SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC  20549





FORM
10-Q





[X]
            Quarterly
      Report Pursuant to Section 13 or 15(d) of the Security Exchange Act of
      1934 for the quarterly period ended February 28,
      2010





OR





[_]
            Transmission
      Report Pursuant to Section 13 or 15(d) of the Security Exchange Act of
      1937 for the transition period from ______ to
  ______





Commission
file number:  001-32046





Simulations
Plus, Inc.


(Name of
registrant as specified in its charter)





California


(State or
other jurisdiction of


Incorporation
or Organization)





95-4595609


(I.R.S.
Employer


identification
No.)





42505
10th
Street West


Lancaster,
CA  93534-7059


(Address
of principal executive offices including zip code)





(661)
723-7723


(Registrant’s
telephone number, including area code)





Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filings requirements for
the past 90 days.    Yes [X]  No [_]




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [_]  No
[_]




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (Check one):




[_] 
      Large accelerated filer
            [_] 
      Accelerated filer[_] 
      Non-accelerated filer (Do not check if a smaller reporting
      company)
            [X]  
      Smaller reporting company





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





The
number of shares outstanding of the registrant’s common stock, par value $0.001
per share, as of April 14, 2010 was 16,066,245 and no shares of preferred stock
were outstanding.










Simulations
Plus, Inc.


FORM
10-Q Quarterly Report


For
the Quarterly Period Ended February 28, 2010





Table of
Contents





PART
I.    FINANCIAL INFORMATION





Item
      1.
            Condensed
      Consolidated Financial Statements
            PageCondensed
      Consolidated Balance Sheets at February 28, 2010 (unaudited) and August
      31, 2009 (audited)
            2Condensed
      Consolidated Statements of Operations for the three months and six months
      ended February 28, 2010 and 2009 (unaudited)
            3Condensed
      Consolidated Statements of Cash Flows for the six months ended February
      28, 2010 and 2009 (unaudited)
            4Notes
      to Condensed Consolidated Financial Statements (unaudited)
            5Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Result of
      Operations
            16Item
      3.
            Quantitative
      and Qualitative Disclosures about Market Risk
            25Item
      4.
            Controls
      and Procedures
            25





PART
II.    OTHER INFORMATION





Item
      1.
            Legal
      Proceedings
            27Item
      1A.
            Risk
      Factors
            27Item
      2.
            Changes
      in Securities
            27Item
      3.
            Defaults
      upon Senior Securities
            27Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            27Item
      5.
            Other
      Information
            28Item
      6.
            Exhibits
            28Signature
            29





SIMULATIONS
PLUS, INC. AND SUBSIDIARY
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 February
28, 2010 (Unaudited) and August 31, 2009 (Audited)










February
      28, 2010
            
            
            August
      31, 2009ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            8,641,289
            
            
            $
            7,473,485Accounts
      receivable, net of allowance for doubtful accountsand
      estimated contractual discounts of $369,897 and
    $447,073
            
            
            1,646,851
            
            
            
            1,888,904Contracts
      receivable
            
            
            383,111
            
            
            
            79,565Inventory
            
            
            336,177
            
            
            
            325,926Prepaid
      expenses and other current assets
            
            
            110,743
            
            
            
            158,738Deferred
      income taxes
            
            
            329,573
            
            
            
            338,516Total
      current assets
            
            
            11,447,744
            
            
            
            10,265,134Capitalized computer software
      development costs,net
      of accumulated amortization of $4,160,046 and $3,843,743
            
            
            2,082,671
            
            
            
            1,942,893Property and equipment,
      net (note 3)
            
            
            48,191
            
            
            
            53,220Customer relationships,net of accumulated amortization of $112,332 and
      $104,728
            
            
            15,709
            
            
            
            23,314Other
      assets
            
            
            18,445
            
            
            
            18,445Total
      assets
            
            $
            13,612,760
            
            
            $
            12,303,006LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable
            
            $
            301,637
            
            
            $
            199,218Accrued
      payroll and other expenses
            
            
            613,921
            
            
            
            552,431Accrued
      bonuses to officers
            
            
            60,000
            
            
            
            60,000Accrued
      warranty and service costs
            
            
            30,670
            
            
            
            43,236Accrued
      income taxes
            
            
            168,438
            
            
            
            -Deferred
      revenue
            
            
            119,751
            
            
            
            82,190Total
      current liabilities
            
            
            1,294,417
            
            
            
            937,075Long-Term
      liabilitiesDeferred
      income taxes
            
            
            857,104
            
            
            
            795,140Total
      liabilities
            
            
            2,151,521
            
            
            
            1,732,215Commitments and
      contingencies (note 4)Shareholders' equity
      (note 5)Preferred
      stock, $0.001 par value10,000,000
      shares authorizedno
      shares issued and outstanding
            
            
            -
            
            
            
            -Common
      stock, $0.001 par value50,000,000
      shares authorized16,054,176
      and 15,700,382 shares issued and outstanding on February 28, 2010and
      August 31, 2009, respectively.
            
            
            4,526
            
            
            
            4,172Additional
      paid-in capital
            
            
            5,391,840
            
            
            
            5,572,411Retained
      earnings
            
            
            6,064,873
            
            
            
            4,994,208Total
      shareholders' equity
            
            
            11,461,239
            
            
            
            10,570,791Total
      liabilities and shareholders' equity
            
            $
            13,612,760
            
            
            $
            12,303,006






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


2





SIMULATIONS
PLUS, INC. AND SUBSIDIARY
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 For
the Three and Six  Months Ended February 28,
 (Unaudited)
 
  Three months ended
              
              
              Six months ended2010
              
              
              2009
              
              
              2010
              
              
              2009Net
      sales
              
              $
              2,949,719
              
              
              $
              2,456,762
              
              
              $
              5,386,771
              
              
              $
              4,590,012Cost
      of sales
              
              
              700,475
              
              
              
              627,124
              
              
              
              1,307,364
              
              
              
              1,187,096Gross
      profit
              
              
              2,249,244
              
              
              
              1,829,638
              
              
              
              4,079,407
              
              
              
              3,402,916Operating
      expensesSelling,
      general, and administrative
              
              
              1,088,819
              
              
              
              1,036,724
              
              
              
              2,093,092
              
              
              
              1,940,414Research
      and development
              
              
              252,098
              
              
              
              286,115
              
              
              
              513,423
              
              
              
              553,954Total
      operating expenses
              
              
              1,340,917
              
              
              
              1,322,839
              
              
              
              2,606,515
              
              
              
              2,494,368Income
      from operations
              
              
              908,327
              
              
              
              506,799
              
              
              
              1,472,892
              
              
              
              908,548Other
      income (expense)Interest
      income
              
              
              23,560
              
              
              
              19,606
              
              
              
              46,046
              
              
              
              52,993Interest
      expense
              
              
              (1
              )
              
              
              -
              
              
              
              (303
              )
              
              
              -Miscellaneous
      income
              
              
              -
              
              
              
              -
              
              
              
              231
              
              
              
              43Gain
      on sales of property and equipment
              
              
              -
              
              
              
              -
              
              
              
              1,024
              
              
              
              -Gain
      on currency exchange
              
              
              41,962
              
              
              
              32,340
              
              
              
              115,194
              
              
              
              50,216Total
      other income (expense)
              
              
              65,521
              
              
              
              51,946
              
              
              
              162,192
              
              
              
              103,252Income
      before provision for income taxes
              
              
              973,848
              
              
              
              558,745
              
              
              
              1,635,084
              
              
              
              1,011,800Provision
      for income taxes
              
              
              (332,985
              )
              
              
              (190,673
              )
              
              
              (564,418
              )
              
              
              (332,006
              )Net
      income
              
              $
              640,863
              
              
              $
              368,072
              
              
              $
              1,070,666
              
              
              $
              679,794Basic
      earnings per share
              
              $
              0.04
              
              
              $
              0.02
              
              
              $
              0.07
              
              
              $
              0.04Diluted
      earnings per share
              
              $
              0.04
              
              
              $
              0.02
              
              
              $
              0.06
              
              
              $
              0.04Weighted-average
      common shares outstandingBasic
              
              
              15,826,030
              
              
              
              16,268,583
              
              
              
              15,735,400
              
              
              
              16,309,683Diluted
              
              
              16,558,423
              
              
              
              17,108,322
              
              
              
              16,479,033
              
              
              
              17,312,242










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




3




SIMULATIONS
PLUS, INC. AND SUBSIDIARY
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 For
the Six Months Ended February 28,
 (Unaudited)







2010
              
              
              2009Cash
      flows from operating activitiesNet
      income
              
              $
              1,070,666
              
              
              $
              679,794Adjustments
      to reconcile net income to net cashprovided
      by operating activitiesDepreciation
      and amortization of property and equipment
              
              
              13,246
              
              
              
              10,719Amortization
      of customer relationships
              
              
              7,605
              
              
              
              10,597Amortization
      of capitalized computer software development costs
              
              
              316,304
              
              
              
              252,043Bad
      debts
              
              
              70,283
              
              
              
              129,881Stock-based
      compensation
              
              
              32,285
              
              
              
              80,968Gain
      on sales of property and equipment
              
              
              (1,024
              )
              
              
              -Deferred
      income taxes
              
              
              70,907
              
              
              
              (62,400
              )(Increase)
      decrease inAccounts
      receivable
              
              
              (107,200
              )
              
              
              (209,815
              )Inventory
              
              
              (10,251
              )
              
              
              22,453Other
      assets
              
              
              47,995
              
              
              
              91,695Increase
      (decrease) inAccounts
      payable
              
              
              102,418
              
              
              
              (6,757
              )Accrued
      payroll and other expenses
              
              
              61,491
              
              
              
              58,909Accrued
      bonuses to officers
              
              
              -
              
              
              
              (6,747
              )Accrued
      income taxes
              
              
              168,438
              
              
              
              301,564Accrued
      warranty and service costs
              
              
              (12,566
              )
              
              
              17,759Deferred
      revenue
              
              
              37,561
              
              
              
              122,500Net
      cash provided by operating activities
              
              
              1,868,158
              
              
              
              1,493,163Cash
      flows from investing activitiesPurchases
      of property and equipment
              
              
              (31,769
              )
              
              
              (34,777
              )Proceeds
      from sale of investments
              
              
              -
              
              
              
              750,000Capitalized
      computer software development costs
              
              
              (456,082
              )
              
              
              (352,869
              )Net
      cash provided by (used in) investing activities
              
              
              (487,851
              )
              
              
              362,354Cash
      flows from financing activitiesRepurchase
      of common stock
              
              
              (288,698
              )
              
              
              (271,713
              )Proceeds
      from the exercise of stock options
              
              
              76,195
              
              
              
              48,806Net
      cash used in financing activities
              
              
              (212,503
              )
              
              
              (222,907
              )Net
      increase in cash and cash equivalents
              
              $
              1,167,804
              
              
              $
              1,632,610Cash
      and cash equivalents, beginning of year
              
              
              7,473,485
              
              
              
              5,889,601Cash
      and cash equivalents, end of period
              
              $
              8,641,289
              
              
              $
              7,522,211Supplemental
      disclosures of cash flow informationInterest
      paid
              
              $
              302
              
              
              $
              -Income
      taxes paid
              
              $
              260,464
              
              
              $
              -




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










4





Simulations
Plus, Inc.





NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





Note 1:
GENERAL





This
report on Form 10-Q for the quarter ended February 28, 2010, should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
August 31, 2009, filed with the SEC on November 30, 2009 and its amendment filed
on March 1, 2010. As contemplated by the Securities and Exchange Commission
under Article 8 of Regulation S-X, 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
condensed 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 computer software development costs,
valuation of stock options, and accounting for income taxes.





Principles of
Consolidation


The
condensed 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 revenues related to software licenses and software maintenance in
accordance with Financial Accounting Standards Boards (“FASB”) Accounting
Standards Codification (“ASC”) 985-605.  Software products revenue is
recorded when the following conditions are met: 1) evidence of arrangement
exists, 2) delivery has been made, 3) the amount is fixed, and 4) collectability
is probable.  Post-contract customer support ("PCS") obligations are
insignificant; therefore, revenue for PCS is recognized at the same time as the
licensing fee, and the costs of providing such support services are accrued and
amortized over the obligation period.  For Words+ products, the
revenue is recorded at the time of shipment, net of estimated allowances and
returns.





5


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





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





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





We
recognize contract study revenue either equally over the term of the contract or
using the percentage of completion method, depending upon how the contract
studies are engaged, in accordance with FASB ASC 605-35.  To
recognize revenue using the percentage of completion method, we must determine
whether we meet the following criteria:  1) there is a long-term,
legally enforceable contract, 2) it is possible to reasonably estimate the total
project costs, and 3) it is possible to reasonably estimate the extent of
progress toward completion.





Reclassifications


Certain
numbers in the prior year have been reclassified to conform to the current
year’s presentation.





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





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.





6


Capitalized Computer
Software Development Costs


Software
development costs are capitalized in accordance with FASB ASC
985-20.  Capitalization of software development costs begins upon the
establishment of technological feasibility and is discontinued when the product
is available for sale.





The
establishment of technological feasibility and the ongoing assessment for
recoverability of capitalized software development costs require considerable
judgment by management with respect to certain external factors including, but
not limited to, technological feasibility, anticipated future gross 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 $316,304 and $252,043 for the six months ended
February 28, 2010 and 2009, 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.





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
      yearsComputer
      equipment
            3
      to 7 yearsFurniture
      and fixtures
            5
      to 7 yearsLeasehold
      improvements
            Shorter
      of life of asset or lease





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





Fair Value of Financial
Instruments


Assets
and liabilities recorded at fair value in the Condensed Consolidated Balance
Sheets are categorized based upon the level of judgment associated with the
inputs used to measure their fair value. The categories, as defined by the
standard are as follows:





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





7


The
following table summarizes fair value measurements by level at February 28, 2010
for assets and liabilities measured at fair value on a recurring
basis:





Level
      I
            
            
            Level
      II
            
            
            Level
      III
            
            
            TotalCash
      and cash equivalents
            
            $
            8,641,289
            
            
            $
            -
            
            
            $
            -
            
            
            $
            8,641,289Total
      assets
            
            $
            8,641,289
            
            
            $
            -
            
            
            $
            -
            
            
            $
            8,641,289





For
certain of our financial instruments, including accounts receivable, accounts
payable, accrued payroll and other expenses, accrued bonuses to officers, and
accrued warranty and service costs, the amounts approximate fair value due to
their short maturities.





Shipping and
Handling


Shipping
and handling costs, recorded as cost of sales, amounted to $54,715 and $47,666
for the six months ended February 28, 2010 and 2009, 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


We
utilize FASB ASC 740-10 which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns.





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





The
difference between income tax expense attributable to continuing operations and
the amount of income tax expenses that would result from applying domestic
federal statutory rates to pre-tax income is mainly related to state income
taxes, offset by the utilization of research and development credits for federal
and state purposes.  Our policy is to include interest and penalties
related to unrecognized tax benefits in income tax expense.  Interest
and penalties amounted to $731 and $315 for the six months ended February 28,
2010 and 2009, respectively.





Customer
relationships


We
purchased customer relationships as a part of the acquisition of certain assets
of Bioreason, Inc. in November 2005.  Customer relationships was
recorded at a cost of $128,042, and is being amortized over 78 months under the
sum-of-the-years’-digits method.  Amortization expense for the six
months ended February 28, 2010 and 2009 amounted to $7,605 and $10,597,
respectively.  Accumulated amortization as of February 28, 2010 and
2009 was $112,333 and $95,626, respectively.





8


Earnings per
Share


We report
earnings per share in accordance with FASB ASC 260-10 .  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, 2010 and 2009 were as follows:




02/28/2010
              
              
              02/28/2009NumeratorNet
      income attributable to common shareholders
              
              $
              1,070,666
              
              
              $
              679,794DenominatorWeighted-average
      number of common shares outstanding during the year
              
              
              15,735,400
              
              
              
              16,309,683Dilutive
      effect of stock options
              
              
              743,633
              
              
              
              1,002,559Common
      stock and common stock equivalents used for diluted earning per
      share
              
              
              16,479,033
              
              
              
              17,312,242




Stock-Based
Compensation


Compensation
costs related to stock options are determined in accordance with FASB ASC 718-10
using the modified prospective method.  Under this method,
compensation cost 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 FASB
ASC 718-10, amortized on a straight-line basis over the options’
vesting period.  Stock-based compensation was $32,284 and $80,967 for
the six months ended February 28, 2010 and 2009, respectively, and is included
in the condensed consolidated statements of operations as Salaries, Consulting,
and Research and Development expense.





Concentrations and
Uncertainties


International
sales accounted for 30% and 29% of net sales for the six months ended February
28, 2010 and 2009, respectively.  For Simulations Plus, Inc.
(Pharmaceutical segment), two customers accounted for 22% and 15% of net sales
during the six months ended February 28, 2010, compared with two customers
accounting for 22% each of net sales during the six months ended February 28,
2009.  We license our software on an annual basis, and two large
customers renew their licenses during the first six months of our fiscal
year.  Therefore, as a percent of total revenue, the renewals from
those two customers typically result in 20+ percent of all Pharmaceutical
revenue for the first six months.





For
Words+, Inc., third-party billing, which includes various government agencies as
well as private insurance companies, accounted for 61% of net sales during the
six months ended February 28, 2010, compared with 60% of net sales during the
six months ended February 28, 2009.  If changes are made in government
funding policies for Words+ products, Words+ revenue may be
impacted.  We continually evaluate and monitor regulatory developments
in funding matters, and we do not expect Medicare and Medicaid of all 50 states
to discontinue their funding of Words+ products; however, there can be no
assurances that the current level of revenue from third parties will
continue.





We
operate in the computer software industry, which is highly competitive and
changes rapidly.  Our operating results could be significantly
affected by our ability to develop new products and find new distribution
channels for new and existing products.





9


For
Simulations Plus (Pharmaceutical segment), three customers comprised 19%, 15% (a
dealer account representing various customers), and 10% of its accounts
receivable at February 28, 2010, and three customers comprised 18%, 14%, and 12%
of its accounts receivable at February 28, 2009.   For Words+,
third-party billing, which includes various government agencies, comprised 90%
of its accounts receivable at February 28, 2010, and 75% of its accounts
receivable at February 28, 2009.  The collection of those accounts
receivable in timely manner is critical in Words+’ cash flow and its
operations.  We have three dedicated funding personnel who continually
track such collections.





Our
subsidiary, Words+, Inc., purchases components for its main computer products
from four 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 Words+ to obtain computers used in its products or to renew its
licensing agreement to use pictographic symbols could negatively impact our
financial position, results of operations, and cash flows.





Recently Issued Accounting
Pronouncements


In
September 2009, the FASB issued ASU
2009-14 whichamends Statement of Position (“SOP”) 97-2, “Software
Revenue Recognition”, to exclude tangible products containing software
components and non-software components that function together to deliver the
product’s essential functionality.  ASU
2009-14 applies to revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010, with early
application permitted with EITF 08-1.  We expect to adopt this
standard in the first quarter of fiscal 2011.  We are currently
evaluating the impact ASU
2009-14 will have on our consolidated financial statements.




In
September 2009, the FASB issued ASU
2009-13, “Revenue Arrangements with Multiple Deliverables” (“EITF
08-1”).  ASU
2009-13 amends EITF 00-21, “Revenue Arrangements with Multiple
Deliverables”, to require an entity to use an estimated selling price when
vendor-specific objective evidence or acceptable third-party evidence does not
exist for any products or services included in a multiple element
arrangement.  The arrangement consideration should be allocated among
the products and services based upon their relative selling prices, thus
eliminating the use of the residual method of allocation.  ASU
2009-13 also requires expanded qualitative and quantitative disclosures
regarding significant judgments made and changes in applying the
guidance.  ASU
2009-13 applies to fiscal years beginning after June 15, 2010, with early
application permitted.  We expect to adopt this standard in the first
quarter of fiscal 2011.  We are currently evaluating the impact ASU
2009-13 will have on the financial statements.




Note
3:  PROPERTY AND EQUIPMENT





Property
and equipment as of February 28, 2010 consisted of the following:





Equipment
            
            $
            80,830Computer
      equipment
            
            
            383,873Furniture
      and fixtures
            
            
            61,498Automobile
            
            
            21,769Leasehold
      improvements
            
            
            53,898Sub
      total
            
            
            601,868Less:
      Accumulated depreciation and amortization
            
            
            (553,677
            )Net
      Book Value
            
            
            48,191





10


Note
4:  COMMITMENTS AND CONTINGENCIES





Employment
Agreement


On August
31, 2009, we entered into an employment agreement with our President/Chief
Executive Officer that expires in August 2011.  The employment
agreement provides for an annual base salary of $275,000 per year, and a
performance bonus in an amount not to exceed 10% of Employee’s salary, or
$27,500 per year, at the end of each fiscal year.  The specific amount
of the bonus to be awarded will be determined by the Compensation Committee of
the Board of Directors, based on the financial performance and achievements of
the Company for the previous fiscal year.  The agreement also provides
Employee stock options, exercisable for five years, to purchase fifty (50)
shares of Common Stock for each one thousand dollars ($1,000) of net income
before taxes at the end of each fiscal year up to a maximum of 120,000 options
over the term of the agreement.  We may terminate the agreement upon
30 days' written notice if termination is without cause.  Our 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.





Litigation


We are
not a party to any litigation at this time and we are not aware of any pending
litigation of any kind.





Note 5:
SHAREHOLDERS’ EQUITY





Stock
Repurchase


On
October 23, 2008, the board of directors authorized a share repurchase program
enabling the buyback of up to $2.5 million in shares during a 12-month period
beginning Monday, October 27, 2008.  The actual repurchase started on
December 2, 2008; therefore the board of directors extended it through December
1, 2009 in order to have a full 12-month period.  We have opened an
account with Morgan Stanley Smith Barney for the purchase of such securities.
Funds for any stock purchases will be drawn from our cash reserves.





On
January 10, 2010, the board of directors authorized a renewed share repurchase
program effective as of February 15, 2010.  The renewed program
enables the Company to buy back up to one million shares during a 12-month
period.  As of February 28, 2010, we had not bought back any
shares under the renewed share repurchase program.





The
details of repurchases made during the six months ended February 28, 2010 are
listed in the following table:





Period
            
            Total
      Number of Shares Purchased
            
            Average
      Price Paid per Share
            
            Remaining
      Funds Available Under the Share Repurchase Plan (including broker’s
      fees)As
      of 08/31/09
            
            
            846,842
            
            
            $1.2569
            
            
            $1,416,56409/01/09
      to 09/30/09
            
            
            82,630
            
            
            $1.6989
            
            
            $1,274,15510/01/09
      to 10/31/09
            
            
            52,364
            
            
            $1.5685
            
            
            $1,190,38611/01/09
      to 11/30/09
            
            
            42,061
            
            
            $1.4884
            
            
            $1,126,56012/01/09
            
            
            2,586
            
            
            $1.3823
            
            
            $1,122,985As
      of 02/28/10
            
            
            1,026,483
            
            
            $1.3182





11


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 1,000,000
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 2,000,000.  In February 2000, the
shareholders approved an increase in the number of shares that may be granted
under the Option Plan to 4,000,000.  In December 2000, the
shareholders approved an increase in the number of shares that may be granted
under the Option Plan to 5,000,000.  Furthermore, in February 2005,
the shareholders approved an additional 1,000,000 shares, resulting in the total
number of shares that may be granted under the Option Plan to 6,000,000. The
1996 Stock Option Plan terminated in September 2006 by its term.





On
February 23, 2007, the Board of Directors adopted and the shareholders approved
the 2007 Stock Option Plan under which a total of 1,000,000 shares of common
stock had been reserved for issuance.





TRANSACTIONS
IN FY 2010





Number
      of Options
            
            
            Weighted-Average
      Exercise Price
              Per
      Share
            
            
            Weighted-Average
      Remaining Contractual Life (Years)Outstanding,
      August 31, 2009
            
            
            2,862,536
            
            
            $
            0.97Granted
            
            
            202,666
            
            
            $
            1.62Exercised/Released
            
            
            (796,500
            )
            
            $
            0.58Cancelled/Forfeited
            
            
            (27,000
            )
            
            $
            1.47Expired
            
            
            (377,000
            )
            
            $
            1.88Outstanding,
      February 28, 2010
            
            
            1,864,702
            
            
            $
            1.02
            
            
            
            4.5Exercisable,
      February 28, 2010
            
            
            1,196,236
            
            
            $
            0.83
            
            
            
            2.8




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 our 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 our employee stock options.





The
weighted-average remaining contractual life of options outstanding issued under
the Plan was 4.45 years at February 28, 2010.  The exercise prices for
the options outstanding at February 28, 2010 ranged from $0.26 to $3.03, and the
information relating to these options is as follows:





12





Exercise
      Price
            
            
            Awards
      Outstanding
            
            
            Awards
      ExercisableLow
            
            
            High
            
            
            Quantity
            
            Weighted
      Average Remaining Contractual Life
            
            Weighted
      Average Exercise Price
            
            
            Quantity
            
            Weighted
      Average Remaining Contractual Life
            
            Weighted
      Average Exercise Price$0.26
            
            
            $0.50
            
            
            
            451,936
            
            1.0
      years
            
            $0.37
            
            
            
            451,936
            
            1.0
      years
            
            $0.37$0.51
            
            
            $0.75
            
            
            
            220,000
            
            0.1
      years
            
            $0.75
            
            
            
            220,000
            
            0.1
      years
            
            $0.75$0.76
            
            
            $1.25
            
            
            
            862,100
            
            6.7
      years
            
            $1.07
            
            
            
            483,100
            
            5.1
      years
            
            $1.14$1.26
            
            
            $3.03
            
            
            
            330,666
            
            6.1
      years
            
            $1.97
            
            
            
            41,200
            
            8.1
      years
            
            $2.711,864,702
            
            4.5
      years
            
            $1.02
            
            
            
            1,196,236
            
            2.8
      years
            
            $0.83


Other Stock
Options


As of
February 28, 2010, the Board of Directors holds options to purchase 63,000
shares of common stock at exercise prices ranging from $0.30 to $6.68, which
were granted prior to February 28, 2010.





TRANSACTIONS
IN FY 2010





Transactions
      in FY10
            
            Number
      of Options
            
            
            Weighted-Average
      Exercise Price
              Per ShareOutstanding,
      August 31, 2009
            
            
            51,000
            
            
            $
            1.89Granted
            
            
            12,000
            
            
            $
            1.67Exercised
            
            
            -
            
            
            $
            -Expired
            
            
            -
            
            
            $
            -Outstanding,
      February 28, 2010
            
            
            63,000
            
            
            $
            1.85Exercisable,
      February 28, 2010
            
            
            42,000
            
            
            $
            1.63




Note
6:  SEGMENT AND GEOGRAPHIC REPORTING





We
account for segments and geographic revenues in accordance
with ASC 280-10. 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, 2010 and February 28, 2009 (in thousands):





13





February
      28, 2010Simulations
      Plus, Inc
            
            
            Words
      +, Inc.
            
            
            Eliminations
            
            
            TotalNet
      Sales
            
            $
            3,962
            
            
            $
            1,425
            
            
            
            
            
            $
            5,387Income
      (loss) from operations
            
            
            1,692
            
            
            
            (219
            )
            
            
            
            
            
            1,473Identifiable
      assets
            
            
            13,421
            
            
            
            1,754
            
            
            $
            (1,562
            )
            
            
            13,613Capital
      expenditures
            
            
            22
            
            
            
            10
            
            
            
            
            
            
            
            32Depreciation
      and Amortization
            
            
            310
            
            
            
            27
            
            
            
            
            
            
            
            337





February
      28, 2009Simulations
      Plus, Inc
            
            
            Words
      +, Inc.
            
            
            Eliminations
            
            
            TotalNet
      Sales
            
            $
            3,208
            
            
            $
            1,382
            
            
            
            
            
            $
            4,590Income
      (loss) from operations
            
            
            1,028
            
            
            
            (119
            )
            
            
            
            
            
            908Identifiable
      assets
            
            
            12,272
            
            
            
            2,079
            
            
            $
            (1,721
            )
            
            
            12,630Capital
      expenditures
            
            
            15
            
            
            
            20
            
            
            
            
            
            
            
            35Depreciation
      and Amortization
            
            
            248
            
            
            
            25
            
            
            
            
            
            
            
            273





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, 2010 and 2009 were as follows (in thousands):




February
28, 2010


North
      America
            
            
            Europe
            
            
            Asia
            
            
            Oceania
            
            
            TotalSimulations
      Plus, Inc.
            
            $
            2,421
            
            
            $
            1,124
            
            
            $
            417
            
            
            $
            -
            
            
            $
            3,962Words+,
      Inc.
            
            
            1,342
            
            
            
            22
            
            
            
            34
            
            
            
            27
            
            
            
            1,425Total
            
            $
            3,763
            
            
            $
            1,146
            
            
            $
            451
            
            
            $
            27
            
            
            $
            5,387





February
28, 2009


North
      America
            
            
            Europe
            
            
            Asia
            
            
            Oceania
            
            
            TotalSimulations
      Plus, Inc.
            
            $
            1,934
            
            
            $
            866
            
            
            $
            408
            
            
            $
            -
            
            
            $
            3,208Words+,
      Inc.
            
            
            1,335
            
            
            
            13
            
            
            
            7
            
            
            
            27
            
            
            
            1,382Total
            
            $
            3,269
            
            
            $
            879
            
            
            $
            415
            
            
            $
            27
            
            
            $
            4,590





Note
7:  EMPLOYEE BENEFIT PLAN





We
maintain a 401(K) Plan for all eligible employees, and 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.  Our contributions to this Plan amounted
to $40,975 and $38,611 for the six months ended February 28, 2010 and February
28, 2009, respectively.





14


Note
8:  SUBSEQUENT EVENT





From
March 1, 2010 to April 12, 2010, an additional 34,689 shares were issued as
results of options exercised.





In April
2010, we started buying back our own shares under the renewed repurchase
program, and we plan to continue our share repurchase in accordance with the
share repurchase plan, which authorizes up to 1 million shares through February
15, 2011.





Period
            
            Total
      Number of Shares Purchased
            
            
            Average
      Price Paid per Share
            
            
            Remaining
      Shares Authorized to Purchase Under the Share Repurchase
      Plan04/01/10
      to 04/09/10
            
            
            22,620
            
            
            
            $1.845
            
            
            
            977,380





15


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





Forward-Looking
Statements





This
document and the documents incorporated in this document by reference contain
forward-looking statements that are subject to risks and uncertainties. All
statements other than statements of historical fact contained in this document
and the materials accompanying this document are forward-looking
statements.




The
forward-looking statements are based on the beliefs of our management, as well
as assumptions made by and information currently available to our management.
Frequently, but not always, forward-looking statements are identified by the use
of the future tense and by words such as “believes,” expects,” “anticipates,”
“intends,” “will,” “may,” “could,” “would,” “projects,” “continues,” “estimates”
or similar expressions. Forward-looking statements are not guarantees of future
performance and actual results could differ materially from those indicated by
the forward-looking statements. Forward-looking statements involve known and
unknown risks, uncertainties, and other factors that may cause our or our
industry’s actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by the forward-looking
statements.




The
forward-looking statements contained or incorporated by reference in this
document are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended (“Securities Act”) and
Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange
Act”) and are subject to the safe harbor created by the Private Securities
Litigation Reform Act of 1995. These statements include declarations regarding
our plans, intentions, beliefs or current expectations.




Among the
important factors that could cause actual results to differ materially from
those indicated by forward-looking statements are the risks and uncertainties
described under “Risk Factors” in our Annual Report and elsewhere in this
document and in our other filings with the SEC.




Forward-looking
statements are expressly qualified in their entirety by this cautionary
statement. The forward-looking statements included in this document are made as
of the date of this document and we do not undertake any obligation to update
forward-looking statements to reflect new information, subsequent events or
otherwise.





General





BUSINESS





Simulations
Plus, Inc. (together with its subsidiary referred to as the “Company,” “us,”
“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, as well as provides contract research services to the pharmaceutical
industry.  Simulations Plus has also taken over responsibility for
producing a personal productivity software program called Abbreviate! originally
spun out of products for the disabled by Words+ for the retail market, and (2)
Words+, founded in 1981, produces computer software and specialized hardware for
use by persons with disabilities. For the purposes of this document, we
sometimes refer to the two businesses as “Simulations Plus” when referring to
the business that is pharmaceutical software and services, educational software,
and Abbreviate!, and “Words+” when referring to the business that is focused on
assistive technologies for persons with disabilities.





16


SIMULATIONS
PLUS





PRODUCTS


We
currently offer four software products for pharmaceutical research: ADMET
PredictorTM, ClassPharmerTM, DDDPlusTM, and GastroPlusTM.  In addition to
pharmaceutical research products, we offer a personal productivity software,
“Abbreviate!” through the on-line Apple store as well as a Windows XP version
through our website. We also offer a product line called FutureLabTM that
provides simulated experiments for middle school and high school general science
classes.





ADMET
Predictor


Every
drug molecule that fails in clinical trials, and every approved drug that gets
withdrawn from the market, was bad from the time its structure was first drawn
by a chemist or generated by a computer. They don’t become bad later. Thus, the
ability to predict unsuitable characteristics of new molecules as early as
possible offers the promise of avoiding costly programs that end up in
late-stage failures.  Although not every failure mode can be predicted
in this manner, those that can provide a means to reduce the number of failures
that frequently occur after years of work and millions of dollars (sometimes
over $1.5 billion) have been spent.





ADMET
(Absorption, Distribution, Metabolism, Excretion and Toxicity) Predictor
provides a collection of highly sophisticated and statistically significant
numerical models that predict various properties of chemical compounds from just
their molecular structures.  Our models are built using
state-of-the-art machine learning approaches that are based primarily on
artificial neural network ensembles (groups of artificial neural networks). Our
models have been consistently demonstrated by independent third parties to
provide the most accurate prediction capabilities available today.





This
capability means a chemist can merely draw a molecule diagram and get estimates
of a wide variety of properties, even though the molecule has never existed.
Drug companies continually search through millions of such “virtual” molecular
structures as they attempt to find new drugs. It has been estimated that there
are somewhere on the order of 1062
possible drug-like molecular structures. That is such a huge number that it is
difficult to comprehend. If we could evaluate a trillion molecules (1012) per
second (we cannot), it would still take 1050
seconds to evaluate them all -- that’s about 1042
years. The age of the universe is said to be less than 1010
years. Clearly, we will never be able to make and test all of them, so
computerized methods are the only hope to even scratch the surface of the total
“chemical space” for potential pharmaceutical products.





The vast
majority of drug-like 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 cell walls 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 (such as albumin) in blood to such a high
extent that little unbound drug is available to reach the target, and many will
produce a variety of adverse effects. Identification of such properties in the
computer (“in silico”)
enables researchers to eliminate poor compounds quickly and early before
spending time and money to make them and run experiments to identify their
weaknesses. Today, many potential new molecules can be eliminated on the basis
of the properties predicted by ADMET Predictor without the need to actually make
and test them.





Several
independent studies have been published that compare the accuracy of software
programs like ADMET Predictor. In almost every case, ADMET Predictor has been
ranked first in accuracy. The specific set of molecules used in such studies, as
well as the statistics used for comparison, may favor one program over others;
however, across all published studies, ADMET Predictor has been top-ranked far
more than any other program. This is a remarkable accomplishment, considering
the greater size and resources of many of our competitors.





17


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





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





ADMET
Predictor is compatible with the popular Pipeline PilotTM 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 computer files. The chemist needs to decide which few
molecules from these large “libraries” should be made and tested. Using Pipeline
Pilot with ADMET Predictor (and ClassPharmerTM – see below), perhaps in
conjunction with other software products, the chemist can create and screen very
large libraries faster and more efficiently than by running each program by
itself. Many scientists believe that in silico molecule design is
the wave of the future, and we believe we are at the forefront of this new
technology.





During
the second quarter, we continued to make good progress on our Small Business
Innovation Research (SBIR) grant with the National Institutes of Health (NIH).
Efforts during the second quarter included continuing work on the ability to
predict which atoms in a molecule are most likely to be affected by metabolism
by certain enzymes. This is an exciting new capability that is a part of our
SBIR grant effort, and we expect it will add an important new capability to
ADMET Predictor when it is completed.





ClassPharmerTM


ClassPharmer
continues to evolve into an ever more powerful tool for medicinal and
computational chemists. Coupled with ADMET Predictor, the two programs provide
an unmatched capability for chemists to search through huge libraries of
compounds to find the most interesting classes and molecules that are active
against a particular target. In addition, ClassPharmer with ADMET Predictor can
take an interesting (but not acceptable) molecule and generate high quality
analogs (i.e., similar new molecules) using several different algorithms to
generate new molecules that are both active against a target while also being
acceptable in a variety of ADMET (Absorption, Distribution, Metabolism,
Excretion and Toxicity) properties.





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





18


During
the second quarter, the “refactoring” effort continued, and the in-house test
version of ClassPharmer is now both faster and more compact, and has a number of
new powerful options for visualizing various types of information generated by
the program. We believe the upcoming release of the next version of ClassPharmer
will be received with considerable excitement, and we will be presenting results
generated with it as part of a scientific poster session at the ADMET 2010
conference in Munich in April.





DDDPlus


DDDPlus
sales have continued to grow as more and more formulation scientists recognize
the value of this one-of–a–kind simulation software in their work. During 2009,
improvements were added to further enhance the value of this product, including
numerous user convenience features, as well as more sophisticated handling of
dosage forms that incorporate multiple polymers for controlled release
formulations.





Development
efforts on DDDPlus were minimal during the second quarter because of a heavy
load of contract consulting studies that required staff time to complete on
schedule. A few small improvements and minor bug fixes were
implemented.





GastroPlus


GastroPlus
continues to enjoy its “gold standard” status in the industry for its class of
simulation software. At the recent annual conference of the American Association
of Pharmaceutical Scientists in Los Angeles in November 2009, GastroPlus was
mentioned by every speaker in several different sessions. No other competitive
product received such recognition. GastroPlus is used industry-wide from early
drug discovery through preclinical development and into early clinical
trials.





At an
international conference in Shanghai, China, in May 2008, Pfizer scientists
presented a scientific poster describing a two-year study in which all four
commercially available PBPK (physiologically based pharmacokinetics) simulation
programs were compared for their ability to predict human pharmacokinetics from
preclinical (animal and in
vitro) data. The study was divided into two arms: intravenous and oral
dosing. GastroPlus was ranked first in both arms. No other software was ranked
consistently second or third. This independent evaluation, which was
accomplished via analysis of 21 Pfizer proprietary compounds with data from
early discovery all the way through human trials, provides the strongest
possible validation of the superiority of GastroPlus in pharmaceutical research
and development.





The
insight gained through GastroPlus simulations can guide project decisions in
various ways. Among the kinds of knowledge gained through such simulations are:
(1) the best estimate for “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 after absorption 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 (such
as from ADMET Predictor) or simple experiments rather than through more
expensive and time-consuming in vitro or animal
experiments, (5) what the likely variations in blood and tissue concentration
levels of a new drug would be in a large population, in different age groups or
in different ethnic groups, and (6) whether a new formulation for an existing
approved drug is likely to demonstrate “bioequivalence” (equivalent blood
concentration versus time) to the currently marketed dosage form in a human
trial.





19


In
November 2009 we released the current version of GastroPlus (version 6.1). This
release provides new capabilities for dosing to the oral cavity via lingual (on
the tongue), sublingual (under the tongue), and buccal (inside the cheek) dosage
forms. We also added better prediction of the dissolution and absorption of
certain low-solubility drugs by incorporating the distribution of bile salts in
the intestinal tract for both fasted and fed conditions, and a separate
improvement that better handles the dissolution and absorption of nanoparticle
formulations.





Work on
Version 7.0, the next major release, continued through the second quarter. This
important new release will incorporate a highly sophisticated drug-drug
interaction simulation capability that we’ve been developing under our funded
collaboration with Roche. Beta versions of the drug-drug interaction module have
been in testing at Roche for several months with excellent results. This new
version will also include the ocular drug delivery model from our funded
collaboration with Pfizer and the pulmonary drug delivery model we developed
under our funded collaboration with GlaxoSmithKline. We believe this combination
of capabilities will put GastroPlus further in front of the limited competition
we see in this market niche.





Our
marketing intelligence and reorder history indicate that GastroPlus continues to
dominate its market niche in the number of users worldwide. In addition to
virtually every major pharmaceutical company, licenses include government
agencies in the U.S and abroad, a growing number of smaller pharmaceutical and
biotech companies, generic drug companies, and drug delivery companies
(companies that design the tablet or capsule for a drug compound that was
developed by another company). Although these companies are smaller than the
pharmaceutical giants, they can also save considerable time and money through
simulation. We believe this part of the industry, which includes many hundreds
of companies, represents major growth potential for GastroPlus. Our experience
has been that the number of new companies adopting GastroPlus has been growing
steadily, adding to the base of annual licenses each year. In addition,
consolidation by larger companies has not affected our sales to date. In fact,
those companies have adopted in silico tools at
ever-greater levels, and our licenses have increased at renewal time even in the
face of such consolidation.





Contract Research and
Consulting Services


Our
recognized world-class expertise in oral absorption and pharmacokinetics is
evidenced by the fact that our staff members have been speakers or presenters at
over 50 prestigious scientific meetings worldwide in the past five years. We
frequently conduct contracted studies for customers who prefer to have studies
run by our scientists rather than to license our software and train someone to
use it. The demand for our consulting services has been increasing steadily, and
we expect this trend to continue. Long-term collaborations and shorter-term
consulting contracts serve both to showcase our technologies and as a way to
build and strengthen customer relationships. Revenues recognized from consulting
services (not including funded collaborations – only consulting for specific
drug projects) during the second quarter of FY10 were approximately $301,000
compared with $62,000 in the second quarter of FY09.





Government-Funded
Research


We are
well along in our $525,000 Phase II SBIR (Small Business Innovation Research)
grant awarded by the NIH (National Institutes of Health). This SBIR grant
provides funds that allow us to expand staff and grow the product line without
adversely affecting earnings, because the expenses associated with the efforts
in the grant study are funded largely through the grant with some company
support.





20


WORDS+
SUBSIDIARY





PRODUCTS


Our
wholly owned subsidiary, Words+, Inc., has been an industry pioneer and
technology leader for over 28 years, focused on introducing and improving
augmentative and alternative communication and computer access software and
devices for people with disabilities. Following closely behind the introduction
of four new products last quarter, Words+ introduced an eyegaze product at the
national CSUN Conference in San Diego during March, 2010. Eyegaze technology
allows people to operate a computer or communication device by simply looking at
the screen, and has been a major breakthrough for people with severe
disabilities. The introduction of an eyegaze product has been our goal for some
time, but we were previously unable to negotiate a profitable deal with an
outside manufacturer. We have now done so. We’re currently processing orders and
plan to ship product during April, 2010. The addition of eyegaze to our product
line significantly increases the effectiveness of our sales network, as many of
our distributors were previously selling a different eyegaze product, and our
sales employees had no eyegaze product to offer. Our sales force is now focused
on adding our eyegaze product to the rest of our product line. We are excited
and expect this product to significantly increase Words+ market share, revenue
and profitability.





Results
of Operations





Comparison
of Three Months Ended February 28, 2010 and February 28, 2009.





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





Three
      Months Ended02/28/10
            
            
            02/28/09Net
      sales
            
            $
            2,950
            
            
            
            100%
            
            
            $
            2,457
            
            
            
            100%Cost
      of sales
            
            
            701
            
            
            
            23.8
            
            
            
            627
            
            
            
            25.5Gross
      profit
            
            
            2,249
            
            
            
            76.2
            
            
            
            1,830
            
            
            
            74.5Selling,
      general and administrative
            
            
            1,089
            
            
            
            36.9
            
            
            
            1,037
            
            
            
            42.2Research
      and development
            
            
            252
            
            
            
            8.5
            
            
            
            286
            
            
            
            11.6Total
      operating expenses
            
            
            1,341
            
            
            
            45.5
            
            
            
            1,323
            
            
            
            53.9Income
      from operations
            
            
            908
            
            
            
            30.8
            
            
            
            507
            
            
            
            20.6Other
      income
            
            
            66
            
            
            
            2.2
            
            
            
            52
            
            
            
            2.1Net
      income before taxes
            
            
            974
            
            
            
            33.0
            
            
            
            559
            
            
            
            21.7(Provision
      for) income taxes
            
            
            (333
            )
            
            
            (11.3
            )
            
            
            (191
            )
            
            
            (7.7
            )Net
      income
            
            $
            641
            
            
            
            21.7%
            
            
            $
            368
            
            
            
            14.0%





Net
Sales


Consolidated
net sales increased $493,000, or 20.1%, to $2,950,000 in the second fiscal
quarter of 2010 (2QFY10) from $2,457,000 in the second fiscal quarter of 2009
(2QFY09).  Our sales from pharmaceutical and educational software
increased approximately $448,000, or 25.2%; and our Words+, Inc. subsidiary’s
sales also increased approximately $45,000, or 6.6%, for the
quarter.  We attribute the increase in pharmaceutical software sales
to a combination of SBIR grant revenue, corroborations/study contracts with
large pharmaceutical companies, software licenses to new customers, and
licensing of new modules to existing customers, as well as increases in number
of licenses with existing customers that outweighed the loss of sales from some
customers reported in 2QFY09.





21


We
attribute the increase in Words+ sales primarily to an increase in
“MessageMates” product sales to Japan and to sales of our “Conversa” product
with preloaded “Say-it! SAM” software.  Increased revenues from these
products outweighed decreased revenues from other products.





Cost of
Sales


Consolidated
cost of sales increased $73,000, or 11.7%, to $701,000 in 2QFY10 from $627,000
in 2QFY09.  Cost of sales as a percentage of revenue for 2QFY10
decreased 1.7% to 23.8% from 25.5% in 2QFY09.  For Simulations Plus
(pharmaceutical business), cost of sales decreased $18,000, or 5.6%, and as a
percentage of revenue, cost of sales also decreased to 13.6% in 2QFY10 from
18.0% in 2QFY09.  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 $37,000, or 32.2%, in 2QFY10 compared with
2QFY09.  Royalty expense, a variable cost related to sales of our
GastroPlus core program as well as our ADMET Predictor Enslein Metabolism
module, decreased approximately $15,000, or 12.0%, in 2QFY10 compared with
2QFY09 due to a reversing royalty cost on the Enslein Metabolism Module
resulting from an amended royalty agreement.





For
Words+, cost of sales increased $91,000, or 29.7%.  As a percentage of
revenue, cost of sales increased to 55.1% in 2QFY10 from 45.3% in
2QFY09.  We attribute the percentage increase in cost of sales for
Words+ to sales generated from products with lower margins.  As we
mentioned in the sales discussion above, we sold MessageMates to our distributor
in Japan with a volume discount, and experienced increased revenue from our
“Conversa” product, which has a lower margin, resulting in a higher cost of
sales.





Gross
Profit


Consolidated
gross profit increased $419,000, or 22.9%, to $2,249,000 in 2QFY10 from
$1,830,000 in 2QFY09.  We attribute this increase to increased sales
of pharmaceutical software and services in addition to increased sales of Words+
products, which outweighed the increase in Words+ cost of goods
sold.





Selling, General and
Administrative Expenses


Consolidated
selling, general and administrative (SG&A) expenses decreased $52,000, or
5.0%, to $1,089,000 in 2QFY10 from $1,037,000 in 2QFY09.  For
Simulations Plus, SG&A decreased $11,000, or 1.9%, and as a percentage of
sales, SG&A decreased to approximately 26.2% in 2QFY10 from approximately
33.5% in 2QFY09.  The major decreases in SG&A expenses were
commissions, and salary expense which outweighed increases in travel expenses,
advertisement, consultant fees, contract labor, and telephones.





For
Words+, SG&A expenses decreased $63,000, or 14.1%, due primarily to
decreases in technical service costs, repairs, and merchant credit card
fees.  These decreases outweighed increases in commissions, trade
shows, travel, bad debts, salaries and payroll related expenses.





Research and
Development


We
incurred approximately $509,000 of research and development costs for both
companies during 2QFY10.  Of this amount, $257,000 was capitalized and
$252,000 was expensed.  In 2QFY09, we incurred $438,000 of research
and development costs, of which $152,000 was capitalized and $286,000 was
expensed.  The increase of $71,000, or 16.2%, in total research and
development expenditures from 2QFY09 to 2QFY10 was due to hiring R&D
contractors, salary of a new hire and salary increases to existing
staff.


22


Other income
(expense)


Net other
income (expense) increased by $14,000, or 26.1%, to $66,000 in 2QFY10 from
$52,000 in 2QFY09.  This is due to increases in interest revenues from
our Money Market account and gains from currency exchange.





Provision for Income
Taxes


The
provision for income taxes increased by $142,000, or 74.6%, to $333,000 in
2QFY10 from $191,000 in 2QFY09 due to our estimation of higher provision for
income tax in fiscal year 2010.  The tax rate used in this report is
lower than standard rate because of various tax credits generated and used
during this reporting period.





Net
Income


Consolidated
net income increased by $273,000, or 74.1%, to $641,000 in 2QFY10 from $368,000
in 2QFY09.  We attribute this increase in profit to the increases in
revenue from pharmaceutical software/services and Words+ products, other income,
and decreases in operating expenses which outweighed increase in cost of sales
and tax provision.





Comparison
of Six Months Ended February 28, 2010 and February 28, 2009.





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





Six
      Months Ended02/28/10
            
            
            02/28/09Net
      sales
            
            $
            5,387
            
            
            
            100%
            
            
            $
            4,590
            
            
            
            100%Cost
      of sales
            
            
            1,307
            
            
            
            24.3
            
            
            
            1,187
            
            
            
            25.9Gross
      profit
            
            
            4,080
            
            
            
            75.7
            
            
            
            3,403
            
            
            
            74.1Selling,
      general and administrative
            
            
            2,093
            
            
            
            38.9
            
            
            
            1,940
            
            
            
            42.3Research
      and development
            
            
            514
            
            
            
            9.5
            
            
            
            554
            
            
            
            12.1Total
      operating expenses
            
            
            2,607
            
            
            
            48.4
            
            
            
            2,494
            
            
            
            54.3Income
      from operations
            
            
            1,473
            
            
            
            27.3
            
            
            
            909
            
            
            
            19.8Other
      income
            
            
            162
            
            
            
            3.0
            
            
            
            103
            
            
            
            2.2Net
      income before taxes
            
            
            1,635
            
            
            
            30.4
            
            
            
            1,012
            
            
            
            22.1(Provision
      for) income taxes
            
            
            (564
            )
            
            
            (10.5
            )
            
            
            (332
            )
            
            
            (7.2
            )Net
      income
            
            $
            1,071
            
            
            
            19.9%
            
            
            $
            680
            
            
            
            14.9%





Net
Sales


Consolidated
net sales increased $797,000, or 17.4%, to $5,387,000 in the first six months of
fiscal year 2010 (6moFY10) from $4,590,000 in the first six months of fiscal
year 2009 (6moFY09).  Our sales from pharmaceutical software and
services increased approximately $753,000, or 23.5%, and our Words+, Inc.
subsidiary’s sales increased approximately $44,000, or 3.2%, for
6moFY10.





We
attribute the increase in pharmaceutical software sales to increased licenses,
both to new customers and for new modules, additional licenses to renewal
customers, SBIR grant, and corroborations/contract studies.  We
attribute the increase in Words+ sales to sales of our new “ConversaTM” with
Say-It! SAM software and “MessageMates” ordered from Japan.  Those
increases outweighed decreases in “Freedom” and “TuffTalker” product
sales.





23


Cost of
Sales


Consolidated
cost of sales increased $120,000, or 10.1%, to $1,307,000 in 6moFY10 from
$1,187,000 in 6moFY09.  Cost of sales as a percentage of revenue in
6moFY10 decreased 1.6% to 24.3% from 25.9% in 6moFY09.  For
Simulations Plus, cost of sales increased $48,000, or 8.9%; however, as a
percentage of revenue, cost of sales decreased to 14.9% in 6moFY10 from 16.9% in
6moFY09.  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
$64,000, or 28.0%, in 6moFY10 compared with 6moFY09.  Royalty expense,
which is a variable cost related to sales of our GastroPlus core program as well
as our new ADMET Predictor Enslein Metabolism Module, increased approximately
$2,000, or 1.2%, in 6moFY10 compared with 6moFY09. This amount was reduced
by $12,000 in royalties for the Enslein Metabolism Module as a result of an
amended royalty agreement.





For
Words+, cost of sales increased $72,000, or 11.2%.  As a percentage of
revenue, cost of sales also increased to 50.2% in 6moFY10 from 46.6% in
6moFY09.  We attribute the percentage increase in cost of sales for
Words+ to sales generated from products with lower margins.  As we
mentioned in the sales discussion above, we sold MessageMates to our distributor
in Japan with a volume discount. Increased revenue from our “Conversa” product
which has a lower margin, also resulted in higher cost of sales.




Gross
Profit


Consolidated
gross profit increased $677,000, or 19.9%, to $4,080,000 in 6moFY10 from
$3,403,000 in 6moFY09.  We attribute this increase to increased sales
of pharmaceutical software and services with healthy gross margin which
outweighed the decrease in gross profit from Words+ products.





Selling, General and
Administrative Expenses


Consolidated
selling, general and administrative (SG&A) expenses increased $153,000, or
7.9%, to $2,093,000 in 6moFY10 from $1,940,000 in 6moFY09.  For
Simulations Plus, SG&A increased $68,000, or 6.0%; however, as a percentage
of sales, SG&A decreased 3.0%, from 51.2% in 6moFY09 to 54.3% in
6moFY10.  The major increases in SG&A expenses were expanded trade
shows, travel, professional fees, and consultant fees which outweighed decreases
in commissions and salary expense in 6moFY10.





For
Words+, SG&A expenses increased $84,000, or 10.5%, to $884,000 in 6moFY10
from $800,000 in 6moFY09.  We attribute this increase in SG&A to
an increase in restructured commission expense to be competitive with other
companies in the industry, contract labor, repairs, salaries and payroll-related
expenses which outweighed decreases in bad debts, technical service costs, and
equipment rental.





Research and
Development


We
incurred approximately $970,000 of research and development costs for both
companies in 6moFY10.  Of this amount, $456,000 was capitalized and
$514,000 was expensed.  In 6moFY09, we incurred $907,000 of research
and development costs, of which $353,000 was capitalized and $554,000 was
expensed.  The increase of $63,000, or 7.0%, in total research and
development expenditures from 6moFY09 to 6moFY10 was due to a combination of
salaries for new hires and salary increases and bonuses to existing
staff.





24


Other
income


Net other
income in 6moFY10 increased by $59,000, or 57.1%, from $103,000 to
$162,000.  This is due to increased interest revenues from Money
Market accounts and a gain on currency exchange from the billing in foreign
currencies at the request from our customers.





Provision for Income
Taxes


The
provision for income taxes increased by $232,000, or 69.9%, to $564,000 in
6moFY10 from $332,000 in 6moFY09.  This increase is due primarily to
our estimation of higher provision for income tax in fiscal year
2010.  The tax rate used in this report is lower than standard rate
because of various tax credits generated and used during this reporting
period.





Net Income
(loss)


Consolidated
net income increased by $391,000, or 57.5%, to $1,071,000 in 6moFY10 from
$680,000 in 6moFY09.  We attribute this increase in profit to the
increases in revenue from pharmaceutical software/services and Words+ products,
other income, and decreases in operating expenses which outweighed increase in
cost of sales and tax provision.





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.





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 and in Euros by one European customer.  As
a result, we experienced a larger gain in Q2FY10 than Q2FY09 from currency
exchange.  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




We are
responsible for maintaining disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Disclosure controls and procedures are controls
and other procedures designed to ensure that the information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commission’s rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is accumulated and communicated to our
management, including our principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosure.  In designing and evaluating disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.





25


Based on
our management’s evaluation (with the participation of our chief executive
officer and chief financial officer) of our disclosure controls and
procedures as required by Rule 13a-15 under the Exchange Act, our principal
executive officer and principal financial officer have concluded that our
disclosure controls and procedures were effective as of February 28,
2010.





Management's Report on
Internal Control over Financial Reporting


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




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





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





26


Part
II.  Other Information





Item
      1.
              Legal
      Proceedings
 The
Company is not a party to any legal proceedings and is not aware of any pending
legal proceedings of any kind.
 
 Item
      1A.
              Not
      applicable.
 
 Item
      2.
              Changes in
      Securities
 Since
December 2008, the Company has been buying back its own shares, and plans to
continue its share repurchase in accordance with its share repurchase
plan.  Under the original repurchase program, the Company has bought
back 1,026,483 shares by the end of February 28, 2010.  On January 10,
2010, the board of directors authorized a renewed share repurchase program
effective as of February 15, 2010.  The renewed program enables the
Company the buyback of up to one million shares during a 12-month
period.  As of February 28, 2010, the Company has not bought back any
shares under this renewed repurchase program.
 
 Item
      3.
              Defaults Upon Senior
      Securities
 None.
 
 Item
      4.
              Submission of Matters
      to a Vote of Security
Holders
 
 On
February 19, 2010, 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 five (5) directors.
 Walter Woltosz
 Virginia Woltosz
 Dr. David Z.
D'Argenio
 Dr. Richard Weiss
 H. Wayne
Rosenberger
 
 2.           To
ratify the selection of Rose, Snyder, and Jacobs CPAs as the Company's
independent public accountants.


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




Proposal
            Votes
      For
            Votes
      Against
            Votes
      Abstaining
            VotesWithheld
            Total(1)
      Walter Woltosz
            8,594,286
            
            
            500,013
            15,499,160(1)
      Virginia Woltosz
            8,589,798
            
            
            504,501
            15,499,160(1)
      Dr. David Z. D'Argenio
            9,084,954
            
            
            9,345
            15,499,160(1)
      Dr. Richard Weiss
            9,084,954
            
            
            9,345
            15,499,160(1)
      H. Wayne Rosenberger
            9,084,954
            
            
            9,345
            15,499,160(2)
            14,305,070
            2,046
            17,510
            
            15,499,160


27





Item
      5.
              Other InformationNone.Item
      6.
              Exhibits




EXHIBITNUMBER
              DESCRIPTION3.1
              Articles
      of Incorporation of Simulations Plus, Inc. (1)3.2
              Amended
      and Restated Bylaws of Simulations Plus, Inc. (1)4.1
              Articles
      of Incorporation of Simulations Plus, Inc. (incorporated by reference to
      Exhibit 3.1 hereof) and Bylaws of Simulations Plus, Inc. (incorporated by
      reference to Exhibit 3.2 hereof)4.2
              Form
      of Common Stock Certificate (1)4.3
              Share
      Exchange Agreement (1)10.1
              Simulations
      Plus, Inc. 1996 Stock Option Plan (the “Option Plan”) and forms of
      agreements relating thereto (1)10.24
              Exclusive
      License Software Agreement by and between Simulations Plus, Inc. and
      Therapeutic Systems Research Laboratories dated June 30, 1997.
      (2)10.43
              Lease
      Agreement by and between Simulations Plus, Inc. and Venture Freeway, LLC.
      (4)10.45
              Employment
      Agreement by and between the Company and Walter S. Woltosz
    (5)10.46
              Simulations
      Plus, Inc. 2007 Stock Option Plan (the “2007 Option Plan”) (6))21.1
              List
      of Subsidiaries (8)31.1
              Rule
      13a-14(a)/15d-14(a) – Certification of Chief Executive Officer (CEO).
      (7)31.2
              Rule
      13a-14(a)/15d-14(a) – Certification of Chief Financial Officer (CFO).
      (7)32
              Section
      1350 – Certification of CEO and CFO.
(7)








(1)
            Incorporated
      by reference to the Company’s Registration Statement on Form SB-2
      (Registration No. 333-6680) filed on March 25,
  1997.


(2)
            Incorporated
      by reference to the Company’s Form 10-KSB for the fiscal year ended August
      31, 1997.


(3)
            Incorporated
      by reference to the Company’s Registration Statement on Form S-8
      (Registration No. 333-91592) filed on June 28,
  2002.


(4)
            Incorporated
      by reference to the Company’s Form 10-KSB for the fiscal year ended August
      31, 2006.


(5)
            Incorporated
      by reference to the Company’s Form 10-K for the fiscal year ended August
      31, 2009.


(6)
            Incorporated
      by reference to the Company’s Form 10-Q for the fiscal quarter ended
      November 30, 2009.


(7)
            Filed
      herewith.






28





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 14, 2010.




Simulations
      Plus, Inc.Date:  April
      14, 2010
              By:
              /s/ MOMOKO BERANMomoko
      BeranChief
      Financial Officer(Principal
      Financial Officer)










29