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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended May 31, 20222023
OR
oTransmission Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to ______
Commission file number: 001-32046
slp-20220531_g1.jpgSLP_TopLogo.gif
Simulations Plus, Inc.
(Name of registrant as specified in its charter)
California95-4595609
(State or other jurisdiction of Incorporation or Organization)(I.R.S. Employer identification No.)
42505 10th Street West
Lancaster, CA 93534-7059
(Address of principal executive offices including zip code)
(661) 723-7723
(Registrant’s telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class
Common Stock, par value $0.001 per share
Trading Symbol
SLP
Name of Each Exchange on Which Registered
NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):
xLarge accelerated FileroAccelerated Filer
oNon-accelerated FileroSmaller reporting company
oEmerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of June 30, 2022,2023, was 20,235,562.19,926,819.


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Simulations Plus, Inc.
FORM 10-Q
For the Quarterly Period Ended May 31, 20222023

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1A.
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PartPART I. FINANCIAL INFORMATION
Item 1.    Condensed Consolidated Financial Statements

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SIMULATIONS PLUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)(Audited)
(in thousands, except share and per share amounts)May 31, 2022August 31, 2021
ASSETS
Current assets
Cash and cash equivalents$42,353 $36,984 
Accounts receivable, net of allowance for doubtful accounts of $12 and $7818,587 9,851 
Prepaid income taxes322 1,012 
Prepaid expenses and other current assets3,472 4,846 
Short-term investments80,120 86,620 
Total current assets144,854 139,313 
Long-term assets
Capitalized computer software development costs, net of accumulated amortization of $15,376 and $14,4388,974 7,646 
Property and equipment, net607 1,838 
Operating lease right-of-use assets1,533 1,276 
Intellectual property, net of accumulated amortization of $7,585 and $6,5169,400 10,469 
Other intangible assets, net of accumulated amortization of $2,635 and $2,1867,717 6,464 
Goodwill12,921 12,921 
Other assets217 51 
Total assets$186,223 $179,978 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable$426 $387 
Accrued payroll and other expenses2,947 5,604 
Contracts payable - current portion— 4,550 
Operating lease liability - current portion459 382 
Deferred revenue2,083 651 
Total current liabilities5,915 11,574 
Long-term liabilities
Deferred income taxes, net1,680 1,726 
Operating lease liability1,069 896 
Total liabilities8,664 14,196 
Commitments and contingencies00
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, 20,234,654 and 20,141,521 shares issued and outstanding137,556 133,418 
Retained earnings40,297 32,407 
Accumulated other comprehensive loss(294)(43)
Total shareholders' equity177,559 165,782 
Total liabilities and shareholders' equity$186,223 $179,978 
(Unaudited)(Audited)
(in thousands, except share and per share amounts)May 31, 2023August 31, 2022
ASSETS
Current assets
Cash and cash equivalents$55,131 $51,567 
Accounts receivable, net of allowance for doubtful accounts of $49 and $1210,214 13,787 
Prepaid income taxes— 1,391 
Prepaid expenses and other current assets4,730 3,377 
Short-term investments67,234 76,668 
Total current assets137,309 146,790 
Long-term assets
Capitalized computer software development costs, net of accumulated amortization of $16,857 and $15,67211,000 9,563 
Property and equipment, net701 632 
Operating lease right-of-use assets982 1,420 
Intellectual property, net of accumulated amortization of $8,903 and $7,9288,007 9,057 
Other intangible assets, net of accumulated amortization of $1,943 and $2,6627,698 7,560 
Goodwill12,921 12,921 
Other assets516 439 
Total assets$179,134 $188,382 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable$357 $225 
Accrued compensation3,818 3,254 
Accrued expenses552 931 
Income taxes payable793 — 
Operating lease liability - current portion330 461 
Deferred revenue3,172 2,864 
Total current liabilities9,022 7,735 
Long-term liabilities
Deferred income taxes, net110 1,456 
Operating lease liability612 943 
Total liabilities9,744 10,134 
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; 19,926,819 and 20,260,070 shares issued and outstanding143,666 138,512 
Retained earnings25,858 40,044 
Accumulated other comprehensive loss(134)(308)
Total shareholders' equity169,390 178,248 
Total liabilities and shareholders' equity$179,134 $188,382 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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SIMULATIONS PLUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For the three and nine months ended May 31, 20222023 and 20212022
(Unaudited)
(in thousands, except per common share amounts)Three Months EndedNine Months Ended
2022202120222021
Revenues
Software$9,647 $8,298 $26,767 $22,337 
Services5,312 4,479 15,405 14,288 
Total revenues14,959 12,777 42,172 36,625 
Cost of revenues    
Software730 800 2,245 2,448 
Services1,829 1,671 5,900 5,367 
Total cost of revenues2,559 2,471 8,145 7,815 
Gross profit12,400 10,306 34,027 28,810 
Operating expenses    
Research and development655 670 2,439 2,771 
Selling, general, and administrative6,799 5,094 17,371 14,960 
Total operating expenses7,454 5,764 19,810 17,731 
 
Income from operations4,946 4,542 14,217 11,079 
    
Other income (expense), net(112)(51)(169)
    
Income before income taxes4,834 4,491 14,223 10,910 
Provision for income taxes(747)(704)(2,701)(1,433)
Net income$4,087 $3,787 $11,522 $9,477 
    
Earnings per share    
Basic$0.20 $0.19 $0.57 $0.47 
Diluted$0.20 $0.18 $0.56 $0.46 
Weighted-average common shares outstanding
Basic20,212 20,105 20,180 20,014 
Diluted20,768 20,802 20,731 20,750 
Other Comprehensive income, net of tax
Foreign currency translation adjustments24 40 (251)36 
Comprehensive Income$4,111 $3,827 $11,271 $9,513 

Three Months Ended May 31,Nine Months Ended May 31,
(in thousands, except per common share amounts)2023202220232022
Revenues
Software$10,632 $9,647 $27,193 $26,767 
Services5,602 5,312 16,755 15,405 
Total revenues16,234 14,959 43,948 42,172 
Cost of revenues
Software908 730 2,636 2,245 
Services2,053 1,829 5,616 5,900 
Total cost of revenues2,961 2,559 8,252 8,145 
Gross profit13,273 12,400 35,696 34,027 
Operating expenses
Research and development945 655 3,428 2,439 
Selling, general, and administrative8,231 6,799 23,259 17,371 
Total operating expenses9,176 7,454 26,687 19,810 
   
Income from operations4,097 4,946 9,009 14,217 
Other income (expense), net843 (112)2,617 
   
Income before income taxes4,940 4,834 11,626 14,223 
Provision for income taxes(932)(747)(2,199)(2,701)
Net income$4,008 $4,087 $9,427 $11,522 
Earnings per share
Basic$0.20 $0.20 $0.47 $0.57 
Diluted$0.20 $0.20 $0.46 $0.56 
Weighted-average common shares outstanding
Basic19,972 20,212 20,123 20,180 
Diluted20,355 20,768 20,512 20,731 
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments144 24 174 (251)
Comprehensive income$4,152 $4,111 $9,601 $11,271 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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SIMULATIONS PLUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the three and nine months ended May 31, 20222023 and 20212022
(Unaudited)
Three Months Ended May 31,Nine Months Ended May 31,
(in thousands, except per common share amounts)(in thousands, except per common share amounts)Three Months EndedNine Months Ended(in thousands, except per common share amounts)2023202220232022
2022202120222021
Common stock and additional paid in capitalCommon stock and additional paid in capitalCommon stock and additional paid in capital
Balance, beginning of periodBalance, beginning of period$135,472 $130,713 $133,418 $128,541 Balance, beginning of period$137,821 $135,472 $138,512 $133,418 
Exercise of stock optionsExercise of stock options152 576 693 1,412 Exercise of stock options572 152 1,535 693 
Stock-based compensationStock-based compensation679 618 2,016 1,784 Stock-based compensation1,123 679 3,169 2,016 
Shares issued to Directors for servicesShares issued to Directors for services87 87 263 257 Shares issued to Directors for services150 87 450 263 
Shares issued - LixoftShares issued - Lixoft— 1,166 — 1,166 
Shares issued - Lixoft1,166 — 1,166 — 
Repurchase and retirement of common sharesRepurchase and retirement of common shares4,000 — — — 
Balance, end of periodBalance, end of period$137,556 $131,994 $137,556 $131,994 Balance, end of period143,666 137,556 143,666 137,556 
Retained earningsRetained earningsRetained earnings
Balance, beginning of periodBalance, beginning of period$37,422 $30,730 $32,407 $27,436 Balance, beginning of period27,050 37,422 40,044 32,407 
Declaration of dividend(1,212)(1,207)(3,632)(3,603)
Declaration of dividendsDeclaration of dividends(1,200)(1,212)(3,613)(3,632)
Repurchase and retirement of common sharesRepurchase and retirement of common shares(4,000)— (20,000)— 
Net incomeNet income4,087 3,787 11,522 9,477 Net income4,008 4,087 9,427 11,522 
Balance, end of periodBalance, end of period$40,297 $33,310 $40,297 $33,310 Balance, end of period25,858 40,297 25,858 40,297 
Accumulated other comprehensive income (loss)
Accumulated other comprehensive (loss) incomeAccumulated other comprehensive (loss) income
Balance, beginning of periodBalance, beginning of period$(318)$54 $(43)$58 Balance, beginning of period(278)(318)(308)(43)
Other comprehensive income (loss)Other comprehensive income (loss)24 40 (251)36 Other comprehensive income (loss)144 24 174 (251)
Balance, end of periodBalance, end of period$(294)$94 $(294)$94 Balance, end of period(134)(294)(134)(294)
Total shareholders’ equityTotal shareholders’ equity177,559 165,398 177,559 165,398 Total shareholders’ equity$169,390 $177,559 $169,390 $177,559 
Cash dividends declared per common shareCash dividends declared per common share$0.06 $0.06 $0.18 $0.18 Cash dividends declared per common share$0.06 $0.06 $0.18 $0.18 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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SIMULATIONS PLUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended May 31,Nine Months Ended May 31,
(in thousands)(in thousands)20222021(in thousands)20232022
Cash flows from operating activitiesCash flows from operating activitiesCash flows from operating activities
Net incomeNet income$11,522 $9,477 Net income$9,427 $11,522 
Adjustments to reconcile net income to net cash provided by operating activitiesAdjustments to reconcile net income to net cash provided by operating activitiesAdjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortizationDepreciation and amortization2,724 2,662 Depreciation and amortization2,803 2,724 
Change in value of contingent considerationChange in value of contingent consideration283 364 Change in value of contingent consideration— 283 
Amortization of investment premiums1,493 1,752 
Amortization of investment (discounts) premiumsAmortization of investment (discounts) premiums(738)1,493 
Stock-based compensationStock-based compensation2,279 2,041 Stock-based compensation3,548 2,279 
Deferred income taxesDeferred income taxes(46)(84)Deferred income taxes(1,346)(46)
Currency translation adjustmentsCurrency translation adjustments(251)36 Currency translation adjustments174 (251)
(Increase) decrease in(Increase) decrease in(Increase) decrease in
Accounts receivableAccounts receivable(8,736)(5,540)Accounts receivable3,573 (8,736)
Prepaid income taxesPrepaid income taxes690 478 Prepaid income taxes1,391 690 
Prepaid expenses and other assetsPrepaid expenses and other assets1,208 (796)Prepaid expenses and other assets(1,430)1,208 
Increase (decrease) inIncrease (decrease) inIncrease (decrease) in  
Accounts payableAccounts payable32 (51)Accounts payable132 32 
Accrued payroll and other expenses(2,657)363 
Other liabilitiesOther liabilities161 (2,657)
Accrued income taxesAccrued income taxes793 — 
Deferred revenueDeferred revenue1,432 228 Deferred revenue308 1,432 
Net cash provided by operating activitiesNet cash provided by operating activities9,973 10,930 Net cash provided by operating activities18,796 9,973 
Cash flows from investing activitiesCash flows from investing activitiesCash flows from investing activities  
Purchases of property and equipmentPurchases of property and equipment(740)(966)Purchases of property and equipment(257)(740)
Purchases of short-term investments(70,924)(63,964)
Proceeds from sale of short-term investments75,932 68,068 
Purchase of short-term investmentsPurchase of short-term investments(71,835)(70,924)
Proceeds from maturities of short-term investmentsProceeds from maturities of short-term investments82,007 75,932 
Purchased intangiblesPurchased intangibles(519)— 
Capitalized computer software development costsCapitalized computer software development costs(2,266)(2,273)Capitalized computer software development costs(2,550)(2,266)
Net cash provided by investing activitiesNet cash provided by investing activities2,002 865 Net cash provided by investing activities6,846 2,002 
Cash flows from financing activitiesCash flows from financing activitiesCash flows from financing activities  
Payment of dividendsPayment of dividends(3,632)(3,603)Payment of dividends(3,613)(3,632)
Payments on contracts payablePayments on contracts payable(3,667)— Payments on contracts payable— (3,667)
Proceeds from the exercise of stock optionsProceeds from the exercise of stock options693 1,412 Proceeds from the exercise of stock options1,535 693 
Repurchase and retirement of common sharesRepurchase and retirement of common shares(20,000)— 
Net cash used in financing activitiesNet cash used in financing activities(6,606)(2,191)Net cash used in financing activities(22,078)(6,606)
  
Net increase in cash and cash equivalentsNet increase in cash and cash equivalents5,369 9,604 Net increase in cash and cash equivalents3,564 5,369 
Cash and cash equivalents, beginning of yearCash and cash equivalents, beginning of year36,984 49,207 Cash and cash equivalents, beginning of year$51,567 $36,984 
Cash and cash equivalents, end of periodCash and cash equivalents, end of period$42,353 $58,811 Cash and cash equivalents, end of period$55,131 $42,353 
Supplemental disclosures of cash flow informationSupplemental disclosures of cash flow informationSupplemental disclosures of cash flow information
Income taxes paidIncome taxes paid$2,001 $893 Income taxes paid$1,559 $2,001 
Non-cash investing and financing activities
Non-Cash Investing and Financing ActivitiesNon-Cash Investing and Financing Activities  
Right of use assets capitalizedRight of use assets capitalized$624 $905 Right of use assets capitalized$— $624 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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SIMULATIONS PLUS, INC.Simulations Plus, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1:1 – GENERAL
This Quarterly Report on Form 10-Q for the quarter ended May 31, 20222023, should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended August 31, 2021,2022, filed with the Securities and Exchange Commission (“SEC”) on October 27, 2021.28, 2022. As contemplated by the SEC under Article 8 of Regulation S-X, the accompanying consolidated financial statements and footnotes have been condensed and therefore do not contain all disclosures required by generally accepted accounting principles. The interim financial data are unaudited; however, in the opinion of Simulations Plus, Inc., the interim data include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. Results for interim periods are not necessarily indicative of those to be expected for the full year.
Organization
Organization
Simulations Plus, Inc. (“Simulations Plus”) was incorporated on July 17, 1996. In September 2014, Simulations Plus acquired all of the outstanding equity interests of Cognigen Corporation (“Cognigen”) and Cognigen became a wholly owned subsidiary of Simulations Plus, Inc. In June 2017, Simulations Plus acquired DILIsym Services, Inc. (“DILIsym”) as a wholly owned subsidiary. In April 2020, Simulations Plus Inc. acquired Lixoft, a French société par actions simplifiée (“Lixoft”), as a wholly owned subsidiary pursuant to a stock purchase and contribution agreementagreement. (Simulations Plus together with its subsidiaries, collectively, the “Company,” “we,” “us,” “our”).

Effective September 1, 2021, the Company merged both Cognigen and DILIsym with and into Simulations Plus, Inc. through short formshort-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 (Simulation Plus’ 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.

On December 20, 2022, Simulations Plus International, Inc. (“SLPI”), a Delaware corporation, was created as a wholly owned subsidiary of Simulations Plus in order to facilitate future international acquisitions, if any, and global integrations. In furtherance of this objective, the Company added the trade name “SLP France” to Lixoft, and on April 25, 2023, Simulations Plus transferred its ownership of Lixoft to SLPI pursuant to a contribution and acceptance agreement, resulting in Lixoft becoming a wholly owned subsidiary of SLPI. The transfer did not impact the rights of the Company’s stockholders.
Lines of Business

We are a premier developer of drug discovery and development software for modeling and simulation, and for the prediction of molecular properties utilizing artificial intelligence (“AI”)both artificial-intelligence-based and machine-learning-based technology.technologies. We also provide consulting services ranging from early drug discovery through preclinical and clinical trial datadevelopment analysis and for submissions to regulatory agencies. Our software and consulting services are provided to major pharmaceutical, biotechnology, agrochemical, cosmetics, and food industry companies. They are also provided tocompanies and academic and regulatory agencies worldwide for use in the conduct of industry-based research and to regulatory agencies for product approval.research.
NOTE 2:2 – SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Simulations Plus and its wholly owned subsidiaries as applicable for the periods presented.operating subsidiary, Lixoft. All significant intercompany accounts and transactions have beenare eliminated uponin consolidation.




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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.
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Reclassifications
Reclassifications
Certain numbers in the prior year have been reclassified to conform to the current year'syear’s presentation.
Revenue Recognition
We generate revenue primarily from the sale of software licenses and by providing consulting services to the pharmaceutical industry for drug development.

In accordance with Accounting Standards Codification TopicASC 606, ("ASC Topic 606"), “Revenue from Contracts with Customers”, 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
iv.Allocation of the transaction price to the performance obligations in the contract
v.Recognition of revenue when, or as, we satisfy a performance obligation

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

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Revenue ComponentsTypical 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 account for a small portion of software revenues of the Company.
Consulting Contracts:
Consulting services provided to our customers are generally recognized over time as the contracts are performed and the services are rendered. The Company measures its consulting revenue based on time expended compared to total estimated hours to complete a project. The Company believes the method chosen for its contract revenue best depicts the transfer of benefits to the customer under the contracts.Payment terms vary, depending on the size of the contract, credit history and history with the client, and deliverables within the contract.
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
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 May 31, 2022,2023, remaining performance obligations were approximately $13.2$11.2 million. Approximately 89%Ninety-three percent of the remaining performance obligations are expected to be recognized over the next 12 months, with the remainder expected to be 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 RevenueRevenues

The components of disaggregation of revenue for the three and nine months ended May 31, 20222023, and 20212022 were as follows:
Three Months Ended May 31,Nine Months Ended May 31,
(in thousands)(in thousands)Three Months Ended
May 31,
Nine Months Ended
May 31,
(in thousands)2023202220232022
2022202120222021
Software licenses:
Software licensesSoftware licenses
Point in timePoint in time$9,380 $8,098 $25,980 $21,570 Point in time$10,348 $9,380 $26,341 $25,980 
Over timeOver time267 200 787 703 Over time284 267 852 787 
Consulting services:
ServicesServices   
Over timeOver time5,312 4,479 15,405 14,352 Over time5,602 5,312 16,755 15,405 
Total revenueTotal revenue$14,959 $12,777 $42,172 $36,625 Total revenue$16,234 $14,959 $43,948 $42,172 
In addition, the Company allocates revenues to geographic areas based on the locations of its customers. Geographical revenues for the three and nine months ended May 31, 2023, and 2022 were as follows:
(in thousands)Three Months Ended May 31,
20232022
$% of total$% of total
Americas$10,774 66 %$11,163 75 %
EMEA3,358 21 %1,925 13 %
Asia Pacific2,102 13 %1,871 12 %
Total$16,234 100 %$14,959 100 %
(in thousands)Nine Months Ended May 31,
20232022
$% of total$% of total
Americas$29,863 68 %$29,318 70 %
EMEA9,106 21 %8,656 21 %
Asia Pacific4,979 11 %4,198 %
Total$43,948 100 %$42,172 100 %
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 condensed 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 condensed consolidated balance sheets.
Contract asset balances as of May 31, 20222023, and August 31, 20212022, were $1.8$3.3 million and $3.2$1.7 million, respectively.
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During the three and nine months ended May 31, 2022, we2023, the Company recognized $68 thousand$0.2 million and $608 thousand,$2.5 million, respectively, of revenue that was included in contract liabilities as of August 31, 2021,2022, and during the three and nine months ended May 31, 2021, we2022, the Company recognized $30 thousand$0.1 million and $430 thousand,$0.6 million, respectively, of revenue that was included in contract liabilities as of August 31, 2020.2021.


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Deferred Commissions
Sales commissions earned by our sales force and our commissioned sales representatives are considered incremental and recoverable costs of obtaining a contract with a customer. We apply the practical expedient as described in ASC 340-40-25-4 to expense costs as incurred for sales commissions, since the amortization period of the asset that we otherwise would have recognized is one year or less. This expense is included in the condensed consolidated statements of operations and comprehensive income as selling, general, and administrative expense.
Cash and Cash Equivalents
For purposes of the statements of cash flows, we consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
Accounts Receivable and AllowancesAllowance for Credit Losses
The Company extends credit to its customers in the normal course of business. The Company evaluates its allowance for credit losses based on its estimate of the collectability of its trade accounts receivable. As part of this assessment, the Company considers various factors including the financial condition of the individual companies with which it does business, the aging of receivable balances, historical experience, changes in customer payment terms, current market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, the Company’s estimates and judgments with respect to the collectability of its receivables is subject to greater uncertainty than in more stable periods. Accounts receivable balances will be charged off against the allowance for credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.
The activity in the allowance for credit losses related to our trade receivables is summarized as follows:
Three Months Ended May 31,Nine Months Ended May 31,
2023202220232022
Balance, beginning of period$12 $12 $12 $78 
Provision for expected credit losses75 — 75 (66)
Write-offs(38)— (38)— 
Balance, end of period$49 $12 $49 $12 
Investments
The Company may invest excess cash balances in short-term and long-term marketable debt securities. Investments may consist of certificates of deposit, money market accounts, government-sponsored enterprise securities, corporate bonds, and/or commercial paper within the parameters of our Investment Policy and Guidelines. The Company accounts for its investments in marketable securities in accordance with Financial Accounting Standards Board (“FASB”) ASC 320, Investments – Debt and Equity Securities. This statement requires debt securities to be classified into three categories:

Held-to-maturity—Debt securities that the entity has the positive intent and ability to hold to maturity are measured at amortized cost and are presented at the net amount expected to be collected. Any change in the allowance for credit losses during the period is reflected in earnings. Discounts and premiums to par value of the debt securities are amortized to interest income/expense over the term of the security.

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

Available-for-Sale—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 lossunrealized-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.income (loss).


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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 quarter ended May 31, 2022,2023, all of our investments were classified as held-to-maturity.
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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.985-20. Capitalization of software development costs begins upon the establishment of technological feasibility and is discontinued when the product is available for sale.

The establishment of technological feasibility and the ongoing assessment for recoverability of capitalized software development costs require considerable judgment by management with respect to certain external factors including, but not limited to, technological feasibility, anticipated future gross revenue, estimated economic life, and changes in software and hardware technologies. Capitalized software development costs are comprised primarily of salaries and direct payroll-related costs and the purchase of existing software to be used in our software products.
Amortization of capitalized software development costs is calculated on a product-by-product basis on the straight-line method over the estimated economic life of the products (not to exceed five years). Amortization of software development costs amounted to $314 thousand$0.4 million and $344 thousand$0.3 million for the three months ended May 31, 20222023, and 2021,2022, respectively, and $938 thousand$1.2 million and $1.0$0.9 million for the nine months ended May 31, 20222023, and 2021,2022, 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, or fair market value for property and equipment acquired in business combinations, less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives as follows:
Equipment5 years
Computer equipment3 to 7 years
Furniture and fixtures5 to 7 years
Leasehold improvementsShorter 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 a service contract related to the implementation of internally used software. In accordance with ASC 350-40 “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”, we have capitalized certain internal-use software costs in accordance with ASC 350-40, which are included in long-termintangible assets.
The amortization of such costs is classified as selling, general, and administrative expenses on the condensed consolidated statementstatements of operations, and maintenanceoperations. Maintenance of and minor upgrades to internal-use software are also charged toclassified as selling, general, and administrative expenseexpenses 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 condensed consolidated balance sheets.

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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 May 31, 2022:2023:
(in thousands)
Right-of-useRight of use assets$1,533982 
Lease liabilities, current$459330 
Lease liabilities, long-term$1,069612 
Operating lease costs$394348 
Weighted averageWeighted-average remaining lease term3.303.83 years
Weighted averageWeighted-average discount rate3.414.71 %
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Intangible Assets and Goodwill
We perform valuations of assets acquired and liabilities assumed on each acquisition accounted for as a business combination and recognize the assets acquired and liabilities assumed at their acquisition-date fair value. Acquired intangible assets include customer relationships, software, trade names, and noncompete agreements. We determine the appropriate useful life by performing an analysis of expected cash flows based on historical experience of the acquired businesses. 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 our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.
Goodwill isand intangible assets are tested for impairment at the reporting unit level, which is either one level below or the same level as an operating segment. As of May 31, 2022, we determined that we have 4 reporting units: Simulations Plus, Cognigen, DILIsym, and Lixoft. When testing goodwill for impairment, we first perform 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. We are 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 our 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 our 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.
As of May 31, 2022, the entire balance of goodwill was attributed to three of our reporting units: Cognigen, DILIsym, and 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. We did not recognize any impairment charges duringDuring the three and nine months ended May 31, 2023, and 2022, there were no changes to our reporting units, and 2021.we did not recognize any impairment charges or additions to goodwill.
Reconciliation of GoodwillThe following table summarizes other intangible assets as of May 31, 2022:2023:
(in thousands)CognigenDILIsymLixoftTotal
Balance, August 31, 2021$4,789 $— $5,598 $— $2,534 $12,921 
Addition— — — — — — 
Impairments— — — — — — 
Balance, May 31, 2022$4,789 $5,598 $2,534 $12,921 
(in thousands)Amortization
Period
Acquisition
Value
Accumulated
Amortization
Net Book Value
Trade namesNone$2,910 $— $2,910 
Covenants not to competeStraight line 3 years60 60 — 
Other internal use softwareStraight line 3 to 5 years109 103 
Customer relationshipsStraight line 8 to 14 years4,450 1,706 2,744 
ERPStraight line 15 years2,112 171 1,941 
$9,641 $1,943 $7,698 

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The following table summarizes other intangible assets as of August 31, 2022:
(in thousands)Amortization
Period
Acquisition
Value
Accumulated
Amortization
Net Book Value
Trade namesNone$2,910 $— $2,910 
Covenants not to competeStraight line 3 years60 48 12 
Customer relationshipsStraight line 8 to 14 years5,550 2,534 3,016 
ERPStraight line 15 years1,702 80 1,622 
$10,222 $2,662 $7,560 
Total amortization expense for the three months ended May 31, 2023, and 2022 was $0.1 million and $0.2 million, respectively, and amortization expense for the nine months ended May 31, 2023, and 2022 was $0.4 million and $0.4 million, respectively.
Estimated future amortization of finite-lived intangible assets for the next five years is as follows:
(in thousands)
Year Ending August 31,Amount
Remainder of 2023$138 
2024$513 
2025$513 
2026$513 
2027$466 
Fair Value of Financial Instruments
Assets and liabilities recorded at fair value in the Condensed Consolidated Balance Sheetscondensed consolidated 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 IInputs that are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level IIInputs, 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 IIIUnobservable 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, the carrying amounts approximateare representative of their fair value due to their short maturities.
The following table summarizes fair value measurements
We invest a portion of our excess cash balances in short-term debt securities. Investments at May 31, 20222023, consisted of corporate bonds and August 31, 2021term deposits with maturities remaining of less than 12 months. Under the fair-value hierarchy, the fair market values of the Company’s cash equivalents and investments are Level I. We may also invest excess cash balances in certificates of deposit, money market accounts, government-sponsored enterprise securities, and/or commercial paper. We account for assetsour investments in accordance with ASC 320, Investments – Debt and liabilities measured at fair value on a recurring basis:
May 31, 2022:
(in thousands)Level 1Level 2Level 3Total
Cash and cash equivalents$42,353 $— $— $42,353 
Short-term investments$79,801 $— $— $79,801 
Acquisition-related contingent consideration obligations$— $— $— $ 
August 31, 2021:
(in thousands)Level 1Level 2Level 3Total
Cash and cash equivalents$36,984 $— $— $36,984 
Short-term investments$86,484 $— $— $86,484 
Acquisition-related contingent consideration obligations$— $— $3,217 $3,217 
Equity Securities. As of May 31, 2022,2023, all investments were classified as held-to-maturity securities, as we had no liabilityhave the positive intent and ability to hold these securities until maturity. We believe unrealized losses on investments were primarily caused by rising interest rates rather than changes in credit quality, and, accordingly, we have not recorded an allowance for contingent consideration related tocredit losses on our acquisition of Lixoft, anddebt securities as of May 31, 2023, and August 31, 2021, we had a liability for contingent consideration related to our acquisition of Lixoft. The fair value measurement of the contingent consideration obligations is determined using Level 3 inputs. The fair value of contingent consideration obligations is based on a discounted cash flow model using a probability-weighted income approach. These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in 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 we record in any given period. The liability is recorded as contracts payable on the condensed consolidated balance sheet, and changes in the value of the contingent consideration obligations are recorded as other income (expense), net in our Condensed Consolidated Statement of Operations and Comprehensive Income.2022.


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The following is a reconciliationtables summarize our short-term investments as of contingent consideration value:May 31, 2023, and August 31, 2022:
(in thousands)
Value at August 31, 2021$3,217 
Contingent consideration payments - cash(2,334)
Contingent consideration payments - stock(1,166)
Change in value of contingent consideration283 
Value at May 31, 2022$
May 31, 2023
(in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Commercial notes (due within one year)$64,234 $— $(150)$64,084 
Term deposits (due within one year)3,000 — — 3,000 
Total$67,234 $— $(150)$67,084 
August 31, 2022
(in thousands)Amortized CostGross
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 
Research and Development Costs
Research and development costs are charged to expense as incurred until technological feasibility has been established. These costs include salaries, laboratory experiments, and purchased software that was developed by other companies and incorporated into, or used in the development of, our final products.
Income Taxes
We account for income taxes in accordance with ASC 740-10, “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
The following table summarizes intellectual property as of May 31, 2022:2023:
(in thousands)(in thousands)Amortization
Period
Acquisition
Value
Accumulated
Amortization
Net Book
Value
(in thousands)Amortization
Period
Acquisition
Value
Accumulated
Amortization
Net Book
Value
Royalty Agreement buy out-Enslein ResearchStraight line 10 years$75 $75 $— 
Termination/nonassertion agreement-TSRL Inc.Termination/nonassertion agreement-TSRL Inc.Straight line 10 years6,000 4,825 1,175 Termination/nonassertion agreement-TSRL Inc.Straight line 10 years6,000 5,425 575 
Developed technologies–DILIsym acquisitionDeveloped technologies–DILIsym acquisitionStraight line 9 years2,850 1,583 1,267 Developed technologies–DILIsym acquisitionStraight line 9 years2,850 1,901 949 
Intellectual rights of Entelos Holding Corp.Straight line 10 years50 19 31 
Intellectual rights of Entelos Holding CompanyIntellectual rights of Entelos Holding CompanyStraight line 10 years50 25 25 
Developed technologies–Lixoft acquisitionDeveloped technologies–Lixoft acquisitionStraight line 16 years8,010 1,083 6,927 Developed technologies–Lixoft acquisitionStraight line 16 years8,010 1,552 6,458 
$16,985 $7,585 $9,400 $16,910 $8,903 $8,007 



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The following table summarizes intellectual property as of August 31, 2021:2022:
(in thousands)(in thousands)Amortization
Period
Acquisition
Value
Accumulated
Amortization
Net Book
Value
(in thousands)Amortization
Period
Acquisition
Value
Accumulated
Amortization
Net Book
Value
Royalty Agreement buy out-Enslein ResearchRoyalty Agreement buy out-Enslein ResearchStraight line 10 years$75 $— $71 $Royalty Agreement buy out-Enslein ResearchStraight line 10 years$75 $75 $— 
Termination/nonassertion agreement-TSRL Inc.Termination/nonassertion agreement-TSRL Inc.Straight line 10 years6,000 — 4,375 1,625 Termination/nonassertion agreement-TSRL Inc.Straight line 10 years6,000 4,975 1,025 
Developed technologies–DILIsym acquisitionDeveloped technologies–DILIsym acquisitionStraight line 9 years2,850 — 1,346 1,504 Developed technologies–DILIsym acquisitionStraight line 9 years2,850 1,662 1,188 
Intellectual rights of Entelos Holding Corp.Straight line 10 years50 — 15 35 
Intellectual rights of Entelos Holding CompanyIntellectual rights of Entelos Holding CompanyStraight line 10 years50 20 30 
Developed technologies–Lixoft acquisitionDeveloped technologies–Lixoft acquisitionStraight line 16 years8,010 — 709 7,301 Developed technologies–Lixoft acquisitionStraight line 16 years8,010 1,196 6,814 
$16,985 $6,516 $10,469 $16,985 $7,928 $9,057 
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AmortizationTotal amortization expense for intellectual property agreements for the three months ended May 31, 2023 and 2022 was $0.4 million and 2021 was $354 thousand and $358 thousand,$0.4 million, respectively, and amortization expense for intellectual property agreements for the nine months ended May 31, 20222023 and 20212022 was $1.1 million and $1.1 million, respectively.
Other intangible assets
The following table summarizes our other intangible assets asEstimated future amortization of May 31, 2022:
(in thousands)Amortization
Period
Acquisition
Value
Accumulated
Amortization
Net Book
Value
Simulations Plus
ERPStraight line 15 years$1,702 $52 $1,650 
Cognigen
Customer relationshipsStraight line 8 years1,100 1,065 35 
Trade nameNone500 — 500 
Covenants not to competeStraight line 5 years50 50 — 
DILIsym
Customer relationshipsStraight line 10 years1,900 951 949 
Trade nameNone860 — 860 
Covenants not to competeStraight line 4 years80 80 — 
Lixoft
Customer relationshipsStraight line 14 years2,550 394 2,156 
Trade nameNone1,550 — 1,550 
Covenants not to competeStraight line 3 years60 43 17 
$10,352 $2,635 $7,717 
The following table summarizes our other intangible assets as of August 31, 2021:
(in thousands)Amortization
Period
Acquisition
Value
Accumulated
Amortization
Net Book
Value
Cognigen
Customer relationshipsStraight line 8 years$1,100 $963 $137 
Trade nameNone500 — 500 
Covenants not to competeStraight line 5 years50 50 — 
DILIsym
Customer relationshipsStraight line 10 years1,900 807 1,093 
Trade nameNone860 — 860 
Covenants not to competeStraight line 4 years80 80 — 
Lixoft
Customer relationshipsStraight line 14 years2,550 258 2,292 
Trade nameNone1,550 — 1,550 
Covenants not to competeStraight line 3 years60 28 32 
$8,650 $2,186 $6,464 
Amortization expense for other intangible assetsintellectual property for the three months ended May 31, 2022 and 2021 was $160 thousand and $137 thousand, respectively, and amortization expense for other intangible assets for the nine months ended May 31, 2022 and 2021 was $449 thousand and $412 thousand, respectively. In addition to normal amortization, these assets are tested for impairmentnext five years is as needed.follows:
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(in thousands)
Year Ending August 31,Amount
Remainder of 2023$343 
2024$1,218 
2025$793 
2026$717 
2027$477 
Earnings per Share
We report earnings per share in accordance with FASB ASC 260-10.260. Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed similarly to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The components of basic and diluted earnings per share for the three and nine months ended May 31, 20222023, and 20212022 were as follows:
Three Months Ended May 31,Nine Months Ended May 31,
(in thousands)(in thousands)Three Months Ended
May 31,
Nine Months Ended
May 31,
(in thousands)2023202220232022
2022202120222021
Numerator:
NumeratorNumerator
Net income attributable to common shareholdersNet income attributable to common shareholders$4,087 $3,787 $11,522 $9,477 Net income attributable to common shareholders$4,008 $4,087 $9,427 $11,522 
Denominator:
Weighted-average number of common shares outstanding during the period20,212 20,105 20,180 20,014 
DenominatorDenominator
Weighted-average number of common shares outstanding during the yearWeighted-average number of common shares outstanding during the year19,972 20,212 20,123 20,180 
Dilutive effect of stock optionsDilutive effect of stock options556 697 551 736 Dilutive effect of stock options383 556 389 551 
Common stock and common stock equivalents used for diluted earnings per shareCommon stock and common stock equivalents used for diluted earnings per share20,768 20,802 20,731 20,750 Common stock and common stock equivalents used for diluted earnings per share20,355 20,768 20,512 20,731 
Stock-Based Compensation
Compensation costs related to stock options are determined in accordance with FASB ASC 718-10, “Compensation-Stock Compensation”.718. Compensation cost is calculated based on the grant-date fair value estimated in accordance with FASB ASC 718-10,using the Black-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 $679 thousand$1.1 million and $618 thousand$0.7 million for the three months ended May 31, 20222023, and 2021,2022, respectively, and $2.0$3.2 million and $1.8$2.0 million for the nine months ended May 31, 2023, and 2022, and 2021, respectively. This expense is included in the condensed consolidated statements

Table of operations as selling, general, and administration and research and development expense.Contents
Impairment of Long-lived Assets
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 three and nine months ended May 31, 20222023, and 2021.2022.
Recently Issued Accounting PronouncementsStandards
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments in ASU 2020-04 provide temporary optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships, and other transactions to ease the potential accounting and financial reporting burden associated with transitioning away from reference rates that are expected to be discontinued, including the London Interbank Offered Rate (“LIBOR”). This ASU is effective as of March 12, 2020, through December 31, 2022. The adoption of the new standard has not had and is not expected to have, a material impact on our consolidated financial statements or related disclosures.
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In October 2021, the FASB issued ASU 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, 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 2021-08 is effective for interim and annual periods beginning after December 15, 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.
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 reporting periods beginning after December 15, 2021. The Company does not expect that the adoption of this standard will have a material impact on its condensed consolidated financial statements; however, the Company expects to increase its disclosures with respect to government assistance beginning in the first quarter of fiscal year 2023.None.
NOTE 3:3 – OTHER INCOME (EXPENSE), NET
The components of other income (expense), net for the three and nine months ended May 31, 20222023, and 2021,2022, were as follows:
Three Months Ended May 31,Nine Months Ended May 31,
(in thousands)(in thousands)Three Months Ended
May 31,
Nine Months Ended
May 31,
(in thousands)2023202220232022
Interest incomeInterest income$1,120 $139 $2,876 $278 
2022202120222021
Interest income$139 $37 $278 $156 
Interest expense— — — (22)
Change in valuation of contingent considerationChange in valuation of contingent consideration(40)(121)(283)(364)Change in valuation of contingent consideration— (40)— (283)
Gain on sale of assetsGain on sale of assets— — — Gain on sale of assets— — — 
Gain (loss) on currency exchange(211)33 10 61 
(Loss) gain on currency exchange(Loss) gain on currency exchange(277)(211)(259)10 
Total other income (expense), netTotal other income (expense), net$(112)$(51)$6 $(169)Total other income (expense), net$843 $(112)$2,617 $6 
NOTE 4: INVESTMENTS
We invest a portion of our excess cash balances in short-term debt securities within the parameters of our Investment Policy and Guidelines. Investments as of May 31, 2022, consisted of corporate bonds and term deposits with maturities remaining of less than twelve months. We may also invest excess cash balances in certificates of deposit, money market accounts, government-sponsored enterprise securities, corporate bonds, and/or commercial paper. We account for investments in accordance with FASB ASC 320, Investments – Debt and Equity Securities. As of May 31, 2022, all investments were classified as held-to-maturity securities.
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The following tables summarize our short-term investments as of May 31, 2022 and August 31, 2021:
May 31, 2022
(in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Commercial notes (due within one year)$75,620 $— $(319)$75,301 
Term deposits (due within one year)$4,500 $— $— $4,500 
Total$80,120 $— $(319)$79,801 
August 31, 2021
(in thousands)Amortized CostGross
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 5: CONTRACTS PAYABLE
Lixoft Acquisition Liabilities:
On April 1, 2020, we 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 of up to $5.5 million (two-thirds cash and one-third newly issued, unregistered shares of our common stock). The former shareholders of Lixoft 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 valud 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 valud at $1.2 million.
As of May 31, 2022 and August 31, 2021, the following liabilities have been recorded:
(in thousands)May 31,
2022
August 31,
2021
Holdback liability$— $1,333 
Earnout liability— 3,217 
Sub total$— $4,550 
Less: current portion— 4,550 
Long-term portion$— $— 
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NOTE 6:4 – COMMITMENTS AND CONTINGENCIES
Leases
WeOn May 25, 2023, we entered into an amendment, effective October 1, 2023, to the lease agreement for our office space in Durham, North Carolina. Prior to entering into the amendment, this lease was scheduled to terminate pursuant to its terms effective on September 30, 2023. The amendment extends the lease through September 30, 2026, and effective October 1, 2023, reduces the leased square footage from 3,386 to approximately 9,255 square feet1,510, and reduces the monthly base rent from $8 thousand per month to $4 thousand per month with an annual increase of 3%. The amended lease agreement gives the Company the right to extend the lease for 60 months, upon 9 months prior notice.
On February 17, 2023, we entered into an amendment, effective May 1, 2023, to the lease agreement for our office space in Lancaster, California, where our corporate headquarters are located. Prior to entering into the amendment, this lease was scheduled to terminate pursuant to its terms effective on January 31, 2026. The amendment extends the lease term extendsthrough April 30, 2028, reduces the leased square footage from 9,255 to January 31, 2026,approximately 4,200, and reduces the monthly base rent is $17from $18 thousand per month.month to $8 thousand per month with an annual increase of 3%. The amended lease agreement gives the Company the right, upon 180 days’ prior notice, to opt out of all or part of the last fourthree years of the lease term with no penalty.
We lease approximately 4,317 square feet of office space in Buffalo, New York. The lease term extends to November 30, 2026, and the base rent is $7 thousand per month with an annual 2% increase. The lease agreement 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 approximately 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 lease approximately 3,386 square feet of office space in Durham, North Carolina. The lease term extends to September 30, 2023, and the base rent is $8 thousand per month with an annual 3% increase.
We lease approximately 2,300 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 adjustedwhich amount is subject to adjustment each December based on a consumer price index.
We lease approximately 64 square feet consisting of 3 server cabinets inhave a data center colocation space in Buffalo, New York. TheYork, with a lease term extends tothrough November 30, 2026, and the rent isof $4 thousand per month with an annual 3% increase.


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Rent expense, including common area maintenance fees for the three months ended May 31, 2023, and 2022, was $0.1 million and 2021, was $138 thousand and $167 thousand,$0.1 million, respectively, and $414 thousandwas $0.4 million and $499 thousand$0.4 million for the nine months ended May 31, 20222023, and 2021,2022, respectively.
The following table presentsLease liability maturities of operating lease liabilities on an undiscounted basis as of May 31, 2022:2023, were as follows:
(in thousands)
Years Ending May 31,
2023$509 
2024438 
2025363 
2026269 
202750 
Total undiscounted liabilities1,629 
Less: imputed interest(101)
Total operating lease liabilities (including current portion)$1,528 
Line of Credit
On March 31, 2020, we 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.
(in thousands)Year Ending August 31,Amount
Remainder of 2023$95 
2024321 
2025262 
2026246 
2027111 
202851 
Total undiscounted liabilities1,086 
Less: imputed interest(144)
Total operating lease liabilities (including current portion)$942 
Employment Agreements

In the normal course of business, we havethe Company has entered into employment agreements with certain of our key management personnelits executive officers that may require compensation payments upon termination.
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Income Taxes

We follow guidance issued by the FASB with regard to our accounting for uncertainty in income taxes recognized in the financial statements. Such guidance prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position, and must assume that the tax position will be examined by taxing authorities. Our policy is to include interest and penalties related to income tax expense. We file income tax returns with the IRS and various state jurisdictions as well as with the countries of India and France. Our federal income tax returns for fiscal years 20182019 through 20212022 are open for audit, and our state tax returns for fiscal years 20172018 through 20212022 remain open for audit.

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

We are not a party to any legal proceedings and are not aware of any pending threatened, or unassertedthreatened legal proceedings of any kind.
NOTE 7: SHAREHOLDERS’5 – SHAREHOLDERS' EQUITY
Shares Outstanding

Shares of Company common stock outstanding for the three and nine months ended May 31, 20222023 and 20212022 were as follows:
Three Months Ended
May 31,
Nine Months Ended
May 31,
2022202120222021
Common stock outstanding, beginning of the period20,181,784 20,059,528 20,141,521 19,923,277 
Common stock issued during the period52,870 61,512 93,133 197,763 
Common stock outstanding, end of the period20,234,654 20,121,040 20,234,654 20,121,040 
Dividends
Our Board of Directors declared cash dividends during fiscal years 2022 and 2021. The details of the dividends paid are in the following tables:
(in thousands, except dividend per share)Fiscal Year 2022
Record DateDistribution DateNumber of Shares
Outstanding on
Record Date
Dividend per
Share
Total Amount
10/25/202111/01/202120,148 $0.06 1,209 
1/31/20222/07/202220,178 $0.06 1,211 
4/25/20225/02/202220,207 $0.06 1,212 
Total$3,632 
Three Months Ended May 31,Nine Months Ended May 31,
2023202220232022
Common stock outstanding, beginning of period19,930,623 20,181,784 20,260,070 20,141,521 
Common stock repurchased during the period *(83,356)— (492,041)— 
Common stock issued during the period79,552 52,870 158,790 93,133 
Common stock outstanding, end of period19,926,819 20,234,654 19,926,819 20,234,654 
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(in thousands, except dividend per share)Fiscal Year 2021
Record DateDistribution DateNumber of Shares
Outstanding on
Record Date
Dividend per
Share
Total Amount
10/26/202011/02/202019,924 $0.06 $1,195 
1/25/20212/01/202120,010 $0.06 1,201 
4/26/20215/03/202120,115 $0.06 1,207 
7/26/20218/02/202120,139 $0.06 1,208 
Total$4,811 
*Common stock repurchased per the ASR Agreement, as discussed in further detail, below.
Dividends

The Company’s Board of Directors declared cash dividends during the fiscal years 2023and 2022. The details of dividends paid are in the following tables:
(in thousands, except dividend per share)Fiscal Year 2023
Record DateDistribution DateNumber of Shares
Outstanding on
Record Date
Dividend per
Share
Total Amount
10/31/202211/07/202220,299 $0.06 $1,218 
1/30/20232/06/202319,924 $0.06 1,195 
4/24/20235/01/202319,999 $0.06 1,200 
Total$3,613 
(in thousands, except dividend per share)Fiscal Year 2022
Record DateDistribution DateNumber of Shares
Outstanding on
Record Date
Dividend per
Share
Total Amount
10/25/202111/01/202120,148 $0.06 $1,209 
1/31/20222/07/202220,178 $0.06 1,211 
4/25/20225/02/202220,207 $0.06 1,212 
7/25/20228/01/202220,239 $0.06 1,214 
Total  $4,846 
Stock Option Plans
On February 23, 2007, the Company’s Board of Directors adopted, and its shareholders approved, the 2007 Stock Option Plan (the “2007 Plan”), under which a total of 1.0 million shares of common stock were reserved for issuance. On February 25, 2014, the shareholders approved an additional 1.0 million shares, increasing the total number of shares available to be granted under the 2007 Plan to 2.0 million. This plan terminated in February 2017 by its terms.
On December 23, 2016, the Company’s Board of Directors adopted, and on February 23, 2017, its shareholders approved, the Company’s 2017 Equity Incentive Plan (the “2017 Plan”), under which a total of 1.0 million shares of common stock were reserved for issuance. The 2017 Plan will terminateplan 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 Company’s Board of Directors adopted, and on June 23, 2021, its shareholders approved, the Company’s 2021 Equity Incentive Plan (the “2021 Plan,” and together with the 2007 Plan and 2017 Plan, the “Plans”), under which a total of 1.3 million shares of common stock were initially reserved for issuance. On October 20, 2022, the Company’s Board of Directors approved, and on February 9, 2023, its shareholders approved, an amendment to the 2021 Plan to increase the number of shares of common stock authorized for issuance thereunder from 1.3 million shares to 1.55 million shares of common stock of the Company. The 2021 Plan became effective as of April 9, 2021, and the Company may issue equity awards to permitted recipients thereunder. The maximum contractual life of the plan is ten years.will terminate in 2031.
As of May 31, 2022,2023, employees and directors holdheld Qualified Incentive Stock Options (“ISOs”) and Non-Qualified Stock Options (“NQSOs”) to purchase 1.3an aggregate of 1.5 million shares of common stock at exercise prices ranging from $6.85 to $66.14.$66.14 per share.




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The following table summarizestables summarize information about stock options:
(in thousands, except per share and weighted-average amounts)Number of
Options
Weighted-
Average
Exercise
Price
Per Share
Weighted-
Average
Remaining
Contractual
Life (Years)
Transactions during the nine months ended May 31, 2022
Outstanding, August 31, 20211,184 $25.63 6.47
Granted232 $41.40 
Exercised(76)$15.93 
Cancelled/Forfeited(64)$41.04 
Outstanding, May 31, 20221,276 $28.31 6.33
Exercisable, May 31, 2022722 $16.96 4.66
(in thousands, except per share and weighted-average amounts)
 Transactions During The Nine Months Ended May 31, 2023Number of
Options
Weighted-Average
Exercise Price
Per Share
Weighted-Average
Remaining
Contractual Life
Outstanding, August 31, 20221,245 $28.61 6.14 years
Granted450 43.82 
Exercised(157)12.04 
Canceled/Forfeited(54)43.00 
Outstanding, May 31, 20231,484 $34.44 6.83 years
Vested and Exercisable, May 31, 2023696 $23.51 4.74 years
Vested and Expected to Vest, May 31, 20231,478 $34.40 6.82 years
The total grant-date fair value of nonvested stock options as of May 31, 20222023, was $7.5$15.7 million and is amortizable over a weighted averageweighted-average period of 3.333.49 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 valuationoption-valuation models require the input of highly subjective assumptions, including the expected stock price volatility.
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The following table summarizes the fair value of the options, including both ISOs and NQSOs, granted during the nine months ended May 31, 2022current fiscal year 2023 and fiscal year 2021:2022:
(in thousands except pricing)Nine Months Ended
May 31, 2022
Fiscal Year 2021
Estimated fair value of awards granted$4,066 $— $5,092 
Unvested forfeiture rate%%
Weighted average grant price$41.40 $57.60 
Weighted average market price$41.40 $57.60 
Weighted average volatility42.71 %40.49 %
Weighted average risk-free rate1.62 %0.64 %
Weighted average dividend yield0.59 %0.42 %
Weighted average expected life6.59 years6.63 years
(in thousands, except prices)Nine Months Ended May 31, 2023Fiscal Year 2022
Estimated fair value of awards granted$9,788 $4,597 
Unvested Forfeiture Rate0.00 %1.04 %
Weighted-average grant price$43.82 $42.13 
Weighted-average market price$43.82 $42.13 
Weighted-average volatility46.15 %42.80 %
Weighted-average risk-free rate4.29 %1.74 %
Weighted-average dividend yield0.55 %0.58 %
Weighted-average expected life6.59 years6.59 years








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The exercise prices for the options outstanding at May 31, 20222023, ranged from $6.85 to $66.14, and the information relating to these options is as follows:
(in thousands except prices)
Exercise PriceAwards OutstandingAwards Exercisable
LowHighQuantityWeighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
QuantityWeighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
$6.85 $9.77 296 3.02 years$8.33 296 3.02 years$8.33 
$9.78 $18.76 208 4.58 years$10.37 207 4.58 years$10.35 
$18.77 $33.40 253 6.64 years$25.15 129 6.26 years$24.11 
$33.41 $47.63 240 8.86 years$38.37 34 7.31 years$35.75 
$47.64 $66.14 279 8.69 years$57.06 56 8.39 years$58.93 
1,276 6.33 years$28.31 722 4.66 years$16.96 
(in thousands except prices)
Exercise PriceAwards OutstandingAwards Exercisable
LowHighQuantityWeighted -Average
Remaining
Contractual
Life
Weighted-Average
Exercise
Price
QuantityWeighted-Average
Remaining
Contractual
Life
Weighted-Average
Exercise
Price
$6.85 $9.77 203 2.21 years$8.69 203 2.21 years$8.69 
$9.78 $18.76 155 3.74 years$10.11 155 3.74 years$10.11 
$18.77 $33.40 210 5.89 years$25.34 146 5.80 years$24.57 
$33.41 $47.63 640 8.92 years$42.10 83 7.29 years$37.95 
$47.64 $66.14 276 7.81 years$56.34 109 7.53 years$58.02 
  1,484 6.83 years$34.44 696 4.74 years$23.51 
During the three and nine months ended May 31, 2022, the Company2023, we issued 1,8753,595 and 5,32610,755 shares of stock valued at $87 thousand$0.2 million and $263 thousand,$0.5 million, respectively, to our non-managementnonmanagement directors as compensation for board-related duties.
The balancebalances of par valueour par-value common stock and additional paid-in capital as of May 31, 2022, was2023, were $11 thousand and $137.5$143.7 million, respectively.
Share Repurchases
On January 11, 2023, the Company entered into an accelerated share repurchase agreement (the “ASR Agreement”) with Morgan Stanley & Co. LLC (“Morgan Stanley”) to repurchase an aggregate of $20 million of the Company’s outstanding shares of common stock. The ASR Agreement was executed as part of the Company’s existing $50 million share repurchase program.

Pursuant to the terms of the ASR Agreement, the Company made an initial payment, using available cash balances, of $20 million to Morgan Stanley and received an initial delivery of 408,685 shares of Company common stock from Morgan Stanley. These 408,685 shares were retired and are treated as authorized, unissued shares. At final settlement on May 20, 2023, based on the volume-weighted average price of the Company's common stock during the term of the ASR Agreement, Morgan Stanley delivered an additional 83,356 shares of Company common stock to the Company, which shares were also retired and treated as authorized, unissued shares.

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NOTE 8:6 – CONCENTRATIONS AND UNCERTAINTIES
Financial instruments that potentially subject usthe Company to concentration of credit risk consist principally of cash, cash equivalents, trade accounts receivable, and short-term investments. The Company holds cash and cash equivalents with balances that exceed FDIC insured limits. Cash maintained in excess of these limits is on deposit with a large, national bank. Accordingly, the Company does not have depository exposure to regional banks. In addition, we holdthe Company holds cash at a bank in France that is not FDIC-insured. Historically, we havethe Company has not experienced any losses in such accounts. However, weaccounts, and management believes that the financial institutions at which its cash is held are investigating alternative ways to minimize our exposure to such risks.stable; however, no assurances can be provided. While wethe Company may be exposed to credit losses due to the nonperformance of ourits counterparties, we dothe Company does not expect the settlement of these transactions to have a material effect on ourits results of operations, cash flows, or financial condition. We maintain cash and cash equivalents at financial institutions that may, at times, exceed federally insured limits.
Revenue concentration shows that international sales accounted for 32% and 30% and 31% of net salesrevenue for the nine months ended May 31, 2023, and 2022, respectively. Our four largest customers in terms of revenue accounted for 6%, 5%, 3%, and 2021, respectively. Four2% of revenue, respectively, for the nine months ended May 31, 2023. Our four largest customers in terms of revenue accounted for 5%, 4%, 3%, and 3% of net sales duringrevenue, respectively, for the nine months ended May 31, 2022. Three customers accounted for 12%, 4%, and 4% of net sales during the nine months ended May 31, 2021.
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Accounts receivable concentration showsconcentrations show that our six largest customers in terms of accounts receivable each comprised between 3% and 9% of accounts receivable as of May 31, 2023; our four largest customers eachin terms of accounts receivable comprised between 5% and 6% of accounts receivable as of May 31, 2022, compared to four customers each comprising between 7% and 10% of accounts receivable as of May 31, 2021.2022.
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 7 – 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.chief operating decision maker (“CODM”) reviews certain financial information based on these reportable segments. The extent to which the COVID-19 pandemic continues to impact our business going forward will depend on numerous factors we cannot reliably predict, including the durationCODM reviews revenue and scopegross profit for both of the pandemic; businesses and individuals' actions in responsereportable segments. Gross profit is defined as revenue less cost of revenue incurred by the segment.
No operating segments have been aggregated to form the pandemic; andreportable segments. The Company does not allocate assets at the impact on economic activity, including the possibility of recession or financial market instability. These factors may adversely impact consumer, business, and government spendingreportable segment level, as well as customers' ability to pay for our products and servicesthese are managed on an ongoing basis. Asentity-wide group basis and, accordingly, the Company does not report asset information by segment. The Company does not allocate operating expenses that are managed on an entity-wide group basis and, accordingly, the Company does not allocate and report operating expenses at a result, our growth rate could be affected by consolidation and downsizing insegment level. There are no internal revenue transactions between the pharmaceutical industry.Company’s segments.

NOTE 9: SEGMENT AND GEOGRAPHIC REPORTING
We account for segments and geographic revenue in accordance with guidance issued byThe following tables summarize the FASB. Our reportable segments are strategic business units that offer different products and services.
Resultsresults for each business unit segment and consolidated results for the three and nine months ended May 31, 20222023, and 2021 were as follows:2022:
(in thousands)Three Months Ended May 31, 2022
SoftwareServicesTotal
Revenue$9,647 $5,312 $14,959 
Cost of revenue730 1,829 2,559 
Gross profit$8,917 $3,483 $12,400 
Gross margin92 %66 %83 %

(in thousands)Three Months Ended May 31, 2023
SoftwareServicesTotal
Revenues$10,632 $5,602 $16,234 
Cost of revenues908 2,053 2,961 
Gross profit$9,724 $3,549 $13,273 
Gross margin91 %63 %82 %
Our software business and services business represented 65% and 35% of total revenue, respectively, for the three months ended May 31, 2023.

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(in thousands)Three Months Ended May 31, 2022
SoftwareServicesTotal
Revenues$9,647 $5,312 $14,959 
Cost of revenues730 1,829 2,559 
Gross profit$8,917 $3,483 $12,400 
Gross margin92 %66 %83 %
Our software business and services business represented 64% and 36% of total revenue, respectively, for the three months ended May 31, 2022.
(in thousands)Three Months Ended May 31, 2021
SoftwareServicesTotal
Revenue$8,298 $4,479 $12,777 
Cost of revenue800 1,671 2,471 
Gross profit$7,498 $2,808 $10,306 
Gross margin90 %63 %81 %
The following tables summarize the results for each segment for the nine months ended May 31, 2023, and 2022:
(in thousands)Nine Months Ended May 31, 2023
SoftwareServicesTotal
Revenues$27,193 $16,755 $43,948 
Cost of revenues2,636 5,616 8,252 
Gross profit$24,557 $11,139 $35,696 
Gross margin90 %66 %81 %
Our software business and services business represented 65%62% and 35%38% of total revenue, respectively, for the threenine months ended May 31, 2021.2023.
(in thousands)Nine Months Ended May 31, 2022
SoftwareServicesTotal
Revenue$26,767 $15,405 $42,172 
Cost of revenue2,245 5,900 8,145 
Gross profit$24,522 $9,505 $34,027 
Gross margin92 %62 %81 %
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(in thousands)Nine Months Ended May 31, 2022
SoftwareServicesTotal
Revenues$26,767 $15,405 $42,172 
Cost of revenues2,245 5,900 8,145 
Gross profit$24,522 $9,505 $34,027 
Gross margin92 %62 %81 %
Our software business and services business represented 63% and 37% of total revenue, respectively, for the nine months ended May 31, 2022.
(in thousands)Nine Months Ended May 31, 2021
SoftwareServicesTotal
Revenue$22,337 $14,288 $36,625 
Cost of revenue2,448 5,367 7,815 
Gross profit$19,889 $8,921 $28,810 
Gross margin89 %62 %79 %
Our software business and services business represented 61% and 39% of total revenue, respectively, for the nine months ended May 31, 2021.
Revenue by product and consolidated revenue for the three and nine months ended May 31, 2022 and 2021 were as follows:
(in thousands)Three Months Ended May 31,
20222021
Software revenue
GastroPlus$6,434 67 %$5,426 65 %
MonolixSuite1,025 11 %948 11 %
ADMET Predictor1,593 17 %1,488 18 %
Other595 %436 %
Total software revenue$9,647 100 %$8,298 100 %
Services revenue
PKPD$2,482 47 %$1,925 43 %
QSP/QST1,197 23 %1,180 26 %
PBPK1,351 25 %739 17 %
Other282 %635 14 %
Total services revenue$5,312 100 %$4,479 100 %
Total consolidated revenue$14,959 $12,777 
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(in thousands)Nine Months Ended May 31,
20222021
Software revenue
GastroPlus$15,869 59 %$13,245 59 %
MonolixSuite4,817 18 %3,664 16 %
ADMET Predictor4,419 17 %3,872 17 %
Other1,662 %1,556 %
Total software revenue$26,767 100 %$22,337 100 %
Services revenue
PKPD$7,030 46 %$6,755 47 %
QSP/QST4,190 27 %4,047 28 %
PBPK3,158 20 %2,312 16 %
Other1,027 %1,174 %
Total services revenue$15,405 100 %$14,288 100 %
Total consolidated revenue$42,172 $36,625 
Revenue by division and consolidated revenue for the three and nine months ended May 31, 2022 and 2021 were as follows:
(in thousands)Three Months Ended May 31,
20222021
Simulations Plus$9,412 63 %$7,916 62 %
Cognigen2,745 18 %2,536 20 %
DILIsym1,723 12 %1,331 10 %
Lixoft1,079 %994 %
Total$14,959 100 %$12,777 100 %
(in thousands)Nine Months Ended May 31,
20222021
Simulations Plus$23,916 57 %$19,994 55 %
Cognigen7,685 18 %7,987 22 %
DILIsym5,542 13 %4,817 13 %
Lixoft5,029 12 %3,827 10 %
Total$42,172 100 %$36,625 100 %
In addition, we allocate revenue to geographic areas based on the locations of our customers. Revenue for each geographical area and consolidated revenue for the three and nine months ended May 31, 2022 and 2021 were as follows:
(in thousands)Three Months Ended May 31,
20222021
Americas$11,163 75 %$9,651 76 %
EMEA1,925 13 %1,462 11 %
Asia Pacific1,871 13 %1,664 13 %
Total$14,959 100 %$12,777 100 %
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(in thousands)Nine Months Ended May 31,
20222021
Americas$29,318 70 %$25,436 69 %
EMEA8,656 21 %7,022 19 %
Asia Pacific4,198 10 %4,167 11 %
Total$42,172 100 %$36,625 100 %
NOTE 10:8 – EMPLOYEE BENEFIT PLAN
We maintain a 401(k) Plan for all eligible employees, and weemployees. We make matching contributions equal to 100% of the employee’s elective deferral, not to exceed 4% of total employee compensation.the employee’s gross salary. We can also elect to make a profit-sharing contribution. Our contributions to this 401(K) Plan amounted to $134 thousandcontributed $0.2 million and $151 thousand$0.1 million for the three months ended May 31, 20222023 and 2021,2022, respectively, and $442 thousand$0.4 million and $403 thousand$0.4 million for the nine months ended May 31, 20222023, and 2021,2022, respectively.

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NOTE 9 - SUBSEQUENT EVENTS
Dividend Declared
NOTE 11: SUBSEQUENT EVENTS
On Wednesday,Thursday, July 6, 2022,2023, our Board of Directors declared a quarterly cash dividend of $0.06 per share to our shareholders. The dividend in the amount of approximately $1.2 million will be distributed on Monday, August 1, 2022,7, 2023, for shareholders of record as of Monday, July 25, 2022.31, 2023.

Immunetrics Acquisition
25
On June 16, 2023, the Company acquired Immunetrics, Inc. (“Immunetrics”), a company specializing in quantitative systems pharmacology (“QSP”) modeling, through a reverse triangular merger. Pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), at closing, the Company’s newly created wholly owned subsidiary, Insight Merger Sub, Inc., merged with and into Immunetrics, with Immunetrics surviving as a wholly owned subsidiary of the Company. Under the terms of the Merger Agreement, the Company agreed to pay the equityholders of Immunetrics the following cash compensation (collectively, the “Merger Consideration”):

i.At closing, a cash payment in the amount of approximately $13.7 million;

ii.An amount equal to $1.8 million, which was held-back by the Company at closing, to cover any negative net working capital adjustments (if any) and Immunetrics’ indemnification obligations under the Merger Agreement (the “Holdback Amount”); and

iii.Two future earn-out payments in the aggregate amount of up to $8.0 million (the “Earnout Payments”), subject to the terms described below.

Additionally, at closing, the Company paid the representative of the Immunetrics stockholders $250,000 as an expense fund to cover expenses that it incurs in its role as such, the excess amount of which, if any, will be distributed to Immunetrics’ stockholders (subject to certain exceptions) at such time as the stockholder representative may determine, in its sole discretion.

The Merger Consideration is subject to adjustment based on post-closing adjustments to net working capital, closing cash, indebtedness, and transaction expenses of Immunetrics within 90 days of closing.

Concurrently with execution of the Merger Agreement, the parties to the Merger Agreement entered into an Earnout Agreement, which sets forth the terms and conditions applicable to the Earnout Payments. Pursuant to the Earnout Agreement, the Company shall pay the Immunetrics equityholders an aggregate amount of up to $8.0 million of Earnout Payments if Immunetrics achieves certain revenue milestones for the calendar years 2023 and 2024.

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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2.    Management's Discussion and AnalysisTable of Financial Condition and Results of OperationsContents
Forward-Looking Statements
This document and the documents incorporated in this document by reference contain forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact contained in this document and the materials accompanying this document are forward-looking statements.
The forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to our management. Frequently, but not always, forward-looking statements are identified by the use of the future tense and by words such as “believes,” expects,” “anticipates,” “intends,” “will,” “may,” “could,” “would,” “projects,” “continues,” “estimates” or similar expressions. Forward-looking statements are not guarantees of future performance and actual results could differ materially from those indicated by the forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by the forward-looking statements.
The forward-looking statements contained or incorporated by reference in this document are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. These statements include declarations regarding our plans, intentions, beliefs, or current expectations.
Among the important factors that could cause actual results to differ materially from those indicated by forward-looking statements are the risks and uncertainties described under “Risk Factors” in our Annual Report on Form 10-K for the year ended August 31, 2021,2022, filed with the Securities and Exchange Commission (“SEC”) on October 27, 2021,28, 2022, and elsewhere in this document and in our other filings with the SEC.
Forward-looking statements are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this document are made as of the date of this document and we do not undertake any obligation to update forward-looking statements to reflect new information, subsequent events, or otherwise.

Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

General
BUSINESS
OVERVIEW
Simulations Plus, Inc., incorporated in 1996, is a premier developer of modeling and simulation software for drug discovery and development includingsoftware for modeling and simulation, and for the prediction of molecular properties of molecules utilizing artificial-intelligenceboth artificial intelligence and machine-learning-based technologies.technology. We also provide consulting services ranging from early drug discovery through preclinical and clinical trial development analysis and for submissions to regulatory submissions in support of product approval.agencies. Our software and consulting services are provided to major pharmaceutical, biotechnology, agrochemical, cosmetics, and food industry companies. They are also provided tocompanies and academic and regulatory agencies worldwide for use in education and in the conduct of industry-based research and to regulatory agencies for product approval.research. The Company is headquartered in Southern California, with additional offices in Buffalo, NY; Durham,Research Triangle Park, NC; and Paris, France. As a result of our acquisition of Immunetrics, Inc. in June 2023, we now also have an office in Pittsburgh, PA. Our common stock has traded on the Nasdaq Global Select Market under the symbol “SLP” since May 13, 2021, prior to which it traded on the Nasdaq Capital Market under the same symbol.
We generate revenue byare a global leader, delivering relevant, cost-effective software and creative and insightful consulting services. Pharmaceutical and biotechnology companies and hospitals use our software programs and scientific consulting services to guide early drug discovery (molecule design screening and lead optimization), preclinical and clinical development programs, and the development of generic medicines after patent expiration, including using our software products and services to enhance their understanding of the properties of potential new medicinestherapies and to use emerging data to improve formulations, select and justify dosing regimens, support the generics industry, optimize clinical trial designs, and simulate outcomes in special populations, such as in elderly and pediatric patients.

Immunetrics Acquisition

On June 16, 2023, we acquired Immunetrics, Inc. (“Immunetrics”) through a reverse triangular merger. Pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), at closing, our newly created wholly owned subsidiary, Insight Merger Sub, Inc., merged with and into Immunetrics, with Immunetrics surviving as a wholly owned subsidiary of the Company.

Immunetrics is a modeling and simulation company focused on accelerating drug development in oncology, immunology, and autoimmune disease, areas that are among the fastest growing for therapeutics. This acquisition strengthens our quantitative systems pharmacology (“QSP”) expertise, expands the range of therapeutic areas addressed by our existing QSP models by more than 50%, and adds new areas of service to our existing and potential clients.

Given that Immunetrics is now a wholly owned subsidiary of the Company, Immunetrics’ results of operations will be included in the Company’s consolidated financial statements for future periods. For this reason, amongst others, operating results for the nine months ended May 31, 2023 may not be indicative of the results that may be expected for the current fiscal year and any period in the future.









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Impacts of the COVID-19 Pandemic on our Business
For a discussion of the impacts on, and risks to, our business from COVID-19, please refer to “Our business is subject to risks arising from epidemic diseases, such as the recent outbreak of the COVID-19 illness” included in Item 1A Risk Factors in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021, filed with the SEC on October 27, 2021.
RECENT DEVELOPMENTS
Short-Form Mergers
Effective September 1, 2021, the Company merged Cognigen Corporation and DILIsym, Services, Inc. (wholly owned subsidiaries of the Company) 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.
Summary Results of Operations
Comparison of Three Months Ended May 31, 20222023 and 2021:2022
(in thousands)(in thousands)Three Months Ended May 31,(in thousands)Three Months Ended May 31,
20222021$ Change% Change20232022$ Change% Change
RevenueRevenue$14,959 $12,777 $2,182 17 %Revenue$16,234 $14,959 $1,275 %
Cost of revenueCost of revenue2,559 2,471 88 %Cost of revenue2,961 2,559 402 16 %
Gross profitGross profit12,400 10,306 2,094 20 %Gross profit13,273 12,400 873 %
Research and developmentResearch and development655 670 (15)(2)%Research and development945 655 290 44 %
Selling, general and administrative6,799 5,094 1,705 33 %
Selling, general, and administrativeSelling, general, and administrative8,231 6,799 1,432 21 %
Total operating expensesTotal operating expenses7,454 5,764 1,690 29 %Total operating expenses9,176 7,454 1,722 23 %
Income from operationsIncome from operations4,946 4,542 404 %Income from operations4,097 4,946 (849)(17)%
Other income (expense), net(112)(51)(61)120 %
Other income (loss), netOther income (loss), net843 (112)955 853 %
Income before income taxesIncome before income taxes4,834 4,491 343 %Income before income taxes4,940 4,834 106 %
Provision for income taxesProvision for income taxes(747)(704)(43)%Provision for income taxes(932)(747)(185)(25)%
Net incomeNet income$4,087 $3,787 $300 %Net income$4,008 $4,087 $(79)(2)%
RevenueRevenues
Consolidated revenueRevenues increased by $2.2$1.3 million, or 17%9%, to $16.2 million for the three months ended May 31, 2023, compared to $15.0 million for the three months ended May 31, 2022, compared to consolidated revenue of $12.8 million for the three months ended May 31, 2021.2022. This increase is primarily due to a $1.3$1.0 million, or 16%10%, increase in software-related revenue and a $833 thousand$0.3 million, or 19%5%, increase in service-related revenue when compared to the three months ended May 31, 2021.2022.
Cost of Revenuerevenues
Consolidated costCost of revenuerevenues increased by $88 thousand$0.4 million, or 4% to $2.6 million16%, for the three months ended May 31, 2022,2023, compared to $2.5 million for the three months ended May 31, 2021.2022. The increase is primarily due to a $158 thousand$0.2 million, or 9%12%, increase in service-related cost of revenue partially offset by a $70 thousandand $0.2 million, or 9% decrease24%, increase in software-related cost of revenue when compared to the three months ended May 31, 2021.
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2022.
Gross Profitprofit
Consolidated grossGross profit increased by $2.1$0.9 million, or 20%7%, to $13.3 million for the three months ended May 31, 2023, compared to $12.4 million for the three months ended May 31, 2022. The increase in gross profit is due to an increase in gross profit for our software business of $0.8 million, or 9%, and an increase in gross profit for our services business of $0.1 million, or 2%.
Overall gross margin percentage was 82% and 83% for the three months ended May 31, 2023, and 2022, respectively.
Research and development
We incurred $1.8 million of research and development costs during the three months ended May 31, 2023. Of this amount, $0.9 million was capitalized as a part of capitalized software development costs and $0.9 million was expensed. We incurred $1.4 million of research and development costs during the three months ended May 31, 2022. Of this amount, $0.8 million was capitalized and $0.7 million was expensed. The overall increase in research and development costs is primarily due to the development of the newest version of our GastroPlus product, version X, as well as an increase in personnel costs from market compensation adjustments following the Company’s engagement during fiscal year 2022 of an external consulting firm, Arthur J. Gallagher & Co., to complete a full market study on the compensation payable to our employees compared to $10.3those of our peers. The Company rebuilt its career grading system based on the results of the compensation study to ensure competitive and equitable pay for all our employees across the organization in base salary, cash bonus, and stock option grants. We believe that the market study and resulting compensation adjustments were necessary in light of the highly competitive employment market to attract and retain superior talent.

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Selling, general, and administrative expenses
Selling, general, and administrative (“SG&A”) expenses increased by $1.4 million, or 21%, to $8.2 million for the three months ended May 31, 2021.2023, compared to $6.8 million for the three months ended May 31, 2022. This increase was primarily due to a $1.0 million increase in employee and labor-related expenses from a 11% headcount increase to meet the robust and growing demand for our services as well as market compensation adjustments following the Company’s engagement during fiscal year 2022 of an external consulting firm, Arthur J. Gallagher & Co., to complete a full market study on the compensation payable to our employees compared to those of our peers. The higherCompany rebuilt its career grading system based on the results of the compensation study to ensure competitive and equitable pay for all our employees across the organization in base salary, cash bonus, and stock option grants. We believe that the market study and resulting compensation adjustments were necessary in light of the highly competitive employment market to attract and retain superior talent. The $1.0 million increase in personnel costs includes an increase in stock compensation expense of $0.3 million, an increase in accrued bonuses of $0.3 million, and an increase in base salaries of $0.3 million. Additionally, the Company incurred $0.4 million in merger and acquisition costs for the three months ended May 31, 2023, whereas the Company incurred no merger and acquisition costs for the three months ended May 31, 2022.
As a percent of revenues, SG&A expense was 51% for the three months ended May 31, 2023, compared to 45% for the three months ended May 31, 2022.
Other income (loss)
Total other income was $0.8 million for the three months ended May 31, 2023, compared to total other expense of $0.1 million for the three months ended May 31, 2022. The increase is primarily due to an increase in interest income of $1.0 million driven by an increase in interest rates.
Provision for income taxes
The provision for income taxes was $0.9 million for the three months ended May 31, 2023, compared to $0.7 million for the three months ended May 31, 2022. Our effective tax rate increased to 19% for the three months ended May 31, 2023, from 15% for the three months ended May 31, 2022.
Comparison of Nine Months Ended May 31, 2023 and 2022
(in thousands)Nine Months Ended May 31,
20232022$ Change% Change
Revenue$43,948 $42,172 $1,776 %
Cost of revenue8,252 8,145 107 %
Gross profit35,696 34,027 1,669 %
Research and development3,428 2,439 989 41 %
Selling, general, and administrative23,259 17,371 5,888 34 %
Total operating expenses26,687 19,810 6,877 35 %
Income from operations9,009 14,217 (5,208)(37)%
Other income, net2,617 2,611 43,517 %
Income before income taxes11,626 14,223 (2,597)(18)%
Provision for income taxes(2,199)(2,701)502 (19)%
Net income$9,427 $11,522 $(2,095)(18)%
Revenues
Revenues increased by $1.8 million, or 4%, to $43.9 million for the nine months ended May 31, 2023, compared to $42.2 million for the nine months ended May 31, 2022. This increase is primarily due to an increase of $1.4 million, or 9%, in service-related revenue and a $0.4 million, or 2%, increase in software-related revenue, driven by timing of the software license renewals and foreign currency exchange rate fluctuations when comparing the nine months ended May 31, 2023, and 2022.

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Cost of revenues
Cost of revenues remained relatively consistent with a slight increase of $0.1 million, or 1%, for the nine months ended May 31, 2023, compared to the nine months ended May 31, 2022. The increase is primarily due to a $0.4 million, or 17%, in software-related cost of revenue, offset by a $0.3 million, or 5%, decrease in service-related cost of revenue when compared to the nine months ended May 31, 2022.
Gross profit
Gross profit increased by $1.7 million, or 5%, to $35.7 million for the nine months ended May 31, 2023, compared to $34.0 million, for the nine months ended May 31, 2022. The increase in gross profit is primarily due to an increase in gross profit for our softwareservices business of $1.4$1.6 million, or 19% and a $675 thousand or 24% increase in gross profit for our services business.17%.
Overall gross margin percentage was 83%81% and 81% for the nine months ended May 31, 2023, and 2022, respectively.
Research and development
We incurred $6.0 million of research and development costs during the nine months ended May 31, 2023. Of this amount, $2.6 million was capitalized as a part of capitalized software development costs and $3.4 million was expensed. We incurred $4.7 million of research and development costs during the nine months ended May 31, 2022. Of this amount, $2.3 million was capitalized and $2.4 million was expensed. The overall increase in research and development costs is primarily due to development of the newest version of our MonolixSuite product, version 2023R1, which was released on February 28, 2023, and the development of the newest version of our GastroPlus product, version X, as well as an increase in personnel costs from market compensation adjustments following the Company’s engagement during fiscal year 2022 of an external consulting firm, Arthur J. Gallagher & Co., to complete a full market study on the compensation payable to our employees compared to those of our peers. The Company rebuilt its career grading system based on the results of the compensation study to ensure competitive and equitable pay for all our employees across the organization in base salary, cash bonus, and stock option grants. We believe that the market study and resulting compensation adjustments were necessary in light of the highly competitive employment market to attract and retain superior talent.
Selling, general, and administrative expenses
SG&A expenses increased by $5.9 million, or 34%, to $23.3 million for the nine months ended May 31, 2023, compared to $17.4 million for the nine months ended May 31, 2022. This increase was primarily due to a $4.3 million increase in employee and labor-related expenses from a 11% headcount increase to meet the robust and growing demand for our services as well as market compensation adjustments following the Company’s engagement during fiscal year 2022 of an external consulting firm, Arthur J. Gallagher & Co., to complete a full market study on the compensation payable to our employees compared to those of our peers. The Company rebuilt its career grading system based on the results of the compensation study to ensure competitive and equitable pay for all our employees across the organization in base salary, cash bonus, and stock option grants. We believe that the market study and resulting compensation adjustments were necessary in light of the highly competitive employment market to attract and retain superior talent. The $4.3 million increase in personnel costs includes an increase in accrued bonuses of $1.3 million, an increase in stock compensation of $1.3 million, and an increase in base salaries of $1.0 million.
Additionally, the overall increase in SG&A expenses is due to an increase in merger and acquisition costs of $0.8 million, an increase in director compensation of $0.2 million, an increase in commissions to distributors of $0.1 million, an increase in travel costs of $0.1 million, and an increase of $0.1 million due to the newly required excise tax on share repurchases.
As a percent of revenues, SG&A expense was 53% for the nine months ended May 31, 2023, compared to 41% for the nine months ended May 31, 2022.
Other income
Total other income was $2.6 million for the nine months ended May 31, 2023, compared to a total other income of nominal amount for the nine months ended May 31, 2022. The increase is primarily due to an increase in interest income of $2.6 million driven by an increase in interest rates.


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Provision for income taxes
The provision for income taxes was $2.2 million for the nine months ended May 31, 2023, compared to $2.7 million for the nine months ended May 31, 2022. Our effective tax rate remained consistent at 19% for the nine months ended May 31, 2023 when compared to 19% for the nine months ended May 31, 2022.
Results of Operations by Business Unit
Comparison of Three Months Ended May 31, 2023 and 2022
Revenues
(in thousands)Three Months Ended May 31,
20232022Change ($)Change (%)
Software$10,632 $9,647 $985 10 %
Services5,602 5,312 290 %
Total$16,234 $14,959 $1,275 9 %
Cost of Revenues
(in thousands)Three Months Ended May 31,
20232022Change ($)Change (%)
Software$908 $730 $178 24 %
Services2,053 1,829 224 12 %
Total$2,961 $2,559 $402 16 %
Gross Profit
(in thousands)Three Months Ended May 31,
20232022Change ($)Change (%)
Software$9,724 $8,917 $807 %
Services3,549 3,483 66 %
Total$13,273 $12,400 $873 7 %
Software Business
For the three months ended May 31, 2022 and 2021, respectively.
Research and Development Costs
Total research and development costs decreased by $56 thousand for2023, the three months ended May 31, 2022,revenue increase of $1.0 million, or 10%, compared to the three months ended May 31, 2021. During2022, was primarily due to higher revenues from MonolixSuite of $0.9 million. Cost of revenues increased $0.2 million, or 24%, during the same periods, and gross profit increased by $0.8 million, or 9%, primarily due to the increase in revenues.
Services Business
For the three months ended May 31, 2023, the revenue increase of $0.3 million, or 5%, compared to the three months ended May 31, 2022, we incurred $1.4 million of research and development costs; of this amount, $759 thousand was capitalized and $655 thousand was expensed. During the three months ended May 31, 2021, we incurred $1.5 million of research and development costs; of this amount $800 thousand was capitalized and $670 thousand was expensed.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased by $1.7 million or 33% to $6.8 million for the three months ended May 31, 2022, up from $5.1 million for the three months ended May 31, 2021. The increase was primarily due to an increase in personnel costshigher revenues from pharmacokinetic and pharmacodynamic (“PKPD”) services of $537 thousand, driven largely$0.1 million, higher revenues from physiologically based pharmacokinetics (“PBPK”) services of $0.1 million, and higher revenues from quantitative systems pharmacology/quantitative systems toxicology (“QSP/QST”) services of $0.1 million. Cost of revenues increased by inflationary wage pressure and a tight labor market, an increase in travel costs of $193 thousand, and an increase in insurance expense of $154 thousand.
As a percent of revenue, consolidated selling, general, and administrative expenses$0.2 million, or 12%. Gross profit increased from 40% to 45%by $0.1 million, or 2%, for the same comparative periods.
Other Income (Expense), net
Total other expense was $112 thousand for the three months ended May 31, 2022, compared to total other expense of $51 thousand for the three months ended May 31, 2021. The variance of $61 thousand was primarily due to currency-exchange loss of $244 thousand, partially offset by an increase in interest income of $102 thousand and a decrease in loss due to change in value of contingent consideration of $81 thousand.
Provision for Income Taxes
Provision for income taxes was $747 thousand for the three months ended May 31, 2022, compared to $704 thousand for the same period in the previous year. Our effective tax rate decreased by less than 1% to 15% for the three months ended May 31, 2022, from 16% during the same period of the previous year.
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Comparison of Nine Months Ended May 31, 20222023 and 2021:2022
(in thousands)Nine Months Ended May 31,
20222021$ Change% Change
Revenue$42,172 $36,625 $5,547 15 %
Cost of revenue8,145 7,815 330 %
Gross profit34,027 28,810 5,217 18 %
Research and development2,439 2,771 (332)(12)%
Selling, general and administrative17,371 14,960 2,411 16 %
Total operating expenses19,810 17,731 2,079 12 %
Income from operations14,217 11,079 3,138 28 %
Other income (expense), net(169)175 (104)%
Income before income taxes14,223 10,910 3,313 30 %
Provision for income taxes(2,701)(1,433)(1,268)88 %
Net income$11,522 $9,477 $2,045 22 %
Revenues
Revenue
(in thousands)Nine Months Ended May 31,
20232022Change ($)Change (%)
Software$27,193 $26,767 $426 %
Services16,755 15,405 1,350 %
Total$43,948 $42,172 $1,776 4 %
Consolidated revenue increased by $5.5 million or 15% to $42.2 million forCost of Revenues
(in thousands)Nine Months Ended May 31,
20232022Change ($)Change (%)
Software$2,636 $2,245 $391 17 %
Services5,616 5,900 (284)(5)%
Total$8,252 $8,145 $107 1 %
Gross Profit
(in thousands)Nine Months Ended May 31,
20232022Change ($)Change (%)
Software$24,557 $24,522 $35 — %
Services11,139 9,505 1,634 17 %
Total$35,696 $34,027 $1,669 5 %
Software Business
For the nine months ended May 31, 2022, compared to consolidated2023, the revenue increase of $36.6$0.4 million, for the nine months ended May 31, 2021. This increase is primarily due to a $4.4 millionor 20% increase in software-related revenue, as well as a $1.1 million or 8% increase in service-related revenue when comparing the nine months ended May 31, 2022 and 2021.
Cost of Revenue
Consolidated cost of revenue increased by $330 thousand or 4% to $8.1 million for the nine months ended May 31, 2022, compared to $7.8 million for the nine months ended May 31, 2021. The increase is primarily due to a $533 thousand or 10% increase in service-related cost of revenue, partially offset by a decrease of $203 thousand in software-related cost of revenue when2%, compared to the nine months ended May 31, 2022, was primarily due to higher revenue from MonolixSuite of $0.7 million, partially offset by lower revenues from Absorption, Distribution, Metabolism, Excretion, and 2021.
Gross Profit
ConsolidatedToxicity Predictor (“ADMET Predictor®”) of $0.2 million. Cost of revenues increased by $0.4 million, or 17%, during the same periods, and gross profit increased by $5.2 million or 18% to $34.0 millionremained relatively consistent for the nine months ended May 31, 2022, compared to $28.8 million for the nine months ended May 31, 2021. The higher gross profit is due to an increase in gross profit for our software business of $4.6 million or 23% and an increase in gross profit for our services business of $584 thousand or 7%.
Overall gross margin percentage was 81% and 79% for the nine months ended May 31, 2022 and 2021, respectively.
Research and Development Costs
Total research and development costs decreased by $366 thousand for the nine months ended May 31, 2022,2023, compared to the nine months ended May 31, 2021. During the nine months ended May 31, 2022, we incurred $4.7 million of research and development costs; of this amount, $2.3 million was capitalized and $2.4 million was expensed. During the nine months ended May 31, 2021, we incurred $5.1 million of research and development costs; of this amount $2.3 million was capitalized and $2.8 million was expensed.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased by $2.4 million or 16% to $17.4 million for the nine months ended May 31, 2022, from $15.0 million for the nine months ended May 31, 2021. The increase was primarily due to an increase in personnel costs of $1.7 million, an increase in insurance costs of $442 thousand related to cyber and D&O premiums, and an increase in travel costs of $255 thousand.
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As a percent of revenue, consolidated selling, general, and administrative expenses remained consistent at 41% for the same comparative periods.
Other Income (Expense), net
Total other income was $6 thousand for the nine months ended May 31, 2022 compared to total other expense of $169 thousand for the nine months ended May 31, 2021. The variance of $175 thousand was primarily due to an increase in net interest income of $144 thousand.
Provision for Income Taxes
Provision for income taxes was $2.7 million for the nine months ended May 31, 2022, compared to $1.4 million for the same period in the previous year. Our effective tax rate increased 6% to 19% for the nine months ended May 31, 2022 compared to 13% for the same period of the previous year.
Segment Results of Operations by Business Unit
Comparison of Three Months Ended May 31, 2022 and 2021:
Revenue
(in thousands)Three Months Ended May 31,
20222021Change ($)Change (%)
Software$9,647 $8,298 $1,349 16 %
Services5,312 4,479 833 19 %
Total$14,959 $12,777 $2,182 17 %
Cost of Revenue
(in thousands)Three Months Ended May 31,
20222021Change ($)Change (%)
Software$730 $800 $(70)(9)%
Services1,829 1,671 158 %
Total$2,559 $2,471 $88 4 %
Gross Profit
(in thousands)Three Months Ended May 31,
20222021Change ($)Change (%)
Software$8,917 $7,498 $1,419 19 %
Services3,483 2,808 675 24 %
Total$12,400 $10,306 $2,094 20 %
Software Business
For the three months ended May 31, 2022, the revenue increase of $1.3 million or 16%, compared to the three months ended May 31, 2021, was primarily due to higher sales from GastroPlus of $1.0 million. Cost of revenue decreased $70 thousand or 9% during the same periods primarily due to a decrease in amortization of capitalized software. Gross profit increased $1.4 million or 19% during the same periods, primarily due to the increase in revenue.
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2022.
Services Business
For the three months ended May 31, 2022, the revenue increase of $833 thousand or 19%, compared to the three months ended May 31, 2021, was primarily due to an increase in revenue from PBPK of $612 thousand and an increase in revenue from PKPD of $557 thousand, partially offset by decreases in other services revenue. Cost of revenue increased $158 thousand or 9%, primarily due to an increase in CRO services of $105 thousand. Gross profit increased $675 thousand or 24%.
Comparison of Nine Months Ended May 31, 2022 and 2021:
Revenue
(in thousands)Nine Months Ended May 31,
20222021Change ($)Change (%)
Software$26,767 $22,337 $4,430 20 %
Services15,405 14,288 1,117 %
Total$42,172 $36,625 $5,547 15 %
Cost of Revenue
(in thousands)Nine Months Ended May 31,
20222021Change ($)Change (%)
Software$2,245 $2,448 $(203)(8)%
Services5,900 5,367 533 10 %
Total$8,145 $7,815 $330 4 %
Gross Profit
(in thousands)Nine Months Ended May 31,
20222021Change ($)Change (%)
Software$24,522 $19,889 $4,633 23 %
Services9,505 8,921 584 %
Total$34,027 $28,810 $5,217 18 %
Software Business
For the nine months ended May 31, 2022,2023, the revenue increase of $4.4$1.4 million, or 20%9%, compared to the nine months ended May 31, 2021,2022, was primarily due to higher sales from GastroPlus, MonolixSuite, and ADMET Predictor of $2.6 million, $1.2 million, and $547 thousand, respectively. Cost of revenue decreased $203 thousand or 8% during the same periods primarily due to a decrease in amortization of capitalized software. Gross profit increased $4.6 million or 23% during the same periods, primarily due to the increase in revenue.
Services Business
For the nine months ended May 31, 2022, the revenue increase of $1.1 million or 8%, compared to the nine months ended May 31, 2021, was primarily due to an increase in revenue from PBPK of $846 thousand, an increaserevenues from PKPD services of $275 thousand,$1.0 million and an increase in QSP/QST consultingrevenues from PBPK services of $143 thousand.$1.0 million, partially offset by a decrease in revenues from QSP/QST services of $0.8 million. Cost of revenue increasedrevenues decreased by $533 thousand$0.3 million, or 10%, primarily due to an increase in personnel costs of $235 thousand and an increase in CRO services of $224 thousand.5%. Gross profit increased $584 thousandby $1.6 million, or 7% during17%, for the same periods, primarily due to the increase in revenue.periods.
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Liquidity and Capital Resources
As of May 31, 2022,2023, the Company had $42.4$55.1 million in cash and cash equivalents, $80.1$67.2 million in short-term investments, and $138.9 million in working capital.capital of $128.3 million. Our principal sources of capital have been a follow-on public offering in August 2020 for $107.7 million and cash flows from our operations and a public offering in 2020.operations. We have achieved continuous positive operating cash flow over the last twelvethirteen fiscal years.
On March 31, 2020, we entered intoDecember 29, 2022, our Board of Directors authorized and approved a Credit Agreement with Wells Fargo Bank, N.A. The Credit Agreement provided us with a credit facility of $3.5share repurchase program for up to $50 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 “Agreement”) with Lixoft. Under the terms of the Agreement, 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 111,682outstanding shares of our common stock, valued at $3.7 million, netincluding the repurchase of adjustments and a $2.0 million holdback for representations and warranties. In addition, we paid $3.5up to $20 million of excess working capitalour outstanding shares through an accelerated share repurchase transaction. Under the repurchase program, shares may be repurchased at our discretion based on ongoing assessment of the March 31, 2020 financial statementscapital needs of Lixoft. In addition,our business, the Agreement called for earnout payments up to an additional $5.5 million, payable in two-thirds cash and one-third newly issued, unregisteredmarket price of shares of our common stock, based on a revenue growth formula each yearand general market conditions. Repurchases may be made pursuant to certain SEC regulations, which permit common shares to be repurchased when we would otherwise be prohibited from doing so under insider trading laws. There is no time limit in place for the two years subsequentcompletion of our share repurchase program, and the program may be suspended or discontinued at any time. Except as required by the ASR Agreement (as defined below), we are not obligated to April 1, 2020. The former shareholders could earn up to $2 million the first year and $3.5 million in year two. In June 2021, $2.0 million was paid outrepurchase any shares under the first earnout payment, which was comprisedrepurchase program. We have funded share repurchases to date, and will fund future repurchases, if any, through cash on hand and cash generated from operations.
On January 11, 2023, the Company entered into an accelerated share repurchase agreement (the “ASR Agreement”) with Morgan Stanley & Co. LLC (“Morgan Stanley”) to repurchase an aggregate of $1.3$20 million of cash and $0.7 million worththe Company’s outstanding shares of common stock. In April 2022, we releasedThe ASR Agreement was executed as part of the Company’s existing $50 million share repurchase program.

Pursuant to the terms of the ASR Agreement, the Company made an initial payment, using available cash balances, of $20 million to Morgan Stanley and distributed the $2.0 million holdback consideration, consistingreceived an initial delivery of $1.3 million in cash and408,685 shares of Company common stock valuedfrom Morgan Stanley. These 408,685 shares were retired and are treated as authorized, unissued shares. At final settlement on May 20, 2023, based on the volume-weighted average price of the Company’s common stock during the term of the ASR Agreement, Morgan Stanley delivered an additional 83,356 shares of Company common stock to the Company, which shares were also retired and treated as authorized, unissued shares.

Subsequent to the quarter ended May 31, 2023, on June 16, 2023, the Company acquired Immunetrics through a reverse triangular merger, pursuant to which Immunetrics became a wholly owned subsidiary of the Company. As consideration for the acquisition, at $0.7closing, the Company paid the equityholders of Immunetrics a cash payment in the aggregate amount of approximately $13.7 million, (amountingand also paid the representative of the Immunetrics stockholders $250,000 as an expense fund to cover expenses that it incurs in its role as such (collectively, the “Closing Payments”). In addition to the Closing Payments, the Company held back $1.8 million to cover any negative working capital adjustments (if any) and Immunetrics’ indemnification obligations under the Merger Agreement (the “Holdback Amount”), the balance of which, less any deductions, if any, will be distributed to the Immunetrics stockholders after expiration of the applicable holdback period. Furthermore, the Company agreed to pay the Immunetrics equityholders an aggregate amount of 20,326 unregistered shares of common stock),up to the former shareholders of Lixoft. In May 2022, we released and distributed $3.5$8.0 million in earnout consideration, consisting of $2.3 million in cashpayments if Immunetrics achieves certain revenue milestones for the calendar years 2023 and shares of common stock valued at $1.2 million (amounting to an aggregate of 23,825 unregistered shares of common stock), to the former shareholders of Lixoft in accordance2024 (the “Earnout Payments,” and together with the Agreement.Closing Payments and Holdback Amount, the “Merger Consideration”).

The Merger Consideration is subject to adjustment based on post-closing adjustments to net working capital, closing cash, indebtedness, and transaction expenses of Immunetrics within 90 days of closing.

Please see Note 9, Subsequent Events, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding the Immunetrics acquisition.

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.future, including to complete our $50 million share repurchase program, if we so choose. Thereafter, if cash generated from operations is insufficient to satisfy our capital requirements, we may have to sell additional equity or debt securities or obtain a new credit facility.securities. In the event suchthat additional 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.

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We continue to seek opportunities for strategic acquisitions.acquisitions, investments, and partnerships. If one or more such acquisitions isstrategic opportunities are 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 acquisitionstrategic opportunity 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,transaction, including obtaining loans and issuing additional securities.

Except as discussed elsewhere in this report,Quarterly Report on Form 10-Q, 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.
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Cash Flows
Operating Activities
Net cash provided by operating activities was $18.8 million for the nine months ended May 31, 2023. Our operating cash flows resulted in part from our net income of $9.4 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, $4.9 million related to changes in balances of operating assets and liabilities was added to net income and $4.4 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 $10.0 million for the nine months ended May 31, 2022. Our operating cash flows resulted primarily from our net income of $11.5 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, net cash outflow from$8.0 million related to changes in balances of operating assets and liabilities was $8.0subtracted from net income and $6.5 million offset byrelated to non-cash charges of $6.5 million. The change in operating assets and liabilities was primarily a result of an increase in accounts receivable.
Net cash provided by operating activities was $10.9 million for the nine months ended May 31, 2021. Our operating cash flows resulted primarily from ouradded to net income of $9.5 million, which was generated byto reconcile to cash receivedflow from our customers, offset by cash payments we made to third parties for their services and employee compensation. In addition, net cash outflow from changes in balances of operating assets and liabilities was $5.4 million, offset by non-cash charges of $6.8 million. The change in operating assets and liabilities was primarily a result of an increase in accounts receivable.operations.
Investing Activities
Net cash provided by investing activities during the nine months ended May 31, 2022, of $2.02023, was $6.8 million, was primarily due to the proceeds from the salematurities of short-term investments of $75.9$82.0 million, partially offset by the purchase of short-term investments of $70.9$71.8 million and the purchase of computer software development costs of $2.3$2.6 million.
CashNet cash provided by investing activities during the nine months ended May 31, 2021, of $865 thousand2022, was $2.0 million, primarily due to the proceeds from the salematurities of short-term investments of $68.1$75.9 million, partially offset by the purchase of short-term investments of $64.0$70.9 million the costs associated with the development ofand computer software development costs of $2.3 million and the purchase of equipment of $1.0 million.
Financing Activities
ForNet cash used in financing activities during the nine months ended May 31, 2023, was $22.1 million, primarily due to share repurchases of $20.0 million and dividend payments totaling $3.6 million, partially offset by proceeds from the exercise of stock options totaling $1.5 million.
Net cash used in financing activities during the nine months ended May 31, 2022, net cash used in financing activities ofwas $6.6 million, was primarily due to payments on contracts payable of $3.7 million comprised of $2.3 million for the final earnout payment and $1.3 million to settle the holdback liability related to the Lixoft acquisition, and dividend payments totaling $3.6 million, partially offset by proceeds from the exercise of stock options totaling $693 thousand.
For the nine months ended May 31, 2021, net cash used by financing activities of $2.2 million was primarily driven by the payment of dividends totaling $3.6 million, partially offset by proceeds from the exercise of stock options totaling $1.4$0.7 million.
Working Capital
At May 31, 2022,2023, we had working capital of $138.9$128.3 million, a ratio of current assets to current liabilities of 24.515.2 and a ratio of debt to equity of less than 0.1. At August 31, 2021,2022, we had working capital of $127.7$139.1 million, a ratio of current assets to current liabilities of 12.019.0 and a ratio of debt to equity of 0.1.
Contractual Obligations
The following table provides aggregate information regarding our contractual obligations as of May 31, 2022:
(in thousands)Payments due by period
Contractual obligations:Total1 year2–3 years4–5 yearsMore than 5 years
Operating lease obligations$1,629 $509 $801 $319 $— 
Total$1,629 $509 $801 $319 $— 
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Known Trends or Uncertainties
We have seen some consolidation in the pharmaceutical industry during economic downturns, although these consolidations have not had a negative effect on our total revenue from that industry.revenues. Should customer delays, holds, program cancellations, or consolidations and downsizing in the industry continue to occur, those events could adversely impact our revenuerevenues 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 and consulting services such as those we produce.provide. New product developments in theour pharmaceutical business segments could result in increased revenuerevenues and earnings if they are accepted by our markets; however, there can be no assurances that new products will result in significant improvements to revenuerevenues or earnings. For competitive reasons, we do not disclose all of our new product development activities.
The world has been affected by the ongoing conflict between Russia and Ukraine and general economic uncertainty, amongst other things. Inflation has risen, Federal Reserve interest rates have increased recently, and the general consensus among economists suggests that we should expect a recession risk to continue over the next year. These factors, amongst other things, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations.
Additionally, in March 2023, Silicon Valley Bank and Signature Bank, and most recently on May 1, 2023, First Republic Bank, were closed and taken over by the FDIC, which created significant market disruption and uncertainty for those who bank with those institutions, and which raised significant concern regarding the stability of the banking system in the United States, and in particular with respect to regional banks. Although we do not hold our cash in regional banks, if the banks and financial institutions at which we hold our cash enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our cash and cash equivalents may be threatened and such events could have a material adverse effect on our business and financial condition.
Historically, we have paid cash dividends of $0.06 per share to holders of shares of our common stock on a quarterly basis. The declaration of any future dividends will be determined by our Board of Directors each quarter and will depend on earnings, financial condition, capital requirements, and other factors.
Our continued quest for acquisitions could result in a significant change to revenuerevenues 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 in these new markets or determine that resources would be more efficiently used elsewhere.

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Critical Accounting Estimates
Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to recoverability and useful lives of long-lived assets, stock compensation, valuation of derivative instruments, allowances, contingent consideration, contingent value rights, fixed payment arrangements, and going concern. Management bases its estimates and judgments on historical experience and on various other factors including the COVID-19 pandemic, that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The methods, estimates, and judgments used by us in applying these critical accounting policies have a significant impact on the results we report in our condensed consolidated financial statements. Our significant accounting policies and estimates are included in our Annual Report on Form 10-K for the fiscal year ended August 31, 20212022 (the “Annual Report”), filed with the SEC on October 27, 2021.28, 2022.
Information regarding our significant accounting policies and estimates can also be found in Note 2, Significant Accounting Policies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 3.    Quantitative and Qualitative Disclosures about Market Risk
As of May 31, 2022,2023, there has been no material change in our exposure to market risk from that described in Item 7A of our Annual Report.
Item 4.    Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of May 31, 2022.2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, management concluded as of May 31, 20222023 that our disclosure controls and procedures were effective.
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Changes in Internal Controls over Financial Reporting
No change in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1.    Legal Proceedings
For a description of our material pending legal proceedings, please see Note 6,5, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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Item 1A.    Risk Factors
Please carefully consider the information set forth in this Quarterly Report on Form 10-Q and the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended August 31, 2022, which could materially affect our business, financial condition, or future results. The risks described in our Annual Report, as well as other risks and uncertainties, could materially and adversely affect our business, results of operations, and financial condition, which in turn could materially and adversely affect the trading price of shares of our common stock. Except as set forth below, there have been no material updates or changes to the risk factors previously disclosed in our Annual Report; provided, however, additional risks not currently known or currently material to us may also harm our business.

We are currently operating in a periodcannot guarantee that our share repurchase program will be fully consummated or that it will enhance long-term shareholder value, and share repurchases could increase the volatility of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability duethe price of our common stock.
Pursuant to the ongoing military conflict between Russiashare repurchase program authorized by our Board of Directors on December 29, 2022, we are authorized to repurchase up to an aggregate of $50 million of outstanding shares of our common stock from time to time through a combination of open market repurchases, privately negotiated transactions, 10b5-1 trading plans, accelerated stock repurchase transactions, and/or other transactions, in accordance with federal securities laws. Such program may be suspended or discontinued at any time. On January 11, 1023, we entered into the ASR Agreement with Morgan Stanley, pursuant to which we repurchased $20 million of shares of our common stock, amounting to an aggregate of 492,041 shares. Repurchases under the ASR Agreement were completed in the quarter ended May 31, 2023, and Ukraine. Ourwe may not repurchase any additional shares thereunder. As of July 7, we have not made any repurchases outside of the ASR Agreement. As a result, we may repurchase up to $30 million more of our shares of common stock pursuant to our repurchase program. However, we are not obligated to repurchase any additional shares, and the timing, manner, price, and actual amount of further share repurchases will depend on a variety of factors, including stock price, market conditions, other capital management needs and opportunities, and corporate and regulatory considerations. The timing of additional repurchases pursuant to our share repurchase program, if any, could affect our stock price and increase its volatility. We cannot guarantee that we will repurchase any additional shares, and there can be no assurance that any share repurchases will enhance shareholder value because the stock price of our common stock may decline below the levels at which we effected repurchases.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and our financial condition and results of operations.
Actual events involving reduced or limited liquidity, defaults, nonperformance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds, have in the past and may in the future lead to market-wide liquidity problems. For example, in March 2023, Silicon Valley Bank and Signature Bank, and subsequently in May 2023 First Republic Bank, were closed and taken over by the Federal Deposit Insurance Corporation (“FDIC”) as receiver. Although we did not have any cash or cash equivalent balances on deposit with Silicon Valley Bank, Signature Bank, First Republic Bank, or any other regional banks, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our liquidity and our current and/or projected business operations and financial condition and results of operations.
Cash expenditures associated with the acquisition of Immunetrics may create certain liquidity and cash flow risks for us.
We incurred significant transaction costs and expect to incur integration costs in connection with our acquisition of Immunetrics in June 2023. While we expected that the transactions costs would be incurred, there are many factors beyond our control that could affect the total amount of the integration expenses associated with the acquisition. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. In addition to integration-related expenses that we will incur, pursuant to the Merger Agreement we agreed to pay the equityholders of Immunetrics up to $1.8 million that was held back at closing and an aggregate of $8.0 million in Earnout Payments, if Immunetrics achieves

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specified financial goals through December 31, 2024. To the extent the integration expenses are higher than anticipated, we may experience liquidity or cash flow issues.
Immunetrics may not perform as we or the market expects, which could have an adverse effect on the price of our common stock.
Immunetrics, which is now a wholly owned subsidiary of the Company, may not perform as we or the market expects. Risks associated with the Immunetrics acquisition include, without limitation:
integrating businesses is a difficult, expensive, and time-consuming process, and the failure to successfully integrate our businesses with the business of Immunetrics in the expected time frame could adversely affect our financial condition and results of operation
the addition of Immunetrics has increased the size of our operations, and, if we are not able to manage our expanded operations effectively, our common stock price may be adversely affected
the extent to which we may realize the expected synergies and cost savings is uncertain at this time
the success of the Immunetrics acquisition will also depend upon relationships with third parties and Immunetrics’ and our pre-existing customers, which relationships may be affected by customer preferences or public attitudes about the Immunetrics acquisition. Any adverse changes in these relationships could adversely affect our business, financial condition, and results of operations
The obligations and liabilities of Immunetrics, some of which may be unanticipated or unknown, may be greater than we have anticipated, which may diminish the value of Immunetrics to us.
Immunetrics’ obligations and liabilities, some of which may not have been fully disclosed to us, may be greater than we have anticipated. The obligations and liabilities of Immunetrics could be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine or any other geopolitical tensions.
U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. On February 24, 2022,have a full-scale military invasion of Ukraine by Russian troops was reported. Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. We are continuing to monitor the situation in Ukraine and globally and assessing its potential impactmaterial adverse effect on our business.
Additionally, the recent military conflict in Ukraine has ledbusiness or Immunetrics’ value to sanctions and other penalties being levied by the United States, European Union and other countries against Russia. Additional potential sanctions and penalties have also been proposed and/us or threatened. Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds.
Although our business has not been materially impacted by the ongoing military conflict between Russian and Ukraine to date, it is impossible to predict the extent to which our operations, or those of our customers, suppliers, and manufacturers, will be impacted in the short and long term, or the ways in which the conflict may impact our business. The extent and duration of the military action, sanctions, and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described in this Quarterly Report on Form 10-Q and our Annual Report.
We may be adversely affected by the effects of inflation.
Inflation has the potential to adversely affect our liquidity, business, financial condition, and results of operations by increasing our overall cost structure, particularly if we are unable to achieve commensurate increases in the prices we charge our customers. The existence of inflation in the economy has resulted in, and may continue to result in, higher interest rates and capital costs, shipping costs, supply shortages, increased costs of labor, weakening exchange rates, and other similar effects. As a result of inflation, we have experienced and may continue to experience, cost increases. Although we may take measures to mitigate the impact of this inflation, if these measures are not effective, our business, financial condition, or results of operations,operations. Although we have held back $1.8 million of Merger Consideration to cover any negative net working capital adjustments (if any) and liquidityImmunetrics’ indemnification obligations under the Merger Agreement, such Holdback Amount may not be sufficient to cover all claims brought against us or Immunetrics in the future in relation to Immunetrics’ business or operations. In the event that we are responsible for liabilities substantially in excess of the Holdback Amount and/or any other amounts recovered through rights to indemnification or alternative remedies that might be available to us, or any applicable insurance, we could besuffer severe consequences that would substantially reduce our earnings and cash flows or otherwise materially and adversely affected. Even if such measures are effective, there could be a difference between the timing of when these beneficial actions impactaffect our business, financial condition, or results of operations and when the cost of inflation is incurred.operations.
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Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
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 "Agreement"). The shares 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 Agreement.

The shares released as partial paymentUnregistered Sales of Equity Securities
During the $2.0 million holdback and issued as partial paymentquarter ended May 31, 2023, there were no unregistered sales of the earnout were issued in a transaction not involving a public offering in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Regulation S promulgated thereunder.
The Company did not sell any other unregistered equityour securities during the period covered by this report that were not otherwise disclosedreported in a Current Report on Form 8-K.

Issuer Purchases of Equity Securities
As discussed elsewhere in this Quarterly Report on Form 10-Q, on December 29, 2022, our Board of Directors authorized and approved a share repurchase program for up to $50 million of the outstanding shares of our common stock, and on January 11, 2023, we entered into the ASR Agreement with Morgan Stanley to repurchase an aggregate of $20 million of our outstanding shares of common stock as part of the share repurchase program, which was settled in full in May 2023. The program has no expiration date but may be terminated at any time at our Board of Directors’ discretion.
In January 2023, we received an initial delivery of an aggregate of 408,685 shares of our common stock from Morgan Stanley pursuant to the ASR Agreement, in exchange for which we made an initial payment of $20 million to Morgan Stanley. These 408,685 shares were retired and are treated as authorized, unissued shares. At final settlement on May 20, 2023, based on the volume-weighted average price of our common stock during the term of the ASR Agreement, Morgan Stanley delivered an additional 83,356 shares of Company common stock to us, which shares were also retired and treated as authorized, unissued shares.
After completion of the repurchases under the ASR Agreement, $30 million remains available for additional repurchases under our authorized repurchase program.
Total Number of Shares PurchasedAverage Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced ProgramMaximum
Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Program
12/01/2022 - 12/31/2022— $—— $— 
01/01/2023 - 01/31/2023408,685 (1)408,685 $30,000,000 
02/01/2023 - 02/28/2023— $—— $— 
03/01/2023 - 03/31/2023— $—— $— 
04/01/2023 - 04/30/2023— $—— $— 
05/01/2023 - 05/31/202383,356 (1)83,356 $30,000,000 
Total492,041 (1)492,041 $30,000,000 
(1) On January 11, 2023, we entered into the ASR Agreement with Morgan Stanley to repurchase an aggregate of $20 million of our outstanding shares of common stock and received an initial delivery of an aggregate of 408,685 shares of our common stock. At final settlement on May 20, 2023, based on the volume-weighted average price of our common stock during the term of the ASR Agreement, Morgan Stanley delivered an additional 83,356 shares of Company common stock to us, which shares were also retired and treated as authorized, unissued shares. The average price paid per share pursuant to the ASR Agreement was approximately $40.65.
Item 3.    Defaults Upon Senior Securities
None.
Item 4.    Mine Safety Disclosures
Not applicable.
Item 5.    Other Information
None.
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Item 6.    Exhibits
EXHIBIT NUMBERDESCRIPTION
2.1(3)^2.1^
2.2(5)^2.2^
3.1(2)2.3^
2.4^
3.1
3.2(2)3.2
3.3(4)3.3
4.1(1)4.1Form of Common Stock Certificate.Certificate, incorporated by reference to the Company’s Registration Statement on Form SB-2 (Registration No. 333-6680) filed March 25, 1997.
4.2(1)4.2Share Exchange Agreement.Agreement, incorporated by reference to the Company’s Registration Statement on Form SB-2 (Registration No. 333-6680) filed March 25, 1997.
4.3(6)10.1^
4.4(6)
10.1(7)†10.2
10.3
10.4^
10.5
31.1*31.1 *
31.2*31.2 *
32.1*32.1 **
101.INS***Inline XBRL Instance Document.Document
101.SCH***Inline XBRL Taxonomy Extension Schema Document.Document
101.CAL***Inline XBRL Taxonomy Extension Calculation Linkbase Document.Document
101.DEF***Inline XBRL Taxonomy Extension Definition Linkbase Document.Document
101.LAB***Inline XBRL Taxonomy Extension Label Linkbase Document.Document
101.PRE***Inline XBRL Taxonomy Extension Presentation Linkbase Document.Document
_____________________________

Table of Contents
^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.
104**Cover Page Interactive Data File –Filed herewith.
**Furnished herewith.
***The XBRL related information in Exhibit 101 shall not be deemed filed for purposes of Section 18 of the cover page interactive data file doesSecurities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not appearbe 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 the Interactive Data File because its XBRL tags are embedded within the Inline XBRLsuch filing or document.
___________________________
^    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
†    Those exhibits marked with a (†) refer 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 8-K/A filed November 18, 2014.
(4)Incorporated by reference to Appendix A to the Company’s Definitive Schedule 14A filed December 31, 2018.
(5)Incorporated by reference to an exhibit to the Company’s Form 8-K filed April 2, 2020.
(6)Incorporated by reference to an exhibit to the Company’s Form 8-K filed April 3, 2020.
(7)Incorporated by reference to the Company’s Form 8-K filed with the SEC on November 19, 2021.
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SIGNATURE
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lancaster, State of California, on July 8, 2022.7, 2023
Simulations Plus, Inc.SIMULATIONS PLUS, INC.
Date:July 8, 20227, 2023By:
 /s/ /s/ Will Frederick
Will Frederick
Fredrick
Chief Financial Officer (Principal financial officer)
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