<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

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

         For the quarterly period ended May 31, 2007 or

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

         For the transition period from _________ to _________

                       Commission file number: 333-142882

                             SIMULATIONS PLUS, INC.
                 (Name of small business issuer in its charter)


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

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

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


Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

Yes  x   No
    ---     ---

The number of shares outstanding of the Issuer's common stock, par value $0.001
per share, as of June 29, 2007, was 7,848,200.

<PAGE>

                             SIMULATIONS PLUS, INC.
                                   FORM 10-QSB
                   FOR THE QUARTERLY PERIOD ENDED MAY 31, 2007

                                Table of Contents

                          PART I. FINANCIAL INFORMATION

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

         Consolidated Balance Sheet at May 31, 2007 (unaudited)              2

         Consolidated Statements of Operations for the three months
            and nine months ended May 31, 2007 and 2006 (unaudited)          4

         Consolidated Statements of Cash Flows for the nine months
            ended May 31, 2007 and 2006 (unaudited)                          5

         Notes to Consolidated Financial Statements (unaudited)              7

Item 2.  Management's Discussion and Analysis or Plan of Operations         17

         General                                                            17

         Results of Operations                                              21

         Liquidity and Capital Resources                                    25

Item 3.  Quantitative and Qualitative Disclosures about Market Risk         25

Item 4.  Controls and Procedures                                            26

                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                  27

Item 2.  Changes in Securities                                              27

Item 3.  Defaults upon Senior Securities                                    27

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

Item 5.  Other Information                                                  27

Item 6.  Exhibits and Reports on Form 8-K                                   27

Signature                                                                   28
Exhibit - Certifications

<PAGE>

<TABLE>
<S>     <C>
                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                                      CONSOLIDATED BALANCE SHEET
                                                                 at May 31, 2007
                                                                     (Unaudited)

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


                                     ASSETS

CURRENT ASSETS
     Cash and cash equivalents                                        $3,038,178
     Accounts receivable, net of allowance for doubtful accounts
         and estimated contractual discounts of $57,233                2,864,436
     Contracts receivable, net of discounts of $360                       92,020
     Inventory                                                           260,568
     Prepaid expenses and other current assets                            47,082
     Current portion of deferred tax                                     190,034
                                                                      ----------
            Total current assets                                       6,492,318

CAPITALIZED COMPUTER SOFTWARE DEVELOPMENT COSTS,
     net of accumulated amortization of $2,751,515                     1,447,448
PROPERTY AND EQUIPMENT,                                                  102,922
     net of accumulated amortization of $540,625 (Note 3)
CUSTOMER RELATIONSHIPS, net of accumulated amortization of $51,990        76,052
DEFERRED TAX                                                             480,800
OTHER ASSETS                                                              18,445
                                                                      ----------
                TOTAL ASSETS                                          $8,617,985
                                                                      ==========

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


                                       2

<PAGE>

                                           SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                                      CONSOLIDATED BALANCE SHEET
                                                                 at May 31, 2007
                                                                     (Unaudited)

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


                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable                                                 $   88,738
     Accrued payroll and other expenses                                  505,861
     Accrued bonuses to officers                                         165,949
     Accrued warranty and service costs                                   39,626
     Current portion of deferred revenue                                  73,333
                                                                      ----------

         Total current liabilities                                       873,507

DEFERRED REVENUE                                                          62,501

            Total liabilities                                            936,008
                                                                      ----------

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
         20,000,000 shares authorized
         7,845,150 shares issued and outstanding                           4,197
     Additional paid-in capital                                        5,763,960
     Retained Earnings                                                 1,913,820
                                                                      ----------

            Total shareholders' equity                                 7,681,977
                                                                      ----------

                TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY            $8,617,985
                                                                      ==========

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


                                       3

<PAGE>

                                                                            SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                                                            CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                      for the three and nine months ended May 31,
                                                                                                      (Unaudited)

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


                                                             Three months ended             Nine months ended
                                                         --------------------------    --------------------------
                                                            2007           2006            2007           2006
                                                         -----------    -----------    -----------    -----------

NET SALES                                                $ 2,631,225    $ 1,788,284    $ 6,621,512    $ 4,088,890

COST OF SALES                                                550,786        433,496      1,549,328      1,152,160
                                                         -----------    -----------    -----------    -----------

GROSS PROFIT                                               2,080,439      1,354,788      5,072,184      2,936,730
                                                         -----------    -----------    -----------    -----------

OPERATING EXPENSES
    Selling, general, and administrative                     885,352        795,547      2,578,243      2,112,040
    Research and development                                 226,749        118,707        626,808        335,642
                                                         -----------    -----------    -----------    -----------

       Total operating expenses                            1,112,101        914,254      3,205,051      2,447,682
                                                         -----------    -----------    -----------    -----------

INCOME (LOSS) FROM OPERATIONS                                968,338        440,534      1,867,133        489,048
                                                         -----------    -----------    -----------    -----------

OTHER INCOME (EXPENSE)
    Interest income                                           35,377          4,447         76,186         13,549
    Miscellaneous income                                          25             58            383            108
    Interest expense                                              (4)           (40)            (4)           (40)
    Gain on sale of assets                                        --          4,613          3,102          7,739
    Gain on currency exchange                                   (798)        10,076          6,229          8,727
                                                         -----------    -----------    -----------    -----------

       Total other income (expense)                           34,600         19,154         85,896         30,083
                                                         -----------    -----------    -----------    -----------

INCOME BEFORE BENEFIT FROM (PROVISION FOR)
    INCOME TAXES                                           1,002,938        459,688      1,953,029        519,131

BENEFIT FROM (PROVISION FOR) INCOME TAXES
    Provision for income tax                                (220,646)       (73,550)      (429,666)       (83,061)
    Change in valuation allowance                                 --             --             --             --
                                                         -----------    -----------    -----------    -----------

       Total benefit from (provision for) income taxes      (220,646)       (73,550)      (429,666)       (83,061)
                                                         -----------    -----------    -----------    -----------

NET INCOME                                               $   782,292    $   386,138    $ 1,523,363    $   436,070
                                                         ===========    ===========    ===========    ===========

BASIC EARNINGS PER SHARE                                 $      0.10    $      0.05    $      0.20    $      0.06
                                                         ===========    ===========    ===========    ===========

Diluted earnings per share                               $      0.09    $      0.05    $      0.17    $      0.05
                                                         ===========    ===========    ===========    ===========

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
    BASIC                                                  7,718,180      7,391,542      7,561,624      7,344,018
                                                         ===========    ===========    ===========    ===========

    DILUTED                                                9,180,629      8,226,066      8,893,882      8,104,960
                                                         ===========    ===========    ===========    ===========

  *  The number of shares at May 31, 2006 have been retroactively restated to
     reflect a 2-for-1 stock split that occurred on August 14, 2006.

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


                                               4

<PAGE>

                                                 SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                     for the nine months ended May 31,
                                                                           (Unaudited)

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


                                                               2007            2006
                                                            -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                              $ 1,523,363    $   436,070
    Adjustments to reconcile net income to net cash
       provided by operating activities
         Depreciation and amortization of property and
           equipment                                             37,588         33,829
         Amortization of customer relationships                  24,312         18,826
         Amortization of capitalized software development
           costs                                                323,788        202,022
         Bad debt expense                                        48,000             --
         Stock-based compensation                                13,248             --
         Contribution of Equipment at book value                    774             --
         (Gain) on sale of assets                                (3,102)        (7,739)

         (Increase) decrease in
           Accounts receivable                               (1,184,510)      (320,658)
           Inventory                                            (23,520)        49,530
           Deferred tax                                         429,666         83,061
           Other assets                                          34,214         17,925
         Increase (decrease) in
           Accounts payable                                    (126,680)        68,369
           Accrued payroll and other expenses                   140,949        (88,911)
           Accrued bonuses to officers                           67,196         19,001
           Accrued income taxes                                  (1,600)        (1,600)
           Accrued warranty and service costs                     4,874          4,724
           Deferred revenue                                       6,373        (67,687)
                                                            -----------    -----------

              Net cash provided by operating activities       1,314,933        446,762
                                                            -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchases of property and equipment                         (46,273)       (51,979)
    Purchase of Bioreason's assets                                  --       (826,192)
    Proceeds from sale of assets                                  4,475         15,425
    Capitalized computer software development costs            (396,794)      (341,957)
                                                            -----------    -----------

              Net cash used in investing activities            (438,592)    (1,204,703)
                                                            -----------    -----------

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


                                       5

<PAGE>

                                                 SIMULATIONS PLUS, INC. AND SUBSIDIARY
                                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                     for the nine months ended May 31,
                                                                           (Unaudited)

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


CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from the exercise of stock options                 476,801        103,081
                                                            -----------    -----------

              Net cash provided by financing activities         476,801        103,081
                                                            -----------    -----------

                Net increase (decrease) in cash and cash
                  equivalents                               $ 1,353,142    $  (654,860)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                  1,685,036      1,754,042
                                                            -----------    -----------

CASH AND CASH EQUIVALENTS, END OF QUARTER                   $ 3,038,178    $ 1,099,182
                                                            ===========    ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

    INTEREST PAID                                           $         4    $        40
                                                            ===========    ===========

    INCOME TAXES PAID                                       $     1,600    $     1,600
                                                            ===========    ===========

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


                                       6
</TABLE>
<PAGE>

                             SIMULATIONS PLUS, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)


Note 1: GENERAL

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


Note 2: SIGNIFICANT ACCOUNTING POLICIES

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

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

Revenue Recognition
-------------------
We recognize revenue related to software licenses and software maintenance in
accordance with the American Institute of Certified Public Accountants ("AICPA")
Statements of Position (SOP) No. 97-2, "Software Revenue Recognition." Product
revenue is recorded at the time of unlocking the software on the customer's
computer(s), net of estimated allowances and returns. Post-contract customer
support ("PCS") obligations are insignificant; therefore, revenue for PCS is
recognized at the same time, and the costs of providing such support services
are accrued and amortized over the obligation period.

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

                                       7



<PAGE>

We enter into one-year license agreements with most of our customers for the use
of our pharmaceutical software products. However, from time to time, we enter
into multi-year license agreements. We now unlock and invoice software one year
at a time for multi-year licenses. Therefore, revenue is now recognized one year
at a time. This eliminates the extreme variability in our reported revenues and
earnings that we experienced in the past caused by booking multi-year license
revenues up front.

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

Accounts Receivable
-------------------
We maintain an allowance for doubtful accounts for estimated losses that may
arise if any of our customers are unable to make required payments. We
specifically analyze the age of customer balances, historical bad debt
experience, customer credit-worthiness, and changes in customer payment terms
when making estimates of the uncollectability of our trade accounts receivable
balances. If we determine that the financial conditions of any of our customers
deteriorated, whether due to customer-specific or general economic issues, an
increase in the allowance may be made. Accounts receivable are written off when
all collection attempts have failed.

Our long-term  receivables are discounted at the present value.  The discount is
amortized over the life of the receivable and recognized as interest income. The
balance as of May 31, 2007 represents Contract  receivables which were purchased
as a part of Bioreason's assets in November 2005.

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

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

The establishment of technological feasibility and the ongoing assessment for
recoverability of capitalized software development costs require considerable
judgment by management with respect to certain external factors including, but
not limited to, technological feasibility, anticipated future gross revenues,
estimated economic life, and changes in software and hardware technologies.
Capitalized software development costs are comprised primarily of salaries and
direct payroll-related costs and the purchase of existing software to be used in
our software products.

Amortization of capitalized software development costs is provided on a
product-by-product basis on the straight-line method over the estimated economic
life of the products (not to exceed five years). Amortization of software
development costs amounted to $323,788 and $202,022 for the nine months ended
May 31, 2007 and 2006, respectively. We expect future amortization expense to
vary due to increases in capitalized computer software development costs.

We test capitalized computer software costs for recoverability whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable within a reasonable time. As a result, we have written off $1,763
during the nine months ended May 31, 2007.

                                       8

<PAGE>

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

                  Equipment                                        5 years
                  Computer equipment                          3 to 7 years
                  Furniture and fixtures                      5 to 7 years
                  Leasehold improvements                           5 years

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

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

Shipping and Handling
---------------------
Shipping and handling costs, recorded as cost of sales, amounted to $77,565 and
$64,026 for the nine months ended May 31, 2007 and 2006, respectively.

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

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

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

At the end of fiscal year 2006, we recorded $1,100,500 in deferred tax assets.
For the first nine months of fiscal year 2007, we recorded a provision for
deferred taxes in the amount of $429,666, resulting in a deferred tax asset of
$670,834 at May 31, 2007. The evaluation of the deferred tax assets is based on
our history of generating taxable profits and our projections of future profits
as well as expected future tax rates to determine if the realization of the
deferred tax asset is more-likely-than-not. Significant judgment is required in
these evaluations, and differences in future results from our estimates could
result in material differences in the realization of these assets.

                                       9

<PAGE>

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

Customer relationships
----------------------
The Company purchased customer relationships as a part of the acquisition of
certain assets of Bioreason, Inc. in November 2005. Customer relationships 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 nine months ended
and accumulated amortization as of May 31, 2007 and 2006 amounted to $24,312 and
$18,826, respectively.

Earnings per Share
------------------
The Company reports earnings per share in accordance with SFAS No. 128,
"Earnings per Share." Basic earnings per share is computed by dividing income
available to common shareholders by the weighted-average number of common shares
available. Diluted earnings per share is computed similar to basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
The components of basic and diluted earnings per share for the nine months ended
May 31, 2007 and 2006 were as follows (the number of shares at 5/31/2006
reflects the effect of a 2-for-1 stock split for comparison purposes):

                                                       05/31/2007   05/31/2006
                                                       ----------   ----------
Numerator
          Net income attributable to common
                    shareholders                       $1,523,363   $  436,070

Denominator
          Weighted-average number of common shares
                    outstanding during the year         7,561,624    7,344,018
          Dilutive effect of stock options              1,332,258      760,942

Common stock and common stock equivalents
          used for diluted earning per share            8,893,882    8,104,960


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

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

                                       10



<PAGE>

Effective September 1, 2006, we adopted SFAS No. 123R using the modified
prospective method. Under this method, compensation cost recognized during the
nine months ended May 31, 2007 includes: (1) compensation cost for all
share-based payments granted prior to, but not yet vested as of September 1,
2006, based on the grant date fair value estimated in accordance with the
original provisions of SFAS No. 123 amortized over the options' vesting period,
and (2) compensation cost for all share-based payments granted subsequent to
September 1, 2006, based on the grant-date fair value estimated in accordance
with the provisions of SFAS No. 123R amortized on a straight-line basis over the
options' vesting period. As a result of adopting SFAS No. 123R on September 1,
2006, our stock-based compensation was $13,248 for the nine months ended May 31,
2007, and included in the condensed consolidated statements of operations as
Consulting, and Research and development expense.

The table below represents our pro forma net income giving effect to the
estimated compensation expense related to stock options that would have been
reported if we had applied the fair value recognition provisions of SFAS No. 123
for the nine months ended May 31, 2006.

                                                                    Nine months
                                                                       Ended
                                                                    May 31, 2006
      Net income (loss)
             As reported                                            $   436,070
                   Stock based employee compensation cost, net of
                      related tax effects, that would have been
                      included in the determination of net income
                      if the fair value method had been applied         (98,056)
                                                                    -----------

                        Pro forma net income (loss)                 $   338,014
                                                                    ===========

             Earnings (loss) per common share

                   Basic - as reported                              $      0.06
                   Basic - Pro forma                                $      0.05

                   Diluted - as reported                            $      0.05
                   Diluted - Pro forma                              $      0.04

For the nine months ended May 31, 2007, the stock-based employee compensation
expense using the fair value recognition method under SFAS No. 123R is included
in the condensed consolidated statements of operations. Therefore, it is not
presented in the pro forma table above.

Concentrations and Uncertainties
--------------------------------
International sales accounted for 38% and 37% of net sales for the nine months
ended May 31, 2007 and 2006, respectively. For Simulations Plus, Inc., two
customers accounted for 14% and 9% of net sales during the nine months ended May
31, 2007, and for Words+, Inc., one government agency accounted for 23%, and one
customer accounted 14% of net sales during the nine months ended May 31, 2007.

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

                                       11

<PAGE>

For Simulations Plus, three customers comprised 18%, 16%, and 15% of its
accounts receivable at May 31, 2007, and four customers comprised 29%, 22%, 16%
and 12% of accounts receivable at May 31, 2006. For Words+, one government
agency comprised 37% and 23% of its accounts receivable at May 31, 2007 and
2006, respectively.

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

Recently Issued Accounting Pronouncements
-----------------------------------------
In June 2006, the Financial Accounting Standards Board ("FSAB) issued FASB
interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in income tax positions. The provisions of FIN 48 are
effective for the Company on September 1, 2007, with the cumulative effect of
the change in accounting principle, if any, recorded as an adjustment to opening
retained earnings. We are currently evaluating the impact of adopting FIN 48;
however we believe that adoption of FIN 48 will not have a material impact on
our consolidated financial statement.

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

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


                                       12

<PAGE>

Note 3:  PROPERTY AND EQUIPMENT

Furniture and equipment as of May 31, 2007 consisted of the following:

         Equipment                                                    $ 164,140
         Computer equipment                                             342,242
         Furniture and fixtures                                          61,498
         Automobile                                                      21,769
         Leasehold improvements                                          53,898
                                                                      ---------
              Sub total                                                 643,547
         Less: Accumulated depreciation and amortization               (540,625)
                                                                      ---------
              Net Book Value                                            102,922
                                                                      =========

Note 4:  COMMITMENTS AND CONTINGENCIES

Employee Agreement
------------------
On August 9, 2005, the Company entered into an employment agreement with its
President/CEO that expires in August 2007. The employment agreement provides for
an annual salary of $172,000 and an annual bonus equal to 5% of the Company's
net income before taxes, not to exceed $150,000. The agreement also provides
that the Company may terminate the agreement upon 30 days' written notice if
termination is without cause. The Company's only obligation would be to pay its
President the greater of a) 12 months salary or b) the remainder of the term of
the employment agreement from the date of notice of termination.

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

On May 23, 2007, we received an e-mail from our French Lawyer that we had
received a proposal for an amicable settlement, in which we would give up our
claims if Bioreason SARL would agree to waive any claims against Simulations
Plus. This proposal was accepted by phone by the lawyer of Bioreason SARL, and
now we have signed the agreement which will be submitted to French court. We
expect the final resolution of this issue in August 2007.

Note 5: STOCKHOLDERS' EQUITY

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

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

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

                                       13

<PAGE>

The following summarized the stock option transactions.

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

          Outstanding, August 31, 2006               2,040,072      $   1.33
                             Granted                   100,000      $   2.15
                             Exercised                (403,654)     $   1.21
                             Expired/Canceled          (96,000)     $   2.15

          Outstanding, May 31, 2007                  1,640,418      $   1.37
                                                    ----------      --------

          Exercisable, May 31, 2007                  1,555,418      $   1.35
                                                    ==========      ========


                 Options Outstanding & Unvested at May 31, 2007
                 ----------------------------------------------

                                                Remaining           Weighted
                                   Number    Contractual Life        Average
                                Outstanding     (in years)     Fair Market Price
                                -----------     ----------     -----------------
     Non Vested before 9/1/2006   100,000                          $  1.70
          Granted                 100,000                          $  2.15
          Vested                  (20,000)                         $  1.70
          Cancelled               (95,000)                         $  2.15

     Non Vested at 05/31/2007      85,000          8.37            $  1.72


The fair value of the options granted during the nine months ended May 31, 2007
is estimated at $81,860, of which 95% has been cancelled, reducing this figure
to $4,093. The fair value of these options was estimated at the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions for the nine months ended May 31, 2007: dividend yield of 0%,
expected volatility of 11%, risk-free interest rate of 4.72%, and expected life
of ten years. The weighted-average fair value of options granted during the
first fiscal quarter of FY07 was $0.82, and the weighted-average exercise price
was $2.15.

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

                                       14



<PAGE>

The weighted-average remaining contractual life of options outstanding issued
under the Plan was 4.6 years at May 31, 2007. The exercise prices for the
options outstanding at May 31, 2007 ranged from $0.53 to $2.48, and the
information relating to these options is as follows:

<TABLE>
<S>     <C>
                                                               Weighted-Average       Weighted-Average    Weighted-Average
                                                                   Remaining             Exercise            Exercise
                                                               Contractual Life          Price of            Price of
                       Stock Options       Stock Options          of Options             Options             Options
  Exercise Price        Outstanding         Exercisable           Outstanding          Outstanding         Exercisable
------------------    ----------------    ----------------    --------------------    ---------------     ---------------
$0.53 - 1.00                  616,768             616,768          3.2 years              $  0.74             $  0.74
$1.00 - 1.50                  517,600             517,600          2.7 years              $  1.34             $  1.34
$1.50 - 2.50                  506,050             421,050          8.3 years              $  2.18             $  2.27
                      ----------------    ----------------
                            1,640,418           1,555,418
                      ================    ================
</TABLE>

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

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

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


Note 6:  SEGMENT AND GEOGRAPHIC REPORTING

We account for segments and geographic revenues in accordance with SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information." Our
reportable segments are strategic business units that offer different products
and services. Results for each segment and consolidated results are as follows
for the nine months ended May 31, 2007 and 2006:

<TABLE>
<S> <C>
                                                May 31, 2007
-------------------------------------------------------------------------------------------------------------
                                                Simulations        Words +,
                                                 Plus, Inc           Inc.        Eliminations      Total
--------------------------------------------- ---------------- ---------------- --------------- -------------
Net Sales                                           4,291,027        2,330,485                     6,621,512
--------------------------------------------- ---------------- ---------------- --------------- -------------
Income (loss) from operations                       1,731,961          135,172                     1,867,133
--------------------------------------------- ---------------- ---------------- --------------- -------------
Identifiable assets                                 8,338,880        2,061,402     (1,782,297)     8,617,985
--------------------------------------------- ---------------- ---------------- --------------- -------------
Capital expenditures                                   15,709           30,564                        46,273
--------------------------------------------- ---------------- ---------------- --------------- -------------
Depreciation and Amortization                          15,003           23,564                        38,567
--------------------------------------------- ---------------- ---------------- --------------- -------------

                                                May 31, 2006
-------------------------------------------------------------------------------------------------------------
                                                Simulations        Words +,
                                                 Plus, Inc           Inc.        Eliminations      Total
--------------------------------------------- ---------------- ---------------- --------------- -------------
Net Sales                                           2,179,379        1,909,511                     4,088,890
--------------------------------------------- ---------------- ---------------- --------------- -------------
Income (loss) from operations                         328,600          160,448                       489,048
--------------------------------------------- ---------------- ---------------- --------------- -------------
Identifiable assets                                 6,166,713        1,599,912     (1,732,718)     6,033,907
--------------------------------------------- ---------------- ---------------- --------------- -------------
Capital expenditures                                   33,090           23,890                        56,980
--------------------------------------------- ---------------- ---------------- --------------- -------------
Depreciation and Amortization                          10,439           23,390                        33,829
--------------------------------------------- ---------------- ---------------- --------------- -------------

                                       15

<PAGE>

In addition, the Company allocates revenues to geographic areas based on the
locations of its customers. Geographical revenues for the nine months ended May
31, 2007 and 2006 were as follows (in thousands):


                                              May 31, 2007
-------------------------------------------------------------------------------------------------------------
                                   North                                                South
                                  America        Europe        Asia        Oceania      America      Total
------------------------------ --------------- ------------ ------------ ------------ ------------ ----------
Simulations Plus, Inc.                  2,182        1,341          767          -0-            1      4,291
------------------------------ --------------- ------------ ------------ ------------ ------------ ----------
Words+, Inc.                            1,904          380           28           17            2      2,331
------------------------------ --------------- ------------ ------------ ------------ ------------ ----------
Total                                   4,086        1,721          795           17            3      6,622
------------------------------ =============== ============ ============ ============ ============ ==========

                                              May 31, 2006
-------------------------------------------------------------------------------------------------------------
                                   North                                                South
                                  America        Europe        Asia        Oceania      America      Total
------------------------------ --------------- ------------ ------------ ------------ ------------ ----------
Simulations Plus, Inc.                  1,089          581          510          -0-          -0-      2,180
------------------------------ --------------- ------------ ------------ ------------ ------------ ----------
Words+, Inc.                            1,631          215           37           17            9      1,909
------------------------------ --------------- ------------ ------------ ------------ ------------ ----------
Total                                   2,720          796          547           17            9      4,089
------------------------------ =============== ============ ============ ============ ============ ==========
</TABLE>


Note 7:  EMPLOYEE BENEFIT PLAN

We maintain a 401(K) Plan for all eligible employees. We make matching
contributions equal to 100% of the employee's elective deferral, not to exceed
4% of total employee compensation. We can also elect to make a profit-sharing
contribution. Contributions by the Company to this Plan amounted to $45,874 and
$35,482 for the nine months ended May 31, 2007 and 2006, respectively.


Note 8:  SUBSEQUENT EVENT

Since May 1, 2007, an additional 3,050 stock options to purchase shares have
been exercised by employees that generated $1,123 in the proceeds.

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

On May 23, we received an e-mail from our French Lawyer that we had received a
proposal for an  amicable  settlement,  in which we would give up our claims if
Bioreason SARL would agree to waive any claims against Simulations Plus.  This
proposal was accepted by phone by the lawyer of Bioreason  SARL, and now we have
signed the  agreement  which will be  submitted to French  court.  We expect the
final resolution of this issue in August 2007.



                                       16

<PAGE>

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

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

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


GENERAL

BUSINESS
--------

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


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

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

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


                                       17



<PAGE>

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

Several studies have now been published that compare the predictive accuracy of
software programs like ADMET Predictor. In each case, out of more than a dozen
programs, ADMET Predictor has been ranked first in accuracy over all other
programs (it was ranked second in one study, but that study was later redone
with a more difficult set of test compounds and a newer version of ADMET
Predictor, and it was then ranked first). This is a remarkable accomplishment,
considering the greater size and resources of many of the competitors.

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

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

During this reporting period, continuous improvement of ADMET Predictor/Modeler
has continued. Additional models were developed based on the proprietary
database of salmonella mutagenicity measurements we acquired as part of the
assets of Bioreason, Inc. in November 2005. Unlike previous models for
salmonella mutagenicity that lump together strains of the bacteria, this unique
database provides individual mutagenicity data for each of ten individual
strains. Modeling each strain by itself provides more focused and accurate
models, and we believe this capability will be unique. We expect to release the
new models in the fourth fiscal quarter with the next release of ADMET
Predictor.

Another enhancement of ADMET Predictor has been to provide compatibility with
the popular Pipeline Pilot(TM) software offered by SciTegic, a subsidiary of
Accelrys. This software serves as a tool to allow chemists to run several
different software programs in series to accomplish a set workflow for large
numbers of molecules. In early discovery, chemists often work with hundreds of
thousands or millions of "virtual" molecules - molecules that exist only in a
computer. The chemist tries to decide which few molecules from these large
"libraries" should be made and tested. Using Pipeline Pilot with ADMET Predictor
(and ClassPharmer - see below), perhaps in conjunction with other software
products, the chemist can create and screen very large libraries faster and more
efficiently than running each program by itself.


                                       18

<PAGE>

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

CLASSPHARMER
------------
ClassPharmer improvements during the third quarter have focused on expanding
Pipeline Pilot compatibility, incorporating new features requested by users
around the world, and adding other new capabilities. In April, we announced the
release of a new version of ClassPharmer (4.3) that contains a powerful new
molecule design capability called the R-Table Exploder. This capability provides
a way for chemists to automatically generate large numbers of novel chemical
structures based on the known chemistry from compounds that have already been
synthesized and tested. We expect to announce a new release during the fourth
quarter with greater molecule design flexibility.

DDDPLUS
-------
DDDPlus sales have continued to grow as formulation scientists recognize the
value of this one-of-a-kind simulation software in their work. Continuous
improvements have been added to further enhance the value of this product to our
customers. Numerous user convenience features have been added, as well as more
sophisticated handling of dosage forms that incorporate multiple polymers for
controlled release.

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

Our marketing intelligence indicates that GastroPlus enjoys a dominant position
in the number of users worldwide. In addition to virtually every major
pharmaceutical company, licenses include a growing number of smaller
pharmaceutical and biotech companies, generic drug companies, and drug delivery
companies (companies that design the tablet or capsule for a drug compound that
was developed by another company). Although these companies are smaller than the
pharmaceutical giants, they can also save considerable time and money through
simulation. We believe this part of the industry, which includes hundreds of
companies, represents major growth potential for GastroPlus. Our experience has
been that the number of new companies adopting GastroPlus shows steady growth,
adding to the base of annual licenses each year. We announced the renewal of
GastroPlus licenses by both Hoffmann LaRoche and another very large
pharmaceutical company in December, with increased license fees in both cases.

                                       19



<PAGE>

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

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

GOVERNMENT-FUNDED RESEARCH
--------------------------
We submitted a proposal to the National Institutes for Health in December for a
$100,000 Phase I Small Business Innovation Research (SBIR) grant to develop an
advanced method for calculating certain important parameters that would extend
the capabilities of our ADMET Predictor/Modeler product. Simulations Plus was
awarded this grant in June. If we are successful in this Phase I effort, we will
be eligible to apply for a Phase II follow-on grant on the order of $750,000. We
submitted a second SBIR grant proposal in early April, and we are currently
awaiting the results of the review process. SBIR grant funds provide the ability
to expand staff and grow the product line without adversely affecting earnings,
because the expenses associated with the efforts in the studies are funded
largely, if not completely, through the grants.


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

PRODUCTS
--------
Our wholly owned subsidiary, Words+, Inc. has been an industry pioneer and
technology leader for over 25 years in introducing and improving augmentative
and alternative communication and computer access software and devices for
disabled persons. We intend to continue to be at the forefront of the
development of new products. We will continue to enhance our major software
products, E Z Keys(TM) and Say-it! SAM(TM), as well as our growing line of
hardware products. We are also considering acquisitions of other products,
businesses and companies that are complementary to our existing augmentative and
alternative communication and computer access business lines. We purchased the
Say-it! SAM technologies from SAM Communications, LLC of San Diego in December
2003. This acquisition gave us our smallest, lightest augmentative communication
system, which is based on a Hewlett-Packard iPAQ personal digital assistant
(PDA). PDA-based communication devices have been very successful in the
augmentative communication market, and this technology purchase has enabled us
to move into this market segment faster and at lower cost than developing the
product ourselves. SAM-based products now account for a significant share of our
growing Words+ revenues. Since the acquisition of the Say-it! SAM technologies,
we have continued to add new functionality to the SAM software and to offer it
on additional hardware platforms.

                                       20

<PAGE>

RESULTS OF OPERATIONS

COMPARISON OF THREE MONTHS ENDED MAY 31, 2007 AND 2006.

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

                                          ------------------------------------
                                                    Three Months Ended
                                          ------------------------------------
                                              05/31/07           05/31/06
                                          ----------------- ------------------
Net sales                                 $ 2,631    100%    $ 1,788     100%
Cost of sales                                 551     20.9       433      24.2
                                          -------- --------- -------- ---------
Gross profit                                2,080     79.1     1,355      75.8
                                          -------- --------- -------- ---------
Selling, general and administrative           885     33.6       795      44.5
Research and development                      227      8.6       119       6.7
                                          -------- --------- -------- ---------
Total operating expenses                    1,112     42.3       914      51.1
                                          -------- --------- -------- ---------
Income from operations                        968     36.8       441      24.7
                                          -------- --------- -------- ---------
Other income                                   35      1.3        19       1.1
                                          -------- --------- -------- ---------
Net income before taxes                     1,003     38.1       460      25.7
                                          -------- --------- -------- ---------
Benefit from (provision for) income taxes    (221)    (8.4)%     (74)     (4.1)%
                                          -------- --------- -------- ---------
Net income                                $   782     29.7%  $   386      21.6%
                                          ======== ========= ======== =========

NET SALES

Consolidated net sales increased $843,000, or 47.1%, to $2,631,000 in the third
fiscal quarter of 2007 (3QFY07) from $1,788,000 in the third fiscal quarter of
2006 (3QFY06). Our sales from pharmaceutical and educational software increased
approximately $562,000, or 51.3%; and our Words+, Inc. subsidiary's sales
increased approximately $281,000, or 40.6%, for the quarter. We attribute the
increase in pharmaceutical software sales primarily to increased licenses, both
to new customers and for new modules and additional licenses to renewal
customers. In addition to our software sales, revenues from our contract
services increased in 3QFY07 compared with 3QFY06.

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

COST OF SALES

Consolidated cost of sales increased $118,000, or 27.1%, to $551,000 in the
3QFY07 from $433,000 in 3QFY06. The percentage of cost of sales in the
3QFY07 decreased 3.3% to 20.9% from 24.2% in 3QFY06. For Simulations Plus,
cost of sales decreased $19,000, or 14.3%. As a percentage of revenue, cost of
sales also decreased to 6.9% in 3QFY07 from 12.1% in 3QFY06. 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, as more new products become available for sale, approximately
$36,000, or 61.9%, in 3QFY07 compared with 3QFY06. Another significant
portion of cost of sales is Royalty expense which decreased approximately
$54,000, or 72.4%, in 3QFY07 compared with 3QFY06. Royalty cost is
subject to the revenue generated from GastroPlus base program, therefore this
decrease is due to the fact that the proportion of other products and services
as to the total revenue increased.

                                       21



<PAGE>

For Words+, cost of sales increased $137,000, or 45.3%. As a percentage, cost of
sales increased 1.5% between the third fiscal quarter of FY07 and FY06. We
attribute the percentage increase in cost of sales for Words+ primarily to one
large order, of which a partial shipment was incurred this quarter, with reduced
margin as a result of a volume discount, in addition to increased costs of
computers. Last fiscal year, we were able to obtain purchase discounts by volume
purchases of computers; however such discounts were not available to us when the
new models came on the market and the previous models were discontinued.

GROSS PROFIT

Consolidated gross profit increased $725,000, or 53.6%, to $2,080,000 in the
3QFY07 from $1,355,000 in 3QFY06. We attribute this increase to the increase
in sales of pharmaceutical software, contract studies, and Words+ products which
outweighed increases in cost of goods sold.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Consolidated selling, general and administrative (SG&A) expenses increased
$90,000, or 11.3%, to $885,000 in 3QFY07 from $795,000 in 3QFY06. For
Simulations Plus, SG&A increased $16,000, or 3.1%. As a percentage of sales,
SG&A decreased to approximately 32.1% in 3QFY07 from approximately 47.2% in
3QFY06. The major increases in SG&A expenses were commissions, trade shows,
investor relations, accrued bonus to officers, salaries and payroll-related
expenses such as health insurance, 401K and payroll taxes, which outweighed
decreases in equipment rentals, professional fees.

For Words+, SG&A expenses increased $74,000, or 26.6%, due primarily to
increases in commissions, catalogs, trade shows, marketing consultant fees,
technical service cots, salaries and payroll-related expenses such as health
insurance and payroll taxes, telephone and supplies. These increases outweighed
decreases in advertising, travel expense, and contributions.

RESEARCH AND DEVELOPMENT

We incurred approximately $357,000 of research and development costs for both
companies during 3QFY07. Of this amount, $130,000 was capitalized and $227,000
was expensed. In 3QFY06, we incurred $215,000 of research and development costs,
of which $96,000 was capitalized and $119,000 was expensed. The increase of
$142,000, or 66.0%, in total research and development expenditures from 3QFY06
to 3QFY07 was due primarily to increases in salaries because of new hires and
salary increases to existing staff.

OTHER INCOME (EXPENSE)

Net other income (expense) in 3QFY07 increased by $16,000, or 80.6%, to $35,000
in 3QFY07 from $19,000 in 3QFY06. This is due primarily to increased interest
revenue from Money Market accounts, gains on currency exchange, and gain on sale
of assets.

                                       22


<PAGE>

PROVISION FOR INCOME TAXES

The provision for income taxes increased by $147,000, or 200.0%, to $221,000 in
3QFY07 from $74,000 in 3QFY06 due to increase in net income. These taxes will
not actually be paid, but will be offset by a reduction in our deferred tax
asset.

NET INCOME

Consolidated net income increased by $396,000, or 102.6%, to $782,000 in 3QFY07
from $386,000 in 3QFY06. We attribute this increase in profit primarily to the
increases in revenue from both pharmaceutical software and Words+ products and
from other income, which outweighed increases in cost of sales, selling, and
general and administrative expenses, research and development expenses, and
provision for income taxes.

COMPARISON OF NINE MONTHS ENDED MAY 31, 2007 AND 2006.

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

                                            ------------------------------------
                                                     Nine months Ended
                                            ------------------------------------
                                                 05/31/07          05/31/06
                                            ------------------ -----------------
Net sales                                   $   6,621   100%   $ 4,089    100%
Cost of sales                                   1,549    23.4    1,152     28.2
                                            ---------- ------- -------- --------
Gross profit                                    5,072    76.6    2,937     71.8
                                            ---------- ------- -------- --------
Selling, general and administrative             2,578    38.9    2,112     51.7
Research and development                          627     9.5      336      8.2
                                            ---------- ------- -------- --------
Total operating expenses                        3,205    48.4    2,448     59.9
                                            ---------- ------- -------- --------
Income from operations                          1,867    28.2      489     12.0
                                            ---------- ------- -------- --------
Other income                                       86     1.3       30      0.7
                                            ---------- ------- -------- --------
Net income before taxes                         1,953    29.5      519     12.7
                                            ---------- ------- -------- --------
Benefit from (provision for) income taxes        (430)   (6.5)     (83)    (2.0)
                                            ---------- ------- -------- --------
Net income                                  $   1,523    23.0% $   436     10.7%
                                            ========== ======= ======== ========

NET SALES

Consolidated net sales increased $2,532,000, or 61.9%, to $6,621,000 in the
first nine months of fiscal year 2007 (FY07) from $4,089,000 in the first nine
months of fiscal year 2006 (FY06). Our sales from pharmaceutical and educational
software increased approximately $2,111,000, or 96.9%; and our Words+, Inc.
subsidiary's sales increased approximately $421,000, or 22.0%, for the first
nine months of fiscal year 2007. We attribute the increase in pharmaceutical
software sales primarily to increased licenses, both to new customers and for
new modules, additional licenses to renewal customers, and contract studies.

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

                                       23

<PAGE>

COST OF SALES

Consolidated cost of sales increased $397,000, or 34.5%, to $1,549,000 in the
first nine months of FY07 from $1,152,000 in the first nine months of FY06;
however, as a percentage of revenue, cost of sales decreased 15.8%. For
Simulations Plus, cost of sales increased $153,000, or 51.4%; however, as a
percentage of revenue, cost of sales decreased to 10.5% in the first nine months
of FY07 from 13.7% in the first nine months of FY06. 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 $137,000, or 107.5%, in the first nine months of FY07
compared with the same period in FY06. Royalty expense increased approximately
$16,000, or 9.6%, in the first nine months of FY07 compared with the same period
in FY06; however, as a percentage of revenue, royalty expense decreased 3.5%
between the first nine months of FY07 and FY06, thus resulting in a decrease in
the percentage of cost of sales.

For Words+, cost of sales increased $244,000, or 28.6%. As a percentage of
revenue, cost of sales increased 2.4% between the first nine months of FY07 and
FY06. We attribute the percentage increase in cost of sales for Words+ primarily
to volume discounts provided to a distributor for one large order in the fiscal
second and third quarters and to increased costs of computers and PDAs which are
main parts for the systems we sell.

GROSS PROFIT

Consolidated gross profit increased $2,135,000, or 72.7%, to $5,072,000 in the
first nine months of FY07 from $2,937,000 in the first nine months of FY06. We
attribute this increase to the increase in sales of pharmaceutical software,
contract studies, and Words+ products which outweighed increases in cost of
goods sold.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Consolidated selling, general and administrative (SG&A) expenses increased
$466,000, or 22.1%, to $2,578,000 in the first nine months of FY07 from
$2,112,000 in the first nine months of FY06. For Simulations Plus, SG&A
increased $263,000, or 20.3%. As a percentage of sales, SG&A decreased from
approximately 59.4% in the first nine months of FY06 to approximately 36.3% in
the first nine months of FY07. The major increases in SG&A expenses were selling
expenses, such as commissions to dealers and trade shows, accrued bonus to
officers, bad debts from one of receivables from the purchased assets of
Bioreason, and increases in salaries and payroll-related expenses such as health
insurance, 401K and payroll taxes, which outweighed decreases in professional
fees, equipment rental, and recruitment.

For Words+, SG&A expenses increased $203,000, or 9.6%, due primarily to
increases in commissions, catalogs, marketing consultant fees, telephone and
supplies. These increases outweighed decreases in utilities, technical service
costs, and travel expense.

RESEARCH AND DEVELOPMENT

We incurred approximately $1,023,000 of research and development costs for both
companies during the first nine months of FY07. Of this amount, $396,000 was
capitalized and $627,000 was expensed. In the first nine months of FY06, we
incurred $924,000 of research and development costs, of which $588,000,
including an allocation of appraised value of $246,000 on ClassPharmer software,
was capitalized and $336,000 was expensed. The increase of $99,000, or 10.7%, in
total research and development expenditures from the first nine months of FY06
to the first nine months of FY07 was due primarily to increases in salaries
because of new hires in Life Science Department and salary increases to the
existing staff despite of the acquisition cost for the ClassPharmer software in
FY06.

                                       24

<PAGE>

OTHER INCOME

Net other income in the first nine months of FY07 increased by $56,000, or
185.5%, from $30,000 to $86,000. This is due primarily to increased interest
revenue from Money Market accounts.

PROVISION FOR INCOME TAXES

The provision for income taxes increased by $347,000, or 417.3%, to $430,000 in
the first nine months of FY07 from $83,000 in the first nine months of FY06.
These taxes will not actually be paid, but will be offset by a reduction in our
deferred tax asset.

NET INCOME (LOSS)

Consolidated net income increased by $1,087,000, or 249.3%, to $1,523,000 in the
first nine months of FY07 from $436,000 in the first nine months of FY06. We
attribute this increase in profit primarily to the increases in revenue from
pharmaceutical software, contract studies, Words+ products, and other income,
which outweighed increases in cost of sales, selling, and general and
administrative expenses, research and development expenses, provision for income
taxes.


LIQUIDITY AND CAPITAL RESOURCES

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


Item 3. Quantitative and Qualitative Disclosures about Market Risk
        ----------------------------------------------------------

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


                                       25

<PAGE>

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

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

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


                                       26

<PAGE>

                           PART II. OTHER INFORMATION

Item 1.   Legal Proceedings
          -----------------

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

          On May 23, 2007, we received an e-mail from our French Lawyer that we
          had received a proposal for an amicable settlement,  in which we would
          give up our claims if  Bioreason  SARL would agree to waive any claims
          against Simulations  Plus. This proposal was accepted by phone by the
          lawyer of Bioreason  SARL, and now we have signed the agreement  which
          will be submitted to French court.  We expect the final resolution of
          this issue in August 2007.

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

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

Item 4.   Submission of Matters to a Vote of Security Holders
          ---------------------------------------------------
          None.

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

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

          (a) Exhibits:

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

                                       27

<PAGE>

                                    SIGNATURE

In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Lancaster, State of California, on
July 2, 2007.

                                                         Simulations Plus, Inc.

Date:  July 2, 2007                         By:          /s/ MOMOKO BERAN
                                                         -----------------------
                                                         Momoko Beran
                                                         Chief Financial Officer


                                       28