[10-Q] Simulations Plus, Inc. Quarterly Earnings Report

Rhea-AI Filing Summary

Simulations Plus (SLP) Q3-25 10-Q highlights

Top-line: Revenue rose 9.8% year-over-year to $20.4 million, with software up 6.0% and services up 16.8%. Nine-month revenue advanced 20.2% to $61.7 million, reflecting continued adoption of newly acquired Pro-ficiency offerings.

Margins & mix: Gross margin contracted to 64% (71% prior-year) as services mix expanded to 38% of sales and cost inflation lifted software COGS. YTD gross margin slipped to 59% (71%).

Operating expense shock: A $77.2 million non-cash impairment tied to underperforming Pro-ficiency (ALI/MC) and QSP units drove operating expense to $87.3 million, swinging operating profit to a $74.2 million loss from $1.9 million income last year.

Net results: Net loss reached $67.3 million (-$3.35 EPS) versus $3.1 million (+$0.16 EPS) in Q3-24. Ex-impairment, management’s adjusted profit would have been modestly positive, but GAAP equity fell 32% to $123.8 million on impairment charges.

Cash & liquidity: Operating cash flow stayed positive at $12.5 million (up 7.6% YTD). Cash & equivalents climbed to $27.0 million from $10.3 million at FY-24 year-end, aided by investment redemptions. The balance sheet remains debt-light with total liabilities of $10.6 million; working capital is $41.6 million.

Segment view: Software contributed 62% of quarterly sales with 80% gross margin; services 38% with 38% margin. Management reports remaining performance obligations of $16.3 million (94% recognizable within 12 months), suggesting near-term revenue visibility.

Impairment rationale: A stock-price decline and revenue underperformance at ALI/MC prompted goodwill, trade-name, and developed-technology write-downs totaling $70.8 million; capitalized software at ALI/MC also impaired by $1.2 million.

Cash flow drivers YTD: strong collections (A/R up yet manageable), $6.5 million net investment inflows, and $2.1 million capitalized R&D. Financing outflows were limited to option exercises and earn-out payments; no dividends were declared in FY-25.

Risk & outlook: While core software demand remains healthy, shrinking margins, lower service profitability, and the large impairment highlight integration risks from Pro-ficiency. Investors will watch for improved ALI/MC traction, stabilization of goodwill balances, and restoration of historical mid-teens operating margins.

Insights

Equity Research Analyst

TL;DR: Revenue grew ~10%, but a $77 m impairment erased earnings and cut equity; cash flow solid, outlook hinges on Pro-ficiency integration.

The 10-Q is materially negative. Core operations remain stable—software sales rose 6% and service revenue 17%—yet margin erosion and the unprecedented $70.8 million goodwill/intangible write-down signal that the Pro-ficiency acquisition is under-delivering. GAAP EPS swung from +$0.16 to –$3.35, slicing book value by one-third. Cash generation mitigates liquidity concerns: $26.9 million cash, no debt, and positive OCF offset impairment’s non-cash nature. However, gross margin fell 700 bps and service profitability slid to 38%, pressuring future earnings quality. Valuation multiples historically rely on high margins; any prolonged softness could compress them further. Near-term catalysts include evidence of ALI/MC turnaround, new software releases, and international expansion; lacking these, the write-down may foreshadow slower growth and additional charges.

Industry Specialist – Biopharma Software

TL;DR: Core biosimulation demand intact, but Pro-ficiency units faltered, forcing goodwill hits; integration risk now front-and-center.

From an industry lens, SLP’s legacy CHEM, PBPK, and CPP tools continue to grow, reflecting sector-wide digital-twin adoption. Yet the Pro-ficiency adaptive-learning suite, meant to diversify into clinical-trial enablement, underperformed quickly after acquisition, triggering a major impairment less than one year post-close. That raises questions on due-diligence rigor and cross-selling synergies. Still, 94% of $16.3 million backlog is current, indicating resilient demand pipeline. The company’s broad customer base (largest customer only 7% sales) and positive grant funding remain strengths. Future success depends on aligning Pro-ficiency’s offerings with pharma R&D budgets and restoring service margins to 40%+. Otherwise, management could revisit capital allocation priorities—potentially refocusing on high-margin modeling software.

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended May 31, 2025
OR
o			Transition 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

Simulations Plus, Inc.

(Name of registrant as specified in its charter)

California			95-4595609
(State or other jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

800 Park Offices Drive, Suite 401

Research Triangle Park, NC 27709

(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, a 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):

o			Large accelerated Filer			o			Accelerated Filer
x			Non-accelerated Filer			x			Smaller reporting company
o			Emerging 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, 2025, was 20,127,110.

Table of Contents

Simulations Plus, Inc.

FORM 10-Q

For the Quarterly Period Ended May 31, 2025

Table of Contents

			PART I. FINANCIAL INFORMATION
						Page
Item 1.			Condensed Consolidated Financial Statements
			Unaudited Condensed Consolidated Balance Sheets at May 31, 2025 and August 31, 2024			3
			Unaudited Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the three months and nine months ended May 31, 2025 and May 31, 2024			4
			Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three and nine months ended May 31, 2025 and May 31, 2024			5
			Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended May 31, 2025 and May 31, 2024			7
			Unaudited Notes to Condensed Consolidated Financial Statements			8
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3.			Quantitative and Qualitative Disclosures about Market Risk			35
Item 4.			Controls and Procedures			36
			PART II. OTHER INFORMATION
Item 1.			Legal Proceedings			36
Item 1A.			Risk Factors			37
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			39
Item 3.			Defaults upon Senior Securities			39
Item 4.			Mine Safety Disclosures			39
Item 5.			Other Information			40
Item 6.			Exhibits			41
			Signatures			42

PART I. FINANCIAL INFORMATION

Item 1.    Condensed Consolidated Financial Statements

Table of Contents

SIMULATIONS PLUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

						(Unaudited)
(in thousands, except share and per share amounts)						May 31, 2025						August 31, 2024
ASSETS
Current assets
Cash and cash equivalents						$	26,950					$	10,311
Accounts receivable, net of allowance for credit losses of $255 and $149						14,780						9,136
Prepaid income taxes						954						2,197
Prepaid expenses and other current assets						7,591						7,753
Short-term investments						1,500						9,944
Total current assets						51,775						39,341
Long-term assets
Capitalized computer software development costs, net of accumulated amortization of $21,096 and $18,727						11,301						12,499
Property and equipment, net						681						812
Operating lease right-of-use assets						425						1,027
Intellectual property, net of accumulated amortization of $8,754 and $5,490						6,464						23,130
Other intangible assets, net of accumulated amortization of $4,146 and $3,177						12,368						23,210
Goodwill						43,487						96,078
Deferred tax assets, net						7,429						—
Other assets						430						542
Total assets						$	134,360					$	196,639
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable						$	1,663					$	602
Accrued compensation						1,656						4,513
Accrued expenses						2,199						2,043
Contracts payable - current portion						—						2,440
Operating lease liability - current portion						269						475
Deferred revenue						4,344						1,996
Total current liabilities						10,131						12,069
Long-term liabilities
Deferred tax liabilities, net						—						1,608
Operating lease liability - net of current portion						450						531
Total liabilities						10,581						14,208
Commitments and contingencies - Note 4
Shareholders' equity
Preferred stock, $0.001 par value — 10,000,000 shares authorized; no shares issued and outstanding						$	—					$	—
Common stock, $0.001 par value; 50,000,000 shares authorized, 20,116,181 and 20,051,134 shares issued and outstanding as of May 31, 2025 and August 31, 2024						20,116						20,051
Additional paid-in capital						137,620						132,277
(Accumulated deficit) retained earnings						(33,683)						30,354
Accumulated other comprehensive loss						(274)						(251)
Total shareholders' equity						123,779						182,431
Total liabilities and shareholders' equity						$	134,360					196,639

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Table of Contents

SIMULATIONS PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(Unaudited)

						Three Months Ended												Nine Months Ended
(in thousands, except per common share amounts)						May 31, 2025						May 31, 2024						May 31, 2025						May 31, 2024
Revenues
Software						$	12,615					$	11,908					$	36,814					$	31,111
Services						7,748						6,636						24,905						20,238
Total revenues						20,363						18,544						61,719						51,349
Cost of revenues
Software						2,540						1,400						7,765						3,739
Services						4,791						3,887						17,577						11,284
Total cost of revenues						7,331						5,287						25,342						15,023
Gross profit						13,032						13,257						36,377						36,326
Operating expenses
Research and development						1,216						1,300						5,207						3,829
Sales and marketing						2,680						2,399						9,248						6,337
General and administrative						6,141						7,678						16,089						18,878
Impairments						77,221						—						77,221						—
Total operating expenses						87,258						11,377						107,765						$	29,044
(Loss) income from operations						(74,226)						1,880						(71,388)						7,282
Other income, net						182						2,010						1,122						4,266
(Loss) income before income taxes						(74,044)						3,890						(70,266)						11,548
Income tax benefit (expense)						6,727						(753)						6,229						(2,437)
Net (loss) income						$	(67,317)					$	3,137					$	(64,037)					$	9,111
(Loss) Earnings per share
Basic						$	(3.35)					$	0.16					$	(3.19)					$	0.46
Diluted						$	(3.35)					$	0.15					$	(3.19)					$	0.45
Weighted-average common shares outstanding
Basic						20,113						19,995						20,092						19,972
Diluted						20,113						20,433						20,092						20,324
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustments						41						(56)						(27)						(125)
Unrealized gains (losses) on available-for-sale securities						—						(39)						4						(39)
Comprehensive (loss) income						$	(67,276)					$	3,042					$	(64,060)					$	8,947

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

(Unaudited)

(in thousands, except per common share amounts)						Common Stock												Additional Paid-In Capital						Retained Earnings						Accumulated Other Comprehensive Loss						Total Stockholders' Equity
						Shares						Amount
Balance as of September 1, 2024						20,051,134						$	20,051					$	132,277					$	30,354					$	(251)					$	182,431
Exercise of stock options						28,920						29						259						—						—						288
Stock-based compensation						—						—						1,673						—						—						1,673
Shares issued to Directors for services						4,960						5						130						—						—						135
Net income						—						—						—						206						—						206
Other comprehensive loss						—						—						—						—						(38)						(38)
Balance as of November 30, 2024						20,085,014						$	20,085					$	134,339					$	30,560					$	(289)					$	184,695
Exercise of stock options						22,096						22						6						—						—						28
Stock-based compensation						—						—						1,642						—						—						1,642
Shares issued to Directors for services						3,935						4						131						—						—						135
Net income						—						—						—						3,074						—						3,074
Other comprehensive loss						—						—						—						—						(26)						(26)
Balance as of February 28, 2025						20,111,045						$	20,111					$	136,118					$	33,634					$	(315)					$	189,548
Exercise of stock options						1,206						1						6						—						—						7
Stock-based compensation						—						—						1,365						—						—						1,365
Shares issued to Directors for services						3,930						4						131						—						—						135
Net (loss)						—						—						—						(67,317)						—						(67,317)
Other comprehensive income						—						—						—						—						41						41
Balance as of May 31, 2025						20,116,181						$	20,116					$	137,620					$	(33,683)					$	(274)					$	123,779

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(in thousands, except per common share amounts)			Common Stock									Additional Paid-In Capital						Retained Earnings						Accumulated Other Comprehensive Loss						Total Stockholders' Equity
			Shares			Amount
Balance as of September 1, 2023			19,937,961			$	19,938					$	125,036					$	25,196					$	(141)					$	170,029
Exercise of stock options			23,462			23						141						—						—						164
Stock-based compensation			—			—						1,303						—						—						1,303
Shares issued to Directors for services			4,255			4						146						—						—						150
Declaration of dividends			—			—						—						(1,196)						—						(1,196)
Net income			—			—						—						1,945						—						1,945
Other comprehensive loss			—			—						—						—						(54)						(54)
Balance as of November 30, 2023			19,965,678			$	19,965					$	126,626					$	25,945					$	(195)					$	172,341
Exercise of stock options			14,857			15						131						—						—						146
Stock-based compensation			—			—						1,585						—						—						1,585
Shares issued to Directors for services			3,960			4						146						—						—						150
Declaration of dividends			—			—						—						(1,198)						—						(1,198)
Net income			—			—						—						4,029						—						4,029
Other comprehensive income (loss)			—			—						—						—						(15)						(15)
Balance as of February 28, 2024			19,984,495			$	19,984					$	128,488					$	28,776					$	(210)					$	177,038
Exercise of stock options			19,683			20						144						—						—						164
Stock-based compensation			—			—						1,665						—						—						1,665
Shares issued to Directors for services			3,310			3						147						—						—						150
Declaration of dividends			—			—						—						(1,200)						—						(1,200)
Net income			—			—						—						3,137						—						3,137
Other comprehensive income (loss)			—			—						—						—						(95)						(95)
Balance as of May 31, 2024			20,007,488			$	20,007					$	130,444					$	30,713					$	(305)					$	180,859

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
(in thousands)																		May 31, 2025						May 31, 2024
Cash flows from operating activities
Net (loss) income																		$	(64,037)					$	9,111
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization																		6,857						3,459
Change in fair value of contingent consideration																		(640)						(270)
Discharge of holdback obligation related to Immunetrics acquisition																		(224)						—
Amortization of investment discounts																		(64)						(1,085)
Stock-based compensation																		4,830						4,942
Deferred income taxes																		(8,081)						(1,366)
Loss from disposal of assets																		23						—
Impairments																		77,221						—
Currency translation adjustments																		(28)						(125)
(Increase) decrease in
Accounts receivable																		(5,644)						57
Prepaid income taxes																		1,243						(398)
Prepaid expenses and other assets																		274						(1,498)
Increase (decrease) in
Accounts payable																		1,061						514
Other liabilities																		(2,600)						(22)
Deferred revenue																		2,348						(1,663)
Net cash provided by operating activities																		12,539						11,656
Cash flows from investing activities
Purchases of property and equipment																		(449)						(550)
Purchase of short-term investments																		(6,500)						(67,159)
Proceeds from maturities of short-term investments																		14,017						71,093
Proceeds from sales of investments																		995						45,177
Purchase of long-term investments																		—						—
Purchased intangibles																		(368)						(508)
Net working capital & excess cash settlement - Pro-ficiency acquisition																		(227)						—
Capitalized computer software development costs																		(2,115)						(2,520)
Net cash provided by investing activities																		5,353						45,533
Cash flows from financing activities
Payment of dividends																		—						(3,594)
Payments on contracts payable																		(1,576)						(2,500)
Proceeds from the exercise of stock options																		323						474
Net cash used in financing activities																		(1,253)						(5,620)
Net increase in cash and cash equivalents																		16,639						51,569
Cash and cash equivalents, beginning of period																		$	10,311					$	57,523
Cash and cash equivalents, end of period																		$	26,950					$	109,092
Supplemental disclosures of cash flow information
Income taxes paid																		$	1,020					$	4,214
Supplemental disclosures of non-cash activities
Measurement period adjustments (See Note 2)																		$	956					$	—

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Simulations Plus, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended May 31, 2025 and May 31, 2024

NOTE 1 – DESCRIPTION OF BUSINESS

Simulations Plus, Inc. (the “Company”, "we" "or") was incorporated in California on July 17, 1996. The Company is a global leader and premier provider in the biopharma sector, offering advanced software and consulting services that enhance drug discovery, and, development, clinical trial operations, regulatory submissions, and commercialization. With the June 2024 acquisition of Pro-ficiency Holdings, Inc. and its subsidiaries (collectively, “Pro-ficiency”), the Company extended its reach across the drug development value chain from the initial protocol stage through all phases of clinical research and development (“R&D”) to product commercialization. The Company now has a one-of-a-kind platform to serve its clients in the drug development process. This optimizes efficiency, costs, and time-to-market for our clients and enhances our competitive position.

At the beginning of fiscal year 2024, the Company reorganized its internal structure to create a more integrated and cohesive operating platform based on key products and services offerings rather than separate divisions based on its prior acquisitions (the "FY24 reorganization"). This business unit restructuring is engendering greater scientific collaboration and knowledge-sharing within the Company, leading to identifying new opportunities that both advance the Company’s business objectives and deepen client relationships. Continuing with our strategic plan of aligning our business units around products and services, the Pro-ficiency acquisition resulted in two new business units, Adaptive Learning & Insights and Medical Communications, giving the Company six total business units:

•Cheminformatics (“CHEM”);

•Physiologically Based Pharmacokinetics (“PBPK”);

•Clinical Pharmacology and Pharmacometrics (“CPP”);

•Quantitative Systems Pharmacology (“QSP”);

•Adaptive Learning & Insights (“ALI”); and

•Medical Communications (“MC”).

Effective January 1, 2025, the Company merged Pro-ficiency with and into the Company through a short-form merger (the “Merger”). To effectuate the Merger, the Company filed Certificates of Ownership with the Secretaries of State of the states of Delaware (Pro-ficiency's state of incorporation) and California (the Company’s state of incorporation). Consummation of the Merger was not subject to approval of the Company’s stockholders and did not impact the rights of the Company’s stockholders.

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NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation and Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, among other estimates, assumptions used in the allocation of the transaction price to separate performance obligations, estimates towards the measure of progress of completion on fixed-price service contracts, the determination of fair values and useful lives of both long-lived assets and intangible assets, goodwill, allowance for credit losses for accounts receivable, recoverability of deferred tax assets, recognition of deferred revenue, determination of fair value of equity-based awards, and assumptions used in testing for impairment of long-lived assets. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements.

The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These rules and regulations permit some of the information and footnote disclosures normally included in annual financial statements, prepared in accordance with U.S. GAAP, to be condensed or omitted. In management’s opinion, the unaudited consolidated financial statements contain all adjustments that are of a normal recurring nature, necessary for a fair presentation of the results of operations and financial position of the Company for the interim periods presented. Operating results for the interim period ended May 31, 2025 and 2024 are not necessarily indicative of the results that may be expected for the full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended August 31, 2024 and the notes thereto included in the Company’s Annual Report on Form 10-K.

Revenue Recognition

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

In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 606, we determine revenue recognition through the following steps:

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

ii.Identification of the performance obligations in the contract

iii.Determination of the transaction price

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.

Software Revenues:

Software revenues are primarily derived from the sale of software licenses, which are recognized at the time the software is unlocked and the license term begins. Most licenses are for a duration of one year or less.

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In addition to the software license, we provide a minimal level of customer support to assist customers with software usage. If customers require more extensive support, they may enter into a separate agreement for additional training services and maintenance.

The majority of the software is installed on customers’ servers, and the Company does not maintain control over the software post-sale, except through licensing parameters that govern the number of users, accessible modules, and license expiration dates.

The Pro-ficiency adaptive learning platform includes software customization by incorporating content tailored to specific needs. Following customization, it generates a recurring revenue stream throughout the duration of a clinical trial. Revenue is recognized over time at certain delivery milestones.

Payments are generally due upon invoicing on a net-30 basis, unless alternative payment terms are negotiated with the customer based on their payment history. Standard industry practices 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.

Services Revenue:

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. 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.

Grant revenue:

The Company receives government awards in the form of cash grants which vary in size, duration, and conditions from domestic governmental agencies. Accounting for grant revenue does not fall under ASC 606, Revenue from Contracts with Customers. For government awards in which no specific US GAAP applies, the Company accounts for such transactions as revenue and by analogy to a grant model. The grant revenue is recognized on a gross basis. The grant revenue is recognized over the duration of the program when the conditions attached to the grant are achieved. If conditions are not satisfied, the grants are often subject to reduction, repayment, or termination. The Company classifies the impact of government assistance on the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income as services revenue.

The Company received assistance from domestic governmental agencies to provide reimbursement for various costs incurred for research and development. These include direct grant awards and subawards. The grants awarded are currently set to expire at various dates through 2025. The Company recognized $0.1 million and $0.5 million for the three and nine months ended May 31, 2025, respectively. For the three and nine months ended May 31, 2024, the Company recognized $0.2 million and $1.0 million, respectively, within Services revenues on the Condensed Consolidated Statements of Operations and Comprehensive Income related to such assistance. Amounts that have been earned but not yet funded are included in accounts receivable. Computer equipment allowable by the grants is classified under fixed assets. Subawards due to unrelated entities are classified under accrued expenses.

Remaining Performance Obligations

As of May 31, 2025, remaining performance obligations were $16.3 million; 94% of the remaining performance obligations are expected to be recognized over the next twelve months, with the remainder expected to be recognized thereafter.

Disaggregation of Revenues

The components of revenue for the three and nine months ended May 31, 2025, and May 31, 2024, respectively, were as follows:

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						Three Months Ended												Nine Months Ended
(in thousands)						May 31, 2025						May 31, 2024						May 31, 2025						May 31, 2024
Software licenses
Point in time						$	11,974					$	11,678					$	34,505					$	30,353
Over time						641						230						2,309						758
Services
Over time						7,748						6,636						24,905						20,238
Total revenues						$	20,363					$	18,544					$	61,719					$	51,349

Contract Balances

Contract assets excluding accounts receivable balances as of May 31, 2025, and August 31, 2024, were $4.2 million and $5.9 million, respectively. This balance is included in Prepaid and Other Current Assets on the Condensed Consolidated Balance Sheets.

During the three and nine months ended May 31, 2025, the Company recognized $0.1 million and $2.0 million of revenue, respectively, that was included in contract liabilities as of August 31, 2024, and during the three and nine months ended May 31, 2024, the Company recognized $0.2 million and $2.8 million of revenue, respectively, that was included in contract liabilities as of August 31, 2023.

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 sales and marketing 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 Allowance 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 are 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 accounts receivable is summarized as follows:

						Three Months Ended												Nine Months Ended
(in thousands)						May 31, 2025						May 31, 2024						May 31, 2025						May 31, 2024
Balance, beginning of period						$	179					$	37					$	149					$	46
Provision for credit losses						92						112						114						103
Write-offs						(16)						—						(8)						—
Balance, end of period						$	255					$	149					$	255					$	149

Investments

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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 debt securities in accordance with ASC 320, Investments – Debt and Equity Securities. This statement requires debt securities to be classified into three categories:

Held-to-maturity—Debt securities that the 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 (“AFS”)—Debt securities not classified as either securities held-to-maturity or trading securities are reported at fair value. For AFS debt securities in an unrealized-loss position, we evaluate as of the balance sheet date whether the unrealized losses are attributable to a credit loss or other factors. The portion of unrealized losses related to a credit loss is recognized in earnings, and the portion of unrealized loss not related to a credit loss is recognized in other comprehensive income (loss). For AFS debt securities, the unrealized gains and losses are included in other comprehensive income until realized, at which time they are reported through net income.

We classify our investments in marketable debt securities based on the facts and circumstances present at the time of purchase of the securities. We reassess the appropriateness of that classification at each reporting date. During the three and nine months ended May 31, 2025, and May 31, 2024, all of our debt investments were classified as AFS.

Research & Development ("R&D") Capitalized Software Development Costs

R&D activities include both enhancement of existing products and development of new products. Development of new products and adding functionality to existing products are capitalized in accordance with FASB ASC 985-20, “Costs of Software to Be Sold, Leased, or Marketed.” R&D expenditures, which primarily relate to both capitalized and expensed salaries, R&D supplies, and R&D consulting, were $2.1 million and $7.6 million during the three and nine months ended May 31, 2025, respectively, of which $0.9 million and $2.4 million, respectively, were capitalized. R&D expenditures during the three and nine months ended May 31, 2024, were $2.1 million and $6.4 million, respectively, of which $0.8 million and $2.6 million, respectively, were capitalized.

Software development costs are capitalized in accordance with ASC 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 $0.8 million and $0.5 million for the three months ended May 31, 2025, and May 31, 2024, respectively, and $2.4 million and $1.3 million for the nine months ended May 31, 2025, and May 31, 2024, respectively. We expect future amortization expense to vary due to increases in capitalized computer software development costs.

The Company assesses capitalized computer software development costs for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In connection with the identified triggering event mentioned below as of May 31, 2025, the Company performed, prior to the goodwill impairment test, a quantitative assessment of its long-lived assets and concluded that its long-lived assets were impaired at certain reporting units. The Company recorded impairment charges for its capitalized computer software development costs of $1.2 million at the ALI/MC Software reporting unit. Such charges are recorded in Impairments on the condensed consolidated statements of operations and comprehensive (loss) income.

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No impairment losses were recorded during the three and nine months ended May 31, 2024.

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:

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

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

Depreciation expense for the three and nine months ended May 31, 2025, was $0.1 million and $0.3 million, respectively. For the three and nine months ended May 31, 2024, depreciation expense was $0.1 million and $0.2 million, respectively.

Internal use Software

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

Intangible Assets, Goodwill and Impairments

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 of intangible assets by performing an analysis of expected cash flows based on historical experience of the acquired businesses. Finite-lived intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the pattern in which the majority of the economic benefits are expected to be consumed. Finite-lived intangible assets subject to amortization are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable.

Goodwill represents the excess of the cost of an acquired entity over the fair value of the acquired net assets. Goodwill and indefinite-lived intangible assets are tested for impairment on the last day of the fiscal year or when events or circumstances change that would indicate that they might be impaired. Events or circumstances that could trigger an impairment review include, but are not limited to, a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, or significant underperformance relative to expected historical or projected future results of operations.

Goodwill is tested for impairment at the reporting unit level, which is one level below or the same as an operating segment. As of May 31, 2025, the Company determined that it had nine reporting units: CHEM Software, PBPK Software, QSP Software, CPP Software, ALI/MC Software, PBPK Services, CPP Services, QSP Services, and ALI/MC Services.

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During the third quarter of 2025, the Company identified the underperformance of revenue at ALI/MC Software and ALI/MC Services reporting units relative to forecasts utilized in the purchase price allocation and the significant stock price decline in relative terms and in comparison to peers as a triggering event as of May 31, 2025, indicating goodwill may be impaired. Accordingly, the Company conducted a quantitative impairment test of its goodwill as of May 31, 2025 for all reporting units. The Company estimated the implied fair value of its reporting units using an income and market approach. As a result of the quantitative impairment test performed, the Company determined that goodwill was impaired for its QSP Software, ALI/MC Software and ALI/MC Services reporting units and recorded a goodwill impairment charge of $1.8 million, $13.3 million and $36.7 million, respectively during the period ended May 31, 2025. Such charges are recorded in Impairments on the condensed consolidated statements of operations and comprehensive (loss) income.

The income approach was based upon projected future cash flows that were discounted to present value. The key underlying assumptions included forecasted revenues, gross profit and operating expenses, terminal growth rate, as well as an applicable discount rate for each reporting unit. The key assumptions in the market approach were the earnings multiple and market participant acquisition premium. Fair-value estimates are based on a complex series of judgments about future events and rely heavily on estimates and assumptions that have been deemed reasonable by the Company. Changes in the estimates or assumptions used in the quantitative impairment test could materially affect the determination of fair value of the Company’s reporting units and the associated goodwill impairment assessment. Potential events and circumstances that could have an adverse impact on our estimates and assumptions include, but are not limited to, lower than expected bookings growth, increases in costs, and other macroeconomic factors.

The below is a reconciliation of Goodwill for the nine months ended May 31, 2025:

(in thousands)						Software						Services						Total
Balance, August 31, 2024						$	37,795					$	58,283					$	96,078
Addition						—						—						—
Measurement period adjustment*						(290)						(439)						(729)
Impairments						(15,133)						(36,729)						(51,862)
Balance, May 31, 2025						$	22,372					$	21,115					$	43,487

*The Company had measurement period adjustments due to additional knowledge gained since June 11, 2024. The adjustments included a net working capital & excess cash settlement ($0.2 million) and deferred taxes related to the Pro-ficiency acquisition ($1.0 million). These have been allocated to the ALI/MC Software and Services reporting units.

The following table summarizes other intangible assets as of May 31, 2025:

(in thousands)						Amortization Period						Acquisition Value						Accumulated Amortization						Impairment						Net Book Value
Trade names						Indefinite						$	12,610					$	—					$	5,430					$	7,180
Covenants not to compete						Straight line 2 to 3 years						100						53						47						—
Other internal use software						Straight line 3 to 13 years						977						96						270						611
Customer relationships						Straight line 8 to 14 years						10,540						3,487						3,873						3,180
ERP						Straight line 15 years						2,528						510						621						1,397
												$	26,755					$	4,146					$	10,241					$	12,368

The Company reviews indefinite-lived intangible assets, consisting of trade names in accordance with ASC 350 Intangibles - Goodwill and other, for impairment annually or when an event occurs that may indicate potential impairment. In connection with the identified triggering event as of May 31, 2025, the Company performed, prior to the goodwill impairment test, a quantitative assessment of its indefinite-lived assets by comparing discounted future cash flows to the net carrying value of the underlying assets, and concluded that its indefinite-lived intangible assets were impaired. The Company recorded impairment charges for its indefinite lived intangible assets for its ALI/MC Software and QSP Software reporting units of $4.6 million and $0.9 million, respectively, during the period ended May 31, 2025. Such charges are recorded in Impairments on the condensed consolidated statements of operations and comprehensive (loss) income.

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The Company accounts for the impairment and disposition of long-lived assets in accordance with ASC 360, Property, Plant, and Equipment. 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. The Company measures recoverability by comparing the carrying amount of an asset to the expected future undiscounted net cash flows generated by the asset. If the Company determines that the asset may not be recoverable, or if the carrying amount of an asset exceeds its estimated future undiscounted cash flows, it recognizes an impairment charge to the extent of the difference between the fair value and the asset's carrying amount. In connection with the identified triggering event as of May 31, 2025, the Company performed, prior to the goodwill impairment test, a quantitative assessment of its long-lived assets and concluded that its long-lived assets were impaired at certain reporting units. The Company recorded impairment charges for its long-lived assets for its PBPK Services, QSP Services, ALI/MC Software, and MC Services reporting units of $0.3 million, $2.2 million, $15.7 million and $1.7 million, respectively, during the period ended May 31, 2025. Such charges are recorded in Impairments on the condensed consolidated statements of operations and comprehensive (loss) income. No impairment losses were recorded for the three and nine months ended May 31, 2024.

The following table summarizes other intangible assets as of August 31, 2024:

(in thousands)						Amortization Period						Acquisition Value						Accumulated Amortization						Net Book Value
Trade names						Indefinite						$	12,610					$	—					$	12,610
Covenants not to compete						Straight line 2 to 3 years						100						23						77
Other internal use software						Straight line 3 to 13 years						608						47						561
Customer relationships						Straight line 8 to 14 years						10,540						2,726						7,814
ERP						Straight line 15 years						2,529						381						2,148
												$	26,387					$	3,177					$	23,210

Total amortization expense for the three months ended May 31, 2025, and May 31, 2024, was $0.3 million and $0.3 million, respectively, and amortization expense for the nine months ended May 31, 2025, and May 31, 2024, was $1.0 million and $0.8 million, respectively.

The weighted-average amortization period for covenants not to compete is 2.1 years, other internal use software is 11.4 years, customer relationships is 7.8 years, and ERP is 11.6 years.

Estimated future amortization of finite-lived intangible assets for the next five fiscal years are as follows:

(in thousands)
Years Ending August 31,						Amount
Remainder of fiscal year 2025						$	140
2026						$	560
2027						$	551
2028						$	524
2029						$	524

Fair Value of Financial Instruments

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

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

For certain of the Company's financial instruments, including accounts receivable, accounts payable, and accrued compensation and other accrued expenses, the carrying amounts are representative of their fair values due to their short maturities.

The Company invests a portion of excess cash in short-term debt securities. Short-term debt securities investments as of May 31, 2025, and August 31, 2024, consisted of corporate bonds and term deposits with maturities remaining of less than 12 months. In addition, under the fair-value hierarchy, the fair market values of the Company’s cash equivalents and investments are Level I. The Company may also invest excess cash in certificates of deposit, money market accounts, government-sponsored enterprise securities, and/or commercial paper. The Company accounts for its investments in accordance with ASC 320, Investments - Debt and Equity Securities. As of May 31, 2025, all investments were classified as AFS securities. Unrealized losses on investments as of May 31, 2025, and August 31, 2024, were primarily caused by rising interest rates rather than changes in credit quality; thus, the Company did not record an allowance for credit losses.

The following tables summarize our short-term investments as of May 31, 2025, and August 31, 2024:

						May 31, 2025
(in thousands)						Amortized cost						Unrealized gains						Unrealized losses						Fair value
Level 1:
Term deposits (due within one year)						$	1,500					$	—					$	—					$	1,500
Money Market						10,043						—						—						10,043
Total Level 1						11,543						—						—						11,543
Level 2:						—						—						—						—
Level 3:						—						—						—						—
Total available-for-sale securities						$	11,543					$	—					$	—					$	11,543

						August 31, 2024
(in thousands)						Amortized cost						Unrealized gains						Unrealized losses						Fair value
Level 1:
Term deposits (due within one year)						$	1,500					$	—					$	—					$	1,500
Corporate debt securities (due within one year)						8,448						—						(4)						8,444
Total Level 1						9,948						—						(4)						9,944
Level 2:						—						—						—						—
Level 3:						—						—						—						—
Total available-for-sale securities						$	9,948					$	—					$	(4)					$	9,944

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During the three months ended February 28, 2025, the Company completed the final payment of $1.6 million related to the holdback liability from the acquisition of Immunetrics, Inc. (“Immunetrics”). Additionally, based on earned revenue for Immunetrics during the second earnout measurement period, the Company has assessed the fair value of the earnout liability to be zero. As of August 31, 2024, the Company had a liability for contingent consideration related to its acquisition of Immunetrics. 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 markets. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense the Company records in any given period. Changes in the fair value of the contingent consideration obligations are presented in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income.

The following is a reconciliation of contingent consideration at fair value:

(in thousands)						Amount
Contingent consideration at August 31, 2024						$	640
Contingent consideration payment						—
Change in fair value of contingent consideration						(640)
Contingent consideration at May 31, 2025						$	—

Business Combination

The acquisition method of accounting for business combinations requires us to use significant estimates and assumptions, including fair-value estimates, as of the business combination date and to refine those estimates as necessary during the measurement period (defined as the period, not to exceed one year, in which we may adjust the provisional amounts recognized for a business combination).

Under the acquisition method of accounting, we recognize separately from goodwill the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree, generally at the acquisition-date fair value. We measure goodwill as of the acquisition date as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed. Costs that we incur to complete the business combination, such as investment banking, legal, and other professional fees, are not considered part of consideration, and we recognize such costs as general and administrative expenses as they are incurred. We also account for acquired-company restructuring activities that we initiate separately from the business combination.

Should the initial accounting for a business combination be incomplete by the end of a reporting period that falls within the measurement period, we report provisional amounts in our condensed consolidated financial statements. During the measurement period, we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date, and we record those adjustments to our financial statements. We apply those measurement-period adjustments that we determine to be material retrospectively to comparative information in our financial statements, including adjustments to depreciation and amortization expense.

Under the acquisition method of accounting for business combinations, if we identify changes to acquired deferred-tax asset valuation allowances or liabilities related to uncertain tax positions during the measurement period, and they relate to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement-period adjustment and we record the offset to goodwill. We record all other changes to deferred-tax asset valuation allowances and liabilities related to uncertain tax positions in current-period income tax expense. This accounting applies to all our acquisitions regardless of acquisition date.

During the three months ended May 31, 2025, and May 31, 2024, the Company recognized a mergers and acquisitions expense of zero and $0.9 million, respectively. During the nine months ended May 31, 2025, and May 31, 2024, the Company recognized mergers and acquisitions expense of $0.1 million and $0.9 million, respectively. The Company deducted $0.1 million from the final settlement of the holdback liability in connection with the Immunetrics acquisition. The Company records mergers and acquisition expenses in general and administrative expenses in the condensed consolidated statements of operations and comprehensive income.

Research and Development Costs

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R&D costs are charged to expense as incurred until technological feasibility has been established. These costs include salaries 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, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated 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 basis 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

In June 2017, as part of the acquisition of DILIsym, the Company acquired certain developed technologies associated with drug-induced liver disease (“DILI”). These technologies were valued at $2.9 million and are being amortized over 9 years under the straight-line method.

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

In April 2020, as part of the acquisition of Lixoft, the Company acquired certain developed technologies associated with the Lixoft scientific software. These technologies were valued at $8.0 million and are being amortized over 16 years under the straight-line method.

In June 2023, we purchased certain developed technology of Immunetrics. The cost of $1.1 million is being amortized over 5 years under the straight-line method.

In June 2024, we purchased certain developed technology of Pro-ficiency. The cost of $16.6 million is being amortized over 5 years under the straight-line method.

The following table summarizes intellectual property as of May 31, 2025:

(in thousands)						Amortization Period						Acquisition Value						Accumulated Amortization						Impairment						Net Book Value
Developed technologies–DILIsym acquisition						Straight line 9 years						$	2,850					$	2,531					$	—					$	319
Intellectual rights of Entelos Holding Company						Straight line 10 years						50						34						—						16
Developed technologies–Lixoft acquisition						Straight line 16 years						8,010						2,538						—						5,472
Developed technologies–Immunetrics acquisition						Straight line 5 years						1,080						423						—						657
Developed technologies–Pro-ficiency acquisition						Straight line 5 years						16,630						3,228						13,402						—
												$	28,620					$	8,754					$	13,402					$	6,464

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In connection with the identified triggering event as of May 31, 2025, the Company performed, prior to the goodwill impairment test, a quantitative assessment of its long-lived assets and concluded that its long-lived assets were impaired at certain reporting units. 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. Developed technologies related to the Pro-ficiency acquisition were determined to be impaired. Such charges of $13.4 million are recorded in Impairments on the condensed consolidated statements of operations and comprehensive (loss) income.

The following table summarizes intellectual property as of August 31, 2024:

(in thousands)						Amortization Period						Acquisition Value						Accumulated Amortization						Net Book Value
Developed technologies–DILIsym acquisition						Straight line 9 years						$	2,850					$	2,294					$	556
Intellectual rights of Entelos Holding Company						Straight line 10 years						50						30						20
Developed technologies–Lixoft acquisition						Straight line 16 years						8,010						2,173						5,837
Developed technologies–Immunetrics acquisition						Straight line 5 years						1,080						261						819
Developed technologies–Pro-ficiency acquisition						Straight line 5 years						16,630						732						15,898
												$	28,620					$	5,490					$	23,130

Total amortization expense for intellectual property agreements was $1.1 million and $0.4 million for the three months ended May 31, 2025, and May 31, 2024, respectively, and $3.3 million and $1.2 million for the nine months ended May 31, 2025, and May 31, 2024, respectively. The Company records these in Cost of revenues - software on the Condensed Consolidated Statements of Operations and Comprehensive Income.

Estimated future amortization of intellectual property for the next five fiscal years are as follows:

(in thousands)
Years Ending August 31,						Amount
Remainder of fiscal year 2025						$	253
2026						$	936
2027						$	696
2028						$	651
2029						$	476

Earnings per Share

We report earnings per share in accordance with ASC 260, Earnings Per Share. 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. However, potential dilutive securities are note reflected in the diluted loss per share because such shares are anti-dilutive. The components of basic and diluted earnings per share for the three and nine months ended May 31, 2025, and May 31, 2024, were as follows:

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						Three Months Ended												Nine Months Ended
(in thousands)						May 31, 2025						May 31, 2024						May 31, 2025						May 31, 2024
Numerator
Net (loss) income attributable to common shareholders						$	(67,317)					$	3,137					$	(64,037)					$	9,111
Denominator
Weighted-average number of common shares outstanding during the period						20,113						19,995						20,092						19,972
Dilutive effect of stock options						—						438						—						352
Common stock and common-stock equivalents used for diluted earnings per share						20,113						20,433						20,092						20,324

Stock-Based Compensation

Compensation costs related to stock options are determined in accordance with ASC 718, Compensation - Stock Compensation. Compensation cost is calculated based on the grant-date fair value estimated using the Black-Scholes pricing model and then amortized on a straight-line basis over the requisite service period. Stock-based compensation costs related to stock options, not including shares issued to directors for services, was $1.4 million and $1.7 million for the three months ended May 31, 2025, and May 31, 2024, respectively, and $4.7 million and $4.6 million for the nine months ended May 31, 2025, and May 31, 2024, respectively.

For the three months ended May 31, 2025, and May 31, 2024, 1,984,935 and 1,292,978 shares, respectively, were not considered in the computation of diluted earnings per common share because their inclusion would result in an anti-dilutive effect on per-share amounts. For the nine months ended May 31, 2025 and May 31, 2024, 1,984,935 and 1,273,248 shares, respectively, were not considered in the computation of diluted earnings per common share because their inclusion would result in an anti-dilutive effect on per-share amounts.

Recently Issued Accounting Standards

In October 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-06 - Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative (“ASU 2023-06”). ASU 2023-06 incorporates 14 of the 27 disclosure requirements published in SEC Release No. 33-10532 - Disclosure Update and Simplification into various topics within the ASC. ASU 2023-06's amendments represent clarifications to, or technical corrections of, current requirements. For SEC registrants, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. Early adoption is prohibited. The Company does not expect ASU 2023-06 to have a material effect on its consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company does not expect ASU 2023-07 to have a material effect on its consolidated financial statements.

In December 2023, the FASB issued a new standard to improve income tax disclosures. The guidance requires disclosure of disaggregated income taxes paid, prescribes standardized categories for the components of the effective tax rate reconciliation, and modifies other income-tax-related disclosures. The amendments will be effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis. Retrospective application is permitted. The Company is currently evaluating the ASU to determine its impact on the Company’s disclosures.

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In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Topic 220): Disaggregation of Income Statement Expenses. The new guidance is intended to enhance transparency and disclosures by requiring public business entities to disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. The ASU is effective for annual reporting periods after December 15, 2026, and for interim reporting periods beginning December 15, 2027, with early adoption permitted. The Company is in the process of evaluating the impact that the adoption of this ASU will have on its financial statements and related disclosures. The Company does not expect ASU 2024-03 to have a material effect on its consolidated financial statements.

NOTE 3 – OTHER INCOME

The components of other income for the three and nine months ended May 31, 2025, and May 31, 2024, were as follows:

						Three Months Ended												Nine Months Ended
(in thousands)						May 31, 2025						May 31, 2024						May 31, 2025						May 31, 2024
Interest income						$	170					$	1,522					$	483					$	4,162
Change in fair valuation of contingent consideration						—						599						640						270
(Loss) on disposal of assets						(23)						(125)						(23)						(126)
Realized gains from sale of AFS securities						—						5						—						5
Gain (loss) on currency exchange						35						9						22						(45)
Total other income						$	182					$	2,010					$	1,122					$	4,266

NOTE 4 – COMMITMENTS AND CONTINGENCIES

Income Taxes

We follow guidance issued by the FASB regarding 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 2021 through 2024 are open for audit, and our state tax returns for fiscal years 2020 through 2024 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.

We recorded an income tax benefit of $6.7 million related to loss before taxes of $74.0 million for the three months ended May 31, 2025, and an income tax benefit of $6.2 million related to loss before taxes of $70.3 million for the nine months ended May 31, 2025. We recorded an income tax expense of $0.8 million related to income before taxes of $3.9 million for the three months ended May 31, 2024, and an income tax expense of $2.4 million related to income before taxes of $11.5 million for the nine months ended May 31, 2024. The effective income tax rate for the three and nine months ended May 31, 2025, was 9.1% and 8.9%, respectively. The effective income tax rate for the three and nine months ended May 31, 2024, were 19.4% and 21.1%, respectively.

Litigation

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

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NOTE 5 – SHAREHOLDERS' EQUITY

Shares Outstanding

Shares of Company's common stock outstanding for the three and nine months ended May 31, 2025, and May 31, 2024, were as follows:

						Three Months Ended												Nine Months Ended
(in thousands)						May 31, 2025						May 31, 2024						May 31, 2025						May 31, 2024
Common stock outstanding, beginning of period						20,111						19,984						20,051						19,938
Common stock issued during the period						5						23						65						69
Common stock outstanding, end of period						20,116						20,007						20,116						20,007

NOTE 6 – STOCK OWNERSHIP PLANS

The following table summarizes information about stock options:

(in thousands, except per share and weighted-average amounts)
Activity for the nine months ended May 31, 2025						Number of Options						Weighted-Average Exercise Price Per Share						Weighted-Average Remaining Contractual Life
Outstanding, August 31, 2024						1,906						$	37.64					6.91 years
Granted						374						32.72
Exercised						(73)						13.56
Canceled/Forfeited						(222)						41.36
Outstanding, May 31, 2025						1,985						$	37.18					6.73 years
Vested and Exercisable, May 31, 2025						1,004						$	35.34					5.11 years
Vested and Expected to Vest, May 31, 2025						1,904						$	37.22					6.63 years

The total grant-date fair value of nonvested stock options as of May 31, 2025, was $18.6 million and is amortizable over a weighted-average period of 3.0 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 stock options, which do not have vesting restrictions and are fully transferable. In addition, option-valuation models require the input of highly subjective assumptions, including the expected stock price volatility.

The following table summarizes the fair value of the options, including both ISOs and NQSOs, granted during the nine months ended May 31, 2025, and for the fiscal year ended August 31, 2024:

(in thousands, except weighted-average amounts)						Nine Months Ended May 31, 2025						Fiscal Year 2024
Estimated fair value of awards granted						$	6,426					$	11,902
Unvested forfeiture rate						6.26		%				5.53		%
Weighted-average grant price						$	32.72					$	40.76
Weighted-average market price						$	32.72					$	40.76
Weighted-average volatility						46.82		%				44.63		%
Weighted-average risk-free rate						3.96		%				4.77		%
Weighted-average dividend yield						0.00		%				0.59		%
Weighted-average expected life						6.61 years						6.59 years

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The exercise prices for the options outstanding at May 31, 2025, ranged from $6.85 to $66.14 per share, and the information relating to these options is as follows:

(in thousands except prices and weighted-average amounts)

Exercise Price Per Share												Awards Outstanding																		Awards Exercisable
Low						High						Quantity						Weighted -Average Remaining Contractual Life						Weighted-Average Exercise Price						Quantity						Weighted-Average Remaining Contractual Life						Weighted-Average Exercise Price
$	6.85					$	9.77					92						0.74 years						$	9.71					92						0.74 years						$	9.71
$	9.78					$	18.76					128						1.74 years						$	10.08					128						1.74 years						$	10.08
$	18.77					$	33.40					481						7.74 years						$	30.66					146						3.92 years						$	26.09
$	33.41					$	47.63					1,025						7.61 years						$	41.36					439						7.15 years						$	41.32
$	47.64					$	66.14					259						5.96 years						$	55.94					199						5.68 years						$	57.07
												1,985						6.73 years						$	37.18					1,004						5.11 years						$	35.34

During the three and nine months ended May 31, 2025, we issued 3,930 and 12,825 shares of stock valued at $0.1 million and $0.4 million, respectively, to our nonmanagement directors as compensation for board-related duties. During the three and nine months ended May 31, 2024, we issued 3,310 and 11,525 shares of stock valued at $0.2 million and $0.5 million, respectively, to our nonmanagement directors as compensation for board-related duties.

NOTE 7 – CONCENTRATIONS AND UNCERTAINTIES

Financial instruments that potentially subject the 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, the Company holds cash at a bank in France that is not FDIC-insured. Historically, the Company has not experienced any losses in such accounts, and management believes that the financial institutions at which its cash is held are stable; however, no assurances can be provided. While the Company may be exposed to credit losses due to the nonperformance of its counterparties, the Company does not expect the settlement of these transactions to have a material effect on its results of operations, cash flows, or financial condition.

Revenue concentration shows that international sales accounted for 27% and 30% of revenue for the nine months ended May 31, 2025, and May 31, 2024, respectively. Our three largest customers in terms of revenue accounted for 7%, 4%, and 3% of total revenues, respectively, for the nine months ended May 31, 2025. Our four largest customers in terms of revenue accounted for 9%, 3%, 3%, and 2% of total revenues, respectively, for the nine months ended May 31, 2024.

Accounts-receivable concentrations show that our three largest customers in terms of accounts receivable each comprised between 5% and 12% of accounts receivable as of May 31, 2025; our six largest customers in terms of accounts receivable comprised between 4% and 7% of accounts receivable as of May 31, 2024. As of the filing date of this report, our largest customer, which represented 12% of accounts receivable as of May 31, 2025, was current on all outstanding invoices, except for a de minimis amount.

We operate in biosimulation, simulation-enabled performance and intelligence solutions, and medical communications to the biopharma industry, 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 8 – SEGMENT REPORTING

The Company applies ASC 280, Segment Reporting, in determining reportable segments. The Company has two reportable segments: Software and Services. Segment information is presented in the same manner that the chief operating decision maker (“CODM”) reviews certain financial information based on these reportable segments. The CODM reviews revenue and gross profit for both of the reportable segments. Gross profit is defined as revenue less cost of revenue incurred by the segment.

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No operating segments have been aggregated to form the reportable segments. The Company does not allocate assets at the reportable segment level, as these are managed on an entity-wide group basis and, accordingly, the Company does not report asset information by segment. The Company does not allocate operating expenses that are managed on an entity-wide group basis and, accordingly, the Company does not allocate and report operating expenses at a segment level. There are no internal revenue transactions between the Company’s segments.

The following tables summarize the results for each segment for the three months ended May 31, 2025, and May 31, 2024, respectively. Please refer to Results of Operations within MD&A for a discussion of results in below tables:

(in thousands)						Three Months Ended May 31, 2025
						Software						Services						Total
Revenues						$	12,615					$	7,748					$	20,363
Cost of revenues						2,540						4,791						7,331
Gross profit						$	10,075					$	2,957					$	13,032
Gross margin						80		%				38		%				64		%

Our software segment and services segment represented 62% and 38% of total revenue, respectively, for the three months ended May 31, 2025.

(in thousands)						Three Months Ended May 31, 2024
						Software						Services						Total
Revenues						$	11,908					$	6,636					$	18,544
Cost of revenues						1,400						3,887						5,287
Gross profit						$	10,508					$	2,749					$	13,257
Gross margin						88		%				41		%				71		%

Our software segment and services segment represented 64% and 36% of total revenue, respectively, for the three months ended May 31, 2024.

The following tables summarize the results for each segment for the nine months ended May 31, 2025, and May 31, 2024, respectively. Please refer to Results of Operations within MD&A for a discussion of results in below tables:

(in thousands)						Nine Months Ended May 31, 2025
						Software						Services						Total
Revenues						$	36,814					$	24,905					$	61,719
Cost of revenues						7,765						17,577						25,342
Gross profit						$	29,049					$	7,328					$	36,377
Gross margin						79		%				29		%				59		%

Our software segment and services segment represented 60% and 40% of total revenue, respectively, for the nine months ended May 31, 2025.

(in thousands)						Nine Months Ended May 31, 2024
						Software						Services						Total
Revenues						$	31,111					$	20,238					$	51,349
Cost of revenues						3,739						11,284						15,023
Gross profit						$	27,372					$	8,954					$	36,326
Gross margin						88		%				44		%				71		%

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Our software segment and services segment represented 61% and 39% of total revenue, respectively, for the nine months ended May 31, 2024.

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, 2025, and May 31, 2024, were as follows:

(in thousands)						Three Months Ended
						May 31, 2025												May 31, 2024
						$						% of total						$						% of total
Americas						$	14,544					71		%				$	12,428					67		%
EMEA						3,698						18		%				4,513						24		%
Asia Pacific						2,121						11		%				1,603						9		%
Total						$	20,363					100		%				$	18,544					100		%

(in thousands)						Nine Months Ended
						May 31, 2025												May 31, 2024
						$						% of total*						$						% of total
Americas						$	45,125					73		%				$	35,781					70		%
EMEA						11,224						18		%				11,479						22		%
Asia Pacific						5,370						9		%				4,089						8		%
Total						$	61,719					100		%				$	51,349					100		%

*Percentages may not add due to rounding

NOTE 9 – EMPLOYEE BENEFIT PLAN

We maintain a 401(k) Plan for eligible employees. We make matching contributions equal to 100% of the employee’s elective deferral, not to exceed 4% of the employee’s gross salary. We contributed $0.2 million and $0.2 million for the three months ended May 31, 2025, and May 31, 2024, respectively, and $0.7 million and $0.5 million for the nine months ended May 31, 2025, and May 31, 2024, respectively.

NOTE 10 - RESTRUCTURING

At the end of the quarter ended May 31, 2025, the Company executed a restructuring plan to reduce its workforce by approximately 10% to enhance its operational efficiency and reduce operating expenses (the "2025 Restructuring Plan"). Communication to employees and actions associated with the 2025 restructuring plan were completed by the end of the quarter ended May 31, 2025.

The Company estimates that it will incur a one-time expense of approximately $0.7 million in charges in connection with the 2025 Restructuring Plan, consisting of involuntary severance payments, employee benefits, and related costs, substantially all of which the Company expects to incur in the fiscal year ending August 31, 2025. These costs are recorded within General and Administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Income. The restructuring was driven by macro-economic factors negatively impacting the pharmaceutical and biotechnology markets. The reduction in workforce and cost reductions being implemented are expected to reduce operating expenses by approximately $4.3 million on an annualized basis.

As of May 31, 2025, the Company has recorded total severance charges of $0.7 million related to the 2025 Restructuring Plan. Also as of May 31, 2025, the Company had $0.7 million of severance charges reflected within accrued expenses. The Company does not expect to incur further material severance charges related to the 2025 Restructuring Plan in future periods.

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NOTE 11 - SUBSEQUENT EVENTS

On July 14, 2025 , the Company announced an investment in Nurocor of $1.0 million. Nurocor offers a cloud-based software platform designed to improve efficiency, reusability, governance, and automation for pharmaceutical companies through digitalization in the clinical development phase. Its solution significantly accelerates the typical clinical trial lifecycle, resulting in a reduction of the overall cost of the clinical development process.

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

Executive Overview

Our clients face many challenges. Developing new therapies is time-consuming and expensive, requiring an average of 10-15 years and an average cost of approximately $1.3-$2.8 billion to develop a single drug. Drug sponsors must prioritize not only efficacy and safety of the drug, but also issues like drug-drug interactions, inclusion of patients representative of the indicated population, regulatory approvals, minimization of animal testing, safety and compliance during clinical trials, and commercial success.

Our model-informed drug development (“MIDD”) software and services allow clients to use modeling and simulation to accelerate drug development, reduce the costs of R&D, comply with regulatory guidance and best practices, and increase confidence in the safety and efficacy of their drugs and biologics. Our adaptive learning solutions support the success of clinical trials by accelerating recruitment of an appropriate patient population, increasing retention of participants, and by driving competency and compliance with trial protocols, while our medical communications solutions provide support in obtaining regulatory approval and commercialization of drugs.

The Company was previously headquartered in Southern California; however, in support of the Company's remote work culture and plan to reduce excess office space to achieve its carbon footprint reduction targets, the Company fully exited four office locations in Lancaster, California; Raleigh, North Carolina; Buffalo, New York; and Pittsburgh, Pennsylvania. As a result, the company moved its headquarters from Lancaster, California, to Research Triangle Park, North Carolina, and also maintains a European office in Paris, France.

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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, 2024, filed with the Securities and Exchange Commission (“SEC”) on October 30, 2024, 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.

Results of Operations

Comparison of Three Months Ended May 31, 2025, and May 31, 2024

(in thousands)						Three Months Ended												% of Revenue
						May 31, 2025						May 31, 2024						May 31, 2025						May 31, 2024						$ Change						% Change
Revenue						$	20,363					$	18,544					100		%				100		%				$	1,819					10		%
Cost of revenue						7,331						5,287						36		%				29		%				2,044						39		%
Gross profit						13,032						13,257						64		%				71		%				(225)						-2		%
Research and development						1,216						1,300						6		%				7		%				(84)						-6		%
Sales and marketing						2,680						2,399						13		%				13		%				281						12		%
General and administrative						6,141						7,678						30		%				41		%				(1,537)						-20		%
Impairments						77,221						—						379		%				NM						77,221						NM
Total operating expenses						87,258						11,377						429		%				61		%				75,881						667		%
(Loss) Income from operations						(74,226)						1,880						-365		%				10		%				(76,106)						-4,048		%
Other income, net						182						2,010						1		%				11		%				(1,828)						-91		%
(Loss) income before income taxes						(74,044)						3,890						-364		%				21		%				(77,934)						-2,003		%
Income tax benefit (expense)						6,727						(753)						33		%				-4		%				7,480						993		%
Net (loss) income						$	(67,317)					$	3,137					-331		%				17		%				$	(70,454)					-2,246		%

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Revenues

Revenues increased by $1.8 million, or 10%, to $20.4 million for the three months ended May 31, 2025, compared to $18.5 million for the three months ended May 31, 2024. This increase is primarily due to a $0.7 million, or 6%, in software-related revenue and a $1.1 million, or 17%, increase in service-related revenue when compared to the three months ended May 31, 2024. The software-related revenue increase of $0.7 million, or 6%, compared to the three months ended May 31, 2024, was primarily due to additional revenue from the Pro-ficiency acquisition of $0.4 million. The service-related revenue increase of $1.1 million or 17%, compared to the three months ended May 31, 2024, was primarily due to additional revenue from the Pro-ficiency acquisition of $2.0 million; however this was partially offset by a lower number of insufficient actionable projects and lower utilization from scientific staff.

Cost of revenues

Cost of revenues increased by $2.0 million, or 39%, for the three months ended May 31, 2025, compared to the three months ended May 31, 2024. This increase is primarily due to a $1.1 million or 81%, increase in software-related cost and a $0.9 million or 23%, increase in service-related costs. The software-related costs increase of $1.1 million or 81%, compared to the three months ended May 31, 2024, was primarily due to additional amortization of $0.8 million as a result of the acquisition of Pro-ficiency and $0.3 million of higher amortization of capitalized software cost driven by the release of GastroPlus in May 2024. The service-related costs increase of $0.9 million or 23%, compared to the three months ended May 31, 2024, was primarily due to additional costs from the Pro-ficiency acquisition of $1.6 million, and a $1.0 million shift from G&A expense to cost of revenues, due to the FY24 reorganization, partially offset by $1.3 million of lower accrued bonuses due to Company performance, lower stock compensation expense of $0.2 million, and lower cost of revenues of $0.2 million due to lower revenues.

Gross profit

Gross profit decreased marginally to $13.0 million from $13.3 million, or 1.7% for the three months ended May 31, 2025, and May 31, 2024. The gross profit decreased modestly in our software business by $0.4 million, or 4%, and increased moderately for our services business by $0.2 million, or 8%, for the three months ended May 31, 2025, compared to the three months ended May 31, 2024.

Overall gross margin percentage was 64% and 71% for the three months ended May 31, 2025 and 2024, respectively, due to the factors described above.

Research and development

We incurred $2.1 million of research and development costs during the three months ended May 31, 2025. Of this amount, $0.9 million was capitalized as part of capitalized software development costs, and $1.2 million was expensed. We incurred $2.1 million of research and development costs during the three months ended May 31, 2024. Of this amount, $0.8 million was capitalized, and $1.3 million was expensed. Research and development spend decreased by $0.1 million, or 2%, for the three months ended May 31, 2025, compared to the three months ended May 31, 2024.

Sales and marketing expenses

Sales and marketing expenses increased by $0.3 million, or 12%, to $2.7 million for the three months ended May 31, 2025, compared to $2.4 million for the three months ended May 31, 2024. The increase for the three months ended May 31, 2025, was primarily due to a $0.5 million increase in expenses related to the acquisition of Pro-ficiency, partially offset by lower stock compensation of $0.1 million and lower sales commissions of $0.1 million.

General, and administrative expenses

General, and administrative (“G&A”) expenses decreased by $1.5 million, or 20%, to $6.1 million for the three months ended May 31, 2025, compared to $7.7 million for the three months ended May 31, 2024. The decrease is primarily driven by a $1.0 million shift from G&A expense to cost of revenues, due to the FY24 reorganization, reduction in bonus expense of $0.9 million, lower travel and entertainment expenses of $0.1 million, partially offset by $0.6 million expense related to a company wide employee summit.

Impairments

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During the third quarter of 2025, the Company identified the underperformance of revenue at ALI and MC relative to forecasts utilized in the purchase price allocation and the significant stock price decline in relative terms and in comparison to peers as a triggering event as of May 31, 2025, indicating goodwill, other intangibles and long-lived assets may be impaired. As a result of the impairment test performed, the Company determined goodwill, other intangibles and certain long-lived assets were impaired for its PBPK Services, QSP Software, QSP Services, ALI/MC Software and MC Services reporting units and recorded impairment charges of $0.3 million, $2.7 million, $2.2 million, $33.6 million and $38.4 million, respectively. No impairment was recognized as of May 31, 2024.

Other income

Total other income was $0.2 million for the three months ended May 31, 2025, compared to total other income of $2.0 million for the three months ended May 31, 2024. Interest income decreased by $1.4 million due to the use of cash from investment in debt securities to acquire Pro-ficiency and other income decreased by $0.6 million due to changes in the fair value of the earnout liability related to the Immunetrics acquisition. The fair value of the earnout liability decreased, as no earnout payment was earned in the second earnout measurement period.

Provision for income taxes

The benefit for income taxes was $6.7 million for the three months ended May 31, 2025, compared to an expense of $0.8 million for the three months ended May 31, 2024. The Company tax rate decreased to 9.1% for the three months ended May 31, 2025, when compared to 19.4% for the three months ended May 31, 2024. The decrease in the tax rate is primarily due to discrete expenses recognized during the three months ended May 31, 2025.

Results of Operations

Comparison of Nine Months Ended May 31, 2025 and May 31, 2024

(in thousands)						Nine Months Ended									% of Revenue
						May 31, 2025						May 31, 2024						May 31, 2025						May 31, 2024						$ Change						% Change
Revenue						$	61,719					$	51,349					100		%				100		%				$	10,370					20		%
Cost of revenue						25,342						15,023						41		%				29		%				10,319						69		%
Gross profit						36,377						36,326						59		%				71		%				51						0		%
Research and development						5,207						3,829						8		%				7		%				1,378						36		%
Sales and marketing						9,248						6,337						15		%				12		%				2,911						46		%
General and administrative						16,089						18,878						26		%				37		%				(2,789)						-15		%
Impairments						77,221						—						125		%				NM						77,221						NM
Total operating expenses						107,765						29,044						175		%				57		%				78,721						271		%
(Loss) income from operations						(71,388)						7,282						-116		%				14		%				(78,670)						-1,080		%
Other income, net						1,122						4,266						2		%				8		%				(3,144)						-74		%
(Loss) income before income taxes						(70,266)						11,548						-114		%				22		%				(81,814)						-708		%
Income tax benefit						6,229						(2,437)						10		%				-5		%				8,666						-356		%
Net (loss) income						$	(64,037)					$	9,111					-104		%				18		%				$	(73,148)					-803		%

Revenues

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Revenues increased by $10.4 million, or 20%, to $61.7 million for the nine months ended May 31, 2025, compared to $51.3 million for the nine months ended May 31, 2024. This increase is primarily due to a $5.7 million, or 18%, increase in software-related revenue and a $4.7 million, or 23%, increase in service-related revenue when compared to the nine months ended May 31, 2024. The software-related revenue increase of $5.7 million, or 18%, compared to the nine months ended May 31, 2024, was primarily due to additional revenue from the Pro-ficiency acquisition of $3.0 million, higher revenues from CPP of $1.0 million and higher revenues from QSP of $0.9 million as perpetual licenses sales increased. The service-related revenue increase of $4.7 million, or 23%, compared to the nine months ended May 31, 2024, was primarily due to additional revenue from the Pro-ficiency acquisition of $6.2 million offset by lower revenue from PBPK of $0.8 million and lower revenue from QSP of $0.8 million due to soft market conditions.

Cost of revenues

Cost of revenues increased by $10.3 million, or 69%, for the nine months ended May 31, 2025, compared to the nine months ended May 31, 2024. This increase is primarily due to a $4.0 million or 108%, increase in software-related cost and a $6.3 million or 56%, increase in service-related costs. The software-related costs increase of $4.0 million or 108%, compared to the nine months ended May 31, 2024, was primarily due to additional cost of revenues of $3.0 million as a result of the Pro-ficiency acquisition out of which $2.5 million is from amortization of developed technology from the acquisition of Pro-ficiency, and $1.0 million of higher amortization of capitalized software cost driven by the release of GastroPlus in May 2024, offset by a decrease of $0.4 million of fully amortized TSRL in the third quarter of fiscal year 2024. The service-related costs increase of $6.3 million or 56%, compared to the nine months ended May 31, 2024, was primarily due to additional costs from the Pro-ficiency acquisition of $4.7 million, and $2.6 million shift from G&A expense to cost of revenues, due to the FY24 reorganization. The $2.6 million increase in cost of revenues corresponds to the $2.6 million decrease in general and administrative expenses discussed below, partially offset by $1.2 million of lower accrued bonuses due to Company performance.

Gross profit

Gross profit remained relatively flat at $36.4 million for the nine months ended May 31, 2025, compared to $36.3 million for the nine months ended May 31, 2024. Gross profit increased in our software business by $1.7 million, or 6%, and decreased for our services business by $1.6 million, or 18%, for the nine months ended May 31, 2025, compared to the nine months ended May 31, 2024.

Overall gross margin percentage was 59% and 71% for the nine months ended May 31, 2025 and 2024, respectively. Gross margin decline is largely attributable to the underperformance of Pro-ficiency revenues.

Research and development

We incurred $7.6 million of research and development costs during the nine months ended May 31, 2025. Of this amount, $2.4 million was capitalized as a part of capitalized software development costs and $5.2 million was expensed. We incurred $6.4 million of research and development costs during the nine months ended May 31, 2024. Of this amount, $2.6 million was capitalized and $3.8 million was expensed. Research and development spend increased by $1.2 million, or 18%, for the nine months ended May 31, 2025, compared to the nine months ended May 31, 2024, primarily due to an increase of $1.2 million from the acquisition of Pro-ficiency.

Sales and marketing expenses

Sales and marketing expenses increased by $2.9 million, or 46%, to $9.2 million for the nine months ended May 31, 2025, compared to $6.3 million for the nine months ended May 31, 2024. The increase was primarily due to an increase of $1.3 million from the acquisition of Pro-ficiency, $0.4 million in higher event-related spending to enhance brand awareness and customer engagement, increased headcount costs of $0.7 million, $0.3 million incurred to support our business development efforts, and increased sales commission to employees of $0.1 million.

General, and administrative expenses

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General, and administrative (“G&A”) expenses decreased by $2.8 million, or 15%, to $16.1 million for the nine months ended May 31, 2025, compared to $18.9 million for the nine months ended May 31, 2024. The decrease is primarily driven by a $2.6 million shift from G&A expense to cost of revenues, as referenced above, due to the FY24 reorganization and a decrease in bonus expense of $1.2 million, partially offset by an increase of $0.9 million from the acquisition of Pro-ficiency.

Impairments

During the third quarter of 2025, the Company identified the underperformance of revenue at ALI and MC relative to forecasts utilized in the purchase price allocation and the significant stock price decline in relative terms and in comparison to peers as a triggering event as of May 31, 2025, indicating goodwill, other intangibles and long-lived assets may be impaired. As a result of the impairment test performed, the Company determined goodwill, other intangibles and certain long-lived assets were impaired for its PBPK Services, QSP Software, QSP Services, ALI/MC Software and MC Services reporting units and recorded impairment charges of $0.3 million, $2.7 million, $2.2 million, $33.6 million and $38.4 million, respectively. No impairment was recognized in May 31, 2024.

Other income

Total other income was $1.1 million for the nine months ended May 31, 2025, compared to total other income of $4.3 million for the nine months ended May 31, 2024. $3.7 million of the decrease in interest income is attributable to the use of cash from investment in debt securities to acquire Pro-ficiency, partially offset by a $0.4 million increase due to the decrease in the fair value of the Immunetrics earnout liability, as no earnout payment is anticipated related to the second earnout measurement period.

Provision for income taxes

The benefit for income taxes was $6.2 million for the nine months ended May 31, 2025, compared to an expense of $2.4 million for the nine months ended May 31, 2024. The Company tax rate decreased to 8.9% mainly due to both the lower proportion of US taxable income vs France where the effective tax rate is significantly lower and tax benefits from discrete items, when compared to 21.1% for the nine months ended May 31, 2024.

Liquidity and Capital Resources

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

We continue to seek opportunities for strategic acquisitions, investments, and partnerships. If one or more strategic opportunities are identified, a substantial portion of our cash reserves may be required to complete the transaction. If we identify an attractive strategic opportunity that would require more cash to complete than we are willing or able to use from our cash reserves, we may consider financing options to complete the transaction, including obtaining loans or selling our securities. Additionally, our quest for strategic opportunities could result in a significant change to our liquidity position and/or our results of operations if any such transactions are completed.

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

Cash, Cash Equivalents, and Investments

At May 31, 2025, the Company had $27.0 million in cash and cash equivalents, $1.5 million in short-term investments, and net working capital of $41.6 million. Short-term investments consist of highly liquid investment-grade fixed-income securities, diversified among industries and issuers. The investments are U.S.-dollar-denominated securities. Our fixed-income investments are exposed to interest rate risk and credit risk. The settlement risk related to these investments is insignificant, given that the short-term investments held are primarily highly liquid investment-grade fixed-income securities and can readily be converted to cash when needed.

Cash Flows

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Operating Activities

Net cash provided by operating activities was $12.5 million for the nine months ended May 31, 2025. Our operating cash flows resulted in part from our net loss of $64.0 million, offset by cash payments we made to third parties for their services, employee compensation, and non-cash impairment charges. The changes in balances of assets of $4.1 million was primarily due to change in accounts receivables driven by higher revenues and invoicing that occurred closer to the end of the current quarter and higher prepaid income taxes of $1.2 million driven by timing of cash tax payments. The changes in liabilities balances of $0.8 million were primarily due to higher deferred revenues of $2.3 million driven by higher invoicing that occurred closer to the end of the current quarter and timing of revenue recognition, and higher accounts payable of $1.1 million driven by timing of payments, offset by lower bonus accrual of $2.4 million driven by lower business performance.

Net cash provided by operating activities was $11.7 million for the nine months ended May 31, 2024. Our operating cash flows resulted primarily from our net income of $9.1 million. In addition, $3.0 million related to changes in balances of operating assets and liabilities was added to net income and $5.6 million related to noncash charges was added to net income to reconcile to cash flow from operations.

Net cash provided by operating activities decreased by $0.9 million during the nine months ended May 31, 2025, compared to the nine months ended May 31, 2024. This decrease was driven by drivers as explained above for both comparative periods.

Investing Activities

Net cash provided by investing activities during the nine months ended May 31, 2025, was $5.4 million, primarily due from maturities of short-term investments of $14.0 million and sale of short-term investments of $1.0 million, partially offset by the purchase of short-term investments of $6.5 million and computer software development costs of $2.1 million,

Net cash provided by investing activities during the nine months ended May 31, 2024, was $45.5 million, primarily due to the sale of investments for $45.1 million and maturities of short-term investments for $71.1 million. This was partially offset by purchase of short-term investments of $67.2 million and computer software development costs of $2.5 million.

Financing Activities

Net cash used in financing activities during the nine months ended May 31, 2025, was $1.3 million, primarily due to cash settlement of $1.6 million from the holdback obligation related to the Immunetrics acquisition, offset by proceeds from the exercise of stock options totaling $0.3 million.

Net cash used in financing activities during nine months ended May 31, 2024, was $5.6 million, primarily due to dividend payments totaling $3.6 million and the first cash earnout payments in the aggregate amount of $2.5 million to the former equity holders and employees of Immunetrics, partially offset by proceeds from the exercise of stock options totaling $0.5 million.

Pro-ficiency Acquisition

On June 11, 2024, the Company entered into a Stock Purchase Agreement, by and among the Company, Pro-ficiency, each of the stockholders of Pro-ficiency (collectively, the “Sellers”) and WRYP Stockholders Services, LLC, solely in its capacity as the Sellers’ Representative (the “Purchase Agreement”). Pursuant to the Purchase Agreement, at closing on June 11, 2024, (the “Closing”), the Company purchased 100% of the issued and outstanding capital stock of Pro-ficiency (the “Acquisition”) from the Sellers for an aggregate purchase price of $100 million in cash, subject to post-closing adjustments for net working capital, closing cash, indebtedness, and transaction expenses (collectively, the “Purchase Price”). An aggregate of $1 million of the Purchase Price was placed in escrow to fund payment obligations of the Sellers with respect to post-closing Purchase Price adjustments and post-Closing indemnification obligations of the Sellers, and another portion of the Purchase Price was deposited into an account to reimburse the Seller Representative for any fees and expenses incurred by the Seller Representative in performing its duties under the Purchase Agreement as the representative of the Sellers. As a result of the Acquisition, at Closing, Pro-ficiency became a wholly-owned subsidiary of the Company.

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The Purchase Agreement contains standard representations, warranties and covenants, and other terms customary in similar transactions. Subject to the provisions of the Purchase Agreement, the Sellers have agreed to indemnify the Company and its affiliates for losses resulting from breaches of representations, warranties, and covenants of the Sellers and Pro-ficiency in the Purchase Agreement and for certain other specified matters. The Sellers’ indemnification obligations are subject to various limitations, including, among other things, a deductible, caps, and time limitations.

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

Immunetrics Acquisition

During the quarter ended February 28, 2025, the Company completed the final payment of $1.6 million related to the holdback liability from the Immunetrics acquisition. Additionally, based on Immunetrics' performance during the second earnout measurement period, the Company reassessed the fair value of the related contingent consideration and determined it to be zero as of February 28, 2025. In the quarter ending May 31, 2025, the Company reached a final settlement with the sellers, confirming that no earnout payment was due, consistent with the previously recorded assessment.

Share Repurchases

For the three and nine months ended May 31, 2025, and May 31, 2024, respectively, we did not repurchase any shares of Company stock. As of May 31, 2025, $30 million remains available for additional repurchases under our authorized 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 share repurchase program has no expiration date but may be terminated at any time at our Board of Directors’ discretion.

Critical Accounting Estimates

Estimates

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

Revenue Recognition

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

The Company determines revenue recognition through the following steps:

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, the Company satisfies a performance obligation

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

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Capitalized Computer Software Development Costs

Software development costs are capitalized in accordance with ASC 985-20, “Costs of Software to Be Sold, Leased, or Marketed.” Capitalization of software development costs begins upon the establishment of technological feasibility and is discontinued when the product is available for sale. The establishment of technological feasibility and the ongoing assessment for recoverability of capitalized computer software development costs require considerable judgment by management with respect to certain external factors including, but not limited to, technological feasibility, anticipated future gross revenues, estimated economic life, and changes in software and hardware technologies. Capitalized software development costs are comprised primarily of salaries and direct payroll-related costs and the purchase of existing software to be used in the Company’s software products. Total capitalized computer software development costs were $0.9 million and $0.8 million for the three months ended May 31, 2025, and May 31, 2024, respectively, and $2.4 million and $2.6 million for the nine months ended May 31, 2025, and May 31, 2024, respectively.

Amortization of capitalized computer software development costs is calculated on a product-by-product basis on the straight-line method over the estimated economic life of the products, not to exceed five years. Amortization of software development costs amounted to $0.8 million and $0.5 million, respectively, for the three months ended May 31, 2025, and May 31, 2024, respectively, and $2.4 million and $1.3 million for the nine months ended May 31, 2025, and May 31, 2024, respectively. We expect future amortization expense to vary due to variations in capitalized computer software development costs.

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

Intangible Assets and Goodwill

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

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

Goodwill is tested for impairment at the reporting unit level, which is one level below or the same as an operating segment. As of May 31, 2025, the Company determined that it had nine reporting units: CHEM Software, PBPK Software, QSP Software, CPP Software, ALI/MC Software, PBPK Services, CPP Services, QSP Services, and ALI/MC Services.

As of May 31, 2025, the entire balance of goodwill was attributed to six of the Company's reporting units, CPP Software, CPP Services, QSP Software, QSP Services, ALI/MC Software, and MC Services. Intangible assets subject to amortization are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable. As a result of the quantitative impairment test performed, the Company determined goodwill was impaired for its QSP Software, ALI/MC Software and MC Services reporting units and recorded a goodwill impairment charge of $1.8 million, $13.3 million and $36.7 million, respectively during the period ended May 31, 2025. Such charges are recorded in Impairments on the condensed consolidated statements of operations and comprehensive (loss) income.

The Company recorded impairment charges for its indefinite lived intangible assets for its QSP Software and ALI/MC Software reporting units of $0.9 million and $4.6 million, respectfully during the period ended May 31, 2025. Such charges are recorded in Impairments on the condensed consolidated statements of operations and comprehensive (loss) income.

The Company recorded impairment charges for its long-lived assets for its PBPK Services, QSP Services, ALI/MC Software, and MC Services reporting units of $0.3 million, $2.2 million, $15.7 million and $1.7 million, respectively during the period ended May 31, 2025. Such charges are recorded in Impairments on the condensed consolidated statements of operations and comprehensive (loss) income.

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No impairment losses were recorded during the three and nine months ended May 31, 2024, respectively.

Business Acquisitions

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

Research and Development Costs

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

Income Taxes

The Company accounts for income taxes in accordance with ASC 740-10, “Income Taxes,” which requires the recognition of deferred tax assets and liabilities for 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.

Stock-Based Compensation

The Company accounts for stock options in accordance with ASC 718-10, “Compensation-Stock Compensation.” Under this method, compensation costs include the estimated grant-date fair value of awards amortized over the options’ vesting period. Stock-based compensation costs, not including shares issued to directors for services, were $1.4 million and $1.7 million, for the three months ended May 31, 2025, and May 31, 2024, respectively, and $4.7 million and $4.6 million for the nine months ended May 31, 2025, and May 31, 2024, respectively.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

As of May 31, 2025, there has been no material change in our exposure to market risk from that described in Item 7A of our Annual Report.

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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, 2025. 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, 2025, that our disclosure controls and procedures were effective.

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.

PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

For a description of our material pending legal proceedings, please see Note 4, Commitments and Contingencies, to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

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Item 1A.    Risk Factors

Please carefully consider the information set forth in this Quarterly Report and the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2024, 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.

Cash expenditures associated with the acquisition of Pro-ficiency may create certain liquidity and cash flow risks for us.

As consideration for the acquisition of Pro-ficiency, at closing on June 11, 2024, we paid approximately $100 million in cash to the previous equity holders of Pro-ficiency, which constituted a significant portion of our cash reserves as of the closing date. In addition to the acquisition consideration, we incurred significant transaction costs and expect to incur additional integration costs in connection with the acquisition. While we anticipated that the closing consideration and 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. To the extent the integration expenses are higher than anticipated, we may experience liquidity or cash flow issues.

Pro-ficiency and its operating subsidiaries may not perform as we or the market expects, which could have an adverse effect on the price of our common stock.

Pro-ficiency may not perform as we or the market expects. Risks associated with the Pro-ficiency 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 Pro-ficiency in the expected time frame could adversely affect our financial condition and results of operation;

•the addition of Pro-ficiency 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; and

•the success of the Pro-ficiency acquisition will also depend upon relationships with third parties and Pro-ficiency’s and our pre-existing customers, which relationships may be affected by customer preferences or public attitudes about the Pro-ficiency acquisition. Any adverse changes in these relationships could adversely affect our business, financial condition, and results of operations.

Risks Relating to Artificial Intelligence and Machine Learning

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

We use artificial intelligence and machine learning in our business, including using artificial intelligence in our modeling and simulation software for drug discovery and development, including the prediction of properties of molecules utilizing both artificial intelligence (“AI”) and machine learning technology. As with many technological innovations, there are significant risks and challenges involved in maintaining and deploying these technologies. Artificial intelligence algorithms or training methodologies may be flawed. Datasets may be overbroad or insufficient and information generated by artificial intelligence may be illegal or harmful. There may also be insufficient back-testing. The rapid evolution and increased adoption of AI technologies may intensify our cybersecurity risks. Overall, there can be no assurance that the usage of such technologies will enhance our products or services or be beneficial to our business, including our efficiency or profitability.

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

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Artificial intelligence entails significant legal risks. The IP ownership and license rights of new technologies such as artificial intelligence and machine learning have not been fully addressed by U.S. courts, and there is uncertainty and ongoing litigation in different jurisdictions as to the degree and extent of protection warranted for artificial intelligence technologies and relevant system input and outputs. If we fail to obtain protection for the intellectual property rights concerning technologies developed using artificial intelligence or machine learning, or later have our intellectual property rights invalidated or otherwise diminished, our competitors may be able to take advantage of our research and development efforts to develop competing products, which could adversely affect our business, reputation, financial condition, or results of operations. Moreover, the use or adoption of artificial intelligence and machine learning in our technology may expose us to breach of a data or software license, website terms of service claims, claimed violations of privacy rights or other tort claims.

The regulatory landscape surrounding artificial intelligence is also evolving, and the use of machine learning technologies may become subject to regulation under new laws or new applications of existing laws. In the U.S., there is increasing uncertainty as to the federal government’s future approach to AI regulation, including as to the continued applicability of the 2023 executive order of the prior U.S. presidential administration to, among other things, establish extensive new standards for AI safety and security. In January 2025, President Trump signed an executive order revoking this 2023 executive order and directing the heads of various federal governmental bodies to review actions taken under that executive order and develop a new action plan with respect to AI-related matters. Additionally, other jurisdictions may decide to adopt similar or more restrictive legislation that may render the use of such technologies challenging. For example, the EU AI Act (which could become applicable to us depending on the global expansion of our business) came into force on August 1, 2024, and will generally become fully applicable after a two-year transitional period. The EU AI Act introduces various requirements for AI systems and models placed on the market or put into service in the EU, including specific transparency and other requirements for general purpose AI systems and the models on which those systems are based. Several U.S. states are considering enacting or have already enacted regulations concerning the use of AI technologies, including those focused on consumer protection, and depending on the scope of AI regulation at the federal level, some states may move to regulate AI model development and deployment. Further, at both the U.S. federal and state level, there have been various proposals (and in some cases laws enacted) addressing “deepfakes” and other AI-generated synthetic media. These current or future restrictions may make it harder for us to conduct our business using artificial intelligence, and violations of these laws and regulations could result in fines and penalties, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of our business, and damage to our reputation. Governmental regulation and laws related to AI may also increase the burden and cost of research and development or require increased transparency that makes it more difficult to protect our IP.

Risks Relating to Government Regulation

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

We receive government assistance in the form of cash grants which vary in size, duration and conditions from domestic governmental agencies, to provide reimbursement for various costs incurred for research and development. These include direct grant awards and subawards. The U.S. government has and may continue to implement initiatives focused on efficiencies, affordability and cost growth and other changes, such as those pursued by the recently created DOGE. On January 20, 2025, President Trump announced an executive order establishing the DOGE to maximize government efficiency and productivity. In February 2025, President Trump stated that he has directed DOGE to review spending for potential waste and fraud. Pressures on and uncertainty surrounding the U.S. federal government’s budget and potential changes in budgetary priorities, could adversely affect our revenue, financial condition, and results of operations in ways that are indeterminate at this time. These initiatives and changes to procurement practices may change the way grants and government assistance is provided, if at all, which may affect whether and how we pursue opportunities to provide our products and services, which may have an adverse impact on our business, financial condition, results of operations and cash flows.

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

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

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Further, any future government or DOGE proposals to reduce or eliminate budgetary deficits may include reduced allocations to the FDA, and other related U.S. government agencies. These budgetary pressures may result in a reduced ability by the FDA and others to perform their respective roles and may have a related impact on institutions and research laboratories whose funding is fully or partially dependent on both the level and the timing of funding from government sources. Robert F. Kennedy Jr., the Secretary of the U.S. Department of Health and Human Services, which oversees the FDA, has previously stated his intent to downsize or restructure these agencies, including by appointing new directors to the agencies. In the event of a partial or complete government shutdown, the FDA and certain other science agencies may temporarily cease certain operations. Furthermore, during such shutdown, the FDA may maintain only operations deemed to be essential for public health while suspending the acceptance of new medical product applications and routine regulatory and compliance work related to medical products, certain drugs, and foods. Disruptions at the FDA and other agencies, such as those resulting from a restructuring of these agencies, a government shutdown, or uncertainty from stopgap spending bills may slow the time necessary for new drugs and devices to be reviewed and/or approved by necessary government agencies and may affect the ability of the healthcare and drug industries to deliver new products to the market in a timely manner, which would adversely affect our operating results and business.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

None.

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Mine Safety Disclosures

Not applicable.

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Item 5.    Other Information

Rule 10b5-1 Trading Plans

The adoption or termination of contracts, instructions or written plans for the purchase or sale of our securities by our Section 16 officers and directors for the quarter ended May 31, 2025, each of which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (“Rule 10b5-1 Plan”), were as follows:

Name

Title

Action

Date Adopted

Expiration Date

Aggregate # of Securities to be Purchased/Sold

Dr. Lisa LaVange (1)

Director

Adoption

04/29/2025

02/07/2026

4,100

(1) On April 29, 2025, Dr. Lisa LaVange entered into a new prearranged stock trading plan pursuant to Rule 10b5-1, which provides for (i) the potential exercise of vested stock options and the associated sale of up to 1,000 shares of Company stock underlying such options, and (ii) the potential sale of up to an additional 3,100 shares of Company common stock. The new plan expires on February 7, 2026 or upon the earlier completion of all authorized transactions under the new plan.

The Rule 10b5-1 trading arrangements described above were adopted and pre-cleared in accordance with the Company’s Insider Trading Policy and actual sale transactions made pursuant to such trading arrangements will be disclosed publicly in future Section 16 filings with the SEC.

Other than those disclosed above, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” during the current reporting period, in each case as defined in Item 408 of Regulation S-K.

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Item 6.    EXHIBITS

EXHIBIT NUMBER						DESCRIPTION
2.1^						Agreement and Plan of Merger, dated July 23, 2014, by and among the Company, Cognigen Corporation and the other parties thereto, incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K/A filed November 18, 2014.
2.2^						Stock Purchase Agreement by and among Simulations Plus, Inc., DILIsym Services, Inc., the Shareholders’ Representative and the Shareholders of DILIsym Services, Inc., incorporated by reference to Exhibit 10.13 to the Company’s Form 10-Q filed July 10, 2017.
2.3^						Share Purchase and Contribution Agreement Relating to Lixoft, dated March 31, 2020, incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed April 2, 2020.
2.4^						Agreement and Plan of Merger, dated June 16, 2023, by and among Simulations Plus, Inc., Insight Merger Sub, Inc., Immunetrics, Inc. and LaunchCyte LLC, incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed June 20, 2023.
2.5^+						Stock Purchase Agreement, by and among the Company, Pro-ficiency Holdings, Inc. (“Pro-ficiency”), each of the stockholders of Pro-ficiency (collectively, the “Sellers”) and WRYP Stockholders Services, LLC, solely in its capacity as the Sellers’ Representative, dated June 11, 2024, incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed June 12, 2024.
3.1						Articles of Incorporation of the Company, incorporated by reference to an Exhibit 3.1 to the Company’s Form 10-K filed November 29, 2010.
3.2						Amended and Restated Bylaws of the Company, incorporated by reference to an exhibit to the Company’s Form 10-K filed November 29, 2010.
3.3						Certificate of Amendment to the Amended and Restated Bylaws of Simulations Plus, Inc., incorporated by reference to Appendix A to the Company’s Definitive Schedule 14A Proxy Statement filed December 31, 2018.
4.1						Form of Common Stock Certificate, incorporated by reference to the Company’s Registration Statement on Form SB-2 (Registration No. 333-6680) filed March 25, 1997.
4.2						Share Exchange Agreement, incorporated by reference to the Company’s Registration Statement on Form SB-2 (Registration No. 333-6680) filed March 25, 1997.
31.1 *						Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 *						Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 **						Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS***						Inline XBRL Instance Document
101.SCH***						Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
104***						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101 attachments).

_____________________________

*						Filed herewith.
**						Furnished herewith.
***						The XBRL related information in Exhibit 101 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
^						Schedules, exhibits, and similar supporting attachments or agreements are omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish a supplemental copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon request.
†						Refers to management contracts or compensatory plans or arrangements.
+						Portions of the exhibit, marked by brackets, have been omitted because the omitted information (i) is not material and (ii) would likely cause competitive harm if publicly disclosed.

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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 Research Triangle Park, State of North Carolina, on July 15, 2025.

						SIMULATIONS PLUS, INC.
Date:			July 15, 2025			By:			/s/ Will Frederick
									Will Fredrick Executive Vice President and Chief Financial Officer