----

----

|   | x | Quarterly Report Pursuant to Section 13 or 15(d) of the Security Exchange Act of 1934 for the quarterly period ended May 31, 2010 |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------|

|   | OR |
|--------|----|

|   | o | 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 |
|--------|----------------------------------------------|

| California                                                     | 95-4595609                           |
|----------------------------------------------------------------|--------------------------------------|
| (State or other jurisdiction of Incorporation or Organization) | (I.R.S. Employer identification No.) |

| o  Large accelerated filer                                             | o  Accelerated filer              |
|-----------------------------------------------------------------------------|----------------------------------------|
| o  Non-accelerated filer (Do not check if a smaller reporting company) | x  Smaller reporting company |

----

----

|                                              |                                                                                                                         | Page   |
|---------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------|--------|
| Item 1.                                           | Condensed Consolidated Financial Statements                                                                                  |   |
|                                              |                                                                                                                         |   |
|                                              | Condensed Consolidated Balance Sheets at May 31, 2010 (unaudited) and August 31, 2009 (audited)                         | 3      |
|                                              |                                                                                                                         |   |
|                                              | Condensed Consolidated Statements of Operations for the three months and nine months ended May 31, 2010 and 2009 (unaudited) | 4      |
|                                              |                                                                                                                         |   |
|                                              | Condensed Consolidated Statements of Cash Flows for the nine months ended May 31, 2010 and 2009 (unaudited)                  | 5      |
|                                              |                                                                                                                         |   |
|                                              | Notes to Condensed Consolidated Financial Statements (unaudited)                                                             | 6      |
|                                              |                                                                                                                         |   |
| Item 2.                                           | Management’s Discussion and Analysis of Financial Condition and Result of Operations                                   | 16     |
|                                              |                                                                                                                         |   |
| Item 3.                                           | Quantitative and Qualitative Disclosures about Market Risk                                                                   | 25     |
|                                              |                                                                                                                         |   |
| Item 4.                                           | Controls and Procedures                                                                                                      | 25     |
|                                              |                                                                                                                         |   |
| PART II.    OTHER INFORMATION |
|                                              |                                                                                                                         |   |
| Item 1.                                           | Legal Proceedings                                                                                                            | 27     |
|                                              |                                                                                                                         |   |
| Item 1A.                                          | Risk Factors                                                                                                                 | 27     |
|                                              |                                                                                                                         |   |
| Item 2.                                           | Changes in Securities                                                                                                        | 27     |
|                                              |                                                                                                                         |   |
| Item 3.                                           | Defaults upon Senior Securities                                                                                              | 27     |
|                                              |                                                                                                                         |   |
| Item 4.                                           | Submission of Matters to a Vote of Security Holders                                                                          | 27     |
|                                              |                                                                                                                         |   |
| Item 5.                                           | Other Information                                                                                                            | 27     |
|                                              |                                                                                                                         |   |
| Item 6.                                           | Exhibits                                                                                                                     | 27     |
|                                              |                                                                                                                         |   |
| Signatures                                        |                                                                                                                         | 29     |

----

----

| ASSETS                                                                           |   |         |       |   |            |   |
|----------------------------------------------------------------------------------|--------|--------------|------------|--------|-----------------|--------|
|                                                                             |   | May 31, 2010 |       |   | August 31, 2009 |   |
| Current assets                                                                   |   |         |       |   |            |   |
| Cash and cash equivalents                                                        |   | $            | 8,583,193  |   |            | $      | 7,473,485 |   |
| Accounts receivable, net of allowance for doubtful accounts                      |   |         |       |   |            |   |   |   |
| and estimated contractual discounts of $394,428 and $447,073                     |   |         | 2,164,277  |   |            |   | 1,888,904 |   |
| Contracts receivable                                                             |   |         | 169,346    |   |            |   | 79,565 |   |
| Income tax refund receivable                                                     |   |         | 524,151    |   |            |   | - |   |
| Inventory                                                                        |   |         | 408,741    |   |            |   | 325,926 |   |
| Prepaid expenses and other current assets                                        |   |         | 101,332    |   |            |   | 158,738 |   |
| Deferred income taxes                                                            |   |         | 384,492    |   |            |   | 338,516 |   |
| Total current assets                                                             |   |         | 12,335,532 |   |            |   | 10,265,134 |   |
|                                                                             |   |         |       |   |            |   |   |   |
| Capitalized computer software development costs,                                 |   |         |       |   |            |   |   |   |
| net of accumulated amortization of $4,321,641 and $3,843,743                     |   |         | 2,154,995  |   |            |   | 1,942,893 |   |
| Property and equipment, net (note 3)                                             |   |         | 44,340     |   |            |   | 53,220 |   |
| Customer relationships, net of accumulated amortization of $115,574 and $104,728 |   |         | 12,468     |   |            |   | 23,314 |   |
| Other assets                                                                     |   |         | 18,445     |   |            |   | 18,445 |   |
|                                                                             |   |         |       |   |            |   |   |   |
| Total assets                                                                     |   | $            | 14,565,780 |   |            | $      | 12,303,006 |   |
|                                                                             |   |         |       |   |            |   |   |   |
|                                                                             |   |         |       |   |            |   |   |   |
| LIABILITIES AND SHAREHOLDERS' EQUITY                                             |   |         |       |   |            |   |   |   |
| Current liabilities                                                              |   |         |       |   |            |   |   |   |
| Accounts payable                                                                 |   | $            | 281,387    |   |            | $      | 199,218 |   |
| Accrued payroll and other expenses                                               |   |         | 520,463    |   |            |   | 552,431 |   |
| Accrued bonuses to officers                                                      |   |         | 60,000     |   |            |   | 60,000 |   |
| Accrued warranty and service costs                                               |   |         | 40,731     |   |            |   | 43,236 |   |
| Accrued income taxes                                                             |   |         | 247,614    |   |            |   | - |   |
| Deferred revenue                                                                 |   |         | 191,922    |   |            |   | 82,190 |   |
| Total current liabilities                                                        |   |         | 1,342,117  |   |            |   | 937,075 |   |
|                                                                             |   |         |       |   |            |   |   |   |
| Long-Term liabilities                                                            |   |         |       |   |            |   |   |   |
| Deferred income taxes                                                            |   |         | 432,761    |   |            |   | 795,140 |   |
|                                                                             |   |         |       |   |            |   |   |   |
| Total liabilities                                                                |   |         | 1,774,878  |   |            |   | 1,732,215 |   |
|                                                                             |   |         |       |   |            |   |   |   |
| Commitments and contingencies (note 4)                                           |   |         |       |   |            |   |   |   |
|                                                                             |   |         |       |   |            |   |   |   |
| Shareholders' equity (note 5)                                                    |   |         |       |   |            |   |   |   |
| Preferred stock, $0.001 par value                                                |   |         |       |   |            |   |   |   |
| 10,000,000 shares authorized                                                     |   |         |       |   |            |   |   |   |
| no shares issued and outstanding                                                 |   |         | -          |   |            |   | - |   |
| Common stock, $0.001 par value                                                   |   |         |       |   |            |   |   |   |
| 50,000,000 shares authorized                                                     |   |         |       |   |            |   |   |   |
| 15,852,464 and 15,700,382 shares issued and outstanding on May 31, 2010          |   |         |       |   |            |   |   |   |
| and August 31, 2009, respectively.                                               |   |         | 4,324      |   |            |   | 4,172 |   |
| Additional paid-in capital                                                       |   |         | 5,981,591  |   |            |   | 5,572,411 |   |
| Retained earnings                                                                |   |         | 6,804,987  |   |            |   | 4,994,208 |   |
|                                                                             |   |         |       |   |            |   |   |   |
| Total shareholders' equity                                                       |   |         | 12,790,902 |   |            |   | 10,570,791 |   |
|                                                                             |   |         |       |   |            |   |   |   |
| Total liabilities and shareholders' equity                                       |   | $            | 14,565,780 |   |            | $      | 12,303,006 |   |

----

----

|                                       |   | Three months ended |       |   | Nine months ended |   |
|--------------------------------------------|--------|--------------------|------------|--------|-------------------|--------|
|                                       |   | 2010               |       |   | 2009              |   |   | 2010 |   |   | 2009 |   |
|                                       |   |               |       |   |              |   |   |   |   |   |   |   |
| Net sales                                  |   | $                  | 3,118,936  |   |              | $      | 2,713,524 |   |   | $ | 8,505,707 |   |   | $ | 7,303,536 |   |
|                                       |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Cost of sales                              |   |               | 699,402    |   |              |   | 582,954 |   |   |   | 2,006,766 |   |   |   | 1,768,804 |   |
|                                       |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                               |   |               | 2,419,534  |   |              |   | 2,130,570 |   |   |   | 6,498,941 |   |   |   | 5,534,732 |   |
|                                       |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses                         |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general, and administrative       |   |               | 1,117,557  |   |              |   | 989,165 |   |   |   | 3,210,649 |   |   |   | 2,929,578 |   |
| Research and development                   |   |               | 234,318    |   |              |   | 294,284 |   |   |   | 747,741 |   |   |   | 849,484 |   |
|                                       |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Total operating expenses                   |   |               | 1,351,875  |   |              |   | 1,283,449 |   |   |   | 3,958,390 |   |   |   | 3,779,062 |   |
|                                       |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Income from operations                     |   |               | 1,067,659  |   |              |   | 847,121 |   |   |   | 2,540,551 |   |   |   | 1,755,670 |   |
|                                       |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Other income (expense)                     |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                            |   |               | 27,433     |   |              |   | 20,105 |   |   |   | 73,479 |   |   |   | 73,098 |   |
| Interest expense                           |   |               | -          |   |              |   | - |   |   |   | (303 | ) |   |   | - |   |
| Miscellaneous income                       |   |               | 1,000      |   |              |   | 514 |   |   |   | 1,231 |   |   |   | 557 |   |
| Gain on sales of property and equipment    |   |               | 969        |   |              |   | - |   |   |   | 1,993 |   |   |   | - |   |
| Gain on currency exchange                  |   |               | 14,955     |   |              |   | 20,233 |   |   |   | 130,149 |   |   |   | 70,449 |   |
|                                       |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Total other income (expense)               |   |               | 44,357     |   |              |   | 40,852 |   |   |   | 206,549 |   |   |   | 144,104 |   |
|                                       |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Income before provision for income taxes   |   |               | 1,112,016  |   |              |   | 887,973 |   |   |   | 2,747,100 |   |   |   | 1,899,774 |   |
|                                       |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Provision for income taxes                 |   |               | (371,903   | )      |              |   | (318,840 | ) |   |   | (936,321 | ) |   |   | (650,846 | ) |
|                                       |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                 |   | $                  | 740,113    |   |              | $      | 569,133 |   |   | $ | 1,810,779 |   |   | $ | 1,248,928 |   |
|                                       |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Basic earnings per share                   |   | $                  | 0.05       |   |              | $      | 0.04 |   |   | $ | 0.11 |   |   | $ | 0.08 |   |
|                                       |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Diluted earnings per share                 |   | $                  | 0.04       |   |              | $      | 0.03 |   |   | $ | 0.11 |   |   | $ | 0.07 |   |
|                                       |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average common shares outstanding |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                      |   |               | 16,023,000 |   |              |   | 16,051,133 |   |   |   | 15,832,791 |   |   |   | 16,222,867 |   |
|                                       |   |               |       |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                                    |   |               | 16,830,281 |   |              |   | 16,925,581 |   |   |   | 16,499,813 |   |   |   | 17,194,349 |   |

----

----

|                                                                                          |   | 2010   |      |   | 2009   |   |
|-----------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
| Cash flows from operating activities                                                          |   |   |      |   |   |   |
| Net income                                                                                    |   | $      | 1,810,779 |   |   | $      | 1,248,928 |   |
| Adjustments to reconcile net income to net cash provided by operating activities         |   |   |      |   |   |   |   |   |
| Depreciation and amortization of property and equipment                                       |   |   | 19,440    |   |   |   | 16,609 |   |
| Amortization of customer relationships                                                        |   |   | 10,846    |   |   |   | 15,335 |   |
| Amortization of capitalized computer software development costs                               |   |   | 477,900   |   |   |   | 381,390 |   |
| Bad debts                                                                                     |   |   | 139,419   |   |   |   | 219,998 |   |
| Stock-based compensation                                                                      |   |   | 81,175    |   |   |   | 129,660 |   |
| Gain on sales of property and equipment                                                       |   |   | (1,024    | )      |   |   | - |   |
| Deferred income taxes                                                                         |   |   | 198,071   |   |   |   | 65,100 |   |
|                                                                                          |   |   |      |   |   |   |   |   |
| (Increase) decrease in                                                                        |   |   |      |   |   |   |   |   |
| Accounts receivable                                                                           |   |   | (479,996  | )      |   |   | (764,257 | ) |
| Inventory                                                                                     |   |   | (82,815   | )      |   |   | 38,741 |   |
| Other assets                                                                                  |   |   | 57,406    |   |   |   | 110,400 |   |
| Increase (decrease) in                                                                        |   |   |      |   |   |   |   |   |
| Accounts payable                                                                              |   |   | 82,169    |   |   |   | 84,350 |   |
| Accrued payroll and other expenses                                                            |   |   | (31,968   | )      |   |   | (11,510 | ) |
| Accrued income taxes                                                                          |   |   | 247,614   |   |   |   | 115,689 |   |
| Accrued warranty and service costs                                                            |   |   | (2,505    | )      |   |   | 6,300 |   |
| Deferred revenue                                                                              |   |   | 109,732   |   |   |   | (41,000 | ) |
|                                                                                          |   |   |      |   |   |   |   |   |
|        Net cash provided by operating activities           |   |   | 2,636,243 |   |   |   | 1,615,733 |   |
|                                                                                          |   |   |      |   |   |   |   |   |
| Cash flows from investing activities                                                          |   |   |      |   |   |   |   |   |
| Purchases of property and equipment                                                           |   |   | (34,113   | )      |   |   | (34,777 | ) |
| Proceeds from sale of investments                                                             |   |   | -         |   |   |   | 750,000 |   |
| Capitalized computer software development costs                                               |   |   | (690,002  | )      |   |   | (490,327 | ) |
|                                                                                          |   |   |      |   |   |   |   |   |
|        Net cash provided by (used in) investing activities |   |   | (724,115  | )      |   |   | 224,896 |   |
|                                                                                          |   |   |      |   |   |   |   |   |
| Cash flows from financing activities                                                          |   |   |      |   |   |   |   |   |
| Repurchase of common stock                                                                    |   |   | (882,100  | )      |   |   | (447,825 | ) |
| Proceeds from the exercise of stock options                                                   |   |   | 79,680    |   |   |   | 90,210 |   |
|                                                                                          |   |   |      |   |   |   |   |   |
|        Net cash used in financing activities               |   |   | (802,420  | )      |   |   | (357,615 | ) |
|                                                                                          |   |   |      |   |   |   |   |   |
| Net increase in cash and cash equivalents                                                     |   | $      | 1,109,708 |   |   | $      | 1,483,014 |   |
|                                                                                          |   |   |      |   |   |   |   |   |
| Cash and cash equivalents, beginning of year                                                  |   |   | 7,473,485 |   |   |   | 5,889,601 |   |
|                                                                                          |   |   |      |   |   |   |   |   |
| Cash and cash equivalents, end of period                                                      |   | $      | 8,583,193 |   |   | $      | 7,372,615 |   |
|                                                                                          |   |   |      |   |   |   |   |   |
|                                                                                          |   |   |      |   |   |   |   |   |
| Supplemental disclosures of cash flow information                                             |   |   |      |   |   |   |   |   |
|                                                                                          |   |   |      |   |   |   |   |   |
| Interest paid                                                                                 |   | $      | 303       |   |   | $      | - |   |
|                                                                                          |   |   |      |   |   |   |   |   |
| Income taxes paid                                                                             |   | $      | 426,026   |   |   | $      | 377,216 |   |

----

----

----

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

| 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.   |

|                      |   | Level I |      |   | Level II |   |   | Level III |   |   | Total  |   |
|---------------------------|--------|---------|-----------|--------|----------|--------|--------|-----------|--------|--------|--------|--------|
| Cash and cash equivalents |   | $       | 8,583,193 |   |     | $      | -      |      |   | $      | -      |   |   | $ | 8,583,193 |   |
|                      |   |    |      |   |     |   |   |      |   |   |   |   |   |   |   |   |
| Total                     |   | $       | 8,583,193 |   |     | $      | -      |      |   | $      | -      |   |   | $ | 8,583,193 |   |

----

----

|                                                                                         |   | 05/31/2010 |       |   | 05/31/2009 |   |
|----------------------------------------------------------------------------------------------|--------|------------|------------|--------|------------|--------|
| Numerator                                                                                    |   |       |       |   |       |   |
|     Net income attributable to common shareholders                       |   | $          | 1,810,779  |   |       | $      | 1,248,928 |   |
|                                                                                         |   |       |       |   |       |   |   |   |
| Denominator                                                                                  |   |       |       |   |       |   |   |   |
|     Weighted-average number of common shares outstanding during the year |   |       | 15,832,791 |   |       |   | 16,222,867 |   |
|     Dilutive effect of stock options                                     |   |       | 667,022    |   |       |   | 971,482 |   |
|                                                                                         |   |       |       |   |       |   |   |   |
| Common stock and common stock equivalents used for diluted earnings per share                |   |       | 16,499,813 |   |       |   | 17,194,349 |   |

----

| Equipment                                       |   | $      | 80,830   |   |
|-------------------------------------------------|--------|--------|----------|--------|
| Computer equipment                              |   |   | 386,216  |   |
| Furniture and fixtures                          |   |   | 61,498   |   |
| Automobile                                      |   |   | 21,769   |   |
| Leasehold improvements                          |   |   | 53,898   |   |
|      Sub total         |   |   | 604,211  |   |
| Less: Accumulated depreciation and amortization |   |   | (559,871 | )      |
|      Net Book Value    |   |   | 44,340   |   |

----

| Period               |   | Total Number ofShares Purchased |      |   | Average PricePaid per Share |   |   | Remaining Funds Available Under the Share Repurchase Plan (including broker’s fees) |   |
|----------------------|--------|---------------------------------|-----------|--------|-----------------------------|--------|--------|-------------------------------------------------------------------------------------------|--------|
| As of 08/31/09       |   |                            | 846,842   |   |                        | $      | 1.2569 |                                                                                      |   | $ | 1,416,564 |   |
| 09/01/09 to 09/30/09 |   |                            | 82,630    |   |                        | $      | 1.6989 |                                                                                      |   | $ | 1,274,155 |   |
| 10/01/09 to 10/31/09 |   |                            | 52,364    |   |                        | $      | 1.5685 |                                                                                      |   | $ | 1,190,386 |   |
| 11/01/09 to 11/30/09 |   |                            | 42,061    |   |                        | $      | 1.4884 |                                                                                      |   | $ | 1,126,560 |   |
| 12/01/09             |   |                            | 2,586     |   |                        | $      | 1.3823 |                                                                                      |   | $ | 1,122,985 |   |
|                 |   |                            |      |   |                        |   |   |                                                                                      |   |   |   |   |
| Phase I Total        |   |                            | 1,026,483 |   |                        | $      | 1.3182 |                                                                                      |   |   |   |   |

| Period               |   | Total Number of Shares Purchased |    |   | Average PricePaid per Share |   |   | Remaining Shares Authorized for Repurchase Under the Share Repurchase Plan – Phase II |   |
|----------------------|--------|----------------------------------|---------|--------|-----------------------------|--------|--------|---------------------------------------------------------------------------------------------|--------|
| 04/01/10 to 04/30/10 |   |                             | 86,976  |   |                        | $      | 2.2237 |                                                                                        |   |   | 913,024 |   |
| 05/01/10 to 05/31/10 |   |                             | 170,101 |   |                        | $      | 2.3515 |                                                                                        |   |   | 742,923 |   |
|                 |   |                             |    |   |                        |   |   |                                                                                        |   |   |   |   |
| Phase II Total       |   |                             | 257,077 |   |                        | $      | 2.3083 |                                                                                        |   |   |   |   |

----

|                         |   | Number of Options |      |   | Weighted-Average Exercise PricePer Share |   |   | Weighted-Average Remaining Contractual Life (Years) |   |
|------------------------------|--------|-------------------|-----------|--------|------------------------------------------|--------|--------|-----------------------------------------------------|--------|
|                         |   |              |      |   |                                     |   |   |                                                |   |
| Outstanding, August 31, 2009 |   |              | 2,862,536 |   |                                     | $      | 0.97   |                                                |   |   |   |
| Granted                      |   |              | 252,666   |   |                                     | $      | 1.79   |                                                |   |   |   |
| Exercised/Released           |   |              | (885,000  | )      |                                     | $      | 0.60   |                                                |   |   |   |
| Cancelled/Forfeited          |   |              | (27,000   | )      |                                     | $      | 1.47   |                                                |   |   |   |
| Expired                      |   |              | (617,000  | )      |                                     | $      | 1.47   |                                                |   |   |   |
| Outstanding, May 31, 2010    |   |              | 1,586,202 |   |                                     | $      | 1.11   |                                                |   |   | 4.4 |   |
| Exercisable, May 31, 2010    |   |              | 1,014,736 |   |                                     | $      | 0.86   |                                                |   |   | 3.4 |   |

----

| Exercise Price |   |   | Awards Outstanding |   |   | Awards Exercisable |   |
|----------------|--------|--------|--------------------|--------|--------|--------------------|--------|
| Low            |   |   | High               |   |   | Quantity           |   | Weighted Average Remaining Contractual Life |   | Weighted Average Exercise Price |   |   | Quantity |   | Weighted Average Remaining Contractual Life |   | Weighted Average Exercise Price |   |
| $              | 0.26   |   |               | $      | 0.75   |               |   |   | 443,436 |   | 0.8 years |   | $ | 0.37 |   |   |   | 443,436 |   | 0.8 years |   | $ | 0.37 |   |
| $              | 0.76   |   |               | $      | 1.25   |               |   |   | 762,100 |   | 6.1 years |   | $ | 1.08 |   |   |   | 530,100 |   | 5.2 years |   | $ | 1.13 |   |
| $              | 1.26   |   |               | $      | 3.02   |               |   |   | 380,666 |   | 5.2 years |   | $ | 2.04 |   |   |   | 41,200 |   | 7.8 years |   | $ | 2.71 |   |
|           |   |   |               |   |   |               |   |   | 1,586,202 |   | 4.4 years |   | $ | 1.11 |   |   |   | 1,014,736 |   | 3.4 years |   | $ | 0.86 |   |

|  Transactions in FY10   |   | Number of Options |   |   | Weighted-Average Exercise PricePer Share |   |
|------------------------------|--------|-------------------|--------|--------|------------------------------------------|--------|
|                         |   |              |   |   |                                     |   |
| Outstanding, August 31, 2009 |   |              | 51,000 |   |                                     | $      | 1.89 |   |
| Granted                      |   |              | 12,000 |   |                                     | $      | 1.67 |   |
| Exercised                    |   |              | -      |   |                                     | $      | - |   |
| Expired                      |   |              | -      |   |                                     | $      | - |   |
| Outstanding, May 31, 2010    |   |              | 63,000 |   |                                     | $      | 1.85 |   |
| Exercisable, May 31, 2010    |   |              | 42,000 |   |                                     | $      | 1.63 |   |

| May 31, 2010                  |   |
|-------------------------------|--------|
|                          |   |
|                          |   | Simulations Plus, Inc |   |   | Words +, Inc. |   |   | Eliminations |   |   | Total |   |
| Net Sales                     |   | $ | 6,287 |   |   | $ | 2,219 |   |   |   |   |   | $ | 8,506 |   |
| Income (loss) from operations |   |   | 2,763 |   |   |   | (222 | ) |   |   |   |   |   | 2,541 |   |
| Identifiable assets           |   |   | 14,496 |   |   |   | 1,590 |   |   | $ | (1,520 | ) |   |   | 14,566 |   |
| Capital expenditures          |   |   | 22 |   |   |   | 12 |   |   |   |   |   |   |   | 34 |   |
| Depreciation and Amortization |   |   | 466 |   |   |   | 42 |   |   |   |   |   |   |   | 508 |   |

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| May 31, 2009                  |   |
|-------------------------------|--------|
|                          |   |
|                          |   | Simulations Plus, Inc |   |   | Words +, Inc. |   |   | Eliminations |   |   | Total |   |
| Net Sales                     |   | $ | 5,194 |   |   | $ | 2,110 |   |   |   |   |   | $ | 7,304 |   |
| Income (loss) from operations |   |   | 1,326 |   |   |   | (77 | ) |   |   |   |   |   | 1,249 |   |
| Identifiable assets           |   |   | 12,417 |   |   |   | 2,045 |   |   | $ | (1,687 | ) |   |   | 12,775 |   |
| Capital expenditures          |   |   | 15 |   |   |   | 20 |   |   |   |   |   |   |   | 35 |   |
| Depreciation and Amortization |   |   | 374 |   |   |   | 39 |   |   |   |   |   |   |   | 413 |   |

|                   |   | North America |   |   | Europe |   |   | Asia   |   |   | Oceania |   |   | South America |   |   | Total  |   |
|------------------------|--------|---------------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|---------------|--------|--------|--------|--------|
| Simulations Plus, Inc. |   | $             | 3,749  |   |   | $      | 1,680  |   |   | $      | 850     |   |   | $             | -      |   |   | $      | 8 |   |   | $ | 6,287 |   |
| Words+, Inc.           |   |          | 2,121  |   |   |   | 25     |   |   |   | 36      |   |   |          | 37     |   |   |   | - |   |   |   | 2,219 |   |
| Total                  |   | $             | 5,870  |   |   | $      | 1,705  |   |   | $      | 886     |   |   | $             | 37     |   |   | $      | 8 |   |   | $ | 8,506 |   |

|                   |   | North America |   |   | Europe |   |   | Asia   |   |   | Oceania |   |   | South America |   |   | Total  |   |
|------------------------|--------|---------------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|---------------|--------|--------|--------|--------|
| Simulations Plus, Inc. |   | $             | 3,023  |   |   | $      | 1,457  |   |   | $      | 714     |   |   | $             | -      |   |   | $      | - |   |   | $ | 5,194 |   |
| Words+, Inc.           |   |          | 2,027  |   |   |   | 24     |   |   |   | 17      |   |   |          | 42     |   |   |   | - |   |   |   | 2,110 |   |
| Total                  |   | $             | 5,050  |   |   | $      | 1,481  |   |   | $      | 731     |   |   | $             | 42     |   |   | $      | - |   |   | $ | 7,304 |   |

| Period                    |   | Total Number of Shares Purchased |   |   | Average Price Paid per Share |   |   | Remaining Shares Authorized to Purchase Under the Share Repurchase Plan |   |
|---------------------------|--------|----------------------------------|--------|--------|------------------------------|--------|--------|------------------------------------------------------------------------------|--------|
| 06/01/10 to 06/30/10      |   |                             | 33,665 |   |                         | $      | 2.3634 |                                                                         |   |   | 709,258 |   |
| 07/01/10 through 07/12/10 |   |                             | 18,789 |   |                         | $      | 2.4433 |                                                                         |   |   | 690,469 |   |
| Total                     |   |                             | 52,454 |   |                         | $      | 2.3920 |                                                                         |   |   |   |   |

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|                                |   | Three Months Ended |   |
|-------------------------------------|--------|--------------------|--------|
|                                |   | 05/31/10           |   |   | 05/31/09 |   |
| Net sales                           |   | $                  | 3,119  |   |   |   | 100% |   |   | $ | 2,713 |   |   |   | 100% |   |
| Cost of sales                       |   |               | 699    |   |   |   | 22.4 |   |   |   | 583 |   |   |   | 21.5 |   |
| Gross profit                        |   |               | 2,420  |   |   |   | 77.6 |   |   |   | 2,130 |   |   |   | 78.5 |   |
| Selling, general and administrative |   |               | 1,118  |   |   |   | 35.8 |   |   |   | 989 |   |   |   | 36.5 |   |
| Research and development            |   |               | 234    |   |   |   | 7.5 |   |   |   | 294 |   |   |   | 10.8 |   |
| Total operating expenses            |   |               | 1,352  |   |   |   | 43.4 |   |   |   | 1,283 |   |   |   | 47.3 |   |
| Income from operations              |   |               | 1,068  |   |   |   | 34.2 |   |   |   | 847 |   |   |   | 31.2 |   |
| Other income                        |   |               | 44     |   |   |   | 1.4 |   |   |   | 41 |   |   |   | 1.5 |   |
| Net income before taxes             |   |               | 1,112  |   |   |   | 35.7 |   |   |   | 888 |   |   |   | 32.7 |   |
| (Provision for) income taxes        |   |               | (372   | ) |   |   | (11.9 | ) |   |   | (319 | ) |   |   | (11.8 | ) |
| Net income                          |   | $                  | 740    |   |   |   | 23.7% |   |   | $ | 569 |   |   |   | 20.9% |   |

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|                                |   | Nine months Ended |   |
|-------------------------------------|--------|-------------------|--------|
|                                |   | 05/31/10          |   |   | 05/31/09 |   |
| Net sales                           |   | $                 | 8,506  |   |   |   | 100% |   |   | $ | 7,303 |   |   |   | 100% |   |
| Cost of sales                       |   |              | 2,007  |   |   |   | 23.6 |   |   |   | 1,769 |   |   |   | 24.2 |   |
| Gross profit                        |   |              | 6,499  |   |   |   | 76.4 |   |   |   | 5,534 |   |   |   | 75.8 |   |
| Selling, general and administrative |   |              | 3,210  |   |   |   | 37.7 |   |   |   | 2,929 |   |   |   | 40.1 |   |
| Research and development            |   |              | 748    |   |   |   | 8.8 |   |   |   | 849 |   |   |   | 11.6 |   |
| Total operating expenses            |   |              | 3,958  |   |   |   | 46.5 |   |   |   | 3,778 |   |   |   | 51.7 |   |
| Income from operations              |   |              | 2,541  |   |   |   | 29.9 |   |   |   | 1,756 |   |   |   | 24.0 |   |
| Other income                        |   |              | 206    |   |   |   | 2.4 |   |   |   | 144 |   |   |   | 2.0 |   |
| Net income before taxes             |   |              | 2,747  |   |   |   | 32.3 |   |   |   | 1,900 |   |   |   | 26.0 |   |
| (Provision for) income taxes        |   |              | (936   | ) |   |   | (11.0 | ) |   |   | (651 | ) |   |   | (8.9 | ) |
| Net income                          |   | $                 | 1,811  |   |   |   | 21.3% |   |   | $ | 1,249 |   |   |   | 17.1% |   |

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| Item 1.       | Legal ProceedingsThe 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 SecuritiesSince 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 December 2009.  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 May 31, 2010, the Company had bought back 257,077 shares under this renewed repurchase program. |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Item 3.       | Defaults Upon Senior SecuritiesNone.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Item 4.       | Submission of Matters to a Vote of Security HoldersNone.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Item 5.       | Other InformationNone.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Item 6.       | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| EXHIBITNUMBER | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.1           | 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 (7)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

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| (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. |
|-----|-----------------|

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|                           | Simulations Plus, Inc. |                                                             |
|--------------------------------|------------------------|------------------------------------------------------------------|
|                           |                   |                                                             |   |
| Date:  July 15, 2010 | By:                    | /s/ MOMOKO BERAN                                                 |   |
|                           |                   | Momoko BeranChief Financial Officer(Principal Financial Officer) |   |

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