<page>

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

[x]      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934

         For the fiscal year ended August 31, 2008
or

[ ]      TRANSITION REPORT UNDER 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 small business issuer in its charter)

                CALIFORNIA                                   95-4595609
      (State or other jurisdiction)                      (I.R.S. Employer
                                                        Identification No.)
         42505 TENTH STREET WEST
         LANCASTER, CA 93534-7059                         (661) 723-7723
 (Address of principal executive offices            (Issuer's telephone number,
    including zip code)                                 including area code)

              SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT:
                    COMMON STOCK, PAR VALUE $0.001 PER SHARE

           SECURITIES REGISTERED UNDER SECTION 12(G) OF THE ACT: NONE

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of Exchange Act.) Yes [ ] No [X]

The issuer had revenues of approximately $8,968,000 for the fiscal year ended
August 31, 2008.

As of November 25, 2008, the aggregate market value of the common equity held by
non-affiliates of the issuer (9,034,500 shares) was approximately $9,395,880
based upon the November 25, 2008 closing price ($1.04) of one share on such
date.

As of November 25, 2008, the issuer had outstanding 16,406,400 shares of common
stock and no shares of preferred stock.

                       DOCUMENTS INCORPORATED BY REFERENCE
     Portions of the Registrant's definitive Proxy Statement relating to the
         2008               Annual Meeting of Shareholders are incorporated
                            herein by reference into Part III.



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                             SIMULATIONS PLUS, INC.
                                   FORM 10-KSB
                    FOR THE FISCAL YEAR ENDED AUGUST 31, 2008

                                Table of Contents

                                                                            Page
                                                                            ----

                                     PART I
                                     ------

Item 1.    Description of Business                                             1
Item 2.    Description of Property                                            11
Item 3.    Legal Proceedings                                                  11
Item 4.    Submission of Matters to a Vote of Security Holders                11


                                     PART II
                                     -------

Item 5.    Market for Registrant's Common Equity and Related Stockholder
                Matters                                                       12
Item 6.    Management's Discussion and Analysis or Plan of Operation          13
Item 7.    Financial Statements                                               20
Item 8.    Changes In and Disagreements with Accountants on Accounting
                and Financial Disclosure                                      20
Item 8A.   Controls and Procedures                                            20
Item 8B.   Other Information                                                  20


                                    PART III
                                    --------

Item 9.    Directors and Executive Officers of the Registrant;
                Compliance with Section 16(a) of the Exchange Act             22
Item 10.   Executive Compensation                                             22
Item 11.   Security Ownership of Certain Beneficial Owners and Management     22
Item 12.   Certain Relationships and Related Transactions                     22
Item 13.   Exhibits                                                           22
Item 14.   Principal Accounting Fees and Services                             25


           Signatures                                                         26
           Financial Statements                                              F-1
           Exhibits



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FORWARD-LOOKING STATEMENTS
--------------------------

CERTAIN STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-KSB, OR THE "REPORT," ARE
"FORWARD-LOOKING STATEMENTS." THESE FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE
NOT LIMITED TO, STATEMENTS ABOUT THE PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS OF SIMULATIONS PLUS, INC., A CALIFORNIA CORPORATION AND OTHER
STATEMENTS CONTAINED IN THIS REPORT THAT ARE NOT HISTORICAL FACTS.
FORWARD-LOOKING STATEMENTS IN THIS REPORT OR HEREAFTER INCLUDED IN OTHER
PUBLICLY AVAILABLE DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
OR THE "COMMISSION," REPORTS TO OUR SHAREHOLDERS AND OTHER PUBLICLY AVAILABLE
STATEMENTS ISSUED OR RELEASED BY US INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE OUR ACTUAL RESULTS,
PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS TO DIFFER FROM THE FUTURE
RESULTS, PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FUTURE RESULTS ARE BASED UPON
MANAGEMENT'S BEST ESTIMATES BASED UPON CURRENT CONDITIONS AND THE MOST RECENT
RESULTS OF OPERATIONS. WHEN USED IN THIS REPORT, THE WORDS "EXPECT,"
"ANTICIPATE," "INTEND," "PLAN," "BELIEVE," "SEEK," "ESTIMATE" AND SIMILAR
EXPRESSIONS ARE GENERALLY INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS,
BECAUSE THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. THERE
ARE IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS, INCLUDING OUR
PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS AND OTHER FACTORS.

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

BUSINESS
--------

Simulations Plus, Inc. (the "Company" or "Simulations Plus", or "we" or "our")
and its wholly owned subsidiary, Words+, Inc. ("Words+") produce different types
of products: (1) Simulations Plus, incorporated in 1996, develops and produces
software for use in pharmaceutical research and for education, and also provides
contract research services to the pharmaceutical industry, and (2) Words+,
founded in 1981, produces computer software and specialized hardware for use by
persons with disabilities, as well as a personal productivity software program
called Abbreviate! for the retail market. For the purposes of this document, we
sometimes refer to the two businesses as "Simulations Plus" when referring to
the business that is primarily pharmaceutical software and services, and
"Words+" when referring to the business that is primarily assistive technologies
for persons with disabilities.

SIMULATIONS PLUS
----------------

PRODUCTS
--------
We currently offer four software products for pharmaceutical research: ADMET
Predictor(TM), ClassPharmer(TM), DDDPlus(TM), and GastroPlus(TM).

ADMET PREDICTOR
---------------
ADMET (Absorption, Distribution, Metabolism, Excretion and Toxicity) Predictor
consists of a library of statistically significant numerical models that predict
various properties of chemical compounds from just their molecular structures.
This capability means a chemist can merely draw a molecule diagram and get
estimates of these properties, even though the molecule has never existed. Drug
companies search through millions of such "virtual" molecular structures as they


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attempt to find new drugs. The vast majority of these molecules are not suitable
as medicines for various reasons. Some have such low solubility that they will
not dissolve well, some have such low permeability through the intestinal wall
that they will not be absorbed well, some degrade so quickly that they are not
stable enough to have a useful shelf life, some bind to proteins (like albumin)
in blood to such a high extent that little unbound drug is available to reach
the target, and some will be toxic in various ways. Identification of such
properties as early as possible enables researchers to eliminate poor compounds
without spending time and money to make them and then run experiments to
identify these weaknesses. Today, many molecules can be eliminated on the basis
of computer predictions, such as those provided by ADMET Predictor.

Several independent studies have now been published that compare the predictive
accuracy of software programs like ADMET Predictor. In each case, ADMET
Predictor has been ranked first in accuracy (it was ranked second in one study,
but that study was later redone with a more difficult set of test compounds and
a newer version of ADMET Predictor, and it was then ranked first). No other
software product was consistently in the top 4 in these studies. This is a
remarkable accomplishment, considering the greater size and resources of many of
our competitors.

ADMET Predictor includes ADMET Modeler(TM). ADMET Modeler was first released in
July of 2003 as a separate product, and was integrated into ADMET Predictor in
2006. This powerful program automates the generation of the predictive models
used in ADMET Predictor in a small fraction of the time once required to build
these models. For example, new toxicity models were developed in a matter of a
few hours once we completed the tedious effort of "cleaning up" the databases
(which often contain a significant number of errors). Prior to the availability
of ADMET Modeler, we would have needed as much as three months for each new
model after cleaning the databases to obtain similar results.

Pharmaceutical companies spend enormous amounts of money conducting a wide
variety of experiments on new molecules each year. Using such data to build
predictive models provides a second return on this investment; however, in the
past, model-building has traditionally been a tedious activity that required a
specialist. With ADMET Modeler integrated into ADMET Predictor, scientists
without model-building experience can now use their own experimental data to
quickly create high quality predictive models.

During this reporting period, improvement of ADMET Predictor/Modeler has
continued. We completed Phase I of our NIH SBIR (Small Business Innovation
Research) grant in December 2007. Although our Phase I study clearly
demonstrated that we were able to generate partial atomic charges within
molecules with excellent accuracy at a rate of millions of molecules per day,
compared with traditional methods that require about one day per molecule, the
proposal was returned unscored, with one reviewer providing a favorable review
and another providing an unfavorable review. The unfavorable review included
several statements that were incorrect, including that the accuracy of the
partial charges produced by this new method and the speed with which they are
generated are not innovative. This was easily disproved, and we submitted our
revised proposal in August 2008. We continued the work under our own funding and
showed even greater improvements in predictive capability, which we subsequently
incorporated in the latest release of ADMET Predictor (Version 3.0 - see below).
We recently received notification that our revised Phase II proposal received a
favorable score; however, although we are optimistic, we have not yet been
officially advised whether it will be funded. The Phase II proposal is for
approximately $750,000 over two years.

ADMET Predictor is compatible with the popular Pipeline Pilot(TM) software
offered by SciTegic, a subsidiary of Accelrys. This software serves as a tool to
allow chemists to run several different software programs in series to
accomplish a set workflow for large numbers of molecules. In early discovery,
chemists often work with hundreds of thousands or millions of "virtual"
molecules - molecules that exist only in a computer. The chemist tries to decide
which few molecules from these large "libraries" should be made and tested.
Using Pipeline Pilot with ADMET Predictor (and ClassPharmer - see below),


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perhaps in conjunction with other software products, the chemist can create and
screen very large libraries faster and more efficiently than running each
program by itself.

During this reporting period, we announced the release of Version 3.0, a major
upgrade, on July 2, 2008. This version incorporates modifications that provide
enhanced user convenience and data analysis capabilities in both ADMET Predictor
and ADMET Modeler. A total of 14 new predictive models were also added,
including five for intrinsic clearance by the five major metabolizing enzymes,
eight for metabolic inhibition, and one new toxicity model. A powerful new
graphics capability is included that allows users to visualize results in
multiple dimensions (e.g., X, Y, Z, color, size, and shape can display
6-dimensional information). We added an improved genetic algorithm for
automatically selecting the best molecular descriptors for modeling a particular
molecular property. We have updated all of our models using the new partial
charge descriptors developed under last year's SBIR grant from the NIH and
further enhanced during the months since Phase I was completed. We have also
obtained additional toxicity databases that will be used to extend the number of
toxicity predictions in future versions. Tight integration with both GastroPlus
and ClassPharmer has now been achieved. Licenses of smaller ADMET Predictor
modules have already been purchased by users who want the combined capabilities
of GastroPlus or ClassPharmer with predicted properties from ADMET Predictor,
but who do not need the full capabilities of ADMET Predictor/ADMET Modeler. The
U.S. Food and Drug Administration was one of the first organizations to order
GastroPlus with the new ADMET Predictor Module.

CLASSPHARMER(TM)
----------------
ClassPharmer continues to evolve into a more and more powerful tool for
medicinal and computational chemists. Coupled with ADMET Predictor, the two
provide an unmatched capability for chemists to search through huge libraries of
compounds to find the most interesting classes and molecules that are active
against a particular target. In addition, ClassPharmer with ADMET Predictor can
take an interesting molecule and generate high quality analogs (similar new
molecules) using different algorithms to ensure that the new molecules are both
active against the target while also being acceptable in a variety of ADMET
(Absorption, Distribution, Metabolism, Excretion and Toxicity) properties.

Improvements during the fourth quarter were focused on incorporating more new
features requested by our users around the world, as well as adding other new
capabilities identified in-house. ClassPharmer 4.5 was released on June 2, 2008.
This new version added an expanded molecule design capability through tighter
integration with ADMET Predictor, detection of Activity/Property Cliffs, more
powerful options for chemical reactions, and a number of new user convenience
features.

ClassPharmer's molecule design capabilities provide ways for chemists to rapidly
generate large numbers of novel chemical structures based on intelligence from
compounds that have already been synthesized and tested, or from basic chemical
reactions selected by the user. Export of results is available in Microsoft
Excel(TM) format as well as other convenient file formats requested by users.

DDDPLUS
-------
DDDPlus sales have continued to grow as formulation scientists continue to
recognize the value of this one-of-a-kind simulation software in their work.
Improvements have been added to further enhance the value of this product,
including numerous user convenience features have been added, as well as more
sophisticated handling of dosage forms that incorporate multiple polymers for
controlled release. Work on the next update of DDDPlus has included making the
program match the user interface in our flagship GastroPlus product as closely
as possible since many formulation scientists can use both programs. Additions
to the programs capabilities and built-in databases for excipient ingredients
and dissolution media have also been made. A new release of DDDPlus is planned
before the end of 2008.


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GASTROPLUS
----------
GastroPlus continues to enjoy its "gold standard" status in the industry for its
class of simulation software. It is used from early drug discovery through
preclinical development and into early clinical trials. At an international
conference in Shanghai, China, in May 2008, Pfizer scientists presented a
scientific poster that described a two-year study in which all four commercially
available PBPK (physiologically based pharmacokinetics) simulation programs on
the market were compared for their ability to predict human pharmacokinetics
from preclinical (animal and IN VITRO) data. The study was divided into two
arms: intravenous and oral dosing. GastroPlus was ranked first in both arms. No
other software was ranked consistently second or third, and one competitor was
consistently last in both arms. This independent evaluation, which was
accomplished via analysis of 21 Pfizer proprietary compounds with data all the
way through human trials, provides the strongest possible validation of the
utility of GastroPlus in pharmaceutical research and development.

The information provided through GastroPlus simulations guides project decisions
in various ways. Among the kinds of knowledge gained through such simulations
are: (1) the best "first dose in human" for a new drug prior to Phase I trials,
(2) whether a potential new drug compound is likely to be absorbed at high
enough levels to achieve the desired blood concentrations needed for effective
therapy, (3) whether the absorption process is affected by certain enzymes and
transporter proteins in the intestinal tract that may cause the amount of drug
reaching the blood to be very different from one region of the intestine to
another, (4) when certain properties of a new compound are probably adequately
estimated through computer ("IN SILICO") predictions or simple experiments
rather than through more expensive and time-consuming IN VITRO or animal
experiments, (5) what the likely variations in blood and tissue concentration
levels of a new drug would be in a large population, in different age groups or
in different ethnic groups, and (6) whether a new formulation for an existing
approved drug is likely to demonstrate "bioequivalence" (equivalent blood
concentration versus time) to the currently marketed dosage form in a human
trial.

On May 19, 2008, we announced the release of GastroPlus version 6.0 - a major
new release that includes several important improvements to the program. We
improved the PKPlus(TM) Module to enable it to fit pharmacokinetic models to
multiple data sets, including both intravenous and oral dosage forms. The
feedback we have received from customers for that change has been enthusiastic.
We made further improvements to the new sophisticated kidney model to simulate
how drugs are cleared in urine. We added numerous convenience features requested
by our users. We also added the ability of the program to track metabolites of a
parent drug, including metabolites of metabolites, to as many levels as desired.
This is a significant new capability because it allows the user to predict how
much of each metabolite will be generated, and into which tissues the metabolite
is likely to partition. Some metabolites can be therapeutically active, while
others can be toxic, so knowing how much is produced and where it goes is
valuable information to assess the likelihood of both therapeutic and adverse
effects.

Our marketing intelligence and reorder history indicate that GastroPlus
continues to enjoy a dominant position in the number of users worldwide. In
addition to virtually every major pharmaceutical company, licenses include
government agencies in the U.S and abroad, a growing number of smaller
pharmaceutical and biotech companies, generic drug companies, and drug delivery
companies (companies that design the tablet or capsule for a drug compound that
was developed by another company). Although these companies are smaller than the
pharmaceutical giants, they can also save considerable time and money through
simulation. We believe this part of the industry, which includes many hundreds
of companies, represents major growth potential for GastroPlus. Our experience
has been that the number of new companies adopting GastroPlus has been growing
steadily, adding to the base of annual licenses each year.


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CONTRACT RESEARCH AND CONSULTING SERVICES
-----------------------------------------
Our recognized expertise in oral absorption and pharmacokinetics is evidenced by
the fact that our staff members have been speakers or presenters at over 40
prestigious scientific meetings worldwide in the past three years. We frequently
conduct contracted studies for customers who prefer to have studies run by our
scientists rather than to license our software and train someone to use it. The
demand for our consulting services has been increasing steadily, and we expect
this trend to continue. Long-term collaborations and shorter-term consulting
contracts serve both to showcase our technologies and as a way to build and
strengthen customer relationships.

For example, during both the 3rd and 4th quarters, we further improved our
ability to simulate absorption through the eye. This new route of administration
required a significant amount of scientific investigation, programming changes,
and actual data to validate the model equations. Scientists who work in ocular
delivery at several customer sites have told us that they had not seen such a
sophisticated capability before. We announced an award with a top three
pharmaceutical company for a one-year collaboration at a level of one full time
equivalent (FTE) scientist to develop and validate the ocular delivery model.

GOVERNMENT-FUNDED RESEARCH
--------------------------
We completed our Phase I SBIR effort and our proposal for a Phase II follow-on
grant on the order of $750,000. SBIR grant funds provide the ability to expand
staff and grow the product line without adversely affecting earnings, because
the expenses associated with the efforts in the studies are funded largely, if
not completely, through the grants. As noted above, our revised Phase II
proposal received a favorable score, and we are waiting for notification
regarding whether it will be funded.

PHARMACEUTICAL SIMULATIONS SOFTWARE PRODUCT DEVELOPMENT
-------------------------------------------------------
Although all of our development work cannot be disclosed for competitive
reasons, some of our development efforts during this reporting period included:

(1) ADMET Predictor/ADMET Modeler Upgrades
------------------------------------------
As part of our Small Business Innovation Research grant with the National
Institutes of Health, we have developed a method to very rapidly calculate
charges on molecules. This has normally required extensive computer time
(sometimes a day or more for one molecule), making such calculations impractical
for rapid property predictions for new molecules. Charges are important in
predicting a variety of properties, especially those involving chemical
reactions such as metabolism. Our new methods have been demonstrated to provide
the high throughput (>200,000 molecules per hour) needed to use charge-based
molecular descriptors in property models, reducing calculations from about two
CPU-years to a few minutes for a data set of thousands of charges.

We are also working on other improvements to ADMET Predictor/ADMET Modeler that
will be announced in the coming months.

(2) DDDPlus
-----------
We have continued to improve DDDPlus by adding capabilities and features
requested by our customers and potential customers who have been conducting beta
testing, as well as capabilities and features identified in-house.

(3) MembranePlus(TM)
--------------------
MembranePlus is a computer program that simulates IN VITRO experiments that
measure the permeability of new drug-like molecules through a layer of living
cells or through an artificial membrane. These experiments are conducted in
order to estimate the permeability of new drug compounds through the human
intestinal wall and into the blood. However, such experiments do not produce
results that are easily translated into human permeabilities. We believe that a


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detailed mechanistic simulation of these IN VITRO experiments will provide the
insight and understanding needed to provide reasonably accurate estimates of
permeability in different regions of the human intestinal tract from IN VITRO
data.

This development effort accelerated during fiscal year 2005 with the hiring of a
new Ph.D. scientist who focused on this program. The simulation is currently
predicting the movement of drug molecules through the bulk fluid, into the
membranes at the surface of a cell layer, through the surface membrane, through
the interior of the cell, into the opposite surface membrane, and through it to
the bulk fluid on the opposite side of the cell layer. Although a few technical
issues remain to be resolved, we are optimistic that the simulation will become
a unique tool for the analysis of data from these experiments, and will enable
researchers to more accurately estimate human intestinal permeability from these
IN VITRO experiments. We are not aware of any other effort to produce a product
of this nature.

This project was put on hold in September 2005 because the scientist responsible
for MembranePlus, Dr. Viera Lukacova, was assigned to take over GastroPlus when
the previous product manager left the company. She has done an outstanding job
with GastroPlus, and has been promoted to Simulation Technologies Team leader.
We are interviewing candidates to expand the Simulation Technologies Team, one
of whom may work on MembranePlus under Dr. Lukacova's direction.

MARKETING AND DISTRIBUTION
--------------------------
We market our pharmaceutical software and consulting services through attendance
and presentations at scientific meetings, exhibits at trade shows, seminars at
pharmaceutical companies and government agencies, through our web pages on the
Internet, and using various communication media to our compiled database of
prospect and customer names. Our scientific team is also a key part of our sales
and marketing team. We believe that this is more effective than a completely
separate sales team for several reasons: (1) customers appreciate talking
directly with developers who can answer a wide range of technical questions
about methods and features, (2) our scientists benefit from direct customer
contact through gaining an appreciation for the environment and problems of the
customer, and (3) the relationships we build through scientist-to-scientist
contact are stronger than through salesperson-to-scientist contacts. We also
have one former scientist/programmer who moved into full-time marketing and
sales about two years ago and has done an excellent job of bringing in new
business.

We use our web pages on the Internet to provide product information, provide
software updates, and as a forum for user feedback and information exchange. We
have cultivated market share in North America, Europe, and in Japan, and
Internet and e-mail technologies have had a strong positive influence on our
ability to communicate with existing and potential customers worldwide.

PRODUCTION
----------
Our pharmaceutical software products are designed and developed entirely by our
development team, with locations in our Lancaster, Petaluma, and San Diego,
California. The principal materials and components used in the manufacture of
simulation software products include CD-ROMs and instruction manuals, which are
also produced in-house. Robotic CD burner technology along with in-house graphic
art and engineering talent enable us to accomplish this production in a
cost-efficient manner.

COMPETITION
-----------
In our pharmaceutical software and services business, we compete against a
number of established companies that provide screening, testing and research
services, and products that are not based on simulation software. There are also
software companies whose products do not compete directly, but are sometimes
closely related. Our competitors in this field include companies with financial,
personnel, research and marketing resources that are greater than ours.
Management believes there is currently no significant competitive threat to
GastroPlus or DDDPlus. ClassPharmer and ADMET Predictor/ADMET Modeler operate in
a more competitive environment; however, independent product comparisons have


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been very favorable toward our offerings, with ADMET Predictor consistently
ranked first in predictive accuracy. Several other companies presently offer
simulation or modeling software, or simulation-software-based services, to the
pharmaceutical industry.

Major pharmaceutical companies conduct drug discovery and development efforts
through their internal development staffs and through outsourcing some of this
work. Smaller companies need to outsource a greater percentage of this research.
Thus, we compete not only with other software suppliers, but also with the
in-house development teams at some pharmaceutical companies.

We are not aware of any significant threat from competition in the area of
gastrointestinal absorption simulation. Although competitive products exist,
both new licenses and license renewals for GastroPlus have continued to grow in
spite of this competition. We believe that we enjoy a dominant market share in
this segment.

We believe the key factors in competing in this field are our ability to develop
industry-leading simulation and modeling software and related products and
services to effectively predict activities and ADMET-related behaviors of new
drug-like compounds, to design new molecules with acceptable activity and ADMET
properties, to develop and maintain a proprietary database of results of
physical experiments that will serve as a basis for simulated studies and
empirical models, to attract and retain a highly skilled scientific and
engineering team, and to develop and maintain relationships with research and
development departments of pharmaceutical companies, universities and government
agencies.

We are actively seeking acquisitions to expand the pharmaceutical software and
services business, and we are currently in discussions with several companies in
this regard. Earlier attempts to acquire other companies were not successful. We
believe the current discussions are with companies for which acceptable deal
structures are more likely to be realized; however, there can be no assurances
that any of these deals will take place.

WORDS+
------

PRODUCTS
--------
Our wholly owned subsidiary, Words+, Inc., has been an industry pioneer and
technology leader for over 27 years in introducing and improving augmentative
and alternative communication and computer access software and devices for
disabled persons. We intend to continue to be at the forefront of the
development of new products. We will continue to enhance our major software
products, E Z Keys(TM) and Say-it! SAM(TM), as well as our growing line of
hardware products. We are also considering acquisitions of other products,
businesses and companies that are complementary to our existing augmentative and
alternative communication and computer access business lines. We acquired the
Say-it! SAM technologies from SAM Communications, LLC of San Diego in December
2003. This acquisition gave us our smallest, lightest augmentative communication
system, which is based on a Hewlett-Packard iPAQ personal digital assistant
(PDA). PDA-based communication devices have been very successful in the
augmentative communication market, and this technology purchase enabled us to
move into this market segment faster and at lower cost than developing the
product ourselves. SAM-based products now account for a significant share of
Words+ revenues. Since the acquisition of the Say-it! SAM technologies, we have
continued to add new functionality to the SAM software and to offer it on
additional hardware platforms.

During this fiscal year, after the introduction of the newest Say-it! SAM
version late in the first quarter, sales of our new PDA-based
(personal-digital-assistant-based) Say-it! SAM augmentative communication device
set new records, contributing nicely to the highest quarter in our history in
the third quarter. Just before the end of the last quarter we introduced the
Conversa(TM). This product offers the most human-sounding synthetic speech
output available in the marketplace utilizing AT&T synthetic voices and our new
custom


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designed Sound Pack. To quote one young adult client who changed to the Conversa
after using a variety of augmentative communication devices from our competitors
for most of her life "I actually sound like a regular woman for the first time
in my life!" We are adding the Sound Pack design to other products.

We have clients utilizing new access methods such as the Fiber Optic Switch that
is a new part of our product line, a new EMG (muscle signal) switch called
Libertas and eye gaze systems from a variety of manufacturers, and we are
regularly evaluating and interfacing new access technology.

MARKETING AND DISTRIBUTION
--------------------------
We market augmentative and alternative communication products through a network
of employee representatives and independent dealers and resellers.

At the present time we have 36 sales representatives worldwide: 1 salaried sales
manager in California, 12 independent distributors and 6 independent resellers
in the U.S., and 16 sales representatives overseas - 4 in Australia, and 1 each
in New Zealand, Canada, England, Norway, Finland, The Netherlands, France,
Italy, Israel, Japan, Korea, Mexico and Malaysia. We also have 2 inside support
persons, who answer e-mails and telephone inquiries on our toll-free telephone
line and who provide technical support. Additional outside sales persons and
independent dealers and resellers are being actively recruited.

We direct our marketing efforts to speech pathologists, occupational therapists,
rehabilitation engineers, special education teachers, disabled persons and
relatives of disabled persons. We maintain a mailing list of over 10,000 people
made up of these professionals, consumers and relatives, and we mail various
marketing materials to this list. These materials include our catalog of
products and announcements regarding new and enhanced products.

We participate in industry conferences held worldwide that are attended by
speech pathologists, occupational and physical therapists, special education
teachers, parents and consumers. We and others in the industry demonstrate our
products at these conferences and present technical papers that describe the
application of our technologies and research studies on the effectiveness of our
products. We also advertise in selected publications of interest to persons in
this market.

We estimate that for approximately 47% of our sales of augmentative and
alternative communication ("AAC") software and hardware the purchases are funded
primarily by third parties such as Medicaid, Medicare and private insurance.
School special education budgets, vocational rehabilitation, other governmental
programs, private purchases and charitable assistance account for most of the
other purchases. Medicare provides coverage for augmentative communication
devices.

Our personnel provide advice and assistance to customers and prospective
customers on obtaining third-party financial assistance for purchasing our
products. Third party funding grew slowly for the first 20 years of operation;
however, the addition of Medicare coverage for AAC devices in 2001 resulted in
significant increases in third party funding in recent years. Our
Medicare/Medicaid and other third-party-funded sales have grown, with the
majority of total sales are now funded by a third party. Medicare/Medicaid
sales are subject to funding caps that limit the amounts paid for our products,
and payment by some agencies can be slow, making this market segment somewhat
more difficult than others.

PRODUCTION
----------
Disability software products are either loaded onto computer hard disk drives by
our employees or copied to diskettes, CD-ROM, or memory cards, which is
performed in-house. Most software customers also buy their notebook personal
computers from us, which we purchase at wholesale prices and resell at a markup.
We purchase microprocessors that are part of dedicated devices such as


                                        8


<page>

MessageMates(TM). We design our cases, printed circuit boards, labels and other
components of products such as Sam communicators, MessageMates,,
MicroCommPacs(TM) and our new Conversa(TM) Sound Pack. We outsource the
extrusion, machining and manufacturing of certain components. All final assembly
and testing operations are done by our employees at our facility.

Our products are shipped from our Lancaster, California facility either directly
to the customer or to the salesperson, dealer or reseller. For major products,
the outside salesperson, dealer or reseller either delivers the product or
visits the customer after delivery to provide training.

COMPETITION
-----------
The AAC industry in which we operate is highly competitive and some of our
competitors have greater financial and personnel resources than ours. The
industry is made up of about six major competitors including Words+, and a
number of smaller ones. Based on personal conversations with our outside dealers
and customers, we believe that the other major competitors each have revenues
ranging from $3 million to under $30 million, so that there are no large
companies in this industry. We believe that acquisition of additional products
that complement our current catalogue will provide faster growth than merely
developing new products in-house, and we are actively working to complete such
acquisitions.

We believe that the competition in this industry is based primarily on the
quality of products, quality of customer training and technical support, and
quality and size of sales forces. Price is a competitive factor but we believe
price is not as important to the customer as obtaining the product most suited
to the customer's needs, along with strong after-sale support. We believe that
we are a leader in the industry in developing and producing some of the most
technologically advanced products and in providing quality customer training and
technical support. We believe that the potential exists for significant
increases in the sales of our disability products; however, there are few
barriers to entry in the form of proprietary or patented technology or trade
secrets in this industry. While we believe that cost of product development and
the need for specialized knowledge and experience in this industry would present
some barrier to entry for new competition, other companies may enter this
industry, including companies with substantially greater financial resources
than ours. Furthermore, companies already in this industry may increase their
market share through increased technology development and marketing efforts.

TRAINING AND TECHNICAL SUPPORT
------------------------------

We believe customer training and technical support are important factors in
customer satisfaction for both our pharmaceutical and disability products, and
we believe we are an industry leader in providing customer training and
technical support in both of our business areas. For pharmaceutical software, we
provide in-house seminars at customers' sites. These seminars often serve as
initial training in the event the potential customer decides to license or
evaluate our software. Technical support is provided after the sale in the form
of on-site training (at customer's expense), web meeting, telephone, fax, and
e-mail assistance to users during the customer's license period. We have used
Internet meetings extensively to provide demonstrations and customer assistance,
resulting in rapid response to requests worldwide and reducing our travel time
and expenses.

For Disability Products, our salesperson, dealer or reseller provides initial
training to the customer for major systems -- typically two to four hours. This
training is typically provided not only to the user of the product but also to
speech pathologists, occupational therapists, rehabilitation engineers,
teachers, parents and others who will assist the user. This initial training for
the purchase of full systems is often provided as a part of the price of the
product. Additional training and service calls are available for a fee.

Technical support for both pharmaceutical software and disability products is
provided by our life sciences team and our inside sales and support staff based
at our headquarters facilities in Lancaster, California. We provide free


                                        9


<page>

telephone support offering unlimited toll-free numbers in the U.S. and Canada,
and e-mail and web-based support for all of our pharmaceutical software and
disability products worldwide. Technical support for pharmaceutical software
products is minimal, averaging a few person-hours per month. Technical support
for Words+ products varies from none for most customers to as much as several
hours for others. Words+ dealers usually train new customers at the customer's
location, which significantly reduces technical support demands on our staff.

RESEARCH AND DEVELOPMENT
------------------------

We believe that our ability to grow and remain competitive in our markets is
strongly dependent on significant investment into research and development
("R&D"). R&D activities include both enhancement of existing products and
development of new products. Development of new products and adding
functionality to existing products are capitalized in accordance with Financial
Accounting Standards No. 86 and AICPA Statement of Position 98-1. R&D
expenditures were approximately $1,719,000 during fiscal year 2008, of which
$728,000 was capitalized. R&D expenditures during fiscal year 2007 were
approximately $1,398,000, of which $583,000 was capitalized.

Our pharmaceutical business R&D activities during fiscal year 2008 were focused
on improving our ADMET Predictor/ADMET Modeler, ClassPharmer, DDDPlus, and
GastroPlus products.

Our R&D activities for our Words+ subsidiary were focused on improvement of our
Say-it! SAM(TM) product line by developing a completely new Say-it! SAM
PDA-based augmentative communication system, a new tablet-computer-based system
called Conversa(TM), and by developing a set of pre-programmed vocabulary pages
for all systems using the Say-it! SAM software based on vocabularies initially
developed by our U.K. distributor.

EMPLOYEES
---------

As of August 31, 2008, we employed 32 full-time and 2 part-time employees,
including 17 in research and development, 5 in marketing and sales, 6 in
administration and accounting and 6 in production. Currently 11 employees hold
Ph.D.'s and 1 is a Ph.D. candidate in their respective science or engineering
disciplines. Additionally, 5 employees hold one or more Master's degrees. Most
of the senior management team and Board of Directors hold graduate degrees. We
believe that our future success will depend, in part, on our ability to continue
to attract, hire and retain qualified personnel. The competition for such
personnel in the pharmaceutical industry and in the augmentative and alternative
communication device and computer software industry is intense. None of our
employees is represented by a labor union, and we have never experienced a work
stoppage. We believe that our relations with our employees are good.

PATENTS
-------

We own two patents that were acquired as part of our 2005 acquisition of certain
assets of Bioreason, Inc. We primarily protect our intellectual property through
copyrights and trade secrecy. Our intellectual property consists primarily of
source code for computer programs and data files for various applications of
those programs in both the pharmaceutical software and the disability products
businesses. In the disability products business, electronic device schematics,
mechanical drawings, and design details are also intellectual property. The
expertise of our technical staff is a considerable asset closely related to
intellectual property, and attracting and retaining highly qualified scientists
and engineers is essential to our business.


                                       10


<page>

EFFECT OF GOVERNMENT REGULATIONS
--------------------------------

Our pharmaceutical software products are tools used in research and development
and are neither approved nor approvable by the Food and Drug Administration or
other government agency. Most of our products for the disabled are funded by
Medicare or Medicaid, schools, the Veteran's Administration, and other insurance
programs. Changes in government regulations regarding the allowability of
augmentative communication aids and other assistive technology under such
funding could affect our business.

ITEM 2.  DESCRIPTION OF PROPERTY

We lease approximately 13,500 square feet of space under a five-year term with
two (2), three-(3) year options to extend the lease in Lancaster, California.
The base rent started at the rate of $18,445 per month plus common area
maintenance fees. The base rental rate increases at 4% annually, and currently
it is $19,950 plus Common Area Maintenance fee. We believe that this new
facility is sufficient for our current needs and growth in the near future.

ITEM 3.  LEGAL PROCEEDINGS

On April 6, 2006 we received notice from a liquidator for the former French
subsidiary of Bioreason (Bioreason SARL), saying that the liquidator had
initiated legal action against Simulations Plus in the French courts with
respect to ClassPharmer distribution rights to European customers, and is
claiming commissions and legal fees with respect to European customers. We filed
a counterclaim for our rights and lost sales against Bioreason SARL's assets by
sending a debt recovery declaration to the liquidator on June 15, 2006.

On April 9, 2008, we received the approval of the settlement agreement from the
commercial division of French Ordinary Court. This means that the settlement
agreement is now enforceable, and this case is finally closed. Both parties
dropped all claims and we are not liable for any amounts.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 2008.


                                       11


<page>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our Common Stock is currently traded on the NASDAQ Stock Market (NASDAQ) under
the symbol "SLP". According to records of our transfer agent, we had about 57
shareholders of record and approximately 2,950 beneficial owners as of August
31, 2008. The following table sets forth the low and high sale prices for the
Common Stock as listed on the AMEX for the last two fiscal years. The Board of
directors declared a 2-for-1 stock split in August 2006 and another 2-for-1
split in October 2007, and our common stock has been trading at the post-split
price since October 2, 2007. The prices in the table below reflect the
post-split price. We have not paid cash dividends on our Common Stock. We
currently intend to retain our earnings for future growth, and therefore do not
anticipate paying cash dividends in the foreseeable future. Any further
determination as to the payment of dividends will be at the discretion of our
Board of Directors and will depend among other things, on our financial
condition, results of operations, capital requirements and such other factors as
the Board of Directors deems relevant.

On October 23, 2008, the board of directors authorized a share repurchase
program enabling the buyback of up to $2.5 million in shares during a 12-month
period beginning Monday, October 27, 2008. The Company has opened an account
with Citigroup Smith Barney for the purchase of such securities. Funds for any
stock purchases will be drawn from the Company's then-current cash reserves. As
of November 25, 2008, we have not repurchased any shares.

All numbers in the table below have been adjusted for the split that was
effective on October 1, 2007.

<TABLE>
<S>     <C>
                                                               LOW SALES PRICE      HIGH SALES PRICE
                                                               ---------------      ----------------
         FY08:
                  Quarter ended August 31, 2008 . . . . . . .         1.40               2.18

                  Quarter ended May 31, 2008 . . . . . . . . .        1.55               2.40

                  Quarter ended February 28, 2008 . . . . . .         2.75               4.97

                  Quarter ended November 30, 2007  . . . . . .        4.45               8.39

         FY07:
                  Quarter ended August 31, 2007 . . . . . . .         4.55               6.85

                  Quarter ended May 31, 2007 . . . . . . . . .        3.71               7.99

                  Quarter ended February 28, 2007 . . . . . .         1.52               4.67

                  Quarter ended November 30, 2006  . . . . . .        1.05               1.67
</TABLE>

                                       12


<page>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS
REPORT.

RESULTS OF OPERATIONS

The following sets forth selected items from our statements of operations (in
thousands) and the percentages that such items bear to net sales for the fiscal
years ended August 31, 2008 ("FY08") and August 31, 2007 ("FY07").

<TABLE>
<S>     <C>
                                                  FY08                     FY07
                                         ---------------------    ---------------------
Net sales                                $ 8,968        100.0%    $ 8,858        100.0%
Cost of sales                              2,100         23.4       2,082         23.5
                                         --------     --------    --------     --------
Gross profit                               6,868         76.6       6,776         76.5
                                         --------     --------    --------     --------
Selling, general, and administrative       3,699         41.3       3,458         39.0
Research and development                     991         11.1         815          9.2
                                         --------     --------    --------     --------
Total operating expenses                   4,690         52.3       4,273         48.2
                                         --------     --------    --------     --------
Income from operations                     2,178         24.3       2,503         28.3
                                         --------     --------    --------     --------
Interest income                              185          2.1         114          1.3
Miscellaneous Income                          --           --           1           --
Gain on sale of assets                        --           --           4          0.1
Gain on currency exchange                     83          0.9           2          0.1
                                         --------     --------    --------     --------
Total other income                           268          3.0         121          1.4
                                         --------     --------    --------     --------
Net income before taxes                    2,446         27.3       2,624         29.6
                                         --------     --------    --------     --------
Provision for income taxes                  (721)        (8.0)     (1,158)       (13.1)
                                         --------     --------    --------     --------
Net income                                 1,725         19.2%      1,466         16.6%
                                         ========     ========    ========     ========
</TABLE>

FY08 COMPARED WITH FY07
-----------------------

NET SALES
---------
Consolidated net sales increased $110,000, or 1.2%, to $8,968,000 in fiscal year
2008 (FY08) from $8,858,000 in fiscal year 2007 (FY07). Sales from
pharmaceutical software and services increased approximately $300,000, or 5.2%;
however, our Words+, Inc. subsidiary's sales decreased approximately $190,000,
or 6.1%, for the year. We attribute the increase in pharmaceutical software
sales primarily to increased licenses, both to new customers and for new
modules, additional licenses to renewal customers, and contract studies, which
outweighed a few licenses not renewed by some customers. We attribute the
decrease in Words+ sales primarily to decreases in sales of "Freedom" and
"TuffTalker Plus" which was discontinued in FY08, and hardware products such as
MessageMates and other input devices. Those declines in sales outweighed
increased sales of our "Say-it SAM!" and "TuffTalker" products.

COST OF SALES
-------------
Consolidated cost of sales increased $18,000, or 0.9%, to $2,100,000 in FY08
from $2,082,000 in FY07; however, as a percentage of revenue, cost of sales
decreased 0.1%. For pharmaceutical software and services, cost of sales
increased $92,000, or 13.0%, and as a percentage of revenue, cost of sales
increased to 13.2% in FY08 from 12.3% in FY07. A significant portion of cost of
sales for pharmaceutical software products is the systematic amortization of
capitalized software development costs, which is an independent fixed cost
rather than a variable cost related to sales. This amortization cost increased
approximately $61,000, or 17.0%, in FY08 compared with FY07; however, as a
percentage of revenue, amortization cost increased only 0.7% in FY08 compared
with FY07. Royalty expense, another significant portion of cost of sales,
increased approximately $31,000, or 8.9%, in FY08 compared with FY07, while as a
percentage of revenue, royalty expense increased only 0.2% in FY08 compared with


                                       13


<page>

FY07. We pay a royalty on GastroPlus basic software sales but not on its modules
or other software sales. We began to pay royalties on the newly released Enslein
Metabolism Module in our ADMET Predictor software at the end of FY08 in
accordance with our agreement with Enslein Research, Inc.

For Words+, cost of sales decreased $74,000, or 5.4%. As a percentage of
revenue, cost of sales increased 0.3% to 44.7% in FY08 from 44.4% in FY07. Sales
from "TuffTalker" products, with higher costs per unit, increased in FY08,
resulting in the higher percentage of cost of sales. The decline in sales from
the discontinued "TuffTalker Plus", which had higher unit costs, was not enough
to offset the increase in costs incurred for the sales of the "TuffTalker"
product.

GROSS PROFIT
------------
Consolidated gross profit increased $92,000, or 1.4%, to $6,868,000 in FY 08
from $6,776,000 in FY07. We attribute this increase to the increase in sales of
pharmaceutical software and contract studies which outweighed increases in cost
of goods sold and the decrease in Gross Profit from Words+ operations.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
Selling, general and administrative ("SG&A") expenses for FY08 increased by
$241,000, or 7.0%, to $3,699,000, compared to $3,458,000 for FY07. For
Simulations Plus, SG&A expenses increased $141,000, or 6.9%. The major increases
in expenses were travel expenses due to increased air fares and personal vehicle
mileage allowance, professional fees, such as web site design fees, tax credit
research fees, valuation service fees, and additional fees for an additional
Board member. Investor relations fees, such as fees paid to the American Stock
Exchange for stock splits, and increases in salaries and payroll-related
expenses, such as health insurance, 401(K) and payroll taxes, also added to
SG&A. Some of these are one-time fees. Major decreases in expenses were the
elimination of the bonus previously paid to the Company's CEO, whose
compensation is now a fixed amount with no bonus, as well as bad debts and legal
costs that were expensed as part of the purchased assets of Bioreason Inc. in
FY07, while no such expense was incurred in FY08. However, those decreases did
not offset the increases in other expenses mentioned above.

For Words+, expenses increased by $100,000, or 2.9%. There was a shift in
expense from one category to another from FY07 to FY08. In FY07, we hired a
marketing consultant who became an employed sales manager of Words+ in March 08,
increasing salaries and travel expenses while reducing consultant fees. The
estimated allowance for bad debts was also increased. Those increases outweighed
decreases in commissions, telephone expenses, and technical service costs.

RESEARCH AND DEVELOPMENT
------------------------
We incurred approximately $1,719,000 of research and development ("R&D") costs
for both companies during FY08. Of this amount, $728,000 was capitalized and
$991,000 was expensed. During FY07 we incurred approximately $1,397,000 of
research and development costs, of which approximately $583,000 was capitalized
and approximately $815,000 was expensed. The 23.1% increase in research and
development expenditure from FY07 to FY08 was due primarily to increases in
salary expenses due to expanding the staff in the Life Sciences Department, as
well as salary increases for existing staff in both companies.

INCOME FROM OPERATIONS
----------------------
During FY08, we generated income from operations of $2,178,000, as compared to
$2,503,000 for FY07, a decrease of 13.0%. We attribute this decrease to
increases in SG&A expenses, including one-time fees, as well as R&D costs which
outweighed the increase in gross profit generated by sales of pharmaceutical
software and study contract services, in addition to a decrease in income from
Words+ operations.


                                       14


<page>

OTHER INCOME AND (EXPENSE)
--------------------------
The net of other income over other expense for FY08 increased by $147,000, or
121.5%, to $268,000, compared to $121,000 for FY07. This is due primarily to an
increase in interest income on Money Market accounts and gain on currency
exchange.

PROVISION OF INCOME TAXES
-------------------------
Provision for income taxes for FY08 decreased by $437,000, or 40.3%, to
$721,000, compared to $1,158,000 for FY07. In FY07, because we had exhausted our
net operating loss ("NOL") carry forward as well as the R&D tax credits that
were known at the time, our tax accountants estimated our provisional income tax
rate at 44%. In FY08, we hired a tax credit specialist company, Tax Projects
Group, to identify potential unused tax credits. As a result of several months
of research covering the previous 3 tax years (2006, 2005, and 2004), they
discovered an additional $276,000 of unused R&D tax credits. This increase in
R&D tax credits allowed us to reduce our income tax provision to as low as 29%
in FY08. Please refer to the notes to the financial statements for the details.
The additional R&D tax credit is subject to review by tax agencies.

NET INCOME
----------
Net income for FY08 increased by $259,000, or 17.7%, to $1,725,000, compared to
$1,466,000 for FY07. We attribute this increase in net income primarily to
increased sales of pharmaceutical software licenses, other income, and decreased
provision for income taxes, which outweighed increased cost of sales, and
operating expenses, as well as a decrease in net income from Words+ operations.
Shareholders' equity grew by 29%, from $7.7 million to $9.9 million during FY08.

SEASONALITY
-----------

Sales of our pharmaceutical products exhibit minimal seasonal fluctuation, with
the first fiscal quarter almost always below average for all quarters. This
trend has continued for 9 out of the last 10 years. This unaudited net sales
information has been prepared on the same basis as the annual information
presented elsewhere in this Annual Report on Form 10-KSB and, in the opinion of
management, reflects all adjustments (consisting of normal recurring entries)
necessary for a fair presentation of the information presented. Net sales for
any quarter are not necessarily indicative of sales for any future period.

                           Net Simulations Plus Sales

                          First      Second       Third       Fourth
FY                       Quarter     Quarter     Quarter     Quarter      Total
--------------------------------------------------------------------------------
                                             (in thousands)

2008 . . . . . . . . .     1,438      1,550        1,975        1,092      6,055
2007 . . . . . . . . .       824      1,808        1,659        1,465      5,756
2006 . . . . . . . . .       199        884        1,096        1,007      3,186
2005 . . . . . . . . .       524        410          662          473      2,069
2004 . . . . . . . . .       642        742          603          869      2,856
2003 . . . . . . . . .       507        582          614        1,403      3,106
2002 . . . . . . . . .       390        554          504          595      2,043
2001 . . . . . . . . .       221        373          305          282      1,181
2000 . . . . . . . . .       151        467          143          174        935
1999 . . . . . . . . .        87         93          117          164        461
1998 . . . . . . . . .        11         11           13           27         62


                                       15


<page>

We believe that sales of Words+ products to schools were slightly seasonal,
prior to FY06, with greater sales to schools during our third and fourth fiscal
quarter (March-May and June-August), as shown in the table below.

                                Net Words+ Sales

                          First      Second       Third       Fourth
FY                       Quarter     Quarter     Quarter     Quarter      Total
--------------------------------------------------------------------------------
                                            (in thousands)

2008 . . . . . . . . .      545        630          994          744       2,913
2007 . . . . . . . . .      632        726          972          772       3,102
2006 . . . . . . . . .      620        598          692          759       2,669
2005 . . . . . . . . .      543        622          762          757       2,684
2004 . . . . . . . . .      497        626          630          598       2,351
2003 . . . . . . . . .      571        538          646          624       2,379

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

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

We currently hold 3 ARSs at $250,000 each (2 Iowa student loans and 1 Missouri
higher education loan). On August 8, 2008, UBS announced a comprehensive
settlement, in principle, to all who hold ARSs issued through UBS, that UBS will
buy back each ARS at par from most of their clients during a two-year time
period beginning January 1, 2009. Because of this settlement announcement, we
believe that our investment in ARS is appropriately presented at its face value
of $750,000 at August 31, 2008. The face value as of August 31, 2008 was
confirmed by a prospectus UBS issued on October 7 informing us that we were
being given an option either to keep the ARSs or to sell them to UBS at the face
value plus accrued interest. We exercised the option of selling them to UBS. We
received a letter from UBS dated November 5, 2008 stating that they had accepted
our exercise and will buy back our ARSs at their full face value of $750,000
plus accrued interest. We have been advised by our UBS account manager that this
buyback is expected to occur between January 2, 2009 and January 4, 2011.

INFLATION
---------

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


                                       16


<page>

RECENTLY ISSUED ACCOUNTING STANDARDS
------------------------------------

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS 157"), which defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. For financial
assets and liabilities, SFAS 157 will be effective for the Company in the first
fiscal quarter of 2009. As permitted by FSP-FAS 157-2, SFAS 157 is effective for
nonfinancial assets and liabilities for the Company during the first fiscal
quarter of 2010. Management believes the adoption of SFAS 157 for its financial
assets and liabilities will not have a material impact on the Company's
consolidated financial statements and continues to evaluate the potential impact
of the adoption of SFAS 157 related to its nonfinancial assets and liabilities.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits
companies to choose to measure many financial instruments and certain other
items at fair value. SFAS 159 will be effective for the Company in the first
fiscal quarter of 2009. The Company believes the adoption of SFAS 159 will not
have a material impact on the Company's consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("SFAS 141R"), which replaces SFAS 141. SFAS 141R establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any resulting goodwill, and any noncontrolling interest in the acquiree. SFAS
141R also provides for disclosures to enable users of the financial statements
to evaluate the nature and financial effects of the business combination. SFAS
141R will be effective for the Company in first fiscal quarter of 2010 and must
be applied prospectively to business combinations completed on or after that
date.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements -- an amendment of Accounting Research
Bulletin No. 51" ("SFAS 160"), which establishes accounting and reporting
standards for noncontrolling interests ("minority interests") in subsidiaries.
SFAS 160 clarifies that a noncontrolling interest in a subsidiary should be
accounted for as a component of equity separate from the parent's equity. SFAS
160 will be effective for the Company in the first fiscal quarter of 2010 and
must be applied prospectively, except for the presentation and disclosure
requirements, which will apply retrospectively. The Company is currently
evaluating the potential impact that adoption of SFAS 160 may have on its
consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities -- an amendment of FASB Statement No. 133"
("SFAS 161"), which requires enhanced disclosures about an entity's derivative
and hedging activities. SFAS 161 will be effective for The Company second fiscal
quarter of 2009.

In June 2006, the Financial Accounting Standards Board ("FASB) issued FASB
interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in income tax positions. The provisions of FIN 48 are
effective for the Company on September 1, 2007, with the cumulative effect of
the change in accounting principle, if any, recorded as an adjustment to opening
retained earnings. We have reviewed all accounts that create a deferred tax
asset or liability which may have the impact, and the balance in those account
should not be deferred for tax purposes are included as income for tax purposes,
thus increasing taxable income and creating a deferred tax benefit for the
following year. We have also reviewed the matter of research and development
credit ("R&D credit"). After evaluating the adoption of FIN 48, we believe that
the adoption did not have a material impact on our consolidated financial
statements.


                                       17


<page>

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB
Statements No. 87, 88, 106, and 132(R)," ("SFAS 158"), which requires the
recognition of the overfunded or underfunded status of a defined benefit
postretirement plan in a company's balance sheet. This portion of the new
guidance is effective on December 31, 2006. Additionally, the pronouncement
eliminates the option for companies to use a measurement date prior to their
fiscal year-end effective December 31, 2008. Since we do not have any defined
benefit pension or postretirement plans that are subject to SFAS 158, we do not
expect the pronouncement to have a material impact on our consolidated financial
statements.

CRITICAL ACCOUNTING POLICIES
----------------------------

Our consolidated financial statements and accompanying notes are prepared in
accordance with accounting principles generally accepted in the United States of
America. Preparing financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenue, and expenses. These estimates and assumptions are affected by
management's application of accounting policies. Critical accounting policies
for us include revenue recognition, accounting for capitalized software
development costs, and accounting for income taxes.

Revenue Recognition
-------------------
We recognize revenue related to software licenses and software maintenance in
accordance with the American Institute of Certified Public Accountants ("AICPA")
Statements of Position (SOP) No. 97-2, "Software Revenue Recognition." Product
revenue is recorded when the following conditions are met: 1) evidence of
arrangement exists, such as signed Purchase Orders from customers or executed
contracts, 2) delivery has been made, such as unlocking the software on the
customer's computer(s), 3) the amount is fixed, and 4) it is collectible.
Post-contract customer support ("PCS") obligations are insignificant; therefore,
revenue for PCS is recognized at the same time, and the costs of providing such
support services are accrued and amortized over the obligation period.

As a byproduct of ongoing improvements and upgrades to our software, some
modifications are provided to customers, who have already licensed software, at
no additional charge. We consider these modifications to be minimal, as they are
not changing the basic functionality or utility of the software, but rather
adding convenience, such as being able to plot some additional variable on a
graph in addition to the numerous variables that had been available before. Such
software modifications for any single product have been typically once or twice
per year, sometimes more, sometimes less. Thus, they are infrequent. We provide,
for a fee, additional training and service calls to our customers and recognize
revenue at the time the training or service call is provided.

We enter into one-year license agreements with most of our customers for the use
of our pharmaceutical software products. However, from time to time, we enter
into multi-year license agreements. We unlock and invoice software one year at a
time for multi-year licenses. Therefore, revenue is recognized one year at a
time.

Capitalized Computer Software Development Costs
-----------------------------------------------
Software development costs are capitalized in accordance with SFAS No. 86,
"Accounting for the Cost of Computer Software to be Sold, Leased, or otherwise
Marketed." Capitalization of software development costs begins upon the
establishment of technological feasibility and is discontinued when the product
is available for sale.


                                       18


<page>

The establishment of technological feasibility and the ongoing assessment for
recoverability of capitalized software development costs require considerable
judgment by management with respect to certain external factors including, but
not limited to, technological feasibility, anticipated future gross revenues,
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 provided 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 $466,735 and $429,867 for the fiscal years ended
August 31, 2008 and 2007, respectively. We expect future amortization expense to
vary due to increases in capitalized computer software development costs.

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

Income Taxes
------------
We utilize SFAS No. 109, "Accounting for Income Taxes," which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns.

The objectives of accounting for income taxes are to recognize the amount of
taxes payable or refundable for the current year and deferred tax liabilities
and assets for the future tax consequences of events that have been recognized
in an entity's financial statements or tax returns. Judgment is required in
assessing the future tax consequences of events that have been recognized in our
financial statements or tax returns. Fluctuations in the actual outcome of these
future tax consequences could materially impact our financial position or our
results of operations.

The Company has adopted Financial Accounting Standards Board ("FASB")
Interpretation No. 48 ("FIN 48"), - "Accounting for Uncertainty in Income Taxes
- an interpretation of FASB Statement No. 109". FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an enterprise's financial
statements in accordance with FASB statement 109, "Accounting for Income Taxes",
and 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 review of prior year tax positions using the criteria and
provisions presented in FIN 48 did not result in a material impact on the
Company's financial position or results of operations.

Stock-Based Compensation
-------------------------
Effective September 1, 2006, we adopted SFAS No. 123R using the modified
prospective method. Under this method, compensation costs includes: (1)
compensation cost for all share-based payments granted prior to, but not yet
vested as of September 1, 2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS No. 123 amortized over the
options' vesting period, and (2) compensation cost for all share-based payments
granted subsequent to September 1, 2006, based on the grant-date fair value
estimated in accordance with the provisions of SFAS No. 123R, amortized on a
straight-line basis over the options' vesting period.

Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Simulations Plus,
Inc. and its wholly owned subsidiary, Words+, Inc. All significant intercompany
accounts and transactions are eliminated in consolidation.


                                       19


<page>

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

ITEM 7.  FINANCIAL STATEMENTS

The responses to this item are included elsewhere in this Form 10-KSB (see pages
F-1 - F-25) and incorporated herein by reference.

ITEM     8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

           None.

ITEM 8A. CONTROLS AND PROCEDURES

Please see the disclosure below in Item 8A(T) Controls and Procedures.

ITEM 8A(T).  CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to ensure that material
information related to our company is recorded, processed, summarized and
reported within the time periods specified in the SEC rules and forms.

As of the end of the period covered by this report, we carried out an evaluation
under the supervision and with the participation of our Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon
that evaluation, our CEO and CFO concluded, as of the date of such evaluation,
that our disclosure controls and procedures were effective.

Management's Report on Internal Control over Financial Reporting
----------------------------------------------------------------

Our management is responsible for establishing and maintaining adequate internal
controls over financial reporting, as defined in Exchange Act Rule 13a-15(f).
Our internal controls over financial reporting are designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of consolidated financial statements for external purposes in
accordance with generally accepted accounting principles.

Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we conducted an
evaluation of the effectiveness of our internal controls over financial
reporting based on the framework established by the Committee of Sponsoring
Organizations for the Treadway Commission. Based on our evaluation under the
framework, including the completion and review of internal review assessment
forms and the completion and review of financial reporting information systems
and controls checklists in the framework, our management concluded that our
internal control over financial reporting was effective as of August 31, 2008.


                                       20


<page>

This annual report does not include an attestation report of our independent
registered public accounting firm regarding internal controls over financial
reporting. Our management's report was not subject to attestation by our
independent registered public accounting firm pursuant to temporary rules of the
SEC that permit us to provide only management's report in this annual report.

No changes were made in our internal controls over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most
recent fiscal quarter that have materially affected or are reasonably likely to
materially affect, our internal controls over financial reporting.

Our management, including our CEO and CFO, does not expect that our disclosure
controls or internal controls over financial reporting will prevent all errors
or all instances of fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the control
system's objectives will be met. Further, the design of a control system must
reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within our company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple errors or mistakes. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and any design may not succeed in achieving its stated goals
under all potential future conditions. Over time, controls may become inadequate
because of changes in conditions or deterioration in the degree of compliance
with policies or procedures. Because of the inherent limitation of a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.

ITEM 8B.   OTHER INFORMATION.

           Not applicable.


                                       21


<page>

                                    PART III

ITEM 9.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
           SECTION 16(a) OF THE EXCHANGE ACT

The information required by Item 9 is incorporated by reference from the
Company's definitive proxy statement (the "Proxy Statement") for its 2009 Annual
Shareholders' Meeting.

ITEM 10.   EXECUTIVE COMPENSATION

The information required by Item 10 is incorporated by reference from the
Company's Proxy Statement for its 2009 Annual Shareholders' Meeting.

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 11 is incorporated by reference from the
Company's Proxy Statement for its 2009 Annual Shareholders' Meeting.

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 12 is incorporated by reference from the
Company's Proxy Statement for its 2009 Annual Shareholders' Meeting.

ITEM 13.   EXHIBITS

(a)        The following exhibits are filed as part of this report as required
           by Item 601 of Regulation S-B:

EXHIBIT
NUMBER                          DESCRIPTION

3.1        Articles of Incorporation of the Registrant (1)
3.2        Amended and Restated Bylaws of the Registrant (1)
4.1        Articles of Incorporation of the Registrant (incorporated by
           reference to Exhibit 3.1 hereof) and Bylaws of the Registrant
           (incorporated by reference to Exhibit 3.2 hereof)
4.2        Form of Common Stock Certificate (1)
4.3        Share Exchange Agreement (1)
10.1       Simulations Plus, Inc. 1996 Stock Option Plan (the "Option Plan") and
           terms of agreements relating thereto (1)+
10.2       Subscription Agreement with Patricia Ann O'Neil (1)
10.3       Security Agreement with Patricia Ann O'Neil (1)
10.4       Promissory Note made by the Registrant in favor of Patricia Ann
           O'Neil (1)
10.5       Warrants to purchase 150,000 shares of Common Stock of the Registrant
           issued to Patricia Ann O'Neil (1)
10.6       First Amendment to Agreement with Patricia Ann O'Neil (1)
10.7       Subscription Agreement with Fernando Zamudio (1)
10.8       Security Agreement with Fernando Zamudio (1)
10.9       Promissory Note made by the Registrant in favor of Fernando Zamudio
           (1)
10.10      Warrant to purchase 100,000 shares of Common Stock of the Registrant
           issued to Fernando Zamudio (1)
10.11      Employment Agreement by and between the Registrant and Walter S.
           Woltosz (1) +


                                       22


<page>

10.12      Performance Warrant Agreement by and between the Registrant and
           Walter S. Woltosz + Virginia E. Woltosz (2) +
10.13      Software Acquisition Agreement by and Between the Registrant and
           Michael B. Bolger (1)
10.14      Sublease Agreement dated May 7, 1993 by and between the Registrant
           and Westholme Partners (along with Consent to Sublease and master
           lease agreement) (1)
10.15      Lease Agreements dated August 22, 1996 by and between Words+, Inc.
           and Abbey-Sierra LLC (1)
10.16      Form of 10% Amended and Restated Promissory Note issued in connection
           with the Registrant's Private Placement (2)
10.17      Form of Subscription Agreement relative to the Registrant's Private
           Placement (1)
10.18      Form of Lock-Up Agreement with Bridge Lenders (2)
10.19      Form of Indemnification Agreement (1)
10.20      Form of Lock-Up Agreement with the Woltosz' (2)
10.21      Letter of Intent by and between the Registrant and Therapeutic
           Systems Research Laboratories (1)
10.22      Form of Representative's Warrant to be issued by the Registrant in
           favor of the Representative (2)
10.23      Form of Warrant issued to Bridge Lenders (2)
10.24      License Agreement by and between the Registrant and Therapeutic
           Systems Research Laboratories (3)
10.25      Grant Award Letter from National Science Foundation (4)
10.26      Distribution Agreement with Teijin Systems Technology LTD. (4)
10.27      Lease Agreements by and between Simulations Plus, Inc. and Martin
           Properties, Inc. (4)
10.28      Software OEM Agreement for Assistive Market Developer by and between
           Words+, Inc. and Digital Equipment Corporation. (4)
10.29      Purchase Agreement by and between Words+, Inc. and Epson America,
           Inc. (4)
10.30      License Agreement with Absorption Systems, LP. (5)
10.31      Service contract with The Kriegsman Group. (5)
10.32      Letter of Engagement with Banchik & Associates.  (5)
10.33      Letter of Intent for Cooperative Alliance with Absorption Systems,
           LP. (5)
10.34      OEM/Remarketing Agreement between Words+, Inc. and Eloquent
           Technology, Inc. (6)
10.35      Lease Option Agreement by and between Simulations Plus, Inc. and
           Martin Properties, Inc. (8)

10.36      Auto Rental Lease Agreement by and between Simulations Plus, Inc. and
           Walter and Virginia Woltosz (8)

10.37      Registration Statement - 1,250,000 shares of the Company's 1996 Stock
           Options. (9)
10.38      Employment Agreement by and between the Company and Walter S. Woltosz
           (10)
10.39      An addendum to Lease Agreement (11)
10.40      Business Lending Agreement with Wells Fargo Bank (11)
10.41      Technology Transfer Agreement with Sam Communications, LLC. (12)
10.42      Employment Agreement by and between the Company and Walter S. Woltosz
           (14)
10.43      Lease Agreement by and between Simulations Plus, Inc. and Venture
           Freeway, LLC. (15)
10.44      Employment Agreement by and between the Company and Walter S. Woltosz
           (16)
31.1       Section 302 - Certification of Chief Executive Officer (CEO). (17)
31.2       Section 302 - Certification of Chief Financial Officer (CFO). (17)
32         Section 906 - Certification of CEO and CFO. (17)


                                       23


<page>

--------------------------------------------------------------------------------

(1)        Incorporated by reference to the Company's Registration Statement on
           Form SB-2 (Registration No. 333-6680) filed on March 25, 1997 (the
           "Registration Statement").
(2)        Incorporated by reference to Pre-Effective Amendment No. 1 to the
           Registration Statement filed on May 27, 1997.
(3)        Incorporated by reference to the Company's Form 10-KSB for the fiscal
           year ended August 31, 1997.
(4)        Incorporated by reference to the Company's Form 10-KSB for the fiscal
           year ended August 31, 1998.
(5)        Incorporated by reference to the Company's Form 10-KSB for the fiscal
           year ended August 31, 1999.
(6)        Incorporated by reference to the Company's Form 10-KSB for the fiscal
           year ended August 31, 2000.
(7)        Incorporated by reference to the Company's Form 8-K filed on March 1,
           2001.
(8)        Incorporated by reference to the Company's Form 10-KSB for the fiscal
           year ended August 31, 2001.
(9)        Incorporated by reference to the Company's Registration Statement on
           Form S-8 (Registration No. 333-91592) filed on June 28, 2002 (the
           "Registration Statement").
(10)       Incorporated by reference to the Company's Form 10-KSB for the fiscal
           year ended August 31, 2002.
(11)       Incorporated by reference to the Company's Form 10-KSB for the fiscal
           year ended August 31, 2003.
(12)       Incorporated by reference to the Company's Form 8-K filed on December
           29, 2003.
(13)       Incorporated by reference to the Company's Form 10-KSB for the fiscal
           year ended August 31, 2004.
(14)       Incorporated by reference to the Company's Form 10-KSB for the fiscal
           year ended August 31, 2005.
(15)       Incorporated by reference to the Company's Form 10-KSB for the fiscal
           year ended August 31, 2006.
(16)       Incorporated by reference to the Company's Form 10-KSB for the fiscal
           year ended August 31, 2007
(17)       Filed herewith.


(b)        Reports on Form 8-K

         None.


                                       24


<page>

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

The Company incurred the following fees to Rose, Snyder & Jacobs for services
rendered during the fiscal year ended August 31, 2008 and 2007:

         Fee Category                       FY08 Fees       FY07 Fees
         ------------                      -----------     -----------

         Audit fees                        $    74,010     $    67,845
         Tax fees                               15,880          10,030
         All other fees                             --              --
                                           -----------     -----------
                        Total fees         $    89,890     $    77,875
                                           -----------     -----------

         AUDIT FEES - Consists of fees incurred for professional services
         rendered for the audit of Simulations Plus, Inc.'s consolidated
         financial statements and for reviews of the interim consolidated
         financial statements included in our quarterly reports on Form 10-QSB
         and consents for filings with the SEC.

         TAX FEES - Consists of fees billed for professional services relating
         to tax compliance, tax reporting, and tax advice.

         ALL OTHER FEES - Consists of fees billed for all other services.


                                       25


<page>

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Lancaster, State of California, on
November 26, 2008.

                                             SIMULATIONS PLUS, INC.


                                             By: /s/ MOMOKO A. BERAN
                                                 -------------------------------
                                                     Momoko A. Beran
                                                     Chief Financial Officer


In accordance with Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities
indicated on November 26, 2008.


                SIGNATURE                               TITLE


         /s/ WALTER S. WOLTOSZ            Chairman of the Board of Directors
----------------------------------------  and Chief Executive Officer
             Walter S. Woltosz


         /s/ VIRGINIA E. WOLTOSZ
----------------------------------------
             Virginia E. Woltosz          Secretary and Director of the Company


         /s/ DR. DAVID Z. D'ARGENIO
----------------------------------------
             Dr. David Z. D'Argenio Director


         /s/ DR. RICHARD R. WEISS
----------------------------------------
             Dr. Richard R. Weiss Director


         /s/ HAROLD W. ROSENBERGER
----------------------------------------
             Harold W. Rosenberger        Director


         /s/ MOMOKO A. BERAN
----------------------------------------
             Momoko A. Beran              Chief Financial Officer of the Company


                                       26


<page>


                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                                                        CONTENTS
                                                                 AUGUST 31, 2008

--------------------------------------------------------------------------------


                                                                            Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                     F2

CONSOLIDATED FINANCIAL STATEMENTS

     Consolidated Balance Sheet                                         F3 - F4

     Consolidated Statements of Operations                                 F5

     Consolidated Statements of Shareholders' Equity                       F6

     Consolidated Statements of Cash Flows                              F7 - F8

     Notes to Consolidated Financial Statements                       F9 - F25



                                       F-1


<page>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Shareholders of
Simulations Plus, Inc.
Lancaster, California


    We have audited the accompanying consolidated balance sheet of Simulations
Plus, Inc (a California corporation) and Subsidiary as of August 31, 2008 and
the related consolidated statements of operations, shareholders' equity and cash
flows for the years ended August 31, 2008 and 2007. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

    We conducted our audits in accordance with the standards established by the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Simulation Plus, Inc. and Subsidiary as of August 31, 2008, and the consolidated
results of their operations and their cash flows for the years ended August 31,
2008 and 2007 in conformity with accounting principles generally accepted in the
United States of America.



Rose, Snyder & Jacobs
A Corporation of Certified Public Accountants

Encino, California

November 21, 2008





                                       F-2


<page>

<TABLE>
<CAPTION>
<S>     <C>
                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                                      CONSOLIDATED BALANCE SHEET
                                                                 August 31, 2008

                                     ASSETS

CURRENT ASSETS
     Cash and cash equivalents (note 3)                               $ 5,889,601
     Accounts receivable, net of allowance for doubtful accounts
         and estimated contractual discounts of $319,609 (note 4)       2,105,074
     Inventory (note 5)                                                   342,051
     Prepaid expenses and other current assets                            195,330
     Deferred tax asset                                                   318,400
                                                                      -----------

            Total current assets                                        8,850,456

INVESTMENT (note 6)                                                       750,000
CAPITALIZED COMPUTER SOFTWARE DEVELOPMENT COSTS,
     net of accumulated amortization of $3,324,328                      1,788,756
PROPERTY AND EQUIPMENT, net (note 7)                                      102,633
CUSTOMER RELATIONSHIPS, (note 14)
     net of accumulated amortization of $85,029                            43,013
OTHER ASSETS                                                               18,445
                                                                      -----------

                TOTAL ASSETS                                          $11,553,303
                                                                      ===========






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

                                       F-3


<page>

                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                                      CONSOLIDATED BALANCE SHEET
                                                                 August 31, 2008

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable                                                 $   181,230
     Accrued payroll and other expenses                                   537,363
     Accrued bonuses to officers                                           60,000
     Accrued warranty and service costs                                    33,899
     Deferred revenue                                                      83,333
                                                                      -----------

         Total current liabilities                                        895,825

LONG-TERM LIABILITIES
     Deferred tax liability                                               742,400
                                                                      -----------

            Total liabilities                                           1,638,225
                                                                      -----------

COMMITMENTS AND CONTINGENCIES (note 8)

SHAREHOLDERS' EQUITY (note 9)
     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
         16,297,400 shares issued and outstanding                           4,769
     Additional paid-in capital                                         6,328,185
     Retained Earnings                                                  3,582,124
                                                                      -----------

            Total shareholders' equity                                  9,915,078
                                                                      -----------

                TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY            $11,553,303
                                                                      ===========






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

                                       F-4


<page>

                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                                  For the Years Ended August 31,



                                                     2008              2007
                                                ------------      ------------

NET SALES                                       $  8,967,970      $  8,857,810
COST OF SALES                                      2,100,055         2,082,291
                                                ------------      ------------

GROSS PROFIT                                       6,867,915         6,775,519
                                                ------------      ------------

OPERATING EXPENSES
     Selling, general, and administrative          3,699,273         3,457,766
     Research and development                        990,491           814,946
                                                ------------      ------------

        Total operating expenses                   4,689,764         4,272,712
                                                ------------      ------------

INCOME FROM OPERATIONS                             2,178,151         2,502,807
                                                ------------      ------------

OTHER INCOME (EXPENSE)
     Interest income                                 185,399           114,371
     Interest expense                                    (68)             (135)
     Miscellaneous income                                 36               917
     Gain on sale of assets                               --             4,274
     Gain on currency exchange                        82,659             2,264
                                                ------------      ------------

        Total other income                           268,026           121,691
                                                ------------      ------------

INCOME BEFORE INCOME TAXES                         2,446,177         2,624,498

BENEFIT FROM (PROVISION FOR) INCOME TAXES
     Deferred income tax                            (437,400)       (1,087,100)
     Income tax                                     (283,208)          (71,300)
                                                ------------      ------------

        Total provision for income taxes            (720,608)       (1,158,400)
                                                ------------      ------------

NET INCOME                                      $  1,725,569      $  1,466,098
                                                ============      ============

BASIC EARNINGS PER SHARE                        $       0.11      $       0.10
                                                ============      ============

Diluted earnings per share                      $       0.10      $       0.08
                                                ============      ============

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING*
     BASIC                                        16,133,822        15,275,429
                                                ============      ============

     DILUTED                                      18,141,287        17,956,796
                                                ============      ============

*       The numbers of shares at August 31, 2007 reflect the 2-for-1 stock split
        which occurred on October 1, 2007.

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

                                       F-5


<page>

                                                              SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                                    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                                     For the Years Ended August 31,


                                    Common Stock           Additional    Accumulated
                             ------------------------        Paid-In       Earnings
                               Shares*         Amount        Capital       (Deficit)       Total
                             ----------     ----------     ----------     ----------     ----------
BALANCE, AUGUST
   31, 2006                  14,882,992     $    3,794     $5,274,314     $  390,457     $5,668,565

SHARES ISSUED UPON
   EXERCISE OF STOCK
   OPTIONS                      878,408            439        512,860                       513,299

STOCK-BASED COMPENSATION                                       16,646                        16,646

NET INCOME                                                                 1,466,098      1,466,098
                             ----------     ----------     ----------     ----------     ----------

BALANCE, AUGUST
   31, 2007                  15,761,400          4,233      5,803,820      1,856,555      7,664,608

SHARES ISSUED UPON
   EXERCISE OF STOCK
   OPTIONS                      536,000            536        434,157                       434,693

STOCK-BASED COMPENSATION                                       90,208                        90,208

NET INCOME                                                                 1,725,569      1,725,569
                             ----------     ----------     ----------     ----------     ----------

BALANCE, AUGUST
   31, 2008                  16,297,400     $    4,769     $6,328,185     $3,582,124     $9,915,078
                             ==========     ==========     ==========     ==========     ==========



   *   The numbers of shares at August 31, 2007 and 2006 reflect the 2-for-1
       stock splits which occurred on both October 1, 2007 and August 14, 2006.

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

                                       F-6


<page>

                                                         SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                For the Years Ended August 31,



                                                                      2008             2007
                                                                   -----------      -----------
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                     $ 1,725,569      $ 1,466,098
    Adjustments to reconcile net income to net cash
      provided by operating activities
         Depreciation and amortization of property and
           equipment                                                    50,997           50,913
         Amortization of customer relationships                         25,683           31,668
         Amortization of capitalized software development cost         466,735          429,867
         Bad debts write offs                                           62,947           62,947
         Stock-based compensation                                       90,208           16,645
         Contribution of equipments                                         --              774
         (Gain) on sale of assets                                           --           (4,274)
         Deferred income taxes                                         437,400        1,087,100

         (Increase) decrease in assets
           Accounts receivable                                         (60,349)        (350,673)
           Inventory                                                   (92,924)           6,134
           Other assets                                               (121,661)           7,627
         Increase (decrease) in liabilities
           Accounts payable                                            (20,016)         (14,172)
           Accrued payroll and other expenses                           45,751          126,700
           Accrued bonuses to officers                                (141,289)         102,536
           Accrued income taxes                                        (71,300)          69,700
           Accrued warranty and service costs                           (4,269)           3,416
           Deferred revenue                                             83,333         (129,461)
                                                                   -----------      -----------

              Net cash provided by operating activities              2,476,815        2,963,545
                                                                   -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchases of property and equipment                                (81,940)         (47,507)
    Investment on securities                                          (750,000)              --
    Proceeds from sale of assets                                            --            6,575
    Capitalized computer software development costs                   (727,681)        (583,235)
                                                                   -----------      -----------

              Net cash used in investing activities                 (1,559,621)        (624,167)
                                                                   -----------      -----------

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from the exercise of stock options                        434,693          513,300
                                                                   -----------      -----------




                                       F-7


<page>

                                                          SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                 For the Years Ended August 31,
                                                                                    (CONTINUED)



              Net cash provided by financing activities                434,693          513,300
                                                                   -----------      -----------

                Net increase in cash and cash
                  equivalents                                      $ 1,351,887      $ 2,852,678

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                         4,537,714        1,685,036
                                                                   -----------      -----------

CASH AND CASH EQUIVALENTS, END OF YEAR                             $ 5,889,601      $ 4,537,714
                                                                   ===========      ===========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

    INTEREST PAID                                                  $        68      $       135
                                                                   ===========      ===========

    INCOME TAXES PAID                                              $   450,000      $     1,600
                                                                   ===========      ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>

                                       F-8


<page>


                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 AUGUST 31, 2008
-------------------------------------------------------------------------------

NOTE 1 - ORGANIZATION AND LINES OF BUSINESS

         Organization
         ------------
         Simulations Plus, Inc. was incorporated on July 17, 1996. On August 29,
         1996, the shareholders of Words+, Inc. exchanged their 2,000 shares of
         Words+, Inc. common stock for 2,200,000 (Pre-split) shares of
         Simulations Plus, Inc. common stock, and Words+, Inc. became a wholly
         owned subsidiary of Simulations Plus, Inc. (collectively, the
         "Company").

         Lines of Business
         -----------------
         The Company designs and develops pharmaceutical simulation software to
         promote cost-effective solutions to a number of problems in
         pharmaceutical research and in the education of pharmacy and medical
         students. The Company also develops and sells interactive, educational
         software programs that simulate science experiments conducted in middle
         school, high school, and junior college science classes. In addition,
         the Company's subsidiary designs and develops computer software and
         manufactures augmentative communication devices and computer access
         products that provide a voice for those who cannot speak and allow
         physically disabled persons to operate a standard computer, as well as
         Abbreviate!, a productivity software product for the commercial market.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

         Principles of Consolidation
         ---------------------------
         The consolidated financial statements include the accounts of
         Simulations Plus, Inc. and its wholly owned subsidiary, Words+, Inc.
         All significant intercompany accounts and transactions are eliminated
         in consolidation.

         Revenue Recognition
         -------------------
         The Company recognizes revenues related to software licenses and
         software maintenance in accordance with the American Institute of
         Certified Public Accountants ("AICPA") Statements of Position (SOP) No.
         97-2, "Software Revenue Recognition." Software products revenue is
         recorded when the following conditions are met: 1) evidence of
         arrangement exists, 2) delivery has been made, 3) the amount is fixed,
         and 4) collectibility is probable. Post-contract customer support
         ("PCS") obligations are insignificant; therefore, revenue for PCS is

                                       F-9


<page>


                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 AUGUST 31, 2008
-------------------------------------------------------------------------------

         recognized at the same time as the licensing fee, and the costs of
         providing such support services are accrued and amortized over the
         obligation period. For Words+ products, the revenue is recorded at the
         time of shipment, net of estimated allowances and returns.

         As a byproduct of ongoing improvements and upgrades for the new
         programs and new modules of software, some modifications are provided
         to customers who have already purchased software at no additional
         charge. Other software modifications result in new, additional cost
         modules that expand the functionality of the software. These are
         licensed separately. We consider the modifications that are provided
         without charge to be minimal, as they do not significantly change the
         basic functionality or utility of the software, but rather add
         convenience, such as being able to plot some additional variable on a
         graph in addition to the numerous variables that had been available
         before, or adding some additional calculations to supplement the
         information provided from running the software. Such software
         modifications for any single product have typically occurred once or
         twice per year, sometimes more, sometimes less. Thus, they are
         infrequent. The Company provides, for a fee, additional training and
         service calls to its customers and recognizes revenue at the time the
         training or service call is provided.

         Generally, we enter into one-year license agreements with customers for
         the use of our pharmaceutical software products. We recognize revenue
         on these contracts when all the criteria under SOP 97-2 are met.

         Most license agreements have a term of one year; however, from time to
         time, we enter into multi-year license agreements. We generally unlock
         and invoice software one year at a time for multi-year licenses.
         Therefore, revenue is recognized one year at a time.

         Cash and Cash Equivalents
         -------------------------
         For purposes of the statements of cash flows, the Company considers all
         highly liquid investments purchased with original maturities of three
         months or less to be cash equivalents.

         Inventory
         ---------
         Inventory is stated at the lower of cost (first-in, first-out basis) or
         market and consists primarily of computers and peripheral computer
         equipment.

         Capitalized Computer Software Development Costs
         -----------------------------------------------
         Software development costs are capitalized in accordance with SFAS No.
         86, "Accounting for the Cost of Computer Software to be Sold, Leased,
         or Otherwise 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 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

                                      F-10


<page>

                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 AUGUST 31, 2008
-------------------------------------------------------------------------------


         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.

         Amortization of capitalized software development costs is provided 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 $466,735 and $429,867 for the
         years ended August 31, 2008 and 2007, respectively. We expect future
         amortization expense to vary due to increases in capitalized computer
         software development costs.

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

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

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

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

         Fair Value of Financial Instruments
         -----------------------------------
         For certain of the Company's financial instruments, including cash and
         cash equivalents, accounts receivable, accounts payable, accrued
         payroll and other expenses, accrued bonuses to officers, and accrued
         warranty and service costs, the carrying amounts approximate fair value
         due to their short maturities.

         Advertising
         -----------
         The Company expenses advertising costs as incurred. Advertising costs
         for the years ended August 31, 2008 and 2007 were $10,000 and $13,000,
         respectively.

         Shipping and Handling
         ---------------------
         Shipping and handling costs are recorded as cost of sales and amounted
         to $107,000 and $99,000 for the years ended August 31, 2008 and 2007,
         respectively.

         Research and Development Costs
         ------------------------------
         Research and development costs are charged to expense as incurred until
         technological feasibility has been established. These costs consist
         primarily of salaries and direct payroll-related costs. It also
         includes purchased software which was developed by other companies and
         incorporated into, or used in the development of, our final products.


                                      F-11


<page>


                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 AUGUST 31, 2008
-------------------------------------------------------------------------------

         Income Taxes
         ------------
         The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which
         requires the recognition of deferred tax assets and liabilities for the
         expected future tax consequences of events that have been included in
         the financial statements or tax returns.

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

         In June 2006, the Financial Accounting Standards Board ("FASB) issued
         FASB interpretation No. 48, "Accounting for Uncertainty in Income Taxes
         - an Interpretation of FASB Statement No. 109" ("FIN 48"), which
         clarifies the accounting for uncertainty in income tax positions. The
         provisions of FIN 48 are effective for the Company on September 1,
         2007, with the cumulative effect of the change in accounting principle,
         if any, recorded as an adjustment to opening retained earnings. We have
         reviewed all accounts that create a deferred tax asset or liability
         which may have the impact, and the balance in those account should not
         be deferred for tax purposes are included as income for tax purposes,
         thus increasing taxable income and creating a deferred tax benefit for
         the following year. We have also reviewed the matter of research and
         development credit ("R&D credit"). After evaluating the adoption of FIN
         48, we believe that the adoption did not have a material impact on our
         consolidated financial statements.

         At the end of fiscal year 2007, we recorded $1,158,400 in deferred tax
         assets. For fiscal year 2008, we recorded a provision for deferred
         taxes in the amount of $720,608, resulting in a net deferred tax
         liability of $424,000 at August 31, 2008. The evaluation of the
         deferred tax assets is based on our history of generating taxable
         profits and our projections of future profits, as well as expected
         future tax rates. As of August 31, 2007 and 2008, we have determined
         that it is more likely than not that the deferred tax assets will be
         realized. As such, no valuation allowance was recorded against the
         deferred tax assets. Significant judgment is required in these
         evaluations, and differences in future results from our estimates could
         result in material differences in the realization of these assets.

         Earnings per Share
         ------------------
         The Company reports earnings per share in accordance with SFAS No. 128,
         "Loss per Share." Basic earnings per share is computed by dividing
         income available to common shareholders by the weighted-average number
         of common shares available. Diluted earnings per share is computed
         similar to basic earnings per share except that the denominator is
         increased to include the number of additional common shares that would

                                      F-12


<page>


                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 AUGUST 31, 2008
-------------------------------------------------------------------------------



         have been outstanding if the potential common shares had been issued
         and if the additional common shares were dilutive. The components of
         basic and diluted earnings per share for the years ended August 31,
         2008 and 2007 were as follows:

<TABLE>
<CAPTION>
<S>     <C>

                                                                                      2008               2007
                                                                                ---------------    ----------------
         Numerator
              Net income attributable to common shareholders                    $     1,725,569    $      1,466,098
                                                                                ===============    ================

         Denominator
              Weighted-average number of common shares
                      outstanding during the year*                                   16,133,822          15,275,429
              Dilutive effect of stock options*                                       2,007,465           2,681,367
                                                                                ---------------    ----------------

         COMMON STOCK AND COMMON STOCK
              EQUIVALENTS USED FOR DILUTED EARNINGS PER SHARE*                       18,141,287          17,956,796
                                                                                ===============    ================
</TABLE>

         * The numbers of shares at August 31, 2007 reflect a 2-for-1 stock
         split on October 1, 2007.

         Stock-Based Compensation
         ------------------------
         Effective September 1, 2006, we adopted SFAS No. 123R using the
         modified prospective method. Under this method, compensation costs
         include: (1) compensation cost for all share-based payments granted
         prior to, but not yet vested as of September 1, 2006, based on the
         grant date fair value estimated in accordance with the original
         provisions of SFAS No. 123 amortized over the options' vesting period,
         and (2) compensation cost for all share-based payments granted
         subsequent to September 1, 2006, based on the grant-date fair value
         estimated in accordance with the provisions of SFAS No. 123R, amortized
         on a straight-line basis over the options' vesting period. Stock-based
         compensation were $90,208 and $16,645 for the years ended August 31,
         2008 and 2007, respectively, and are included in the condensed
         consolidated statements of operations as Consulting, Salaries, and
         Research and development expense.

         Concentrations and Uncertainties
         --------------------------------
         International sales accounted for 38% and 37% of net sales for the
         years ended August 31, 2008 and 2007, respectively. For Simulations
         Plus, Inc., two customers accounted for 16% (a dealer account
         representing various customers) and 14% of net sales for the year ended
         August 31, 2008. For the year ended August 31, 2007, the same customers
         accounted for 17% (a dealer account representing various customers) and
         10% of net sales. For Words+, Inc., one government agency accounted for
         21% and 25% of net sales during the years ended August 31, 2008 and
         2007, respectively.

         The Company operates in the computer software industry, which is highly
         competitive and changes rapidly. The Company's operating results could
         be significantly affected by its ability to develop new products and
         find new distribution channels for new and existing products.


                                      F-13


<page>


                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 AUGUST 31, 2008
-------------------------------------------------------------------------------


         For Simulations Plus, three customers comprised of 25%, 17% and 17% of
         accounts receivable at August 31, 2008. Two customers comprised 26% and
         18% of accounts receivable at August 31, 2007. For Words+, one
         government agency comprised 34% and 29% of accounts receivable at
         August 31, 2008 and 2007, respectively.

         The Company's subsidiary, Words+, Inc., purchases components for the
         main computer products from three manufacturers. Words+, Inc. also uses
         a number of pictographic symbols that are used in its software products
         which are licensed from a third party. The inability of the Company to
         obtain computers used in its products or to renew its licensing
         agreement to use pictographic symbols could negatively impact the
         Company's financial position, results of operations, and cash flows.

         Recently Issued Accounting Standards
         ------------------------------------

         In September 2006, the FASB issued SFAS No. 157, "Fair Value
         Measurements" ("SFAS 157"), which defines fair value, establishes a
         framework for measuring fair value and expands disclosures about fair
         value measurements. For financial assets and liabilities, SFAS 157 will
         be effective for the Company in the first fiscal quarter of 2009. As
         permitted by FSP-FAS 157-2, SFAS 157 is effective for nonfinancial
         assets and liabilities for the Company during the first fiscal quarter
         of 2010. Management believes the adoption of SFAS 157 for its financial
         assets and liabilities will not have a material impact on the Company's
         consolidated financial statements and continues to evaluate the
         potential impact of the adoption of SFAS 157 related to its
         nonfinancial assets and liabilities.

         In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
         for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159
         permits companies to choose to measure many financial instruments and
         certain other items at fair value. SFAS 159 will be effective for the
         Company in the first fiscal quarter of 2009. The Company believes the
         adoption of SFAS 159 will not have a material impact on the Company's
         consolidated financial statements.

         In December 2007, the FASB issued SFAS No. 141 (revised 2007),
         "Business Combinations" ("SFAS 141R"), which replaces SFAS 141. SFAS
         141R establishes principles and requirements for how an acquirer
         recognizes and measures in its financial statements the identifiable
         assets acquired, the liabilities assumed, any resulting goodwill, and
         any noncontrolling interest in the acquiree. SFAS 141R also provides
         for disclosures to enable users of the financial statements to evaluate
         the nature and financial effects of the business combination. SFAS 141R
         will be effective for the Company in first fiscal quarter of 2010 and
         must be applied prospectively to business combinations completed on or
         after that date.

         In December 2007, the FASB issued SFAS No. 160, "Noncontrolling
         Interests in Consolidated Financial Statements -- an amendment of
         Accounting Research Bulletin No. 51" ("SFAS 160"), which establishes
         accounting and reporting standards for noncontrolling interests
         ("minority interests") in subsidiaries. SFAS 160 clarifies that a
         noncontrolling interest in a subsidiary should be accounted for as a
         component of equity separate from the parent's equity. SFAS 160 will be

                                      F-14


<page>


                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 AUGUST 31, 2008
-------------------------------------------------------------------------------



         effective for the Company in the first fiscal quarter of 2010 and must
         be applied prospectively, except for the presentation and disclosure
         requirements, which will apply retrospectively. The Company is
         currently evaluating the potential impact that adoption of SFAS 160 may
         have on its consolidated financial statements.

         In March 2008, the FASB issued SFAS No. 161, "Disclosures about
         Derivative Instruments and Hedging Activities -- an amendment of FASB
         Statement No. 133" ("SFAS 161"), which requires enhanced disclosures
         about an entity's derivative and hedging activities. SFAS 161 will be
         effective for The Company second fiscal quarter of 2009.

         In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting
         for Defined Benefit Pension and Other Postretirement Plans - an
         amendment of FASB Statements No. 87, 88, 106, and 132(R)", ("SFAS
         158"), which requires the recognition of the overfunded or underfunded
         status of a defined benefit postretirement plan in a company's balance
         sheet. This portion of the new guidance is effective on December 31,
         2006. Additionally, the pronouncement eliminates the option for
         companies to use a measurement date prior to their fiscal year-end
         effective December 31, 2008. Since we do not have any defined benefit
         pension or postretirement plans that are subject to SFAS 158, we do not
         expect the pronouncement to have a material impact on our consolidated
         financial statements.

         In September 2006, The Securities and Exchange Commission ("SEC")
         released Staff Accounting Bulletin No. 108, "Considering the Effects of
         Prior Year Misstatements when Quantifying Misstatements in Current Year
         Financial Statements" ("SAB 108"). SAB 108 provides interpretive
         guidance on the SEC's views on how the effects of the carryover or
         reversal of prior year misstatements should be considered in
         quantifying a current year misstatement. The provisions of SAB 108
         became effective for the Company for the fiscal year ended August 31,
         2007. We have evaluated the impact of applying SAB 108, and we believe
         that that adoption of SAB 108 did not have a material effect on our
         consolidated financial statements.

NOTE 3 - CASH AND CASH EQUIVALENTS

         The Company maintains cash deposits at banks located in California.
         Deposits at each bank are insured by the Federal Deposit Insurance
         Corporation up to $100,000 per company. At August 31, 2008, the
         uninsured portions aggregated to $5,556,960. The FDIC insurance limits
         were increased to $250,000 on October 10, 2008, and will stay in effect
         until December 31, 2009. The Company has not experienced any losses in
         such accounts and believes it is not exposed to any significant credit
         risk on cash and cash equivalents. However, considering the current
         banking environment, the Company is looking into alternative ways to
         minimize our exposure to such risks.

NOTE 4 - ACCOUNTS RECEIVABLE

         The Company maintains an allowance for doubtful accounts for estimated
         losses that may arise if any of its customers are unable to make
         required payments. Management specifically analyzes the age of customer

                                      F-15


<page>

                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 AUGUST 31, 2008
-------------------------------------------------------------------------------


         balances, historical bad debt experience, customer credit-worthiness,
         and changes in customer payment terms when making estimates of the
         collectibility of the Company's trade accounts receivable balances. If
         the Company determines that the financial conditions of any of its
         customers deteriorated, whether due to customer-specific or general
         economic issues, an increase in the allowance may be made. Accounts
         receivable are written off when all collection attempts have failed.
         The Company also estimates the contractual discount obligation for
         third party funding such as Medicare, Medicaid, and private insurance
         companies. Those estimated discounts are reflected in the allowance for
         doubtful accounts and contractual discounts.

NOTE 5 - INVENTORY

         Inventory is stated at the lower of cost (first-in, first-out basis) or
         market and consists primarily of computers and peripheral computer
         equipment.

NOTE 6 - INVESTMENT

         The Company purchased Auction Rated Securities ("ARS") through UBS
         Financial Services Inc. In light of the recent financial crisis, our
         current holdings of three notes at $250,000 each (2 Iowa student loans
         which matures December 1, 2043 and 1 Missouri higher education loan
         which matures June 1, 2031) lost their liquidities during this fiscal
         year 2008.

         On August 8, 2008, UBS announced a comprehensive settlement, in
         principle, to all who hold ARS, that they will buy back ARS, at par,
         from most clients during a two-year time period beginning January 2,
         2009.

         On October 7, 2008, UBS issued a prospectus informing us that we were
         being given an option either to keep the ARSs or sell them to UBS at
         the face value plus accrued interest. We exercised the option of
         selling them to UBS. We received a letter from UBS dated November 5,
         2008 stating that they accepted our exercise and will buy back our ARSs
         at their face value of $750,000 plus accrued interest. We are advised
         by our UBS account management that this buyback is expected after
         January 2, 2009.

NOTE 7 - PROPERTY AND EQUIPMENT

         Property and equipment at August 31, 2008 consisted of the following:

             Automobile                                          $   21,769
             Equipment                                              177,324
             Computer equipment                                     339,468
             Furniture and fixtures                                  61,498
             Leasehold improvements                                  53,898
                                                                 ----------
                                                                         635,957
             Less accumulated depreciation and amortization         551,324
                                                                 ----------
                 TOTAL                                           $  102,633
                                                                 ==========


                                      F-16


<page>


                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 AUGUST 31, 2008
-------------------------------------------------------------------------------


         Depreciation expense was $50,997 and $50,913 for the years ended August
         31, 2008 and 2007, respectively.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

         Leases
         At our location, we lease approximately 13,500 square feet of space
         under a five-year term with two (2), three (3)-year options to extend
         the lease. The base rent is $18,445 per month plus common area
         maintenance fees. The base rental rate increases at 4% annually. Rent
         expense, including common area maintenance fees, was $266,189 and
         $261,701 for the years ended August 31, 2008 and 2007, respectively.

         On October 30, 2006, the Company entered into an equipment lease
         agreement. In this agreement, the Company leased a Ricoh Copier/Printer
         for 36 months with the option of earlier termination with a 60-day
         written notice.

         Future minimum lease payments under non-cancelable operating leases
         with remaining terms of one year or more at August 31, 2008 were as
         follows:

                                  Years Ending
                                      August 31,     Operating Leases
                                    -------------    ---------------
                                            2009          244,987
                                            2010          254,787
                                            2011          107,890
                                                      -----------
                                                       $  607,664
                                                      ===========

         Employee Agreement
         ------------------
         On August 9, 2007, the Company entered into an employment agreement
         with its President/Chief Executive Officer that expires in August 2009.
         The employment agreement provides for an annual salary of $250,000. At
         the CEO's request, this new agreement does not include an annual bonus,
         which has ranged up to $150,000 in all previous agreements. Thus, a
         savings to the Company of up to $75,000 per year may be realized as a
         result of this new agreement. The agreement also provides that the
         Company may terminate the agreement upon 30 days' written notice if
         termination is without cause. The Company's only obligation would be to
         pay its President the greater of a) 12 months salary or b) the
         remainder of the term of the employment agreement from the date of
         notice of termination.

         License Agreement
         -----------------
         In 1997, the Company entered into an agreement with Therapeutic Systems
         Research Laboratory ("TSRL") to jointly develop a computer simulation
         software program of the absorption of drug compounds in the
         gastrointestinal tract. Upon execution of a definitive License
         Agreement on July 9, 1997, TSRL received an initial payment of $75,000,
         and thereafter, the company is obligated to pay a royalty of 20% of the
         net sales of the basic GastroPlus software without additional modules.


                                      F-17


<page>


                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 AUGUST 31, 2008
-------------------------------------------------------------------------------


         In September 2007, the Company entered into an agreement with Enslein
         Research, Inc. ("Enslein") to jointly create a new metabolism module as
         part of ADMET Predictor. The fee for the exclusive license to the
         Enslein Data, in the form of a royalty, is 50% of the gross sales
         revenues received by the Company, and a $50,000 bonus at the time the
         sale of ADMET Metabolism module reaches 25 annual licenses.

         For the years ended August 31, 2008 and 2007, Simulations Plus, Inc.
         paid royalties of approximately $375,000 and $344,000, respectively.

         The Company's subsidiary, Words+, Inc., entered into royalty agreements
         with several vendors to apply their software & technologies into the
         finished goods to be sold. For the years ended August 31, 2008 and
         2007, Words+ incurred such royalties of $42,775 and $37,350,
         respectively.

         Legal Matters
         --------------
         On April 6, 2006 we received notice from a liquidator for the former
         French subsidiary of Bioreason (Bioreason SARL), saying that the
         liquidator had initiated legal action against Simulations Plus in the
         French courts with respect to ClassPharmer distribution rights to
         European customers, and is claiming commissions and legal fees with
         respect to European customers. We filed a counterclaim for our rights
         and lost sales against Bioreason SARL's assets by sending a debt
         recovery declaration to the liquidator on June 15, 2006.

         On April 9, 2008, we received the approval of the settlement agreement
         from the commercial division of French Ordinary Court. This means that
         the settlement agreement is now enforceable, and this case is finally
         closed. Both parties dropped all claims and we are not liable for any
         amounts.


NOTE 9 - SHAREHOLDERS' EQUITY

         Stock Option Plan
 ------------------
         In September 1996, the Board of Directors adopted, and the shareholders
         approved, the 1996 Stock Option Plan (the "Option Plan") under which a
         total of 250,000 shares of common stock had been reserved for issuance.
         In March 1999, the shareholders approved an increase in the number of
         shares that may be granted under the Option Plan to 500,000. In
         February 2000, the shareholders approved an increase in the number of
         shares that may be granted under the Option Plan to 1,000,000. In
         December 2000, the shareholders approved an increase in the number of
         shares that may be granted under the Option Plan to 1,250,000.
         Furthermore, in February 2005, the shareholders approved an additional
         250,000 shares, resulting in the total number of shares that may be
         granted under the Option Plan to 1,500,000. All of the preceding
         numbers of options are based on numbers of options prior to the
         two-for-one stock split on August 14, 2006. The 1996 Stock Option Plan
         terminated in September 2006 by its term.


                                      F-18


<page>


                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 AUGUST 31, 2008
-------------------------------------------------------------------------------



         On February 23, 2007, the Board of Directors adopted and the
         shareholders approved the 2007 Stock Option Plan under which a total of
         500,000 shares of common stock had been reserved for issuance.

         The following table summarizes the stock option transactions. The
         numbers of options as of August 31, 2007 reflects a 2-for-1 stock split
         on October 1, 2007.


                        TRANSACTIONS IN FY 2007 AND 2008

                         Transactions in FY07
                         --------------------                  Weighted-Average
                                                   Number of    Exercise Price
                                                    Options        Per Share
                                                    -------        ---------

          Outstanding, August 31, 2006            4,080,144       $   0.67
                         Granted                    200,000       $   1.08
                         Exercised                 (878,408)      $   0.58
                         Expired/Canceled          (192,000)      $   1.08

          Outstanding, August 31, 2007            3,209,736       $   0.69
          Exercisable, August 31, 2007            3,039,736       $   0.68



              Transactions in FY08
              --------------------                  Weighted-Average
                                                    Number of    Exercise Price
                                                     Options        Per Share
                                                     -------        ---------

               Outstanding, August 31, 2007        3,209,736       $     0.69
                              Granted                287,000       $     3.01
                              Exercised            (536,000)       $     0.81
                              Expired/Canceled     (246,200)       $     0.64

               Outstanding, August 31, 2008        2,714,536       $     0.91
               Exercisable, August 31, 2008        2,300,536       $     0.66



                                      F-19


<page>


                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 AUGUST 31, 2008
-------------------------------------------------------------------------------


<TABLE>
<CAPTION>
<S>     <C>
                          OPTIONS OUTSTANDING & UNVESTED AT AUGUST 31, 2007 AND 2008

                                Options Outstanding & Unvested at August, 2007
                                ----------------------------------------------

                                                                         Remaining                Weighted
                                                       Number        Contractual Life           Average Fair
                                                     Outstanding         (in years)             Market Price
                                                     -----------         ----------             ------------
       Non Vested before 9/1/2006                       200,000                                    $  0.85
            Granted                                     200,000                                    $  1.08
            Vested                                      (40,000)                                   $  0.85
            Cancelled                                  (190,000)                                   $  1.08

       Non Vested at 08/31/2007                         170,000            8.12                    $  0.86


                              Options Outstanding & Unvested at August 31, 2008
                              -------------------------------------------------

                                                                         Remaining                Weighted
                                                       Number        Contractual Life           Average Fair
                                                     Outstanding         (in years)             Market Price
                                                     -----------         ----------             ------------
      Non Vested at 8/31/2007                          170,000                                     $  0.32
            Granted                                    287,000                                     $  2.23
            Vested                                     (42,000)                                    $  0.32
            Cancelled                                   (1,000)                                    $  2.27

       Non Vested at 8/31/2008                         414,000             5.65                    $  1.64
</TABLE>

         The fair value of the options granted during FY08 is estimated at
         $636,626. The fair value of these options was estimated at the date of
         grant using the Black-Scholes option-pricing model with the following
         weighted-average assumptions for the fiscal year ended August 31, 2008:
         dividend yield of 0%, expected volatility of 81.12%, risk-free interest
         rate of 3.74%, and expected life of 7 years. The weighted-average fair
         values of options granted during FY08 and FY07 were $2.22 and $0.41,
         respectively. The weighted-average exercise prices of options granted
         during FY08 and FY07 were $3.01, and $1.08, respectively. The total
         fair value of non-vested stock options as of August 31, 2008 was
         $772,327 and is amortizable over a weighted average period of 3.74
         years.

         The Black-Scholes option valuation model was developed for use in
         estimating the fair value of traded options, which do not have vesting
         restrictions and are fully transferable. In addition, option valuation
         models require the input of highly subjective assumptions, including
         the expected stock price volatility. Because the Company's employee
         stock options have characteristics significantly different from those
         of traded options, and because changes in the subjective input
         assumptions can materially affect the fair value estimate, in
         management's opinion, the existing models do not necessarily provide a
         reliable single measure of the fair value of its employee stock
         options.


                                                    F-20


<page>


                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 AUGUST 31, 2008
-------------------------------------------------------------------------------


         The weighted-average remaining contractual life of options outstanding
         issued under the Plan was 3.0 years at August 31, 2008. The exercise
         prices for the options outstanding at August 31, 2008 ranged from $0.26
         to $3.03, and the information relating to these options is as follows:

<TABLE>
<CAPTION>
<S>     <C>

        --------------------- ------------------------------------------ ------------------------------------------
           Exercise Price                Awards Outstanding                         Awards Exercisable
        ----------- --------- ------------- -------------- ------------- ------------- -------------- -------------
                                              Weighted                                   Weighted
                                               Average       Weighted                     Average       Weighted
           Low                                Remaining      Average                     Remaining      Average
                      High      Quantity     Contractual     Exercise      Quantity     Contractual     Exercise
                                                Life          Price                        Life          Price
        ----------- --------- ------------- -------------- ------------- ------------- -------------- -------------
             $0.26     $0.50       937,936      2.2 years         $0.37       937,936      2.2 years         $0.37
        ----------- --------- ------------- -------------- ------------- ------------- -------------- -------------
             $0.51     $0.75       811,500      1.4 years         $0.66       811,500      1.4 years         $0.66
        ----------- --------- ------------- -------------- ------------- ------------- -------------- -------------
             $0.76     $1.25       679,100      6.8 years         $1.09       551,100      6.7 years         $1.14
        ----------- --------- ------------- -------------- ------------- ------------- -------------- -------------
             $1.26     $3.03       286,000      9.5 years         $3.03             0
        ----------- --------- ------------- -------------- ------------- ------------- -------------- -------------
                                 2,714,536                                  2,300,536
        ----------- --------- ------------- -------------- ------------- ------------- -------------- -------------
</TABLE>

<TABLE>
<CAPTION>
<S>     <C>

                          Intrinsic Value of options outstanding and options exercisable

                     ----------------------------------------------------------------------------
                                    Intrinsic Value of   Intrinsic Value of    Intrinsic Value
                                                                                  of Options
                                    Options Outstanding  Options Exercisable      Exercised
                     -------------  -------------------- -------------------- -------------------
                     FY08                    $2,436,621           $2,685,289          $2,108,540
                     -------------  -------------------- -------------------- -------------------
                     FY07                   $19,495,723          $18,480,099          $3,894,166
                     ----------------------------------------------------------------------------
</TABLE>


         Other Stock Options
         -------------------
         As of August 31, 2008, the Board of Directors holds options to purchase
         58,324 shares of common stock at exercise prices ranging from $0.30 to
         $6.68, which were granted prior to August 31, 2008.

                                                                Weighted average
                                           Number of Options   exercise price

                  Options outstanding                 58,324      $ 1.58
                  Options exercisable                 45,624      $ 1.04



NOTE 10 - INCOME TAXES

         The components of the income tax provision for the years ended August
         31, 2008 and 2007 were as follows:


                                         F-21


<page>


                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 AUGUST 31, 2008
-------------------------------------------------------------------------------



                                      2008             2007
                                  -----------      -----------
               Current
                   Federal        $  (271,900)     $        --
                   State              (11,300)         (71,300)
                                  -----------      -----------
                                     (283,200) (71,300)
                                  -----------      -----------
               Deferred
                   Federal           (443,000)        (770,800)
                   State                5,600         (316,300)
                                  -----------      -----------
                                     (437,400)      (1,087,100)

                        TOTAL     $  (720,600)     $(1,158,400)
                                  ===========      ===========


         A reconciliation of the expected income tax (benefit) computed using
         the federal statutory income tax rate to the Company's effective income
         tax rate is as follows for the years ended August 31, 2008 and 2007:

                                                          2008         2007
                                                        -------      -------
               Income tax computed at federal
                  statutory tax rate                        34.0%        34.0%
               State taxes, net of federal benefit           5.9          6.0
               Meals & Entertainment                         0.4          0.9
               Extraterritorial income exclusion              --         (1.2)
               Research and development credit              (7.8)          --
               Change in prior year estimated taxes         (0.8)         2.0
               Other                                        (2.2)         2.5
                                                        --------     --------

                   TOTAL                                    29.5%        44.2%
                                                        ========     ========

         Significant components of the Company's deferred tax assets and
         liabilities for income taxes for the years ended August 31, 2008 and
         2007 are as follows:

<TABLE>
<CAPTION>
<S>     <C>

                                                                          2008           2007
                                                                       ---------      ---------
          Deferred tax assets

                   Accrued payroll and other expenses                  $ 316,300      $ 160,600
                   Accrued warranty and service costs                     14,500         16,400
                   Net operating loss carryforward                            --         39,600
                   Tax Credits                                                --        395,500
                   State taxes                                            43,700             --
                   Contributions                                              --          9,000
                   State Taxes                                                --         62,500

          Total deferred tax assets                                      374,500        683,600
          Less:  Valuation allowance                                          --             --
                                                                       ---------      ---------

                                                                         374,500        683,600
                                                                       ---------      ---------
          Deferred tax liabilities
                   Property and equipment                                (32,100)       (15,700)
                   Capitalized computer software development costs      (766,400)      (654,500)
                                                                       ---------      ---------

          Total deferred tax liabilities                                (798,500)      (670,200)
                                                                       ---------      ---------

          NET DEFERRED TAX ASSETS OR (LIABILITIES)                     $(424,000)     $  13,400
                                                                       =========      =========
</TABLE>



                                                    F-22


<page>


                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 AUGUST 31, 2008
-------------------------------------------------------------------------------



         At August 31, 2007, the Company had federal net operating loss carry
         forwards ("NOL") of approximately $103,000 and a tax credit, totaling
         approximately $533,000. However, the company used those NOLs and tax
         credits in FY08.

         After evaluating the adoption of FIN 48, we believe that the adoption
         did not have a material impact on our consolidated financial
         statements. As of August 31, 2008, the tax years 2004 - 2007 and 2003 -
         2007 are subject to examination by the Internal Revenue Service and
         Franchise Tax Board, respectively.


NOTE 11 - RELATED PARTY TRANSACTIONS

         As of August 31, 2008, included in accrued bonuses to officers was
         $60,000, which represented 5% of the Company's net income before
         bonuses and taxes, not exceeding $60,000, given to the Corporate
         Secretary, Virginia Woltosz, as an annual bonus.


NOTE 12 - LINES OF BUSINESS

         For internal reporting purposes, management segregates the Company into
         two divisions as follows for the years ended August 31, 2008 and 2007:

<TABLE>
<CAPTION>
<S>     <C>
                                                                            August 31, 2008
                                               ------------------------------------------------------------------------
                                                Simulations
                                                  Plus, Inc.       Words+, Inc.       Eliminations          Total
                                               -------------      -------------      -------------        ---------

               Net sales                        $ 6,055,097        $ 2,912,873        $        --         $ 8,967,970
               Income from operations           $ 2,154,164        $    23,987        $        --         $ 2,178,151
               Identifiable assets              $11,131,350        $ 1,892,891        $(1,470,938)        $11,553,303
               Capital expenditures             $     4,863        $    77,077        $        --         $    81,940
               Depreciation/Amortization        $   465,804        $    77,611        $        --         $   543,415
               Interest Income                  $   179,978        $     5,421        $        --         $   185,399
               Income tax expense               $   720,608        $        --        $        --         $   720,608
                                                ---------------------------------------------------------------------



                                                    F-23


<page>


                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 AUGUST 31, 2008
-------------------------------------------------------------------------------



                                                                              August 31, 2007
                                               -----------------------------------------------------------------------
                                                Simulations
                                                  Plus, Inc.        Words+, Inc.      Eliminations            Total
                                               -------------       ------------       ------------        -----------

               Net sales                        $ 5,755,543        $ 3,102,267        $        --         $ 8,857,810
               Income from operations           $ 2,271,652        $   231,155        $        --         $ 2,502,807
               Identifiable assets              $ 8,513,462        $ 2,191,887        $(1,809,926)        $ 8,895,423
               Capital expenditures             $    16,937        $    30,570        $        --         $    47,507
               Depreciation/Amortization        $   413,358        $    99,090        $        --         $   512,448
               Interest Income                  $   102,443        $    11,928        $        --         $   114,371
               Income tax expense               $ 1,158,400        $        --        $        --         $ 1,158,400
               ------------------------------------------------------------------------------------------------------
</TABLE>


         Most corporate expenses, such as legal and accounting expenses, public
         relations expenses, and bonuses to the President and Secretary are
         included in Simulations Plus, Inc.


NOTE 13 - GEOGRAPHIC REPORTING

         The Company allocates revenues to geographic areas based on the
         locations of its customers. Geographical revenues were as follows for
         the fiscal years ended August 31, 2008 and 2007:
<TABLE>
<CAPTION>
<S>     <C>

                                                                    August 31, 2008
                                        ----------------------------------------------------------------------
                                        North                                               South
         (in `000)                      America     Europe        Asia        Oceania       America       Total
                                        -------     ------        ----        -------       -------       -----



          Simulations Plus, Inc.        3,040        1,939        1,076           --           --        6,055

          Words+, Inc.                  2,488          351           24           45            5        2,913
                                        -----        -----        -----        -----        -----        -----

          Total                         5,528        2,290        1,100           45            5        8,968
                                        =====        =====        =====        =====        =====        =====


                                                                        August 31, 2007
                                        ------------------------------------------------------------------------
                                        North                                               South
         (in `000)                      America     Europe        Asia        Oceania       America       Total
                                        -------     ------        ----        -------       -------       -----


          Simulations Plus, Inc.        3,016        1,544        1,194           --            1        5,755

          Words+, Inc.                  2,478          564           31           28            2        3,103
                                        -----        -----        -----        -----        -----        -----

          Total                         5,494        2,108        1,225           28            3        8,858
                                        =====        =====        =====        =====        =====        =====
</TABLE>


                                                    F-24


<page>


                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 AUGUST 31, 2008
-------------------------------------------------------------------------------


NOTE 14 - CUSTOMER RELATIONSHIPS

         The Company purchased customer relationships as a part of the
         acquisition of certain assets of Bioreason, Inc. in November 2005.
         Customer relationships was recorded at a cost of $128,042, and is being
         amortized over 78 months under the sum-of-the-years'-digits method.
         Amortization expense for the years ended as of August 31, 2008 and 2007
         amounted to $25,683 and $31,668, respectively. Accumulated amortization
         was $85,029 as of August 31, 2008.


NOTE 15 - EMPLOYEE BENEFIT PLAN

         We maintain a 401(k) Plan for all eligible employees. We make matching
         contributions equal to 100% of the employee's elective deferral, not to
         exceed 4% of the total employee compensation. We can also elect to make
         a profit-sharing contribution. Contributions by the Company to this
         Plan amounted to $69,896 and $61,449 for the years ended August 31,
         2008 and 2007, respectively.

NOTE 16 - SUBSEQUENT EVENTS

         On October 7, 2008, UBS issued a prospectus informing us that we were
         being given an option either to keep our ARSs or sell them to UBS at
         the face value plus accrued interest. We exercised the option of
         selling them to UBS. We received a letter from UBS dated November 5,
         2008 stating that they accepted our exercise and will buy back our ARSs
         at their face value of $750,000 plus accrued interest. We are advised
         by our UBS account management that this buyback is expected after
         January 1, 2009.

         On October 23, 2008, the board of directors has authorized a share
         repurchase program enabling the buyback of up to $2.5 million in shares
         during a 12-month period beginning Monday, October 27, 2008. The
         Company has opened an account with Citigroup Smith Barney for the
         purchase of such securities. Funds for any stock purchases will be
         drawn from the Company's then-current cash reserves. As of November 25,
         2008, we have not repurchased any shares.

         From September 1, 2008 to November 21, 2008, an additional 109,000
         stock options to purchase shares have been exercised by employees that
         generated $48,808 in cash.


                                      F-25