<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

[x]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

               For the quarterly period ended February 28, 2007 or

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1937

              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 of                               (I.R.S. Employer
 Incorporation or Organization)                              identification No.)

                             42505 10TH STREET WEST
                            LANCASTER, CA 93534-7059
           (Address of principal executive offices including zip code)

                                 (661) 723-7723
                (Issuer's telephone number, including area code)


Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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 [ ]


The number of shares outstanding of the Issuer's common stock, par value $0.001
per share, as of April 10, 2007, was 7,716,400.


<PAGE>


                             SIMULATIONS PLUS, INC.
                                   FORM 10-QSB
                FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2007

                                Table of Contents

                          PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)                                   Page
                                                                            ----

         Consolidated Balance Sheet at February 28, 2007 (unaudited)          2

         Consolidated Statements of Operations for the three months
            and six months ended February 28, 2007 and 2006 (unaudited)       4

         Consolidated Statements of Cash Flows for the six months
            ended February 28, 2007 and 2006 (unaudited)                      5

         Notes to Consolidated Financial Statements (unaudited)               7

Item 2.  Management's Discussion and Analysis or Plan of Operations

         General                                                             17

         Results of Operations                                               21

         Liquidity and Capital Resources                                     25

Item 3.  Quantitative and Qualitative Disclosures about Market Risk          26

Item 4.  Controls and Procedures                                             26

                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                   27

Item 2.  Changes in Securities                                               27

Item 3.  Defaults upon Senior Securities                                     27

Item 4.  Submission of Matters to a Vote of Security Holders                 27

Item 5.  Other Information                                                   28

Item 6.  Exhibits and Reports on Form 8-K                                    28

Signature                                                                    29
Exhibit - Certifications


<PAGE>

                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                                      CONSOLIDATED BALANCE SHEET
                                                             at February 28,2007
                                                                     (Unaudited)
--------------------------------------------------------------------------------



                                     ASSETS

Current assets
     Cash and cash equivalents                                        $3,219,116
     Accounts receivable, net of allowance for doubtful accounts
         and estimated contractual discounts of $40,728                1,431,848
     Contracts receivable, net of discounts of $1,059                    145,501
     Inventory                                                           274,384
     Prepaid expenses and other current assets                            66,183
     Current portion of deferred tax                                     190,034
                                                                      ----------

            Total current assets                                       5,327,066

Capitalized computer software development costs,
     net of accumulated amortization of $2,650,537                     1,417,247
Property and equipment,                                                  105,183
     net of accumulated depreciation of $527,237 (Note 4)
Customer relationships, net of accumulated amortization of $44,260        83,782
Deferred tax                                                             701,446
Other assets                                                              18,445
                                                                      ----------
                Total assets                                          $7,653,169
                                                                      ==========


                                       2

<PAGE>

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
     Accounts payable                                                 $  310,741
     Accrued payroll and other expenses                                  424,638
     Accrued bonuses to officers                                         105,566
     Accrued warranty and service costs                                   35,126
     Current portion of deferred revenue                                 110,923
     Other current liabilities                                                --
                                                                      ----------
         Total current liabilities                                       986,994

Deferred revenue                                                          59,647

            Total liabilities                                          1,046,641
                                                                      ----------
Commitments and contingencies (Note 5)                                        --

Shareholders' equity (Note 6)
     Preferred stock, $0.001 par value
         10,000,000 shares authorized
         no shares issued and outstanding                                     --
     Common stock, $0.001 par value
         20,000,000 shares authorized
         7,611,700 shares issued and outstanding                           3,964
     Additional paid-in capital                                        5,471,036
     Retained Earnings                                                 1,131,528
                                                                      ----------
            Total shareholders' equity                                 6,606,528
                                                                      ----------
                Total liabilities and shareholders' equity            $7,653,169
                                                                      ==========

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

                                      3

<PAGE>

<TABLE>

                                                                                  SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                                                                  CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                        for the three and six months ended February 28,
                                                                                                            (Unaudited)
-----------------------------------------------------------------------------------------------------------------------


                                                                Three months ended               Six months ended
                                                               2007            2006            2007            2006
                                                            -----------     -----------     -----------     -----------

<S>                                                         <C>             <C>             <C>             <C>
Net sales                                                   $ 2,533,836     $ 1,481,791     $ 3,990,287     $ 2,300,606

Cost of sales                                                   557,102         387,067         998,542         718,664
                                                            -----------     -----------     -----------     -----------
Gross profit                                                  1,976,734       1,094,724       2,991,745       1,581,942
                                                            -----------     -----------     -----------     -----------
Operating expenses
     Selling, general, and administrative                       936,114         687,737       1,692,891       1,316,493
     Research and development                                   216,432         119,713         400,059         216,935
                                                            -----------     -----------     -----------     -----------
         Total operating expenses                             1,152,546         807,450       2,092,950       1,533,428
                                                            -----------     -----------     -----------     -----------
Income (loss) from operations                                   824,188         287,274         898,795          48,514
                                                            -----------     -----------     -----------     -----------
Other income (expense)
     Interest income                                             24,881           5,621          40,809           9,102
     Miscellaneous income                                            --              --             358              50
     Interest expense                                                --              --              --              --
     Gain on sale of assets                                       3,102           3,126           3,102           3,126
     Gain on currency exchange                                    4,055           3,953           7,027          (1,349)
                                                            -----------     -----------     -----------     -----------
         Total other income (expense)                            32,038          12,700          51,296          10,929
                                                            -----------     -----------     -----------     -----------
Income before benefit from (provision for)
     income taxes                                               856,226         299,974         950,091          59,443

Benefit from (provision for) income taxes
     Provision for income tax                                  (188,370)        (51,511)       (209,020)         (9,511)
     Change in valuation allowance                                   --              --              --              --
                                                            -----------     -----------     -----------     -----------
         Total benefit from (provision for) income taxes       (188,370)        (51,511)       (209,020)         (9,511)
                                                            -----------     -----------     -----------     -----------

Net income                                                  $   667,856     $   248,463     $   741,071     $    49,932
                                                            ===========     ===========     ===========     ===========
Basic earnings per share                                    $      0.09     $      0.03     $      0.10     $      0.01
                                                            ===========     ===========     ===========     ===========
Diluted earnings per share                                  $      0.07     $      0.03     $      0.08     $      0.01
                                                            ===========     ===========     ===========     ===========
Weighted-average common shares outstanding
     Basic                                                    7,519,962       7,341,756       7,482,048       7,319,862
                                                            ===========     ===========     ===========     ===========
     Diluted                                                  9,014,825       8,180,450       8,812,656       8,107,420
                                                            ===========     ===========     ===========     ===========

  * The number of shares at February 28, 2006 have been retroactively restated
    to reflect a 2-for-1 stock split that occurred on August 14, 2006.


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

                                                           4

<PAGE>

                                                              SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                              for the six months ended February 28,
                                                                                        (Unaudited)
---------------------------------------------------------------------------------------------------

                                                                           2007             2006
                                                                        -----------     -----------
Cash flows from operating activities
    Net income                                                          $   741,071     $    49,932
    Adjustments to reconcile net income to net cash
       provided by operating activities
         Depreciation and amortization of property and equipment             24,197          21,466
         Amortization of customer relationships                              16,582           9,600
         Bad debt expense                                                    48,000              --
         Amortization of capitalized software development
           costs                                                            222,811         119,718
         Stock-based compensation                                             9,849              --
         Contribution of Equipment at book value                                774              --
         (Gain) on sale of assets                                            (3,102)         (3,126)

         (Increase) decrease in
           Accounts receivable                                              194,597         212,969
           Inventory                                                        (37,335)         39,548
           Deferred tax                                                     209,020           9,511
           Other assets                                                      15,113          29,404
         Increase (decrease) in
           Accounts payable                                                  95,322          93,426
           Accrued payroll and other expenses                                59,726         (88,157)
           Accrued bonuses to officers                                        6,813         (38,680)
           Accrued income taxes                                              (1,600)         (1,600)
           Accrued warranty and service costs                                   374           8,101
           Deferred revenue                                                  41,109        (126,708)
                                                                        -----------     -----------
              Net cash provided by operating activities                   1,643,321         335,404
                                                                        -----------     -----------

                                                      5

<PAGE>

Cash flows from investing activities
    Purchases of property and equipment                                     (35,143)        (41,075)
    Purchase of Bioreason's assets                                              --        (826,192)
    Proceeds from sale of assets                                              4,475           7,215
    Capitalized computer software development costs                        (265,616)       (246,154)
                                                                        -----------     -----------
              Net cash used in investing activities                        (296,284)     (1,106,206)
                                                                        -----------     -----------
Cash flows from financing activities
    Proceeds from the exercise of stock options                             187,043          84,432
                                                                        -----------     -----------
              Net cash provided by financing activities                     187,043          84,432
                                                                        -----------     -----------
                Net increase (decrease) in cash and cash equivalents    $ 1,534,080     $  (686,370)

Cash and cash equivalents, beginning of year                              1,685,036       1,754,042
                                                                        -----------     -----------
Cash and cash equivalents, end of quarter                               $ 3,219,116     $ 1,067,672
                                                                        ===========     ===========

Supplemental disclosures of cash flow information

    Interest paid                                                       $        --     $        --
                                                                        ===========     ===========
    Income taxes paid                                                   $     1,600     $     1,600
                                                                        ===========     ===========

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

                                                 6

</TABLE>


<PAGE>


                             SIMULATIONS PLUS, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)


Note 1: GENERAL

As contemplated by the Securities and Exchange Commission under Item 310(b) of
Regulation S-B, the accompanying financial statements and footnotes have been
condensed and therefore do not contain all disclosures required by generally
accepted accounting principles. The interim financial data are unaudited;
however, in the opinion of Simulations Plus, Inc. ("we", "our", "us"), the
interim data includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the interim
periods. Results for interim periods are not necessarily indicative of those to
be expected for the full year.


Note 2: SIGNIFICANT ACCOUNTING POLICIES

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.

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
-------------------
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 at the time of unlocking the software on the customer's
computer(s), net of estimated allowances and returns. 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 by-product of ongoing improvements and upgrades for 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.


                                        7

<PAGE>

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 now unlock and invoice software one year
at a time for multi-year licenses. Therefore, revenue is now recognized one year
at a time. This eliminates the extreme variability in reported revenues and
earnings that we experienced in the past caused by booking multi-year license
revenues up front.

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

Accounts Receivable
-------------------
We maintain an allowance for doubtful accounts for estimated losses that may
arise if any of our customers are unable to make required payments. We
specifically analyze the age of customer balances, historical bad debt
experience, customer credit-worthiness, and changes in customer payment terms
when making estimates of the uncollectability of our trade accounts receivable
balances. If we determine that the financial conditions of any of our 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.

Our long-term receivables are discounted at the present value. The discount is
amortized over the life of the receivable and recognized as interest income. The
balance as of February 28, 2007 represents receivables which we purchased as a
part of Bioreason's assets in November 2005.

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 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 $222,813 and $119,718 for the six months ended
February 28, 2007 and 2006, 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. As a result, we have written off $1,763
during the six months ended February 28, 2007.

                                        8

<PAGE>

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                        5 years

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 our 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.

Shipping and Handling
---------------------
Shipping and handling costs, recorded as cost of sales, amounted to $50,243 and
$40,859 for the six months ended February 28, 2007 and 2006, 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.

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

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

At the end of fiscal year 2006, we recorded $1,100,500 in deferred tax assets.
For the first six months of fiscal year 2007, we recorded a provision for
deferred taxes in the amount of $209,020, resulting in a deferred tax asset of
$891,480 at February 28, 2007. 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 to determine if the realization of
the deferred tax asset is more-likely-than-not. 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.

                                        9

<PAGE>

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.

Customer relationships
----------------------
The Company purchased customer relationships as a part of the acquisition of
certain assets of Bioreason, Inc. in November 2005. Customer relationships were
recorded at a cost of $128,042, and are being amortized over 78 months under the
sum-of-the-years'-digits method. Amortization expense for the six months ended
and accumulated amortization as of February 28, 2007 amounted to $16,582 and
$44,260, respectively.

Earnings per Share
------------------
The Company reports earnings per share in accordance with SFAS No. 128,
"Earnings 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 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 six months ended
February 28, 2007 and 2006 were as follows (the number of shares at 2/28/2006
reflects the effect of a 2-for-1 stock split for comparison purposes):

                                                       02/28/2007     02/28/2006
                                                       ----------     ----------

Numerator
    Net income (loss) attributable to common
       shareholders                                 $   741,071     $    49,932

Denominator
    Weighted-average number of common shares
       outstanding during the year                    7,482,048       7,319,862
    Dilutive effect of stock options                  1,330,608         787,558

Common stock and common stock equivalents used
    for diluted earning per share                     8,812,656       8,107,420


Stock-Based Compensation
------------------------
Prior to September 1, 2006, we accounted for employee stock options grants in
accordance with APB No. 25, and adopted the disclosure-only provision of SFAS
No. 123, "Accounting for Stock-Based Compensation."

In December 2004, the FASB issued Statement of Accounting Standard No. 123R,
"Share-Based Payment", a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS 123R supersedes APB Opinion No. 25, and requires all
companies to measure compensation expense for all share-based payments,
including employee stock options, based upon the fair value of the stock-based
awards at the date of grant. SFAS 123R is effective for the Company for Fiscal
Year 2007, beginning September 1, 2006. Subsequent to the effective date, the
pro forma disclosures previously permitted under SFAS No. 123 are no longer an
alternative to financial statement recognition.

                                       10

<PAGE>

Effective September 1, 2006, we adopted SFAS No. 123R using the modified
prospective method. Under this method, compensation cost recognized during the
six months ended February 28, 2007 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. As a result of adopting SFAS No. 123R on September 1,
2006, our stock-based compensation was $9,849 for the six months ended February
28, 2007, and included in the condensed consolidated statements of operations as
Research and Development expense.

The table below represents our pro forma net income giving effect to the
estimated compensation expense related to stock options that would have been
reported if we had applied the fair value recognition provisions of SFAS No. 123
for the six months ended February 28, 2006.

                                                                   Six Months
                                                                     Ended
                                                               February 28, 2006
                                                               -----------------
Net income (loss)
   As reported                                                    $      49,932
      Stock based employee compensation cost, net of
        related tax effects, that would have been
        included in the determination of net income
        if the fair value method had been applied                       (67,311)
                                                                  -------------

          Pro forma net income (loss)                             $     (17,379)
                                                                  =============

    Earnings (loss) per common share

        Basic - as reported                                       $        0.01
        Basic - Pro forma                                         $        0.00

        Diluted - as reported                                     $        0.01
        Diluted - Pro forma                                       $        0.00

For the six months ended February 28, 2007, the stock-based employee
compensation expense using the fair value recognition method under SFAS No. 123R
is included in the condensed consolidated statements of operations. Therefore,
it is not presented in the pro forma table above.

Concentrations and Uncertainties
--------------------------------
International sales accounted for 36% and 34% of net sales for the six months
ended February 28, 2007 and 2006, respectively. For Simulations Plus, Inc., two
customers accounted for 22% and 15% of net sales during the six months ended
February 28, 2007, and for Words+, Inc., one government agency accounted for
28%, and one customer accounted 13% of net sales during the six months ended
February 28, 2007.

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.

                                       11

<PAGE>

For Simulations Plus, five customers comprised 25%, 20%, 13%, 12% and 10% of its
accounts receivable at February 28, 2007, and three customers comprised 29%, 15%
and 15% of accounts receivable at February 28, 2006. For Words+, one government
agency comprised 37% and 23% of its accounts receivable at February 28, 2007 and
2006, respectively.

The Company's subsidiary, Words+, Inc., purchases components for its 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 Pronouncements
-----------------------------------------
In June 2006, the Financial Accounting Standards Board ("FSAB) 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 are currently evaluating the impact of adopting FIN 48;
however we believe that adoption of FIN 48 will not have a material impact on
our consolidated financial statement.

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 will be effective for the Company for the fiscal year
ended August 2007. Since we believe there are no material misstatements in our
prior year financial statements, we anticipate that the application of SAB 108
will 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 February 28, 2007, the uninsured portions aggregated to
$2,741,000. 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.


                                       12

<PAGE>


Note 4:  PROPERTY AND EQUIPMENT

Furniture and equipment as of February 28, 2007 consisted of the following:


         Equipment                                                 $    160,428
         Computer equipment                                             334,824
         Furniture and fixtures                                          61,498
         Automobile                                                      21,769
         Leasehold improvements                                          53,898
                                                                   ------------
              Sub total                                                 632,417
         Less: Accumulated depreciation and amortization               (527,234)
                                                                   ------------
              Net Book Value                                            105,183
                                                                   ============

Note 5:  COMMITMENTS AND CONTINGENCIES

Employee Agreement
------------------
On August 9, 2005, the Company entered into an employment agreement with its
President/CEO that expires in August 2007. The employment agreement provides for
an annual salary of $172,000 and an annual bonus equal to 5% of the Company's
net income before taxes, not to exceed $150,000. 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.

Note 6: STOCKHOLDERS' 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 additional 250,000 shares, resulting
to 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 expired in September 2006.

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 has been reserved for issuance.

All of the following numbers of options are based on numbers of options after
the two-for-one stock split on August 14, 2006. On August 18, 2006, the Company
accelerated the vesting of stock options previously awarded for which the
underlying shares are registered, excluding 500,000 options for shares of
unregistered stock. As a result, Options to purchase approximately 505,000
shares of common stock were accelerated, representing approximately 25% of all
outstanding options. The Company's decision for this acceleration was to
eliminate future compensation expense that the Company would otherwise recognize
with respect to these options following the Company's adoption of SFAS 123(R),
Share-Based Payment. The Company adopted FAS No. 123(R) on September 1, 2006,
which is the beginning of the Company's 2007 fiscal year.

                                       13

<PAGE>

The following summarized the stock option transactions.

                                                              Weighted-Average
                                              Number of        Exercise Price
                                               Options           Per Share
                                             ------------     ---------------

Outstanding, August 31, 2006                  2,040,072          $   1.33
     Granted                                    100,000          $   2.15
     Exercised                                 (170,204)         $   1.16
     Expired/Canceled                           (96,000)         $   2.15

Outstanding, February 28, 2007                1,873,868          $   1.35
                                             ----------          --------

Exercisable, February 28, 2007                1,788,868          $   1.34
                                             ==========          ========

<TABLE>
<S>            <C>
                       Options Outstanding & Unvested at February 28, 2007
                       ---------------------------------------------------

                                                             Remaining                Weighted
                                                          Contractual Life             Average
                                   Number Outstanding        (in years)           Fair Market Price
                                   ------------------        ----------           -----------------
Non Vested before 9/1/2006              100,000                                       $  0.62
   Granted                              100,000                                       $  0.82
   Cancelled                             95,000                                       $  0.82
   Vested                                20,000                                       $  0.62
Non Vested at 02/28/2007                 85,000                 8.61                  $  0.63
</TABLE>


The fair value of the options granted during the six months ended February 28,
2007 is estimated at $81,860, of which 95% has been cancelled, reducing this
figure to $4,093. 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 six months ended February 28, 2007:
dividend yield of 0%, expected volatility of 11%, risk-free interest rate of
4.72%, and expected life of ten years. The weighted-average fair value of
options granted during the first fiscal quarter of FY07 was $0.82, and the
weighted-average exercise price was $2.15.

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.


                                       14

<PAGE>

The weighted-average remaining contractual life of options outstanding issued
under the Plan was 5.1 years at February 28, 2007. The exercise prices for the
options outstanding at February 28, 2007 ranged from $0.53 to $2.48, and the
information relating to these options is as follows:

<TABLE>
<S>                 <C>
                                                               Weighted-Average       Weighted-Average    Weighted-Average
                                                                   Remaining             Exercise            Exercise
                                                               Contractual Life          Price of            Price of
                       Stock Options       Stock Options          of Options             Options             Options
 Exercise Price         Outstanding         Exercisable           Outstanding          Outstanding         Exercisable
------------------    ----------------    ----------------    --------------------    ---------------     ---------------
$0.53 - 1.00                  716,768             716,768          3.3 years                 $  0.73             $  0.73
$1.00 - 1.50                  603,600             603,600          3.0 years                 $  1.35             $  1.35
$1.50 - 2.50                  553,500             468,500          8.5 years                 $  2.16             $  2.24
                      ----------------    ----------------
                            1,873,868           1,788,868
                      ================    ================
</TABLE>

Other Stock Options
-------------------
As of February 28, 2007, the independent members of the Board of Directors hold
options to purchase 22,412 shares of common stock at exercise prices ranging
from $0.60 to $2.63, which options were granted on or before August 31, 2006.

                                                            Weighted average
                                   Number of Options         exercise price
                                   -----------------         --------------

       Options Outstanding               22,412                  $ 1.28
       Options exercisable               18,412                  $ 1.07

Note 7:  SEGMENT AND GEOGRAPHIC REPORTING

We account for segments and geographic revenues in accordance with SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information." Our
reportable segments are strategic business units that offer different products
and services. Results for each segment and consolidated results are as follows
for the six months ended February 28, 2007 and 2006:

<TABLE>
<S>                      <C>
                                             February 28, 2007
-------------------------------------------------------------------------------------------------------------
                                                Simulations
                                                 Plus, Inc      Words +, Inc.    Eliminations       Total
--------------------------------------------- ---------------- ---------------- --------------- -------------
Net Sales                                           2,632,197        1,358,090                     3,990,287

Income (loss) from operations                         923,517         (24,722)                       898,795

Identifiable assets                                 7,471,982        1,891,003     (1,709,816)     7,653,169

Capital expenditures                                   15,709           19,434                        35,143

Depreciation and Amortization                           9,613           14,584                        24,197


                                             February 28, 2006
-------------------------------------------------------------------------------------------------------------
                                                Simulations
                                                 Plus, Inc      Words +, Inc.    Eliminations       Total
--------------------------------------------- ---------------- ---------------- --------------- -------------
Net Sales                                           1,082,788        1,217,818                     2,300,606

Income (loss) from operations                        (20,410)           68,924                        48,514

Identifiable assets                                 5,748,165        1,579,578     (1,786,137)     5,541,606

Capital expenditures                                   23,514           22,562                        46,076

Depreciation and Amortization                           6,792           14,674                        21,466

</TABLE>

                                       15

<PAGE>

In addition, the Company allocates revenues to geographic areas based on the
locations of its customers. Geographical revenues for the six months ended
February 28, 2007 and 2006 were as follows (in thousands):

<TABLE>
<S>            <C>
                                                   February 28, 2007
-------------------------------------------------------------------------------------------------------------
                                     North                                                South
                                    America       Europe        Asia        Oceania      America      Total
------------------------------ --------------- ------------ ------------ ------------ ------------ ----------
Simulations Plus, Inc.                  1,414          908          310          -0-          -0-      2,632

Words+, Inc.                            1,129          191           25           11            2      1,358
                               --------------- ------------ ------------ ------------ ------------ ----------
Total                                   2,543        1,099          335           11            2      3,990
                               =============== ============ ============ ============ ============ ==========

                                                     February 28, 2006
-------------------------------------------------------------------------------------------------------------
                                    North                                                 South
                                   America        Europe        Asia        Oceania      America      Total
------------------------------ --------------- ------------ ------------ ------------ ------------ ----------
Simulations Plus, Inc.                    526          316          241          -0-          -0-      1,083

Words+, Inc.                            1,072          107           26           11            2      1,218
                               --------------- ------------ ------------ ------------ ------------ ----------
Total                                   1,598          423          267           11            2      2,301
                               =============== ============ ============ ============ ============ ==========
</TABLE>


Note 8:  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 total employee compensation. We can also elect to make a profit-sharing
contribution. Contributions by the Company to this Plan amounted to $30,518 and
$23,122 for the six months ended February 28, 2007 and 2006, respectively.

Note 9:  SUBSEQUENT EVENT

Since March 1, 2007, an additional 104,700 stock options to purchase shares have
been exercised by employees that generated $164,137 in proceeds.



                                       16

<PAGE>


Item 2. Management's Discussion and Analysis or Plan of Operations
        ----------------------------------------------------------

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

CERTAIN STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-QSB, 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 (REFERRED TO IN
THIS REPORT AS THE "COMPANY") 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 STOCKHOLDERS 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.


GENERAL

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).

                                       17

<PAGE>

ADMET PREDICTOR
---------------
ADMET (Absorption, Distribution, Metabolism and 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 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 studies have now been published that compare the predictive accuracy of
software programs like ADMET Predictor. In each case, out of more than a dozen
programs, ADMET Predictor has been ranked first in accuracy over all other
programs (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). This is a remarkable accomplishment,
considering the greater size and resources of many of the competitors.

ADMET Predictor now includes the former separate ADMET Modeler program for
greater user convenience and to enhance the ADMET Predictor product. ADMET
Modeler was first released in July of 2003 as a separate product, and was
integrated into ADMET Predictor last year. This powerful program is used to
generate the predictive models used in ADMET Predictor in a small fraction of
the time once required to build these models. For example, the new toxicity
models were developed in a matter of a few hours once we completed the tedious
effort of "cleaning up" the databases (which seem to always contain a number of
errors). Prior to the availability of ADMET Modeler, we would have needed as
much as three months after cleaning the databases for each new model 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, scientists without model-building experience can
now use their own experimental data to quickly create high quality predictive
models.

During this reporting period, continuous improvement of ADMET Predictor/Modeler
has been underway, including development of additional predictive models,
including two models for predicting ways that new molecules could be used to
interfere with the HIV-1 integrase enzyme, a necessary component for the
introduction of the virus into which were released during this reporting period.
Additional models are in development based on the proprietary database of
salmonella mutagenicity measurements we acquired as part of the assets of
Bioreason, Inc. in November 2005. Unlike previous models for salmonella
mutagenicity that include all strains of the bacteria, this unique database
provides mutagenicity data for ten individual strains. Modeling each strain by
itself provides more focused and accurate models, and we believe this capability
will be unique. We expect to release the new models in the third fiscal quarter.

                                       18

<PAGE>

Another enhancement of ADMET Predictor has been to provide compatibility 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), 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.

In addition, modifications that provide enhanced user convenience and data
analysis capabilities have been added to both the ADMET Predictor and ADMET
Modeler portions of the code, and these are in final test. The new capabilities
will be demonstrated at the American Chemical Society meeting in Chicago in late
March.

CLASSPHARMER(TM)
----------------
ClassPharmer improvements during the second quarter have focused on adding
Pipeline Pilot compatibility, incorporating new features requested by users
around the world, and adding new capabilities that we are not ready to announce
at this time. We expect to announce a new release during the third quarter.

DDDPLUS
-------
DDDPlus sales have increased during the first two quarters, and continuous
improvements are being added to further enhance the value of this product to our
customers. A faster numerical package developed by the Lawrence Livermore
Laboratories has been incorporated, resulting in typical speed improvements of
about three-fold. Several user convenience features have also been added, and
testing is in progress for the release of a new version. We expect release of a
new version in the third quarter.

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. 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 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.

Our marketing intelligence indicates that GastroPlus enjoys a dominant position
in the number of users worldwide. In addition to virtually every major
pharmaceutical company, licenses include 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 hundreds of
companies, represents major growth potential for GastroPlus. Our experience has
been that the number of new companies adopting GastroPlus shows steady growth,
adding to the base of annual licenses each year. We announced the renewal of
GastroPlus licenses by both Hoffmann LaRoche and another very large
pharmaceutical company in December, with increased license fees in both cases.

                                       19

<PAGE>

We are aware that other companies have developed competitive software; however,
based on customer feedback, we believe that the competitive threat to GastroPlus
is limited. We continue working on improving GastroPlus under the two-year (one
full-time equivalent) contract we announced on August 31, 2006, as well as our
own internal product improvement efforts.

CONTRACT RESEARCH 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 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. Consulting contracts serve both to showcase our
technologies and as a way to build relationships with new customers, as well as
strengthening relationships with our existing customers.

GOVERNMENT-FUNDED RESEARCH
--------------------------
We submitted a proposal to the National Institutes for Health in December for a
$100,000 Phase I Small Business Innovation Research (SBIR) grant to develop an
advanced method for calculating certain important parameters that would extend
the capabilities of our ADMET Predictor/Modeler product. We have received review
comments that are very favorable. Although there can be no assurances, we
believe that this effort will be funded during the fourth fiscal quarter. If
this Phase I grant is received and if we are successful, we will be eligible to
apply for a Phase II follow-on grant on the order of $750,000. We submitted a
second SBIR grant application for a $100,000 Phase I project on April 5, 2007,
and we plan to submit additional such proposals in the future. 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.


WORDS+ SUBSIDIARY
-----------------

PRODUCTS
--------
Our wholly owned subsidiary, Words+, Inc. has been an industry pioneer and
technology leader for over 25 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 and Say-it! SAM, as well as our growing line of hardware
products. We will also consider acquisitions of other products, businesses and
companies that are complementary to our existing augmentative and alternative
communication and computer access business lines. We purchased 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 has 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 our growing
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.

                                       20

<PAGE>

RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED FEBRUARY 28, 2007 AND 2006.

The following table sets forth our consolidated statements of operations (in
thousands) and the percentages that such items bear to net sales:

<TABLE>
<S>            <C>
                                                    ------------------------------------------------------------
                                                                        Three Months Ended
                                                    ------------------------------------------------------------
                                                               02/28/07                      02/28/06
                                                    ------------------------------- ----------------------------
Net sales                                                 $   2,534           100%      $  1,482           100%
Cost of sales                                                   557           22.0           387           26.1
                                                    ---------------- -------------- ------------- --------------
Gross profit                                                  1,977           78.0         1,095           73.9
                                                    ---------------- -------------- ------------- --------------
Selling, general and administrative                             936           36.9           688           46.4
Research and development                                        217            8.6           120            8.1
                                                    ---------------- -------------- ------------- --------------
Total operating expenses                                       1153           45.5           808           54.5
                                                    ---------------- -------------- ------------- --------------
Income from operations                                          824           32.5           287           19.4
                                                    ---------------- -------------- ------------- --------------
Other income                                                     32            1.3            13            0.9
                                                    ---------------- -------------- ------------- --------------
Net income before taxes                                         856           33.8           300           20.2
                                                    ---------------- -------------- ------------- --------------
Benefit from (provision for) income taxes                      (188)          (7.4)%         (52)          (3.5)%
                                                    ---------------- -------------- ------------- --------------
Net income (loss)                                            $  668           26.4%       $  248           16.7%
                                                    ================ ============== ============= ==============
</TABLE>

NET SALES

Consolidated net sales increased $1,052,000, or 71.0%, to $2,534,000 in the
second fiscal quarter of 2007 (2Q07) from $1,482,000 in the second fiscal
quarter of 2006 (2Q06). Our sales from pharmaceutical and educational software
increased approximately $924,000, or 104.5%; and our Words+, Inc. subsidiary's
sales increased approximately $128,000, or 21.4%, for the quarter. We attribute
the increase in pharmaceutical software sales primarily to increased licenses,
both to new customers and for new modules and additional licenses to renewal
customers. In addition to our software sales, revenues from our contract
services increased in the 2Q07 compared with 2Q06.

We attribute the increase in Words+ sales primarily to an increase in sales of
"Say-it! SAM", "TuffTalker" and "Freedom" products. Some declines in software
sales and "MessageMate" products were offset by these increases.

COST OF SALES

Consolidated cost of sales increased $170,000, or 43.9%, to $557,000 in the
2Q07 from $387,000 in the 2Q06. The percentage of cost of sales in
2Q07 decreased 4.1% to 22% from 26.1% in 2Q06. For Simulations Plus,
cost of sales increased $85,000, or 63.3%. However, as a percentage of revenue,
cost of sales decreased to 12.2% in 2Q07 from 15.3% in 2Q06. 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 $43,000, or 87.6%, in 2Q07 compared with
2Q06. Royalty expense also increased approximately $129,000, or 49.7%, in
2Q07 compared with 2Q06. However, as a percentage of revenue, royalty
cost decreased to 7.2% in 2Q07 from 9.8% in 2Q06, thus resulting in a
decrease in the percentage of cost of sales.

                                       21

<PAGE>

For Words+, cost of sales increased $85,000, or 33.6%. As a percentage, cost of
sales increased 4.2% between the second fiscal quarter of FY07 and FY06. We
attribute the percentage increase in cost of sales for Words+ primarily to the
sales we have generated from one large order with low margin by providing a
volume discount, in addition to increased costs of computers. Last fiscal year,
we were able to obtain purchase discounts by volume purchase of computers;
however such discounts were not available to us when the new models came on the
market and the previous models were discontinued.

GROSS PROFIT

Consolidated gross profit increased $882,000, or 105.2%, to $1,977,000 in 2Q07
from $1,095,000 in 2Q06. We attribute this increase to the increase in sales of
pharmaceutical software, contract studies, and Words+ products, which outweighed
increases in cost of goods sold.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Consolidated selling, general and administrative (SG&A) expenses increased
$248,000, or 36.1%, to $936,000 in 2Q07 from $688,000 in 2Q06. For
Simulations Plus, SG&A increased $158,000, or 37.3%. As a percentage of sales,
SG&A decreased to approximately 32.3% in 2Q07 from approximately 48.2% in
2Q072Q06. The major increases in SG&A expenses were investor relations,
accrued bonus to officers, salaries and payroll-related expenses such as health
insurance, 401K and payroll taxes, which outweighed decreases in professional
fees.

For Words+, SG&A expenses increased $90,000, or 34.3%, due primarily to
increases in commissions, catalogs, marketing consultant fees, salaries and
payroll-related expenses such as health insurance and payroll taxes, telephone
and supplies. These increases outweighed decreases in travel expense.

RESEARCH AND DEVELOPMENT

We incurred approximately $349,000 of research and development costs for both
companies during 2Q07. Of this amount, $132,000 was capitalized and
$217,000 was expensed. In 2Q06, we incurred $223,000 of research and
development costs, of which $103,000 was capitalized and $120,000 was expensed.
The increase of $126,000, or 56.5%, in total research and development
expenditures from the 2Q06 to 2Q07 was due primarily to increases in
salaries because of new hires and salary increases to existing staff.

OTHER INCOME (EXPENSE)

Net other income (expense) in the 2Q07 increased by $19,000, or 152.3%, to
$32,000 in 2Q07 from $13,000 in 2Q06. This is due primarily to
increased interest revenue from money market accounts, gains on currency
exchange, and gain on sale of assets.

PROVISION FOR INCOME TAXES

The provision for income taxes increased by $136,000, or 265.7%, to $188,000 in
the 2Q07 from $52,000 in 2Q06 due to increase in net income.

                                       22

<PAGE>

NET INCOME

Consolidated net income increased by $420,000, or 168.8%, to $668,000 in the
2Q07 from $248,000 in 2Q06. We attribute this increase in profit
primarily to the increases in revenue from both pharmaceutical software and
Words+ products and from other income, which outweighed increases in cost of
sales, selling, and general and administrative expenses, research and
development expenses, and provision for income taxes.

COMPARISON OF SIX MONTHS ENDED FEBRUARY 28, 2007 AND 2006.

The following table sets forth our consolidated statements of operations (in
thousands) and the percentages that such items bear to net sales:

<TABLE>
<S>            <C>
                                                    ------------------------------------------------------------
                                                                         Six Months Ended
                                                    ------------------------------------------------------------
                                                               02/28/07                      02/28/06
                                                    ------------------------------- ----------------------------
Net sales                                                 $   3,990           100%      $  2,301           100%
Cost of sales                                                   998           25.1           719           31.3
                                                    ---------------- -------------- ------------- --------------
Gross profit                                                  2,992           75.0         1,582           68.8
                                                    ---------------- -------------- ------------- --------------
Selling, general and administrative                           1,693           42.4         1,316           57.2
Research and development                                        400           10.0           217            9.4
                                                    ---------------- -------------- ------------- --------------
Total operating expenses                                      2,093           52.5         1,533           66.6
                                                    ---------------- -------------- ------------- --------------
Income from operations                                          899           22.5            49            2.1
                                                    ---------------- -------------- ------------- --------------
Other income                                                     51            1.3            11            0.5
                                                    ---------------- -------------- ------------- --------------
Net income before taxes                                         950           23.8            60            2.6
                                                    ---------------- -------------- ------------- --------------
Benefit from (provision for) income taxes                      (209)          (5.2)          (10)          (1.4)
                                                    ---------------- -------------- ------------- --------------
Net income                                                   $  741          18.6%         $  50           2.2%
                                                    ================ ============== ============= ==============
</TABLE>

NET SALES

Consolidated net sales increased $1,689,000, or 73.4%, to $3,990,000 in the
first six months of fiscal year 2007 (FY07) from $2,301,000 in the first six
months of fiscal year 2006 (FY06). Our sales from pharmaceutical and educational
software increased approximately $1,549,000, or 143.1%; and our Words+, Inc.
subsidiary's sales increased approximately $140,000, or 11.5%, for the first six
months of fiscal year 2007. 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.

We attribute the increase in Words+ sales primarily to increases in sales of
"Say-it! SAM", "TuffTalker" and "Freedom" products. Some declines in software
sales and "TuffTalker Plus" products were offset by these increases.

COST OF SALES

Consolidated cost of sales increased $279,000, or 38.9%, to $998,000 in the
first six months of FY07 from $719,000 in the first six months of FY06; however,
as a percentage of revenue, cost of sales decreased 6.2%. For Simulations Plus,
cost of sales increased $172,000, or 104.1%; however, as a percentage of
revenue, cost of sales decreased to 12.8% in the first six months of FY07 from
15.3% in the first six months of FY06. A significant portion of cost of sales
for pharmaceutical software products is the systematic amortization of
capitalized


                                       23

<PAGE>

software development costs, which is an independent fixed cost rather than a
variable cost related to sales. This amortization cost increased approximately
$101,000, or 144.7%, in the first six months of FY07 compared with the same
period in FY06. Royalty expense increased approximately $71,000, or 74.3%, in
the first six months of FY07 compared with the same period in FY06; however, as
a percentage of revenue, royalty expense decreased to 6.3%, thus resulting in a
decrease in the percentage of cost of sales.

For Words+, cost of sales increased $107,000, or 19.5%. As a percentage of
revenue, cost of sales increased 3.3% between the first six months of FY07 and
FY06. We attribute the percentage increase in cost of sales for Words+ primarily
to volume discounts provided to a distributor for one large order and to
increased costs of computers and PDAs which are main parts for the systems we
sell.

GROSS PROFIT

Consolidated gross profit increased $1,410,000, or 89.1%, to $2,992,000 in the
first six months of FY07 from $1,582,000 in the first six months of FY06. We
attribute this increase to the increase in sales of pharmaceutical software,
contract studies, and Words+ products which outweighed increases in cost of
goods sold.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Consolidated selling, general and administrative (SG&A) expenses increased
$377,000, or 28.7%, to $1,693,000 in the first six months of FY07 from
$1,316,000 in the first six months of FY06. For Simulations Plus, SG&A increased
$247,000, or 31.8%. As a percentage of sales, SG&A decreased from approximately
71.8% in the first six months of FY06 to approximately 38.9% in the first six
months of FY07. The major increases in SG&A expenses were selling expenses, such
as commissions to dealers, accrued bonus to officers, bad debts from one
receivable from the purchased assets of Bioreason, and increases in salaries
and payroll-related expenses such as health insurance, 401K and payroll taxes,
which outweighed decreases in professional fees

For Words+, SG&A expenses increased $130,000, or 9.8%, due primarily to
increases in commissions, catalogs, marketing consultant fees, telephone and
supplies. These increases outweighed decreases in utilities, technical service
costs, and travel expense.

RESEARCH AND DEVELOPMENT

We incurred approximately $666,000 of research and development costs for both
companies during the first six months of FY07. Of this amount, $266,000 was
capitalized and $400,000 was expensed. In the first six months of FY06, we
incurred $709,000 of research and development costs, of which $492,000,
including an allocation of appraised value of $246,000 on ClassPharmer software,
was capitalized and $217,000 was expensed. The decrease of $43,000, or 6.1%, in
total research and development expenditures from the first six months of FY06 to
the first six months of FY07 was due primarily to the acquisition of the
ClassPharmer software in FY06, which outweighed increases in salaries because of
new hires and salary increases to existing staff since the first six months of
fiscal year FY06. The increase of $183,000 in expensed R&D from $217,000 to
$400,000 is primarily to staff additions in our Life Sciences department.


                                       24

<PAGE>


OTHER INCOME

Net other income in the first six months of FY07 increased by $40,000, or
363.6%, from $11,000 to $51,000. This is due primarily to increased interest
revenue from money market accounts, a gain on currency exchange, and a gain on
sale of assets.

PROVISION FOR INCOME TAXES

The provision for income taxes increased by $199,000, or 2,098%, to $209,000 in
the first six months of FY07 from $10,000 in the first six months of FY06.

NET INCOME (LOSS)

Consolidated net income increased by $691,000, or 1,382.0%, to $741,000 in the
first six months of FY07 from $50,000 in the first six months of FY06. We
attribute this increase in profit primarily to the increases in pharmaceutical
software, contract studies, and other income, which outweighed increases in cost
of sales, selling, and general and administrative expenses, research and
development expenses, provision for income taxes.

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.

                                       25

<PAGE>


Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our risk from exposure to financial markets is limited to foreign exchange
variances and fluctuations in interest rates. We may be subject to some foreign
exchange risks. Most of our business transactions are in U.S. dollars, although
we generate significant revenues from customers overseas. The exception is that
we were compensated in Japanese yen by some Japanese customers. As a result, we
experienced a small gain from currency exchange in the first six months of FY07.
In the future, if foreign currency transactions increase significantly, then we
may mitigate this effect through foreign currency forward contracts whose
market-to-market gains or losses are recorded in "Other Income or expense" at
the time of the transaction. To date, exchange rate exposure has not resulted in
a material impact.

Item 4. Controls and Procedures
        -----------------------

   (a)   EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
         As of the end of the period covered by this report, the Company carried
         out an evaluation, under the supervision and with the participation of
         the Company's management, including the Company's Chief Executive
         Officer and Chief Financial Officer, of the effectiveness of the design
         and operation of the Company's disclosure controls and procedures
         pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the
         Chief Executive Officer and Chief Financial Officer concluded that the
         Company's disclosure controls and procedures are effective in timely
         alerting them to material information relating to the Company required
         to be included in the Company's periodic SEC filings.

   (b)   CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING.
         There were no changes in the Company's internal controls over financial
         reporting during the Company's most recent fiscal quarter that have
         materially affected, or are reasonably likely to materially affect, the
         Company's internal controls over financial reporting.


                                       26

<PAGE>


                           PART II. OTHER INFORMATION

Item 1.           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 have been working through our U.S. attorneys and
                  a law firm in Paris. We have 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. We believe the documentation from our purchase of
                  certain secured assets of Bioreason clearly shows our rights
                  to the disputed accounts. We received an e-mail from our
                  French lawyer that there will be a court hearing in August
                  2007, and our French lawyer will be there to represent us.
                  Although we are pursuing our rights aggressively, there can be
                  no assurance that the outcome will be favorable. We expect
                  resolution of this issue in 2007.

Item 2.           Changes in Securities
                  ---------------------
                  None.

Item 3.           Defaults Upon Senior Securities
                  -------------------------------
                  None.

Item 4.           Submission of Matters to a Vote of Security Holders
                  ---------------------------------------------------
                  On February 23, 2007, the Registrant held its annual meeting
                  of shareholders. The following proposals were submitted to a
                  vote of security holders at the meeting.

          1. Election of directors
                  Walter Woltosz
                  Virginia Woltosz
                  Dr. David Z. D'Argenio
                  Dr. Richard Weiss

          2. Ratification of the selection of Rose, Snyder, and Jacobs as the
             Company's independent accountants.

          3. To approve the 2007 Stock Option Plan, which replaces the expired
             1996 Stock Option Plan.

         The above proposals were approved and the results of the balloting at
         the meeting are summarized in the following table.

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

Proposal       Yes            No          Abstain     Withheld      Total
-------------- -------------- ----------- ----------- ------------- ------------
(1)            6,930,541      --          --          4,000         6,934,541
-------------- -------------- ----------- ----------- ------------- ------------
(2)            6,930,541      --          --          4,000         6,934,541
-------------- -------------- ----------- ----------- ------------- ------------
(3)            6,926,141      400         8,000          --         6,934,541
-------------- -------------- ----------- ----------- ------------- ------------

                                       27

<PAGE>

Item 5.           Other Information
                  -----------------
                  None.

Item 6.           Exhibits and Reports on form 8-K
                  --------------------------------

                  (a) Exhibits:

                  31.1-2    Certification of Chief Executive Officer and Chief
                            Financial Officer
                  32        Certification pursuant to Sec. 906 of the Sarbanes-
                            Oxley Act of 2002



                                       28

<PAGE>


                                    SIGNATURE

In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Lancaster, State of California, on
April 10, 2007.

                                                Simulations Plus, Inc.

Date:  April 10, 2007                           By: /s/ MOMOKO BERAN
                                                    ----------------------------
                                                    Momoko Beran
                                                    Chief Financial Officer



                                       29