<PAGE>

EXHIBIT 10.38

                              EMPLOYMENT AGREEMENT
                              --------------------

         This Employment Agreement (the "Agreement") is made as of this 1st day
of September, 2002, by and between Simulations Plus, Inc., a California
corporation (the "Company") and Walter S. Woltosz, an individual (the
"Employee") with reference to the following facts:

A. The Company desires to secure the services of the Employee as President and
Chief Executive Officer.

B. The Employee agrees to perform such services for the Company under the terms
and conditions set forth in this Agreement.

         In consideration of the mutual promises, covenants and conditions set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is hereby agreed by and between
the Company and the Employee as follows:

1. Representations and Warranties.
   ------------------------------

The Company represents and warrants that it is empowered under its Articles of
Incorporation and Bylaws to enter into this Agreement. The Employee represents
and warrants that he is under no employment contract, bond, confidentiality
agreement, or any other obligation which would violate or be in conflict with
the terms and conditions of this Agreement or encumber his performance of duties
assigned to him by the Company. The Employee further represents and warrants
that he has not signed or committed to any employment or consultant duties or
other obligations which would divert his full attention from the duties assigned
to him by the Company by this Agreement.

2. Employment and Duties.
   ---------------------

The Company employs the Employee as President and Chief Executive Officer and
the Employee hereby accepts such employment (the "Employment"). The Employee
agrees that he shall devote his full time, ability, attention, energy, knowledge
and skill solely and exclusively to performing all duties as President and Chief
Executive Officer of the Company as assigned or delegated to him by the
directors and executive officers of the Company.

3. Term.
   ----

Subject to the provisions of Section 5, the term of this Agreement shall extend
until August 31, 2005, commencing on the date hereof.

4. Compensation.
   ------------

In full and complete consideration for the Employment, each and all of the
services to be rendered to the Company by the Employee, and each and all of the
representations, warranties, covenants, agreements and promises undertaken by
the Employee pursuant to this Agreement, the Employee shall be entitled to
receive compensation as follows:

4.1. BASE SALARY. The Employee shall receive from the Company a base salary of
one hundred sixty-five thousand dollars ($165,000.00) per year, payable in
equal, monthly installments. From each said salary payment the Company will
withhold and pay to the proper governmental authorities any and all amounts
required by law to be withheld for federal income tax, state income tax, federal
Social Security tax, state disability insurance premiums, and any and all other
amounts required by law to be withheld from the Employee's salary.

4.2. SPECIAL INCENTIVE OPPORTUNITY. In addition to, and not in lieu of, the base
salary provided for in Section 4.1 above, Employee shall be entitled to receive
from Employer a bonus (the "Bonus") not to exceed one hundred fifty thousand
dollars ($150,000.00), equal to 5% of the Company's Net Annual Income before
taxes. For purposes of this Agreement, the term "Net Annual Income" shall be and
mean the amount of Net Income reported by the Company in its Form 10-K (the



<PAGE>

"Form 10-K") as filed under the Securities Act of 1934, as amended. Payment of
the Bonus, if any, shall be made to the Employee within ten (10) days after the
Company files its Form 10-K.

4.3. GRANT OF OPTION. If the closing price of the Company's Common Stock
averages in excess of two hundred percent (200%) of the price per share of
Common Stock in the Company's initial public offering for a period of twenty
(20) consecutive days during any fiscal year, then Employee shall be granted an
option under the 1996 Stock Option Plan, exercisable for five (5) years, to
purchase fifty (50) shares of Common Stock for each one thousand dollars
($1,000) of net income before taxes that the Company earns with respect to such
fiscal year (up to a maximum of sixty thousand [60,000] options over the term of
this Agreement) at an exercise price equal to the market value per share as of
the date of grant.

4.4. BENEFITS. Employer shall provide to Employee at the sole cost to Employer,
and Employee shall be entitled to receive from Employer, such health insurance
and other benefits which are appropriate to the office and position of Employee,
adequate to the performance of his duties and not inconsistent with that which
Employer customarily provides at the time to its other management employees.
Employee's right to vacation and sick leave shall be determined in accordance
with the policies of the Company as may be in effect from time to time and as
are approved by the Company's Board of Directors. Employee shall have the right
to reimbursement of customary, ordinary and necessary business expenses incurred
in connection with the rendering of services and performance of the functions
required hereunder in accordance with the policies of the Company as may be in
effect from time to time and as are approved by the Company's Board of
Directors. Such expenses are reimbursable only upon presentation by Employee of
appropriate documentation pursuant to the policies adopted by the Company's
Board of Directors.

5. Termination of Employment.
   -------------------------

5.1. EXPIRATION OF THE TERM OF AGREEMENT. This Agreement shall be automatically
terminated upon the expiration of the term of the agreement as described in
paragraph 3 of this Agreement. Upon such termination, the Company shall have no
further liability to the Employee for any payment, compensation or benefit
whatsoever.

5.2. BY DEATH. This Agreement shall be terminated upon the death of the
Employee. The Company's total liability in such event shall be limited to
payment of the Employee's salary and benefits through the date of the Employee's
death.

5.3. BY DISABILITY. If, in the sole opinion of the Company's Board of Directors,
the Employee shall be prevented from properly performing his or her duties
hereunder by reason of any physical or mental incapacity for a period of more
than 90 days in the aggregate in any twelve month period, then, to the extent
permitted by law, his or her employment with the Company shall terminate. The
Company's total liability in such event shall be limited to payment of the
Employee's salary and benefits through the effective date of termination upon
disability.

5.4. FOR CAUSE. The Company reserves the right to terminate this Agreement
immediately, at any time, if, in the reasonable opinion of the Company's Board
of Directors: the Employee breaches or neglects the duties which he or she is
required to perform under the terms of this Agreement; commits any material act
of dishonesty, fraud, misrepresentation, or other act of moral turpitude; is
guilty of gross carelessness or misconduct; fails to obey the lawful direction
of the Company's Board of Directors; or acts in any way that has a direct,
substantial and adverse effect on the Company's reputation. The Company's total
liability to the Employee in the event of termination of the Employee's
employment under this paragraph shall be limited to the payment of the
Employee's salary and benefits through the effective date of termination.

5.5. WITHOUT CAUSE. The Company reserves the right to terminate this Agreement
without cause for any reason whatsoever upon thirty (30) days' written notice to
the Employee. Upon termination under this subsection, the Employee shall receive
payment of an amount equal to twelve (12) months of the Employee's base salary
or the Employee's base salary for the remaining term of this Agreement,
whichever is greater. Other than payment of the amount as described in this
paragraph, the Company shall have no further obligation to pay the Employee any
other compensation or benefits whatsoever. The Employee hereby agrees that the
Company may dismiss him or her under this paragraph 5.5 without regard (i) to

                                       2


<PAGE>

any general or specific policies (whether written or oral) of the Company
relating to the employment or termination of its employees, or (ii) to any
statements made to the Employee, whether made orally or contained in any
document, pertaining to the Employee's relationship with the Company.

5.6. MUTUAL CONSENT. This Agreement shall be terminated upon mutual written
consent of the Company and the Employee. The Company's total liability to the
Employee in the event of termination of the Employee's employment under this
paragraph shall be limited to the payment of the Employee's compensation through
the effective date of termination.

5.7. TERMINATION OF OBLIGATIONS. Upon termination of employment for any reason
whatsoever, the Employee shall be deemed to have resigned from all offices and
directorships then held with the Company.

6. Restrictions on Use or Disclosure of Confidential Matters, Proprietary
   ----------------------------------------------------------------------
   Information and Trade Secrets.
   -----------------------------

6.1. During the term of this Agreement, the Employee may be dealing with trade
secrets of the Company, including without limitation, customer lists, client
contacts, financial information, inventions and processes, all of a confidential
nature that are the Company's property and are used in the course of the
Company's business. The Employee will not disclose to anyone, directly or
indirectly, any of such trade secrets or use them other than as necessary in the
course of his duties with the Company. All documents that the Employee prepares,
or confidential information that might be given to him or that Employee himself
might create in the course of his consultation with the Company, are the
exclusive property of the Company. During the term of this Agreement and at any
time thereafter, the Employee shall not publish, communicate, divulge, disclose
or use any of such information which has been reasonably designated by the
Company as proprietary or confidential or which from the surrounding
circumstances the Employee knows, or has good reason to know, or should
reasonably know, ought to be treated by the Employee as proprietary or
confidential without the prior written consent of the Company, which consent may
not be unreasonably withheld by the Company.

6.2. In the course of his employment for the Company, Employee will develop a
personal relationship with the Company's customers and knowledge of those
customer's affairs and requirements which may constitute the Company's only
contact with such customers. Employee consequently agrees that it is reasonable
and necessary for the protection of the goodwill and business of the Company
that Employee make the covenants contained herein. Accordingly, Employee agrees
that while he is in the Company's employ and for a one (1) year period after the
termination of such employment for any reason whatsoever, he will not directly
or indirectly:

(a) attempt in any manner to solicit from any customer (except on behalf of the
Company) business of the type performed by the Company or to persuade any
customer of the Company to cease to do business or reduce the amount of business
which any such customer has customarily done or contemplates doing with the
Company, whether or not the relationship with the Company and such customer was
originally established in whole or in part through Employee's efforts; or

(b) engage in any business as, or own an interest in, directly or indirectly,
any individual proprietorship, partnership, corporation, joint venture, trust or
any other form of business entity if such business form or entity is engaged in
the business in which the Company is engaged;

(c) render any services of the type rendered by the Company to or for any
customer of the Company;

(d) employ or attempt to employ or assist anyone else to employ any person who
is then or at any time during the preceding year in the Company's employ.

This entire Section 6 shall survive termination of this Agreement.

                                       3


<PAGE>

7. Company Property.
   ----------------

7.1. Any patents, inventions, discoveries, applications or processes, software
and computer programs devised, planned, applied, created, discovered or invented
by the Employee in the course of the engagement under this Agreement and which
pertain to any aspect of the business of the Company, or its subsidiaries,
affiliates or customers, shall be the sole and exclusive property of the
Company, and the Employee shall make prompt report thereof to the Company and
promptly execute any and all documents reasonably requested to assure the
Company the full and complete ownership thereof.

7.2. All records, files, lists, drawings, documents, equipment and similar items
relating to the Company's business which the Employee shall prepare or receive
from the Company shall remain the Company's sole and exclusive property. Upon
termination of this Agreement the Employee shall return promptly to the Company
all property of the Company in his possession and the Employee represents and
warrants that he will not copy, or cause to be copied, printed, summarized or
compiled, any software, documents or other materials originating with and/or
belonging to the Company, including, without limitation, documents or other
materials created by the Employee for, or on behalf of, the Company. The
Employee further represents and warrants that he will not retain in his
possession any such software, documents or other materials in machine or human
readable form.

7.3. This Section 7 shall survive termination of this Agreement.

8. OUTSIDE ACTIVITIES. During the term of this Agreement, the Employee shall
devote his entire productive time, ability and attention to the business of the
Company. During the term of this Agreement, the Employee shall not, directly or
indirectly, either as an officer, director, employee, representative, principal,
partner, shareholder, employee, agent or in any other capacity, engage or assist
any third party in engaging in any business competitive with the business of the
Company, without the prior written consent of the Company, which consent may be
withheld by the Company in its sole and absolute discretion. Following his
employment with the Company, the Employee shall not engage in unfair competition
with the Company, aid others in any unfair competition with the Company, in any
way breach the confidence that the Company has placed in the Employee or
misappropriate any proprietary information of the Company.

9. REPORTS. The Employee, when directed, shall provide written reports to the
Company with respect to the services provided hereunder.

10. STRICT-LOYALTY. The Employee hereby covenants and agrees to avoid all
circumstances and actions which reasonably would place the Employee in a
position of divided loyalty with respect to his obligations under this
Agreement.

11. ASSIGNMENT. This Agreement may not be assigned to another party by the
Employee without the prior written consent of the Company, which consent may be
withheld by the Company, in its sole and absolute discretion.

12. ARBITRATION. Except as otherwise provided herein in Section 15.11, any
controversy between the Company and Employee in connection with this Agreement,
including, without limitation, any dispute or claim arising from the voluntary
or involuntary termination hereof, shall be settled by final and binding
arbitration in Los Angeles, in accordance with the Commercial Arbitration Rules
of the American Arbitration Association. Judgement of such award may be entered
in a court of competent jurisdiction. Employee and the Company shall each pay
the fees of his or its own attorneys, the expenses of his or its witnesses and
all other fees and expenses connected with presenting his or its case at
arbitration. All other costs of the arbitration, including, without limitation,
the costs of any record or transcript of the arbitration proceedings,
administrative fees, the fee for the arbitrator and all other fees and costs
shall be borne equally by the Company and Employee.

13. COMPANY BYLAWS, DIRECTIONS, POLICIES, PRACTICES, RULES, REGULATIONS AND
PROCEDURES Employee agrees to become and remain thoroughly familiar with each
and all of the Company's bylaws, directions, policies, practices, rules,
regulations and procedures that relate to the employment and/or to any of
Employee's duties and/or responsibilities as an employee of the Company and to
abide fully and by each and all of such bylaws, directions, policies, practices,
rules, regulations and procedures. During the term of employment, Employee shall
be fully bound by and employed pursuant to each and all of the Company's bylaws,
directions, policies, practices, rules, regulations and procedures as now in
effect or as may be implemented, modified or otherwise put into effect by the

                                       4


<PAGE>

Company during the term of employment, regardless of whether such bylaws,
directions, policies, practices, rules, regulations and procedures are oral or
are set forth in any manual, handbook or other document, and it is solely the
responsibility of Employee to become and remain fully aware of and familiar with
each and all such directions, policies, practices, rules, regulations and/or
procedures. In the event of any conflict between any provision of this Agreement
and any provision of the Company's directions, policies, practices, rules,
regulations and/or procedures, the provisions of this Agreement govern for any
and all purposes whatsoever.

14. INDEMNIFICATION. The Company shall indemnify and hold Employee harmless from
any and all claims, demands, judgments, liens, subrogation or costs incurred by
Employee with respect to any shareholder derivative action or other claims or
suits against the Company and/or its Board of Directors by individuals, firms or
entities not a party to this Agreement to the maximum extent permitted under
California law.

General.
-------

15.1. FUR FURTHER DOCUMENTS. Each party shall execute and deliver all further
instruments, documents and papers, and shall perform any and all acts necessary
reasonably requested by the other party, to give full force and effect to all of
the terms and provisions of this Agreement.

15.2. SUCCESSORS AND ASSIGNS. Except where expressly provided to the contrary,
this Agreement, and all provisions hereof, shall inure to the benefit of and be
binding upon the parties hereto, their successors in interest, assigns,
administrators, executors, heirs and devises.

15.3. SEVERABILITY. Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable law.
If any provision of this Agreement, as applied to any party or to any
circumstance, shall be found by a court or arbitrator to be invalid or
unenforceable under applicable law, such provision will be ineffective only to
the extent of such invalidity or unenforceability, without invalidating or
rendering unenforceable the remainder Of such provision and any such invalidity
or unenforceability shall in no way affect any other provision of this
Agreement, the application of any provision in any other circumstance or the
validity or enforceability of this Agreement.

15.4. NOTICES. All notices or demands shall be in writing and shall be served
personally, telegraphically or by express or certified mail. Service shall be
deemed conclusively made at the time of service if personally served, at the
time that the telegraphic agency confirms to the sender deliver thereof to the
addressee if served telegraphically, 24 hours after deposit thereof in the
United States mail properly addressed and postage prepaid, return receipt
requested, if served by express Mail, and five days after deposit thereof in the
United States mail, properly addressed and postage prepaid, return receipt
requested, if served by certified mail. Any notice or demand to the Company
shall be given to:

                          Simulations Plus, Inc.
                          1220 West Avenue J
                          Lancaster, CA  93534-2902
                          (661) 723-7723 Telephone
                          (661) 723-5524 Facsimile
                          Attention: Corporate Secretary

and any notice or demand to the Employee shall be given to:

                          Mr. Walter S. Woltosz 1220 West
                          Avenue J Lancaster, CA 93534-2902
                          (661) 723-7723 Telephone (661)
                          723-5524 Facsimile

                                       5


<PAGE>

Any party may, by virtue of a written notice in compliance with this paragraph,
alter or change the address or the identity of the person to whom any notice, or
copy thereof, is to be sent.

15.5. WAIVER. A waiver by any party of any of the terms and conditions of this
Agreement in any one instance shall not be deemed or construed to be a waiver of
the term or condition for the future, or of any subsequent breach thereof or of
any other term or condition thereof. Any party may waive any term, provision or
condition included for the benefit of that party. Any and all waivers shall be
in writing.

15.6. CONSTRUCTION. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts
entered into and fully to be performed therein without regard to its principles
of choice of law or conflicts of law. In all matters of interpretation, whenever
necessary to give effect to any provision of this Agreement, each gender shall
include the others, the singular shall include the plural, the plural shall
include the singular and the terms "and" and "or" may be used interchangeably as
the context so requires or implies. The title of the sections of this Agreement
are for convenience only and shall not in any way affect the interpretation of
any provision or condition of this Agreement. All remedies, rights,
undertakings, obligations and agreements contained in this Agreement shall be
cumulative and none of them shall be in limitation of any other remedy, right,
undertaking, obligation or agreement of any party.

15.7. ENTIRE UNDERSTANDING. This Agreement contains the entire understanding of
the parties hereto relating to the subject matter contained herein and
supersedes all prior and collateral agreements, understandings, statements and
negotiation of the parties. Each party acknowledges that no representations,
inducements or promises, oral or written, with reference to the subject matter
hereof have been made other than as expressly set forth herein. This Agreement
cannot be changed, rescinded or terminated orally.

15.8.  THIRD PARTY RIGHTS. The parties hereto do not intend to confer any rights
or remedies upon any person other than the parties hereto and those referred to
in Section 15.2 hereof so long as any such assignment by Employee was approved
by the Company as provided in Section 11 hereof.

15.9. ATTORNEYS' FEES. In the event of any litigation between the parties
respecting or arising out of this Agreement, the prevailing party shall be
entitled to recover reasonable legal fees and costs, whether or not the
litigation proceeds to final judgment or determination.

15.10. PLACE OF LITIGATION. Any litigation between the parties shall occur in
the County of Los Angeles, California.

15.11. INJUNCTIVE RELIEF. Since a breach of the provisions of Sections 6, 7, 8
and 10 of this Agreement cannot adequately be compensated by monetary damages,
the Company shall be entitled, in addition to any other right and remedy set
forth in this Agreement or available to it at law, in equity or otherwise, to
seek and obtain from any court of competent jurisdiction immediate temporary,
preliminary and permanent injunctive relief restraining such breach or
threatened breach, without the posting of any bond or other security therefor,
against the Employee and against each and every other person, firm company,
joint venture, and/or other entity concerned with and/or acting in concert with
the Employee. Any such requirement of bond or other security is hereby expressly
waived by the Employee, and the Employee expressly acknowledges that in the
absence of such waiver, a bond or other security may be required by the court.
The Employee hereby consents to the issuance of such injunction and expressly
and knowingly waives any claim or defense that any adequate remedy at law might
exist for any such breach or threatened breach. The Employee agrees that the
provisions of Sections 6, 7, 8 and 10 of this Agreement are necessary and
reasonable to protect the Company in the conduct of the business of the Company.

15.12. COUNTERPARTS. This Agreement may be executed in counterparts which, taken
together, shall constitute the whole of the agreement between the parties.

IN WITNESS THEREOF, the parties have executed this Agreement as of the day and
year first above written.

                                       6


<PAGE>

"Company"                                   SIMULATIONS PLUS, INC.,
                                            a California co, corporation

                                            By:  _______________________
                                            Title:
                                            Date:

"Employee"                                  WALTER  S. WOLTOSZ

                                            By: _________________________
                                                   Walter S. Woltosz

                                            Date:________________________

Compensation Committee:

                                            By: _________________________
                                                 Dr. David Z. D'Argenio

                                            Date: _______________________

                                            By: _________________________
                                                  Dr. Richard R. Weiss

                                            Date: _______________________

                                       7