leadership development.

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’ needs. 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 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 RIGHTS

We primarily protect our intellectual property 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.

EFFECT OF GOVERNMENT REGULATIONS

We believe that our operations are substantially in compliance with all applicable laws and regulations and that we hold 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.

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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 at: www.simulations-plus.com.

The contents of this website are not incorporated 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 of charge. 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.

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ENVIRONMENTAL, SOCIAL, GOVERNANCE

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") factors 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 ("SDGs"). More information regarding our key ESG programs, goals and commitments, and key metrics can be found on our website and in our 2020 ESG Report.

Our ESG highlights include the following:

COVID-19 Response

With 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.

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

We will continue to monitor mandates, guidelines, and recommendations issued by the CDC, WHO, and local governments as they are released, and will revise our COVID-19 Contingency Plan communication and our Policy for Returning to Work During the Coronavirus Pandemic accordingly.

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Environmental Matters

•We participate in a recycling program through our local waste management facilities 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 into 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.

•We encourage employees to volunteer in their local communities, 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. In 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 People

•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.

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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:

◦U.S. and State Data Privacy Laws

◦The EU’s General Data Protection Regulation ("GDPR")

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

◦The Sarbanes-Oxley Act

◦The 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 divisions. 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, along with appropriate 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 integrity. 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:

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

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

◦Foster clear, ethical behaviors and conduct to create an atmosphere of respect, trust, cooperation, and collaboration throughout the Company and its activities

◦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 which sets forth the Company’s values, business culture, and practices.

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Human Rights

•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.

Governance

•We 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. Our Board of 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 2023 Annual Meeting of Shareholders (the "Proxy Statement"), which will be filed within 120 days after August 31, 2022, the close of our fiscal year covered by this Annual Report.

ITEM 1A – RISK FACTORS

You should carefully consider the risks described below, as well as the other information in this Report, including our financial statements and the related notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before investing in our publicly traded securities. The occurrence of any of the events or developments described below could harm our business, financial condition, operating results, and/or growth prospects. The risks described below are not the only ones facing us. Our business is also subject to the risks that affect many other companies, such as competition, technological obsolescence, labor relations, general economic conditions, geopolitical changes, and international operations. We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. Additional risks not currently known to us or that we currently believe are immaterial also may impair our business operations and our liquidity. The risks described below could cause our actual results to differ materially from those contained in the forward-looking statements we have made in this Annual Report, on Form 10-K, the information incorporated herein by reference, and those forward-looking statements we may make from time to time. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties.

Certain Risks Related to Our Business

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

The occurrence of regional epidemics or a global pandemic such as COVID-19 may adversely affect our operations, financial condition, and results of operations. The COVID-19 pandemic has had widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. The extent to which global pandemics impact our business going forward will depend on factors such as the duration and scope of the pandemic; governmental, business, and individuals' actions in response to the pandemic; and the impact on economic activity including the possibility of recession or financial market instability.

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Certain Risks Related to Our Marketplace and Environment

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

Our products are currently used primarily by molecular modeling and simulation specialists in pharmaceutical,companies involved in pharmaceuticals, biotechnology, agrotech,agrotechnology, and cosmetics, as well as universities, hospitals, and government research organizations. One component of our overall business strategy is to derive more revenues from our existing customers by expanding their use of our products and services. Such strategy would have our customers utilize our scientific informatics platforms and our tools and components to leverage vast amounts of information stored in both corporate databases and public data sources in order to make informed scientific and business decisions during the research and development process. In addition, we seek to expand into new markets, and new areas within our existing markets, by acquiring businesses in these markets, attracting and retaining personnel knowledgeable in these markets, identifying the needs of these markets, and developing marketing programs to address these needs. If successfully implemented, these strategies would increase the usage of our software and services by biologists, chemists, engineers, and informaticianspharmacologists or pharmacometricians operating within our existing pharmaceutical, biotechnology, and chemical customers, as well as by new customers in other industries. However, if our strategies are not successfully implemented, our products and services may not achieve market acceptance or penetration in targeted new departments within our existing customers or in new industries. As a result, we may incur additional costs and expend additional resources without being able to sustain or increase revenue.

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

A significant portion of our customer base consists of pharmaceutical and biotechnology companies. Consolidation within the pharmaceutical and biotechnology industries may result in fewer customers for our products and services. Although the industry consolidation that has taken place over the past 20 years has not prevented our business from growing to date, if one of the parties to a consolidation uses the products or services of our competitors, we may lose existing customers as a result of such consolidation.

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

Our pharmaceutical and biotechnology customers'customers’ demand for our products is impacted by continued demand for their products and by our customers'customers’ research and development costs. Demand for our customers'customers’ products could decline, and prices charged by our customers for their products may decline, as a result of governmental regulations and increasing competition, including competition from companies manufacturing generic drugs. In addition, our customers'customers’ expenses could continue to increase as a result of increasing costs of complying with government regulations and other factors. A decrease in demand for our customers'customers’ products, pricing pressures associated with the sales of these products, and additional costs associated with product development, could cause our customers to reduce research and development expenditures. Although our products increase productivity and reduce costs in many areas, because our products and services depend on such research and development expenditures, our revenues may be significantly reduced.

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Health care reform and restrictions on reimbursement may affect the pharmaceutical, biotechnology, and industrial chemical companies that purchase or license our products or services, which may affect our results of operations and financial condition.

The continuing efforts of government and third-party payers in the markets we serve to contain or reduce the cost of health care may reduce the profitability of pharmaceutical, biotechnology, and industrial chemical companies, causing them to reduce research and development expenditures. Because some of our products and services depend on such research and development expenditures, our revenues may be significantly reduced. We cannot predict what actions federal, state, or private payers for health care goods and services may take in response to any health care reform proposals or legislation.

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We face strong competition in the life science market for computer-aided design modeling and simulation software and for cheminformatics products.

The market for our computer-aided design modeling and simulation software products for the life science market is intensely competitive. We currently face competition from other scientific software providers, larger technology and solutions companies, in-house development by our customers and academic and government institutions, and the open sourceopen-source community. Some of our competitors and potential competitors have longer operating histories in certain segments of our industry than we do and could have greater financial, technical, marketing, research and development, and other resources. Many of our competitors offer products and services directed at more specific markets than those we target, enabling these competitors to focus a greater proportion of their efforts and resources on these markets. Some offerings that compete with our products are developed and made available at lower cost by government organizations and academic institutions, and these entities may be able to devote substantial resources to product development and also offer their products to users for little or no charge. We could also face competition from open sourceopen-source software initiatives, in which developers provide software and intellectual property free over the Internet. In addition, some of our customers spend significant internal resources in order to develop their own software. Moreover, we intend to leverage our scientific informatics platform in order to enable our customers to more effectively utilize the vast amounts of information stored in both their databases and public data sources in order to make informed scientific and business decisions during the research and development process. This strategy could lead to competition from much larger companies that provide general data storage and management software. There can be no assurance that our current or potential competitors will not develop products, services, or technologies that are comparable to, superior to, or render obsolete, the products, services, and technologies we offer. There can be no assurance that our competitors will not adapt more quickly than we to technological advances and customer demands, thereby increasing such competitors'competitors’ market share relative to ours. Any material decrease in demand for our technologies or services may have a material adverse effect on our business, financial condition, and results of operations.

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

The market for computer-aided design modeling and simulation products for the life science industry is intensely competitive. Although the average price of our software licenses has increased slightly or remained relatively constant for fiscal 2017, 2018,years 2020, 2021, and 2019,2022, we may experience a decline in the future. In response to increased competition and general adverse economic conditions in this market, we may be required to modify our pricing practices. Changes in our pricing model could adversely affect our revenuerevenues and earnings.

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

Our research and development operations and administrative functions are primarily conducted at our facilities in Lancaster, California,California; Buffalo, New YorkYork; Paris, France; and Research Triangle Park, North Carolina. Although we have contingency plans in effect for natural disasters or other catastrophic events, the occurrence of such events could still disrupt our operations. For example, our Lancaster, California facility is located in a state that is particularly susceptible to earthquakes. Any natural disaster or catastrophic event in our facilities or the areas in which they are located could have a significant negative impact on our operations.

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

We maintain insurance coverage for protection against many risks of liability. The extent of our insurance coverage is under continuous review and is modified as we deem it necessary. Despite this insurance, it is possible that claims or liabilities against us may have a material adverse impact on our financial position or results of operations. In addition, we may not be able to obtain any insurance coverage, or adequate insurance coverage, when our existing insurance coverage expires. For example, we do not carry earthquake insurance for our facilities in Lancaster, California, because we do not believe the costs of such insurance are reasonable in relation to the potential risk for our part of California.

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

Governmental agencies throughout the world, but particularly in the U.S., strictly regulate the drug development process. Our business involves helping pharmaceutical and biotechnology companies, among others, navigate the regulatory drug approval process. Accordingly, many regulations, and often new regulations, are expected to result in higher regulatory standards and often additional revenues for companies that service these industries. However, some changes in regulations, such as a relaxation in regulatory requirements or the introduction of streamlined or expedited drug approval procedures, or an increase in regulatory requirements that we have difficulty satisfying or that make our services less competitive, could eliminate or substantially reduce the demand for our services.

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

Any negative commentaries made by any regulatory agencies or any failure on our part to comply with applicable regulations could result in the termination of ongoing research or the disqualification of data for submission to regulatory authorities. This could harm our reputation, our prospects for future work, and our operating results. If our operations are found to violate any applicable law or other governmental regulations, we might be subject to civil and criminal penalties, damages, and fines. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management'smanagement’s attention from the operation of our business, and damage our reputation.

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

Ongoing negotiations and evaluation projects for new products, with new customers or in new markets may not result in significant revenues for us if we are unable to close new engagements on terms favorable to us in a timely manner, or at all. Unexpected delays in our sales cycle could cause our revenues to fall short of expectations. Further, the timing and length of negotiations required to enter into agreements with our customers and the ultimate enforcement of complex negotiated contractual provisions as we intended is difficult to predict. If we do not successfully negotiate certain key complex contractual provisions, there are disputes regarding such provisions, or if they are not enforceable as we intended, our revenues and results of operations would suffer. Further, if we were to incur significant effort and then fail to enter into final contracts with prospective customers, or if a contract is terminated earlier than expected, our revenues and results of operations could suffer.

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

Many of our contracts provide for services on a fixed-price or fee-for-service with a cap basis and, accordingly, we bear the financial risk if we initially underprice our contracts or otherwise overrun our cost estimates. In addition, these contracts may be terminated or reduced in scope either immediately or upon notice. Cancellations may occur for a variety of reasons, and often at the discretion of the client. The loss, reduction in scope, or delay of a large contract or the loss or delay of multiple contracts could materially adversely affect our business, although our contracts frequently entitle us to receive the costs of winding down the terminated projects, as well as all fees earned by us up to the time of termination. Some contracts also entitle us to a predetermined termination fee and irrevocably committed costs/expenses.

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

We operate large and complex computer systems that contain significant amounts of client data. As a routine element of our business, we collect, analyze, and retain substantial amounts of data pertaining to the clinical study data analysis we conduct for our clients. Unauthorized third parties could attempt to gain entry to such computer systems for the purpose of stealing data or disrupting the systems. We believe that we have taken appropriate measures to protect them from intrusion, and we continue to improve and enhance our systems in this regard, but in the event that our efforts are unsuccessful, we could suffer significant harm. Our contracts with our clients typically contain provisions that require us to keep confidential the information generated from these studies. In the event the confidentiality of such information was compromised, we could suffer significant harm.

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

We have intangible assets, including goodwill, capitalized computer software development costs, intellectual property, and other indefinite-lived intangibles,intangible assets, on our balance sheet due to our acquisitions of businesses. The initial identification and valuation of these intangible assets and the determination of the estimated useful lives at the time of acquisition involve use of management judgments and estimates. These estimates are based on, among other factors, input from accredited valuation consultants, reviews of projected future income cash flows, and statutory regulations. The use of alternative estimates and assumptions might have increased or decreased the estimated fair value of our goodwill and other intangible assets that could potentially result in a different impact to our results of operations. If the future growth and operating results of our business are not as strong as anticipated and/or our market capitalization declines, this could impact the assumptions used in calculating the fair value of goodwill or other indefinite-lived intangibles. To the extent goodwill or other indefinite-lived intangibles are impaired, their carrying value will be written down to itstheir implied fair value and a charge will be made to our income from continuing operations. Such an impairment charge could materially and adversely affect our operating results. As of August 31, 2019, the carrying amount of goodwill and other intangibles was $10,387,198 on our consolidated balance sheet.

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Certain Risks Related to Our Operations

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

Our business and the level of customer acceptance of our products depend upon the continuous, effective, and reliable operation of our software and related tools and functions. To the extent that defects cause our software to malfunction, and our customers'customers’ use of our products is interrupted, our reputation could suffer, and our revenue could decline or be delayed while such defects are remedied. We may also be subject to liability for the defects and malfunctions of third-party technology partners and others with whom our products and services are integrated.

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

To achieve market acceptance, new or enhanced products or services can require long development and testing periods, which may result in delays in scheduled introduction. Any delays in the release schedule for new or enhanced products or services may delay market acceptance of these products or services and may result in delays in new customer orders for these new or enhanced products or services, or the loss of customer orders. In addition, new or enhanced products or services may contain a number of undetected errors or “bugs” when they are first released. Although we extensively test each new or enhanced software product or service before it is released to the market, there can be no assurance that significant errors will not be found in existing or future releases. As a result, in the months following the introduction of certain releases, we may need to devote significant resources to correct these errors. There can be no assurance, however, that all of these errors can be corrected.

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We are subject to risks associated with the operation of a global business.

We derive a significant portion of our total revenue from our operations in international markets. During the years ended August 31, 2019, 20182022, 2021, and 2017, 34%2020, 30%, 39%31%, and 38%29%, respectively, of our total revenue was derived from our international operations. Our global business may be affected by local economic conditions, including inflation, recession, and currency exchange ratecurrency-exchange-rate fluctuations. In addition, political and economic changes, including international conflicts includingand terrorist acts, throughout the world may interfere with our or our customers'customers’ activities in particular locations and result in a material adverse effect on our business, financial condition, and operating results. Potential trade restrictions, exchange controls, adverse tax consequences, and legal restrictions may affect the repatriation of funds into the U.S. Also, we could be subject to unexpected changes in regulatory requirements, the continued global spread and impact of the COVID-19 pandemic, the difficulties of compliance with a wide variety of foreign laws and regulations, potentially negative consequences from changes in or interpretations of U.S. and foreign tax laws, import and export licensing requirements, and longer accounts receivable cycles in certain foreign countries. These risks, individually or in the aggregate, could have an adverse effect on our results of operations and financial condition. For example, we are subject to compliance with the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws, which generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business. While our employees, distributors, and agents are required to comply with these laws, we cannot be sure that our internal policies and procedures will always protect us from violations of these laws despite our commitment to legal compliance and corporate ethics. The occurrence or allegation of these types of risks may adversely affect our business, performance, prospects, value, financial condition, and results of operations.

The drug discovery and development services industry is highly competitive.

Our clinical pharmacology division often competes for business not only with other clinical research organization (CROs)(“CROs”), but also with internal discovery and development departments within our larger clients, who may have greater resources than ours. We also compete with universities and teaching hospitals for outsourced services. We compete based on a variety of factors, including:

	·	reputation for on-time quality performance;
	·	reputation for regulatory compliance;
	·	expertise and experience in multiple specialized areas;
	·	scope and breadth of service and product offerings across the drug discovery and development spectrum;
	·	ability to provide flexible and customized solutions to support our clients' drug discovery and development needs;
	·	price/value;
	·	technological expertise and efficient drug development processes;
	·	financial stability;
	·	accessibility of client data through secure portals; and
	·	ability to acquire, process, analyze, and report data in an accurate manner.

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including without limitation:

•reputation for on-time quality performance

•reputation for regulatory compliance

•expertise and experience in multiple specialized areas

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

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

•price/value

•technological expertise and efficient drug development processes

•financial stability

•accessibility of client data through secure portals

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

If we do not compete successfully, our business could suffer. Increased competition mightcould lead to price and other concessions that might adversely affect our operating results. The drug discovery and development services industry has continued to see a trend towards consolidation, particularly among biotechnology companies, who are acquisition targets for each other and for larger pharmaceutical companies. If this trend continues, it is likely to produce more competition among the larger companies and CROs generally, with respect to both clients and acquisition candidates. In addition, while there are substantial barriers to entry for large, global competitors with broad-based services, small, specialized entities considering entering the CRO industry will continue to find lower barriers to entry, and private equity firms may determine that there are opportunities to acquire and consolidate these companies, thus further increasing possible competition. More generally, our competitors or others might develop technologies, services, or products that are more effective or more commercially attractive than our current or future technologies, services, or products, or that render our technologies, services, or products less competitive or obsolete. If competitors introduce superior technologies, services, or products and we cannot make enhancements to ours to remain competitive, our competitive position, and in turn our business, revenue, and financial condition, would be materially and adversely affected. In the aggregate, these competitive pressures may affect the attractiveness of our technologies, services, or products and could adversely affect our financial results.

Potential changes

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Changes in applicable U.S. and international tax law.

Tax proposalslaws or regulations and the resolution of tax disputes could negatively affect our financial results.

We are subject to reform corporate tax law are constantly being considered. Proposals includeincome taxes, as well as non-income-based taxes, in both increasing and reducing the corporate statutory tax rate, broadening the corporate tax base through the elimination or reduction of deductions, exclusions, and credits, implementing a territorial regime of taxation, limiting the ability of U.S. corporations to deduct interest expense associated with offshore earnings, modifying the foreign tax credit rules, and reducing the ability to defer U.S. tax on offshore earnings. These or other changes in the U.S. and various foreign jurisdictions in which we do business. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. Changes in tax laws could increaseor tax rulings may have a significant adverse impact on our effective tax rate. For example, the U.S. and many countries where we do business are actively considering or have recently enacted changes in relevant tax, accounting, and other laws, regulations, and interpretations. Recently, the Biden Administration committed to increasing the corporate income tax rate, which would affectand to increasing the tax rate applied to profits earned outside the U.S. If enacted, the impact of these potential new rules could be material to our profitablity.

tax provision and the value of our deferred tax assets and liabilities.

Further, in the ordinary course of a global business, there are many intercompany transactions and calculations where the ultimate tax determination could change if tax laws or tax rulings were to be modified. We are also subject to non-income-based taxes, such as payroll, sales, use, value-added, net-worth, property, and goods-and-services taxes, in both the U.S. and various foreign jurisdictions. Although we believe that our income and non-income-based tax estimates are appropriate, there is no assurance that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals.

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

Contract research services create a risk of liability.

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

	·	Errors or omissions in reporting of study detail in preclinical studies that may lead to inaccurate reports, which may undermine the usefulness of a study or data from the study, or which may potentially advance studies absent the necessary support or inhibit studies from proceeding to the next level of testing; and
	·	Risks associated with our possible failure to properly care for our clients' property, such as research models, records, work in progress, or other archived materials.

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

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

Contractual risk transfer indemnifications generally do not protect us against liability arising from certain of our own actions, such as negligence or misconduct. We could be materially and adversely affected if we are required to pay damages or bear the costs of defending any claim that is outside any contractual indemnification provision, or if a party does not fulfill its indemnification obligations, or the damage is beyond the scope or level of insurance coverage. We also often contractually indemnify our clients (subject to a limitation of liability), similar to the way they indemnify us, and we may be materially adversely affected if we have to fulfill our indemnity obligations. Furthermore, there can be no assurance that we nor a party required to indemnify us will be able to maintain such insurance coverage (either at all or on terms acceptable to us).

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

We update our software on a regular basis and are continually in the process of refactoring our software programs. In doing so, we face the possibility that existing users will find the software unacceptable, or new users may not be as interested as they have been in the past versions. Translation errors might introduce new software bugs that will not be caught.

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The drug discovery and development industry has a history of patent and other intellectual property litigation, and we might be involvedinvolvement in costly intellectual property lawsuits.

lawsuits is often very costly.

The drug discovery and development industry has a history of patent and other intellectual property litigation and these lawsuits will likely continue. Accordingly, we face potential patent infringement suits by companies that have patents for similar products and methods used in business or other suits alleging infringement of their intellectual property rights. Legal proceedings relating to intellectual property could be expensive, take significant time, and divert management'smanagement’s attention from other business concerns, whether we win or lose. If we do not prevail in an infringement lawsuit brought against us, we might have to pay substantial damages, including treble damages, and we could be required to stop the infringing activity or obtain a license to use technology on unfavorable terms.

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

We may seek to develop and market new services and products that complement or expand our existing business or service offerings. We cannot guarantee that we will be able to identify new technologies of interest to our customers. Even if we are able to identify new technologies of interest, we may not be able to negotiate license agreements on acceptable terms, or at all. If we are unable to develop new services and products and/or create demand for those newly developed services and products, our future business, results of operations, financial condition, and cash flows could be adversely affected.

Ability to incur debt could adversely affect our business and growth prospects.

At August

On March 31, 2019,2020, the Company entered into a Credit Agreement with Wells Fargo Bank, N.A. The Credit Agreement provided us with a credit facility of $3.5 million through April 15, 2022 (the "Termination Date"), on which date the Credit Agreement terminated in accordance with its terms. As a result, we hadcan no borrowed debt and have nolonger draw down against the line of credit. We chose not to renew or pursue an alternative credit facility as we do not foresee a need to do so to fund normal operations inutilize such credit facility within the foreseeable future; however, shouldnext twelve months. As of the Termination Date, there were no amounts drawn against the line of credit.

Should circumstances require us to incur debt and a lender could not be found to provide that debt, this could have a significant adverse effect on our business, including making it more difficult for us to obtain financing on favorable terms, limiting our ability to capitalize on significant business opportunities, and making us more vulnerable to rising interest rates.

We depend on key personnel and may not be able to retain these employees or recruit additional qualified personnel, which could harm our business.

Our success depends to a significant extent on the continued services of our senior management and other members of management. We have employment agreements with our CEO, CFO, and division presidents that range from one to three years. If our CEO, ourCFO, division presidents, or other members of senior management do not continue in their present positions, our business may suffer. Because of the specialized scientific nature of our business, we are highly dependent upon attracting and retaining qualified scientific and technical and managerial personnel. While we have a strong record of employee retention, there is still significant competition for qualified personnel in the software, pharmaceutical, and biotechnology fields. Therefore, we may not be able to attract and retain the qualified personnel necessary for the development of our business. The loss of the services of existing personnel, as well as the failure to recruit additional key scientific, technical, and managerial personnel in a timely manner, could harm our business.

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

Over the years, we have expanded our business through acquisitions. We continue to search to acquire businesses and technologies and form strategic alliances. However, businesses and technologies may not be available on terms and conditions we find acceptable. We risk spending time and money investigating and negotiating with potential acquisition or alliance partners, but not completing transactions. Even if completed, acquisitions and alliances involve numerous risks which may include: difficulties in achieving business and continuing financial success; difficulties and expenses incurred in assimilating and integrating operations, services, products, technologies, or pre-existing relationships with our customers, distributors, and suppliers; challenges with developing and operating new businesses, including those which are materially different from our existing businesses and which may require the development or acquisition of new internal capabilities and expertise; challenges of maintaining staffing at the acquired entities, including loss of key employees; potential losses resulting from undiscovered liabilities of acquired companies that are not covered by the indemnification we may obtain from the seller(s); the presence or absence of adequate internal controls and/or significant fraud in the financial systems of acquired companies; diversion of management'smanagement’s attention from other business concerns; acquisitions could bethat become dilutive to earnings, or in the event of acquisitions made through the issuance of our common stock to the shareholders of the acquired company, dilutive to the percentage of ownership of our existing shareholders; new technologies and products may be developed by others which cause businesses or assets we acquire to become less valuable; and risks that disagreements or disputes with prior owners of an acquired business, technology, service, or product may result in litigation expenses and distributiondilution of our management'smanagement’s attention. In the event that an acquired business or technology or an alliance does not meet our expectations, our results of operations may be adversely affected.

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Some of the same risks exist when we decide to sell a business, site, or product line. In addition, divestitures could involve additional risks, including, without limitation, the following: difficulties in the separation of operations, services, products, and personnel;personnel, and the need to agree to retain or assume certain current or future liabilities in order to complete the divestiture. We evaluate the performance and strategic fit of our businesses. These and any divestitures may result in significant write-offs, including those related to goodwill and other intangible assets, which could have an adverse effect on our results of operations and financial condition. In addition, we may encounter difficulty in finding buyers or alternative exit strategies at acceptable prices and terms and in a timely manner. We may not be successful in managing these or any other significant risks that we encounter in divesting a business, site, or product line, and as a result, we may not achieve some or all of the expected benefits of the divestitures.

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

We believe that operating results for any particular quarter are not necessarily a meaningful indication of future results. Nonetheless, fluctuations in our quarterly operating results could negatively affect the market price of our common stock. Our results of operations in any quarter or annual period have varied in the past and may vary from quarter to quarter or year to year andyear. Our results of operations are influenced by suchvarious factors, as:

	·	changes in the general global economy;
	·	the number and scope of ongoing client engagements; the commencement, postponement, delay, progress, completion, or cancellation of client contracts in the quarter;
	·	changes in customer budget cycles;
	·	the number and scope of ongoing client engagements;
	·	the commencement, postponement, delay, progress, completion, or cancellation of client contracts in the quarter;
	·	changes in the mix of our products and services;
	·	competitive pricing pressures;
	·	the extent of cost overruns;
	·	buying patterns of our clients;
	·	budget cycles of our clients;
	·	the effect of potential acquisitions and consequent integration;
	·	the timing of new product releases by us or our competitors;
	·	general economic factors, including factors relating to disruptions in the world credit and equity markets and the related impact on our customers’ access to capital;
	·	changes in tax laws, rules, regulations, and tax rates in the locations in which we operate;
	·	the timing and charges associated with completed acquisitions and other events;
	·	the financial performance of the limited partnerships in which we invest; and
	·	exchange rate fluctuations.

many of which are out of our control, including without limitation:

•changes in the general global economy

•the number and scope of ongoing client engagements; the commencement, postponement, delay, progress, completion, or cancellation of client contracts in the quarter

•changes in customer budget cycles

•the number and scope of ongoing client engagements

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

•changes in the mix of our products and services

•competitive pricing pressures

•the extent of cost overruns

•buying patterns of our clients

•budget cycles of our clients

•the effect of potential acquisitions and consequent integration

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

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

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

•the timing and charges associated with completed acquisitions and other events

•the financial performance of our investments

•exchange rate fluctuations

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

Three customers accounted for 8%5%, 8%3%, and 3%, respectively, of revenue for fiscal year 2022. Three customers accounted for 11%, 4%, and 3%, respectively, of revenues for fiscal year 2021. Three customers accounted for 9%, 7% and 7% (a dealer account in Japan representing various customers), respectively, of net salesrevenues for fiscal year 2019. Four customers accounted for 9% (a dealer account in Japan representing various customers), 7%, 6% and 5% of net sales for fiscal year 2018. Three customers accounted for 7% (a dealer account in Japan representing various customers), 7%, and 5% of net sales for fiscal year 2017.2020. The loss of any of our major customers could have a material adverse effect on our results of operations and financial condition. We may not be able to maintain our customer relationships, and our customers may delay payment under, or fail to renew, their agreements with us, which could adversely affect our business, results of operations, or financial condition. Any reduction in the amount of revenues that we derive from these customers, without an offsetting increase in new salesrevenues to other customers, could have a material adverse effect on our operating results. A significant change in the liquidity or financial position of our customers could also have a material adverse effect on the collectability of our accounts receivable, our liquidity, and our future operating results.

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

We operate on a global basis. In the three years ended August 31, 2022, 2021, and 2020, we had revenues of $6.7 million, $4.8 million, and $5.0 million, respectively, denominated in foreign currency in certain Asian and European markets. We expanded our operations in Europe in 2020 with the addition of Lixoft in Paris, France.

As we continue to increase our international operations, our revenues and expenditures in foreign currencies are expected to become more material and subject to greater foreign currency exchange-rate fluctuations. Also, our foreign distributors typically sell our products in local currency, which impacts the price to foreign consumers. Additionally, Lixoft's functional currency is the Euro. Future foreign currency exchange rate fluctuations and global credit markets may cause changes in the U.S. dollar value of our purchases or sales and materially affect our revenues, profit margins, and results of operations, when converted to U.S. dollars. Changes in the value of the U.S. dollar relative to other currencies could result in material foreign currency exchange-rate fluctuations and, as a result, our net earnings could be materially adversely affected.

As we continue to expand international operations and increase purchases and sales in foreign currencies, we may utilize derivative instruments, as needed, to hedge our foreign currency exchange-rate risk. Our hedging strategies will depend on our forecasts of revenues, expenses, and cash flows, which are inherently subject to inaccuracies. Foreign currency exchange-rate hedges, transactions, re-measurements, or translations could materially impact our consolidated financial statements.

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

Accordingly, unexpected revenue shortfalls may decrease our gross margins and could cause significant changes in our operating results from year to year. As a result, in future quarters, our operating results could fall below the expectations of securities analysts or investors, in which event our stock price would likely decrease.

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

adversely impacted.

Certain of our customer contracts are subject to cancellation by our customers at any time with limited notice. Customers engaged in clinical trials may terminate or delay a clinical trial for various reasons, including the failure of the tested product to satisfy safety or efficacy requirements, unexpected or undesired clinical results, decisions to deemphasize a particular product or forgo a particular clinical trial, decisions to downsize clinical development programs, insufficient patient enrollment or investigator recruitment, and production problems resulting in shortages of required clinical supplies. Any termination or delay in the clinical trials would likely result in a consequential delay or termination in those customers’ service contracts. We have experienced terminations and delays of our customer service contracts in the past (although no such past terminations have had a significant impact on our results of operations), and we expect to experience additional terminations and delays in the future. The termination of single-study arrangements could result in decreased revenues and the delay of our customers’ clinical trials could result in delayed professional services revenues, which could materially harmadversely impact our business.

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

Our business relies on the secure electronic transmission, storage, and hosting of sensitive information, including clinical data, financial information, and other sensitive information relating to our customers, company, and workforce. As a result, we face some risk of a deliberate or unintentional incident involving unauthorized access to our computer systems (including, among other methods, cyber- attackscyberattacks or social engineering) that could result in misappropriation or loss of assets or sensitive information, data corruption, or other disruption of business operations. In light of this risk, we have devoted significant resources to protecting and maintaining the confidentiality of our information, including implementing security and privacy programs and controls, training our workforce, and implementing new technology. We have no guarantee that these programs and controls will be adequate to prevent all possible security threats. We believe that any compromise of our electronic systems, including the unauthorized access, use, or disclosure of sensitive information, or a significant disruption of our computing assets and networks, would adversely affect our reputation and our ability to fulfill contractual obligations, and would require us to devote significant financial and other resources to mitigate such problems, and could increase our future cyber securitycybersecurity costs. Moreover, unauthorized access, use, or disclosure of such sensitive information could result in contractual or other liability. In addition, any real or perceived compromise of our security or disclosure of sensitive information may result in lost revenues by deterring customers from using or purchasing our products and services in the future or prompting them to use competing service providers.

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

Our customers use our solutions to collect, manage, and report information in connection with the conduct of clinical trials. This information may be considered our customers’ proprietary information. Since we receive and process our customers’ data from customers utilizing our hosted solutions, there is a risk that we could be liable if there were a breach of any obligation to a protected person under contract, standard of practice, or regulatory requirement. If we fail to properly protect our customers’ data that is in our possession or deemed to be in our possession, we could be subjected to significant liability and our reputation would be harmed.

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

Substantially all of the computer hardware necessary to deliverprovide Cognigen solutions to our CRO and KIWI solutionscustomers is located at our internal hosting facility in Buffalo, New York. In addition to our dedicated hosting facility, we utilize third-party cloud computing services from Amazon Web Services ("AWS") to help us efficiently scale our cloud-based solutions and provide training. Because we cannot easily switch our AWS-serviced operations to another cloud provider, any disruption of or interference with our use of AWS would impact our operations, and our business would be adversely impacted. Our systems and operations or those of AWS could suffer damage or interruption from human error, fire, flood, power loss, telecommunications failure, break-ins, terrorist attacks, acts of war, and similar events. The occurrence of a natural disaster, an act of terrorism or other unanticipated problems at our or AWS'AWS’ hosting facilities could result in lengthy interruptions in our service. Although we and AWS maintain backup facilities and disaster recovery services in the event of a system failure, these may be insufficient or fail. Any system failure, including network, software, or hardware failure, thatwhich causes an interruption in our Buffalo data center or our use of AWS, or that causes a decrease in responsiveness of our cloud-based solutions, could damage our reputation and cause us to lose customers, which could harm our business and results of operations. Our business may be harmed if our customers and potential customers believe our service is unreliable.

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

Our software applications are inherently complex and may contain defects or errors, some of which may be material. Errors may result from our own technology or from the interface of our cloud-based solutions with legacy systems and data which we did not develop. The risk of errors is particularly significant when a new product is first introduced or when new versions or enhancements of existing products are released. The likelihood of errors is increased when we do more frequent releases of new products and enhancements of existing products. We have, from time to time, found defects in our solutions. Although these past defects have not resulted in any litigation against us to date, we have invested significant capital, technical, managerial, and other resources to investigate and correct these past defects and we have needed to divert these resources from other development efforts. In addition, material performance problems or defects in our solutions may arise in the future. Material defects in our cloud-based solutions could result in a reduction in sales,revenues, delay in market acceptance of our solutions, or credits or refunds to our customers. In addition, such defects may lead to the loss of existing customers and difficulty in attracting new customers, diversion of development resources, or harm to our reputation. Correction of defects or errors could prove to be impossible or impractical. The costs incurred in correcting any defects or errors or in responding to resulting claims or liability may be substantial and could adversely affect our operating results.

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

As part of our current business model, we deliver our software over the Internet and store and manage hundreds of terabytes of data for our customers, resulting in substantial information technology infrastructure and ongoing technological challenges, which we expect to continue to increase over time. If we do not reliably meet these data storage and management requirements, or if we experience any failure or interruption in the delivery of our services over the Internet, customer satisfaction and our reputation could be harmed, leading to reduced revenues and increased expenses. Our hosting services are subject to service-level agreements and, in the event that we fail to meet guaranteed service or performance levels, we could be subject to customer credits or termination of these customer contracts. If the cost of meeting these data storage and management requirements increases, our results of operations could be harmed.

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

Some of our software solutions utilize software covered by open sourceopen-source licenses. Open sourceOpen-source software is typically freely accessible, usable and modifiable, and is used by our development team in an effort to reduce development costs andto speed up the development process. Certain open sourceopen-source software licenses require a user who intends to distribute the open sourceopen-source software as a component of the user'suser’s software to disclose publicly part or all of the source code to the user'suser’s software. In addition, certain open sourceopen-source software licenses require the user of such software to make any derivative works of the open sourceopen-source code available to others on unfavorable terms or at no cost. This can subject previously proprietary software to open sourceopen-source license terms. While we monitor the use of all open sourceopen-source software in our products, processes, and technology and try to ensure that no open sourceopen-source software is used in such a way as to require us to disclose or make available the source code to the related product or solution, such use could inadvertently occur. This could harm our intellectual property position and have a material adverse effect on our business.

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

Our success is heavily dependent upon our intellectual property and other proprietary rights. We rely upon a combination of trademark, trade secret, copyright, patent, and unfair competition laws, as well as license and access agreements and other contractual provisions, to protect our intellectual property and other proprietary rights. In addition, we attempt to protect our intellectual property and proprietary information by requiring certain of our employees and consultants to enter into confidentiality, non-competition,noncompetition, and assignment-of-inventions agreements. The steps we take to protect theseour intellectual property rights may not be adequate to prevent misappropriation of our technology by third parties or may not be adequate under the laws of some foreign countries, which may not protect our intellectual property rights to the same extent as do the laws of the United States.

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The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This could make it difficult for us to stop infringement or the misappropriation of our intellectual property rights.

Our attempts to protect our intellectual property may be challenged by others or invalidated through administrative process or litigation, and agreement terms that address non-competitionnoncompetition are difficult to enforce in many jurisdictions and may not be enforceable in any particular case. In addition, there remains the possibility that others will “reverse engineer” our products in order to introduce competing products, or that others will develop competing technology independently. If we resort to legal proceedings to enforce our intellectual property rights or to determine the validity and scope of the intellectual property or other proprietary rights of others, the proceedings could be burdensome and expensive, even if we were to prevail. The failure to adequately protect our intellectual property and other proprietary rights may have a material adverse effect on our business, results of operations, or financial condition.

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

We are subject to claims that arise in the ordinary course of business, such as claims brought by our customers in connection with commercial disputes and employment claims made by our current or former employees. Third parties may in the future assert intellectual property rights to technologies that are important to our business and demand back royalties or demand that we license their technology. Litigation may result in substantial costs and may divert management’s attention and resources, which may seriously harm our business, overall financial condition, and operating results. Insurance may not cover such claims, may not be sufficient for one or more such claims, and may not continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, negatively affecting our business, results of operations, and financial condition.

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

Any failure or errors in a customer’s clinical trial caused or allegedly caused by our products or services could result in a claim for substantial damages against us by our customers or the clinical trial participants, regardless of our responsibility for the failure. Although we are generally entitled to indemnification under our customer contracts against claims brought against us by third parties arising out of our customers’ use of our products, we might find ourselves entangled in lawsuits against us that, even if unsuccessful, may divert our resources and energy and adversely affect our business. Further, in the event we seek indemnification from a customer, a court may not enforce our indemnification right if the customer challenges it or the customer may not be able to fund any amounts for indemnification owed to us. In addition, our existing insurance coverage may not continue to be available on reasonable terms or may not be available in amounts sufficient to cover one or more large claims, or the insurer may disclaim coverage as to any future claim.

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

Our Buffalo

Some of our business depends entirely on the clinical trials conducted or sponsored by pharmaceutical, biotechnology, and medical device companies, CROs, and other entities. Our revenues may decline as a result of conditions affecting these industries, including general economic downturns, increased consolidation, decreased competition, or fewer products under development. Other developments that may affect these industries and harm our operating results include product liability claims, changes in government regulation, changes in governmental price controls or third-party reimbursement practices, and changes in medical practices. Disruptions in the world credit and equity markets may also result in a global downturn in spending on research and development and clinical trials and may impact our customers’ access to capital and their ability to pay for our solutions. Any decrease in research and development expenditures or in the size, scope, or frequency of clinical trials could materially adversely affect our business, results of operations, or financial condition.

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

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming, and/or costly, and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. As a company, we continually review and evaluate the adequacy of our disclosure controls and procedures and internal controls over financial reporting for deficiencies and improvements.

As we expand our operations through acquisitions and organic growth, our current systems for disclosure controls and procedures and internal control over financial reporting may be inadequate to meet our growing and changing business. Accordingly, we may require significant resources and management oversight to maintain and, if necessary, improve our disclosure controls and procedures and internal control over financial reporting. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. In addition, we may need to hire more employees in the future or engage outside consultants with respect to developing and maintaining our disclosure controls and internal control over financial reporting, which would increase our costs and expenses.

In addition, as a public company, we are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, is designed to prevent fraud. As a result of the growth of our business both organically and through acquisitions, we may fail to implement required new or improved controls, or experience difficulties in their implementation, which may cause us to not meet our reporting obligations. If we or our independent registered public accounting firm were to identify a material weakness, and/or if we are unable to assert that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline, and we may be subject to investigation by the SEC.

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

As a public company with common stock listed on The Nasdaq CapitalGlobal Select Market, we must comply with various laws, regulations, and requirements. New laws and regulations, as well as changes to existing laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act, of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, of 2010, and rules adopted by the SEC and by Thethe Nasdaq CapitalGlobal Select Market, may result in increased general and administrative expenses and a diversion of management'smanagement’s time and attention as we respond to new requirements.

Certain Risks Related to Ownership of Our Common Stock

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

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

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

We may, but are not obligated to, provide public guidance on our expected operating and financial results for future periods. Any such guidance will be comprised of forward-looking statements subject to the risks and uncertainties described in this prospectus and in our other public filings and public statements. Our actual results may not always be in line with or exceed any guidance we have provided, especially in times of economic uncertainty. If, in the future, our operating or financial results for a particular period do not meet any guidance we provide or the expectations of investment analysts, or if we reduce our guidance for future periods, the market price of our common stock may decline. Even if we do issue public guidance, there can be no assurance that we will continue to do so in the future.

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

Shares of our common stock were sold in our initial public offering ("IPO"(“IPO”) in 1996 at a price of $1.25 per share (on a post-split basis), and our common stock has subsequently traded as high as $41.95$90.92 and as low as $0.38 from our IPO through August 31, 2019.2022. However, an active, liquid, and orderly market for our common stock on Thethe Nasdaq CapitalGlobal Select Market or otherwise may not be sustained, which could depress the trading price of our common stock. The trading price of our common stock may be subject to wide fluctuations in response to various factors, some of which are beyond our control, including:

	·	our quarterly or annual earnings or those of other companies in our industry;
	·	announcements by us or our competitors of significant contracts or acquisitions;
	·	changes in accounting standards, policies, guidance, interpretations, or principles;
	·	general economic and stock market conditions, including disruptions in the world credit and equity markets;
	·	the failure of securities analysts to cover our common stock or changes in financial estimates by analysts;
	·	future sales of our common stock; and
	·	the other factors described in these “Risk Factors.”

including without limitation:

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

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

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

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

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

•future sales of our common stock

•the other factors described in these “Risk Factors”

In recent years, the stock market in general, and the market for technology-related companies in particular, has experienced wide price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. The price of our common stock could fluctuate based upon factors that have little to do with our performance, and these fluctuations could materially reduce our stock price.

In the past, some companies, including companies in our industry, have had volatile market prices for their securities and have had securities class action suits filed against them. The filing of a lawsuit against us, regardless of the outcome, could have a material adverse effect on our business, financial condition, and results of operations, as it could result in substantial legal costs and a diversion of our management’s attention and resources.

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

The trading price of our common stock is volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. Factors that could cause volatility in the market price of our common stock include, but are not limited to:

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

•the ongoing COVID-19 pandemic, see “—Certain Risks Related to our Business—Our business is subject to risks arising from epidemic diseases, such as the recent outbreak of the COVID-19 illness”

•announcements of new products by us or our competitors

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

•our operating results

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

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

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

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

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

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

•announcements concerning our competitors or the pharmaceutical industry in general

•actual or anticipated fluctuations in our operating results

•FDA or other U.S. or foreign regulatory actions affecting us or our industry or other healthcare reform measures in the United States

•changes in financial estimates or recommendations by securities analysts

•trading volume of our common stock

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

•general economic and market conditions and overall fluctuations in the United States equity markets, including volatility related to the recent coronavirus outbreak and related health concerns

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

Broad market fluctuations may adversely affect the trading price or liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business, which could seriously harm our financial position. Any adverse determination in litigation could also subject us to significant liabilities.

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

The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our business as well as the stock indices that our common stock is included in. If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property or our stock performance, or if our operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, or if the S&P 600 removes us from its index, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

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

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

ITEM 1B – UNRESOLVED STAFF COMMENTS

None.

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ITEM 2 – PROPERTIES

We lease approximately 13,5009,255 square feet of office space in Lancaster, California.California, where our corporate headquarters are located. The original lease had a five-year term with two, three-year optionsextends to extend. The initial five-year term expired in February 2011,January 31, 2026, and we extended the lease to February 2, 2014. In June 2013, the lease was amended to extend the term to February 2, 2017. The amended lease also provides for an annual base rent increase of 3% per year and two, two-year options to extend. In May 2016 the Company exercised the two, two-year options extending the term of the lease through February 2, 2021 at a fixed rate of $25,000is $17 thousand per month. The new extensionlease agreement gives the Company the right, upon 90180 days’ prior notice, to terminate the lease inopt out of all or part of the last twofour years of the term, upon payment of a recapture payment equal to the 3% base payment increase that would have been due under the original agreement.

Our Buffalo subsidiary leases approximately 12,623with no penalty.

We lease 4,317 square feet of office space in Buffalo, New York. The initial five-yearlease term expired in October 2018extends to November 30, 2026, and was renewed for a three-year option to extending it to October 2021. The newthe base rent is $16,147$7 thousand per month.

In September 2017 DILIsym Services, Inc. signed a 3-yearmonth with an annual 2% increase. The lease for approximately 1,900 rentableagreement provides the Company with two five-year renewal options and the right to terminate the lease with one year’s prior written notice with certain penalties. We previously leased 12,623 square feet of office space at a different location in Buffalo, New York. That lease term extended to November 2021 and the base rent was $16 thousand per month.

We have a data center colocation space in Research Triangle Park, North Carolina. The initial three-yearBuffalo, New York, with a lease term expires in October 2020. The basethrough November 30, 2026, and rent is $3,975of $4 thousand per month with an annual 3% adjustment. Priorincrease.

We lease 3,386 square feet of office space in Durham, North Carolina. The lease term extends to thisSeptember 30, 2023, and the base rent is $8 thousand per month with an annual 3% increase.

We lease DILIsym was2,300 square feet of office space in Paris, France. The lease term extends to November 30, 2024, and the rent is $5 thousand per month and adjusted each December based on a month-to-month rental.

Rent expense, including common area maintenance fees for the fiscal years ended August 31, 2019, 2018 and 2017 was $584,000, $567,000, and $509,600, respectively.

consumer price index.

The Company believes its existing facilities and equipment are in good operating condition and are suitable for the conduct of its business.

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ITEM 3 – LEGAL PROCEEDINGS

We may become subject to litigation, claims, investigations, and audits arising from time to time in the ordinary course of our business. At this time, however, we are not a party to any legal proceedings and are not aware of pending legal proceedings.

ITEM 4 – MINE SAFETY DISCLOSURES.

Not applicable.

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PART II

ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Company’s common stock, par value $0.001 per share, tradeshas 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 symbol “SLP.”

Price Range of Common Stock

The following table shows high and low sales prices for the Company’s common stock for each quarter during the past two fiscal years:

		High				Low
FY18:
Quarter ended November 30, 2017		$	17.45			$	14.25
Quarter ended February 28, 2018		$	17.05			$	15.16
Quarter ended May 31, 2018		$	19.95			$	14.25
Quarter ended August 31, 2018		$	23.95			$	16.70
FY19:
Quarter ended November 30, 2018		$	21.25			$	18.04
Quarter ended February 28, 2019		$	21.66			$	17.18
Quarter ended May 31, 2019		$	27.33			$	19.74
Quarter ended August 31, 2019		$	41.95			$	24.08

same symbol.

Holders

As of November 13, 2019,October 19, 2022, there were 3851 shareholders of record.

Dividends

We paid a total A substantially greater number of approximately $4.2 million in cashholders of our common stock are “street name” or beneficial holders, whose shares are held by banks, brokers, and other financial institutions.

Dividends

The following dividends were declared by our Board of Directors during fiscal years 2019, and $4.2 million inthe fourth quarter of fiscal year 2018 as set forth 2022:

(in the table below. We expect to paythousands, except dividend per share amounts)

Fiscal Year						Record Date						Distribution Date						# of Shares Outstanding on Record Date						Dividend per Share						Total Amount
2022						7/25/2022						8/01/2022						20,239						$	0.06					$	1,214

Although we paid quarterly dividends of $0.06 per share of common stock each quarter in 2022, all future dividends are subject to declaration by our Board of Directors. However, thereThere can be no assurances that our Board of Directors will continue the dividend distributions for any specified number of quarters.

Fiscal Year		Record Date		Distribution Date		# of Shares Outstanding on Record Date				Dividend per Share				Total Amount
2018		11/13/2017		11/20/2017			17,284,792			$	0.06			$	1,037,088
		1/26/2018		2/2/2018			17,317,752			$	0.06			$	1,039,065
		4/25/2018		5/02/2018			17,354,005			$	0.06			$	1,041,240
		7/26/2018		8/2/2018			17,405,775			$	0.06			$	1,044,347
2019		11/01/2018		11/08/2018			17,417,875			$	0.06			$	1,045,073
		1/25/2019		2/1/2019			17,481,450			$	0.06			$	1,048,887
		4/24/2019		5/01/2019			17,515,228			$	0.06			$	1,050,914
		7/25/2019		8/1/2019			17,536,454			$	0.06			$	1,052,187

Refer to Note 8 – Shareholders’ Equity of the Notes to Financial Statements (Part II, Item 8 of this Report) for further details regarding dividends.

Securities authorized for issuance under equity compensation plans

On December 23, 2016, the Board of Directors adopted, and on February 23, 2017, the shareholders approved, the 2017 Equity Incentive Plan (the "2017 Plan"), under which a total of 1.0 million shares of common stock has been reserved for issuance. The 2017 plan would have terminated in December 2026; however, the 2017 Plan was replaced by the Company’s 2021 Plan (as defined below), and as a result, no further issuances of shares may be made under the 2017 Plan.

On April 9, 2021, the Board of Directors adopted, and on June 23, 2021, the shareholders approved, the 2021 Equity Incentive Plan (the “2021 Plan”), under which a total of 1.3 million shares of common stock has been reserved for issuance. The 2021 Plan will terminate in 2031.

As of August 31, 2022, employees and directors held Qualified Incentive Stock Options ("ISOs") and Non-Qualified Stock Options (“NQSOs”) to purchase 1.2 million shares of common stock at exercise prices ranging from $6.85 to $66.14 per share.

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Equity Compensation Plan Information

The following table provides information as of August 31, 2022, regarding our equity compensation plans:

(in thousands, except weighted-average amounts)
Plan category						Number of securities to be issued upon exercise of outstanding options						Weighted-average exercise price of outstanding options						Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Column reference						(a)						(b)						(c)
Equity Compensation Plans Approved by Security Holders						1,245						28.61						1,034
Equity compensation plans not approved by security holders						—						—						—
Total						1,245						28.61						1,034

Shareholder Return Performance Presentation

Graph

The following graph compares the cumulative total stockholder return on ourSimulations-Plus, Inc. (SLP) common stock of a $100 investment from August 31, 20142018, through August 31, 20192022, assuming reinvestment of dividends, with a similar investment in the Russell 3000 index (the “Russell(“Russell 3000”) and with the companies listed in the Nasdaq Composite - Total Returns (“IXIC”), and the S&P600 Health Care Equipment & Services Industry Group Index (SP600-3510)("SP600-3510"). The historical information set forth below is not necessarily indicative of future performance. This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any of our filings under the Securities Act of 1933, as amended, of the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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Equity Compensation Plan Information

			2018			2019			2020			2021			2022
SLP			$135.11			$236.47			$392.48			$292.94			$402.00
NASDAQ			$126.02			$123.74			$182.98			$237.12			$184.65
Russell 3000			$117.79			$117.05			$139.55			$183.07			$157.68
SP600-3510			$155.39			$132.62			$135.65			$210.73			$159.48

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Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

As discussed elsewhere in this Report, on April 1, 2022, the Company released from escrow an aggregate of 20,326 unregistered shares of the Company’s common stock to the former shareholders of Lixoft as partial payment of a $2.0 million holdback of the closing consideration payable pursuant to that Share Purchase and Contribution Agreement entered into by and among the Company and the former shareholders of Lixoft, dated March 31, 2020 (the "SPCA"). The following information isshares had an aggregate value of $0.7 million.

On May 5, 2022, the Company issued an aggregate of 23,825 unregistered shares of the Company’s common stock to the former shareholders of Lixoft pursuant to the Agreement. The shares had an aggregate value of $1.2 million and were issued as a portion of an earnout payment in connection with the satisfaction of certain year-over-year performance thresholds set forth in the SPCA.

The shares released as partial payment of the $2.0 million holdback and issued as partial payment of the earnout were issued in a transaction not involving a public offering in reliance upon an exemption from registration provided asby Section 4(a)(2) of the Securities Act and/or Regulation S promulgated thereunder.

During the fiscal year ended August 31, 2019:

Plan category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)				Weighted-average exercise price of outstanding options, warrants and rights (b)				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders			1,163,259			$	12.63				666,069
Equity compensation plans not approved by security holders			-0-				-0-				-0-
Total			1,163,259			$	12.63				666,069

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2022, there were no other unregistered sales of our securities that were not reported in a Current Report on Form 8-K or our Quarterly Reports on Form 10-Q.

Repurchases

Repurchases

There is currently no share repurchase program pending, and the Company has made no repurchases of its securities since fiscal year 2011.

2011; however, the Board of Directors may decide to institute such a program in the future.

ITEM 6 – SELECTED FINANCIAL DATA

The following tables set forth the selected consolidated financial data for each of the fiscal years in the five-year period ended August 31, 2019. We derived the selected consolidated financial data from our audited consolidated financial statements, which should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II of this Annual Report on Form 10-K and our consolidated financial statements and the related notes included elsewhere in this report.

		Year ended August 31,
Statements of operations data		2019				2018[c]				2017[a]				2016				2015[b]
Net Revenues		$	33,970,440			$	29,666,524			$	24,137,913			$	19,972,079			$	18,314,248
Cost of revenues			9,025,704				7,994,228				6,307,800				4,601,513				4,392,477
Gross margin			24,944,736				21,672,296				17,830,113				15,370,566				13,921,771
SG&A expenses			11,796,027				9,583,852				8,198,184				6,693,691				6,736,767
R&D			2,499,980				1,790,656				1,367,645				1,445,069				1,328,476
Total operating expenses			14,296,007				11,374,508				9,565,829				8,138,760				8,065,243
Income from operations			10,648,729				10,297,788				8,264,284				7,231,806				5,856,528
Other income (expense)			(92,253	)			(158,846	)			(24,017	)			4,586				(163,599	)
Income from operations before income taxes			10,556,476				10,138,942				8,240,267				7,236,392				5,692,929
Provision for income taxes			(1,973,147	)			(1,204,130	)			(2,452,670	)			(2,286,256	)			(1,849,968	)
Net Income		$	8,583,329			$	8,934,812			$	5,787,597			$	4,950,136			$	3,842,961
Earnings per share
Basic		$	0.49			$	0.52			$	0.34			$	0.29			$	0.23
Diluted		$	0.48			$	0.50			$	0.33			$	0.29			$	0.23
Weighted-average common shares outstanding
Basic			17,492,258				17,328,707				17,239,490				17,028,566				16,864,670
Diluted			18,057,431				17,860,392				17,515,917				17,209,506				17,032,158
Dividend per common share		$	0.24			$	0.24			$	0.20			$	0.20			$	0.20
Dividends		$	4,197,055			$	4,161,740			$	3,448,489			$	3,413,274			$	3,375,566

		As of August 31,
Balance sheet data at year end		2019				2018				2017				2016				2015
Cash and cash equivalents			11,435,499				9,400,701				6,215,718				8,030,284				8,551,275
Net working capital			16,381,665				12,996,901				10,625,437				10,574,712				7,708,494
Total assets			45,196,697				43,279,016				38,512,468				27,814,317				27,133,254
Total liabilities associated with business and intangible acquisitions			1,761,028				5,890,940				5,985,516				1,000,000				3,604,404
Total liabilities			7,515,093				11,356,391				12,707,581				5,081,723				7,601,052
Total shareholders’ equity			37,681,604				31,922,625				25,804,887				22,732,594				19,532,202

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[RESERVED]

Notes to Five-Year Summary

[a] Effective June 1, 2017, we acquired DILIsym Services, Inc. and incurred approximately $620,000 of acquisition related costs in FY2017.

[b] Effective September 2, 2014 we acquired Cognigen Corporation and incurred approximately $410,000 in FY 2015.

[c] In FY2018 we posted a $1.5 million deferred tax benefit due to the effect of new tax rates enacted under the Tax Cuts and Jobs Act of 2017.

ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussionManagement’s Discussion and analysisAnalysis is intended to assist the reader in understanding our results of operations and financial condition. Management’s Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements beginning on page F-1 of this Report. This Report includes certain statements that may be deemed to be “forward-looking statements” within the Financial Statements and related notesmeaning of Section 27A of the Securities Act. All statements, other than statements of historical fact, included in this Annual Report that address activities, events or developments that we expect, project, believe, or anticipate will or may occur in the future, including matters having to do with expected and future revenue, our ability to fund our operations and repay debt, business strategies, expansion and growth of operations and other such matters, are forward-looking statements. These statements are based on Form 10-K.

certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate in the circumstances. These statements are subject to a number of assumptions, risks and uncertainties, including general economic and business conditions, the business opportunities (or lack thereof) that may be presented to and pursued by us, our performance on our current contracts and our success in obtaining new contracts, our ability to attract and retain qualified employees, and other factors, many of which are beyond our control. You are cautioned that these forward-looking statements are not guarantees of future performance and those actual results or developments may differ materially from those projected in such statements.

Management Overview

Fiscal year 2019 highlights:

	·	We released ADMET Predictor versions 9.5
	·	We released GastroPlus version 9.7
	·	We released DDDPlus® version 6.0 and PKPlus® version 2.5
	·	We released DILIsym® version 8A
	·	We released NAFLD® version 2A
	·	We began development of IPFsym® for pulmonary fibrosis and RADAsym® for radiation
		Phase 2 of RENAsym grant approved for $1.5 million
	·	We signed a new research collaboration agreement with the FDA Center for Veterinary Medicine, to apply GastroPlus® to assess virtual bioequivalence in canines
	·	We released Version 4 of its KIWI™ Pharmacometric Communication and Collaboration Platform
	·	Continued quarterly payment of dividend of 6 cents per share

Fiscal Year 20192022 Financial Summary:

	·	Consolidated net revenues increased by $4.30 million, or 14.5%, to $34 million in fiscal year 2019 from $29.7 million in fiscal year 2018.
	·	Consolidated gross margin increased $3.27 million or 15.1%, to $24.9 million in fiscal year 2019 from $21.7 million in fiscal year 2018.
	·	Net income from operations increased $351,000, or 3.4%, to $10.6 million in fiscal year 2019 from $10.3 million in fiscal year 2018.
	·	Net income decreased by $351,000, or 4%, to $8.58 million in fiscal year 2019 from $8.93 million in fiscal year 2018. In 2018 the company had posted a $1.5 million tax benefit due to the effect of new tax rates enacted under the Tax Cuts and Jobs Act of 2017.
	·	Diluted earnings share decreased by $0.02 or 4% to $0.48 in 2019 from $0.50 in 2018.

Highlights:

•Consolidated revenues increased by $7.4 million, or 16%, to $53.9 million for the year ended August 31, 2022, compared to $46.5 million for the year ended August 31, 2021

•Consolidated gross profit increased by $7.2 million, or 20%, to $43.1 million for the year ended August 31, 2022, compared to $35.9 million for the year ended August 31, 2021

•Income from operations increased by $3.7 million, or 33%, to $14.9 million for the year ended August 31, 2022, from $11.3 million for the year ended August 31, 2021

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•Net income increased by $2.7 million, or 28% to $12.5 million for the year ended August 31, 2022, compared to $9.8 million for the year ended August 31, 2021

•Diluted earnings per share increased by $0.13, or 28% to $0.60 for the year ended August 31, 2022, compared to $0.47 for the year ended August 31, 2021

Strategy Going Forward:

	·	Continue to pursue funded and unfunded collaborations in support of improving our products and services
	·	Continue to seek accretive acquisitions that complement our existing offerings and expand our markets
	·	Continue our aggressive marketing and sales campaign, including numerous scientific conferences and meetings
	·	Continue to expand our use of social media and advertising
	·	Continue to expand our sales staff, both in-house and in the field
	·	Continue to recruit scientific and other resources to support our product and scientific consulting services
	·	Expand our publishing activities in scientific journals

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

•Continue our aggressive marketing campaigns and expand our use of social media and digital advertising

•Continue to expand our sales staff and distributor channels

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

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

Fiscal year 20192022 was yet another record year.year for the Company. We believe the continued growth of our pharmaceutical software and services business is the result of steadily increasing adoption and awareness of the value of simulation and modeling software tools across the pharmaceutical industry, the continuing push by regulatory agencies for increased use of modeling and simulation, and the expertise we offer as consultants to assist companies involved in the research and development of new medicines. We have receivedcontinue to be a continuing series of study contracts with pharmaceutical companies ranging from several of the largestleader in the worldfast-growing global biosimulation market.

Results of Operations

Comparison of fiscal year 2022 and fiscal year 2021

(in thousands)						Year ended August 31
						2022						2021						$ Change						% Change
Revenue						$	53,906					$	46,466					$	7,440					16		%
Cost of revenue						10,822						10,600						222						2		%
Gross profit						43,084						35,866						7,218						20		%
Research and development						3,208						4,047						(839)						(21)		%
Selling, general, and administrative						24,965						20,566						4,399						21		%
Total operating expenses						28,173						24,613						3,560						14		%
Income from operations						14,911						11,253						3,658						33		%
Other income (expense), net						204						(168)						372						(221)		%
Income before income taxes						15,115						11,085						4,030						36		%
Provision for income taxes						(2,632)						(1,303)						(1,329)						102		%
Net income						$	12,483					$	9,782					$	2,701					28		%

Revenues

Revenues increased by $7.4 million or 16%, to $53.9 million for the year ended August 31, 2022, compared to $46.5 million for the year ended August 31, 2021. This increase is primarily due to a number of medium-sized$5.0 million, or 18%, increase in software-related revenue and smaller companies$2.5 million, or 13%, increase in service-related revenue when comparing the U.S., Europe, and Japan.

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Our financial performance has enabled us to maintain significant cash deposits, continue our research and development activities, and invest in staffing to meet the needs of a wider customer base, as well as to distribute significant cash dividends to our shareholders.

We do not have any stock repurchase programs currently in place or pending; however, our Board of Directors may consider such programs from time to time.

Results of Operations

FY19 COMPARED WITH FY18

The following sets forth selected items from our statements of operations (in thousands) and the percentages that such items bear to net sales for the fiscal years ended August 31, 2019 (FY19)2022, and 2021.

Cost of revenues

Cost of revenues remained relatively consistent with a slight increase of $0.2 million, or 2%, for the year ended August 31, 2018 (FY18) (Because of rounding, numbers may not foot.)

		Fiscal year ended
			8/31/19								8/31/18
Net revenues		$	33,970				100.00%			$	29,667				100.00%
Cost of revenues			9,025				26.6				7,994				26.9
Gross margin			24,945				73.4				21,672				73.1
Selling, general and administrative			11,796				34.6				9,584				32.3
Research and development			2,500				7.4				1,791				6.0
Total operating expenses			14,296				41.9				11,375				38.3
Income from operations			10,649				31.5				10,298				34.7
Other income (expense)			(92	)			(0.3	)			(159	)			(0.5	)
Net income before taxes			10,556				31.2				10,139				34.2
(Provision) for income taxes			(1,973	)			(5.8	)			(1,204	)			(4.1	)
Net income		$	8,583				25.4%				$8, 935				30.1%

Net Revenues

Consolidated net revenues increased by 14.5% or $4.3 million2022, compared to $33.97 million in FY19 from 29.67 million in FY18. Our Lancaster, California division increased revenues by $2.03the year ended August 31, 2021. The increase is primarily due to a $0.4 million, or 11.6%5%, to $19.6 millionincrease in FY19 from $17.6 million in FY18. $1.46 million of this increase was from revenues generated by our Buffalo subsidiary (Cognigen), an increase of 18.6%. DILIsym Services, Inc. (DILIsym) increased revenues by $807,000 or 19%. FY19 software and software related revenues increased $1.8 million or 11.0% while consulting revenues increased by $2.5 million or 19.0% compared to FY18.

Cost of Revenues

Consolidatedservice-related cost of revenues increased by $1.03 million or 12.9% to $9.0 million in FY19 from $8.0 million in FY18. Labor-related cost incurred by our Lancaster and Buffalo divisions increased by $190,000 and $1.25 million, respectively mainly in support of increased consulting revenues. This wasrevenue, partially offset by a $380,000decrease of $0.2 million, or 5%, in software-related cost of revenue when compared to the year ended August 31, 2021.

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Gross profit

Gross profit increased by $7.2 million, or 20%, to $43.1 million for the year ended August 31, 2022, compared to $35.9 million, for the year ended August 31, 2021. The higher gross profit is due to an increase in gross profit for our software business of $5.1 million, or 21%, and an increase in gross profit for our services business of $2.1 million, or 18%.

Overall gross margin percentage was 80% and 77% for the years ended August 31, 2022, and 2021, respectively.

Research and development

We incurred $6.4 million of research and development costs during the year ended August 31, 2022. Of this amount, $3.2 million was capitalized as a part of capitalized software development costs and $3.2 million was expensed. We incurred $6.9 million of research and development costs during year ended August 31, 2021. Of this amount, $2.9 million was capitalized and $4.0 million was expensed.

Selling, general, and administrative expenses

Selling, general, and administrative ("SG&A") expenses increased by $4.4 million, or 21%, to $25.0 million for the year ended August 31, 2022, compared to $20.6 million for the year ended August 31, 2021. The increase was primarily due to an increase in personnel costs of $2.9 million, an increase in insurance costs of $0.6 million related to cyber and D&O premiums, and an increase in travel costs of $0.4 million.

As a percent of revenues, SG&A expense was 46% for the year ended August 31, 2022, compared to 44% for the year ended August 31, 2021.

Other income/expense

Total other income was $0.2 million for the year ended August 31, 2022, compared to total other expense of $0.2 million for the year ended August 31, 2021. The increase of $0.4 million is primarily due to an increase in net interest income of $0.5 million and a decrease in costthe value of contingent consideration of $0.2 million, partially offset by an increase in the loss on currency exchange of $0.4 million.

Provision for income taxes

The provision for income taxes was $2.6 million for the year ended August 31, 2022, compared to $1.3 million for the year ended August 31, 2021. Our effective tax rate increased by 5% to 17% for the year ended August 31, 2022, from 12% for the year ended August 31, 2021. The effective rate differs from anticipated combined statutory rates of 25% due to R&D credits, foreign-tax-related items (tax credits and foreign-deemed intangible income deductions), and the tax effect for stock compensation and disqualifying dispositions. During the year ended August 31, 2021, as a result of an increase in the Company's stock price, a number of employees exercised and sold ISOs granted to them under their corporate incentive plans, creating corporate tax deductions that lowered the effective tax rate, whereas disqualifying dispositions were not as prevalent during the year ended August 31, 2022.

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Comparison of fiscal year 2021 and fiscal year 2020

(in thousands)						Year ended August 31
						2021						2020						$ Change						% Change
Revenue						$	46,466					$	41,589					$	4,877					12		%
Cost of revenue						10,600						10,649						(49)						—		%
Gross profit						35,866						30,940						4,926						16		%
Research and development						4,047						2,975						1,072						36		%
Selling, general, and administrative						20,566						16,360						4,206						26		%
Total operating expenses						24,613						19,335						5,278						27		%
Income from operations						11,253						11,605						(352)						(3)		%
Other income (expense), net						(168)						(218)						50						(23)		%
Income before income taxes						11,085						11,387						(302)						(3)		%
Provision for income taxes						(1,303)						(2,055)						752						(37)		%
Net income						$	9,782					$	9,332					$	450					5		%

Revenues

Revenues increased by $4.9 million, or 12%, to $46.5 million for the year ended August 31, 2021, compared to $41.6 million for the year ended August 31, 2020. This increase is primarily due to a $6.1 million, or 28%, increase in software-related revenue, offset by a $1.2 million, or 6%, decrease in service-related revenue when comparing the years ended August 31, 2021, and 2020.

Cost of revenues

Cost of revenues remained relatively consistent for directthe year ended August 31, 2021, and 2020. The decrease is primarily due to lower contract expenses paid for testing at DILIsym. We saw a decreaseresearch organization fees of approximately $52,000 in$0.2 million, lower tech-support costs of $0.1 million, lower labor-related costs of $0.1 million, and lower training and travel costs of $0.1 million, partially offset by higher amortization of software development costs of $0.5 million related expenses in FY2019.

to the purchase of Lixoft.

A significant portion of cost of revenues for pharmaceutical software products is the systematic amortization of capitalized software development costs, which is an independenta fixed cost rather than a variable cost related to revenues. ThisThe amortization cost of $1.33$2.8 million in FY19for the year ended August 31, 2021, increased by approximately $31,000 in FY19.

$0.5 million compared to fiscal year 2020.

Cost of revenues as a percentage of revenue remained fairly consistent at 26.6% in FY19 aswas 22.8% for the year ended August 31, 2021, compared to 26.9%25.6% for the year ended August 31, 2020, resulting in FY18, a decrease of 0.3% year over year.

2.8%.

Gross Margin

Consolidated gross marginprofit

Gross profit increased $3.27$4.9 million, or 15.1%16%, to $24.94$35.9 million in FY19 from $21.67for the year ended August 31, 2021, compared to $30.9 million in FY18. $1.8 million of thisfor the year ended August 31, 2020. The increase is fromdue to an increase in gross profit for the California division, which showed an 83.3%software business of $5.7 million, or 31%, offset by a $0.8 million, or 7%, decrease in gross margin. The Buffalo Division gross margins increased $325,000 or 7% with margins of 53.2%. DILIsym of North Carolina recorded a $1.14 million increase, a 72.7% margin, versus a 59.6% margin in FY18.

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profit for the services business.

Overall gross margin has remained fairly consistent at 73.4% in FY19 as compared to 73.1% in FY18 an increase of 0.3%percentage was 77% and 74% for the year over year.

Selling, Generalended August 31, 2021, and Administrative Expenses

Selling, general, and administrative (SG&A) expenses increased $2.22 million, or 23.1% to $11.80 million in FY19 from $9.58 million in FY18. As a percent of revenues, SG&A was 34.6% for FY19, compared to 32.3% in FY18 and 33.9% in FY17.

The major increases in SG&A expense were:

	•	Commission expenses were up $122,000, mainly related to increased sales through representatives in Asia
	•	Accounting and audit fees increased by $73,000 associated with costs of consolidated audits and other compliance-related expenses
	•	Contract labor increased $172,000 due to increased director fees and consulting related to various corporate initiatives
	•	G&A salaries and wages increased by $939,000; this increase is a combination of increased headcount and salaries in support of corporate growth
	•	Insurance expense increased $218,000; $174,000 was health-related medical costs from increased headcount and rate increases
	•	Payroll tax expense increased $116,000, the effect of higher salary expense
	•	401k expense increased $78,000 due to the increased staffing
	•	Recruiting and hiring costs increased $214,000 mainly due to recruiting fees of scientific personnel
	•	Software licenses costs increased $87,000 mainly due to sales volume related license fee increases

The major decreases in SG&A expense were:

2020, respectively.

Trade show related costs decreased by $52,000 mainly due to lower attendance costs

Research and Development

development

We incurred approximately $4,299,000$6.9 million of research and development costs during FY19.year ended August 31, 2021. Of this amount, $1,768,000$2.9 million was capitalized and $2,500,000$4.0 million was expensed. We incurred approximately $3,936,000$5.3 million of research and development costs during FY18.year ended August 31, 2020. Of this amount, $2,145,000$2.3 million was capitalized and $1,791,000$3.0 million was expensed. The year-over-year increase of $363,000,$1.6 million, or 9.2%30%, in total research and development expenditures from FY18was primarily due to FY19increased costs in the Simulations Plus, DILIsym, and Lixoft divisions.

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Selling, general, and administrative expenses

SG&A expenses increased by $4.2 million, or 26% to $20.6 million for the year ended August 31, 2021, compared to $16.4 million for the year ended August 31, 2020. The increase was mainly from $278,000primarily due to a $4.0 million increase in personnel costs.

As a percent of costs incurredrevenues, selling, general and administrative expenses was 44% for the year ended August 31, 2021, compared to 39% for the year ended August 31, 2020.

Other income/expense

Total other expense was $0.2 million for the year ended August 31, 2021, compared to $0.2 million for the year ended August 31, 2020. There was an increase in currency exchange gain of $0.2 million and an increase in interest income of $0.2 million, offset by DILIsym Services Inc.

an increase in the value of contingent consideration of $0.3 million.

Provision for Income Taxes

income taxes

The provision for income taxes was $1.97$1.3 million for FY19the year ended August 31, 2021, compared to $1.20$2.1 million for FY18.the year ended August 31, 2020. Our effective tax rate increaseddecreased by 6% to 18.7% in FY1912% from 11.9% in FY18.

This increase results mainly from a second quarter 2018 assessment of deferred taxes based on the new tax rates enacted under the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”). Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”) requires that the company recognize the effects of changes in tax laws or tax rates in the financial statements18% for the period in which such changes were enacted. Among other things, changes in tax laws or tax rates can affect the amount of taxes payable for the current period, as well as the amount and timing of deferred tax liabilities and deferred tax assets. Based on the assessment the Company posted a one-time tax benefit in the amount of $1,500,000 in the second fiscal quarter of 2018, the result of estimating future deferred liabilities at the lower tax rates under the newly enacted tax laws.

same periods.

The effective rate differs from anticipated combined statutory rates of approximately 25.4%25% due to R&D credits, foreign-tax-related items (tax credits and foreign-deemed intangible income deductions), and the tax effect of stock-compensation-related items for stock compensation and disqualifying dispositions. InDuring the last part of FY19,years ended August 31, 2021, and 2020, as a result of an increase in stock prices, a number of employees exercised and sold incentive stock options granted to them under their corporate incentive plans, creating corporate tax deductions that lowered the effective rate.

Net Income

Net income decreasedtax rate

Results of Operations by $351,000 or 3.9%, to $8.6 million in FY19 from $8.93 million in FY18. The decrease in income was substantially effected byBusiness Unit

Comparison of fiscal year 2022 and fiscal year 2021

Revenues

(in thousands)						Twelve Months Ended August 31,
						2022						2021						Change ($)						Change (%)
Software						$	32,642					$	27,670					$	4,972					18		%
Services						21,264						18,796						2,468						13		%
Total						$	53,906					$	46,466					$	7,440					16		%

Cost of Revenues

(in thousands)						Twelve Months Ended August 31,
						2022						2021						Change ($)						Change (%)
Software						$	3,060					$	3,235					$	(175)					(5)		%
Services						7,762						7,365						397						5		%
Total						$	10,822					$	10,600					$	222					2		%

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Gross Profit

(in thousands)						Twelve Months Ended August 31,
						2022						2021						Change ($)						Change (%)
Software						$	29,582					$	24,435					$	5,147					21		%
Services						13,502						11,431						2,071						18		%
Total						$	43,084					$	35,866					$	7,218					20		%

Software Business

For the deferred tax benefit of $1.5 million discussed above in the note on Provision for Income Taxes, which reduced taxes in FY18.

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FY18 COMPARED WITH FY17

The following sets forth selected items from our statements of operations (in thousands) and the percentages that such items bear to net sales for the fiscal yearsyear ended August 31, 2018 (FY18) and2022, the revenue increase of $5.0 million, or 18%, compared to the year ended August 31, 2017 (FY17) (Because2021, was primarily due to higher revenues from GastroPlus of rounding, numbers may not foot.)

		Fiscal years ended
		8/31/18								8/31/17
Net revenues		$	29,667				100.00%			$	24,138				100.0%
Cost of revenues			7,994				26.9				6,308				26.1
Gross margin			21,672				73.1				17,830				73.9
Selling, general and administrative			9,584				32.3				8,198				34.0
Research and development			1,791				6.0			��	1,368				5.6
Total operating expenses			11,375				38.3				9,566				39.6
Income from operations			10,298				34.7				8,264				34.2
Other income			(159	)			(0.5	)			(24	)			(0.1	)
Net income before taxes			10,139				34.2				8,240				34.1
(Provision) for income taxes			(1,204	)			(4.1	)			(2,253	)			(10.1	)
Net income		$	8,935				30.1%			$	5,788				24.0%

Net Revenues

Consolidated net revenues$2.4 million and an increase in revenue from MonolixSuite Software of $1.6 million. Cost of revenue decreased by $0.2 million or 5% during the same periods, and gross profit increased by 22.9% or $5.53 million to $29.67 million in FY18 from $24.14 million in FY17. Our Lancaster, California division increased $1.95$5.1 million, or 12.5%21%, primarily due to $17.6the increase in revenue.

Services Business

For the year ended August 31, 2022, the revenue increase of $2.5 million, in FY18or 13%, compared to the year ended August 31, 2021, was primarily due to higher revenues from $15.6PBPK of $1.4 million in FY17. $557,000 of this increase was from revenues generated by our Buffalo subsidiary (Cognigen),and an increase in revenues from QSP/QST of 7.6%$0.5 million. Cost of revenue increased by $0.4 million, or 5%. DILIsym Services, Inc. (DILIsym)Gross profit increased by $2.1 million, or 18%, recorded revenues of $4.3 million; in FY17 revenues were $1.2 million for the period of June 1, 2017 thru the endsame periods.

Comparison of fiscal year August 31, 2017. FY18 software license sales increased $1.03 million while consulting revenues increased by $4.49 million compared to FY17; $3.2 million2021 and fiscal year 2020

Revenues

(in thousands)						Twelve Months Ended August 31,
						2021						2020*						Change ($)						Change (%)
Software						$	27,670					$	21,587					$	6,083					28		%
Services						18,796						20,002						(1,206)						(6)		%
Total						$	46,466					$	41,589					$	4,877					12		%

*As Lixoft was acquired on April 1, 2020, five months of the consulting increase was revenues of DILIsym Services Inc.

activity is reflected for fiscal year 2020.

Cost of Revenues

Consolidated cost

(in thousands)						Twelve Months Ended August 31,
						2021						2020*						Change ($)						Change (%)
Software						$	3,235					$	2,883					$	352					12		%
Services						7,365						7,766						(401)						(5)		%
Total						$	10,600					$	10,649					$	(49)					—		%

*As Lixoft was acquired on April 1, 2020, five months of revenues increased by $1.69activity is reflected for fiscal year 2020.

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Gross Profit

(in thousands)						Twelve Months Ended August 31,
						2021						2020*						Change ($)						Change (%)
Software						$	24,435					$	18,704					$	5,731					31		%
Services						11,431						12,236						(805)						(7)		%
Total						$	35,866					$	30,940					$	4,926					16		%

*As Lixoft was acquired on April 1, 2020, five months of activity is reflected for fiscal year 2020.

Software Business

For the year ended August 31, 2021, the revenue increase of $6.1 million, or 26.7%28%, compared to $8.0 million in FY18 from $6.31 million in FY17. Labor-related cost accounted for $922,000 of this increase, a combination of increased labor count, salary increases, and bonuses at our subsidiaries based on increased earnings. Included in the increaseyear ended August 31, 2020, was $505,000 of salary expense at DILIsym. Other significantprimarily due to increases in costrevenue from MonolixSuite of revenues included $393,000$2.9 million, an increase from GastroPlus revenue of $2.2 million and an increase direct contract expenses paid for testing at DILIsym. We saw a decreasefrom ADMET Predictor Software of approximately $65,000 in training related expenses in FY2018.

A significant portion of$0.8 million. The cost of revenues for pharmaceutical software products is the systematic amortization of capitalized software development costs, which is an independent fixed cost rather than a variable cost related to revenues. This amortization cost increased approximately $203,000 in FY18 compared with FY17. In addition, in 2018 there was an additional $238,000 of amortization expense associated with acquired technologies associated with DILIsym’s drug-induced liver injury technologies.

Cost of revenues as a percentage of revenue increased to 26.9% in FY18 from 26.1% in FY17. The majority of this percentage change is a result of the increased salary costs associated with consulting costs and the blend of software sales compared to consulting services during FY18.

Gross Margin

Consolidated gross margin increased $3.84by $0.4 million, or 21.5%, to $21.67 million in FY18 from $17.83 million in FY17. $1.5 million of this increase is from the California division, which showed an 82.6% gross margin. The Buffalo Division gross margins12%. Gross profit increased $437,000 or 10.4% with margins of 58.9%. DILIsym of North Carolina showed $2.54 million, a 59.6% margin vs a 55.2% margin in FY17 which represented only one quarters worth of activities.

Overall gross margin decreased to 73.1% in FY18 from 73.9% in FY17 due to increased salary costs associated with the relatively higher revenue mix of consulting to software in FY17.

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Selling, General and Administrative Expenses

Selling, general, and administrative (SG&A) expenses increased $1.39by $5.7 million, or 16.9% to $9.58 million in FY18 from $8.19 million in FY17. As a percent of revenues, SG&A was 32.31% for FY18, compared to 33.96% in FY17 and 33.52% in FY16.

The major increases in SG&A expense were:

	•	Commission expenses were up $175,000, mainly related to increased sales through representatives in Asia
	•	Accounting and audit fees increased by $40,000 associated with costs of consolidated audits and other compliance-related expenses
	•	Contract labor increased $187,000 mainly due to increase director fees
	•	G&A Salaries and Wages increased by $621,000; this increase is a combination of increased salaries of $255,000 at DILIsym, annual salary increases and increased in head count.
	•	Insurance Expense increased $247,000; $234,000 was health-related medical costs of which $98,000 was associated with DILIsym.
	•	Payroll tax expense increased $204,000, the effect of higher salary expense of which $98,000 was DILIsym
	•	401k expense increased $75,000 due to the increased staffing and full year of employees at DILIsym
	•	Trade shows, and travel expense increased $125,000
	•	Rent increase $57,000 due mainly to the addition of DILIsym in June 2017
	•	Amortization expense increased $158,000 due to increase acquisition amortization for DILIsym intangibles

The major decreases in SG&A expense were:

G&A expenses categories for consulting, legal, and accounting decrease by a total of $620,000 in FY18 as in FY17 there were one-time charges associated with the acquisition of DILIsym Services.

Research and Development

We incurred approximately $3,936,000 of research and development costs during FY18. Of this amount, $2,145,000 was capitalized and $1,791,000 was expensed. We incurred approximately $2,743,000 of research and development costs during FY17. Of this amount, $1,376,000 was capitalized and $1,367,000 was expensed. The increase of $1,193,000, or 43.5%31%, in total research and development expenditures from FY17 to FY18 was mainly from $504,000 of costs incurred by DILIsym Services Inc.

Provision for Income Taxes

The provision for income taxes was $1.20 million for FY18 compared to $2.45 million for FY17. Our effective tax rate decreased to 11.9% in FY18 from 29.8% in FY17. This decrease results mainly from a second quarter 2018 assessment of deferred taxes based on the new tax rates enacted under the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act). Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 740, Income Taxes (“ASC 740”) requires that the company recognize the effects of changes in tax laws or tax rates in the financial statements for the period in which such changes were enacted. Among other things, changes in tax laws or tax rates can affect the amount of taxes payable for the current period, as well as the amount and timing of deferred tax liabilities and deferred tax assets. Based on the assessment the Company posted a one-time tax benefit in the amount of $1,500,000 in the second fiscal quarter of 2018, the result of estimating future deferred liabilities at the lower tax rates under the newly enacted tax laws.

Net Income

Net income increased by $3.15 million or 54.4%, to $8.93 million in FY18 from $5.79 million in FY17. Of note, this increase includes a one-time deferred tax benefit of $1.5 million as discuss above in the note on Provision for Income Taxes, and a full year’s net income for DILIsym Services, Inc.

SEASONALITY

Our sales exhibit some seasonal fluctuations, with the fourth fiscal quarter (June-August) generally having the lowest sales due to summer vacations and reduced activities at our customers’ sites. In 2017, revenues in the fourth quarter revenues were higher increasedprimarily due to the acquisitionincrease in revenue.

Services Business

For the year ended August 31, 2021, the revenue decrease of DILIsym along with increased revenues at our Buffalo Division. Our subsidiaries DILIsym and Cognigen Corporations$1.2 million, or 6%, compared to the year ended August 31, 2020, was primarily due to a decrease from other services revenue mix isof $1.4 million, a higher blenddecrease from QSP/QST revenue of consulting revenues, as such the seasonality$1.0 million, partially offset by an increase from PKPD revenue of total revenues has tended to flatten in the last couple years. This unaudited quarterly sales information has been prepared on$1.1 million. Cost of revenue decreased by $0.4 million, or 5%. Gross profit decreased by $0.8 million, or 7%, for the same basis as the annual information presented elsewhere in this Annual Report on Form 10-K and, in the opinion of management, reflects all adjustments (consisting of normal recurring entries) necessary for a fair presentation of the information presented. Net sales for any quarter are not necessarily indicative of sales for any future period; however, because our pharmaceutical software is licensed on an annual basis, renewals are usually within the same quarter year after year. (Numbers may not foot because of rounding.)

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periods.

Net Sales (in thousands of dollars)
FY		First Quarter				Second Quarter				Third Quarter				Fourth Quarter				Total
2019		$	7,536				8,472				9,937				8,026			$	33,971
2018		$	7,069				7,357				8,553				6,688			$	29,667
2017		$	5,418				5,706				6,748				6,265			$	24,138
2016		$	4,839				5,164				6,011				3,958			$	19,972
2015		$	4,086				4,574				5,942				3,712			$	18,314
2014		$	2,641				3,081				3,741				1,998			$	11,461
2013		$	2,290				3,118				3,095				1,568			$	10,071
2012		$	2,248				2,789				2,772				1,640			$	9,449
2011		$	2,050				2,622				2,640				1,427			$	8,739
2010		$	1,735				2,227				2,325				1,334			$	7,621

LIQUIDITY AND CAPITAL RESOURCES

As of August 31, 2022, the Company had $51.6 million in cash and cash equivalents, $76.7 million in short-term investments and working capital of $139.1 million. Our principal sourcesources of capital hashave been cash flowflows from our operations. We have achieved continuous positive operating cash flow over the last twelvethirteen fiscal years.

On March 31, 2020, the Company entered into a Credit Agreement with Wells Fargo Bank, N.A. The Credit Agreement provided us with a credit facility of $3.5 million through April 15, 2022 (the "Termination Date"), on which date the Credit Agreement terminated in accordance with its terms. As a result, we can no longer draw down against the line of credit. We chose not to renew or pursue an alternative credit facility as we do not foresee a need to utilize such credit facility within the next twelve months. As of the Termination Date, there were no amounts drawn against the line of credit.

On March 31, 2020, we entered into a Share Purchase and Contribution Agreement (the “SPCA”) with Lixoft. Under the terms of the SPCA, we agreed to pay the former shareholders of Lixoft total consideration of up to $16.5 million, consisting of two-thirds cash and one-third newly issued, unregistered shares of our common stock. At closing, we paid the former shareholders of Lixoft a total of $10.8 million, comprised of cash in the amount of $9.5 million and the issuance of 111,682 shares of our common stock valued at $3.7 million, net of adjustments and a $2.0 million holdback for representations and warranties. In addition, we paid $3.5 million of excess working capital based on the March 31, 2020, financial statements of Lixoft. In addition, the SPCA called for earnout payments of up to an additional $5.5 million, payable in two-thirds cash and one-third newly issued, unregistered shares of our common stock, based on a revenue-growth formula each year for the two years subsequent to April 1, 2020. The former shareholders could earn up to $2.0 million the first year and $3.5 million in year two. In June 2021, $2.0 million was paid out under the first earnout payment, which was comprised of $1.3 million of cash and shares of our common stock valued at $0.7 million. In April 2022, we released from escrow and distributed the $2.0 million holdback consideration, consisting of $1.3 million in cash and shares of our common stock valued at $0.7 million (amounting to an aggregate of 20,326 unregistered shares of our common stock), to the former shareholders of Lixoft. In May 2022, $3.5 million was paid out under the second earnout payment, which was comprised of $2.3 million of cash and shares of our common stock valued at $1.2 million (amounting to an aggregate of 23,825 unregistered shares of our common stock), to the former shareholders of Lixoft in accordance with the SPCA.

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We believe that our existing capital and anticipated funds from operations will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for the foreseeable future. Thereafter, if cash generated from operations is insufficient to satisfy our capital requirements, we may open a revolving line of credit with a bank, or we may have to sell additional equity or debt securities or obtain a new credit facilities.facility. In the event such financing is needed in the future, there can be no assurance that such financing will be available to us, or, if available, that it will be in amounts and on terms acceptable to us. If cash flows from operations became insufficient to continue operations at the current level, and if no additional financing was obtained, then management would restructure the Company in a way to preserve its pharmaceutical business while maintaining expenses within operating cash flows.

We are not aware of any trends or demands, commitments, events or uncertainties that are reasonably likely to result in a decrease in liquidity of our assets. The trend over the last ten years has been increasing cash deposits from our operating cash flows, and we expect that trend to continue for the foreseeable future.

On May 1, 2017 we signed a stock acquisition agreement with DILIsym Services, Inc. of Research Triangle Circle, North Carolina, and on June 1, 2017 consummated the acquisition of all the outstanding capital stock of DILIsym Services, Inc. pursuant to a Stock Purchase Agreement. DILIsym became a wholly-owned subsidiary of Simulations Plus. Under the terms of the Agreement, the Company: (1) paid to the DILIsym Shareholders Five Million Dollars, $4,515,982 payable at the closing of the Acquisition subject to certain adjustments and holdbacks and will pay to the DILIsym Shareholders certain earn-out payments, to be measured by the earnings of DILIsym before income taxes, payable following the Closing, as more particularly described in the Agreement and as more fully described in Note 13.

We will continue to seek opportunities for strategic acquisitions. If one or more such acquisitions is identified, a substantial portion of our cash reserves may be required to complete it; however, we intend to maintain sufficient cash reserves after any acquisition to provide reasonable assurance that outside financing will not be necessary to continue operations. If we identify an attractive acquisition that would require more cash to complete than we are willing or able to use from our cash reserves, we will consider financing options to complete the acquisition, including obtaining loans and issuing additional securities.

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Quarterly

Except as discussed elsewhere in this Report, we are not aware of any trends or demands, commitments, events, or uncertainties that are reasonably likely to result in a decrease in liquidity of our assets. The trend over the last ten years has been increasing cash deposits from our operating cash flows, and we expect that trend to continue for the foreseeable future.

Cash Flows

Operating Activities

Net cash provided by operating activities was $17.9 million for the year ended August 31, 2022. Our operating cash flows resulted primarily from our net income of $12.5 million, which was generated by cash received from our customers, offset by cash payments we made to third parties for their services and employee compensation. In addition, $2.6 million related to changes in balances of operating assets and liabilities was subtracted from net income and $8.0 million related to non-cash charges was added to net income to reconcile to cash flow from operations.

Net cash provided by operating activities was $19.2 million for the year ended August 31, 2021. Our operating cash flows resulted primarily from our net income of $9.8 million, which was generated by cash received from our customers, offset by cash payments we made to third parties for their services and employee compensation. In addition, $1.0 million related to changes in balances of operating assets and liabilities was added to net income and $8.4 million related to non-cash charges was added to net income to reconcile to cash flow from operations.

Investing Activities

Net cash provided by investing activities during the year ended August 31, 2022, was $4.3 million, primarily due to the proceeds from the sale of short-term investments of $109.1 million, offset by the purchase of short-term investments of $100.8 million and computer software development costs of $3.2 million.

Net cash used for investing activities during the year ended August 31, 2021, was $26.7 million, primarily due to the purchase of short-term investments of $122.4 million and computer software development costs of $2.9 million, offset by proceeds from the sale of short-term investments totaling $100.2 million.

Financing Activities

Net cash used in financing activities during the year ended August 31, 2022, was $7.6 million, primarily due to dividend payments madetotaling $4.8 million and a $3.7 million earnout payment to the former shareholders of Lixoft, partially offset by proceeds from the exercise of stock options totaling $0.9 million.

Net cash used in FY18financing activities during the year ended August 31, 2021, was $4.7 million, primarily due to dividend payments totaling $4.8 million and FY19 are listed ina $1.3 million earnout payment to the following table.

Fiscal Year				Record Date		Distribution Date		# of Shares Outstanding on Record Date				Dividend per Share				Total Amount
	2018			11/13/2017		11/20/2017			17,284,792			$	0.06			$	1,037,088
				1/26/2018		2/2/2018			17,317,752			$	0.06			$	1,039,065
				4/25/2018		5/02/2018			17,354,005			$	0.06			$	1,041,240
				7/26/2018		8/2/2018			17,405,775			$	0.06			$	1,044,347
	2019			11/01/2018		11/08/2018			17,417,875			$	0.06			$	1,045,073
				1/25/2019		2/1/2019			17,481,450			$	0.06			$	1,048,887
				4/24/2019		5/01/2019			17,515,228			$	0.06			$	1,050,914
				7/25/2019		8/1/2019			17,536,454			$	0.06			$	1,052,187

The Boardformer shareholders of directors has indicated its intentionLixoft, partially offset by proceeds from the exercise of stock options totaling $1.5 million.

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DIVIDENDS

Refer to pay $0.06 quarterly dividends; however, there can be no assurances that our BoardNote 8 – Shareholders’ Equity of Directors will continue the dividend distributions as the decision is made on a quarterly basis based on current financial conditions and strategic plans. In November 2019, our BoardNotes to Financial Statements (Part II, Item 8 of Directors declared and paid a dividend distribution of $0.06 per share.

this Report) for details regarding dividends.

KNOWN TRENDS OR UNCERTAINTIES

Although we have not seen any significant reduction in revenues to date, we

We have seen some consolidation in the pharmaceutical industry during economic downturns. Thesedownturns, although these consolidations have not had a negative effect on our total salesrevenues to that industry; however, shouldindustry. Should customer delays, holds, program cancellations, or consolidations and downsizing in the industry continue to occur, those events could adversely impact our revenues and earnings going forward.

We believe that the need for improved productivity in the research and development activities directed toward developing new medicines will continue to result in increasing adoption of simulation and modeling tools such as those we produce. New product developments in theour pharmaceutical business segments could result in increased revenues and earnings if they are accepted by our markets; however, there can be no assurances that new products will result in significant improvements to revenues or earnings. For competitive reasons, we do not disclose all of our new product development activities.

Our continued quest for acquisitions could result in a significant change to revenues and earnings if one or more such acquisitions are completed.

The potential for growth in new markets (e.g., healthcare) is uncertain. We will continue to explore these opportunities until such time as we either generate salesrevenues or determine that resources would be more efficiently used elsewhere.

INFLATION

We have not been affected materially by inflation during the periods presented, and no material effect is expected in the near future.

OFF-BALANCE SHEET ARRANGEMENTS

As of August 31, 2019, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in such relationships.

We do not have relationships or transactions with persons or entities that derive benefits from their non-independent relationship with us or our related parties.

34

CONTRACTUAL OBLIGATIONS

The following table provides aggregate information regarding our contractual obligations as of August 31, 2019 (in thousands).

		Payments due by period
Contractual obligations:		Total				Less than 1 year				1–3 years				3–5 years				More than 5 years
Operating lease obligations		$	942			$	565			$	376			$	–			$	–
Contracts Payable			1,761				1,761				–				–				–
Total		$	2,703			$	2,326			$	376			$	–			$	–

RECENTLY ISSUED OR NEWLY ADOPTED ACCOUNTING STANDARDS

In May 2014,October 2021, the FinancialFASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). The amendment requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with ASC 606, Revenue from Contracts with Customers,( as if the acquirer had originated the contract. The amendment is intended to improve the accounting for acquired revenue contracts with customers in a business combination, related to the recognition of an acquired contract liability, and to payment terms and their effect on subsequent revenue recognized by the acquirer. The amendment also provides certain practical expedients when applying the guidance. ASU 2014-09). The standard will eliminate the transaction- and industry-specific revenue recognition guidance under current generally accepted accounting principles in the U.S. (GAAP) and replace it with a principles-based approach for determining revenue recognition. ASU 2014-092021-08 is effective for annualinterim and interimannual periods beginning after December 15, 2017. Early2022, on a prospective basis, with early adoption is permitted for years beginning after December 15, 2016.permitted. The revenue recognition standard is requiredCompany expects to be applied retrospectively, including any combination of practical expedients as allowedadopt ASU 2021-08 in the standard.first quarter of fiscal year 2024. The standard was adopted concurrently withCompany is currently evaluating the adoptionpotential impact of ASU 2016-102021-08 to its consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), which requires business entities to disclose information about transactions with a government that are accounted for by applying a grant or contribution model by analogy (for example, IFRS guidance in IAS 20 or guidance on contributions for not-for-profit entities in ASC 958-605). For transactions within scope, the new standard requires the disclosure of information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction. The new guidance is effective for annual and interim periods beginning after December 15, 2017.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance on accounting for leases in "Leases (Topic 840)" and generally requires all leases to be recognized in the consolidated balance sheet. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach.2021. The Company is currently evaluating the impact ofdoes not expect that the adoption of this standard will have a material impact on its consolidated financial statements.

In April 2016,statements; however, the FASB issued ASU 2016-10, Revenue from ContractsCompany expects to increase its disclosures with Customers (Topic 606), which amends certain aspectsrespect to government assistance beginning in the first quarter of the Board's new revenue standard, ASU 2014-09, Revenue from Contracts with Customers. The standard was adopted concurrently with the adoption of ASU 2014-09 which is effective for annual and interim periods beginning after December 15, 2017.

SIGNIFICANTfiscal year 2023.

CRITICAL ACCOUNTING POLICIES

AND ESTIMATES

Estimates

Our financial statements and accompanying notes are prepared in accordance with GAAP. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Actual results could differ from those estimates. Significant accounting policies for us include revenue recognition, accounting for capitalized software development costs, valuation of stock options, and accounting for income taxes.

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Revenue Recognition

The Company adopted Topic 606 effective September 1, 2018 using the modified retrospective method applying this guidance to all open contracts at the date of initial application, which resulted in an adjustment to retained earnings for the cumulative effect of applying this guidance. The most significant impact of Topic 606 on revenue to the Company relates to the timing of revenue recognition for one of its payment contracts. Under 606 the revenues under the contract are being recognized as time is expended and costs are being expensed as incurred. Under ASC 605 revenues were recognized as invoiced and certain costs were capitalized as development.

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

The Company determines revenue recognition through the following steps:

i.	Identification of the contract, or contracts, with a customer
ii.	Identification of the performance obligations in the contract

35

i.Identification of the contract, or contracts, with a customer

iii.	Determination of the transaction price
iv.	Allocation of the transaction price to the performance obligations in the contract
v.	Recognition of revenue when, or as, the Company satisfies a performance obligation

ii.Identification of the performance obligations in the contract

iii.Determination of the transaction price

iv.Allocation of the transaction price to the performance obligations in the contract

v.Recognition of revenue when, or as, the Company satisfies a performance obligation

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. Contracts generally have fixed pricing terms and are not subject to variable pricing. The Company considers the nature and significance of each specific performance obligation under a contract when allocating the proceeds under each contract. Accounting for contracts includes significant judgement in the estimation of estimated hours/cost to be incurred on consulting contracts, and thedi minimis nature of the post salespost-sales costs associated with software sales.

Cash and Cash Equivalents

For purposes of the statements of cash flows, we consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

Accounts Receivable

We analyze the age of customer balances, historical bad-debt experience, customer creditworthiness, and changes in customer payment terms when making estimates of the collectability of the Company’s trade accounts receivable balances. If we determine that the financial conditions of any of our customers deteriorated, whether due to customer-specific or general economic issues, an increase in the allowance may be made. Accounts receivable are written off when all collection attempts have failed.

Capitalized Computer Software Development Costs

Software development costs are capitalized in accordance with FASB ASC 985-20, “Costs of Software to Be Sold, Leased, or Marketed”. Capitalization of software development costs begins upon the establishment of technological feasibility and is discontinued when the product is available for sale.

The establishment of technological feasibility and the ongoing assessment for recoverability of capitalized computer software development costs require considerable judgment by management with respect to certain external factors including, but not limited to, technological feasibility, anticipated future gross revenues, estimated economic life, and changes in software and hardware technologies. Capitalized computer software development costs are comprised primarily of salaries and direct payroll-related costs and the purchase or licensing of existing software to be used in the Company’s software products.

Total capitalized computer software development costs were $3.2 million, $2.9 million, and $2.4 million for the fiscal years ending August 31, 2022, 2021, and 2020, respectively.

Amortization of capitalized computer software development costs is calculated on a product-by-product basis on the straight-line method over the estimated economic life of the products, not to exceed five years. Amortization of software development costs amounted to $1,331,753, $1,300,434$1.2 million, $1.4 million, and $1,096,967$1.2 million for FY19, FY18the fiscal years ending August 31, 2022, 2021, and FY17,2020, respectively. We expect future amortization expense to vary due to increases in capitalized computer software development costs.

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

Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over the estimated useful lives as follows:

Equipment		5 years
Computer equipment		3 to 7 years
Furniture and fixtures		5 to 7 years
Leasehold improvements		Shorter of life of asset or lease

36

Maintenance and minor replacements are charged to expense as incurred. Gains and losses on disposals are included in the results of operations.

Intangible Assets and Goodwill

The Company performs valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and recognizes the assets acquired and liabilities assumed at their acquisition date fair value. Acquired intangible assets include customer relationships, software, trade name, and non-competenoncompete agreements. The Company determines the appropriate useful life by performing an analysis of expected cash flows based on historical experience of the acquired businesses. Intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the pattern in which the majority of the economic benefits are expected to be consumed.

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Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets. Goodwill is not amortized, instead it is tested for impairment annually or when events or circumstances change that would indicate that goodwill might be impaired. Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of the Company's use of the acquired assets or the strategy for the Company's overall business, significant negative industry or economic trends, or significant under-performance relative to expected historical or projected future results of operations.

Goodwill is tested for impairment at the reporting unit level, which is one level below or the same as an operating segment. As of August 31, 2019,2022, the Company determined that it has threehad four reporting units, Simulations Plus, Cognigen, CorporationDILIsym, and DILIsym Services, Inc. When testing goodwill for impairment, the Company first performs a qualitative assessment to determine whether it is necessary to perform step one of a two-step annual goodwill impairment test for each reporting unit. The Company is required to perform step one only if it concludes that it is more likely than not that a reporting unit's fair value is less than its carrying value. Should this be the case, the first step of the two-step process is to identify whether a potential impairment exists by comparing the estimated fair values of the Company's reporting units with their respective book values, including goodwill. If the estimated fair value of the reporting unit exceeds book value, goodwill is considered not to be impaired, and no additional steps are necessary. If, however, the fair value of the reporting unit is less than book value, then the second step is performed to determine if goodwill is impaired and to measure the amount of impairment loss, if any. The amount of the impairment loss is the excess of the carrying amount of the goodwill over its implied fair value. The estimate of implied fair value of goodwill is primarily based on an estimate of the discounted cash flows expected to result from that reporting unit, but may require valuations of certain internally generated and unrecognized intangible assets such as the Company's software, technology, patents and trademarks. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.

Lixoft.

As of August 31, 2019,2022, the entire balance of goodwill was attributed to twothree of the Company's reporting units, Cognigen, DILIsym, and DILIsym.Lixoft. Intangible assets subject to amortization are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. There were no changes to goodwill, nor has theThe Company recognizeddid not recognize any impairment charges during FY19, FY18 and FY17.

Reconciliation of Goodwill for FY19, FY18 and FY17:

Cognigen

DILIsym

Total

Balance, August 31, 2016

4,789,248

–

4,789,248

Addition

–

5,597,950

5,597,950

Impairments

–

–

–

Balance, August 31, 2017

4,789,248

5,597,950

10,387,198

Addition

–

–

–

Impairments

–

–

–

Balance, August 31, 2018

4,789,248

5,597,950

10,387,198

Addition

–

–

–

Impairments

–

–

–

Balance, August 31, 2019

$

4,789,248

$

5,597,950

$

10,387,198

37

Other Intangible Assets

The following table summarizes other intangible assets as ofthe periods ended August 31, 2019: 

		Amortization Period		Acquisition Value				Accumulated Amortization				Net book value
Customer relationships-Cognigen		Straight line 8 years		$	1,100,000			$	687,500			$	412,500
Trade Name-Cognigen		None			500,000				0				500,000
Covenants not to compete-Cognigen		Straight line 5 years			50,000				50,000				0
Covenants not to compete-DILIsym		Straight line 4 years			80,000				45,000				35,000
Trade Name-DILIsym		None			860,000				0				860,000
Customer relationships-DILIsym		Straight line 8 years			1,900,000				427,500				1,472,500
				$	4,490,000			$	1,210,000			$	3,280,000

Amortization expense for FY19, FY18, and FY17 was $357,500, $357,500, and $200,000, respectively.

2022, 2021, or 2020.

Business Acquisitions

The Company accounted for the acquisition of Cognigen, DILIsym, and DILIsym Services Inc.Lixoft using the purchaseacquisition method of accounting where the assets acquired and liabilities assumed are recognized based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of certain acquired assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions, including, but not limited to, the selection of appropriate valuation methodology, projected revenue, expenses, and cash flows, weighted average cost of capital, discount rates, estimates of advertiser and publisher turnover rates and estimates of terminal values. Business acquisitions are included in the Company's consolidated financial statements as of the date of the acquisition.

Fair Value of Financial Instruments

Assets and liabilities recorded at fair value in the Condensed Balance Sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The categories, as defined by the standard are as follows:

Level Input:		Input Definition:
Level I		Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level II		Inputs, other than quoted prices included in Level I, that are observable for the asset or liability through corroboration with market data at the measurement date.
Level III		Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

For certain of our financial instruments, including accounts receivable, accounts payable, contract payable, accrued payroll and other expenses, and accrued bonus to officer, the amounts approximate fair value due to their short maturities.

Research and Development Costs

Research and development costs are charged to expense as incurred until technological feasibility has been established.established, or when the costs are for maintenance and minor modification of existing software products that do not add significantnew capabilities to the products. These costs include salaries, laboratory experiment, and purchased software that was developed by other companies and incorporated into, or used in the development of, our final products.

Income Taxes

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

Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

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Stock-Based Compensation

The Company accounts for stock options using the modified prospective method in accordance with FASB ASC 718-10,“Compensation-Stock Compensation”. Under this method, compensation costs include the estimated grant dategrant-date fair value of the awards amortized over the options’ vesting period. Stock-based compensation expense, not including shares issued to Directors for services, was $865,848, $562,079$2.7 million, $2.4 million and $585,018$1.3 million for the fiscal years ended August 31, 2019, 20182022, 2021, and 2017,2020, respectively, and is included in the statements of operations as Consulting, Salaries, and Research and Development expense.

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ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of August 31, 2019,2022, and August 31, 2018,2021, we had cash and cash equivalents of $11.44$51.6 million and $9.40$37.0 million, respectively. We do not hold anyheld-to-maturity short-term investments that are exposed to market risk related to changes in interest rates, which could adversely affect the value of our assets and liabilities, and weliabilities. We do not hold any instruments for trading purposes and investment.and/or available-for-sale securities. Some of our cash and cash equivalents are held in money market accounts; however, they are not exposed to market ratemarket-rate risk.

In the years ended August 31, 2019, 2018,2022, 2021, and 20172020, we sold $4.15$6.7 million, $3.57$4.8 million, and $2.75$5.0 million, respectively, of software licenses through representatives in certain Asian markets in local currencies. As a result, our financial position, results of operations, and cash flows can be affected by fluctuations in foreign currency exchange rates, particularly fluctuations in the yenYen and RMB exchange rates. These transactions give rise to receivables that are denominated in currencies other than the entity’s functional currency. The value of these receivables is subject to changes because the receivables may become worth more or less due to changes in currency exchange rates. The majority of our software license agreements are denominated in U.S. dollars. We record foreign gains and losses as they are realized. We mitigate our risk from foreign currency fluctuations by adjusting prices in our foreign markets on a periodic basis. We base these changes on market conditions while working closely with our representatives. Our Paris, France, division sells mainly in U.S. dollars and Euros and uses the Euro as a functional currency. As such, we are subject to currency translation and exchange rate changes. We do not hedge currencies or enter into derivative contracts.

ITEM 8 -– FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the financial statements included elsewhere in this reportReport beginning at page F-1, which are incorporated herein by reference.

ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.9A – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and our Chief Financial Officer, after evaluating our “disclosure controls and procedures” (as defined in Securitiesthe Exchange Act of 1934 (the “Exchange Act”) Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this Annual Report on Form 10-K (the “Evaluation Date”), have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, where appropriate, to allow timely decisions regarding required disclosure.

Management Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. GAAP. Management assessed our internal control over financial reporting as of August 31, 2019,2022, the end of our fiscal year. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.

39

Based on this assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with U.S. GAAP. We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors.

Our independent registered public accounting firm, Rose Snyder and Jacobs LLP, independently assessed the effectiveness

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Table of the Company’s internal control over financial reporting, as stated in the firm’s attestation report, which is included within Part II, Item 8 of this Form 10-K.

Contents

Inherent Limitations on Effectiveness of Controls

Our management, including the CEOour Chief Executive Officer and CFO,Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Control over Financial Reporting

No change in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B -– OTHER INFORMATION

None.

40

None.

ITEM 9C – DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

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PART III

ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Information required by Item 10 is incorporated herein by reference from the sections entitled “Board Matters and Corporate Governance,” “Election of Directors,” “Executive Compensation and Other Information,” and “Security Ownership of Certain Beneficial Owners and Management” in ourCompany’s definitive proxy statement, on Schedule 14A to be distributed in connectionfiled with our 2017 Annual Shareholders’ Meeting (the “Proxy Statement”).

Therethe Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Report.

We have been no material changes toadopted the procedures by which security holders may recommend nominees to our board of directors since we last described such procedures.

The Company has a Corporate Code of Business Conduct and Ethics which(the "code of ethics") that applies to each of our directors and employees, including our principal executive officer, principal financial officer, controller, and all other employees performing similar functions. The code of ethics is postedpublicly available on our website: www.simulations-plus.com.

website at https://www.simulations-plus.com/wp-content/uploads/Code-of-Ethics-11-12-2020.pdf. If we make any substantive amendments to the code of ethics or grant any waiver, including any implicit waiver, from a provision of the code of ethics, we will disclose the nature of the amendment or waiver on that website or in a Current Report on Form 8-K.

ITEM 11 – EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated herein by reference from the sections entitled “Executive CompensationCompany’s definitive proxy statement, to be filed with the Securities and Other Information” and “Board Matters and Corporate Governance” inExchange Commission within 120 days after the Proxy Statement.

end of the fiscal year covered by this Annual Report.

ITEM 12 -– SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item pursuant to Item 201(d) of Regulation S-K is set forth under the caption “Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities” in Part II, Item 5 of this Report, and is incorporated herein by reference.

The information required by this Item 12 pursuant to Item 403 of Regulation S-K is incorporated herein by reference from the sections entitled “Security OwnershipCompany’s definitive proxy statement, to be filed with the Securities and Exchange Commission within 120 days after the end of Certain Beneficial Owners and Management” and “Executive Compensation and Other Information” in the Proxy Statement.

fiscal year covered by this Report.

ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item 13 is incorporated herein by reference from the subsection entitled “Certain RelationshipsCompany's definitive proxy statement to be filed with the Securities and Related Transactions; Transactions with Related Persons”Exchange Commission within 120 days after the end of the fiscal year covered by this Report and the section entitled “Board Matters and Corporate Governance” in the Proxy Statement.

is incorporated herein by reference.

ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES

Our independent registered public accounting firm is Rose, Snyder & Jacobs LLP, Encino, CA, Auditor Firm ID: 468.

The information required by Item 14 is incorporated by reference from the sectionCompany’s definitive proxy statement, to be filed with the Securities and Exchange Commission within 120 days after the end of the proposal entitled “Ratificationfiscal year covered by this Report.

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Table of Selection of Independent Registered Public Accounting Firm” in the Proxy Statement.

41

Contents

PART IV

ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)

(1)Financial Statements. The consolidated financial statements are included in this Annual Report on Form 10-K beginning on page F-1.

(2)Financial Statement Schedules. All financial statement schedules have been omitted since the information is either not applicable or required or was included in the financial statements or notes included in this Annual Report on Form 10-K.

(3)List of Exhibits required by Item 601 of Regulation S-K. See part (b) below.

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(b)Exhibits. The following exhibits are filed or furnished with this report. Those exhibits marked with a (†) refer to management contracts or compensatory plans or arrangements.

EXHIBIT NUMBER		DESCRIPTION
EXHIBIT NUMBER						DESCRIPTION
2.1 (4)^						Agreement and Plan of Merger, dated July 23, 2014, by and among the Company, Cognigen Corporation and the other parties thereto.
2.2 (12)^						Share Purchase and Contribution Agreement, dated March 31, 2020.
3.1 (2)						Articles of Incorporation of the Company.
3.2 (2)						Amended and Restated Bylaws of the Company.
3.3 (15)						Certificate of Amendment to the Amended and Restated Bylaws of Simulations Plus, Inc.
4.1 (1)						Form of Common Stock Certificate.
4.2 (1)						Share Exchange Agreement.
10.1 (1) (†)4.3(13)						The Company’s 1996 Stock Option Plan Revolving Line of Credit Note, dated as of March 31, 2020, by and forms of agreements relating thereto.between the Company, as borrower, and Wells Fargo Bank, National Association, as lender.
10.24.4(13)						Credit Agreement, dated as of March 31, 2020, by and between the Company, as borrower, and Wells Fargo Bank, National Association, as lender.
10.1 (3)(†)						The Company’s 2007 Stock Option Plan, as amended.
10.310.2 (10)						Second Amendment to Lease by and between the Company and Crest Development LLC, dated as of May 1, 2016.
10.410.3 (5) (†)						Employment Agreement by and between the Company and Walter S. Woltosz, dated as of August 8, 2016.
10.5 (6)		Form of Indemnification Agreement.
10.6 (8)10.4 (7)						2017 Equity Incentive Plan.
10.7 (7)10.5 (6)						Stock Purchase Agreement by and among Simulation Plus, Inc., DILIsym Services, Inc., The Shareholders’ Representative and The Shareholders of DILIsym Services, Inc., dated as of May 1, 2017.
10.8 (9)10.6 (11)(†)						Employment Agreement by and between the Company and Walter S. Woltosz,Shawn O’Connor dated September 3, 2020.
10.7 (14)(†)						Employment Agreement by and between the Company and Will Frederick, dated December 1, 2020.
10.8 (15)(†)						Separation Agreement, dated December 1, 2020, by and between the Company and John Kneisel.
10.9 (13)						Third Amendment to Lease by and between the Company and Crest Development LLC, dated as of September 1, 2017.December 28, 2020.
10.9 (9) 10.10 (16)(†)						Simulation Plus, Inc. 2021 Equity Incentive Plan.
10.11 (17)(†)						First Amendment to Employment Agreement, by and between Simulations Plus, Inc. and Shawn O’Connor, dated November 19, 2021.
10.12(†)*						Employment Agreement by and between the Company and John DiBella, dated as of SeptemberJanuary 1, 2017.2022.
10.10 (9) (†10.13(†)*						Employment Agreement by and between the Company and Thaddeus H Grasela Jr.,Brett Howell, dated as of September 2, 2017.January 1, 2022.
10.11 (11) (†10.14(†)*						Employment Agreement by and between the Company and Shawn O’ConnorJill Fiedler-Kelly, dated June 26, 2018January 1, 2022.
21.1 *						List of Subsidiaries.
23.1 *						Consent of Independent Registered Public Accounting Firm.
31.1 *						Section 302 – Certification of the Principal Executive Officer.
31.2 *						Section 302 – Certification of the Principal Financial Officer.
32.1 *						Section 906 – Certification of the Chief Executive Office and Chief Financial Officer.
101.INS **101.INS**						Inline XBRL Instance Document.Document
101.SCH **101.SCH**						Inline XBRL Taxonomy Extension Schema Document.Document
101.CAL **101.CAL**						Inline XBRL Taxonomy Extension Calculation Linkbase Document.Document
101.DEF **101.DEF**						Inline XBRL Taxonomy Extension Definition Linkbase Document.Document
101.LAB **101.LAB**						Inline XBRL Taxonomy Extension Label Linkbase Document.Document
101.PRE **101.PRE**						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

42

Document

_____________________________

 __________________________

47

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^
^						Schedules and exhibits omitted pursuant to Item 601(b)(2) of Registration S-K. The registrant agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request.
*						Filed herewith.
**						The XBRL related information in Exhibit 101 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
(1)(†)						Refers to management contracts or compensatory plans or arrangements
(1)						Incorporated by reference to the Company’s Registration Statement on Form SB-2 (Registration No. 333-6680) filed on March 25, 1997.
(2)						Incorporated by reference to an exhibit to the Company’s Form 10-K for the fiscal year ended August 31, 2010.
(3)						Incorporated by reference to an exhibit to the Company’s Form 10-Q filed April 9, 2014.
(4)						Incorporated by reference to an exhibit to the Company’s Form 8-K/A filed November 18, 2014.
(5)			Incorporated by reference to an exhibit to the Company’s Form 8-K filed August 11, 2016.
(6)	Incorporated by reference to an exhibit to the Company’s Form 8-K filed August 10, 2016.
(7)(6)						Incorporated by reference to an exhibit to the Company’s Form 10-Q filed July 10, 2017.
(8)(7)						Incorporated by reference to Appendix A to the Company’s Schedule 14A filed December 29. 2016.
(9)(8)			Incorporated by reference to an exhibit to the Company’s Form 8-K filed September 6, 2017.
(10)	Incorporated by reference to an exhibit to the Company’s Form 10-K for the fiscal year ended August 31, 2016.
(11)(9)						Incorporated by reference to an exhibit to the Company’s Form 8-K filed April 2, 2020.
(10)						Incorporated by reference to an exhibit to the Company’s Form 8-K filed April 3, 2020.
(11)						Incorporated by reference to an exhibit to the Company’s Form 8-K filed September 9, 2020.
(12)						Incorporated by reference to Appendix A to the Company’s Definitive Schedule 14A filed December 31, 2018.
(13)						Incorporated by reference to an exhibit to the Company’s Form 8-K filed January 4, 2021.
(14)						Incorporated by reference to an exhibit to the Company’s Form 10-Q filed July 10, 2018.January 11, 2021.
(15)						Incorporated by reference to an exhibit to the Company’s Form 10-Q filed April 14, 2021.
(16)						Incorporated by reference to an exhibit to the Company’s Form 8-K filed June 8, 2021.
(17)						Incorporated by reference to an exhibit to the Company’s Form 8-K filed November 19, 2021.

(c)Financial Statement Schedule.

See Item 15(a)(2) above.

43

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

November 13, 2019

October 28, 2022

			SIMULATIONS PLUS, INC.
			By:			/s/ John R. KneiselWill Frederick
						John R. Kneisel Will Fredrick Chief Financial Officer (Principal financial officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Signature

Title

/s/ Shawn O’Connor

Chief Executive Officer (Principal executive officer)

Shawn O’Connor

November 13, 2019October 28, 2022

/s/ Walter S. Woltosz

Chairman of the Board of Directors

Walter S. Woltosz

November 13, 2019October 28, 2022

/s/ Dr. Lisa LaVange

Director

Dr. Lisa LaVange

November 13, 2019October 28, 2022

/s/ Dr. Daniel Weiner

Director

Dr. Daniel Weiner

November 13, 2019October 28, 2022

/s/ Dr. David L. RalphSharlene Evans

Director

Dr. David L. RalphSharlene Evans

November 13, 2019October 28, 2022

/s/ Dr. John K. Paglia

Director

Dr. John K. Paglia

November 13, 2019October 28, 2022

/s/ John R. KneiselWill Frederick

Chief Financial Officer of the Company (Principal financial

John R. Kneisel

officer and principal accounting officer)

November 13, 2019Will Frederick

October 28, 2022

44

49

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SIMULATIONS PLUS, INC. & SUBSIDIARY

SUBSIDIARIES

CONTENTS

August 31, 2019, 20182022, 2021 and 2017

2020

	Page
			Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			F-2 F-2 - F-3F-4
FINANCIAL STATEMENTS
Consolidated Balance Sheets			F-4 F-5
Consolidated Statements of Operations and Comprehensive Income			F-5 F-6
Consolidated Statements of Shareholders’ Equity			F-6 F-7
Consolidated Statements of Cash Flows			F-7 F-8
Notes to Consolidated Financial Statements			F-8 F-9 – F-27

F-1

F-31

F-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Simulations Plus, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Simulations Plus, Inc. and subsidiariesSubsidiaries (the Company) as of August 31, 20192022, and 2018,2021, and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended August 31, 2019,2022, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of August 31, 20192022, and 2018,2021, and the consolidated results of its operations and its cash flows for each of the years in the three-year period ended August 31, 2019,2022, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of August 31, 2019,2022, based on criteria established inInternal Control—Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated November 13, 2019,October 28, 2022, expressed an unqualified opinion thereon.

opinion.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Rose, Snyder & Jacobs LLP

Rose, Snyder & Jacobs LLP

We have served

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition – Contract cost estimates

Description of the Matter

As discussed in Note 2 to the Consolidated Financial Statements, the Company earns a portion of its revenue through consulting service agreements. For performance obligations related to services that are required to be recognized over time, the Company generally measures its progress to completion using an input measure of total labor costs incurred divided by total labor costs expected to be incurred.

Auditing revenue recognition is complex and highly judgmental due to the variability and uncertainty associated with the Company’s auditor since 2004.

Encino, California

November 13, 2019

assessment of measure of progress. Changes in these estimates would have a significant effect on the amount of revenue recognized.

F-2

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How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls that address the risk of material misstatement of consulting services revenue including those associated with cost to complete estimates. We tested controls over management’s process to collect, review, and approve the data used in assessing revenue recognized over time.

To test the measures of progress used for performance obligations related to services that are required to be recognized over time, our audit procedures included, among others, evaluating the appropriateness of the Company’s accounting policy for each type of arrangement, testing the identified measure of performance by reading contracts with customers, including all amendments, and reviewing the contract analyses prepared by management. We evaluated whether the selected measures of progress towards satisfaction of performance obligations were applied consistently. We also tested the completeness and accuracy of the underlying data used for the measure of progress by testing the underlying cost data.

	F-2
Rose, Snyder & Jacobs LLP
We have served as the Company’s auditor since 2004.
Encino, California
October 28, 2022

F-3

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Simulations Plus, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Simulations Plus, Inc. and subsidiariesSubsidiaries (the Company’s) internal control over financial reporting as of August 31, 2019,2022, based on criteria established inInternal Control—Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2019,2022, based on criteria established inInternal Control—Integrated Framework (2013)issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Simulations Plus, Inc. and subsidiariessheet as of August 31, 2019 and 20182022, and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended August 31,201931, 2022, and related notes, and our report dated November 13, 2019October 28, 2022, expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Rose, Snyder & Jacobs LLP

Rose, Snyder & Jacobs LLP

Encino, California

November 13, 2019

	F-3
Rose, Snyder & Jacobs LLP
Encino, CA
October 28, 2022

F-4

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SIMULATIONS PLUS, INC.

CONSOLIDATED BALANCE SHEETS

As of August 31

---

		August 31,				August 31,
		2019				2018
ASSETS
Current assets
Cash and cash equivalents		$	11,435,499			$	9,400,701
Accounts receivable, net of allowance for doubtful accounts of $0			5,026,558				5,514,528
Revenues in excess of billings			3,233,659				1,985,596
Prepaid income taxes			765,110				312,593
Prepaid expenses and other current assets			704,316				610,439
Total current assets			21,165,142				17,823,857
Long-term assets
Capitalized computer software development costs, net of accumulated amortization of $12,356,055 and $11,095,903			4,959,736				5,152,594
Property and equipment, net (note 4)			341,145				335,224
Intellectual property, net of accumulated amortization of $3,948,750 and $3,019,584			5,026,249				5,905,416
Other intangible assets net of accumulated amortization of $1,210,000 and $852,500			3,280,000				3,637,500
Goodwill			10,387,198				10,387,198
Other assets			37,227				37,227
Total assets		$	45,196,697			$	43,279,016
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable		$	204,075			$	351,605
Accrued payroll and other expenses			1,639,038				1,152,176
Current portion - Contracts payable (note 5)			1,761,028				2,556,644
Billings in excess of revenues			798,549				384,603
Deferred revenue			380,787				381,928
Total current liabilities			4,783,477				4,826,956
Long-term liabilities
Deferred income taxes,net			2,731,616				3,195,139
Payments due under Contracts payable (note 5)			–				3,334,296
Total liabilities			7,515,093				11,356,391
Commitments and contingencies(note 6)
Shareholders' equity(note 7)
Preferred stock, $0.001 par value 10,000,000 shares authorized no shares issued and outstanding		$	–			$	–
Common stock, $0.001 par value 50,000,000 shares authorized 17,591,834 and 17,416,445 shares issued and outstanding			7,595				7,417
Additional paid-in capital			15,319,474				13,453,668
Retained earnings			22,354,535				18,461,540
Total shareholders' equity			37,681,604				31,922,625
Total liabilities and shareholders' equity		$	45,196,697			$	43,279,016

						August 31,
(in thousands, except share and per share amounts)						2022						2021
ASSETS
Current assets
Cash and cash equivalents						$	51,567					$	36,984
Accounts receivable, net of allowance for doubtful accounts of $12 and $78						13,787						9,851
Prepaid income taxes						1,391						1,012
Prepaid expenses and other current assets						3,377						4,846
Short-term investments						76,668						86,620
Total current assets						146,790						139,313
Long-term assets
Capitalized computer software development costs, net of accumulated amortization of $15,672 and $14,438						9,563						7,646
Property and equipment, net						632						1,838
Operating lease right-of-use assets						1,420						1,276
Intellectual property, net of accumulated amortization of $7,928 and $6,516						9,057						10,469
Other intangible assets, net of accumulated amortization of $2,662 and $2,186						7,560						6,464
Goodwill						12,921						12,921
Other assets						439						51
Total assets						$	188,382					$	179,978
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable						$	225					$	387
Accrued compensation						3,254						3,185
Accrued expenses						931						2,419
Contracts payable						—						4,550
Operating lease liability - current portion						461						382
Deferred revenue						2,864						651
Total current liabilities						7,735						11,574
Long-term liabilities
Deferred income taxes, net						1,456						1,726
Operating lease liability						943						896
Total liabilities						10,134						14,196
Commitments and contingencies						—						—
Shareholders' equity
Preferred stock, $0.001 par value 10,000,000 shares authorized, no shares issued and outstanding						$	—					$	—
Common stock, $0.001 par value and additional paid-in capital —50,000,000 shares authorized; 20,260,070 and 20,141,521 shares issued and outstanding						138,512						133,418
Retained earnings						40,044						32,407
Accumulated other comprehensive loss						(308)						(43)
Total shareholders' equity						178,248						165,782
Total liabilities and shareholders' equity						$	188,382					$	179,978

The accompanying notes are an integral part of these consolidated financial statements.

F-4

F-5

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SIMULATIONS PLUS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended August 31,

---

		2019				2018				2017
Revenues		$	33,970,440			$	29,666,524			$	24,137,913
Cost of revenues			9,025,704				7,994,228				6,307,800
Gross margin			24,944,736				21,672,296				17,830,113
Operating expenses
Selling, general, and administrative			11,796,027				9,583,852				8,198,184
Research and development			2,499,980				1,790,656				1,367,645
Total operating expenses			14,296,007				11,374,508				9,565,829
Income from operations			10,648,729				10,297,788				8,264,284
Other income (expense)
Interest income			33,522				27,122				15,857
Interest expense			(109,078	)			(153,034	)			(38,188	)
(Loss) income on currency exchange			(16,697	)			(32,934	)			(1,686	)
Total other income (expense)			(92,253	)			(158,846	)			(24,017	)
Income before provision for income taxes			10,556,476				10,138,942				8,240,267
Provision for income taxes			(1,973,147	)			(1,204,130	)			(2,452,670	)
Net Income		$	8,583,329			$	8,934,812			$	5,787,597
Earnings per share
Basic		$	0.49			$	0.52			$	0.34
Diluted		$	0.48			$	0.50			$	0.33
Weighted-average common shares outstanding
Basic			17,492,258				17,328,707				17,239,490
Diluted			18,057,431				17,860,392				17,515,917

AND COMPREHENSIVE INCOME

						Years Ended August 31,
(in thousands, except per common share amounts)						2022						2021						2020
Revenues
Software						$	32,642					$	27,670					$	21,587
Services						21,264						18,796						20,002
Total revenues						53,906						46,466						41,589
Cost of revenues
Software						3,060						3,235						2,883
Services						7,762						7,365						7,766
Total cost of revenues						10,822						10,600						10,649
Gross profit						43,084						35,866						30,940
Operating expenses
Research and development						3,208						4,047						2,975
Selling, general, and administrative						24,965						20,566						16,360
Total operating expenses						28,173						24,613						19,335
Income from operations						14,911						11,253						11,605
Other income (expense), net						204						(168)						(218)
Income before income taxes						15,115						11,085						11,387
Provision for income taxes						(2,632)						(1,303)						(2,055)
Net Income						$	12,483					$	9,782					$	9,332
Earnings per share
Basic						$	0.62					$	0.49					$	0.52
Diluted						$	0.60					$	0.47					$	0.50
Weighted-average common shares outstanding
Basic						20,196						20,045						17,819
Diluted						20,749						20,743						18,538
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustments						(265)						(101)						58
Comprehensive income						$	12,218					$	9,681					$	9,390

The accompanying notes are an integral part of these consolidated financial statements.

F-5

F-6

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SIMULATIONS PLUS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended August 31, 2019, 2018 and 2017

---

										Additional
		Common Stock								Paid-In				Retained
		Shares				Amount				Capital				Earnings				Total
Balance, August 31, 2016			17,225,478			$	7,227			$	11,376,007			$	11,349,360			$	22,732,594
Exercise of stock options			49,642				49				111,355								111,404
Stock-based Compensation											585,018								585,018
Shares issued to Directors for services			2,484				2				36,761								36,763
Declaration of Dividend															(3,448,489	)			(3,448,489	)
Net income															5,787,597				5,787,597
Balance, August 31, 2017			17,277,604			$	7,278			$	12,109,141			$	13,688,468			$	25,804,887
Exercise of stock options			130,006				131				635,452				–				635,583
Stock-based Compensation			–				–				562,078				–				562,078
Shares issued to Directors for services			8,835				8				146,997				–				147,005
Declaration of Dividend			–				–				–				(4,161,740	)			(4,161,740	)
Net income			–				–				–				8,934,812				8,934,812
Balance, August 31, 2018			17,416,445			$	7,417			$	13,453,668			$	18,461,540			$	31,922,625
Cumulative Effect of Changes related to adoption of ASC 606			–				–				–				(493,279	)			(493,279	)
Exercise of stock options			166,703				168				787,979				–				788,147
Stock-based Compensation			–								865,848				–				865,848
Shares issued to Directors for services			8,686				10				211,979				–				211,989
Declaration of Dividend			–				2				–				(4,197,055	)			(4,197,055	)
Net income			–				–				–				8,583,329				8,583,329
Balance, August 31, 2019			17,591,834			$	7,595			$	15,319,474			$	22,354,535			$	37,681,604

						Year ended August 31,
(in thousands, except per common share amounts)						2022						2021						2020
Common stock and additional paid in capital
Balance, beginning of period						$	133,418					$	128,541					$	15,327
Exercise of stock options						891						1,461						630
Stock-based compensation						2,686						2,405						1,287
Shares issued to Directors for services						351						345						290
Shares issued - Lixoft						1,166						666						3,260
Common stock issued for cash, net						—						—						107,747
Balance, end of period						138,512						133,418						128,541
Retained earnings
Balance, beginning of period						32,407						27,436						22,354
Declaration of dividends						(4,846)						(4,811)						(4,250)
Net income						12,483						9,782						9,332
Balance, end of period						40,044						32,407						27,436
Accumulated other comprehensive (loss) income
Balance, beginning of period						(43)						58						—
Other comprehensive (loss) income						(265)						(101)						58
Balance, end of period						(308)						(43)						58
Total shareholders’ equity						$	178,248					$	165,782					$	156,035
Cash dividends declared per common share						$	0.24					$	0.24					$	0.24

The accompanying notes are an integral part of these consolidated financial statements.

F-6

F-7

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SIMULATIONS PLUS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended August 31, 2019, 2018 and 2017

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		2019				2018				2017
Cash flows from operating activities
Net income		$	8,583,329			$	8,934,812			$	5,787,597
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization			2,750,245				2,721,304				2,135,078
Change in value of contingent consideration			109,060				152,752				38,188
Stock-based compensation			1,077,837				709,083				621,781
Deferred income taxes			(299,096	)			(1,731,821	)			(178,374	)
(Increase) decrease in
Accounts receivable			487,970				(1,465,803	)			(876,231	)
Revenues in excess of billings			(1,248,063	)			(504,514	)			(634,409	)
Prepaid income taxes			(452,517	)			149,850				93,043
Prepaid expenses and other assets			(93,877	)			(153,682	)			40,528
Increase (decrease) in
Accounts payable			(147,529	)			110,713				99,337
Accrued payroll and other expenses			486,862				168,883				283,831
Billings in excess of revenues			413,946				167,645				(118,061	)
Accrued income taxes			–				–				(153,713	)
Other liabilities			–				–				(8,274	)
Deferred revenue			(29,747	)			27,966				(252,582	)
Net cash provided by operating activities			11,638,420				9,287,188				6,877,739
Cash flows used in investing activities
Purchases of property and equipment			(137,745	)			(183,291	)			(175,961	)
Purchases of intellectual property			(50,000	)			–				–
Cash used to acquire subsidiaries			–				–				(4,515,982	)
Cash received in acquisition			–				–				1,720,434
Capitalized computer software development costs			(1,767,996	)			(2,145,429	)			(1,383,711	)
Net cash used in investing activities			(1,955,741	)			(2,328,720	)			(4,355,220	)
Cash flows used in financing activities
Payment of dividends			(4,197,055	)			(4,161,740	)			(3,448,489	)
Payments on Contracts Payable			(4,238,973	)			(247,328	)			(1,000,000	)
Proceeds from the exercise of stock options			788,147				635,583				111,404
Net cash used in financing activities			(7,647,881	)			(3,773,485	)			(4,337,085	)
Net increase (decrease) in cash and cash equivalents			2,034,798				3,184,983				(1,814,566	)
Cash and cash equivalents, beginning of year			9,400,701				6,215,718				8,030,284
Cash and cash equivalents, end of period		$	11,435,499			$	9,400,701			$	6,215,718
Supplemental disclosures of cash flow information
Income taxes paid		$	2,673,475			$	2,712,988			$	2,687,921
Non-Cash Investing and Financing Activities
Creation of contract liabilities for acquisition of subsidiaries		$	–			$	–			$	5,738,188

						Year ended August 31,
(in thousands)						2022						2021						2020
Cash flows from operating activities
Net income						$	12,483					$	9,782					$	9,332
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization						3,574						3,590						2,962
Change in value of contingent consideration						283						486						203
Amortization of investment premiums						1,678						2,350						—
Stock-based compensation						3,037						2,750						1,577
Deferred income taxes						(270)						(628)						(378)
Currency translation adjustments						(265)						(101)						—
(Increase) decrease in
Accounts receivable						(3,936)						(2,429)						(2,018)
Prepaid income taxes						(379)						(42)						(12)
Prepaid expenses and other assets						1,081						(157)						(259)
Increase (decrease) in
Accounts payable						(162)						39						221
Other liabilities						(1,437)						3,353						23
Deferred revenue						2,213						210						(739)
Net cash provided by operating activities						17,900						19,203						10,912
Cash flows from investing activities
Purchases of property and equipment						(819)						(1,627)						(231)
Purchase of short-term investments						(100,846)						(122,395)						(67,249)
Proceeds from sale of short-term investments						109,121						100,229						—
Cash used to acquire subsidiaries						—						—						(9,471)
Cash received in acquisition						—						—						3,799
Capitalized computer software development costs						(3,151)						(2,949)						(2,353)
Net cash provided by (used in) investing activities						4,305						(26,742)						(75,505)
Cash flows from financing activities
Payment of dividends						(4,846)						(4,811)						(4,250)
Payments on contracts payable						(3,667)						(1,334)						(1,761)
Proceeds from the exercise of stock options						891						1,461						630
Proceeds from follow-on public offering, net						—						—						107,747
Net cash (used in) provided by financing activities						(7,622)						(4,684)						102,366
Net increase (decrease) in cash and cash equivalents						14,583						(12,223)						37,773
Cash and cash equivalents, beginning of year						$	36,984					$	49,207					$	11,434
Cash and cash equivalents, end of period						$	51,567					$	36,984					$	49,207
Supplemental disclosures of cash flow information
Income taxes paid						$	3,233					$	1,857					$	2,353
Non-Cash Investing and Financing Activities
Stock issued for acquisition of Lixoft						$	1,166					$	666					$	3,261
Creation of contract liabilities for acquisition of subsidiaries						$	—					$	—					$	4,528
Right of use assets capitalized						$	624					$	905					$	1,499

The accompanying notes are an integral part of these consolidated financial statements.

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Simulations Plus, Inc.

Notes to Consolidated Financial Statements

For the Year Ended August 31, 2019

2022

NOTE 1 -– ORGANIZATION AND LINES OF BUSINESS

Organization

Simulations Plus, Inc. (“Simulations Plus”, “Lancaster”(the "Company") was incorporated on July 17, 1996. In September 2014, Simulations Plus acquired all of the outstanding equity interests of Cognigen Corporation (“Cognigen”, “Buffalo”("Cognigen") and Cognigen became a wholly ownedwholly-owned subsidiary of Simulations Plus, Inc. Simulations Plus, Inc. In June 2017, Simulations Plus acquired DILIsym Services, Inc. (DILIsym)("DILIsym") as a wholly ownedwholly-owned subsidiary. In April 2020, Simulations Plus, Inc. acquired Lixoft, a French société par actions simplifiée ("Lixoft") as a wholly-owned subsidiary (collectively, “Company”pursuant to a stock purchase and contribution agreement. (Collectively, "Company", “we”"we", “us”"us", “our”"our").

Effective September 1, 2021, the Company merged both Cognigen Corporation and DILIsym with and into Simulations Plus, Inc. through short-form mergers (the “Mergers”). To effectuate the Mergers, the Company filed Certificates of Ownership with the Secretaries of State of the states of Delaware (Cognigen’s and DILIsym’s state of incorporation) and California (the Company’s state of incorporation). Consummation of the Mergers was not subject to approval of the Company’s stockholders and did not impact the rights of the Company’s stockholders.

Lines of Business

The Company designs

We are a premier developer of drug discovery and developsdevelopment software for modeling and simulation, and for the prediction of molecular properties utilizing both artificial intelligence (“AI”) as well as machine-learning-based technology. We also provide consulting services ranging from early drug discovery through preclinical and clinical trial data analysis and for submissions to regulatory agencies. Our software and consulting services are provided to major pharmaceutical, simulation softwarebiotechnology, agrochemical, cosmetics, and food industry companies, and to promote cost-effective solutions to a number of problems in pharmaceutical research andregulatory agencies worldwide for use in the educationconduct of pharmacy and medical students, and it provides consulting services to the pharmaceutical and chemical industries. Recently, the Company has begun to explore developing software applications outside of the pharmaceutical industry.

industry-based research.

NOTE 2 -– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Simulations Plus Inc. and, as of September 2, 2014, its wholly owned subsidiary, Cognigen Corporation, and as of JuneApril 1, 2017 the accounts of DILIsym Services, Inc.2020, Lixoft. All significant intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates

Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Actual results could differ from those estimates. Significant accounting policies for us include revenue recognition, accounting for capitalized computer software development costs, valuation of stock options, and accounting for income taxes.

Reclassifications

Certain numbers in the prior year have been reclassified to conform to the current year's presentation.

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09 and its related amendments regarding Accounting Standards Codification Topic 606 (ASC Topic 606),Revenue from Contracts with Customers. The standard provides principles for recognizing revenue for the transfer of promised goods or services to customers with the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also provides guidance on the recognition of incremental costs related to obtaining customer contracts. We adopted ASC Topic 606, effective September 1, 2018, utilizing the modified retrospective method. This approach was applied to contracts that were in process as of September 1, 2018, and the corresponding incremental costs of obtaining those contracts, which resulted in a cumulative effect adjustment of $493,279 to the opening balance of retained earnings at the date of adoption. The adoption of this ASU primarily impacts the timing of our revenue recognition for certain sales contracts, the capitalization and amortization of incremental costs of obtaining a contract, and related disclosures. The reported results for fiscal year 2019 reflect the application of ASC Topic 606, while the reported results for fiscal year 2018 are not adjusted and continue to be reported under ASC Topic 605.

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

F-8

The Company determines

In accordance with ASC 606, we determine revenue recognition through the following steps:

i.Identification of the contract, or contracts, with a customer

ii.Identification of the performance obligations in the contract

iii.Determination of the transaction price

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iv.Allocation of the transaction price to the performance obligations in the contract

v.Recognition of revenue when, or as, we satisfy a performance obligation

Components of Revenue

The following is a description of principal activities from which the Company generates revenue. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. Stand-alone selling prices are determined based on the prices at which the Company separately sells its services or goods.

i.	Identification
Revenue Components						Typical Payment Terms
Software Revenues:
Software revenues are generated primarily from sales of software licenses at the time the software is unlocked, and the term commences. The license period typically is one year or less. Along with the license a di minimis amount of customer support is provided to assist the customer with the software. Should the customer need more than a di minimis amount of support, they can choose to enter into a separate contract for additional training. Most software is installed on our customers’ servers and the Company has no control of the software once the sale is made.						Payments are generally due upon invoicing on a net 30 basis unless other payment terms are negotiated with the customer based on customer history. Typical industry standards apply.
For certain software arrangements the Company hosts the licenses on servers maintained by the Company, Revenue for those arrangements is accounted as Software as a Service over the life of the contract. These arrangements are a small portion of software revenues of the Company.
Consulting Contracts:
Consulting services provided to our customers are generally recognized over time as the contracts are performed and the services are rendered. The company measures its consulting revenue based on time expended compared to total estimated hours to complete a project. The Company believes the method chosen for its contract revenue best depicts the transfer of benefits to the customer under the contracts.						Payment terms vary, depending on the size of the contract, or contracts,credit history and history with a customerthe client and deliverables within the contract.
ii.			Identification of the performance obligations in the contract
iii.Consortium Member Based Services:			Determination of the transaction price
iv.			Allocation ofThe performance obligation is recognized on a time elapsed basis, by month, for which the transaction price to the performance obligations in the contract
v.	Recognition of revenue when, orservices are provided, as the Company satisfiestransfers control evenly over the contractual period.				Payment is due at the beginning of the period, generally on a performance obligationnet 30 or 60 basis.

Remaining Performance Obligations

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and unbilled amounts that will be recognized as revenue in future periods. As of August 31, 2022, remaining performance obligations were $13.5 million. 86% of the remaining performance obligations are expected to be recognized over the next 12 months, with the remainder recognized thereafter. Remaining performance obligations estimates are subject to change and are affected by several factors, including contract terminations and changes in the scope of contracts.

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Disaggregation of Revenues

The components of disaggregation of revenue for the years ended August 31, 2022, 2021, and 2020 were as follows:

						Year ended August 31,
(in thousands)						2022						2021						2020
Software licenses
Point in time						$	31,587					$	26,725					$	20,668
Over time						1,055						945						919
Services
Over time						21,264						18,796						20,002
Total revenue						$	53,906					$	46,466					$	41,589

In addition, the Company allocates revenues to geographic areas based on the locations of its customers. Geographical revenues for the years ended August 31, 2022, 2021, and 2020 were as follows:

(in thousands)						Year ended August 31,
						2022												2021												2020
						$						% of total						$						% of total						$						% of total
Americas						$	37,681					70		%				$	32,549					70		%				$	29,674					71		%
EMEA						10,388						19		%				7,906						17		%				5,827						14		%
Asia Pacific						5,837						11		%				6,011						13		%				6,088						15		%
Total						$	53,906					100		%				$	46,466					100		%				$	41,589					100		%

Contract Balances

We receive payments from customers based upon contractual billing schedules, while we recognize revenue when, or as, we satisfy our performance obligations. This timing difference results in accounts receivable, contract assets, and contract liabilities. We record accounts receivable when the right to consideration becomes unconditional. We record a contract asset if the right to consideration is conditioned on something other than the passage of time, such as our future performance. Contract assets are included in prepaid expenses and other current assets on our consolidated balance sheets. We record a contract liability when we have an obligation to transfer goods or services to a customer for which we have either received consideration or a payment is due from a customer. We refer to contract liabilities as deferred revenue on our consolidated balance sheets.

Contract asset balances as of August 31, 2022, and August 31, 2021, were $1.7 million and $3.2 million, respectively.

During the year ended August 31, 2022, the Company recognized $0.6 million of revenue that was included in contract liabilities as of August 31, 2021, and during the year ended August 31, 2021, the Company recognized $0.4 million of revenue that was included in contract liabilities as of August 31, 2020.

Deferred Commissions

Sales commissions earned by our sales force and our commissioned sales representatives are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for new contracts are deferred and then amortized on a straight-line basis over a period of benefit. We determined the period of benefit by taking into consideration our customer contracts, our technology and other factors. Sales commissions for renewal contracts are deferred and then amortized on a straight-line basis over the related contractual renewal period. Amortization expense is included in sales and marketing expenses on the condensed consolidated statements of operations.

We apply the practical expedient as described in ASC Topic 606340-40-25-4 to expense costs as incurred for sales commissions, whensince the amortization period of benefitthe asset that we otherwise would have beenrecognized is one year or less. MostThis expense is included in the consolidated statements of our contracts areoperations and comprehensive income as selling, general, and administrative expense.

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Table of a duration of one year or less, few, if any of the longer-term contracts have commissions associated with them.

Practical Expedients and Exemptions

The Company has elected the following additional practical expedients in applying Topic 606:

·

Commission Expense: We apply the practical expedient in ASC Topic 606 to expense costs as incurred for sales commissions when the period of benefit is one year or less. Most of our contracts are of a duration of one year or less, few, if any of the longer-term contracts have commissions associated with them.

·

Transaction Price Allocated to Future Performance Obligations ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of August 31, 2019. ASC 606 provides certain practical expedients that limit the requirement to disclose the aggregate amount of transaction price allocated to unsatisfied performance obligations. The Company applied the practical expedient to not disclose the amount of transaction price allocated to unsatisfied performance obligations when the performance obligation is part of a contract that has an original expected duration of one year or less.

Contents

Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company considerswe consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

Accounts Receivable

We analyze and Allowance for Credit Losses

The Company extends credit to its customers in the agenormal course of customerbusiness. The Company evaluates its allowance for credit losses based on its estimate of the collectability of its trade accounts receivable. As part of this assessment, the Company considers various factors including the financial condition of the individual companies with which it does business, the aging of receivable balances, historical bad debt experience, customer creditworthiness, and changes in customer payment terms, when makingcurrent market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, the Company’s estimates ofand judgments with respect to the collectability of its receivables is subject to greater uncertainty than in more stable periods. Accounts receivable balances will be charged off against the Company’s tradeallowance for credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.

Investments

The Company may invest excess cash balances in short-term and long-term marketable debt securities. Investments may consist of certificates of deposit, money market accounts, receivable balances. If we determinegovernment-sponsored enterprise securities, corporate bonds, and/or commercial paper within the parameters of our Investment Policy and Guidelines. The Company accounts for its investments in marketable securities in accordance with ASC 320, Investments – Debt and Equity Securities. This statement requires debt securities to be classified into three categories:

Held-to-maturity—Debt securities that the financial conditions of any of our customers have deteriorated, whether dueentity has the positive intent and ability to customer-specific or general economic issues, an increasehold to maturity are measured at amortized cost and are presented at the net amount expected to be collected. Any change in the allowance may be made. Accounts receivablefor credit losses during the period is reflected in earnings. Discounts and premiums to par value of the debt securities are written off whenamortized to interest income/expense over the term of the security.

Trading Securities—Debt securities that are bought and held primarily for the purpose of selling in the near term are reported at fair value, with unrealized gains and losses included in earnings.

Available-for-Sale—Debt securities not classified as either securities held-to-maturity or trading securities are reported at fair value. For available-for-sale debt securities in an unrealized loss position, we evaluate as of the balance sheet date whether the unrealized losses are attributable to a credit loss or other factors. The portion of unrealized losses related to a credit loss is recognized in earnings, and the portion of unrealized loss not related to a credit loss is recognized in other comprehensive income.

We classify our investments in marketable debt securities based on the facts and circumstances present at the time of purchase of the securities. We subsequently reassess the appropriateness of that classification at each reporting date. During the year ended August 31, 2022, all collection attempts have failed.

F-9

of our investments were classified as held-to-maturity.

Capitalized Computer Software Development Costs

Software development costs are capitalized in accordance with ASC 985-20,“Costs of Software to Be Sold, Leased, or Marketed”.985-20. Capitalization of software development costs begins upon the establishment of technological feasibility and is discontinued when the product is available for sale.

The establishment of technological feasibility and the ongoing assessment for recoverability of capitalized software development costs require considerable judgment by management with respect to certain external factors including, but not limited to, technological feasibility, anticipated future gross revenues,revenue, estimated economic life, and changes in software and hardware technologies. Capitalized computer software development costs are comprised primarily of salaries and direct payroll-related costs and the purchase of existing software to be used in the Company'sour software products.

Amortization of capitalized computer software development costs is providedcalculated on a product-by-product basis on the straight-line method over the estimated economic life of the products not(not to exceed five years.years). Amortization of software development costs amounted to $1,331,753, $1,300,434,$1.2 million, $1.4 million, and $1,096,967$1.2 million for the years ended August 31, 2019, 2018,2022, 2021, and 2017,2020, respectively. We expect future amortization expense to vary due to increases in capitalized computer software development costs.

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

Property and Equipment

Property and equipment are recorded at cost, or fair market value for property and equipment acquired in business combinations, less accumulated depreciation and amortization. Depreciation and amortization are providedcalculated using the straight-line method over the estimated useful lives as follows:

Equipment		5 years
Equipment			5 years
Computer equipment				3 to 7 years
Furniture and fixtures				5 to 7 years
Leasehold improvements						Shorter of life of asset or lease

Maintenance and minor replacements are charged to expense as incurred. Gains and losses on disposals are included in the results of operations.

Internal-use Software

We have capitalized certain internal-use software costs in accordance with ASC 350-40, which are included in intangible assets. The amortization of such costs is classified as selling, general, and administrative expenses on the consolidated statements of operations. Maintenance of and minor upgrades to internal-use software are also classified as selling, general, and administrative expenses as incurred.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities (current and long-term) in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at the commencement date. The operating lease ROU asset also includes any lease payments made at or before the commencement date and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term.

Supplemental balance sheet information related to operating leases was as follows as of August 31, 2022:

(in thousands)
Right of use assets						$	1,420
Lease liabilities, current						$	461
Lease liabilities, long-term						$	943
Operating lease costs						$	520
Weighted-average remaining lease term						3.05 years
Weighted-average discount rate						3.41		%

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Intangible Assets and Goodwill

The Company performs

We perform valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and recognizesrecognize the assets acquired and liabilities assumed at their acquisition dateacquisition-date fair value. Acquired intangible assets include customer relationships, software, trade name,names, and non-competenoncompete agreements. The Company determinesWe determine the appropriate useful life by performing an analysis of expected cash flows based on historical experience of the acquired businesses. IntangibleFinite-lived intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the pattern in which the majority of the economic benefits are expected to be consumed.

Finite-lived intangible assets subject to amortization are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable.

Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets. Goodwill is not amortized, instead it isand indefinite-lived intangible assets are tested for impairment annually or when events or circumstances change that would indicate that goodwillthey might be impaired. Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of the Company'sour use of the acquired assets or the strategy for the Company'sour overall business, significant negative industry or economic trends, or significant under-performanceunderperformance relative to expected historical or projected future results of operations.

Goodwill isand intangible assets are tested for impairment at the reporting unit level, which is one level below or the same as an operating segment. As of August 31, 2019, the Company2022, we determined that it has threewe have four reporting units,units: Simulations Plus, Cognigen, CorporationDILIsym, and DILIsym Services, Inc. When testing goodwill for impairment, the Company first performs a qualitative assessment to determine whether it is necessary to perform step one of a two-step annual goodwill impairment test for each reporting unit. The Company is required to perform step one only if it concludes that it is more likely thanLixoft. We did not that a reporting unit's fair value is less than its carrying value. Should this be the case, the first step of the two-step process is to identify whether a potential impairment exists by comparing the estimated fair values of the Company's reporting units with their respective book values, including goodwill. If the estimated fair value of the reporting unit exceeds book value, goodwill is considered not to be impaired, and no additional steps are necessary. If, however, the fair value of the reporting unit is less than book value, then the second step is performed to determine if goodwill is impaired and to measure the amount of impairment loss, if any. The amount of the impairment loss is the excess of the carrying amount of the goodwill over its implied fair value. The estimate of implied fair value of goodwill is primarily based on an estimate of the discounted cash flows expected to result from that reporting unit, but may require valuations of certain internally generated and unrecognized intangible assets such as the Company's software, technology, patents and trademarks. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.

F-10

As of August 31, 2019, the entire balance of goodwill was attributed to two of the Company's reporting units, Cognigen Corporation and DILIsym Services. Intangible assets subject to amortization are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. The Company has not recognizedrecognize any impairment charges during the periods ended August 31, 2019, 20182022, 2021, and 2017.

2020.

Reconciliation of Goodwill for the period endedas of August 31, 2019:

Cognigen

DILIsym

Total

Balance, August 31, 2016

$

4,789,248

$

–

$

4,789,248

Addition

–

5,597,950

5,597,950

Impairments

–

–

–

Balance, August 31, 2017

4,789,248

5,597,950

10,387,198

Addition

–

–

–

Impairments

–

–

–

Balance, August 31, 2018

4,789,248

5,597,950

10,387,198

Addition

–

–

–

Impairments

–

–

–

Balance, August 31, 2019

$

4,789,248

$

5,597,950

$

10,387,198

Other Intangible Assets

2022, and 2021:

(in thousands)						Cognigen						DILIsym						Lixoft						Total
Balance, August 31, 2020						$	4,789					$	5,598					$	2,534					$	12,921
Addition						—						—						—						—
Impairments						—						—						—						—
Balance, August 31, 2021						4,789						5,598						2,534						12,921
Addition						—						—						—						—
Impairments						—						—						—						—
Balance, August 31, 2022						$	4,789					$	5,598					$	2,534					$	12,921

The following table summarizes other intangible assets as of August 31, 2019:

		Amortization Period		Acquisition Value				Accumulated Amortization				Net book value
Customer relationships-Cognigen		Straight line 8 years		$	1,100,000			$	687,500			$	412,500
Trade Name-Cognigen		None			500,000				0				500,000
Covenants not to compete-Cognigen		Straight line 5 years			50,000				50,000				0
Covenants not to compete-DILIsym		Straight line 4 years			80,000				45,000				35,000
Trade Name-DILIsym		None			860,000				0				860,000
Customer relationships-DILIsym		Straight line 8 years			1,900,000				427,500				1,472,500
				$	4,490,000			$	1,210,500			$	3,280,000

Amortization2022:

(in thousands)						Amortization Period						Acquisition Value						Accumulated Amortization						Net book value
Simulations Plus
ERP						Straight line 15 years						$	1,702					$	80					$	1,622
Cognigen
Customer relationships						Straight line 8 years						1,100						1,100						—
Trade Name						None						500						—						500
DILIsym
Customer relationships						Straight line 10 years						1,900						997						903
Trade Name						None						860						—						860
Lixoft
Customer relationships						Straight line 14 years						2,550						437						2,113
Trade Name						None						1,550						—						1,550
Covenants not to compete						Straight line 3 years						60						48						12
												$	10,222					$	2,662					$	7,560

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The following table summarizes other intangible assets as of August 31, 2021:

(in thousands)						Amortization Period						Acquisition Value						Accumulated Amortization						Net book value
Cognigen
Customer relationships						Straight line 8 years						$	1,100					$	963					$	137
Trade Name						None						500						—						500
Covenants not to compete						Straight line 5 years						50						50						—
DILIsym
Customer relationships						Straight line 10 years						1,900						807						1,093
Trade Name						None						860						—						860
Covenants not to compete						Straight line 4 years						80						80						—
Lixoft
Customer relationships						Straight line 14 years						2,550						258						2,292
Trade Name						None						1,550						—						1,550
Covenants not to compete						Straight line 3 years						60						28						32
												$	8,650					$	2,186					$	6,464

Total amortization expense for the yearyears ended August 31, 2019, 20182022, 2021, and 20172020 was $357,500, $357,500,$0.6 million, $0.5 million, and $200,000.

$0.4 million, respectively.

Future amortization of finite-lived intangible assets for the next five years is as follows:

Year ending August 31,		Amount
2020		$	347,500
2021		$	342,500
2022		$	327,500
2023		$	190,000
2024		$	190,000

(in thousands)
Year ending August 31,						Amount
2023						$	493
2024						$	481
2025						$	481
2026						$	481
2027						$	434

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Business Acquisitions

The Company accounted for the acquisition of Cognigen and DILIsym Services, Inc.,Lixoft using the purchaseacquisition method of accounting where the assets acquired and liabilities assumed are recognized based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of certain acquired assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions, including, but not limited to, the selection of appropriate valuation methodology, projected revenue, expenses and cash flows, weighted average cost of capital, discount rates, estimates of advertiser and publisher turnover rates, and estimates of terminal values. Business acquisitions are included in the Company's consolidated financial statements as of the date of the acquisition.

F-11

Fair Value of Financial Instruments

Assets and liabilities recorded at fair value in the Condensed Balance Sheetsconsolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The categories as defined by the standard are as follows:

Level Input:		Input Definition:
Level Input:						Input Definition:
Level I						Inputs that are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level II						Inputs, other than quoted prices included in Level I, that are observable for the asset or liability through corroboration with market data at the measurement date.
Level III						Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

For certain of our financial instruments, including accounts receivable, accounts payable, and accrued payrollcompensation and other accrued expenses, and accrued bonuses to officers the carrying amounts are approximate fair value due to their short-term nature.

short maturities.

The following table summarizes fair value measurements atas of August 31, 20192022, and August 31, 20182021, for assets and liabilities measured at fair value on a recurring basis:

August 31, 2019:

		Level 1				Level 2				Level 3				Total
Cash and cash equivalents		$	11,435,499			$	–			$	–			$	11,435,499
Acquisition-related contingent consideration obligations		$	–			$	–			$	1,761,028			$	1,761,028

August 31, 2018:

		Level 1				Level 2				Level 3				Total
Cash and cash equivalents		$	9,400,701			$	–			$	–			$	9,400,701
Acquisition-related contingent consideration obligations		$	–			$	–			$	4,890,940			$	4,890,940

						August 31, 2022
(in thousands)						Level 1						Level 2						Level 3						Total
Cash and cash equivalents						$	51,567					$	—					$	—					$	51,567
Short-term investments						$	76,668					$	—					$	—					$	76,668

						August 31, 2021
(in thousands)						Level 1						Level 2						Level 3						Total
Cash and cash equivalents						$	36,984					$	—					$	—					$	36,984
Short-term investments						$	86,620					$	—					$	—					$	86,620
Acquisition-related contingent consideration obligations						$	—					$	—					$	3,217					$	3,217

As of August 31, 2019 and 2018,2022, we had no liability for contingent consideration related to our acquisition of Lixoft as the Company hasremaining contingent obligation was settled in May 2022. As of August 31, 2021, we had a liability for contingent consideration related to itsour acquisition of the DILIsym Services, Inc.Lixoft. The fair value measurement of the contingent consideration obligations iswas determined using Level 3 inputs. The fair value of contingent consideration obligations isinputs and was based on a discounted cash flow model using a probability-weighted income approach. These fair value measurements represent Level 3 measurementsThe liability is recorded as they are basedcontracts payable on significant inputs not observableour consolidated balance sheets, and changes in the market. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense the Company records in any given period. Changes in thefair value of the contingent consideration obligations are recorded as other income (expense), net in the Company’s Consolidated Statementour consolidated statements of Operations.

operations and comprehensive income.

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The following is a reconciliation of contingent consideration value.

Value at August 31, 2018		$	4,890,940
Purchase price contingent consideration			–
Contingent consideration payments			(3,238,972	)
Change in value of contingent consideration			109,060
Value at August 31, 2019		$	1,761,028

Advertising

value:

(in thousands)
Value as of August 31, 2021						$	3,217
Contingent consideration payments in cash						(2,334)
Contingent consideration payments in stock						(1,166)
Change in value of contingent consideration						283
Value as of August 31, 2022						$	—

Marketing

The Company expenses advertisingmarketing costs as incurred. AdvertisingMarketing costs for the years ended August 31, 2019, 20182022, 2021, and 20172020 were approximately $83,213, $67,848$0.2 million, $0.1 million, and $58,445,$0.1 million, respectively.

F-12

Research and Development Costs

Research and development costs are charged to expense as incurred until technological feasibility has been established. These costs include salaries, laboratory experiment,experiments, and purchased software whichthat was developed by other companies and incorporated into, or used in the development of, our final products.

Income Taxes

The Company accounts

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

Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

Intellectual property

On February 28, 2012, we bought out the royalty agreement with Enslein Research. The cost of $75,000$0.1 million is being amortized over 10 years under the straight-line method. Amortization expense for each of the fiscal years ended August 31, 2019, 2018 and 2017 was $7,500. Accumulated amortization as of August 31, 2019 and 2018 was $56,250 and $48,750, respectively.

On May 15, 2014, we entered into a termination and non-assertion agreement with TSRL, Inc., pursuant to which the parties agreed to terminate an exclusive software licensing agreement entered into between the parties in 1997. As a result, the Company obtained a perpetual right to use certain source code and data, and TSRL relinquished any rights and claims to any GastroPlus products and to any claims, to royalties, or other payments under that 1997 agreement. We agreed to pay TSRL total consideration of $6,000,000,$6.0 million, which is being amortized over 10 years under the straight-line method. Amortization for the year ended August 31, 2019, 2018 and 2017 was $600,000. Accumulated amortization as of August 31, 2019 and 2018 was $3,175,000 and $2,575,000, respectively.

On June 1, 2017, as part of the acquisition of DILIsym, Services, Inc. the Company acquired certain developed technologies associated with the drug induceddrug-induced liver disease (DILI). These technologies were valued at $2,850,000$2.9 million and are being amortized over 9 years under the straight-line method. Amortization expense for the fiscal years ended August 31, 2019 and 2018 was $316,667 and $316,667, respectively, and is included in cost of revenues. Total accumulated amortization as of August 31, 2019 and 2018 was $712,513 and $395,833, respectively.

In September 2018, we purchased certain intellectual property rights of Entelos Holding Company, a Delaware Corporation.Company. The cost of $50,000$0.1 million is being amortized over 10 years under the straight-line method. Amortization expense for

On April 1, 2020, as part of the year ended August 31, 2019 was $5,000. Accumulated amortizationacquisition of Lixoft, the Company acquired certain developed technologies associated with the Lixoft scientific software. These technologies were valued at $8.0 million and are being amortized over 16 years under the straight-line method.

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The following table summarizes intellectual property as of August 31, 2019 was $5,000.

2022:

(in thousands)						Amortization Period						Acquisition Value						Accumulated Amortization						Net Book Value
Royalty Agreement buy out-Enslein Research						Straight line 10 years						$	75					$	75					$	—
Termination/nonassertion agreement-TSRL Inc.						Straight line 10 years						6,000						4,975						1,025
Developed technologies–DILIsym acquisition						Straight line 9 years						2,850						1,662						1,188
Intellectual rights of Entelos Holding Company						Straight line 10 years						50						20						30
Developed technologies–Lixoft acquisition						Straight line 16 years						8,010						1,196						6,814
												$	16,985					$	7,928					$	9,057

The following table summarizes intellectual property as of August 31, 2021:

(in thousands)						Amortization Period						Acquisition Value						Accumulated Amortization						Net Book Value
Royalty Agreement buy out-Enslein Research						Straight line 10 years						$	75					$	71					$	4
Termination/nonassertion agreement-TSRL Inc.						Straight line 10 years						6,000						4,375						1,625
Developed technologies–DILIsym acquisition						Straight line 9 years						2,850						1,346						1,504
Intellectual rights of Entelos Holding Company						Straight line 10 years						50						15						35
Developed technologies–Lixoft acquisition						Straight line 16 years						8,010						709						7,301
												$	16,985					$	6,516					$	10,469

Total amortization expense for intellectual property agreements for the years ended August 31, 2019, 20182022, 2021, and 20172020 was $929,167, $924,167,$1.4 million, $1.4 million, and $686,667. Accumulated$1.1 million, respectively.

Future amortization as of August 31, 2019 and 2018 was $3,948,750 and $3,019,584, respectively.

Future amortizationintellectual property for the next five years is as follows:

Years ending August 31,		TSRL				Enslein				DILI-Acquired Developed Technologies				Entelos				Total
2020		$	600,000			$	7,500			$	316,667			$	5,000			$	929,167
2021		$	600,000			$	7,500			$	316,667			$	5,000			$	929,167
2022		$	600,000			$	3,750			$	316,667			$	5,000			$	925,417
2023		$	600,000				–			$	316,667			$	5,000			$	921,667
2024		$	425,000				–			$	316,667			$	5,000			$	746,667

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(in thousands)
Year ending August 31,						Amount
2023						$	1,373
2024						$	1,198
2025						$	773
2026						$	697
2027						$	457

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Earnings per Share

The Company reports

We report earnings per share in accordance with FASB ACS 260-10.ASC 260. Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares available.outstanding. Diluted earnings per share is computed similarly to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The components of basic and diluted earnings per share for the years ended August 31, 2019, 20182022, 2021, and 20172020 were as follows:

		2019				2018				2017
Numerator
Net income attributable to common shareholders		$	8,583,329			$	8,934,812			$	5,787,897
Denominator
Weighted-average number of common shares outstanding during the year			17,492,258				17,328,707				17,239,490
Dilutive effect of stock options			565,173				531,685				276,427
Common stock and common stock equivalents used for diluted earnings per share			18,057,431				17,860,392				17,515,917

						August 31,
(in thousands)						2022						2021						2020
Numerator
Net income attributable to common shareholders						$	12,483					$	9,782					$	9,332
Denominator
Weighted-average number of common shares outstanding during the year						20,196						20,045						17,819
Dilutive effect of stock options						553						698						719
Common stock and common stock equivalents used for diluted earnings per share						20,749						20,743						18,538

Stock-Based Compensation

The Company accounts for

Compensation costs related to stock options using the modified prospective methodare determined in accordance with FASB ASC 718-10,“Compensation-Stock Compensation”. Under this method, compensation costs include estimated grant date718. Compensation cost is calculated based on the grant-date fair value ofestimated using the awardsBlack-Scholes pricing model and then amortized on a straight-line basis over the options’ vestingrequisite service period. Stock-based compensation expense related to stock options, not including shares issued to directors for services, was $865,848, $562,078$2.7 million, $2.4 million, and $585,018$1.3 million for the fiscal years ended August 31, 2019, 20182022, 2021, and 2017, respectively, and is included in the statements of operations as Consulting, Salaries, and Research and Development expense.

2020, respectively.

Impairment of Long-lived Assets

The Company accounts

We account for the impairment and disposition of long-lived assets in accordance with ASC 350,“Intangibles – Goodwill and Other” and ASC 360,“Property and Equipment”.360. Long-lived assets to be held and used are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable. We measure recoverability by comparing the carrying amount of an asset to the expected future undiscounted net cash flows generated by the asset. If we determine that the asset may not be recoverable, or if the carrying amount of an asset exceeds its estimated future undiscounted cash flows, we recognize an impairment charge to the extent of the difference between the fair value and the asset's carrying amount. No impairment losses were recorded during the years ended August 31, 2019, 20182022, 2021, and 2017.

2020.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,Revenue from Contracts with Customers(ASU 2014-09). The standard will eliminate the transaction- and industry-specific revenue recognition guidance under current generally accepted accounting principles in the U.S. (GAAP) and replace it with a principles-based approach for determining revenue recognition. The revenue recognition standard is required to be applied retrospectively, including any combination of practical expedients as allowed in the standard. In April 2016,October 2021, the FASB issued ASU 2016-10,No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). The amendment requires contract assets and contract liabilities acquired in a business combination to be recognized and measured in accordance with ASC 606, Revenue from Contracts with Customers, (Topic 606), which amendsas if the acquirer had originated the contract. The amendment is intended to improve the accounting for acquired revenue contracts with customers in a business combination, related to the recognition of an acquired contract liability, and to payment terms and their effect on subsequent revenue recognized by the acquirer. The amendment also provides certain aspects ofpractical expedients when applying the Board's new revenue standard,guidance. ASU 2014-09, Revenue from Contracts with Customers. This standard was adopted concurrently with the adoption of ASU 2016-10 and both are2021-08 is effective for annualinterim and interimannual periods beginning after December 15, 2017.

2022, on a prospective basis, with early adoption permitted. The Company expects to adopt ASU 2021-08 in the first quarter of fiscal year 2024. The Company is currently evaluating the potential impact of ASU 2021-08 to its consolidated financial statements.

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In February 2016,November 2021, the FASB issued ASU 2016-02, Leases2021-10, Government Assistance (Topic 842)832), which supersedes existingrequires business entities to disclose information about transactions with a government that are accounted for by applying a grant or contribution model by analogy (for example, IFRS guidance in IAS 20 or guidance on accountingcontributions for leasesnot-for-profit entities in "Leases (Topic 840)"ASC 958-605). For transactions within scope, the new standard requires the disclosure of information about the nature of the transaction, including significant terms and generally requires all leases to be recognized inconditions, as well as the consolidated balance sheet. ASU 2016-02amounts and specific financial statement line items affected by the transaction. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach.2021. The Company is currently evaluating the impact ofdoes not expect that the adoption of this standard will have a material impact on its consolidated financial statements. 

F-14

statements; however, the Company expects to increase its disclosures with respect to government assistance beginning in the first quarter of fiscal year 2023.

NOTE 3 – REVENUE RECOGNITION

ComponentsOTHER INCOME (EXPENSE), NET

The components of revenue

The following is a description of principal activities from whichother income (expense), net for the Company generates revenue. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. Stand-alone selling prices are determined based on the prices at which the Company separately sells its services or goods.

Revenue Components		Typical payment terms
Software Revenues:
Software revenues are generated primarily from sales of software licenses at the time the software is unlocked and the term commences. The license period typically is one year or less. Along with the license adi minimis amount of customer support is provided to assist the customer with the software. Should the customer need more than a di minimis amount of support they can choose to enter into a separate contract for additional training. Most software is installed on our customers’ servers and the Company has no control of the software once the sale is made. For certain software arrangements the Company hosts the licenses on servers maintained by the Company, revenue for those arrangements are accounted asSoftware as a Service over the life of the contract. These arrangements are a small portion of software revenues of the Company.		Payments are generally due upon invoicing on a net 30 basis unless other payment terms are negotiated with the customer based on customer history. Typical industry standards apply.
Consulting Contracts:
Consulting services provided to our customers are generally recognized over time as the contracts are performed and the services are rendered. The company measures its consulting revenue based on time expended compared to total estimated hours to complete a project. The Company believes the methods chosen for its contract revenue best depicts the transfer of benefits to the customer under the contracts.		Payment terms vary, depending on the size of the contract, credit history and history with the client and deliverables within the contract.

F-15

Consortium Member Based Services:
The performance obligation is recognized on a time elapsed basis, by month, for which the services are provided, as the Company transfers control evenly over the contractual period.		Payment is due at the beginning of the period, generally on a net 30 or 60 basis.

Remaining performance obligations that do not fall under the expedients require the Company to perform various consulting and software development services and consortium memberships of approximately $6,843,000. It is anticipated these revenues will be recognized within the next two and a half years.

Contract liabilities

During the yearyears ended August 31, 2019 the Company recognized $767,000 of revenue that was included in contract liabilities2022, 2021, and 2020, were as of August 31, 2019.

Disaggregation of Revenues

Disaggregation of Revenues:		Year Ended August 31, 2019
Software licenses
Point in time		$	17,425,353
Over time			1,053,562
Consulting services
Over time			15,491,525
Total Revenue		$	33,970,440

The following table summarizes the adjustments made to accounts on the condensed consolidated balance sheet as of September 1, 2018 as a result of applying the modified retrospective method to adopt ASC Topic 606:

		As Reported August 31, 2018				Adjustments to reflect the adoption of ASC Topic 606				As Adjusted September 1, 2018
Capitalized Software, net		$	5,152,594			$	(629,100	)		$	4,523,494
Deferred revenue			381,928				28,606				410,534
Deferred income taxes, net			3,195,139				(164,427	)			3,030,713
Retained Earnings		$	18,461,540			$	(493,279	)		$	17,968,261

The following tables present the amount by which each condensed consolidated financial statement line item is affected as of and for the year ended August 31, 2019 by ASC Topic 606:

		Year Ended August 31, 2019
		As Reported				Balances Without the adoption of ASC Topic 606				Effect of Change
Revenues		$	33,970,440			$	33,992,369			$	(21,929	)
Cost of revenues			9,025,704				8,824,474				201,230
Gross profit			24,944,736				25,167,895				(223,159	)
Income from operations			10,648,729				10,871,888				(223,159	)
Income before provision for income taxes			10,556,476				10,779,635				(223,159	)
Provision for income taxes			(1,973,147	)			(2,043,571	)			(70,424	)
Net income		$	8,583,329			$	8,736,064			$	(152,735	)
Earnings per share-diluted		$	0.48			$	0.48			$	–
Weighted-average common shares outstanding, diluted			18,057,431				18,057,431				–

F-16

follows:

						Year ended August 31,
(in thousands)						2022						2021						2020
Interest income						$	717					$	201					$	30
Interest expense						—						(22)						—
Change in valuation of contingent consideration						(283)						(486)						(203)
Gain on sale of assets						1						—						—
(Loss) gain on currency exchange						(231)						139						(45)
Total other income (expense), net						$	204					$	(168)					$	(218)

		Year Ended August 31, 2019
		As Reported				Balances Without the adoption of ASC Topic 606				Effect of Change
Cash Flows From Operating Activities:
Net income		$	8,583,329			$	8,736,064			$	(152,735	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			2,750,245				2,890,389				(140,144	)
Changes in operating assets and liabilities:
Deferred revenue			(295,966	)			(274,037	)			21,929
Net cash provided by operating activities			11,438,762				11,167,812				(270,950	)
Cash flows used in investing activities
Capitalized computer software development costs		$	(1,767,996	)		$	(2,109,369	)		$	341,373

Contracts in Progress

Contracts in progress are included in the accompanying balance sheets under the following captions:

		2019				2018
Revenues in excess of billings		$	3,233,659			$	1,985,596
Billings in excess of revenues			(798,549	)			(384,603	)
		$	2,435,110			$	1,600,993

Cost, estimated earnings, and billings on uncompleted contracts are summarized as follows as of August 31, 2019 and 2018:

		2019				2018
Revenues earned to date on uncompleted contracts		$	19,254,928			$	11,794,764
Billings to date on uncompleted contracts			(16,819,818	)			(10,193,771	)
		$	2,435,110			$	1,600,993

Balance increases and decreases in these accounts are due to the timing of amounts billed, payments received, and revenue recognized.

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment at August 31, 2019 and 2018 consisted of the following:

		2019				2018
Equipment		$	741,486			$	741,984
Computer equipment			411,632				285,834
Furniture and fixtures			160,990				148,544
Leasehold improvements			110,165				110,162
			1,424,273				1,286,524
Less accumulated depreciation and amortization			1,083,128				951,300
Total		$	341,145			$	335,224

						August 31,
(in thousands)						2022						2021
Equipment						$	346					$	293
Computer equipment						860						606
Furniture and fixtures						61						36
Leasehold improvements						13						13
Construction in progress						—						1,302
Subtotal						1,280						2,250
Less accumulated depreciation						(648)						(412)
Total						$	632					$	1,838

Depreciation expense was $131,827, $139,202,$0.3 million, $0.2 million, and $151,444$0.2 million for the years ended August 31, 2019, 2018,2022, 2021, and 2017,2020, respectively.

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NOTE 5:5 – INVESTMENTS

The Company invests a portion of its excess cash balances in short-term debt securities. Investments at August 31, 2022, consisted of corporate bonds and term deposits with maturities remaining of less than 12 months. The Company may also invest excess cash balances in certificates of deposits, money market accounts, government-sponsored enterprise securities, and/or commercial paper. The Company accounts for its investments in accordance with ASC 320, Investments – Debt and Equity Securities. As of August 31, 2022, all investments were classified as held-to-maturity securities, as the Company has the positive intent and ability to hold these securities until maturity. The Company believes unrealized losses on investments were primarily caused by rising interest rates rather than changes in credit quality and accordingly has not recorded an allowance for credit losses on its debt securities as of August 31, 2022, and 2021.

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The following tables summarize the Company’s short-term investments as of August 31, 2022, and 2021:

						August 31, 2022
(in thousands)						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Commercial notes (due within one year)						$	72,168					$	—					$	(839)					$	71,329
Term deposits (due within one year)						4,500																		4,500
Total						$	76,668					$	—					$	(839)					$	75,829

						August 31, 2021
(in thousands)						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Fair Value
Commercial notes (due within one year)						$	86,620					$	—					$	(136)					$	86,484
Total						$	86,620					$	—					$	(136)					$	86,484

NOTE 6 – CONTRACTS PAYABLE

DILIsym Acquisition Liabilities:

On June 1, 2017, the Companywe acquired DILIsym Services, Inc.DILIsym. The agreement provided for a working capital adjustment, an eighteen-month $1,000,00018-month $1.0 million holdback provision against certain representations and warrantees,warranties, and an Earn-outearnout agreement of up to an additional $5,000,000$5.0 million in Earn-outearnout payments based on earnings over the next three years.years following acquisition. The Earn-outearnout liability has beenwas recorded at an estimated fair value. Payments under the Earn-outearnout liability will be due startingstarted in FY 2018.fiscal year 2019. In September 2018, $1,556,644$1.6 million was paid out under the first earn-out payment, aearnout payment. A second earn-outearnout payment was made in August 2019 in the amount of $1,682,329 it is estimated that a$1.7 million. The final payment of approximately $1,761,028 will be$1.8 million was paid in August 2020.

In addition, no claims were made against the holdback and the $1.0 million holdback provision was released eighteen months after June 1, 2017.

Lixoft Acquisition Liabilities:

On April 1, 2020, the Company acquired Lixoft. The agreement provided for a 24-month $2.0 million holdback provision against certain representations and warranties, comprised of $1.3 million of cash and shares of common stock valued at $0.7 million issued and deposited into an escrow account at the date of the agreement. In April 2022, the shares of common stock were released from escrow and $1.3 million of cash was paid to settle the holdback liability. In addition, based on a revenue-growth formula for the two years subsequent to April 1, 2020, the agreement called for earnout payments up to $5.5 million (two-thirds' cash and one-third newly issued, unregistered shares of the Company’s common stock). The former shareholders could earn up to $2.0 million the first year and $3.5 million in year two. In June 2021, $2.0 million was paid out under the first earnout payment, which was comprised of $1.3 million of cash and shares of common stock valued at $0.7 million. In May 2022, $3.5 million was paid out under the second earnout payment, which was comprised of $2.3 million cash and shares of common stock valued at $1.2 million.

As of August 31, 20192022, and 20182021 the following liabilities have been recorded:

		2019				2018
Working Capital Liability		$	–			$	–
Holdback Liability			–				1,000,000
Earn-out Liability			1,761,028				4,890,940
Sub Total		$	1,761,028			$	5,890,940
Less: Current Portion			1,761,028				2,556,644
Long-Term		$	–			$	3,334,296

(in thousands)						August 31, 2022						August 31, 2021
Holdback liability						$	—					$	1,333
Earnout liability						—						3,217
Subtotal						$	—					$	4,550
Less: Current portion						—						4,550
Long-term						$	—					$	—

F-21

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NOTE 6 -7 – COMMITMENTS AND CONTINGENCIES

Leases

We lease approximately 13,5009,255 square feet of office space in Lancaster, California.California, where our corporate headquarters are located. The original lease had a five-year term with two, three-year optionsextends to extend. The initial five-year term expired in February 2011,January 31, 2026, and we extended the lease to February 2, 2014. In June 2013, the lease was amended to extend the term to February 2, 2017. The amended lease also provides for an annual base rent increase of 3% per year and two, two-year options to extend. In May 2016 the Company exercised the two, two-year options extending the term of the lease through February 2, 2021 at a fixed rate of $25,000is $17 thousand per month. The new extensionlease agreement allowedgives the Company with 90the right, upon 180 days’ prior notice, to opt out of the remaining lease inall or part of the last twofour years of the term, upon payment of a recapture payment equal to the 3% base payment increase that would have been due under the original agreement.

Our Buffalo subsidiary leases approximately 12,623with no penalty.

We lease 4,317 square feet of office space in Buffalo, New York. The initial five-yearlease term expired in October 2018extends to November 30, 2026, and was renewed for a three year option to extending it to October 2021. The newthe base rent is $16,147$7 thousand per month.

In September 2017 DILIsym service signed a 3-yearmonth with an annual 2% increase. The lease for approximately 1,900 rentableagreement provides the Company with two five-year renewal options and the right to terminate the lease with one year’s prior written notice with certain penalties. We previously leased 12,623 square feet of office space at a different location in Buffalo, New York. That lease term extended to November 2021 and the base rent was $16 thousand per month.

We have a data center colocation space in Research Triangle Park, North Carolina. The initial three-yearBuffalo, New York, with a lease term expires in October 2020. The initial basethrough November 30, 2026, and rent is $3,975of $4 thousand per month with an annual 3% adjustment. Priorincrease.

We lease 3386 square feet of office space in Durham, North Carolina. The lease term extends to thisSeptember 30, 2023, and the base rent is $8 thousand per month with an annual 3% increase.

We lease DILIsym was2,300 square feet of office space in Paris, France. The lease term extends to November 30, 2024, and the rent is $5 thousand per month and adjusted each December based on a month-to-month rental.

consumer price index.

Rent expense, including common area maintenance fees for the years ended August 31, 2019, 20182022, 2021, and 20172020 was $584,000, $567,000$0.6 million, $0.7 million, and $509,600,$0.6 million, respectively.

Future minimum lease payments under non-cancelable operating leases with remaining terms

Lease liability maturities as of one year or more at August 31, 20192022, were as follows:

Years Ending August 31,
2020			566,000
2021			327,000
2022			49,000
		$	942,000

F-18

(in thousands)			Years Ending August 31,						Amount
2023									$	511
2024									411
2025									346
2026									219
2027									34
Total undiscounted liabilities									1,521
Less: imputed interest									(117)
Total operating lease liabilities (including current portion)									$	1,404

Line of Credit

On March 31, 2020, the Company entered into a Credit Agreement with Wells Fargo Bank, N.A. The Credit Agreement provided us with a credit facility of $3.5 million through April 15, 2022 (the "Termination Date"), on which date the Credit Agreement terminated in accordance with its terms. As a result, we can no longer draw down against the line of credit. We chose not to renew or pursue an alternative credit facility as we do not foresee a need to utilize such credit facility within the next twelve months. As of the Termination Date, there were no amounts drawn against the line of credit.

Employment Agreements

In the normal course of business, the Company has entered into employment agreements with certain of its key management personnelexecutive officers that may require compensation payments upon termination.

License Agreement

The Company has a royalty agreement with Dassault Systèmes Americas Corp. for access to their Metabolite Database for developing our Metabolite Module within ADMET Predictor™. The module was renamed the Metabolism Module when we released ADMET Predictor version 6 on April 19, 2012. Under this agreement, we pay a royalty of 25% of revenue derived from the sale of the Metabolism/Metabolite module. Under this agreement for the year ended August 31, 2019, 2018 and 2017 we incurred royalty expense of $195,828, $175,740 and $139,551, respectively.

Dassault Systèmes has indicated they are no longer making access to this data base available for purchase, the Company is in the process of making arrangements to replace the database.

Litigation

We are not a party to any legal proceedings and are not aware of any pending legal proceedings of any kind.

F-22

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Table of Contents

NOTE 7 -8 – SHAREHOLDERS' EQUITY

Dividend

Shares Outstanding

Shares of common stock outstanding for the years ended August 31, 2022, 2021, and 2020 were as follows:

			August 31,
			2022						2021						2020
Common stock outstanding, beginning of year			20,142						19,923						17,592
Common stock issued during the year			119						218						2,331
Common stock outstanding, end of year			20,260						20,142						19,923

Dividends

The Company’s Board of Directors declared cash dividends during fiscal year 2019, 2018the years ended August 31, 2022, and 2017.2021. The details of dividenddividends paid are in the following tables:

FY2017

Record Date		Distribution Date		Number of Shares Outstanding on Record Date				Dividend per Share				Total Amount
11/10/2016		11/17/2016			17,226,478			$	0.05			$	861,324
1/30/2017		2/06/2017			17,233,758				0.05				861,688
5/08/2017		5/15/2017			17,240,626				0.05				862,031
7/28/2017		8/04/2017			17,268,920			$	0.05				863,446
Total												$	3,448,489

FY2018

Record Date		Distribution Date		Number of Shares Outstanding on Record Date				Dividend per Share				Total Amount
11/13/2017		11/20/2017			17,284,792			$	0.06			$	1,037,088
1/26/2018		2/2/2018			17,317,752				0.06				1,039,065
4/25/2018		5/2/2018			17,354,005				0.06				1,041,240
7/26/2018		8/2/2018			17,405,775			$	0.06				1,044,347
Total												$	4,161,740

F-19

(in thousands, except dividend per share)						Fiscal Year 2022
Record Date						Distribution Date						Number of Shares Outstanding on Record Date						Dividend per Share						Total Amount
10/25/2021						11/01/2021						20,148						$	0.06					$	1,209
1/31/2022						2/07/2022						20,178						$	0.06					1,211
4/25/2022						5/02/2022						20,207						$	0.06					1,212
7/25/2022						8/01/2022						20,239						$	0.06					1,214
Total																								$	4,846

FY2019

Record Date		Distribution Date		Number of Shares Outstanding on Record Date				Dividend per Share				Total Amount
11/01/2018		11/08/2018			17,417,875			$	0.06			$	1,045,073
1/25/2019		2/1/2019			17,481,450				0.06				1,048,887
4/24/2019		5/1/2019			17,515,228				0.06				1,050,914
7/25/2019		8/1/2019			17,536,454			$	0.06				1,052,181
Total												$	4,197,055

Although dividend distributions are currently expected to continue on a quarterly basis, the Company’s Board

(in thousands, except dividend per share)						Fiscal Year 2021
Record Date						Distribution Date						Number of Shares Outstanding on Record Date						Dividend per Share						Total Amount
10/26/2020						11/02/2020						19,924						$	0.06					$	1,195
1/25/2021						2/01/2021						20,010						$	0.06					1,201
4/26/2021						5/03/2021						20,115						$	0.06					1,207
7/26/2021						8/02/2021						20,139						$	0.06					1,208
Total																								$	4,811

F-23

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Table of Directors reserves the right to discontinue the dividend distribution any time.

Contents

Stock Option Plan

On February 23, 2007, the Board of Directors adopted, and the shareholders approved, the 2007 Stock Option Plan under which a total of 1,000,000 shares of common stock had been reserved for issuance. On February 25, 2014 the shareholders approved an additional 1,000,000 shares increasing the total number of shares that may be granted under the Option Plan to 2,000,000. This plan terminated in February 2017 by its term.

Plans

On December 23, 2016, the Board of Directors adopted, and on February 23, 2017, the shareholders approved, the 2017 Equity Incentive Plan (the "2017 Plan"), under which a total of 1,000,0001.0 million shares of common stock haswere reserved for issuance. The 2017 plan would have terminated in December 2026. The 2017 Plan was replaced by the Company’s 2021 Plan (as defined below), and as a result, no further issuances of shares may be made under the 2017 Plan.

On April 9, 2021, the Board of Directors adopted, and on June 23, 2021, the shareholders approved, the 2021 Equity Incentive Plan (the “2021 Plan”), under which a total of 1.3 million shares of common stock have been reserved for issuance. This planThe 2021 Plan will terminate in December 2026.

2031.

As of August 31, 2019,2022, employees and directors hold stock optionsheld Qualified Incentive Stock Options ("ISOs") and Non-Qualified Stock Options ("NQSOs") to purchase 1,163,2591.2 million shares of common stock at exercise prices ranging from $6.75$6.85 to $34.23$66.14 per share.

The following tables summarize information about stock options:

(in thousands, except per share and weighted-average amounts) Transactions During Fiscal Year 2022						Number of Options						Weighted-Average Exercise Price Per Share						Weighted-Average Remaining Contractual Life
Outstanding, August 31, 2021						1,184						$	25.63					6.47
Granted						255						42.13
Exercised						(104)						16.15
Canceled/Forfeited						(90)						42.30
Outstanding, August 31, 2022						1,245						$	28.61					6.14
Vested and Exercisable, August 31, 2022						711						$	17.65					4.47
Vested and Expected to Vest, August 31, 2022						1,236						$	28.51					6.12

(in thousands, except per share and weighted-average amounts) Transactions During Fiscal Year 2021						Number of Options						Weighted-Average Exercise Price Per Share						Weighted-Average Remaining Contractual Life
Outstanding, August 31, 2020						1,224						$	17.76					6.79
Granted						226						57.60
Exercised						(204)						12.53
Canceled/Forfeited						(62)						29.83
Outstanding, August 31, 2021						1,184						$	25.63					6.47
Vested and Exercisable, August 31, 2021						619						$	13.36					4.95
Vested and Expected to Vest, August 31, 2021						1,173						$	25.69					6.47

F-24

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Table of Contents

(in thousands, except per share and weighted-average amounts) Transactions During Fiscal Year 2020						Number of Options						Weighted-Average Exercise Price Per Share						Weighted-Average Remaining Contractual Life
Outstanding, August 31, 2019						1,163						$	12.63					7.13
Granted						223						39.23
Exercised						(121)						9.29
Canceled/Forfeited						(41)						14.19
Outstanding, August 31, 2020						1,224						$	17.76					6.79
Vested and Exercisable, August 31, 2020						596						$	10.69					5.59
Vested and Expected to Vest, August 31, 2020						1,194						$	17.75					6.77

The following table summarizes information about stock options:

Transactions in FY17		Number of Options				Weighted-Average Exercise Price Per Share				Weighted-Average Remaining Contractual Life
Outstanding, August 31, 2016			947,500			$	7.50				7.73
Granted			434,916				10.18
Exercised			(49,642	)			3.56
Cancelled/Forfeited			(83,648	)			8.68
Outstanding, August 31, 2017			1,249,126			$	8.51				7.74
Exercisable, August 31, 2017			401,485			$	6.45				5.59
Vested and Expected to Vest, August 31, 2017			1,144,405			$	8.41				7.63

Transactions in FY18		Number of Options				Weighted-Average Exercise Price Per Share				Weighted-Average Remaining Contractual Life
Outstanding, August 31, 2017			1,249,126			$	8.51				7.74
Granted			52,000				22.36
Exercised			(130,006	)			5.97
Canceled/Forfeited			(30,144	)			9.10
Expired			(6,000	)			5.06
Outstanding, August 31, 2018			1,134,976			$	9.44				7.31
Vested and Exercisable, August 31, 2018			483,696			$	7.79				6.48
Vested and Expected to Vest, August 31, 2018			1,069,807			$	9.35				7.26

F-20

Transactions in FY19		Number of Options				Weighted-Average Exercise Price Per Share				Weighted-Average Remaining Contractual Life
Outstanding, August 31, 2018			1,134,976			$	9.44				7.31
Granted			263,500				22.78
Exercised			(166,703	)			7.15
Canceled/Forfeited			(68,514	)			12.17
Expired
Outstanding, August 31, 2019			1,163,259			$	12.63				7.13
Vested and Exercisable, August 31, 2019			515,394			$	8.57				6.09
Vested and Expected to Vest, August 31, 2019			1,101,800			$	12.39				7.07

the Intrinsic Value of options outstanding and options exercisable

		Intrinsic Value of Options Outstanding				Intrinsic Value of Options Exercisable				Intrinsic Value of Options Exercised
FY17		$	7,479,068			$	3,232,356			$	479,713
FY18		$	13,064,884			$	6,315,086			$	1,495,313
FY19		$	27,312,742			$	14,194,724			$	3,224,454

exercisable:

(in thousands)						Intrinsic Value of Options Outstanding						Intrinsic Value of Options Exercisable						Intrinsic Value of Options Exercised
Fiscal Year 2020						$	51,273					$	29,151					$	4,086
Fiscal Year 2021						$	25,705					$	19,373					$	11,554
Fiscal Year 2022						$	39,208					$	30,187					$	3,572

The weighted-average remaining contractual life of options outstanding issued under the 2007Plans, for both ISOs and 2017 PlanNQSOs, was 7.136.14 years at August 31, 2019. 2022. The total fair value of non-vested stock options as of August 31, 2022, was $9.1 million and is amortizable over a weighted-average period of 3.27 years.

The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-valuation model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. In addition, option-valuation models require the input of highly subjective assumptions, including the expected stock price volatility.

The following table summarizes the fair value of the options, including both ISOs and NQSOs, granted during the current fiscal year 2022 and fiscal year 2021:

(in thousands, except prices)						Fiscal Year 2022						Fiscal Year 2021
Estimated fair value of awards granted						$	4,597					$	5,092
Unvested Forfeiture Rate						1.04		%				0		%
Weighted-average grant price						$	42.13					$	57.60
Weighted-average market price						$	42.13					$	57.60
Weighted-average volatility						42.80		%				40.49		%
Weighted-average risk-free rate						1.74		%				0.64		%
Weighted-average dividend yield						0.58		%				0.42		%
Weighted-average expected life						6.59 years						6.63 years

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Table of Contents

The exercise prices for the options outstanding at August 31, 20192022, ranged from $6.75$6.85 to $34.23 per share,$66.14, and the information relating to these options is as follows:

Exercise Price								Awards Outstanding												Awards Exercisable
Low				High				Quantity				Weighted Average Remaining Contractual Life				Weighted Average Exercise Price				Quantity				Weighted Average Remaining Contractual Life				Weighted Average Exercise Price
$	6.75			$	8.00				230,133				5.0 years			$	6.85				228,133				5.0 years			$	6.85
$	8.01			$	16.00				636,976				7.0 years			$	9.96				287,261				7.0 years			$	9.93
$	16.01			$	24.00				248,150				8.8 years			$	20.66				–								–
$	24.01			$	34.23				48,000				9.9 years			$	34.23				–								–
									1,163,259				7.1 years			$	12.63				515,394				6.1 years			$	8.57

(in thousands except prices)

Exercise Price												Awards Outstanding																		Awards Exercisable
Low						High						Quantity						Weighted -Average Remaining Contractual Life						Weighted-Average Exercise Price						Quantity						Weighted-Average Remaining Contractual Life						Weighted-Average Exercise Price
$	6.85					$	9.77					286						2.75 years						$	8.29					286						2.75 years						$	8.29
$	9.78					$	18.76					200						4.32 years						$	10.37					200						4.32 years						$	10.37
$	18.77					$	33.40					241						6.38 years						$	25.21					121						5.97 years						$	24.16
$	33.41					$	47.63					229						8.64 years						$	38.47					41						7.01 years						$	35.41
$	47.64					$	66.14					289						8.56 years						$	56.30					63						8.14 years						$	58.92
												1,245						6.14 years						$	28.61					711						4.47 years						$	17.65

During the fiscal years ended August 31, 2022, 2021, and 2020, we issued 7,120, 5,620 and 7,205 shares of stock valued at $0.4 million, $0.3 million, and $0.3 million, respectively, to our nonmanagement directors as compensation for board-related duties.

The balance of our par-value common stock and additional paid-in capital as of August 31, 2022, was $11 thousand and $138.5 million, respectively, and the balance of our par-value common stock and additional paid-in capital as of August 31, 2021, was $10 thousand and $133.4 million, respectively.

NOTE 8 -9 – INCOME TAXES

We utilize FASB ASC 740-10,“Income Taxes”740 to account for income taxes which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.

Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

F-21

The components of the income tax provision for fiscal year 2019, 2018the years ended August 31, 2022, 2021, and 20172020 were as follows:

		2019				2018				2017
Current
Federal		$	1,794,596			$	2,370,955			$	2,385,660
State			426,364				460,619				217,281
Foreign			51,285				104,377				28,103
			2,272,245				2,935,951				2,631,044
Deferred
Federal			(140,730	)			(1,698,201	)			(612,629
State			(158,368	)			(33,620				434,255
			(299,098	)			(1,731,821	)			(178,374	)
Total		$	1,973,147			$	1,204,130			$	2,452,670

(in thousands)						2022						2021						2020
Current
Federal						$	2,518					$	1,315					$	2,098
State						611						450						478
Foreign						(228)						166						39
Total current tax expense						2,901						1,931						2,615
Deferred
Federal						(4)						(379)						(428)
State						(265)						(249)						(132)
Total deferred federal and state						(269)						(628)						(560)
Total						$	2,632					$	1,303					$	2,055

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A reconciliation of the expected income tax (benefit) computed using the federal statutory income tax rate to the Company's effective income tax rate is as follows for fiscal year 2019, 2018the years ended August 31, 2022, 2021, and 2017:

		2019				2018				2017
Income tax computed at federal statutory tax rate			21.0%				25.4%				34.0%
State taxes, net of federal benefit			4.1				4.0				3.5
Meals & entertainment			0.1				0.0				0.0
Stock based compensation			(2.6)				0.5				0.0
Other permanent differences			(0.7)				1.2				(0.5)
Research and development credit			(2.3)				(2.6)				(3.6)
Domestic production activities			–				(1.8)				(2.3)
Change in deferred income taxes due to statutory rate changes			–				(14.8)				–
Change in prior year estimated taxes			(0.9)				(0.0)				(1.3)
Total			18.7%				11.9%				29.8%

2020:

			2022						2021						2020
Income tax computed at federal statutory tax rate			21.0		%				21.0		%				21.0		%
State taxes, net of federal benefit			3.2						2.0						4.1
Meals & entertainment			—						—						0.1
Stock-based compensation			0.6						(6.8)						(1.2)
Other permanent differences			0.4						(0.3)						(0.3)
Research and development credit			(2.2)						(1.6)						(2.8)
Foreign-tax-related differences			(3.2)						(2.6)						(1.4)
Research & credit adjustments to expense			—						0.2						0.3
Change in prior year estimated taxes			(2.4)						(0.1)						(1.8)
Total			17.4		%				11.8		%				18.0		%

Significant components of the Company's deferred tax assets and liabilities for income taxes for the fiscal years ended August 31, 20192022, and 20182021 are as follows:

		2019				2018
Deferred tax assets
Accrued payroll and other expenses		$	236,455			$	187,220
Deferred revenue			55,038				34,955
Capitalized merger costs			361,103				365,801
Intellectual property			9,301				11,066
State taxes			89,537				96,730
State tax deferred			146,815				174,800
Total deferred tax assets			898,249				870,572
Less: Valuation allowance			–				–
			898,249				870,572
Deferred tax liabilities
Property and equipment			(61,991	)			(57,636	)
State tax deferred			(16,471	)			(10,701	)
Intellectual property			(2,217,234	)			(2,593,292	)
Capitalized computer software development costs			(1,334,169	)			(1,404,082	)
Total deferred tax liabilities			(3,629,865	)			(4,065,711	)
Net deferred tax liabilities		$	(2,731,616	)		$	(3,195,139	)

F-22

(in thousands)						2022						2021
Deferred tax assets:
Accrued compensation						$	563					$	586
Deferred revenue						241						102
Capitalized merger costs						703						703
Intellectual property						7						7
Research and development credits						347						66
Foreign tax credits						101						—
State taxes						128						72
Allowance for doubtful accounts						3						20
State tax deferred						28						80
Total deferred tax assets						2,121						1,636
Less: Valuation allowance						—						—
Deferred tax asset						2,121						1,636
Deferred tax liabilities:
Property and equipment						(109)						(83)
State tax deferred						(30)						(26)
Intellectual property						(1,139)						(1,456)
Capitalized computer software development costs						(2,299)						(1,797)
Total deferred tax liabilities						(3,577)						(3,362)
Net deferred tax liabilities						$	(1,456)					$	(1,726)

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We follow guidance issued by the FASBASC 740 with regard to our accounting for uncertainty in income taxes recognized in the financial statements. Such guidance prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company mustwe determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to income tax expense. Interest and penalties totaled $2,531, -0-, and $-0-were immaterial for fiscal year 2019, 2018,years 2022, 2021, and 2017,2020, respectively. We file income tax returns with the IRS and various state jurisdictions as well as with the countries of India, Belgium and India.France. Our federal income tax returns for fiscal year 2015 thru 20182019 through 2021 are open for audit, and our state tax returns for fiscal year 20132018 through 20182021 remain open for audit. In addition, our California tax return for the fiscal year 2007 and fiscal year 2008 remains open with regard to R&D tax credits as a result of a previous audit for which we received a letter from the California Franchise Tax Board stating that an audit will not be conducted for those years at this time; however it may be subject to future audit.

Our review of prior yearprior-year tax positions using the criteria and provisions presented in guidance issued by FASB did not result in a material impact on our financial position or results of operations.

NOTE 910 – CONCENTRATIONS AND UNCERTAINTIES

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, and trade accounts receivable.receivable, and short-term investments. The Company holds cash and cash equivalents at banks located in California, with balances that often exceed FDIC insured limits. In addition, we hold cash at a bank in France that is not FDIC-insured. Historically, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. However, considering the current banking environment, the Company is investigating alternative ways to minimize its exposure to such risks.accounts. While the Company may be exposed to credit losses due to the nonperformance of its counterparties, the Company does not expect the settlement of these transactions to have a material effect on its results of operations, cash flows, or financial condition. The Company maintains cash at financial institutions that may, at times, exceed federally insured limits. At August 31, 2019 the Company had cash and cash equivalents exceeding insured limits by $10,223,000.

Revenue concentration shows that international sales accounted for 34%30%, 39%31%, and 38%29% of net salesrevenue for the years ended August 31, 2022, 2021, and 2020, respectively. Our three largest customers in terms of revenue accounted for 5%, 3%, and 3% of revenue for fiscal years 2019, 2018 and 2017, respectively. Threeyear 2022. Our three largest customers in terms of revenue accounted for 8%11%, 8% (a dealer account4%, and 3% of revenue for fiscal year 2021. Our three largest customers in Japan representing various customers)terms of revenue accounted for 9%, 7%, and 7% of net salesrevenue for fiscal year 2019. Four customers accounted for 9% (a dealer account in Japan representing various customers), 7%, 6% and 5% of net sales for fiscal year 2018. Three customers accounted for 7% (a dealer account in Japan representing various customers), 7% and 5% of net sales for fiscal year 2017.

FY19 accounts2020.

Accounts receivable concentrations show that one customerour three largest customers in terms of accounts receivable each comprised 10%,between 4% and 8% of accounts receivable as of August 31, 2019. FY182022, respectively; our two largest customers in terms of accounts receivable concentrations show that one customer comprised 17% (a dealer account in Japan representing various customers),5% and 16% of accounts receivable as of August 31, 2018.

2021, respectively.

We operate in the computer software industry,biosimulation market, which is highly competitive and changes rapidly. Our operating results could be significantly affected by our ability to develop new products and find new distribution channels for new and existing products.

NOTE 11 – SEGMENT REPORTING

The majority of our customers areCompany applies ASC 280, Segment Reporting, in determining reportable segments. The Company has two reportable segments: Software and Services. Segment information is presented in the pharmaceutical industry. During economic downturns, we have seen consolidations insame manner that the pharmaceutical industry. Although we have not seen any significant reduction in total revenues to date, our growth rate could be affected by consolidationchief operating decision maker ("CODM") reviews certain financial information based on these reportable segments. The CODM reviews revenue and downsizing ingross profit for both of the pharmaceutical industry.

NOTE 10 – SEGMENT ANDGeographic Reporting

We account for segments and geographic revenues in accordance with guidance issuedreportable segments. Gross profit is defined as revenue less cost of revenue incurred by the FASB. Oursegment.

No operating segments have been aggregated to form the reportable segmentssegments. The Company does not allocate assets at the reportable segment level as these are strategic business unitsmanaged on an entity-wide group basis and, accordingly, the Company does not report asset information by segment. The Company does not allocate operating expenses that offer different productsare managed on an entity-wide group basis and, services.

Resultsaccordingly, the Company does not allocate and report operating expenses at segment level. There are no internal revenue transactions between the Company’s segments.

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The following tables summarize the results for each segment and consolidated results are as follows years ended August 31, 2019, 2018 and 2017 (in thousands, because of rounding, numbers may not foot):

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Year ended August 31, 2019
		Simulations Plus, Inc.				Cognigen Corporation				DILIsym				Eliminations				Total
Net Revenues		$	19,585			$	9,321			$	5,065							$	33,970
Income from operations before income taxes		$	7,752			$	1,481			$	1,416							$	10,648
Total assets		$	38,535			$	11,196			$	13,168			$	(17,702	)		$	45,197
Goodwill		$	0			$	4,789			$	5,598							$	10,387
Capital expenditures		$	39			$	79			$	20							$	138	��
Capitalized software costs		$	1,482			$	114			$	172							$	1,768
Depreciation and Amortization		$	1,806			$	364			$	580							$	2,750

Year ended August 31, 2018
		Simulations Plus, Inc.				Cognigen Corporation				DILIsym				Eliminations				Total
Net Revenues		$	17,553			$	7,857			$	4,257							$	29,667
Income from operations before income taxes		$	7,533			$	1,902			$	863							$	10,298
Total assets		$	38,000			$	8,733			$	14,248			$	(17,702	)		$	43,279
Goodwill		$	0			$	4,789			$	5,598							$	10,387
Capital expenditures		$	65			$	100			$	18							$	183
Capitalized software costs		$	1,365			$	625			$	155							$	2,145
Depreciation and Amortization		$	1,748			$	401			$	572							$	2,721

Year ended August 31, 2017
		Simulations Plus, Inc.				Cognigen Corporation				DILIsym				Eliminations				Total
Net Revenues		$	15,600			$	7,300			$	1,238							$	24,138
Income from operations before income taxes		$	6,194			$	1,750			$	320							$	8,264
Total assets		$	33,056			$	9,363			$	13,794			$	(17,702	)		$	38,512
Goodwill		$	0			$	4,789			$	5,598							$	10,387
Capital expenditures		$	48			$	96			$	1,384							$	1,528
Capitalized software costs		$	1,133			$	219			$	24							$	1,376
Depreciation and Amortization		$	1618			$	374			$	135							$	2,127

In addition, the Company allocates revenues to geographic areas based on the locations of its customers. Geographical revenues for the years ended August 31, 2019, 20182022, 2021 and 2017 were as follows (in thousands, because2020:

(in thousands)						Year ended August 31, 2022
						Software						Services						Total
Revenues						$	32,642					$	21,264					$	53,906
Cost of revenues						3,060						7,762						10,822
Gross profit						$	29,582					$	13,502					$	43,084
Gross margin						91		%				63		%				80		%

Our software business and services business represented 61% and 39% of rounding, numbers may not foot):

Yeartotal revenue, respectively, for the year ended August 31, 2019

		North America				Europe				Asia				South America				Total
Simulations Plus, Inc.		$	9,327			$	5,144			$	5,060			$	54			$	19,585
Cognigen Corporation			9,321				–				–				–				9,321
DILIsym Services, Inc.			3,875				685				505				–				5,065
Total		$	22,523			$	5,829			$	5,565			$	54			$	33,971

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2022.

(in thousands)						Year ended August 31, 2021
						Software						Services						Total
Revenues						$	27,670					$	18,796					$	46,466
Cost of revenues						3,235						7,365						10,600
Gross profit						$	24,435					$	11,431					$	35,866
Gross margin						88		%				61		%				77		%

Year

Our software business and services business represented 60% and 40% of total revenue, respectively, for the year ended August 31, 2018

		North America				Europe				Asia				South America				Total
Simulations Plus, Inc.		$	7,826			$	4,964			$	4,733			$	30			$	17,553
Cognigen Corporation			7,857				–				–				–				7,857
DILIsym Services, Inc.			3,163				312				782				–				4,257
Total		$	18,846			$	5,276			$	5,515			$	30			$	29,667

Year2021.

(in thousands)						Year ended August 31, 2020
						Software						Services						Total
Revenues						$	21,587					$	20,002					$	41,589
Cost of revenues						2,883						7,766						10,649
Gross profit						$	18,704					$	12,236					$	30,940
Gross margin						87		%				61		%				74		%

Our software business and services business represented 52% and 48% of total revenue, respectively, for the year ended August 31, 2017

		North America				Europe				Asia				South America				Total
Simulations Plus, Inc.		$	7,846			$	3,826			$	3,926			$	1			$	15,600
Cognigen Corporation			7,300				–				–				–				7,300
DILIsym Services, Inc.*			851				151				236				–				1,238
Total		$	15,997			$	3,977			$	4,162			$	1			$	24,138

*DILIsym was acquired on June 1, 2017.

NOTE 11 – RELATED PARTY TRANSACTIONS

On June 1, 2017 the Company acquired DILIsym Service, Inc. As part of that agreement the Company paid $1,704,000 to former shareholders of DILIsym Services, Inc. who are currently employees of the Consolidated Company. In addition, as part of the acquisition agreement the Company owes approximately $2,260,000 of acquisition liabilities at August 31, 2018 to the former shareholders who are still employees of the Consolidated Company. One of the former shareholders of DILIsym is currently a director of Simulations Plus, under the agreement he received approximately, $29,000 and could receive up to approximately $30,000 in future earn-out payments. In September 2018, subsequent to year end under terms of the agreement the Company made payments in the amount of approximately $587,000 and $10,000, respectively to the employees and the current director. In Fiscal year 2019, under terms of the agreement the Company made payments in the amount of approximately $1,599,534 and $27,312, respectively to the employees and the current director.

2020.

NOTE 12 -– EMPLOYEE BENEFIT PLAN

We maintain a 401(k) Plan for eligible employees. We make matching contributions equal to 100% of the employee’s elective deferral, not to exceed 4% of the employee's total employee compensation. We can also elect to make a profit-sharing contribution. We contributed $404,684, $326,762$0.6 million, $0.5 million, and $251,899$0.5 million for fiscal year 2019, 2018years 2022, 2021, and 2017,2020, respectively.

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NOTE 13 - ACQUISITION/MERGER WITH SUBSIDIARIES

DILIsym Services, Inc.

– ACQUISITION

On May 1, 2017, the CompanyMarch 31, 2020, we entered into a StockShare Purchase and Contribution Agreement (the “Stock Agreement”“SPCA”) with DILIsym Services, Inc. (“DILIsym”). On June 1, 2016, the Company consummated the acquisition of all outstanding equity interests of DILIsym pursuant to the terms of the Stock Agreement, with DILIsym becoming a wholly owned subsidiary of the Company. We believe the combination of Simulations Plus and DILIsym provides substantial future potential based on the complementary strengths of each of the companies.

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Lixoft. Under the terms of the Stock Agreement, as described below, the Company willSPCA, we agreed to pay the former shareholders of DILIsymLixoft total consideration of approximately $10,463,000.

On June 1, 2017, the Companyup to $16.5 million, consisting of two-thirds cash and one-third newly issued, unregistered shares of our common stock. At closing, we paid the former shareholders of DILIsymLixoft a total of $4,515,982, which included a $4,000,000 initial payment$10.8 million, comprised of cash in the amount of $9.5 million and the issuance of 111,682 shares of our common stock valued at $3.7 million, net of adjustments and a preliminary$2.0 million holdback for representations and warranties. In addition, we paid $3.5 million of excess working capital paymentbased on the March 31, 2020, financial statements of $515,982. An additional working capital adjustmentLixoft. In addition, the SPCA called for earnout payments of $247,328 was due under the agreement and was paid subsequent in FY 2018. In December 2018, the Company paid the former shareholders of DILIsym a total of $1,000,000 under a holdback provision.

The agreement calls for earn-out payments up to an additional $5,000,000$5.5 million, payable in two-thirds cash and one-third newly issued, unregistered shares of our common stock, based on a revenue-growth formula of pre-tax earnings over a threeeach year for the two years period.subsequent to April 1, 2020. The Earn-out liability has been recorded at fair value. Payments made underformer shareholders could earn up to $2 million the earn-out are as follows:first year and $3.5 million in year two. In September 2018, $1,556,644June 2021, $2.0 million was paid out under the first earn-outearnout payment, awhich was comprised of $1.3 million of cash and shares of our common stock valued at $0.7 million. In April 2022, we released from escrow and distributed the $2.0 million holdback consideration, consisting of $1.3 million in cash and shares of our common stock valued at $0.7 million (amounting to an aggregate of 20,326 unregistered shares of our common stock), to the former shareholders of Lixoft. In May 2022, $3.5 million was paid out under the second earn-outearnout payment, which was madecomprised of $2.3 million of cash and shares of our common stock valued at $1.2 million (amounting to an aggregate of 23,825 unregistered shares of our common stock), to the former shareholders of Lixoft in August 2019 inaccordance with the amount of $1,682,329, and it is estimated that a final payment of approximately $1,761,000 will be paid in August 2020.

SPCA.

Under the acquisition method of accounting, the total estimated purchase price is allocated to DILIsym’sreflects Lixoft’s tangible and intangible assets and liabilities based on their estimated fair values at the date of the completion of the acquisition (June(April 1, 2017)2020). The following table summarizes the preliminary allocation of the purchase price for DILIsym:

Assets acquired, including accounts receivable of $255,000 and estimated Contracts receivable of $153,000		$	2,283,110
Developed technologies acquired			2,850,000
Estimated value of intangibles acquired (Customer Lists, trade name etc.)			2,840,000
Current liabilities assumed			(911,049	)
Goodwill			5,597,950
Estimated deferred income taxes			(2,212,160	)
Total Consideration		$	10,463,310

Lixoft:

(in thousands)
Assets acquired, including cash of $3,799 and accounts receivable of $629						$	5,007
Developed technologies acquired						8,010
Estimated value of intangible assets acquired (customer lists, trade name etc.)						4,160
Estimated goodwill acquired						2,534
Liabilities assumed						(1,118)
Total consideration						$	18,593

Goodwill has been provided in the transaction based on estimates of future earnings of this subsidiary including anticipated synergies associated with the positioning of the combined company as a leader in model-based drug development. Based on the structure of the transaction, the Company does not anticipate benefiting from any tax deductions in future periods for recognized goodwill.

PROFORMA INFORMATION (UNAUDITED)

Consolidated supplemental Pro Forma information

The following consolidated supplemental pro forma information assumes that the acquisition of DILIsym took place on September 1, 2015 for the income statements for the fiscal year ended August 31, 2017, and 2016. These amounts (in thousands) have been calculated after applying the Company’s accounting policies and adjusting the results of DILIsym to reflect the same expenses in the fiscal year ended August 31, 2017 that were incurred in the fiscal year ended August 31, 2016. The adjustments include costs of acquisition of $620,000, and the amortization of intangibles and other technologies acquired during the merger assuming the fair value adjustments applied on September 1, 2015, together with consequential tax effects.

		(Actual)				(Actual)				(Pro forma)*
		2019				2018				2017
Net Sales		$	33,970			$	29,667			$	27,184
Net Income		$	8,583			$	8,935			$	6,325

*Includes 3 months actual results for the period of June 1, 2017 to August 31, 2017

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NOTE 14. UNAUDITED QUARTERLY FINANCIAL DATA

The following table presents selected unaudited quarterly financial data for each full quarterly period of the years ended August 31, 2019 and 2018:

		First				Second				Third				Fourth
Year ended August 31, 2019		Quarter				Quarter				Quarter				Quarter
Revenues		$	7,536			$	8,472			$	9,937			$	8,026
Gross Profit		$	5,336			$	6,264			$	7,613			$	5,735
Net Income		$	1,536			$	2,099			$	2,889			$	2,059
Earnings per share, Basic		$	0.09			$	0.12			$	0.16			$	0.12
Earnings per share, Diluted		$	0.09			$	0.12			$	0.16			$	0.11

(in 1,000’s except for per share data)

		First				Second				Third				Fourth
Year ended August 31, 2018		Quarter				Quarter				Quarter				Quarter
Revenues		$	7,069			$	7,357			$	8,553			$	6,688
Gross Profit		$	5,333			$	5,241			$	6,530			$	4,568
Net Income		$	1,716			$	3,475			$	2,406			$	1,338
Earnings per share, Basic		$	0.10			$	0.20			$	0.14			$	0.08
Earnings per share, Diluted		$	0.10			$	0.19			$	0.13			$	0.07

NOTE 1514 - SUBSEQUENT EVENTS

Dividend Declared

On Thursday, October 14, 2019,20, 2022, our Board of Directors declared a quarterly cash dividend of $0.06 per share to our shareholders. The dividend wasin the amount of $1.2 million will be distributed on Friday,Wednesday, November 1, 2019,7, 2022, for shareholders of record as of Friday,Monday, October 25, 2019.

31, 2022.

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