Simulations Plus

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

  Could happen

  The global regulatory landscape surrounding AI is also rapidly evolving, and the use of ML 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 Executive Order 14110 of October 30, 2023, which, among other things, established extensive new standards for AI safety and security. In January 2025, President Trump revoked this 2023 executive order and directed federal agencies to review actions taken under that executive order and develop a new action plan with respect to AI-related matters. As such, the federal government has announced plans to develop new AI Innovation and Safety Framework, but timing and scope of implementation remains uncertain. 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. If we fail to comply with applicable AI/ML- related laws or regulations, we could face civil or criminal penalties, enforcement actions, or prohibitions on the use of specific technologies. Additionally, 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 intellectual property, increase operating costs, and adversely affect our financial condition and results of operations.

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• Risk Relating to a Federal Government Shutdown

  Could happen

  We receive funding from U.S. federal and state agencies in the form of research and development grants and sub-awards, and some of our clients, including academic and government research organizations, also depend on federal appropriations. A lapse in appropriations or an extended federal government shutdown could delay or suspend the award, renewal, or reimbursement of these grants, and could also disrupt our clients’ projects that rely on federal funding. During a shutdown, most agencies cannot obligate new funds or process grant payments, and peer-review and contracting activities are typically suspended. As of the date of this Report, the United States federal government is operating under a partial shutdown affecting multiple science and health agencies. The duration and scope of this shutdown are uncertain. If it continues or recurs, we could experience delays in receiving grant reimbursements, interruptions in grant review cycles, or reductions in the availability of new awards. Our clients could also defer or cancel work that depends on federal funding. Any significant delay or loss of this funding, or of federally supported projects with our clients, could adversely affect our revenue, cash flows, and results of operations. A prolonged shutdown could also create broader uncertainty in the life-sciences and regulatory environment that may slow industry investment and purchasing decisions, which could have a material adverse effect on our business and financial condition.

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• 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.

  Could happen

  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. Subsequent guidance has rescinded or narrowed earlier broad spending pauses but agencies continue to implement evolving directives. Pressures on and uncertainty surrounding the U.S. federal government’s budget and potential changes in budgetary priorities, including partial or intermittent government shutdowns, 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.

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

  Could happen

  We use AI and ML in our business, including using AI in our modeling and simulation software for drug discovery and development, including the prediction of properties of molecules utilizing both AI and ML technology. As with many technological innovations, there are significant risks and challenges involved in maintaining and deploying these technologies. AI algorithms or training methodologies may be flawed. Datasets may be overbroad or insufficient and information generated by AI may be illegal or harmful. There may also be insufficient back-testing. The rapid evolution and increased adoption of AI technologies may intensify our exposure to cybersecurity incidents or misuse of data. There can be no assurance that our use of AI/ML will improve our product performance or profitability; instead, it could adversely affect our business, result of operations, or reputation.

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

  Could happen

  The ownership, licensing, and protection of intellectual property rights associated with AI and ML have not been fully addressed by U.S. courts, and there remains uncertainty and ongoing litigation in different jurisdictions as to the degree and extent of protection warranted for AI technologies and relevant system inputs and outputs. The Courts and regulators have not clearly defined the scope for AI-generated content, algorithms, or trained models. If we fail to secure or maintain protection for the intellectual property rights concerning technologies developed using AI or ML, 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 AI and ML 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.

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